AMERICAN REALTY TRUST INC /GA, 10-K, 1994-04-14

AMERICAN REALTY TRUST INC /GA
10-K, 1994-04-14
REAL ESTATE INVESTMENT TRUSTS

Previous: NARRAGANSETT ENERGY RESOURCES CO, U-1/A, 1994-04-14

Next: AVONDALE INDUSTRIES INC, DEFC14A, 1994-04-14

<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION ALL THE ITEMS
WASHINGTON, D.C. 20549 HEREIN WERE THE
SUBJECT OF A
FORM 10-K FORM 12B-25.

(X) ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1993

Commission File Number 1-9948

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

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

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

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

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

Name of each exchange on
Title of each class which registered
Common Stock, $.01 par value New York Stock Exchange
Share Purchase Rights New York Stock Exchange

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

NONE

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

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

As of March 31, 1994, the Registrant had 2,884,164 shares of Common Stock
outstanding. Of the total shares outstanding 745,506 were held by other than
those who may be deemed to be affiliates, for an aggregate value of $9,505,000
based on the closing price on the New York Stock Exchange on March 31, 1994.
The basis of this calculation does not constitute a determination by the
Registrant that all of such persons or entities are affiliates of the
Registrant as defined in Rule 405 of the Securities Act of 1933, as amended.

- Exhibit Index Appears on Page 122. -
Page 1 of 123
<PAGE> 2
INDEX TO
ANNUAL REPORT ON FORM 10-K

Page
----
PART I

Item 1. Business......................................... 3

Item 2. Properties....................................... 8

Item 3. Legal Proceedings................................ 29

Item 4. Submission of Matters to a Vote of Security
Holders....................................... 30

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................... 30

Item 6. Selected Financial Data.......................... 32

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........... 33

Item 8. Consolidated Financial Statements and
Supplementary Data............................ 44

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........... 93

PART III

Item 10. Directors, Executive Officers and Advisor of the
Registrant.................................... 93

Item 11. Executive Compensation........................... 108

Item 12. Security Ownership of Certain Beneficial Owners
and Management................................ 110

Item 13. Certain Relationships and Related Transactions... 112

PART IV

Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K........................... 116

Signature Page.............................................. 121

2
<PAGE> 3
PART I

ITEM 1. BUSINESS

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

Business Plan and Investment Policy

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

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

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

The Company's Board of Directors may devote available assets to particular
investments or types of investments, without express restrictions on the
amount or percentage of the Company's assets that may be so devoted to a single
investment or to any particular type of

3
<PAGE> 4
ITEM 1. BUSINESS (Continued)

Business Plan and Investment Policy (Continued)

investment, and without limit on the percentage of securities of any one issuer
that the Company may acquire. The Company's investment objectives and policies
may be changed at any time by its Board of Directors without the approval of
stockholders. By allowing its REIT tax status to lapse in 1991, the Company
relieved itself of restrictions imposed on REITs under the Code.

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

In addition to the equity securities received in conjunction with the Company's
separation from Southmark described elsewhere herein, the Company has also
invested funds in private and open market purchases of the equity securities of
Continental Mortgage and Equity Trust ("CMET"), Income Opportunity Realty Trust
("IORT"), National Income Realty Trust ("NIRT") and Transcontinental Realty
Investors, Inc. ("TCI") and units of limited partner interest in National
Realty, L.P. ("NRLP"). In September 1992, the Company agreed to sell its
entire share holdings in NIRT to William S. Friedman, the President and a
Director of the Company until December 31, 1992, members of his family and his
affiliates. See ITEM 2. "PROPERTIES - Investments in Real Estate Investment
Trusts and Real Estate Partnerships."

Severance of Relationship With Southmark Corporation

On July 12, 1989, the Company closed a set of related agreements (collectively,
the "Southmark Separation Agreements") with its then largest stockholder,
Southmark Corporation ("Southmark"), essentially severing the Company's
relationship with Southmark and resulting in a substantial restructuring of the
Company's balance sheet.

Under the Southmark Separation Agreements, the Company acquired an aggregate of
1,502,595 shares of its Common Stock which constituted the 41.5% interest in
the Company then held by Southmark and its affiliates. In addition, Southmark
relinquished an option to acquire up to 50.5% of the Company's Common Stock.
The Company also received all of the shares of beneficial interest owned by
Southmark in CMET, IORT, NIRT, TCI and Vinland Property Trust ("VPT").

Southmark also transferred to the Company units of limited partner interest in
NRLP and assigned to the Company Southmark's 96% limited partnership interest
in Syntek Asset Management, L.P. ("SAMLP"), which is the general partner of,
and holder of a 1% beneficial interest in, each of NRLP and National Operating,
L.P. ("NOLP"), the operating partnership of NRLP.

4
<PAGE> 5
ITEM 1. BUSINESS (Continued)

Severance of Relationship With Southmark Corporation (Continued)

In exchange for the assets transferred to the Company, the Company transferred
to Southmark mortgage notes guaranteed by Southmark and several of its
affiliates, under a keepwell agreement, which represented a substantial portion
of the Company's mortgage notes receivable portfolio and approximately 34% of
the Company's total assets. A participation in another mortgage note owned by
the Company was also transferred to Southmark. Many of the mortgage notes so
transferred were either in default or expected by the Company's management to
go into default. See ITEM 3. "LEGAL PROCEEDINGS - Settlement of Southmark
Adversary Proceedings."

Management of the Company

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

BCM is a corporation beneficially owned by a trust for the benefit of the
children of Gene E. Phillips, the Chairman of the Board and a Director of the
Company until November 16, 1992. Ryan T. Phillips, the son of Gene E. Phillips
and a Director of the Company, is also a director of BCM and a trustee of the
trust for the benefit of the children of Gene E. Phillips which owns BCM. Mr.
Phillips served as a director of BCM until December 22, 1989 and as Chief
Executive Officer of BCM until September 1, 1992. Mr. Phillips serves as a
representative of the trust for the benefit of his children that owns BCM and,
in such capacity, has substantial contact with the management of BCM and input
with respect to BCM's performance of advisory services to the Company. As of
March 31, 1994, BCM owned 1,105,951 shares of the Company's Common Stock,
approximately 38% of the shares then outstanding. BCM is more fully described
in ITEM 10. "DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT - The
Advisor." BCM has provided advisory services to the Company since February 6,
1989. BCM also serves as advisor to CMET, IORT and TCI. BCM resigned as
advisor to NIRT effective March 31, 1994. The officers of the Company are also
officers of CMET, IORT and TCI. Oscar W. Cashwell, a Director of the Company
serves as President of BCM, CMET, IORT and TCI and as President and a director
of Syntek Asset Management, Inc. ("SAMI"), the managing general partner of
SAMLP , the general partner of NRLP and NOLP. Mr. Phillips is also a general
partner of SAMLP. BCM performs certain administrative functions for NRLP and
NOLP on a cost reimbursement basis.

5
<PAGE> 6
ITEM 1. BUSINESS (Continued)

Management of the Company (Continued)

Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services. In many cases, Carmel, Ltd.
subcontracts with other entities for the provision of the property-level
management services to the Company at various rates. The general partner of
Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i) Syntek West,
Inc. ("SWI"), of which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips
and (iii) a trust for the benefit of the children of Mr. Phillips. Carmel,
Ltd. subcontracts the property-level management of the Company's shopping
center to Carmel Realty, Inc. ("Carmel Realty") which is owned by SWI.
Affiliates of the Advisor are also entitled to receive real estate brokerage
commissions in accordance with the terms of the Advisory Agreement as discussed
in ITEM 10. "DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT - The
Advisor."

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

Competition

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

To the extent that the Company seeks to sell any of its real estate portfolio,
the sales prices for such properties may be affected by competition from
governmental and financial institutions seeking to liquidate foreclosed
properties.

As described above and in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Related Party Transactions," the officers of the Company also
serve as officers of certain other entities, each of which is also advised by
BCM, and each of which has business objectives similar to the Company's. The
Advisor owes fiduciary duties to such other entities as

6
<PAGE> 7
ITEM 1. BUSINESS (Continued)

Competition (Continued)

well as to the Company under applicable law. In determining to which entity a
particular investment opportunity will be allocated, the Advisor considers the
respective investment objectives of each such entity and the appropriateness of
a particular investment in light of each such entity's existing real estate and
mortgage notes receivable portfolios. To the extent that any particular
investment opportunity is appropriate to more than one of such entities, such
investment opportunity will be allocated to the entity which has had uninvested
funds for the longest period of time or, if appropriate, the investment may be
shared among all or some of such entities.

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

Certain Factors Associated with Real Estate and Related Investments

The Company is subject to all the risks incident to ownership and financing of
real estate and interests therein, many of which relate to the general
illiquidity of real estate investments. These risks include, but are not
limited to, changes in general or local economic conditions, changes in
interest rates and availability of permanent mortgage financing which may
render the acquisition, sale or refinancing of a property difficult or
unattractive and which may make debt service burdensome; changes in real estate
and zoning laws, increases in real estate taxes, federal or local economic or
rent controls, floods, earthquakes and other acts of God and other factors
beyond the control of the Advisor or the Company. The illiquidity of real
estate investments generally may impair the ability of the Company to respond
promptly to changing circumstances. The Company's management believes that
such risks are partially mitigated by the diversification by geographic region
and property type of the Company's real estate and mortgage notes receivable
portfolios. However, to the extent new property acquisitions and mortgage
lending are concentrated in any particular region the advantages of geographic
diversification may be mitigated.

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

7
<PAGE> 8
ITEM 2. PROPERTIES

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

Details of the Company's real estate and mortgage notes receivable portfolios
at December 31, 1993, are set forth in Schedules XI and XII, respectively, to
the Consolidated Financial Statements included at ITEM 8. "CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." The discussions set forth below
under the headings "Real Estate" and "Mortgage Loans" provide certain summary
information concerning the Company's real estate and mortgage notes receivable
portfolios.

At December 31, 1993, the mortgage notes receivable secured by the Continental
Hotel and Casino and by the Las Vegas Plaza Shopping Center, both of which are
in Las Vegas, Nevada, net of applicable premiums, discounts, interest and
deferred gains, accounted for 13% and 12%, respectively, of the Company's total
assets. No other single asset of the Company accounted for 10% or more of its
total assets. At December 31, 1993, 34% of the Company's assets consisted of
real estate, 33% consisted of notes and interest receivable and 29% consisted
of investments in the equity securities of CMET, IORT and TCI and NRLP. The
remaining 4% of the Company's assets were invested in cash, cash equivalents
and other assets. It should be noted, however, that the percentage of the
Company's assets invested in any one category is subject to change and no
assurance can be given that the composition of the Company's assets in the
future will approximate the percentages listed above.

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

(THIS SPACE INTENTIONALLY LEFT BLANK.)

8
<PAGE> 9
ITEM 2. PROPERTIES (Continued)

Geographic Regions

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

Northeast region comprised of the states of Connecticut, Delaware, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island and Vermont, and the District of Columbia.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia.

Southwest region comprised of the states of Arizona, Arkansas, Louisiana,
New Mexico, Oklahoma and Texas.

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.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming.

Pacific region comprised of the states of California, Oregon and
Washington.

Real Estate

At December 31, 1993, approximately two-thirds of the Company's assets were
invested in real estate and real estate entities. The Company invests in real
estate located throughout the continental United States, either on a leveraged
or nonleveraged basis. The Company's real estate portfolio consists of
properties held for investment, investments in partnerships, properties held
for sale (primarily obtained through foreclosure) and investments in equity
securities of CMET, IORT, TCI and NRLP.

Types of Real Estate Investments. The Company's real estate consists of
commercial properties, primarily office buildings and shopping centers, and
apartment complexes or similar properties having established income-producing
capabilities. In selecting real estate, the location,

9
<PAGE> 10
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

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 considered. The Company may acquire properties subject
to or assume existing debt and may mortgage, pledge or otherwise obtain
financing for its real estate. The Company's Board of Directors may alter the
types of and criteria for selecting new real estate investments and for
obtaining financing without a vote of the Company's stockholders.

At December 31, 1993, the Company was completing significant capital
improvements to the Park Plaza Shopping Center in Manitowoc, Wisconsin, and
considering major improvements to the KC Holiday Inn, if construction financing
can be obtained.

In the opinion of the Company's management, the real estate owned by the
Company is adequately covered by insurance.

The following table sets forth the percentages, by property type and geographic
region, of the Company's owned real estate (excluding land and two hotels
described below) at December 31, 1993.
<TABLE>
<CAPTION>
Commercial
Region Apartments Properties
------- ---------- ----------
<S> <C> <C>
Southeast......................... 53% - %
Southwest......................... 15 -
Midwest........................... - 100
Mountain.......................... 32 -
--- ---
100% 100%
</TABLE>

The foregoing table is based solely on the number of apartment units and amount
of commercial square footage owned by the Company, and does not reflect the
value of the Company's investment in each region. Excluded from the above
table are two residential subdivisions in Texas with a total of 74 developed
lots, 3.5 acres of undeveloped land in downtown Atlanta, Georgia, 1.84 acres of
undeveloped land in Maricopa County, Arizona, 34 acres of land in Denver,
Colorado subject to a ground lease, a hotel located in Kansas City, Missouri
and a shut down hotel located in Lihue, Hawaii. See Schedule XI to the
Consolidated Financial Statements included at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" for a more detailed description of the Company's real
estate portfolio.

A summary of activity in the Company's owned real estate portfolio during 1993
is as follows:

Owned properties in real estate portfolio at
January 1, 1993.................................... 19*
Property acquired through purchase....................... 1
Property obtained through foreclosure.................... 1
Property sold............................................ (1)
---
Owned properties in real estate portfolio at
December 31, 1993.................................. 20*
___________________________________

10
<PAGE> 11
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

* Includes two residential subdivisions with a total of 212 developed lots
at January 1, 1993 and 74 developed lots at December 31, 1993.

Properties Held for Investment. Set forth below are the Company's properties
held for investment (excluding land subject to ground lease in Denver,
Colorado) and the monthly rental rate for apartments and the average annual
rental rate for commercial properties and occupancy thereof at December 31,
1993 and 1992:

<TABLE>
<CAPTION>
Rent Per
Units/ Square Foot Occupancy
Property Location Square Footage 1993 1992 1993 1992
- -------------------- ----------------------- -------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Apartments
- ----------
Boulevard Villas Las Vegas, Nevada 303 Units/
356,400 Sq. Ft. $ .94 $ * 86% *%
Chateau Bayou Biloxi, Mississippi 122 Units/
105,536 Sq. Ft. .47 .46 99% 94%
Edgewater Gardens Biloxi, Mississippi 140 Units/
149,604 Sq. Ft. .48 .48 99% 96%
Mediterranean Villa San Antonio, Texas 140 Units/
150,960 Sq. Ft. .43 .37 96% 94%
Watersedge III Biloxi, Mississippi 238 Units/
212,216 Sq. Ft. .54 .48 96% 95%

Office Building
- ---------------
Rosedale Towers Minneapolis, Minnesota 84,798 Sq. Ft. 14.00 14.43 92% 89%

Shopping Center
- ---------------
Park Plaza Manitowoc, Wisconsin 105,507 Sq. Ft. 5.65 5.25 86% 52%
</TABLE>

___________________________

* Property was acquired in 1993.

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

In May 1992, the Company acquired Fox City, a shopping center in Culver City,
California for $5.7 million subject to first and second lien mortgage debt
equal to the purchase price. In August 1993, the Company sold the shopping
center for net cash of $416,000 with the buyer assuming first and second lien
mortgage debt aggregating $5.5 million. The Company incurred a loss of $85,000
on the sale. A 3% sales commission of $180,000 was paid to Carmel Realty,
based upon the $6.0 million sales price of the property.

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

11
<PAGE> 12
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

In addition, the same lender made a second loan, also effective June 1, 1993,
in the amount of up to $1.0 million to be used for capital and tenant
improvements to the shopping center. The new loan required monthly interest
only payments at the prime rate plus 2% per annum with principal and accrued
but unpaid interest due at maturity. Cash was advanced by the lender upon
costs being incurred for the improvements. In the event that all sums advanced
on the new loan were repaid by May 31, 1994, the principal balance of the first
mortgage was to be reduced by the lesser of $500,000 or one-half of the amount
advanced on the new loan. The outstanding balance of the new loan, $887,000,
was paid in full on December 23, 1993, with the Company receiving a credit of
$443,000 against the first mortgage reducing its balance to $3.7 million at
December 31, 1993. The Company also deposited $105,000 into an escrow account
to complete remaining parking lot and exterior renovations at the shopping
center. The Company is also to receive a credit against the first mortgage for
one-half of these monies as expended.

On December 23, 1993, the Company refinanced Watersedge III Apartments in the
amount of $4.2 million. The Company realized net refinancing proceeds of
$924,000 after the payoff of the existing mortgage of $3.0 million and payment
of associated refinancing costs. The new mortgage matures January 1, 2019,
bears interest at 8.73% per annum through December 31, 2003, and at a variable
rate thereafter through maturity. Monthly payments of principal and interest
are required. The balance of principal and accrued but unpaid interest is due
at maturity. The Company paid a loan arrangement fee of $12,000 to BCM on the
$4.1 million refinancing.

Also on December 23, 1993, the Company refinanced the Edgewater Gardens
Apartments in the amount of $2.9 million. The Company realized net refinancing
proceeds of $728,000 after the payoff of the existing mortgage of $1.9 million
and payment of associated refinancing costs. The new mortgage contains the
same interest, repayment terms and maturity date as the Watersedge III mortgage
described above. The Company paid a loan arrangement fee of $9,000 to BCM on
the $2.9 million refinancing.

In May 1993, the Company obtained a $1.8 million first mortgage secured by the
Rosedale Towers Office Building in Minneapolis, Minnesota, which was previously
unencumbered. The Company pledged as additional collateral for the loan
141,176 newly issued shares of the Company's Common Stock. The mortgage bears
an effective annual interest rate of 25% and calls for monthly payments of
$25,000, with the balance of principal and accrued but unpaid interest due at
maturity on May 4, 1994. The Company paid a loan arrangement fee of $21,000 to
BCM on the $1.8 million financing.

In 1992, a mortgage note receivable with an original principal balance of $1.0
million, secured by a second lien on the Boulevard Villas Apartments in Las
Vegas, Nevada, became nonperforming. Subsequently,

12
<PAGE> 13
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

the borrower on the note filed for bankruptcy protection. In October 1992, the
Company reached an agreement with the first lienholder to acquire its first
mortgage of $8.3 million for $6.8 million, paying $1.0 million upon signing the
purchase agreement with the balance due in June 1993. In June 1993, the
Company and the first lienholder modified the note purchase agreement to allow
the Company to become the owner of the first mortgage and foreclose on the
collateral property. The first lienholder provided purchase money financing
for the then balance owed under the note purchase agreement. The Company
foreclosed on the collateral property in July 1993. In October 1993, the
Company refinanced the property in the amount of $6.0 million. The Company
realized net refinancing proceeds of $280,000 after the payoff of the existing
mortgage of $5.3 million and the establishment of required repair and tax
escrows and the payment of associated refinancing costs. The new mortgage
bears interest at 9% per annum, matures November 1996, and requires monthly
payments of principal and interest of $63,984. The Company acquired the first
mortgage with the intent of acquiring the collateral property, hence the
Boulevard Villas Apartments are classified as held for investment. The Company
paid a loan arrangement fee of $60,000 to BCM on the $6.0 million refinancing.

Properties held for sale. At December 31, 1993, the Company owned two
residential subdivisions in Texas with a total of 74 developed lots, as
discussed below, 3.5 acres of undeveloped land in downtown Atlanta, Georgia,
1.84 acres of undeveloped land in Maricopa County, Arizona, two hotels, one in
Hawaii that is closed and the KC Holiday Inn in Kansas City, Missouri, obtained
through foreclosure, also as described below, an office building in St. Louis,
Missouri and a restaurant site in California, all of which are held for sale.
See Schedule XI to the Consolidated Financial Statements included at ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

In April 1991, the Company paid $208,000 in cash to acquire all of the capital
stock of a corporation which owned 181 developed residential lots in Fort
Worth, Texas subject to $1.2 million of mortgage debt owed to CMET. The loan
was paid in full in August 1993. During 1993, 56 of the residential lots were
sold for an aggregate gain of $220,000. At December 31, 1993, 44 lots remained
to be sold. As of March 31, 1994, the Company owned approximately 30% of
CMET's outstanding shares of beneficial interest and CMET owned approximately
7% of the outstanding shares of the Company's Common Stock.

In 1991, the Company purchased for $930,000 in cash, all of the capital stock
of Denton Road Investment Corporation ("Denton Road"), a corporation which owns
a 60% interest in a joint venture which in turn owned 113 partially developed
residential lots in Denton, Texas. Proceeds from lot sales were applied to
reduce the debt secured by the lots until March 30, 1993, when the debt was
repaid in full. During 1993, 37 of the residential lots were sold for an
aggregate gain of $356,000. At December 31, 1993, 30 lots remained to be sold.

13
<PAGE> 14
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

At December 31, 1992, the Company held a first lien leasehold mortgage note
receivable with an outstanding principal balance of $7.0 million secured by the
KC Holiday Inn, in Kansas City, Missouri. The borrower failed to make the
required March 1993 interest payment and at March 31, 1993, the Company
recorded the insubstance foreclosure of the hotel. In April 1993, title to the
hotel was conveyed to a wholly-owned subsidiary of the Company subject to the
Company's note receivable. The KC Holiday Inn had an estimated fair value
(minus estimated costs of sale) of $5.2 million at the date of foreclosure.
The Company incurred no loss on foreclosure in excess of the amounts previously
provided. The Company's note receivable is pledged as collateral for a $3.0
million loan to the Company from a financial institution.

As of December 31, 1993, the Company recorded a provision for losses of $2.0
million to reduce the carrying value of 3.5 acres of undeveloped land in
downtown Atlanta, Georgia to its then estimated fair value based on an
independent appraisal completed in March 1994.

Mortgage Loans

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

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

Types of Properties Subject to Mortgages. The types of properties securing the
Company's mortgage notes receivable portfolio at December 31, 1993 consisted of
office buildings, apartment complexes, shopping centers, single-family
residences, hotels and developed land. The Company's Board of Directors may
alter the types of properties subject to mortgages in which the Company invests
without a vote of the Company's stockholders.

At December 31, 1993, the obligors on $5.5 million or 10% of the Company's
mortgage notes receivable portfolio were affiliates of the Company. Also at
that date, $27.3 million or 49% of the Company's mortgage notes receivable
portfolio was in default.

The following table sets forth the percentages (based on the outstanding
mortgage note balance at December 31, 1993), by both property type and
geographic region, of the properties that serve as collateral for the Company's
mortgage notes receivable at December 31, 1993. See Schedule

14
<PAGE> 15
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

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

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties Total
-------- ---------- ---------- -------
<S> <C> <C> <C>
Mountain............. -% 76.2% 76.2%
Southeast............ - 11.5 11.5
Midwest.............. 6.7 3.9 10.6
Northeast............ 1.7 - 1.7
------ ------ -------
8.4% 91.6% 100.0%
</TABLE>

A summary of the activity in the Company's mortgage notes receivable portfolio
during 1993 is summarized as follows:

Loans in mortgage notes receivable portfolio at
January 1, 1993................................ 20*
Loan originated......................................... 1
Loans paid in full...................................... (2)
Loans foreclosed........................................ (2)
Loan settlement......................................... (1)
Loans written off as uncollectible...................... (2)
---
Loans in mortgage notes receivable portfolio at
December 31, 1993.............................. 14*
____________________________

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

During 1993, the Company collected $4.6 million in interest and $1.5 million in
principal on its mortgage notes receivable. The Company plans, for the
foreseeable future, to hold, to the extent its liquidity permits, rather than
to sell in the secondary market, the mortgage notes in its portfolio.

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

The following discussion briefly describes the events that affected previously
funded first mortgage loans during 1993.

15
<PAGE> 16
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

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

In June 1991, the Company entered into an asset sales agreement with an
insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets. The sales
agreement, as amended, included a guarantee by each of the parties of a 10%
rate of return on the assets transferred. Assets transferred by the Company
pursuant to the asset sales agreement included a retail shopping center in
Lubbock, Texas, with a carrying value of $2.0 million prior to transfer, a $1.5
million senior participation in a second lien mortgage note secured by a retail
shopping center in Las Vegas, Nevada, with a carrying value of $18.8 million
prior to transfer, a $315,000 participation in a first mortgage note on
unimproved land in Virginia Station, Virginia and a $799,000 participation in a
second lien mortgage note secured by apartments in Flagstaff, Arizona. In
return, the Company received a $1.9 million participation in a first mortgage
note secured by a hotel property in Lihue, Hawaii, a $1.0 million assignment in
a first mortgage note secured by land in Maricopa County, Arizona, a $118,000
first mortgage note secured by a single-family residence in Silver Creek,
Colorado and $1.5 million in cash. The asset sales agreement contained put and
guaranty provisions whereby, at any time, either party could demand that the
seller reacquire any asset sold pursuant to the terms of the asset sales
agreement for the consideration originally received within fifteen days of
exercising its put option. In March 1992, the Company received payment in full
on the $118,000 note secured by the single-family residence in Silver Creek,
Colorado.

In March 1992, the insurance company was placed in receivership and in June
1992, the Company provided notice to the insurance company, under the terms of
the put and guaranty provisions of the asset sales agreement, of its desire to
divest itself of all assets received. The Receiver has refused to allow the
enforcement of the put and guaranty provisions of the asset sales agreement.
On September 3, 1992, the court approved the Receiver's Petition of Order of
Liquidation for the insurance company.

16
<PAGE> 17
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

In March 1992, the Company recorded a provision for loss of $496,000 to reduce
the note receivable secured by land in Maricopa County, Arizona to its then
estimated fair value. The Company foreclosed on the land securing the note in
June 1992. In December 1992, the Company recorded an additional provision for
loss on such land of $349,000, to reduce the carrying value of the land to its
then estimated fair value. During September 1992, the Company recorded the
insubstance foreclosure of a hotel in Lihue, Hawaii, which secured a $1.9
million first mortgage participation received by the Company. Subsequently,
the hotel suffered severe hurricane damage and was shut down. The Company is
continuing to evaluate its options with regard to these assets and is also in
settlement negotiations with the Receiver and does not expect to incur any loss
in excess of the amounts previously provided.

The borrower on a $1.7 million first mortgage note receivable secured by land
in Osceola, Florida failed to make the required March 1, 1993 payment of
principal and interest. The Company accelerated the note and instituted
foreclosure proceedings. In April 1993, the borrower brought the note current
and the note was reinstated. Concurrent with reinstatement, the note was
modified, the maturity date of October 1, 1995 was changed to November 1, 1993
and the interest rate was increased to 12% per annum. The borrower was also
given two six month extension options. The borrower failed to make the May 1
through August 1 interest payments on the modified note when due. On August
10, 1993, the borrower again brought the note current. The borrower has made
no payments on the note subsequent to that date, including the payment of
principal and interest due at the note's November 1, 1993 maturity. The note
had a principal balance of $1.6 million at December 31, 1993. The Company
instituted judicial foreclosure proceedings and was awarded a summary judgment
in January 1994. On March 8, 1994, the borrower paid a nonrefundable fee of
$50,000 to delay the sale of the property at foreclosure for 45 days. The
Company does not expect to incur any loss upon foreclosure as the estimated
fair value of the collateral property exceeds the carrying value of the note.

The borrower on a $1.9 million first mortgage note receivable failed to make
the principal payment due on December 31, 1992, the note's maturity date. The
note is secured by a vacant property, formerly a hotel, in Shaker Heights,
Ohio, which the borrower plans to convert into a nursing home. The Company has
granted several extensions on the note, with the most recent extension expiring
on December 31, 1992. The borrower has requested another extension, which the
Company is considering. On March 26, 1994, the borrower's "certificate of
need," which is required to accomplish the nursing home conversion, expired.
The borrower has applied for a renewal of such certificate, however, there is
no assurance that the renewal will be granted. If extension negotiations with
the borrower are unsuccessful, and the Company forecloses the collateral
property, no loss is anticipated in excess of the amounts previously provided.

As discussed in "Real Estate" above, in March 1993, the Company recorded the
insubstance foreclosure of the KC Holiday Inn, the collateral

17
<PAGE> 18
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

securing a first mortgage note receivable with a principal balance of $7.0
million at the date of foreclosure.

The Company did not receive the payment due on October 1, 1991 on the
first mortgage note receivable, secured by the 386 Ocean Parkway Co-op. In
February 1994, the Company agreed to reinstate and modify its note in exchange
for the pledge to the Company, as additional collateral, of 21 shares in the
co-op equating to 21 unsold apartment units. The reinstated note reduces the
principal balance from $900,000 to $750,000, waives all defaults on the note
prior to the execution of the reinstatement documents, and extends the maturity
date of the note to September 15, 1999, with interest only payments at 7% per
annum for the first two years, 8% per annum for the second two years and 9% per
annum for the balance of the term with the principal balance due at maturity.
The Company is negotiating the sale of its first mortgage note and as of
December 31, 1993, recorded a provision for losses of $300,000 to reduce the
carrying value of its note to its estimated sales price. No additional loss is
anticipated in excess of the amount provided.

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

Wraparound mortgage notes may provide for full, partial or no amortization of
principal. The Company's policy is to make wraparound mortgages in amounts and
on properties as to which it would otherwise make a first mortgage loan. The
following discussion briefly describes events that affected previously funded
wraparound mortgage loans during 1993.

18
<PAGE> 19
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

applied against interest and principal thereon. Since October 1993, the
borrower has failed to make the monthly payments required by the Company's
wraparound mortgage note receivable to the holder of the first and second lien
mortgages. The Company and the underlying lienholder have accelerated their
notes. The Company's wraparound mortgage note receivable had a principal
balance of $22.7 million at December 31, 1993, including compounded interest.
The Company is negotiating with the borrower and the underlying lienholder to
modify and extend both the Company's wraparound mortgage note receivable and
the underlying first and second liens. The Company expects to be successful in
such negotiations, however, if it should lose the collateral property to the
underlying lienholder it would incur a loss of $12.4 million.

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

The following discussion briefly describes the events that affected previously
funded junior mortgage notes, during 1993.

As discussed in "Real Estate" above, in October 1992 the Company acquired the
first mortgage secured by the Boulevard Villas Apartments, a property that also
secured a second lien mortgage owed to the Company of $1.4 million. In June
1993, the Company foreclosed on the collateral property.

At December 31, 1992, the Company held a mortgage note receivable which it had
acquired in 1989, with a principal balance of $590,000 secured by a third lien
on a commercial property in South Carolina and personal guaranties of several
individuals. In May 1992, a settlement was entered into between the Company
and the guarantors. In accordance with the terms of the settlement, (i) the
borrower made a principal reduction payment of $127,812, (ii) monthly interest
payments at a rate of 10% per annum began on June 1, 1992 and (iii) the
maturity date was extended to May 11, 1993. Effective May 11, 1993, the Company
and the guarantors of the note entered into a modification to the settlement
agreement. The note was modified to bear interest at 18% per annum, have a
maturity date of October 1, 1993, and provide for monthly principal payments of
$200,000 July 1, 1993 through October 1, 1993. The Company received none of
the payments required by the modified note. Effective September 1, 1993, the
Company and the guarantors entered into a second modification. The guarantors
paid $100,000, reducing the note's principal balance by $68,000 and bringing
interest current to September 1, 1993. The second modification extends the
note's maturity date to September 1, 1995, requires monthly interest payments
at 12% per annum beginning October 1, 1993 and a $25,000 principal reduction
payment every ninety days beginning December 1, 1993. The principal balance of
the note was $497,000 at December 31, 1993 and the note was current. The
Company does not expect to incur a loss in excess of the amounts previously
provided.

19
<PAGE> 20
ITEM 2. PROPERTIES (Continued)

Other Loans

In April 1990, SAMLP made a $1.4 million unsecured loan to Equity Health and
Finance Corporation ("Equity Health"), an entity affiliated with BCM, the
Company's advisor. The Company owns a 76.8% limited partner interest in SAMLP
which it consolidates for financial statement purposes. The Equity Health note
bears interest at 12% per annum, originally matured on April 10, 1991 and has
been subsequently extended to May 9, 1994. In June 1991, Equity Health merged
into BCM and BCM assumed the note. The outstanding balance of the note was
$477,000 at December 31, 1993, including accrued but unpaid interest.

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

In January 1992, the Company received notice that the lender had declared an
event of default on the $14.0 million loan and in June 1993 that the lender had
foreclosed on the hotel securing the loan. In January 1994, the Company and
the lender reached an agreement in principle relating to the Company's
performance under its guarantee. Under the proposed agreement the Company will
pay a total of $750,000 to the lender, payable $100,000 upon completion of
documentation and the balance of $650,000 due within 120 days of the date of
first payment. The Company also agreed to transfer any other rights or assets
the Company held in the hotel to the lender in return for cancellation of the
guarantee. The Company wrote off its two notes receivable secured by the
foreclosed hotel as uncollectible as of December 31, 1993. The Company did not
incur a loss with respect to either its guarantee or the notes in excess of the
amounts previously provided.

Investments in Real Estate Investment Trusts and Real Estate
Partnerships

The Company's investment in real estate entities includes equity securities of
three publicly traded real estate investment trusts (collectively the
"Trusts"), CMET, IORT and TCI, units of limited partner interest of NRLP and a
general partnership interest in NRLP and NOLP, through its 76.8% limited
partner interest in SAMLP and 50% interests in real estate joint venture
partnerships. Mr. Phillips, Chairman of the Board and a Director of the
Company until November 16, 1992, is a general partner of SAMLP, which serves as
general partner of NRLP and NOLP. BCM serves as advisor to the Trusts, and
performs certain administrative and management functions for NRLP and NOLP on
behalf of SAMLP.

20
<PAGE> 21
ITEM 2. PROPERTIES (Continued)

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

In addition to the equity securities of the Trusts and NRLP acquired from
Southmark in connection with the Southmark Separation Agreements, the Company
has made additional investments through private and open market purchases of
the equity securities of each of such entities. The Company's cost with
respect to shares of the Trusts at December 31, 1993 totaled $18.5 million, and
its cost with respect to units of limited partner interest in NRLP totaled
$23.0 million. The aggregate carrying value (cost plus/minus equity in
income/losses and less distributions received) of such equity securities of the
Trusts and NRLP at December 31, 1993 was $31.1 million and the aggregate market
value of such equity securities was $44.3 million. The aggregate investee book
value of the equity securities of the Trusts and the Company's share of NRLP's
revaluation equity based upon the December 31, 1993 financial statements of
each entity was $48.5 million and $113.0 million, respectively. See ITEM 13.
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

In 1990, the Company's Board of Directors authorized and in May 1993 reaffirmed
the expenditure by the Company of up to an aggregate of $17.0 million to
acquire additional units of NRLP and shares of the Trusts. As of March 31,
1994, the Company had expended $11.3 million to acquire units of NRLP and an
aggregate of $4.2 million to acquire shares of the Trusts in accordance with
this authorization. The Company expects to make additional investments in the
equity securities of such entities to the extent permitted by its liquidity.

In September 1992, the Company agreed to sell its entire holdings in NIRT at
the then market price to Mr. Friedman, the President and a Director of the
Company until December 31, 1992, members of his family and his affiliates.
Until March 31, 1994, NIRT had the same advisor as the Company. The agreement
provided for the Company to sell its 741,592 NIRT shares at the then market
price of $6.875 per share. As of December 31, 1993, the Company had
transferred all of its NIRT shares to Mr. Friedman and his affiliates, the
Company having received as payment $2.9 million in cash ($657,000 in 1992) and
$2.2 million in securities of NRLP (42,260 units at $20.50 per unit), TCI
(118,500 shares at $5.25 per share), IORT (10,075 shares at $5.375 per share)
and CMET (105,095 shares at $6.625 per share). In September 1992, the Company
wrote the carrying value of its NIRT shares down to their agreed sales price
and discontinued accounting for its investment in NIRT under the equity method.

At December 31, 1993, SAMLP, the general partner of NRLP and NOLP, owned 17,650
shares of TCI. The Company owns a 76.8% limited partnership interest in SAMLP
which the Company consolidates for financial statement purposes.

The purchases of the equity securities of the Trusts and NRLP were made for the
purpose of investment and were based principally on the opinion of the
Company's management that the equity securities of each were and are currently
undervalued. The determination by the Company to purchase additional equity
securities of the Trusts and NRLP is made on an

21
<PAGE> 22
ITEM 2. PROPERTIES (Continued)

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

entity-by-entity basis and depends on the market price of each entity's equity
securities relative to the value of its assets, the availability of sufficient
funds and the judgment of the Company's management regarding the relative
attractiveness of alternative investment opportunities.

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

Pertinent information regarding the Company's investment in the equity
securities of the Trusts and NRLP, entities, which are accounted for under the
equity method at December 31, 1993, is summarized below (dollar amounts in
thousands):

<TABLE>
<CAPTION>
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1993 December 31, 1993 December 31, 1993 December 31, 1993
- -------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NRLP.... 43.8% $ 12,001 $ - * $ 23,642
CMET.... 30.2 10,947 24,510 11,349
IORT.... 18.0% 1,952 19,265 2,154
TCI..... 20.0 6,223 4,740 7,203
------------ -----------
$ 31,123 $ 44,348
============ ===========
</TABLE>

____________________

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

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

22
<PAGE> 23
ITEM 2. PROPERTIES (Continued)

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

The Company does not have a controlling equity interest in any of the investees
set forth in the table above and therefore it cannot, acting by itself,
determine either the individual investments or the overall investment policies
of such investees. However, due to the Company's equity investments in, and
the existence of common officers with, each of the Trusts, and that Mr.
Phillips is a general partner of SAMLP, the general partner of NRLP and NOLP,
and that the Trusts have the same advisor as the Company and that Mr. Cashwell,
a Director of the Company, is also the President of the Trusts and BCM, the
Company's advisor, and the President and a director of SAMI, the managing
general partner of NRLP and NOLP, the Company may be considered to have the
ability to exercise significant influence over the operating and investing
policies of these entities. Accordingly, the Company accounts for its
investment in these entities under the equity method. Under the equity method,
the Company recognizes its proportionate share of the income or loss from the
operations of these entities currently, rather than when realized through
dividends or on sale. The carrying value of these entities, set forth in the
table above, is the original cost of each such investment adjusted under the
equity method for the Company's proportionate share of each entity's income or
loss and distributions received.

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

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

The Company is a limited partner in SAMLP, holding a 76.8% limited partner
interest therein, which the Company consolidates for financial statement
purposes. The Company has an option which expires December 27, 1994 to acquire
Southmark's 19.2% limited partner interest in SAMLP for $2.4 million, less any
distributions received by Southmark. See ITEM 3. "LEGAL PROCEEDINGS -
Settlement of Southmark Adversary Proceedings." Mr. Phillips and SAMI, a
corporation owned by BCM, the Company's advisor, are the general partners of
SAMLP. SAMI is the managing general partner of SAMLP.

23
<PAGE> 24
ITEM 2. PROPERTIES (Continued)

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

SAMI, as the managing general partner of NRLP, has discretion in determining
methods of obtaining funds for NRLP's operations, and the acquisition and
disposition of its assets. NRLP's governing documents place no limitation on
the amount of leverage that NRLP may incur either in the aggregate or with
respect to any particular property or other investment. At December 31, 1993,
the aggregate loan-to-value ratio of NRLP's real estate portfolio was 52.1%
computed on the basis of the ratio of total property-related debt to aggregate
appraised values.

As of December 31, 1993, NRLP owned 86 properties located in 22 states. These
properties consisted of 70 apartment complexes comprising 17,762 units, 7
office buildings with an aggregate of 495,594 square feet and 9 shopping
centers with an aggregate of 1.1 million square feet.

For the year ended December 31, 1993, NRLP reported net income of $1.3 million
compared to a net loss of $3.2 million for the year ended December 31, 1992.
NOLP's loss from operations of $7.8 million in 1993 was a 29% improvement when
compared to its $11.0 million loss from operations in 1992. NRLP's net income
in 1993 was due to a $9.0 million extraordinary gain resulting from NRLP's
acquisition at a discount of certain of its mortgage debt. At December 31,
1993, NRLP had total assets of $296.0 million which consisted of $251.5 million
in real estate held for investment or sale, $11.5 million in notes and interest
receivable, net of allowance for estimated losses, $29.0 million in other
assets and $4.0 million in cash and cash equivalents.

In the fourth quarter of 1993, NRLP resumed distributions to unitholders at the
initial rate of $0.20 per unit. The Company received distributions of $158,000
in 1993 from NRLP and expects to receive distributions of $749,000 in 1994. No
distributions were paid by NRLP in 1992.

NRLP, SAMLP and Messrs. Phillips and Friedman were among the defendants in a
class action lawsuit arising out of the transactions discussed above whereby
NRLP was formed. An agreement settling such lawsuit as to the defendants,
NRLP, SAMLP and Messrs. Phillips and Friedman (the "Moorman Settlement
Agreement"), became effective on July 5, 1990. The Moorman Settlement
Agreement provides for, among other things, the appointment of an oversight
committee for NRLP; the establishment of specified annually increasing targets
for a five-year period relating to the price of NRLP units; a limitation and
deferral or waiver of NRLP's reimbursement to SAMLP of certain future salary
costs; and a deferral or waiver of certain future compensation to SAMLP; the
required distribution to unitholders of all of NRLP's cash from operations in
excess of certain renovation costs unless the NRLP oversight committee approves
alternative uses for such cash from operations; the issuance of unit purchase
warrants to members of the plaintiff class; the contribution by certain
co-defendants of cash and notes payable to NRLP aggregating $5.5 million
including $2.5 million contributed by SAMLP on behalf of itself and pursuant to
the indemnification provisions of

24
<PAGE> 25
ITEM 2. PROPERTIES (Continued)

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

SAMLP's agreement of limited partnership, $500,000 of which was paid in 1990,
with the remainder to be paid over a four-year period. The final annual
installment of principal and interest of $631,000 is due to be paid by SAMLP in
May 1994. NRLP also agreed to pay certain settlement costs, including
plaintiffs' attorneys' fees in the amount of $3.4 million. The settlement plan
remains in effect for five years from May 9, 1990, or until any earlier
withdrawal of SAMLP as general partner of NRLP and NOLP.

If the unit price targets are not met for any two successive years or for the
final year of the settlement plan, SAMLP will be required to withdraw as
general partner of NRLP. The targets began at $44.00 per unit for May 9, 1991,
and increase thereafter to $120.00 per unit for May 9, 1995, adjusted for
distributions, if any, to unitholders. In 1991, NRLP did not achieve the first
of the annual unit price targets. The second anniversary date was May 9, 1992,
and the second annual target was a unit price of $57.00. The second annual
target was not achieved. Accordingly SAMLP expects to resign as general
partner of NRLP and NOLP.

The withdrawal of SAMLP as general partner would require NRLP to purchase
SAMLP's general partner interest (the "Redeemable General Partner Interest") at
its then fair value, and to pay certain fees and other compensation as provided
in the partnership agreement. SAMI, the managing general partner of SAMLP, has
calculated the fair value of such Redeemable General Partner Interest to be
$25.8 million at December 31, 1993, before reduction for the principal balance
($4.2 million at December 31, 1993) and accrued interest ($3.5 million at
December 31, 1993) on the note receivable from SAMLP for its original capital
contribution to NRLP. There can be no assurance that such amount at the time
of any such withdrawal will not be substantially higher or lower. The NRLP
oversight committee has calculated such Redeemable General Partner Interest to
be $20.0 million at December 31, 1993, before reduction for the principal
balance and accrued interest on the note receivable from SAMLP for its original
capital contribution to NRLP. Such Redeemable General Partner Interest may be
paid to SAMLP at the option of the NRLP oversight committee over three years
pursuant to a secured promissory note bearing interest at a financial
institution's prime rate. NRLP's purchase of the Redeemable General Partner
Interest could have an adverse effect on NRLP's financial condition and on the
Company's investment in NRLP ($12.0 million at December 31, 1993).

In October 1993, SAMLP and the NRLP oversight committee reached an agreement in
principle, evidenced by a detailed Term Sheet, to nominate a candidate for
successor general partner of NRLP and NOLP and to consummate the Moorman
Settlement Agreement. The nominee for successor general partner will be a
newly-formed corporation which will be a wholly-owned subsidiary of SAMLP.
Pursuant to the Term Sheet, NRLP will be relieved of any obligation to purchase
the Redeemable General Partner Interest or to pay any other fees or
compensation to SAMLP upon SAMLP's

25
<PAGE> 26
ITEM 2. PROPERTIES (Continued)

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

withdrawal as general partner. The Term Sheet also sets forth an agreement in
principle to effect a restructuring of NRLP and the spinoff by NRLP to its
unitholders of shares of a newly-formed subsidiary which would qualify as a
REIT for federal tax purposes. The Company was also a party to the Term Sheet
which further provides that within nine months of the spinoff transaction, the
Company will make a cash tender offer to purchase up to 60% of NRLP's units of
limited partner interest held by unitholders unaffiliated with the Company or
SAMLP for $12.00 per unit (an estimated maximum purchase price of $8.0
million), unless the NRLP units have traded at an appreciably higher average
price for the prior thirty days.

The parties are preparing the agreement and other documents contemplated by the
Term Sheet. Upon execution of an agreement embodying the provisions of the
Term Sheet, the NRLP oversight committee and SAMLP will petition the
supervising judge for his approval of the agreement. The proposed formation
and spinoff of the REIT and the election of the new general partner require the
approval of NRLP's unitholders.

CMET. CMET is a California business trust organized in 1980 which commenced
operations on December 3, 1980. CMET's primary business is investing in real
estate through direct equity investments, and partnerships and financing real
estate and real estate- related activities through investments in mortgage
notes, including first, wraparound and junior mortgage notes. CMET holds
equity investments in apartment complexes and commercial properties (primarily
office buildings and shopping centers) throughout the continental United
States. CMET's apartment complexes and commercial properties are concentrated
in the Southeast, Southwest and Midwest regions of the continental United
States. CMET also holds mortgage notes receivable secured by real estate
located in each geographic region of the continental United States, other than
the Northeast and Pacific regions, with a concentration in the Southeast and
Midwest regions.

For the year ended December 31, 1993, CMET reported net income of $615,000 as
compared with net income of $758,000 for the year ended December 31, 1992.
Cash flow from property operations (rentals collected less payments for
property operating expenses) improved to $8.4 million in 1993 compared to $6.1
million in 1992. At December 31, 1993, CMET had total assets of $160.5 million
which consisted of $42.6 million in mortgage notes and interest receivable and
real estate held for sale (net of allowance for estimated losses), $94.4
million in real estate held for investment, $21.7 million in investments in
partnerships and other assets and $1.8 million in cash and cash equivalents.

In March 1993, CMET resumed the payment of regular quarterly distributions at
the initial rate of $0.10 per share. The rate was increased to $0.15 per share
for the September 1, 1993 distribution payment. The Company received an
aggregate of $428,000 in distributions from CMET in 1993 and anticipates
receiving distributions of $529,000 in 1994.

26
<PAGE> 27
ITEM 2. PROPERTIES (Continued)

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

As of March 31, 1994, CMET owned 204,522 shares of the Company's Common Stock,
approximately 7% of the shares then outstanding.

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

For the year ended December 31, 1993, IORT reported net income of $875,000 as
compared with a net loss of $551,000 for the year ended December 31, 1992.
Such net income is attributable to an improvement in IORT's operating results
and an extraordinary gain of $806,000 due to its early payoff of mortgage debt.
Cash flow from property operations however, declined slightly to $3.0 million
in 1993 from $3.4 million in 1992. At December 31, 1993, IORT had total assets
of $50.1 million which consisted of $40.8 million in real estate held for sale,
$3.0 million in notes and interest receivable, $5.7 million in investments in
partnerships and other assets and $582,000 in cash and cash equivalents.

IORT resumed the payment of regular quarterly distributions in March 1993, at
an initial rate of $0.10 per share. The rate was increased to $0.15 per share
for the September 1, 1993 distribution payment. The Company received an
aggregate of $72,000 in distributions from IORT in 1993 and anticipates
receiving distributions of $85,000 in 1994.

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

For the year ended December 31, 1993, TCI reported a net loss of $8.6 million
as compared with a net loss of $5.8 million for the year ended December 31,
1992. The increase in TCI's net loss is attributable to a decrease in
operating results primarily caused by losses sustained on

27
<PAGE> 28
ITEM 2. PROPERTIES (Continued)

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

three office buildings in Dallas, Texas, which TCI acquired in late 1992.
Cash flow from property operations however, decreased only slightly to $8.7
million in 1993 as compared to $8.8 million in 1992. At December 31, 1993, TCI
had total assets of $221.1 million, which consisted of $23.5 million in notes
and interest receivable and real estate held for sale (net of allowance for
estimated losses), $179.7 million in real estate held for investment, $12.0
million in investments in real estate entities and other assets and $5.9
million in cash and cash equivalents. At December 31, 1993, TCI owned 170,750
of IORT's shares of beneficial interest, approximately 26% of the shares then
outstanding.

TCI's dividend policy provides for an annual determination of dividends, after
TCI's year end. The minimum amount of dividends will be determined by the
amount, if any, required to maintain TCI's status as a REIT for federal tax
purposes. The Company received no dividends from TCI in 1993 nor does it
expect to receive any dividends in 1994.

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

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

River Trails II. In January 1992, the Company entered into a partnership
agreement with an entity affiliated with Donald C. Carter, an owner of in
excess of 14% of the Company's Common Stock, to acquire 287 developed
residential lots adjacent to the Company's other residential lots in Fort
Worth, Texas. The Company paid $717,000 in cash for its 50% general
partnership interest. The partnership agreement designates the Company as
managing general partner. The partnership agreement also provides that the
other general partner is guaranteed a 10% return on its investment. There were
18 lots sold in 1993 and 269 lots remained to be sold at December 31, 1993.

28
<PAGE> 29
ITEM 3. LEGAL PROCEEDINGS

Settlement of Southmark Adversary Proceedings

During 1990 and 1991, several adversary proceedings were initiated against the
Company and others by Southmark and its affiliates. On December 27, 1991, an
agreement to settle all claims in connection with the Southmark adversary
proceedings was executed by Southmark and the Company. The settlement covers
all claims between Southmark and its affiliates and Messrs. Phillips and
Friedman, SWI, NRLP, IORT, TCI, CMET, NIRT, VPT and the Company. The final
settlement of such litigation concludes all suits in which the Company was a
defendant. Pursuant to the settlement agreement, Southmark will receive $13.2
million from the various settling defendants. Payments totaling $11.9 million
were made in 1992 and 1993 and the remaining $1.3 million is scheduled to be
paid by June 27, 1994.

The Company paid Southmark $1.0 million in each of 1992 and 1993, and will pay
Southmark an additional $435,000 by June 27, 1994. In addition, on February
25, 1992, the Company assigned Southmark a 19.2% limited partner interest in
SAMLP, the general partner of NRLP and NOLP, and the Company received
Southmark's interest in Novus Nevada. The Company has an option which expires
on December 27, 1994, to reacquire Southmark's 19.2% interest in SAMLP for $2.4
million, less any distributions received by Southmark. On May 1, 1992, the
Company received from Southmark, land subject to a ground lease in Denver,
Colorado, land in Forest Park, Georgia, a mortgage note secured by land in
Tabonia, Utah and a participation in a mortgage note secured by a retail
property in Forest Park, Georgia. The Company believes these assets have an
aggregate value at least equal to the consideration the Company has agreed to
pay Southmark.

To secure the settlement payment obligations to Southmark, the Company issued
390,000 new shares of its Common Stock to ATN Equity Partnership ("ATN") which
pledged such shares to Southmark along with securities of TCI and NRLP, as
described below. The Company intends to cancel its collateral shares as they
are released from the pledge to Southmark and returned to it by ATN. Voting
rights to the Company's collateral shares are held by the Company's Board of
Directors. ATN is a general partnership of which the Company and NRLP are
general partners. ATN was formed solely to hold title to the securities issued
by each partner and TCI and to pledge such securities to Southmark. As of
December 31, 1993, Southmark had released 195,000 of the Company's shares of
Common Stock which were returned to the Company by ATN and canceled. The
unpaid settlement balance of $1.3 million is secured by a pledge of Common
Stock of the Company having a minimum value of 145% of the unpaid balance and
by the Company's remaining limited partner interest in SAMLP.

In addition to the pledge of the Company's Common Stock securing the payment to
Southmark, Messrs. Phillips and Friedman, the Company and SWI have each
executed and delivered separate, final, nonappealable judgments in favor of
Southmark, each in the amount of $25 million. In the event of default,
Southmark is entitled to entry of those judgments and to recover from the
parties an aggregate of $25 million, subject to

29
<PAGE> 30
ITEM 3. LEGAL PROCEEDINGS

Settlement of Southmark Adversary Proceedings

reduction for any amounts previously paid. If the settlement obligations are
met, the judgments will be returned to the defendants.

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

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

The Company held its annual meeting of stockholders on December 13, 1993, at
which meeting the Company's stockholders elected the following as Class II
Directors of the Company:

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

Al Gonzalez....................... 2,560,023 22,004
G. Wayne Watts.................... 2,560,481 21,545

The Directors whose terms did not expire in 1993 and therefore did not stand
for reelection were Oscar W. Cashwell, Class I Director, and Tilmon Kreiling,
Jr. and Ryan T. Phillips, Class III Directors.

___________________________________

PART II

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

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

<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------------------------------- -------- -------
<S> <C> <C>
March 31, 1994....................... $ 13 3/8 $ 12 1/2

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

March 31, 1992....................... 8 1/4 5 1/4
June 30, 1992........................ 7 1/4 5 3/4
September 30, 1992................... 6 3/8 6
December 31, 1992.................... 6 1/4 5 5/8
</TABLE>

30
<PAGE> 31
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS (Continued)

As of March 31, 1994, the closing market price of the Company's Common Stock on
the New York Stock Exchange was $12.75 per share.

As of March 31, 1994, the Company's Common Stock was held by 3,129 stockholders
of record.

On December 6, 1988, the Company's Board of Directors authorized the repurchase
of up to $5.0 million of the Company's Common Stock. As of March 31, 1994, no
shares had been repurchased pursuant to such authorization. See ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources."

The Company's dividend policy provides for an annual determination of dividend
distributions, after the Company's year end. No dividends were declared or
paid in 1993. The Company last paid dividends in 1990.

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

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

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

31
<PAGE> 32
ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Income...................... $ 9,413 $ 8,093 $ 12,609 $ 15,327 $ 16,608
Expense..................... 18,128 18,243 24,387 32,689 13,059
------------ ------------ ------------ ------------ ------------

Income (loss) before
gain on sale of
real estate and
extraordinary gain........ (8,715) (10,150) (11,778) (17,362) 3,549
Gain on sale of real
estate.................... 481 566 1,271 983 1,669
Extraordinary gain.......... 3,807 - 7,628 - -
------------ ------------ ------------ ------------ ------------
Net income (loss)........... (4,427) (9,584) (2,879) (16,379) 5,218

Redeemable Common Stock,
accretion of discount..... (129) (258) - - -
------------ ------------ ------------ ------------ ------------
Income (loss) applicable to
Common shares............. $ (4,556) $ (9,842) $ (2,879) $ (16,379) $ 5,218
============ ============ ============ ============ ============

PER SHARE DATA
Income (loss) before gain
on sale of real estate
and extraordinary gain.... $ (2.88) $ (4.18) $ (5.56) $ (8.20) $ 1.22
Gain on sale of real
estate.................... .16 .23 .60 .47 .57
Extraordinary gain.......... 1.26 - 3.60 - -
------------ ------------ ------------ ------------ ------------
Net income (loss)........... (1.46) (3.95) (1.36) (7.73) 1.79

Redeemable Common Stock,
accretion of discount..... (.04) (.11) - - -
------------ ------------ ------------ ------------ ------------
Income (loss) applicable to
Common shares............. $ (1.50) $ (4.06) $ (1.36) $ (7.73) $ 1.79
============ ============ ============ ============ ============

Dividends................... $ - $ - $ - $ .60 $ 4.50

Weighted average shares
outstanding............... 3,025,275 2,453,292 2,117,699 2,118,160 2,913,060
</TABLE>

<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable................ $ 51,769 $ 72,808 $ 68,507 $ 78,026 $ 125,639
Real estate................. 52,437 45,317 52,654 62,680 11,807
Total assets................ 139,861 151,010 153,131 179,957 190,364
Notes and interest
payable................... 53,693 63,698 65,074 93,973 84,611
Stockholders' equity........ 56,120 60,476 70,221 73,112 90,762

Book value per share........ $ 22.23 $ 23.76 $ 33.16 $ 34.51 $ 42.84
</TABLE>

32
<PAGE> 33
ITEM 6. SELECTED FINANCIAL DATA (Continued)

Shares and per share data have been restated to give effect to the
one-for-three reverse stock split that was effected December 10, 1990.

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

Introduction

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

Liquidity and Capital Resources

General. Cash and cash equivalents at December 31, 1993 aggregated $843,000,
compared with $510,000 at December 31, 1992. Although the Company anticipates
that during 1994 it will generate excess funds from operations, as discussed
below, such excess funds are not expected to be sufficient to discharge all of
the Company's debt obligations as they mature. The Company will therefore
again rely on externally generated funds, including borrowings against its
investments in various real estate entities, mortgage notes receivable and
unencumbered properties, the sale or refinancing of properties and, to the
extent available and necessary, borrowings from its advisor to meet its debt
service obligations, pay taxes, interest and other non-property related
expenses.

Notes payable totaling $10.7 million are scheduled to mature during 1994.
Subsequent to year end, the Company reached agreement with the lender on a note
payable with a balance of $10.4 million at December 31, 1993 which was
scheduled to mature in December 1994 to extend the note to December 18, 1997.
The Company also has an agreement with the lender on a note payable with a
principal balance of $950,000 at December 31, 1993 and that had matured August
1, 1993, to extend the note's maturity date to July 1, 1995. See NOTE 8. "NOTES
AND INTEREST PAYABLE." The non-current portion of both notes has been excluded
from scheduled 1994 maturities, above. The extension terms for these notes
payable are discussed in more detail under "Loans Payable," below. The Company
intends to either extend the maturity dates or obtain alternate financing for
the remainder of its debt obligations that mature in 1994. There can be no
assurance, however, that these efforts to obtain alternate financing or debt
extensions will be successful.

The Company refinanced a mortgage with a principal balance of $5.3 million at
September 30, 1993, that was scheduled to mature December 31, 1993 with a new
$6.0 million mortgage that matures November 1, 1996 and is secured by the
Boulevard Villas Apartments, as described below. See NOTE 4. "NOTES AND
INTEREST RECEIVABLE." The Company also obtained mortgage financing on an
unencumbered commercial property in May 1993 which provided net cash to the
Company of $1.7 million.

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

Liquidity and Capital Resources (Continued)

In June 1992, the Company sold 397,359 newly issued shares of its Common Stock
to a private investor for $1.9 million in cash. From March 1993 to March 1995,
the purchaser can require the Company to repurchase 360,000 of such shares at
$6.11 per share or a total of $2.2 million. See NOTE 9. "REDEEMABLE COMMON
STOCK."

The Company expects an increase in cash flow from property operations in 1994
from an increase in both occupancy and rental rates at the Company's apartment
complexes and from a full year's operations of the properties acquired through
foreclosure in March and July 1993. The Company is also expecting continued
lot sales at its two unencumbered Texas residential subdivisions generating
additional cash flow. In August 1993, the Company sold the Fox City Shopping
Center, with the purchaser assuming mortgage debt totaling $5.5 million. The
Company realized net cash of $416,000 from the sale.

The Company expects that funds from existing cash resources, collections on
mortgage notes receivable, sales or refinancing of real estate, and borrowings
against its investments in real estate entities, mortgage notes receivable, and
to the extent available and necessary borrowings from the Company's advisor,
which totaled $3.6 million at December 31, 1993, will be sufficient to meet
the cash requirements associated with its current and anticipated level of
operations, maturing debt obligations and existing commitments in the
foreseeable future. To the extent that the Company's liquidity permits, the
Company may make investments in real estate, additional investments in real
estate entities and fund or acquire mortgage notes.

Notes Receivable. Scheduled principal maturities of notes receivable are $5.4
million in 1994. However, at December 31, 1993, notes receivable with
scheduled 1994 maturities of $4.5 million were in default. The majority of the
Company's mortgage notes receivable are due over the next one to ten years and
provide for "balloon" payments by the borrowers. It may be necessary for the
Company to consider extending certain notes if the borrowers do not have the
resources to repay the loans, are unable to sell the property securing such
loans, or are unable to refinance the debt owed.

In December 1992, the Company entered into an agreement to purchase the first
mortgage secured by Boulevard Villas Apartments, a property on which the
Company held a second lien mortgage note that was in default. The Company made
a $1.0 million down payment at the time it executed the purchase agreement. In
June 1993, the Company and the first lienholder modified the note purchase
agreement to allow the Company to become the owner of the first mortgage and
foreclose on the Boulevard Villas, the collateral securing the note in exchange
for short-term purchase money financing from the first lienholder for the then
balance owed under the note purchase agreement. In October 1993, the property
was refinanced under a new mortgage of $6.0 million, with a maturity date of
November 1, 1996. The Company received net refinancing proceeds of $280,000

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

Liquidity and Capital Resources (Continued)

after payoff of the existing first mortgage, the establishment of required
repair and tax escrows and the payment of costs associated with the
refinancing.

In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel in Las Vegas, Nevada. The Company acquired
the hotel and casino property at foreclosure subject to first and second lien
mortgages totaling $10.0 million and a disputed third lien mortgage. In June
1992, the Company sold the hotel and casino to the third lienholder for a $22
million wraparound mortgage note receivable, a $500,000 unsecured note
receivable, and $100,000 in cash. The $500,000 note was paid off on July 30,
1993. Payments of interest and principal on the Company's wraparound note
receivable were made directly by the borrower to the holder of the first and
second lien mortgages and were applied against interest and principal thereon.
Since October 1993, the borrower has failed to make the monthly payments
required by the Company's wraparound mortgage note receivable to the holder of
the first and second lien mortgages. The Company and the underlying lienholder
have accelerated their notes. The Company's wraparound mortgage note
receivable had a principal balance of $22.7 million at December 31, 1993,
including compounded interest and the underlying liens totaled $6.1 million at
December 31, 1993. The Company is negotiating with the borrower and the
underlying lienholder to modify and extend both the Company's wraparound
mortgage note receivable and the underlying liens. The Company expects to be
successful in such negotiations, however, if it should lose the collateral
property to the underlying lienholder it would incur a loss of $12.4 million.

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

Loans Payable. The Company has margin arrangements with various brokerage
firms which provide for borrowings up to 50% of the market value of marketable
equity securities. The borrowings under such margin arrangements are secured
by such equity securities and bear interest rates ranging from 4.50% to 7.75%.
Margin borrowings were $16.1 million (approximately 36% of market value) at
December 31, 1993, an increase of $6.4 million from December 31, 1992.

In May 1993, the Company obtained mortgage financing of $1.8 million on the
theretofore unencumbered Rosedale Towers, an office building in Minneapolis,
Minnesota. The Company realized net financing proceeds of $1.7 million.

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

Liquidity and Capital Resources (Continued)

On December 23, 1993, the Company refinanced the Watersedge III and Edgewater
Gardens Apartments. The Company received refinancing proceeds totaling $1.7
million after the payoff of existing mortgage debt totaling $4.9 million and
associated refinancing costs.

In June 1993, the Company modified the $4.2 million first mortgage secured by
the Park Plaza Shopping Center, extending the maturity date to May 10, 2003. At
the same time, the Company obtained an additional loan of up to $1.0 million
also secured by the shopping center from the same lender for capital and tenant
improvements to the shopping center. The new loan was also scheduled to mature
June 1, 2003. Advances on the new loan were made by the lender as the
improvements were completed. Included in the modification of the first
mortgage is a "forgiveness of debt" clause, allowing a forgiveness of an amount
equal to the lesser of $500,000 or one- half of the amount advanced on the new
loan, if paid off by May 31, 1994. The principal balance of the new loan,
$887,000, was paid off December 23, 1993, the Company receiving a credit of
$443,000 against the first mortgage reducing the balance to $3.7 million at
December 31, 1993. The Company also deposited $105,000 in an escrow account to
complete remaining parking lot and exterior renovations at the shopping center.
The Company is also to receive a credit against the first mortgage for one half
of these monies as expended.

In March 1992, the Company obtained a $1.3 million working capital loan from a
financial institution which matured April 1, 1993. The lender extended the
maturity date to April 1, 1994. In January 1994, the Company made a $100,000
principal paydown, bringing the balance of the note to $350,000 at January 31,
1994. The Company paid off the balance of the loan at maturity.

A loan with a principal balance of $950,000 at December 31, 1993 matured in
February 1993. The lender agreed to extend the maturity date of the note to
August 1, 1993 in exchange for an April 1, 1993 principal paydown of $200,000
and monthly principal paydowns of $50,000 per month, beginning May 1, 1993.
The Company did not payoff the loan at maturity, but has continued to make
monthly principal reduction payments of $50,000 in accordance with the expired
loan agreement. The Company has reached an agreement with the lender to extend
the maturity date to July 1995, with the Company continuing its $50,000 monthly
principal reduction payments.

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

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

Liquidity and Capital Resources (Continued)

negotiated transactions to the extent the Company's liquidity permits. In
September 1992, the Company agreed to sell its entire shareholdings in the
other two trusts, to William S. Friedman, members of his family or affiliates.
Mr. Friedman is the President and a trustee of these trusts and served as
President and Director of the Company until December 31, 1992 and until May 1,
1993, served as President of the Company's advisor. As of December 31, 1992,
the Company had completed the sale of all of its shares in one of the trusts,
Vinland Property Trust, to Mr. Friedman's wife for cash. In 1993, the Company
completed the sale of all of its shares in the other trust, National Income
Realty Trust ("NIRT") to Mr. Friedman and his affiliates. The Company received
$2.9 million in cash ($657,000 in 1992), 42,260 units of NRLP, 105,096 shares
of CMET, 118,500 shares of TCI and 10,075 shares of IORT.

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

The Company's cash flow from these investments is dependent on the ability of
each of the entities to make distributions. TCI's distribution policy provides
for an annual determination of distributions after year end, and then only to
the extent of its taxable income, if any. In March 1993, CMET and IORT resumed
the payment of regular quarterly distributions and in December 1993 NRLP also
resumed regular distributions. In 1993, the Company received distributions
totaling $506,000 from CMET and IORT and $170,000 from NRLP and anticipates
receiving distributions totaling $615,000 from CMET and IORT and $749,000 from
NRLP in 1994.

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

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

Results of Operations

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

Net rental income (rental income less property operating expenses) increased
from $1.4 million in 1992 to $2.6 million in 1993. This increase was
attributable to an increase of $388,000 from improved occupancy and rents at
the Company's commercial properties and $271,000 and $296,000 from the 1993
acquisitions of Boulevard Villas Apartments and KC Holiday Inn. Offsetting
these increases were an additional $124,000 of property taxes and hazard
insurance premiums incurred in 1993 on land owned by the Company. The Company
is expecting an increase in net rental income in 1994 from a full year of
operations of the Boulevard Villas Apartments and the KC Holiday Inn and from
increased rental rates at its apartment complexes.

Interest income decreased from $5.7 million in 1992 to $5.0 million in 1993.
This decrease is primarily due to a $639,000 decrease from the settlement of a
note receivable and related note payable. See NOTE 8. "NOTES AND INTEREST
PAYABLE." Decreases of $262,000 due to mortgage notes receivable foreclosed or
restructured in 1992 or 1993, $192,000 due to nonperforming, nonaccruing loans,
and $339,000 due to principal payoffs and paydowns, and/or sales of notes
receivable during 1992 or 1993 were offset in part by a $277,000 increase in
interest income from the 1992 mid-year sale of the Continental Hotel. The
Company expects a decrease in interest income in 1994 if the nonperforming
Continental Hotel mortgage note receivable is not successfully restructured.

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

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

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

General and administrative expenses decreased from $2.3 million in 1992 to $1.8
million in 1993. The decrease is primarily attributable to

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

Results of Operations (Continued)

legal costs incurred in 1992 in connection with the Continental Hotel
bankruptcy and Southmark litigation. See NOTE 17. "COMMITMENTS AND
CONTINGENCIES."

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

Gains on sales of real estate decreased from $566,000 in 1992 to $481,000 in
1993. The decrease is due to the $85,000 loss recorded on the sale of the Fox
City Shopping Center and a $10,000 loss recorded on the sale of a condominium
unit. The gains from the sale of residential lots in 1992 and 1993 were
comparable. See NOTE 5. "REAL ESTATE."

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

The Company recognized $3.8 million extraordinary gain in 1993 as compared to
no extraordinary gain in 1992. $3.4 million of the extraordinary gain
represents the Company's share of an equity investee's reported extraordinary
gain of $9.0 million from the acquisition at a discount of its mortgage debt
and the $443,000 forgiveness of the Company's debt as discussed in "Liquidity
and Capital Resources," above.

1992 Compared to 1991. The Company had a net loss of $9.6 million in 1992, as
compared to a net loss of $2.9 million in 1991. The primary factors
contributing to the increase in Company's net loss are discussed in the
following paragraphs.

Interest income from mortgage notes receivable decreased from $7.2 million in
1991 to $5.7 million in 1992. This decrease is primarily attributable to a
reduction of $314,000 in interest income due to notes receivable paid off
during 1991, a reduction of $1.0 million due to notes receivable foreclosed or
restructured during 1992, a reduction of $933,000 from principal reductions,
and a decrease of $695,000 due to nonperforming loans. These decreases were
partially offset by an increase in interest income of $1.3 million resulting
from the Company's sale of the Continental Hotel in June 1992 for a $22 million
wraparound note receivable.

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

Results of Operations (Continued)

Net rental income (rental income less property operating expenses) decreased
from $2.4 million in 1991 to $1.4 million in 1992. This decrease is
attributable to the transfer of the Porticos Apartments to IORT in November
1991, in satisfaction of the Company's note repurchase obligation.

Equity in losses of investees increased from a loss of $1.1 million in 1991 to
a loss of $3.4 million in 1992. This increase in equity losses from 1991 to
1992 is primarily attributable to the Company's increased share of ownership in
each of CMET, IORT, TCI and NRLP during 1992, increasing the Company's
proportionate share of equity in results of operations of each such entity.
Also, the Company ceased recognizing equity earnings attributable to NIRT on
September 1, 1992, due to the Company's agreement to sell all of its NIRT
shares.

Interest expense decreased from $8.8 million in 1991 to $7.2 million in 1992.
This decrease is attributable to a $1.2 million reduction in interest expense
due to the transfer of the Porticos Apartments to IORT in November 1991, a
further $1.7 million reduction relates to a line of credit which was paid in
full in December 1991, and a $507,000 decrease is due to principal paydowns on
other borrowings in 1991. These decreases were offset in part by an increase
in interest expense of $2.3 million related to new mortgage debt incurred as a
result of property refinancings in 1992 as well as debt assumed or incurred on
properties purchased in 1992 and a $401,000 increase in interest expense due to
increased margin borrowings during 1992.

Advisory and mortgage servicing fees decreased from $2.6 million in 1991 to
$1.3 million in 1992. This decrease is due to a fifty percent reduction in the
advisor's base fee effective October 1, 1991.

General and administrative expenses decreased from $3.8 million in 1991 to $2.3
million in 1992. This decrease is primarily due to legal fees of $740,000
incurred in 1991 in connection with the Southmark Corporation adversary
proceedings and $175,000 for consulting fees related to the Continental Hotel
foreclosure and bankruptcy in 1991. See NOTE 4. "NOTES AND INTEREST
RECEIVABLE." and NOTE 17. "COMMITMENTS AND CONTINGENCIES - Settlement of
Southmark Adversary Proceedings."

The provision for losses in 1992 was $3.7 million compared to $5.3 million in
1991. The 1992 provision for losses is comprised primarily of a $800,000
reduction in the estimated fair value of the collateral securing a mortgage
note receivable subsequently foreclosed, $404,000 to reserve against the
carrying value of a mortgage note receivable subsequently sold, $1.3 million to
reserve against the carrying value of first mortgage note and $771,000 related
to the Company's agreement to sell its NIRT shares. The 1991 provision for
losses is comprised of the write-off of two mortgage notes secured by a
commercial property in

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

Results of Operations (Continued)

South Carolina, a mortgage receivable secured by an apartment complex in
Alabama and $3.5 million related to performance obligations of the Company.

Gains on real estate sales were $566,000 in 1992 as compared to $1.3 million in
1991. The 1992 gain resulted from the sale of 84 residential lots in Texas.
The gain in 1991 resulted primarily from the sale of four restaurant properties
in California and 50 residential lots in Texas.

The Company reported no extraordinary gain in 1992 as compared to $7.6 million
in 1991. The extraordinary gain in 1991 is the result of the Company's
discounted payoff of a bank line of credit.

Income tax benefit of $921,000 was recorded in 1992 compared to a benefit of
$1.2 million in 1991. The benefit in both years is due to the reversal of tax
expense previously recognized on installment sales of real estate.

Commitments

In June 1992, the Company sold 397,359 newly issued shares of its Common Stock
to a private investor for $1.9 million cash. Terms of the sale agreement
provide the purchaser with an option to require the Company to reacquire up to
360,000 of the shares at $6.11 per share, a total of $2.2 million. Such option
is exercisable for a two year period which began in March 1993. To secure its
payment obligations under the option agreement, the Company assigned its
interest in the $22 million note receivable secured by the Continental Hotel
and Casino in Las Vegas, Nevada.

Also, in June 1992, the Company obtained a $3.3 million loan from the same
investor, collateralized by an assignment of the Company's interest in a
partnership which owns residential lots in Fort Worth, Texas and the Company's
interest in undeveloped land in downtown Atlanta, Georgia. The loan provides
for the lender's participation in the proceeds from either the sale or
refinancing of the Atlanta land to the extent of 15.57% of the net proceeds, as
defined, in excess of $10.0 million. The lender also had the right during a
period beginning eighteen months from the date of the loan and continuing
ninety days thereafter to put his participation to the Company in exchange for
a payment of $623,000. On December 2, 1993, the lender exercised his put which
required full payment by the Company within 30 days. The Company has
recognized such obligation by accruing additional interest on the $3.3 million
loan. The lender has agreed to extend the payment date to January 2, 1995, and
BCM and the trust that beneficially owns BCM, have agreed to guarantee the
Company's obligation, as well as the Company's obligation to purchase up to
360,000 shares of the Company's Common Stock pursuant to the option held by the
lender. As of March 31, 1994, BCM owned approximately 38% of the outstanding
shares of the Company's Common Stock. See NOTE 8. "NOTES AND INTEREST
PAYABLE."

41
<PAGE> 42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Commitments (Continued)

In October 1993, NRLP, Syntek Asset Management, L.P. ("SAMLP"), the NRLP
oversight committee and the Company reached an agreement evidenced by a
detailed Term Sheet to nominate a candidate to succeed SAMLP as general partner
of NRLP and National Operating, L.P. ("NOLP"), the operating partnership of
NRLP, and to consummate the 1990 settlement of a class action suit. The Term
Sheet also sets forth an agreement in principle to effect a restructuring of
NRLP and the spinoff by NRLP to its unitholders of shares of a newly- formed
subsidiary which would qualify as a Real Estate Investment Trust ("REIT") for
federal tax purposes. The Company is NRLP's largest unitholder and a 76.8%
limited partner of SAMLP. SAMLP currently serves as the general partner of
NRLP and NOLP and a newly formed subsidiary of SAMLP is to be nominated as
successor general partner. The Term Sheet further provides that within nine
months of the spinoff transaction, the Company will make a cash tender offer to
purchase up to 60% of NRLP's units of limited partner interest held by
unitholders unaffiliated with the Company or SAMLP for $12.00 per unit (an
estimated maximum purchase price of $8.0 million), unless the NRLP units have
traded at an appreciably higher average price for the prior thirty days. See
NOTE 17. "COMMITMENTS AND CONTINGENCIES."

Environmental Matters

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

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

Inflation

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

42
<PAGE> 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Tax Matters

On October 23, 1991, the Company's Board of Directors determined that the
benefits of maintaining the Company's qualification as a REIT for federal tax
purposes were no longer significant and that maintaining REIT status would
restrict the Company's financial flexibility and opportunities in the current
real estate markets. The Company therefore allowed its REIT status to lapse in
1991 and as a consequence will be taxed on its current and future earnings at
the federal tax rate for corporations and will no longer be allowed a deduction
for dividends paid.

For the year ended December 31, 1990, the Company elected and, in the opinion
of the Company's management, qualified as a REIT as defined under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Code 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 stockholders.

See NOTE 14. "INCOME TAXES" for a further discussion of income taxes.

Recent Accounting Pronouncement

The Financial Accounting Standards Board ("FASB") has recently issued Statement
of Financial Accounting Standards ("SFAS") No. 114 - "Accounting by Creditors
for Impairment of a Loan", which amends SFAS No. 5 - "Accounting for
Contingencies" and SFAS No. 15 - "Accounting by Debtors and Creditors for
Troubled Debt Restructurings." The statement requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate. SFAS No. 114 is effective for fiscal years
beginning after December 15, 1994. The Company's management has not fully
evaluated the effects of implementing this statement, but expects that they
will not be material as the statement is applicable to debt restructurings and
loan impairments after the earlier of the effective date of the statement or
the Company's adoption of the statement.

At its January 26, 1994 meeting, the FASB directed its staff to prepare an
exposure draft, that if approved, would eliminate the provisions of SFAS No.
114 that describe how a creditor should recognize income on an impaired loan
and add disclosure requirements on income recognized on impaired loans. The
effective date of SFAS No. 114 is not anticipated to change.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

43
<PAGE> 44
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
-----

Report of Independent Certified Public Accountants..... 45

Consolidated Balance Sheets -
December 31, 1993 and 1992........................... 46

Consolidated Statements of Operations -
Years Ended December 31, 1993, 1992 and 1991........ 47

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1993, 1992 and 1991......... 49

Consolidated Statements of Cash Flows -
Years Ended December 31, 1993, 1992 and 1991......... 50

Notes to Consolidated Financial Statements............. 53

Schedule I - Marketable Securities..................... 84

Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters, and Employees Other than
Related Parties...................................... 85

Schedule IX - Short-term Borrowings.................... 86

Schedule X - Supplementary Statement of Operations
Information.......................................... 87

Schedule XI - Real Estate and Accumulated Depreciation. 88

Schedule XII - Mortgage Loans on Real Estate........... 90

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

44
<PAGE> 45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors of
American Realty Trust, Inc.

We have audited the accompanying consolidated balance sheets of American Realty
Trust, Inc. and Subsidiaries as of December 31, 1993 and 1992 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1993. We have also
audited the schedules listed in the accompanying index. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Realty Trust, Inc. and Subsidiaries as of December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.

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

For the three years ended December 31, 1993, the Company had operating cash
flow deficits totaling $7.2 million and net losses totaling $16.9 million. As
discussed in Note 18, the Company's operating cash flow has not been sufficient
to pay mortgages and other obligations as they come due without advances from
affiliates, asset sales, refinancings and debt extensions. These circumstances
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regards to these matters are also described in
Note 18. The financial statements and schedules do not include any adjustments
that might result from the outcome of this uncertainty.

BDO SEIDMAN

Dallas, Texas
April 11, 1994

45
<PAGE> 46
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
----------------------------------
1993 1992
Assets ------------- -------------
------ (dollars in thousands)
<S> <C> <C>
Notes and interest receivable
Performing (including $5,527 in 1993 and
1992 from affiliate)......................... $ 28,547 $ 66,481
Nonperforming, nonaccruing.................... 23,222 6,327
------------- -------------
51,769 72,808
Real estate held for sale, (net of accumulated
depreciation of $5,320 in 1993 and $5,230
in 1992)...................................... 21,426 17,639

Less - allowance for estimated losses........... (9,913) (12,444)
------------- -------------
63,282 78,003
Real estate held for investment (net of accumu-
lated depreciation of $1,424 in 1993 and $928
in 1992)...................................... 31,011 27,678

Marketable equity securities of affiliate
held for sale................................. - 3,009
Cash and cash equivalents....................... 843 510
Investments in real estate entities............. 40,005 36,927
Other assets (including $477 in 1993 and $429
in 1992 due from affiliate)................... 4,720 4,883
------------- -------------
$ 139,861 $ 151,010
============= =============

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Notes and interest payable (including $10,495 in
1993 and $10,074 in 1992 due to affiliates)... $ 53,693 $ 63,698
Margin borrowings............................... 16,147 9,681
Accounts payable and other liabilities
(including $3,637 in 1993 and $4,920 in 1992
due to affiliate)............................. 10,552 13,348
------------- -------------
80,392 86,727

Minority interest............................... 1,149 1,737

Redeemable Common Stock; issued and outstanding
360,000 shares................................ 2,200 2,070

Commitments and contingencies

Stockholders' equity
Common stock, $.01 par value authorized
16,667,000 shares; issued and outstanding
2,524,164 shares in 1993 and 2,544,781 shares
in 1992....................................... 25 25
Paid-in capital................................. 64,553 64,353
Accumulated (deficit)........................... (8,458) (3,902)
------------- -------------
56,120 60,476
------------- -------------
$ 139,861 $ 151,010
============= =============
</TABLE>

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

46
<PAGE> 47
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1993 1992 1991
------------- ------------- --------------
(dollars in thousands, except per share)
<S> <C> <C> <C>
Income
Rentals................................... $ 7,885 $ 4,848 $ 5,632
Interest (including $48 in 1993, $277 in
1992 and $667 in 1991 from affiliates). 4,984 5,728 7,241
Equity in (losses) of investees........... (4,014) (3,388) (1,078)
Other..................................... 558 905 814
------------- ------------- --------------

9,413 8,093 12,609

Expenses
Property operations (including $45 in
1993, $49 in 1992 and $27 in 1991 to
affiliates)............................ 5,273 3,460 3,264
Interest (including $1,029 in 1993, $699
in 1992 and $538 in 1991 to affiliates) 6,497 7,227 8,799
Advisory and servicing fees to affiliate.. 1,257 1,340 2,616
General and administrative (including
$288 in 1993, $299 in 1992 and $373
in 1991 to affiliate).................. 1,819 2,325 3,822
Depreciation and amortization............. 1,130 1,259 1,697
Provision for losses...................... 2,300 3,757 5,274
Minority interest......................... (159) (204) 70
------------- ------------- --------------

18,117 19,164 25,542
------------- ------------- --------------

(Loss) from operations..................... (8,704) (11,071) (12,933)
Income tax benefit (expense)............... (11) 921 1,155
------------- ------------- --------------

(Loss) before gain on sale of real estate
and extraordinary gain.................... (8,715) (10,150) (11,778)

Net gain on sale of real estate............ 481 566 1,271
Extraordinary gain......................... 3,807 - 7,628
------------- ------------- --------------

Net (loss)................................. (4,427) (9,584) (2,879)

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

Net (loss) applicable to Common shares..... $ (4,556) $ (9,842) $ (2,879)
============= ============= ==============
</TABLE>

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

47
<PAGE> 48
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
Earnings per share
(Loss) before gain on sale of real estate
and extraordinary gain................... $ (2.88) $ (4.18) $ (5.56)
Net gain on sale of real estate........... .16 .23 .60
Extraordinary gain........................ 1.26 - 3.60
----------- ----------- ------------

Net (loss)................................ (1.46) (3.95) (1.36)

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

Net (loss) applicable to Common
shares................................... $ (1.50) $ (4.06) $ (1.36)
=========== =========== ============

Weighted average Common shares used in
computing earnings per share............. 3,025,275 2,453,292 2,117,699
=========== =========== ============
</TABLE>

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

48
<PAGE> 49
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY

Accumu-
Common Stock lated
------------------------- Paid-in Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
--------- ------------ ------------ ------------ --------------
(dollars and shares in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1991..... 2,117,960 $ 21 $ 64,272 $ 8,819 $ 73,112

Fractional shares
acquired............. (523) - (12) - (12)

Net (loss)........... - - - (2,879) (2,879)
--------- ------------ ------------ ------------ --------------

Balance,
December 31, 1991.. 2,117,437 21 64,260 5,940 70,221

Common Stock issued.. 427,359 4 93 - 97
Accretion of discount
on redeemable
Common Stock....... - - - (258) (258)

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

Net (loss)........... - - - (9,584) (9,584)
--------- ------------ ------------ ------------ --------------

Balance,
December 31, 1992.. 2,544,781 25 64,353 (3,902) 60,476

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

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

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

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

Net (loss)........... - - - (4,427) (4,427)
--------- ------------ ------------ ------------ --------------

Balance,
December 31, 1993.. 2,524,164 $ 25 $ 64,553 $ (8,458) $ 56,120
========= ============ ============ ============ ==============
</TABLE>

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

49
<PAGE> 50

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For The Years Ended December 31,
----------------------------------------------------
1993 1992 1991
------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Rentals collected.......................... $ 8,317 $ 4,565 $ 5,720
Interest collected (including $277 in
1992 and $584 in 1991 from affiliates... 4,584 4,412 7,035
Distributions received from real estate
entities operating activities........... 676 - 2,846
Interest paid (including $275 in 1993,
$309 in 1992 and $108 in 1991 to
affiliate).............................. (4,689) (6,573) (6,895)
Payments for property operations
(including $45 in 1993, $49 in 1992 and
$27 in 1991 to affiliate)............... (6,122) (3,519) (3,941)
Advisory fee paid to affiliate............. (1,295) (1,447) (2,720)
General and administrative expenses paid
(including $288 in 1993, $299 in 1992
and $373 in 1991 to affiliate).......... (1,517) (2,298) (3,741)
Other...................................... 91 (914) 235
------------- ------------- -------------

Net cash provided by (used in) operating
activities............................ 45 (5,774) (1,461)

Cash Flows From Investing Activities
Collections on notes receivable (including
$112 in 1992 and $2,473 in 1991 from
affiliates)............................. 1,481 3,951 9,119
Proceeds from sale of notes receivable..... - 496 2,030
Proceeds from sale of marketable
equity securities of affiliate.......... 2,202 1,002 -
Deposit on acquisition of mortgage note
receivable.............................. (300) (1,000) -
Notes receivable funded.................... (609) (261) (528)
Proceeds from sale of real estate.......... 2,305 2,434 2,388
Acquisition of and improvements to real
estate.................................. (2,013) (1,397) (1,142)
Investment in real estate entities......... (3,976) (4,003) (3,500)
Other...................................... - - (492)
------------- ------------- -------------

Net cash provided by (used in) investing
activities............................ (910) 1,222 7,875
</TABLE>

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

50
<PAGE> 51
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<TABLE>
<CAPTION>
For The Years Ended December 31,
----------------------------------------------------
1993 1992 1991
------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Financing Activities
Proceeds from notes payable (including
$5,420 in 1991 from affiliate).......... 15,677 16,755 13,897
Margin borrowings, net..................... 6,466 1,680 6,213
Proceeds from issuance of Common Stock
and redeemable Common Stock............. 200 1,909 -
Payments on notes payable (including
$384 in 1993 and $5,420 in 1992 to
affiliate).............................. (17,350) (18,966) (28,094)
Southmark settlement payments.............. (950) - -
Net collections (advances) to/from
affiliates.............................. (2,845) 3,239 1,720
------------- ------------- -------------
Net cash provided by (used in) financing
activities............................ 1,198 4,617 (6,264)
------------- ------------- -------------

Net increase in cash and cash equivalents... 333 65 150
Cash and cash equivalents, beginning of year 510 445 295
------------- ------------- -------------

Cash and cash equivalents, end of year...... $ 843 $ 510 $ 445
============= ============= =============

Reconciliation of net (loss) to net
cash provided by (used in) operating
activities
Net (loss).................................. $ (4,427) $ (9,584) $ (2,879)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating
activities
Extraordinary gain...................... (3,807) - (7,628)
Net gain on sale of real estate......... (481) (566) (1,271)
Depreciation and amortization........... 1,130 1,259 1,697
Provision for losses.................... 2,300 3,757 5,274
Equity in losses of investees........... 4,014 3,388 1,078
Distributions from equity investees..... 676 - 2,846
(Increase) decrease in accrued interest
receivable............................ (262) (1,243) 1,307
(Increase) decrease in other assets..... (904) (1,564) 228
Decrease in receivable from
affiliates............................ - - 1,396
Increase (decrease) in accounts payable
and other liabilities................. 1,806 (282) (2,641)
(Decrease) in deferred taxes............ - (939) (1,163)
Other................................... - - 295
------------- ------------- -------------
Net cash provided by (used in)
operating activities................ $ 45 $ (5,774) $ (1,461)
============= ============= =============
</TABLE>

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

51
<PAGE> 52
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<TABLE>
<CAPTION>
For The Years Ended December 31,
----------------------------------------------------
1993 1992 1991
------------- ------------- -------------
Schedule of noncash investing activities (dollars in thousands)
<S> <C> <C> <C>
Settlement agreement with Southmark
Corporation
Carrying value of assets received....... $ - $ 5,134 $ -
Carrying value of payables assumed...... - (2,335) -
Carrying value of interest in Syntek
Asset Management, L.P. transferred.... - (2,549) -
Carrying value of note receivable from
Novus Nevada, Inc. canceled........... - (250) -

Carrying value of real estate transferred to
affiliate in satisfaction of $3,646
obligation subject to debt with a
carrying value of $11,424.................. - - 11,379

Acquisition of real estate financed by debt. 5,400 10,555 4,362

Property sale financed by borrowings........ - 18,142 -

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

Carrying value of real estate securities
acquired through assumption of debt with a
carrying value of $2,137 in 1992 and
$3,244 in 1991............................. - 1,135 3,244

Acquisition of mortgage note participations
through asset exchange..................... - - 3,066

Disposition of mortgage note participations
through asset exchange..................... - - (1,188)

Disposition of real estate through asset
exchange................................... - - (1,995)

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

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

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

52
<PAGE> 53
AMERICAN REALTY TRUST, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

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

Certain balances for 1991 and 1992 have been reclassified to conform to the
1993 presentation.

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

Allowance for estimated losses. Valuation allowances are provided for
estimated losses on notes receivable and properties held for sale to the extent
that the investment in the notes or properties exceeds the Company's estimate
of net realizable value of the property or the collateral securing such note,
or fair value of the collateral if foreclosure is probable. In estimating net
realizable value, consideration is given to the current estimated collateral or
property value adjusted for costs to complete or improve, hold and dispose.
The cost of funds, one of the criteria used in the calculation of estimated net
realizable value (approximately 4.8% and 5.1% as of December 31, 1993 and 1992,
respectively), is based on the average cost of all capital. The provision for
losses is based on estimates, and actual losses may vary from current
estimates. Such estimates are reviewed periodically, and any additional
provision determined to be necessary is charged against earnings in the period
in which it becomes reasonably estimable.

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

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

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

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

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

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

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

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

NOTE 2. SEVERANCE OF RELATIONSHIP WITH SOUTHMARK CORPORATION

Gene E. Phillips, a Director and Chairman of the Board of the Company until
November 16, 1992, and William S. Friedman, the President and a Director of the
Company until December 31, 1992, were also directors and executive officers of
Southmark Corporation ("Southmark") until January 1989. Messrs. Phillips and
Friedman entered into certain agreements (the "January Agreements") with
Southmark which among other things settled certain disputes and provided for
the severance of their relationship with Southmark. In February 1989, the
Company terminated its advisory agreement with a subsidiary of Southmark and
appointed as advisor, Basic Capital Management, Inc. ("BCM" or "the Advisor").
Mr. Friedman served as President of BCM until May 1, 1993. Mr. Phillips served
as Chief Executive Officer of BCM until September 1, 1992. BCM is owned by a
trust for the benefit of the children of Mr. Phillips. Ryan T. Phillips, a
Director of the Company, is a director of BCM and a trustee of the trust which
beneficially owns BCM. Since January 1,

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

NOTE 2. SEVERANCE OF RELATIONSHIP WITH SOUTHMARK CORPORATION (Continued)

1994, Oscar W. Cashwell, a Director of the Company has served as President of
BCM. Mr. Phillips serves as a representative of the trust for the benefit of
his children that beneficially owns BCM and, in such capacity, Mr. Phillips has
substantial contact with the management of BCM and input with respect to its
performance of advisory services to the Company. See NOTE 11. "ADVISORY
AGREEMENT."

On July 12, 1989, the Company closed a set of related agreements (collectively
the "Southmark Separation Agreements") with its then largest stockholder,
Southmark, essentially terminating the Company's relationship with Southmark.
Under the Southmark Separation Agreements the Company acquired an aggregate of
1,502,595 shares of its Common Stock, Southmark's interest in various real
estate entities, a 96% limited partnership interest in Syntek Asset Management,
L.P. ("SAMLP"), and a release of asserted indebtedness to Southmark of at least
$3.3 million. In addition, Southmark relinquished an option to acquire up to
50.5% of the Company's Common Stock. The Company also acquired, subject to any
required regulatory approval, all of the outstanding common stock of Novus
Nevada, Inc., ("Novus Nevada"). As part of the settlement of the Southmark
adversary proceedings the Novus Nevada common stock was transferred to the
Company on February 25, 1992. See NOTE 17. "COMMITMENTS AND CONTINGENCIES -
Settlement of Southmark Adversary Proceedings".

In return, the Company conveyed to Southmark mortgage notes substantially all
of which the Company had previously purchased from Southmark and its affiliates
and which were covered by an agreement pursuant to which Southmark had
guaranteed the payment of principal and interest on such notes.

On July 14, 1989, Southmark filed a voluntary petition for bankruptcy under
Chapter 11 of the United States Bankruptcy Code. At Southmark's request, the
Bankruptcy Court appointed an examiner to review pre-Chapter 11 transactions
and potential causes of action on behalf of the Southmark bankruptcy estate.
The examiner concluded that Southmark should seek to recover assets which he
valued in excess of $50.0 million, most of which were transferred to the
Company in connection with the Southmark Separation Agreements. The examiner's
conclusion was based upon his opinion that such transfer was made at a time
when Southmark was insolvent and that Southmark did not receive fair value in
return for the assets transferred. The examiner also concluded that $1.4
million remitted to the Company by Southmark in respect of the Company's
participation in certain loans from an insurance subsidiary of Southmark could
be recovered as a preferential transfer and that $250,000 remitted to the
Company by Southmark as an annual mortgage payment on a Novus Nevada loan could
also be recovered as a preferential transfer. See NOTE 17. "COMMITMENTS AND
CONTINGENCIES - Settlement of Southmark Adversary Proceedings," for a
discussion of the actions brought against the Company by Southmark and the
subsequent settlement of all such matters.

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

NOTE 3. SYNTEK ASSET MANAGEMENT, L.P.

As part of the Southmark Separation Agreements, the Company acquired
Southmark's 96% limited partner interest in SAMLP, the general partner of
National Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP"), the
operating partnership of NRLP. Mr. Phillips is a general partner, and until
March 4, 1994, Mr. Friedman was a general partner of SAMLP. In accordance with
the provisions of the settlement of the Southmark adversary proceedings, on
February 25, 1992, the Company assigned to Southmark a 19.2% limited partner
interest in SAMLP. The Company has an option which expires on December 27,
1994, to reacquire Southmark's 19.2% interest in SAMLP for $2.4 million, less
any distributions received by Southmark. See NOTE 2. "SEVERANCE OF
RELATIONSHIP WITH SOUTHMARK CORPORATION" and NOTE 17. "COMMITMENTS AND
CONTINGENCIES - Settlement of Southmark Adversary Proceedings."

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

If unit price targets are not met for any two successive years, or for the
final year of the settlement plan, SAMLP will be required to withdraw as
general partner of NRLP and NOLP. The targets began at $44.00 per unit for May
9, 1991, and increase thereafter to $120.00 per unit for May 9, 1995, adjusted
for distributions, if any, to unitholders. NRLP did not achieve either the
first or the second annual target. Accordingly, SAMLP expects to resign as
general partner of NRLP and NOLP.

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

NOTE 3. SYNTEK ASSET MANAGEMENT, L.P. (Continued)

has calculated the fair value of such Redeemable General Partner Interest to be
$25.8 million at December 31, 1993, before reduction for the principal balance
($4.2 million at December 31, 1993) and accrued interest ($3.5 million at
December 31, 1993) on the note receivable from SAMLP for its original capital
contribution to NRLP. There can be no assurance that such amount at the time
of any such withdrawal will not be substantially higher or lower. The NRLP
oversight committee has calculated such Redeemable General Partner Interest, to
be $20.0 million at December 31, 1993, before reduction for the principal
balance and accrued interest on the note receivable from SAMLP for its original
capital contribution to NRLP. Such Redeemable General Partner Interest may be
paid to SAMLP at the option of the NRLP oversight committee over three years
pursuant to a secured promissory note bearing interest at a financial
institution's prime rate. NRLP's purchase of the Redeemable General Partner
Interest could have an adverse effect on NRLP's financial condition and on the
Company's investment in limited partner units of NRLP ($12.0 million at
December 31, 1993).

In October 1993, SAMLP and the NRLP oversight committee reached an agreement in
principle, evidenced by a detailed Term Sheet, to nominate a candidate for
successor general partner of NRLP and NOLP and to consummate the settlement of
the class action lawsuit. The nominee for successor general partner will be a
newly-formed corporation which will be a wholly-owned subsidiary of SAMLP.
Pursuant to the Term Sheet, NRLP will be relieved of any obligation to purchase
the Redeemable General Partner Interest or to pay any other fees or
compensation to SAMLP upon SAMLP's withdrawal as general partner of NRLP and
NOLP.

The Term Sheet also sets forth an agreement in principle to effect a
restructuring of NRLP and the spinoff by NRLP to its unitholders, shares of a
newly-formed subsidiary which would qualify as a Real Estate Investment Trust
("REIT") for federal tax purposes. The Company was also a party to the Term
Sheet which provides that within nine months of the spinoff transaction, the
Company will make a cash tender offer to purchase up to 60% of NRLP's units of
limited partner interest held by unitholders unaffiliated with the Company or
SAMLP for $12.00 per unit (an estimated maximum purchase price of $8.0
million), unless the NRLP units have traded at an appreciably higher average
price for the prior thirty days. The Company is NRLP's largest unitholder and
a 76.8% limited partner of SAMLP.

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

NOTE 4. NOTES AND INTEREST RECEIVABLE

<TABLE>
<CAPTION>
1993 1992
-------------------------------- ------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Notes Receivable
Performing (including $5,527
in 1993 and 1992 from
affiliate)................ $ 27,532 $ 28,756 $ 65,663 $ 69,075
Nonperforming, nonaccruing... 26,724 27,262 4,439 6,327
-------------- ------------ ------------- ------------
$ 54,256 56,018 $ 70,102 75,402
============== =============

Unamortized premiums/
(discounts)............... 100 (122)
Deferred gains............... (4,617) (4,328)
Interest receivable.......... 268 1,856
------------ ------------
$ 51,769 $ 72,808
============ ============
</TABLE>

The Company does not recognize interest income on nonperforming notes
receivable. Notes receivable are considered to be nonperforming when they
become 60 days or more delinquent. For the years 1993, 1992 and 1991
unrecognized interest income on such nonperforming notes receivable totaled
$3.1 million, $943,000 and $1.2 million, respectively.

Notes receivable at December 31, 1993, mature from 1994 to 2014 with interest
rates ranging from 6.7% to 14.0% and the weighted average rate of 7.39%. A
small percentage of these notes receivable carry a variable interest rate.
Notes receivable include notes generated from property sales which have
interest rates adjusted at the time of sale to yield rates ranging from 6% to
14%. Notes receivable are generally nonrecourse and are generally
collateralized by real estate. Scheduled principal maturities of $5.4 million
are due in 1994 of which $4.5 million is due on nonperforming notes receivable.

Nonrecourse participations totaling $2.6 million at both December 31, 1993 and
1992, have been deducted from notes receivable.

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

NOTE 4. NOTES AND INTEREST RECEIVABLE (Continued)

and the FDIC agreed to terminate both the participation and term loan
agreements each having a principal balance of $7.6 million. The Company
recorded a $58,000 gain on the termination of the agreements.

In June 1991, the Company entered into an asset sales agreement with an
insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets. The sales
agreement, as amended, included a guarantee by each of the parties of a 10%
rate of return on the assets transferred. Assets transferred by the Company
pursuant to the asset sales agreement included a retail shopping center in
Lubbock, Texas with a carrying value of $2.0 million at the date of transfer, a
$1.5 million senior participation in a second lien mortgage note secured by the
Las Vegas Plaza, a retail shopping center in Las Vegas, Nevada with a carrying
value of $18.8 million prior to transfer, a $315,000 participation in a first
mortgage note on unimproved land in Virginia Station, Virginia and a $799,000
participation in a second lien mortgage note on the Country Club Apartments in
Flagstaff, Arizona. In return, the Company received a $1.9 million
participation in a first mortgage note on the Kauai Inn, a hotel property in
Lihue, Hawaii, a $1.0 million participation in a first mortgage note secured by
land in Maricopa County, Arizona, a $118,000 first lien mortgage note secured
by a single-family residence in Silver Creek, Colorado and $1.5 million in
cash. The asset sales agreement contained put and guaranty provisions whereby,
at any time, either party could demand that the seller reacquire any asset sold
pursuant to the terms of the asset sales agreement for the consideration
originally received within fifteen days of exercising its put option. In March
1992, the Company received payment in full on the $118,000 note secured by the
single-family residence in Silver Creek, Colorado.

In March 1992, the insurance company was placed in receivership and in June
1992, the Company provided notice to the insurance company, under the terms of
the put and guaranty provisions, of the asset sales agreement, of its desire to
divest itself of all assets received. The Receiver has refused to allow the
enforcement of the put and guaranty provisions of the asset sales agreement.
On September 3, 1992, the Court approved the Receiver's Petition of Order of
Liquidation for the insurance company.

In March 1992, the Company recorded a provision for loss of $496,000 to reduce
the note receivable secured by land in Maricopa County, Arizona, to its then
estimated fair value. The Company foreclosed on the land securing the note in
June 1992. In December 1992, the Company recorded an additional provision for
loss on such land of $349,000 to reduce the land's carrying value to its then
estimated fair value. During September 1992, the Company recorded the
insubstance foreclosure of the Kauai Inn, which secured the $1.9 million first
mortgage participation

60
<PAGE> 61
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. NOTES AND INTEREST RECEIVABLE (Continued)

received by the Company. Subsequently, the hotel suffered severe hurricane
damage and was shut down. The Company is continuing to evaluate its options
with regard to these assets and is also in settlement negotiations with the
Receiver and does not expect to incur any loss in excess of the amounts
previously provided.

The borrower on a $1.9 million first mortgage note receivable failed to make
the principal payment due on December 31, 1992, the note's maturity date. The
note is secured by a vacant property, formerly a hotel, located in Shaker
Heights, Ohio, which the borrower plans to convert into a nursing home. The
Company has granted several extensions on the note, with the most recent
extension expiring on December 31, 1992. The borrower has requested another
extension, which the Company is considering. On March 26, 1994, the borrower's
"certificate of need", which is required to accomplish the nursing home
conversion expired. The borrower has applied for a renewal of such
certificate, however, there is no assurance that the renewal will be granted.
In December 1992, the Company recorded a provision for loss of $1.3 million to
reduce the carrying value of the note to the estimated fair value of the
collateral, as a hotel. If extension negotiations with the borrower are
unsuccessful, and the Company forecloses the collateral property, no loss is
anticipated in excess of the amounts provided.

The Company did not receive the payment due on October 1, 1991 on the first
mortgage note receivable secured by the 386 Ocean Parkway Co-op. In February
1994, the Company agreed to reinstate and modify its note

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

NOTE 4. NOTES AND INTEREST RECEIVABLE (Continued)

in exchange for the pledge to the Company, as additional collateral, of 21
shares in the co-op equating to 21 unsold apartment units. The reinstated note
reduces the principal balance from $900,000 to $750,000, waives all defaults on
the note prior to the execution of the reinstatement documents, and extends the
maturity date of the note to September 15, 1999, with interest only payments at
7% per annum for the first two years, 8% per annum for the second two years and
9% per annum for the balance of the term with principal due at maturity. The
Company is negotiating the sale of its first mortgage note and as of December
31, 1993, recorded a provision for losses of $300,000 to reduce the carrying
value of the note to its estimated sales price. No additional loss is
anticipated in excess of the amount provided.

In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The note had
an outstanding principal balance as of the date of foreclosure of $9.2 million.
The Company acquired the hotel and casino property at foreclosure subject to
first and second lien mortgages totaling $10.0 million and a disputed third
lien mortgage. In June 1992, the Company sold the hotel and casino to the
third lienholder for a $22 million wraparound mortgage note receivable, a
$500,000 unsecured note receivable, and $100,000 in cash. The $22 million note
bears interest at 11%, matures June 19, 1995, and calls for monthly interest
payments of $175,000 through December 1993, $250,000 through June 1, 1995 and a
balloon payment at maturity. The $500,000 note was paid off in July 30, 1993.
The Company recorded a deferred gain of $4.3 million in connection with the
sale of the hotel and casino resulting from the disputed third lien mortgage
being subordinated to the Company's wraparound mortgage note receivable.
Payments of interest and principal on the Company's wraparound note receivable
were made directly by the borrower to the holder of the first and second lien
mortgages and were applied against interest and principal thereon. Since
October 1993, the borrower has failed to make the monthly payments required by
the Company's wraparound mortgage note receivable to the holder of the first
and second lien mortgages. The Company and the underlying lienholder have
accelerated their notes. The Company's wraparound mortgage note receivable had
a principal balance of $22.7 million at December 31, 1993, including compounded
interest. The Company is negotiating with the borrower and the underlying
lienholder to modify and extend both the Company's wraparound mortgage note
receivable and the underlying liens. The Company expects to be successful in
such negotiations, however, if it should lose the collateral property to the
underlying lienholder it would incur a loss of $12.4 million.

As discussed in NOTE 5. "REAL ESTATE", in March 1993, the Company recorded the
insubstance foreclosure of the KC Holiday Inn, the collateral securing a first
mortgage receivable with a principal balance of $7.0 million at the date of
foreclosure. In June 1993, the Company

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

NOTE 4. NOTES AND INTEREST RECEIVABLE (Continued)

acquired the first mortgage secured by Boulevard Villas Apartments foreclosing
on the collateral property in July 1993. The Company held a second lien
mortgage that was in default at December 31, 1992.

In 1992, the wraparound mortgage note receivable secured by a shopping center
in Snellville, Georgia was paid off. The Company received net cash of $242,000
after satisfaction of the underlying $743,000 note payable. The Company wrote
off a fully reserved $1.0 million note receivable as uncollectible in 1992.
The collateral for the note was the general partner's interest in a limited
partnership which owned an apartment complex in Birmingham, Alabama.

Also in 1992, the Company sold its $3.9 million first lien mortgage note
secured by a 123 unit apartment complex in Brooklyn, New York. The note was
sold subject to the $3.0 million hypothecation note payable, for $500,000.

At December 31, 1992, the Company held a mortgage note receivable with a
principal balance of $590,000 secured by a third lien on a commercial property
in South Carolina and personal guaranties of several individuals. In May 1992,
a settlement was entered into between the Company and the guarantors. In
accordance with the terms of the settlement, (i) the borrower made a principal
reduction payment of $127,812, (ii) monthly interest payments at a rate of 10%
per annum began June 1, 1992 and (iii) the maturity date was extended to May
11, 1993. Effective May 11, 1993, the Company and the guarantors of the note
entered into a modification to the settlement agreement. The note was modified
to bear interest at 18% per annum, have a maturity date of October 1, 1993, and
provide for monthly principal payments of $200,000 July 1, 1993 through October
1, 1993. The Company received none of the payments required by the modified
note. Effective September 1, 1993, the Company and the guarantors entered into
a second modification. The guarantors paid $100,000, reducing the note's
principal balance by $68,000 and bringing interest current to September 1,
1993. The second modification extends the note's maturity date to September 1,
1995, requires monthly interest payments at 12% per annum beginning October 1,
1993 and a $25,000 principal reduction payment every ninety days beginning
December 1, 1993. The principal balance of the note was $497,000 at December
31, 1993, and the note was current. The Company does not expect to incur a
loss in excess of the amounts previously provided.

Related party. In April 1990, SAMLP made a $1.4 million unsecured loan to
Equity Health and Finance Corporation ("Equity Health"), an entity affiliated
with BCM, the Company's advisor. The Company owns a 76.8% limited partner
interest in SAMLP which it consolidates for financial statement purposes. The
Equity Health note bears interest at 12% per annum, originally matured on April
10, 1991 and has been subsequently extended to May 9, 1994. In June 1991,
Equity Health merged into BCM,

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

NOTE 4. NOTES AND INTEREST RECEIVABLE (Continued)

and BCM assumed the note. The outstanding balance of the note was $477,000 at
December 31, 1993, including accrued but unpaid interest.

NOTE 5. REAL ESTATE

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

At December 31, 1992, the Company held a first lien leasehold mortgage note
receivable with an outstanding principal balance of $7.0 million secured by the
KC Holiday Inn in Kansas City, Missouri. The borrower failed to make the
required March 1993 interest payment and at March 31, 1993, the Company
recorded the insubstance foreclosure of the hotel. In April 1993, title to the
hotel was conveyed to a wholly-owned subsidiary of the Company subject to the
Company's note receivable. The KC Holiday Inn had an estimated fair value
(minus estimated costs of sale) of $5.2 million at the date of foreclosure.
The Company incurred no loss on foreclosure in excess of the amounts previously
provided. The Company's note receivable is pledged as collateral for a $3.0
million loan to the Company from a financial institution.

In May 1993, the Company obtained a $1.8 million first mortgage secured by the
previously unencumbered Rosedale Office Towers Office Building. In December
1993, the Company refinanced the first mortgage debt secured by the Watersedge
III and Edgewater Gardens Apartments in the aggregate amount of $6.1 million.
See NOTE 8. "NOTES AND INTEREST PAYABLE."

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

64
<PAGE> 65
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5. REAL ESTATE (Continued)

repair and tax escrows and the payment of associated refinancing costs. The
new mortgage bears interest at the rate of 9% per annum, matures November 1996,
and requires monthly payments of principal and interest of $63,984. The
Company acquired the first mortgage with the intent of acquiring the collateral
property, hence the Boulevard Villas Apartments are classified as held for
investment.

In April 1991, the Company acquired for $208,000 in cash all of the capital
stock of a corporation which owned 181 developed residential lots in Fort
Worth, Texas subject to $1.2 million of mortgage debt owed to Continental
Mortgage and Equity Trust ("CMET"). The loan was paid in full August 1993.
During 1991, 50 of the residential lots were sold for an aggregate gain of
$250,000. During 1992, 37 of the residential lots were sold for an aggregate
gain of $190,000. During 1993, 56 of the residential lots were sold for an
aggregate gain of $220,000. At December 31, 1993, 44 lots remained to be sold.
CMET is an entity having the same advisor as the Company and at March 31, 1994,
the Company owned approximately 30% of CMET's outstanding shares of beneficial
interest and CMET owned approximately 7% of the outstanding shares of the
Company's Common Stock.

In 1991, the Company purchased for $930,000 in cash, all of the capital stock
of Denton Road Investment Corporation ("Denton Road"), a corporation which owns
a 60% interest in a joint venture which in turn owned 113 partially developed
residential lots in Denton, Texas. Proceeds from the lot sales were applied to
reduce the debt secured by the lots until March 30, 1993 when the debt was paid
in full. During 1992, 47 of the residential lots were sold for an aggregate
gain of $423,000. During 1993, 37 of the residential lots were sold for an
aggregate gain of $356,000. At December 31, 1993, 30 lots remained to be sold.

NOTE 6. ALLOWANCE FOR ESTIMATED LOSSES

Activity in the allowance for estimated losses was as follows:

<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Balance January 1,............. $ 12,444 $ 14,154 $ 9,254
Provision for losses........... 2,300 2,986 5,251
Amounts charged off............ (3,159) (4,696) (351)
Amounts reclassified to
liabilities................... (1,672) - -
------------- ------------- -------------
Balance December 31,........... $ 9,913 $ 12,444 $ 14,154
============= ============= =============
</TABLE>

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

NOTE 6. ALLOWANCE FOR ESTIMATED LOSSES (Continued)

In addition to the provision for losses in the table above, the provision for
losses in the accompanying Consolidated Statements of Operations includes
$771,000 in 1992 and $23,000 in 1991 of direct charges against earnings. The
direct charge in 1992 of $771,000 relates to the write down of the Company's
investment in National Income Realty Trust ("NIRT") to an agreed sales price.
(See NOTE 7. "INVESTMENTS IN REAL ESTATE ENTITIES.")

NOTE 7. INVESTMENTS IN REAL ESTATE ENTITIES

The Company's investment in real estate entities at December 31, 1993, includes
equity securities of three publicly traded real estate investment trusts
(collectively the "Trusts"), CMET, Income Opportunity Realty Trust ("IORT") and
Transcontinental Realty Investors, Inc. ("TCI"), and NRLP, a general
partnership interest in NRLP and NOLP, the operating partnership of NRLP,
through its 76.8% limited partner interest in SAMLP and 50% interests in real
estate joint venture partnerships. Mr. Phillips, a former Director of the
Company, is a general partner of SAMLP, NRLP's and NOLP's general partner.
Oscar W. Cashwell, a Director of the Company serves as President of BCM, the
Trusts and as President and as a director of SAMI, the managing general partner
SAMLP. In addition, BCM serves as advisor to the Trusts, and performs certain
administrative and management functions for NRLP and NOLP on behalf of SAMLP.

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

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

(THIS SPACE INTENTIONALLY LEFT BLANK.)

66
<PAGE> 67
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)

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

<TABLE>
<CAPTION>
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1993 December 31, 1993 December 31, 1993 December 31, 1993
- -------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NRLP 43.8% $ 12,001 $ - * $ 23,642
CMET 30.2 10,947 24,510 11,349
IORT 18.0 1,952 4,740 2,154
TCI 20.0 6,223 19,265 7,203
------------- ------------
31,123 $ 44,348
============
General partner
interest in NRLP and NOLP 8,233
Other 649
-------------
$ 40,005
=============
</TABLE>
____________________

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

The Company's investment in real estate entities, accounted for under the
equity method, at December 31, 1992 was as follows:

<TABLE>
<CAPTION>
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1992 December 31, 1992 December 31, 1992 December 31, 1992
- -------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NRLP 34.5% $ 8,533 $ - * $ 16,097
CMET 24.8% 10,117 20,371 4,956
IORT 14.8% 1,727 3,912 801
TCI 14.9% 6,639 15,733 2,740
------------- ------------
27,016 $ 24,594
============
General partner
interest in NRLP and NOLP 8,983
Other 928
-------------
$ 36,927
=============
</TABLE>

___________________________

67
<PAGE> 68
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)

* At December 31, 1992, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity was $69.2 million (unaudited).
Revaluation equity is defined as the difference between the appraised value
of the partnership's real estate, adjusted to reflect the partnership's
estimate of disposition costs, and the amount of the mortgage notes payable
and accrued interest encumbering such property as reported in NRLP's Annual
Report on Form 10-K for the year ended December 31, 1992.

The Company's management continues to believe that the market value of each of
the Trusts and NRLP undervalues their assets and the Company has, therefore,
continued to increase its ownership in these entities in 1993, as its liquidity
has permitted.

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

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

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

In September 1992, the Company agreed to sell its entire share holdings in
Vinland Property Trust ("VPT") to Lucy N. Friedman, the wife of William S.
Friedman, the President and a trustee of VPT. Mr. Friedman was also the
President and a Director of the Company until December 31, 1992. The agreement
provided for the Company to sell the 831,620 VPT shares which it owned at the
then current market price of $0.415 per share. The Company recognized a gain
of $71,000 on the disposition of its VPT shares. As of December 31, 1992, the
Company had transferred all of its VPT shares to Mrs. Friedman for $345,000 in
cash. BCM, the Company's advisor, resigned as advisor to VPT effective
February 28, 1994.

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

NOTE 7. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)

Also, in September 1992, the Company agreed to sell its entire holdings in NIRT
to Mr. Friedman, the President and a trustee of NIRT, members of his family and
his affiliates. The agreement provided for the Company to sell its 741,592
NIRT shares at the then market price of $6.875 per share. As payment for the
NIRT shares, the Company received $2.9 million in cash ($657,000 in 1992) and
$2.2 million in securities of CMET (105,096 shares at $6.625 per share), IORT
(10,075 shares at $5.375 per share), TCI (118,500 shares at $5.25 per share)
and NRLP (42,260 units at $20.50 per unit). In September 1992, the Company
wrote the carrying value of its NIRT shares down to their agreed sales price,
recorded a provision for loss of $771,000 and discontinued accounting for its
investment in NIRT under the equity method. As of December 31, 1993, the
Company had transferred all of its NIRT shares to Mr. Friedman and his
affiliates and had received payment in full. BCM, the Company's advisor,
resigned as advisor to NIRT effective March 31, 1994.

In January 1992, the Company entered into a partnership agreement with an
entity affiliated with Donald C. Carter, the owner of in excess of 14% of the
Company's outstanding Common Stock, to acquire 287 developed residential lots
adjacent to the Company's other residential lots in Fort Worth, Texas. The
Company paid $717,000 in cash for its 50% general partnership interest. The
partnership agreement designates the Company as managing general partner. The
partnership agreement also provides that Mr. Carter is guaranteed a 10% return
on his investment. In 1993, 18 residential lots were sold, no lots were sold
in 1992. At December 31, 1993, 269 lots remained to be sold. See NOTE 8.
"NOTES AND INTEREST PAYABLE" and NOTE 9. "REDEEMABLE COMMON STOCK."

The following information summarizes the combined financial position and
results of operations of the real estate entities the Company accounts for
using the equity method (unaudited):

1993 1992
--------- ---------
Property and notes
receivable, net............ $ 647,049 $ 783,153
Other assets.................. 80,680 116,662
Notes payable................. (547,364) (630,366)
Other liabilities............. (63,212) (59,627)
--------- ---------
Equity........................ $ 117,153 $ 209,822
========= =========

1993 1992 1991
--------- --------- --------
Revenues.................... $ 166,050 $ 178,145 $186,464
Depreciation................ (18,984) (20,374) (21,483)
Provision for losses........ (1,094) (8,759) (24,448)
Interest.................... (50,661) (57,529) (57,160)
Operating expenses.......... (112,975) (107,109) (127,637)
Gains on sale of real estate 389 - -
Extraordinary gains......... 11,446 - -
--------- --------- --------
Net (loss).................. $ (5,829) $ (15,626) $(44,264)
========= ========= ========

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

NOTE 7. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)

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

The Company's cash flow from the Trusts and NRLP is dependent on the
ability of each of the entities to make distributions. TCI's distribution
policy provides for an annual determination of distributions after year
end, and then only to the extent of its REIT (as defined below) taxable
income, if any. In December 1993, NRLP resumed regular distributions at a
rate of $0.20 per unit. In March 1993, CMET and IORT resumed regular quarterly
distributions at the current rate of $0.15 per share. The Company received
distributions from CMET and IORT totaling $506,000 in 1993 and $170,000
from NRLP in December 1993. No distributions were received in 1992.

The Company's investments in the Trusts and NRLP were initially acquired in
1989. In 1993, the Company purchased an additional $3.9 million of equity
securities of the Trusts and NRLP.

NOTE 8. NOTES AND INTEREST PAYABLE

Notes and interest payable consisted of the following:

<TABLE>
<CAPTION>
1993 1992
------------------- --------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Notes payable
Mortgage loans............. $ 31,236 $30,948 $ 30,453 $ 30,660

Borrowings from financial
institutions............. 11,958 11,842 21,628 22,713
Notes payable to affiliates 3,501 6,486 7,112 7,862
--------- ------- --------- -------
$ 46,695 49,276 $ 59,193 61,235
========= =========

Interest payable (including
$4,009 in 1993 and $2,212
in 1992 to affiliate).... 4,417 2,463
------- -------
$53,693 $63,698
======= =======
</TABLE>

Scheduled principal payments on notes payable are due as follows:

1994............................................... $10,715
1995............................................... 8,395
1996............................................... 6,980
1997............................................... 9,270
1998............................................... 345
Thereafter......................................... $13,571
-------
$49,276
=======

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

NOTE 8. NOTES AND INTEREST PAYABLE (Continued)

Stated interest rates on notes payable ranged from 6.0% to 25% at December
31, 1993, and mature in varying installments between 1994 and 2019. At
December 31, 1993, notes payable were collateralized by mortgage notes
receivable with a net carrying value of $36.2 million and by deeds of trust
on real estate with a net carrying value of $32.6 million.

Borrowings from financial institutions at December 31, 1992 included
borrowings under a term loan from First City. The term loan was
collateralized by a participation agreement in a pool of assets in a like
amount. In October 1993, the participation and term loan were both
terminated. Both the term loan and the participation each had a principal
balance of $7.6 million at the date of termination. The Company recorded a
$58,000 gain on the termination of the agreements. See NOTE 4. "NOTES AND
INTEREST RECEIVABLE."

In March 1992, the Company obtained a $1.3 million working capital loan from a
financial institution. The loan is secured by equity securities of the Trusts
and NRLP. The loan required monthly interest only payments at 1/2% above the
lender's prime lending rate and originally matured April 1, 1993, and was
extended to April 1, 1994. The loan extension required the Company to make a
principal paydown of $275,000 by May 1, 1993 and $250,000 on each of June 1 and
July 1, 1993 and $100,000 in January 1994 with the interest rate increasing to
the prime rate plus 2%, at no time to be less than 8% per annum. All other
terms of the loan remained unchanged. The balance of this note was $350,000
after the January 1994 principal payment. The Company paid off the balance of
the loan at maturity.

Another borrowing from a financial institution of $10.4 million at December
31, 1993 ($11.5 million at December 31, 1992) was scheduled to mature on
December 18, 1994. The borrowing is collateralized by a note receivable
with an outstanding principal balance of $17.3 million at December 31,
1993. The Company has reached an agreement to further extend the note's
maturity to December 18, 1997. The extended note bears interest at the
prime rate plus 2%, requires monthly principal payments of $75,000 and
requires the Company to pledge as additional collateral units of NRLP with
a market value of $2.0 million. Such borrowing is excluded from 1994
maturities in the table above.

The Company has also reached agreement with another lender whose loan to
the Company, with a principal balance of $950,000 at December 31, 1993,
matured in August 1993. The Company did not payoff the loan at maturity,
but continued to make monthly principal reduction payments of $50,000
in accordance with the expired loan agreement. This note extension
provides for a maturity date of July 1995, and requires the Company to
continue to make monthly principal reduction payments of $50,000. All
other terms remain unchanged.

Notes payable to affiliates at December 31, 1993 and 1992 include a $4.2
million note due to NRLP as payment for SAMLP's general partner interest

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

NOTE 8. NOTES AND INTEREST PAYABLE (Continued)

in NRLP. The note bears interest at 10% per annum compounded
semi-annually and is due at the earlier of September 2007, the liquidation of
NRLP or the withdrawal of SAMLP as general partner of NRLP. See NOTE 3.
"SYNTEK ASSET MANAGEMENT, L.P."

In June 1992, the Company obtained a $3.3 million loan from Donald C.
Carter, the owner of in excess of 14% of the Company's outstanding shares
of Common Stock. The note bears interest at 10% and matures in May 1995.
Interest payments are made monthly in addition to ten quarterly principal
payments of $330,000 which commenced March 1, 1993. The note is
collateralized by an assignment of the Company's interest in a partnership
which owns residential lots in Fort Worth, Texas and the Company's interest
in undeveloped land in downtown Atlanta, Georgia. The loan also provides
for Mr. Carter's participation in the proceeds from either the sale or
refinancing of the Company's land in Atlanta, Georgia to the extent of
15.57% of the net proceeds, as defined, in excess of $10.0 million. Mr.
Carter also had the right during a period beginning eighteen months from
the date of the loan and continuing ninety days thereafter to put his
participation to the Company in exchange for a payment of $623,000. On
December 2, 1993, Mr. Carter exercised his put which required full payment
by the Company within 30 days. The Company has recognized such payment
obligation as additional interest on the $3.3 million loan. Mr. Carter has
agreed to extend the payment date to January 2, 1995, and BCM and the trust
that beneficially owns BCM, have agreed to guarantee the Company's payment
obligation, as well as the Company's obligation to purchase up to 360,000
shares of the Company's Common Stock pursuant to an option held by Mr.
Carter. As of March 31, 1994, BCM owned approximately 38% of the
outstanding shares of the Company's Common Stock. Such put obligation is
included in accrued interest payable in the accompanying Consolidated
Balance Sheet. See NOTE 7. "INVESTMENTS IN REAL ESTATE ENTITIES" and NOTE
10. "REDEEMABLE COMMON STOCK."

In May 1993, the Company obtained a $1.8 million first mortgage secured by
the previously unencumbered Rosedale Towers Office Building in Minneapolis,
Minnesota. The Company received net financing proceeds of $1.7 million
after payment of associated closing costs. The Company pledged as
additional collateral for the loan 141,176 newly issued shares of the
Company's Common Stock. The mortgage bears an effective annual interest
rate of 25% and calls for monthly payments of $25,000 with balance of
principal and accrued but unpaid interest due at maturity on April 30,
1994.

In October 1993, the Company refinanced the Boulevard Villas Apartments for
$6.0 million paying off an existing mortgage of $5.3 million, as discussed
in NOTE 5. "REAL ESTATE."

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

NOTE 8. NOTES AND INTEREST PAYABLE (Continued)

the mortgage was amended extending its maturity date to May 10, 2003,
providing for a variable interest rate of 6% to 8% per annum and requiring
monthly payments of principal and interest.

In addition, the same lender made a second loan, also effective June 1,
1993, in the amount of up to $1.0 million to be used for capital and tenant
improvements to the shopping center. The new loan required monthly
interest only payments at the prime rate plus 2% per annum with principal
and accrued but unpaid interest due at maturity. Cash was advanced by the
lender upon costs being incurred for the improvements. In the event that
all sums advanced on the new loan were repaid by May 31, 1994, the
principal balance of the first mortgage was to be reduced by the lesser of
$500,000 or one-half of the amount advanced on the new loan. The balance
of the new loan, $887,000, was paid in full on December 23, 1993, with the
Company receiving a credit of $443,000 against the first mortgage reducing
its balance to $3.7 million at December 31, 1993. The Company also
deposited into an escrow account $105,000 to complete remaining parking lot
and exterior renovations at the shopping center. The Company is also to
receive a credit against the first mortgage for one-half of these monies as
expended.

On December 23, 1993, the Company refinanced Watersedge III Apartments in
the amount of $4.2 million. The Company realized net refinancing proceeds
of $924,000 after the pay off of the existing mortgage of $3.0 million and
payment of associated refinancing costs. The new mortgage matures January
1, 2019, bears interest at 8.73% per annum through December 31, 2003, and
at a variable rate through maturity. Monthly payments of principal and
interest are required. The principal balance and accrued but unpaid
interest are due at maturity.

Also on December 23, 1993, the Company refinanced the Edgewater Gardens
Apartments in the amount of $2.9 million. The Company realized net
refinancing proceeds of $728,000 after the pay off the existing mortgage of
$1.9 million and payment of associated refinancing costs. The new mortgage
contains the same interest; repayment terms and maturity date as the
Watersedge III mortgage described above.

The Company has margin arrangements with various brokerage firms which
provide for borrowings of up to 50% of the market value of the Company's
marketable equity securities. The borrowings under such margin
arrangements are secured by equity securities of the Trusts and NRLP and
bear interest rates ranging from 4.50% to 7.75%. Margin borrowings at
December 31, 1993 were $16.1 million and $9.7 million at December 31, 1992
36% and 39%, respectively, of the market values of such equity securities
at such dates.

73
<PAGE> 74
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9. REDEEMABLE COMMON STOCK

In June 1992, the Company sold 397,359 newly issued shares of its Common
Stock to Donald C. Carter for $1.9 million in cash. Terms of the sale
agreement provide Mr. Carter with the option of requiring the Company to
reacquire up to 360,000 of the purchased shares at a price of $6.11 per
share, a total of $2.2 million. Such option is exercisable by Mr. Carter
for a two year period expiring in March 1995. The Company has accreted the
difference between the issuance price and the redemption price using the
"interest method". As of December 31, 1993, the balance of the Redeemable
Common Stock account was $2.2 million. To secure its payment obligation
under the option agreement, the Company assigned to Mr. Carter its interest
in the $22 million note receivable secured by the Continental Hotel and
Casino. In addition, BCM, the Company's advisor, and the trust that owns
BCM have agreed to guarantee the Company's payment obligation to purchase
such shares. See NOTE 4. "NOTES AND INTEREST RECEIVABLE" and NOTE 8.
"NOTES AND INTEREST PAYABLE."

NOTE 10. RIGHTS PLAN

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

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

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

NOTE 11. ADVISORY AGREEMENT

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

BCM has been providing advisory services to the Company since February 6,
1989. BCM is beneficially owned by a trust for the benefit of the children
of Mr. Phillips. Mr. Phillips served as the Chairman of the Board and a
Director of the Company until November 16, 1992. Mr. Phillips served as a
director of BCM until December 22, 1989, and as Chief Executive Officer of
BCM until September 1, 1992. Mr. Phillips serves as a representative of
the trust for the benefit of his children that beneficially owns BCM and,
in such capacity, has substantial contact with the management of BCM and
input with respect to BCM's performance of advisory services to the
Company. Ryan T. Phillips, a Director of the Company is a director of BCM
and a trustee of such trust. Mr. Cashwell, a Director of the Company,
serves as president of BCM.

The Advisory Agreement provides that BCM shall receive base compensation at
the rate of .125% (1.5% on an annualized basis) of the Company's Average
Invested Assets. On October 23, 1991, based on the recommendation of BCM,
the Company's Board of Directors approved a reduction in BCM's base
advisory fee by 50% effective October 1, 1991. This reduction remains in
effect until the Company's earnings for the four preceding quarters equals
or exceeds $2.00 per share.

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

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

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

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

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

NOTE 11. ADVISORY AGREEMENT (Continued)

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

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

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

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

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

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

NOTE 12. PROPERTY MANAGEMENT

Since February 1, 1990, affiliates of BCM, have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides property management services for a fee of 5% or less of the
monthly gross rents collected on the properties under its management. In many
cases, Carmel, Ltd. subcontracts with other entities for the property-level
management services to the Company at

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

NOTE 12. PROPERTY MANAGEMENT (Continued)

various rates. The general partner of Carmel, Ltd. is BCM. The limited
partners of Carmel, Ltd. are (i) Syntek West, Inc. ("SWI"), of which Mr.
Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a trust for the
benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property-level management of the Company's shopping center to Carmel Realty,
Inc., which is owned by SWI.

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

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

1993 1992 1991
---------- ---------- ----------
Fees
Advisory and mortgage
servicing............... $1,258 $1,340 $2,616

Brokerage commissions...... 180 596 -
Property management*....... 45 49 27
Loan arrangement........... 102 76 -
------ ------ ------
$1,585 $2,061 $2,643
====== ====== ======

Cost reimbursements........ $ 288 $ 299 $ 373
====== ====== ======

_________________________________

* Net of property management fees paid to subcontractors.

NOTE 14. INCOME TAXES

Financial statement income varies from taxable income, principally due to
the accounting for income and losses of investees, gains and losses from
asset sales, depreciation on owned properties, amortization of discounts on
notes receivable and payable and the difference in the allowance for
estimated losses. At December 31, 1993, the Company had a tax net
operating loss carryforward of $12.7 million expiring through 2008.

At December 31, 1993, the Company recognized a deferred tax benefit of $4.0
million due to tax deductions available to it in future years. However, due
to, among other factors, the Company's inconsistent earnings history, the
Company was unable to conclude that the future realization of such deferred tax
benefit, which requires the generation of taxable income, was more likely than
not. Accordingly, a valuation allowance for the entire amount of the deferred
tax benefit has been recorded.

In 1987 the Company provided deferred income taxes for certain capital
gains (which were reported under the installment method for tax purposes)
because the Company did not anticipate distributing these gains to
stockholders. In 1992 and 1991, the portion of the deferred gains which became
taxable were offset by the Company's tax loss for each year. Accordingly,
applicable deferred taxes of $939,000 and $1.2 million were reversed in 1992
and 1991, respectively.

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

NOTE 14. INCOME TAXES (Continued)

The components of tax expense are as follows:

1993 1992 1991
------ ------ ------
Income tax provision (benefit)
Current....................... $ 11 $ 18 $ 8

Reversal of deferred tax
liability................... - (939) (1,163)
---- ----- -------
$ 11 $(921) $(1,155)
==== ===== =======

A reconciliation of the federal statutory tax rate (34%) with the income
tax provision (benefit) in the Consolidated Financial Statements is as
follows:
1993 1992 1991
-------- -------- --------
Income tax at statutory rate... $(1,450) $(3,572) $(1,372)

Carryforward of net operating
loss income tax benefit...... 1,450 3,572 1,372

Reversal of deferred tax
liability.................... - (939) (1,163)

State income tax, net of
federal benefit.............. 11 18 8
------- ------- -------
Income tax provision (benefit). $ 11 $ (921) $(1,155)
======= ======= =======

NOTE 15. EXTRAORDINARY GAIN

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

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

In 1991, the Company paid off at a discount, a line of credit from First City
recognizing an extraordinary gain of $7.6 million.

NOTE 16. RENTALS UNDER OPERATING LEASES

The Company's rental operations include the leasing of an office building
and a shopping center. The leases thereon expire at various dates through

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

NOTE 16. RENTALS UNDER OPERATING LEASES (Continued)

2009. The following is a schedule of minimum future rentals on non-cancelable
operating leases as of December 31, 1993:

1994.................................. $1,353
1995.................................. 940
1996.................................. 724
1997.................................. 547
1998.................................. 445
Thereafter............................ 2,574
------
$6,583
======

NOTE 17. COMMITMENTS AND CONTINGENCIES

Settlement of Southmark Adversary Proceedings. During 1990 and 1991,
several adversary proceedings were initiated against the Company and others
by Southmark and its affiliates. On December 27, 1991, an agreement to
settle all claims in connection with the Southmark adversary proceedings
was executed by Southmark and the Company. The settlement covers all
claims between Southmark and its affiliates and Messrs. Phillips and
Friedman, SWI, NRLP, CMET, IORT, NIRT, TCI, VPT and the Company. The final
settlement of such litigation concludes all suits in which the Company was
a defendant. Pursuant to the settlement agreement, Southmark will receive
$13.2 million from the various settling defendants. Payments were made
totaling $11.9 million in 1992 and 1993, and the remaining balance of $1.3
million is scheduled to be paid on June 27, 1994.

The Company paid Southmark of $1.0 million in each of 1992 and 1993, and will
pay Southmark an additional $435,000 by June 27, 1994. In addition, on
February 25, 1992, the Company assigned Southmark a 19.2% limited partner
interest in SAMLP, the general partner of NRLP and NOLP, and the Company
received Southmark's interest in Novus Nevada, Inc. The Company has an option
which expires December 27, 1994, to reacquire Southmark's 19.2% interest in
SAMLP for $2.4 million, less any distributions received by Southmark. On May
1, 1992, the Company received from Southmark certain real estate and mortgage
notes that the Company believes have an aggregate value at least equal to the
consideration the Company has agreed to pay Southmark.

To secure the settlement payment obligations to Southmark, the Company
issued 390,000 new shares of its Common Stock to ATN Equity Partnership
("ATN") which pledged such shares to Southmark along with securities of TCI
and NRLP. The Company intends to cancel its collateral shares as they are
released from the pledge to Southmark and returned to it by ATN. As of
December 31, 1993, 195,000 shares had been returned by ATN to the Company
and canceled. Voting rights to the Company's collateral shares are held by
the Company's Board of Directors. ATN is a general partnership of which
the Company and NRLP are general partners. ATN was formed solely to hold
title to the securities issued by each partner and TCI and to pledge such
securities to Southmark. At December 31, 1993, the

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

NOTE 17. COMMITMENTS AND CONTINGENCIES (Continued)

unpaid settlement balance of $1.3 million was secured by a pledge of
securities of the Company having a minimum value of 145% of the unpaid
balance and by the Company's remaining limited partnership interest in
SAMLP.

In addition to the pledge of securities securing the payment to Southmark,
Messrs. Phillips and Friedman, the Company and SWI have each executed and
delivered separate, final, nonappealable judgments in favor of Southmark,
each in the amount of $25 million. In the event of a default, Southmark is
entitled to entry of those judgments and to recover from the parties an
aggregate of $25 million, subject to reduction for any amounts previously
paid. If the settlement obligations are met, the judgments will be
returned to the defendants.

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

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

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

In January 1992, the Company received notice that the lender had declared an
event of default on the $14.0 million loan and in June 1993 that the lender
foreclosed on the hotel securing the loan. In January 1994, the Company and
the lender reached an agreement in principle relating to the Company's
performance under its guarantee. Under the proposed agreement the Company will
pay a total of $750,000 to the lender; payable $100,000 upon completion of
documentation and the balance of $650,000 due within 120 days of the date of
first payment. The Company also agreed to transfer any other rights or assets
the Company held in the hotel, to the lender in return for cancellation of the
guarantee. The Company wrote off its two notes

80
<PAGE> 81
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17. COMMITMENTS AND CONTINGENCIES (Continued)

receivable secured by the foreclosed hotel as uncollectible as of December
31, 1993. The Company did not incur a loss with respect to either its
guarantee or the notes in excess of the amounts previously provided.

In June 1992, the Company sold 397,359 newly issued shares of its Common
Stock to Donald C. Carter for $1.9 million cash. Terms of the sale
agreement provide Mr. Carter with the option of requiring the Company to
reacquire up to 360,000 of the purchased shares at $6.11 per share, a total
of $2.2 million. Such option is exercisable for a two year period expiring
in March 1995. See NOTE 9. "REDEEMABLE COMMON STOCK."

In October 1993, SAMLP, the NRLP oversight committee and the Company
reached an agreement evidenced by a detailed Term Sheet to nominate a
candidate for successor general partner of NRLP and NOLP, and to consummate
the 1990 settlement of a class action suit related to the formation of
NRLP. The Term Sheet also sets forth an agreement in principle to effect a
restructuring of NRLP and the spinoff by NRLP to its unitholders of shares
of a newly-formed subsidiary which would qualify as a REIT for federal tax
purposes. The Company is NRLP's largest unitholder and a 76.8% limited
partner of SAMLP. SAMLP currently serves as the general partner of NRLP
and NOLP and a newly formed subsidiary of SAMLP is to be nominated as the
successor general partner. The Term Sheet provides that within nine months
of the spinoff transaction, the Company will make a cash tender offer to
purchase up to 60% of NRLP's units of limited partner interest held by
unitholders unaffiliated with the Company or SAMLP for $12.00 per unit (an
estimated maximum purchase price of $8.0 million), unless the NRLP units
have traded at an appreciably higher average price for the prior thirty
days. See NOTE 7. "INVESTMENTS IN REAL ESTATE ENTITIES."

NOTE 18. LIQUIDITY

The Company's principal sources of cash flow have been and will continue to
be from property operations, collection of mortgage notes receivable, sales
of real estate and externally generated funds. Externally generated funds
include borrowings against marketable equity securities, proceeds from the
issuance of debt secured by real estate and notes receivable, borrowings
from BCM, the Company's advisor, as well as a possible equity offering.

The Company continues to experience liquidity problems and expects that
cash flow from operations together with externally generated funds will be
sufficient to meet its various cash needs only if the Company is able to
renew and extend mortgage financings as they mature or obtain mortgage
financing on its unencumbered properties. If the Company were unsuccessful
in obtaining new financings or refinancings, the Company anticipates it
could obtain additional advances from BCM in amounts sufficient to satisfy
its cash requirements. Advances from BCM totaled $3.6 million at December
31, 1993. In 1994, notes payable totaling $10.7 million come due. See
NOTE 8. "NOTES AND INTEREST PAYABLE," for a

81
<PAGE> 82
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 18. LIQUIDITY (Continued)

discussion of debt maturities where the Company has reached extension
agreements with the lender. It is the Company's intention to either pay
the debt when due or seek to extend the due dates one or more years while
attempting to obtain other long-term financing. Due to the limited long-
term financing available to the Company, there can be no assurance that the
Company will be successful in extending such "balloon" payments or that it
will not ultimately lose certain of its assets to foreclosure. However,
the Company's management believes it will continue to be successful in
obtaining at least the minimum amount of extensions or other proceeds or
advances to enable it to maintain anticipated levels of property
operations, existing commitments and ownership of all properties in which
it has equity.

NOTE 19. QUARTERLY FINANCIAL DATA (unaudited)

The following is a tabulation of the quarterly results of operations for
the years 1993 and 1992:

<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
December 31, September 30, June 30, March 31,
1993 1993 1993 1993
------------ ------------- --------- ---------
<S> <C> <C> <C> <C>
Revenue......................... $ 1,890 $ 2,722 $ 2,484 $ 2,317
Expense......................... 7,050 4,685 3,280 3,113
-------- -------- -------- --------
(Loss) before gain
on sale of real estate
and extraordinary gain......... (5,160) (1,963) (796) (796)
Gain on sale of
real estate.................... 175 44 119 143
Extraordinary gain.............. 443 - - 3,364
-------- -------- -------- --------
Net income (loss)............... (4,542) (1,919) (677) 2,711
======== ======== ======== ========

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

Earnings per share
(Loss) before gain on
sale of real estate
and extraordinary gain......... $ (1.71) $ (.64) $ (.26) $ (.27)
Gain on sale of real
estate......................... .06 .01 .04 .05
Extraordinary gain.............. .11 - - 1.15
-------- -------- -------- --------
Net income (loss) per share (1.54) (.63) (.22) .93

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

Income (loss) applicable
to Common shares............... $ (1.54) $ (.63) $ (.22) $ .88
======== ======== ======== ========
</TABLE>

82
<PAGE> 83
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 19. QUARTERLY FINANCIAL DATA (unaudited) (Continued)

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

<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
December 31, September 30, June 30, March 31,
1993 1993 1993 1993
------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
Revenue......................... $ 3,084 $ 1,739 $ 914 $ 2,356
Expense......................... 4,484 4,668 4,544 4,547
-------- -------- -------- --------
(Loss) before gain
on sale of real estate......... (1,400) (2,929) (3,630) (2,191)
Gain on sale of
real estate.................... 121 194 176 75
-------- -------- -------- --------
Net (loss)...................... (1,279) (2,735) (3,454) (2,116)
Redeemable Common Stock,
accretion of discount.......... (129) (129) - -
-------- -------- -------- --------
(Loss) applicable to
Common shares.................. $ (1,408) $ (2,864) $ (3,454) $ (2,116)
======== ======== ======== ========

Earnings per share
(Loss) before gain
on sale of real estate......... $ (.55) $ (1.15) $ (1.41) $ (.95)

Gain on sale of real
estate......................... .05 .08 .07 .03
-------- -------- -------- --------
Net (loss) per share............ (.50) (1.07) (1.34) (.92)

Redeemable Common Stock,
accretion of discount.......... (.05) (.05) - -
-------- -------- -------- --------
(Loss) applicable to
Common shares.................. $ (.55) $ (1.12) $ (1.34) $ (.92)
======== ======== ======== ========
</TABLE>

Revenue includes equity in losses of investees of $452,000, $1.2 million, $1.6
million and $125,000 in the first, second, third and fourth quarters of 1992,
respectively. Expense includes provision for losses of $537,000, $404,000,
$736,000 and $2.1 million in the first, second, third and fourth quarters of
1992, respectively. Fourth quarter expense has been reduced by $939,000 for
the reversal of the Company's deferred tax liability.

83
<PAGE> 84

SCHEDULE I

AMERICAN REALTY TRUST, INC.
MARKETABLE SECURITIES
December 31, 1993

<TABLE>
<CAPTION>
Amount at Which Each
Portfolio of Equity
Security Issues and
Number of Market Value Each Other Security
Name of Issuer Shares or Cost of of Each Issue at Issue Carried in
and Title of Each Issue Units Each Issue December 31, 1993 the Balance Sheet
- -------------------------------------- --------- ----------- ----------------- --------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Shares of Beneficial Interest

Continental Mortgage and Equity Trust 881,813 $ 7,264 $ 11,349 $ 10,947

Income Opportunity Realty Trust 142,451 2,812 2,154 1,952

Shares of Common Stock

Transcontinental Realty Investors, Inc. 533,547 8,456 7,203 6,223

Units of Limited Partner Interest

National Realty, L.P. 936,313 23,074 23,642 12,001
-------- -------- ---------

$ 41,606 $ 44,348 $ 31,123
======== ======== =========
</TABLE>

84
<PAGE> 85
SCHEDULE II

AMERICAN REALTY TRUST, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES

Deductions
Balance at -----------------------
Beginning Amounts Amounts
Name of Debtor of Year Additions Collected Other Written-off
- ----------------------------------------- ---------- --------- --------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
December 31, 1993
-----------------
Basic Capital Management, Inc. (1)....... $ 429 $ 48 $ - $ - $ -
Williamsburg Associates, L.P. (2)........ 5,527 - - - -
-------- ------- ----- ------- ---------
$ 5,956 $ 48 $ - $ - $ -
======== ======= ===== ======= =========
December 31, 1992
-----------------
Basic Capital Management, Inc. (1)....... $ 987 $ - $ 558 $ - $ -
Syntek Finance Corp. (3)................. 3,855 - 3,855 - -
Williamsburg Associates, L.P. (2)........ 6,481 - - (954) (4) -
-------- ------- ----- ------- ---------
$ 11,323 $ - 4,413 $ (954) $ -
======== ======= ===== ======= =========
December 31, 1991
-----------------
Avacelle, Inc. (4)....................... $ 168 $ 183 $ 351 $ - $ -
Basic Capital Management, Inc. (1)....... 1,487 131 631 - -
National Realty, L.P. (5)................ 2,481 298 2,779 - -
Syntek Finance Corp. (3)................. 3,919 467 531 - -
Williamsburg Associates, L.P. (2)........ 6,481 - - - -
-------- ------- ----- ------- ---------
$ 14,536 $ 1,079 4,292 $ - $ -
======== ======= ===== ======= =========
</TABLE>

<TABLE>
<CAPTION>
Balance at
End of Year
---------------------------
Name of Debtor Current Non-current
- ----------------------------------------- ----------- -----------
(dollars in thousands)
<S> <C> <C>
December 31, 1993
-----------------
Basic Capital Management, Inc. (1)....... $ 477 $ -
Williamsburg Associates, L.P. (2)........ 5,527 -
------- -------
6,004 $ -
======= =======
December 31, 1992
-----------------
Basic Capital Management, Inc. (1)....... $ 429 $ -
Syntek Finance Corp. (3)................. - -
Williamsburg Associates, L.P. (2)........ 5,527 -
------- -------
$ 5,956 -
======= =======
December 31, 1991
-----------------
Avacelle, Inc. (4)....................... $ - $ -
Basic Capital Management, Inc. (1)....... 987 -
National Realty, L.P. (5)................ - -
Syntek Finance Corp. (3)................. 3,855 -
Williamsburg Associates, L.P. (2)........ 6,481 -
------- -------
$11,323 -
======= =======
</TABLE>

__________________________

(1) Note is due May 7, 1994, bears interest at 12%, and is unsecured. This
amount has been netted against other amounts payable to affiliates and
classified as accounts payable and other liabilities in the accompanying
Consolidated Balance Sheets. The current balance includes accrued but
unpaid interest.
(2) A subsidiary of the Company became the general partner of Williamsburg
Associates, L.P. in November 1990.
(3) Note was due to mature on January 15, 1993, bore interest at 12%, and was
collateralized by certain notes receivable of the borrower. The borrower
was in nonmonetary default and on April 8, 1992, the Company completed
foreclosure on the underlying collateral notes. In September 1992, the
Company sold the collateral notes for $4.1 million.
(4) Note is due March 31, 1994, bears interest at 14% and is collateralized by
substantially all assets of the borrower. The note was charged against
earnings during 1990 in accordance with SFAS No. 68, which requires
expensing of research and development loans. The borrower filed for
bankruptcy protection on March 18, 1992.
(5) Note matured December 1, 1991, bore interest at 12% and was collateralized
by a second lien on real estate.

85
<PAGE> 86
SCHEDULE IX

AMERICAN REALTY TRUST, INC.
SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
Weighted
Category of Maximum Average Average
Aggregate Weighted Amount Amount Interest Rate
Short-term Balance at Average Outstanding Outstanding During the
Borrowings End of Year Interest Rate (1) During the Year During the Year (2) Year (3)
- ----------------- ----------- ------------- --------------- --------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
December 31, 1993
- -----------------
Margin accounts
with brokers $16,147 6.16% $16,147 $12,705 6.16%
======= ==== ======= ======= ====

December 31, 1992
- -----------------
Margin accounts
with brokers $ 9,681 6.20% $10,206 $ 9,332 6.20%
======= ==== ======= ======= ====

December 31, 1991
- -----------------
Margin accounts
with brokers $ 8,001 7.50% $ 8,001 $ 3,132 6.90%
======= ==== ======= ======= ====
</TABLE>

________________________

(1) Computed by weighing the interest rate according to balances outstanding
over the life of the loans.

(2) Computed as the amount borrowed divided by the number of days outstanding.

(3) Computed by weighing the interest rate according to balances outstanding.

86
<PAGE> 87
SCHEDULE XI
AMERICAN REALTY TRUST, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Cost
Capitalized
Subsequent
to Gross Amounts of Which Carried
Initial Cost to Company Acquisition at End of Year
------------------------ ------------- --------------------------------
Buildings & Buildings & (1) Accumulated
Property/Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation
- ---------------------- ------------ -------- ------------ ------------ -------- ------------ -------- ------------
PROPERTIES HELD FOR INVESTMENT (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
- ----------
Boulevard Villas....... $ 5,991 $ 980 $ 7,577 $ 73 $ 980 $ 7,650 $ 8,630 $ 88
Las Vegas, NV
Chateau Bayou.......... 1,353 287 1,164 59 287 1,223 1,510 131
Ocean Springs, MS
Edgewater Gardens...... 2,850 524 1,393 66 524 1,459 1,983 151
Biloxi, MS
Mediterranean Villa.... 1,949 454 2,646 24 454 2,670 3,124 256
San Antonio, TX
Watersedge III......... 4,150 427 2,839 (232) 427 2,607 3,034 277
Gulfport, MS

Office Buildings
- ----------------
Rosedale Towers........ 1,790 665 3,769 418 715 4,137 4,852 352
Roseville, MN

Shopping Centers
- ----------------
Park Plaza............. 3,689 891 3,584 827 892 4,410 5,302 169
Manitowoc, WI

Other
- -----
Denver Mart............ - 4,251 - (251) 4,000 - 4,000 -
------- -------- ------- ------- -------- -------- ------- ------
Denver, CO 21,772 8,479 22,972 984 8,279 24,156 32,435 1,424

PROPERTIES HELD FOR SALE

Office Building
- ---------------
Mopac.................. - 676 5,098 - 676 5,098 5,774 5,098
St. Louis, MO

Hotel
- -----
Kauai Inn.............. - 397 1,587 - 397 1,587 1,984 -
Lihue, HI
KC Holiday Inn......... 2,952 1,110 4,535 (10) 1,110 4,525 5,635 86
Kansas City, MO

Other
- -----
Atlanta Land, GA....... - (2) 11,052 - - 11,052 - 11,052 -
Denton Road, TX........ - 2,102 - (1,696) 406 - 406 -
Gino's, CA............. - 140 145 - 140 145 285 136
Krneta Land, AZ........ - 1,044 - - 1,044 - 1,044 -
Rivertrails I, TX...... - 1,139 - (773) 366 - 366 -
Other (4 properties)... - 200 - - 200 - 200 -
------- -------- ------- ------- -------- -------- ------- ------
2,952 17,860 11,365 (2,479) 15,391 11,355 26,746 5,320
------- -------- ------- ------- -------- -------- ------- ------
$24,724 $ 26,339 $34,337 $(1,495) $ 23,670 $ 35,511 59,181 $6,744
======= ======== ======= ======= ======== ======== ======
Allowance for
estimated losses..... (4,172)
-------
$55,009
=======
</TABLE>

<TABLE>
<CAPTION>
Life on Which
Depreciation
in Latest
Statement
Date of Date of Operations
Property/Description Construction Acquired is Computed
- -------------------- ------------ -------- -------------
PROPERTIES HELD FOR INVESTMENT (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Apartments
- ----------
Boulevard Villas....... 1971 1993 40 years
Las Vegas, NV
Chateau Bayou.......... 1973 1989 40 years
Ocean Springs, MS
Edgewater Gardens...... 1966 1989 40 years
Biloxi, MS
Mediterranean Villa.... 1967 1990 40 years
San Antonio, TX
Watersedge III......... 1968 1989 40 years
Gulfport, MS

Office Buildings
- ----------------
Rosedale Towers........ 1974 1990 40 years
Roseville, MN

Shopping Centers
- ----------------
Park Plaza............. 1957 1992 40 years
Manitowoc, WI

Other
- -----
Denver Mart............ N/A 1992 -
Denver, CO

PROPERTIES HELD FOR SALE

Office Building
- ---------------
Mopac.................. 1925 1965 40 years
St. Louis, MO

Hotel
- -----
Kauai Inn.............. 1992 40 years
Lihue, HI
KC Holiday Inn......... 1993 40 years
Kansas City, MO

Other
- -----
Atlanta Land, GA....... N/A 1990 -
Denton Road, TX........ N/A 1991 -
Gino's, CA............. 1971 1971 40 years
Krneta Land, AZ........
Rivertrails I, TX...... N/A 1991 -
Other (4 properties)... N/A Various -

Allowance for
estimated losses.....
</TABLE>
____________________________
(1) The aggregate cost for federal income tax purposes is $66,578.
(2) Property is pledged as additional collateral for a note payable with a
princial balance of $2.3 million.

88
<PAGE> 88
SCHEDULE XII

AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1993

<TABLE>
<CAPTION>
Periodic
Interest Maturity Payment Prior
Description Rate (1) Date (1) Terms Liens
- -------------------- ---------- -------- ----------------------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
- --------------------

Somerset Inn...................... 9.00% 12/92 Principal and interest due -
Secured by 159 room vacant hotel at maturity.
in Shaker Heights, Ohio.

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

Osceola Land...................... 12.00% 11/93 Principal and interest -
Secured by unimproved land in payments of $16,547 due
Osceola County, Florida. monthly. Remaining principal
balance due at maturity. Two
6 month extensions allowed
provided borrower made required
principal reductions. Exten-
sion fee of 2%, if extended.

386 Ocean Parkway................. 10.00% 04/94 Interest payable monthly. -
Secured by 29 unit apartment Principal at maturity.
cooperative in Brooklyn, New York.

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

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

WRAPAROUND MORTGAGE LOANS

Las Vegas Plaza(3)................ 9.74% 12/97 Interest monthly of $124,667 10,442
Secured by 93,320 square foot through 12/92. Thereafter,
retail shopping center in Las principal and interest monthly
Vegas, Nevada. of $170,360 based on 25 year
amortization. Prior lien is a
first lien with a maturity of
12/97.

Continental Hotel................. 11.00% 06/95 Principal and interest payments 6,124
Secured by hotel in Las Vegas, due monthly.
Nevada.
</TABLE>

<TABLE>
<CAPTION>
Principal Amount of
Face Carrying Loan Subject to
Amount of Amount of Delinquent Principal
Description Mortgages Mortgages (2) or Interest
- -------------------- --------- ------------- --------------------
(dollars in thousands)
<S> <C> <C> <C>
FIRST MORTGAGE LOANS
- --------------------

Somerset Inn...................... 1,880 2,056 2,056
Secured by 159 room vacant hotel
in Shaker Heights, Ohio.

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

Osceola Land...................... 1,960 1,593 1,593
Secured by unimproved land in
Osceola County, Florida.

386 Ocean Parkway................. 900 900 900
Secured by 29 unit apartment
cooperative in Brooklyn, New York.

Webster & Banc Boston............. 158 230 -
Secured by condominiums in Ft.
Lauderdale, Florida.

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

WRAPAROUND MORTGAGE LOANS

Las Vegas Plaza(3)................ 17,600 17,283 -
Secured by 93,320 square foot
retail shopping center in Las
Vegas, Nevada.

Continental Hotel................. 22,000 22,713 22,713
Secured by hotel in Las Vegas,
Nevada.
</TABLE>

90
<PAGE> 89
SCHEDULE XII
(Continued)

AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1993

Williamsburg Hospitality
House(4)...................... 9.75% 06/95 Pay greater of available $ 17,677
Secured by 297 room hotel in cash or 6% from 2/1/94 to
Williamsburg, Virginia. 7/1/94. Thereafter, pay
greater of available cash
or 8%.

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

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

OTHER

MS Holding.................... Prime +3% 09/95 Principal and interest 5,727
Secured by loans secured by payments of $40,000 due
personal and real property. monthly. Principal balance
required to be paid down to
$1.0 million by 9/94.
Balance due at maturity.

Tiberon Trails................ Greater of 11/96 Interest monthly. 7,014
Secured by assignment of 99% Prime +2.5% Principal at maturity.
limited partner interest in a or 10.00%
375 unit apartment complex in
Merrillville, Indiana.
---------
$ 48,413
=========

Interest receivable
Deferred gains
Discounts
Allowance for estimated losses
</TABLE>

Williamsburg Hospitality
House(4)...................... $ 5,877 $ 5,527 $ -
Secured by 297 room hotel in
Williamsburg, Virginia.

NO. SO. II.................... 852 497 -
Secured by shopping center in
Columbia, South Carolina.

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

OTHER

MS Holding.................... 3,100 1,492 -
Secured by loans secured by
personal and real property.

Tiberon Trails................ 4,000 3,503 -
Secured by assignment of 99%
limited partner interest in a
375 unit apartment complex in
Merrillville, Indiana.
-------- -------- --------
$ 58,530 56,018 $ 27,262
======== ========

Interest receivable 268
Deferred gains (4,617)
Discounts 100
Allowance for estimated losses (5,741)
--------
$ 46,028
========
</TABLE>
____________________________
(1) Interest rates and maturity dates shown are as stipulated in the loan
documents at December 31, 1993. Where applicable, these rates have been
adjusted at issuance to yield between 8% and 12%.
(2) The aggregate cost for federal income tax purposes is $54,303.
(3) Note is pledged as additional collateral for a note payable with a
principal balance of $2.3 million.
(4) Mortgage note is receivable from a related party and is also listed at
Schedule II.

91
<PAGE> 90

SCHEDULE X

AMERICAN REALTY TRUST, INC.
SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION

<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Items charged to expense

Taxes, other than payroll and income
taxes............................................. $ 1,022 $ 1,520 $ 877

Amortization of loan and commitment
fees.............................................. 393 536 536

Maintenance and repairs............................. 483 164 168

Advertising costs................................... (1) (1) (1)
</TABLE>

______________________

(1) Item is less than one percent of the total revenue.

87
<PAGE> 91
SCHEDULE XI
(Continued)

AMERICAN REALTY TRUST, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------- --------------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of Real Estate

Balance at January 1,................ $ 51,475 $ 59,188 $ 68,897

Additions
Acquisitions and improvements...... 9,900 18,595 5,505
Foreclosures....................... 5,645 - -

Deductions
Sales of real estate............... (7,839) (26,308) (15,214)
------------ ------------- --------------

Balance at December 31,.............. $ 59,181 $ 51,475 $ 59,188
============ ============= ==============

Reconciliation of Accumulated Depreciation

Balance at January 1,................ $ 6,158 $ 6,534 $ 6,217

Additions
Depreciation....................... 657 640 1,058

Deductions
Sales of real estate............... (71) (1,016) (741)
------------ ------------- --------------

Balance at December 31,.............. $ 6,744 $ 6,158 $ 6,534
============ ============= ==============
</TABLE>

89
<PAGE> 92
SCHEDULE XII
(Continued)

AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Balance at January 1,................ $ 75,402 $ 65,470 $ 73,802

Additions
New mortgage loans................. 32 31,009 528
Participations purchased........... - - 3,066
Compounding of interest............ 369 801 1,313
Funding on existing loans.......... 609 - -
Restructures....................... - (156) -

Deductions
Collections of principal........... (1,332) (4,848) (12,888)
Settlement of term loan obligation
in exchange for receivable
participation.................... (9,940) - -
Write-off of principal............. (679) (2,346) (351)
Loans sold net of loan loss
provision......................... - (7,740) -
Foreclosures....................... (8,443) (6,788) -
------------ ------------ -----------

Balance at December 31,.............. $ 56,018 $ 75,402 $ 65,470
============ ============ ===========
</TABLE>

92
<PAGE> 93

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

Not applicable.

______________________________________

PART III

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

Directors

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

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

OSCAR W. CASHWELL: Age 66, Director (Class I) (Affiliated) (since November
1992).

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

93
<PAGE> 94
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Directors (Continued)

AL GONZALEZ: Age 57, Director (Class II) (Independent) (since 1989).

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

On January 20, 1989, Gulf-Tex filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code which proceeding was dismissed on July 25,
1989 upon the motion of Gulf-Tex. On March 18, 1992, Avacelle filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code.
Avacelle was reorganized effective November 15, 1993.

TILMON KREILING, JR.: Age 48, Director (Class III) (Independent) (since 1992).

President of Kreiling Associates & Co. (since 1990); registered investment
advisor (since 1990) and registered trading advisor (1985 to 1993); and
member of the Chicago Mercantile Exchange (1983 to 1987).

RYAN T. PHILLIPS: Age 24, Director (Class III) (Affiliated) (since 1992).

Real Estate Investor (since March 1993); Real Estate Analyst with Kelley,
Lundeen & Crawford in Dallas, Texas (1991 to March 1993); graduate of
Southern Methodist University School of Business (May 1991); and trustee
of a trust for the benefit of the children of Gene E. Phillips. Such
trust is the 100% beneficial owner of BCM, the advisor to the Company.
Ryan T. Phillips is the son of Gene E. Phillips, and has served as a
Director of BCM since February 1991.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

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

Directors (Continued)

G. WAYNE WATTS: Age 51, Director (Class II) (Independent) (since 1984).

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

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

Separation of Certain Members of Management from Southmark Corporation. Gene
E. Phillips, a Director and Chairman of the Board of the Company until November
16, 1992, and William S. Friedman, the President and a Director of the Company
until December 31, 1992, were directors and executive officers of Southmark
until January 17, 1989. Messrs. Phillips and Friedman entered into a series of
agreements, (collectively the "January Agreements"), which, among other things,
involved their resignation from their positions with Southmark and certain of
its affiliates. However, Messrs. Phillips and Friedman remained Directors and
executive officers of the Company and certain other entities.

As further described in ITEM 1. "BUSINESS - Severance of Relationship With
Southmark Corporation", on July 12, 1989, the Company closed a set of related
agreements (collectively the "Southmark Separation Agreements") with its then
largest stockholder, Southmark, essentially terminating the Company's
relationship with Southmark and resulting in a substantial restructuring of the
Company's balance sheet.

Southmark filed a voluntary petition for bankruptcy under Chapter 11 of the
United States Bankruptcy Code on June 14, 1989. Southmark requested that the
Bankruptcy Court appoint an examiner to investigate and review pre-Chapter 11
third-party transactions and relations and potential causes of action on behalf
of the Southmark bankruptcy estate and on September 8, 1989, the court
appointed an examiner.

The examiner issued a series of five separate reports in Southmark's bankruptcy
proceeding. In his Final Report, filed on July 9, 1990, the examiner
recommended that Southmark pursue claims against Messrs. Phillips and Friedman
for their conduct that allegedly caused, in whole

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

Directors (Continued)

or in part, the losses reported in the examiner's Final and Interim Reports.
The Final Report expressed the examiner's conclusion that (i) "poor business
practices (were) employed in the acquisition and management of many of
Southmark's subsidiaries," (ii) Southmark's real estate assets were overvalued
by as much as $800 million, (iii) repeated transactions by Southmark while it
was controlled by Messrs. Phillips and Friedman produced only paper or
"phantom" profits, (iv) the independent directors of Southmark were "basically
yes men," (v) Southmark "engaged in many transactions with related entities"
and these transactions "often resulted in substantial benefits for Messrs.
Phillips and Friedman and their affiliates at Southmark's expense," and (vi)
Messrs. Phillips and Friedman as well as Southmark had "many business dealings
with high-powered figures, many of whom have been convicted, indicted or are
under investigation in connection with savings and loan fraud and were in a
position to assist (Messrs.) Phillips and Friedman in their numerous real
estate ventures," and that the "number of transactions between these
individuals were . . . extensive."

Messrs. Phillips and Friedman have emphatically denied the examiner's
allegations, and believe that the examiner's Final Report contained material
factual errors and unsubstantiated allegations and misleading innuendos.
Moreover, based on the fact that the examiner made no attempt to depose or
interview them concerning his investigation, they believe that the Final Report
was not based on an objective analysis and exemplified the examiner's abject
disregard of elementary fairness in eschewing the opportunity to consider facts
which refute his biased contentions.

Litigation Relating to Southmark Bankruptcy. During 1990 and 1991, several
adversary proceedings were initiated against the Company and others by
Southmark and its affiliates. On December 27, 1991, an agreement to settle all
claims in connection with the Southmark adversary proceedings was executed by
Southmark and the Company. The settlement covers all claims between Southmark
and its affiliates and Messrs. Phillips and Friedman, Syntek West, Inc.
("SWI"), NRLP, CMET, IORT, National Income Realty Trust ("NIRT"), TCI, Vinland
Property Trust ("VPT") and the Company. The final settlement of such
litigation concludes all suits in which the Company was a defendant. Pursuant
to the settlement agreement, Southmark will receive $13.2 million from the
various settling defendants. Payments were made totaling $11.9 million in 1992
and 1993, and the remaining balance of $1.3 million is scheduled to be paid on
June 27, 1994.

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

Directors (Continued)

reacquire Southmark's 19.2% interest in SAMLP for $2.4 million, less any
distributions received by Southmark. On May 1, 1992, the Company received from
Southmark land and a ground lease in Denver, Colorado, land in Forest Park,
Georgia, a mortgage note secured by land in Tabonia, Utah and a participation
in a mortgage note secured by a retail property in Forest Park, Georgia. The
Company believes these assets have an aggregate value at least equal to the
consideration the Company has agreed to pay Southmark.

ATN was formed solely to hold title to the securities issued by each partner
and TCI and to pledge such securities to Southmark. The Company has also
pledged to Southmark its remaining limited partner interest in SAMLP.

In addition to the pledge of securities securing the payment to Southmark,
Messrs. Phillips and Friedman, the Company and SWI have each executed and
delivered separate, final, nonappealable judgments in favor of Southmark, each
in the amount of $25 million. In the event of default, Southmark is entitled
to entry of those judgments and to recover from the parties an aggregate of $25
million, subject to reduction for any amounts previously paid. If the
settlement obligations are met, the judgments will be returned to the
defendants.

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

San Jacinto Savings Association. On November 30, 1990, San Jacinto Savings
Association ("SJSA"), a savings institution that had been owned by Southmark
since 1983 and for which Mr. Phillips served as a director from 1987 to January
1989, was placed under conservatorship of the Resolution Trust Corporation
("RTC") by federal banking authorities. On December 14, 1990, SJSA was
converted into a Federal Association and placed in receivership. The
government has reportedly alleged that SJSA's poor financial condition was
attributable in part to "a pattern of high-risk real estate investments made
after Southmark bought it in 1983," and that it had "poor procedures for
determining loss reserves

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

Directors (Continued)

and relied 'excessively' on deposits gathered through brokerage houses that
enable(d) it to grow rapidly." The RTC is conducting an investigation of
matters involving SJSA during the period in which it was owned by Southmark.
On November 26, 1993, the RTC filed lawsuits in Dallas and New York City
against Mr. Phillips, six former directors, auditors and lawyers of SJSA,
alleging that the auditors and former directors could and should have stopped
SJSA's poor lending practice during the period it was owned by Southmark and
that the former directors abdicated their responsibility for reviewing loans
during the same period. The Office of Thrift Supervision is also conducting a
formal examination of SJSA and its affiliates.

Litigation Against Southmark and its Affiliates Alleging Fraud or
Mismanagement. In addition to the litigation related to the Southmark
bankruptcy, there were several lawsuits pending against Southmark, its former
officers and directors (including Messrs. Phillips and Friedman) and others
alleging, among other things, that such persons and entities engaged in conduct
designed to defraud and mislead the investing public by intentionally
misrepresenting the financial condition of Southmark. In so far as such
allegations relate to them, Messrs. Phillips and Friedman deny them. Those
lawsuits in which Messrs. Phillips and Friedman were also defendants are
summarized below. THE COMPANY IS NOT A DEFENDANT IN ANY OF THESE LAWSUITS.

In Burt v. Grant Thornton, Gene E. Phillips and William S. Friedman, the
plaintiff, a purchaser of Southmark preferred stock, alleged that the
defendants disseminated false and misleading corporate reports, financial
analysis and news releases in order to induce the public to continue investing
in Southmark. Grant Thornton served as independent certified public
accountants to Southmark and prior to 1990, the Company. The plaintiff sought
actual and punitive damages in the amount of less than $10,000, treble damages
and punitive damages in an unspecified amount, plus attorneys' fees and costs.
This case was settled in October 1993.

Consolidated actions entitled Salsitz v. Phillips, et al., purportedly brought
as class actions on behalf of purchasers of Southmark securities during
specified periods, were pending before the United States District Court for the
Northern District of Texas. These actions alleged violations of the federal
securities laws and state laws, based upon claims of fraud, deceit and
negligent misrepresentations made in connection with the sale of Southmark
securities. The plaintiffs sought unspecified damages, attorneys' fees and
costs. The defendants included Messrs. Phillips and Friedman, among others.
Messrs. Phillips and Friedman entered into a settlement agreement with the
plaintiffs which was approved by the court October 1993.

Messrs. Phillips and Friedman also served as directors of Pacific Standard Life
Insurance Company ("PSL"), a wholly-owned subsidiary of Southmark, from October
1984 to January 1989. In a proceeding brought

98
<PAGE> 99
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Directors (Continued)

by the California Insurance Commissioner, a California Superior Court appointed
a conservator for PSL on December 11, 1989, and directed that PSL cease doing
business. On October 12, 1990, the California Insurance Commissioner filed
suit in the Superior Court for the State of California, County of Yolo, against
Messrs. Phillips and Friedman and other former directors of PSL seeking damages
of $12 million and additional punitive damages. Such lawsuit alleged, among
other things, that the defendants knowingly and wilfully conspired among
themselves to breach their duties as directors of PSL and to loot and waste
corporate assets of PSL to benefit Southmark and its other subsidiaries and
certain of the defendants (including Messrs. Phillips and Friedman), resulting
in a required write-down of $25 million, PSL's insolvency and conservatorship.
Such suit further alleged that the defendants caused PSL to make loans to, or
enter into transactions with, Southmark, Southmark affiliates and others in
violation of applicable state laws and to make loans and investments that could
not be included as assets on PSL's balance sheet to entities controlled by
Charles H. Keating, Jr. It was also alleged that PSL's board of directors
failed to convene meetings and delegated to Mr. Phillips authority to make
decisions regarding loans, investments and other transfers and exchanges of PSL
assets. In August 1993, five former directors of PSL, including Messrs.
Phillips and Friedman, settled this lawsuit without admitting any liability.

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

The RTC alleges that Mr. Phillips aided and abetted the insider defendants in a
scheme to defraud Lincoln and its regulators; that Southmark, its subsidiaries
and affiliates, including SJSA, facilitated and concealed the use of Lincoln
funds to finance the sale, at inflated prices, of assets of Lincoln's parent,
American Continental Corp. ("ACC"), in return for loans from Lincoln and
participations in contrived transactions; and that the insider defendants
caused Southmark to purchase ACC assets at inflated prices. The RTC alleges
that Lincoln and/or ACC engaged in three illegal transactions with Southmark or
its affiliates while Mr. Phillips was affiliated with Southmark. Neither Mr.
Friedman nor Southmark is a defendant in this action.

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

99
<PAGE> 100
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Directors (Continued)

$100 million and attorneys' fees and costs. Mr. Phillips' motion to dismiss
for failure to state a cause of action and for summary judgment was heard in
February 1992. The motion was denied in June 1992. Trial was scheduled to
begin in 1993. However, the case was taken off the trial docket to facilitate
settlement negotiations.

It has also been reported that the Justice Department and the Securities and
Exchange Commission have been asked to investigate Lincoln's possible links to
Southmark.

Southmark Partnership Litigation. One of Southmark's principal businesses was
real estate syndication and from 1981 to 1987 Southmark raised over $500
million in investments from limited partners of several hundred partnerships.
Several lawsuits have been filed by investors which name Messrs. Phillips and
Friedman as defendants. The following actions relate to and involve such
activities.

In an action filed in November 1990 in the District Court, 150th Judicial
District, Bexar County, Texas, captioned Adkisson, et al. v. Friedman et al.,
the plaintiffs, who invested approximately $50,000 in a limited partnership
sponsored by Southmark, alleged breach of the partnership agreement, breach of
fiduciary duty, violations of state consumer protection laws, negligence and
fraud. The defendants included Messrs. Phillips and Friedman. In addition to
actual damages in an unspecified amount, punitive and statutory damages, and
attorneys' fees and court costs, the plaintiffs also sought to rescind the
partnership agreement and to obtain restitution of their capital contributions.
This case was settled in July 1993 for a nominal payment.

In a class action suit filed in December 1990 in the United States District
Court for the Southern District of New York captioned Sable, et al. v.
Southmark/Envicon Capital Corp., et al the plaintiffs, limited partners in nine
Southmark-sponsored limited partnerships, alleged several claims, including
conspiracy, fraud and violation of the federal and state RICO statutes. The
plaintiffs sought to recover actual damages in an unspecified amount, treble
damages pursuant to RICO, costs and injunctive relief. The defendants
included, among others, Messrs. Phillips and Friedman. In April 1993, the
court granted defendants' motion to dismiss for failure to state a claim, and
awarded sanctions against plaintiffs' counsel.

In an action filed in May 1992 in a Texas state court captioned HCW Pension
Real Estate Fund, et al. v. Phillips et al., the plaintiffs, fifteen former
Southmark related public limited partnerships, allege that the defendants
violated the partnership agreements by charging certain administrative costs
and expenses to the plaintiffs. The complaint alleges claims for breach of
fiduciary duty, fraud and conspiracy to commit to fraud and seeks to recover
actual damages of approximately $12.6 million plus punitive damages and
attorneys' fees and costs. The defendants include, among others, Messrs.
Phillips and

100
<PAGE> 101
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Directors (Continued)

Friedman. In October 1993, the court granted partial summary judgment in favor
of Messrs. Phillips and Friedman on the plaintiffs' breach of fiduciary duty
claims. The plaintiffs have not pursued the remaining claims.

In an action filed in May 1992 in a Texas state court captioned Cedarwood Hills
Associates, Ltd., et al. v. Phillips, et al., the plaintiffs, six former
Southmark related private limited partnerships, alleged that the defendants
charged the plaintiff partnerships for Southmark's corporate overhead and
operating costs. The complaint alleged claims for breach of fiduciary duty,
fraud and conspiracy to commit fraud and seeks to recover actual damages in an
unspecified amount, plus punitive damages and attorneys' fees and costs. The
defendants included, among others, Messrs. Phillips and Friedman. Notice of
non-suit in favor of all defendants was entered on January 10, 1994.

In an action filed in June 1992 in a Georgia state court captioned
Southmark/CRCA Healthcare Fund VIII, L.P. v. Southmark Investment Group 87,
Inc., et al., the plaintiff, a former Southmark related public limited
partnership, alleged that in 1988 the defendants caused the plaintiff to
purchase five nursing homes in violation of the partnership agreement and for
the sole purpose of benefitting the defendants. The complaint alleged claims
for breach of fiduciary duty and conspiracy to cause the plaintiff to acquire
the properties so as to obtain improper financial benefits for the defendants.
The plaintiff sought to recover actual damages in an unspecified amount, plus
punitive damages and attorneys' fees and costs. The defendants included, among
others, Messrs. Phillips and Friedman and TCI, which provided the financing for
the plaintiff's purchase of the properties. The case was settled in October
1993.

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

Board Meetings and Committees

The Company's Board of Directors held six meetings during 1993. For such year,
no incumbent Director attended fewer than 75% of (i) the total number of
meetings held by the Board of Directors during the period for which he had been
a Director and (ii) the total number of meetings held by all committees of the
Board of Directors on which he served during the periods that he served, except
that Messrs. Gonzalez and Kreiling each attended only four of the Board
meetings held in 1993.

101
<PAGE> 102
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Board Meetings and Committees (Continued)

The Company's Board of Directors has an Audit Committee the function of which
is to review the Company's operating and accounting procedures. The members of
the Audit Committee are Messrs. Watts (Chairman) and Gonzalez. The Audit
Committee met twice during 1993.

The Board of Directors has a Stock Option Committee to administer its 1987
Stock Option Plan. The function of the Stock Option Committee is, among other
things, to determine which persons will be granted options, the number of
shares to be covered by the options and the exercise period of the options
within the terms of the 1987 Stock Option Plan. The members of the Stock
Option Committee are Messrs. Watts and Gonzalez. The Stock Option Committee
did not meet in 1993.

In January 1993, the Company's Board of Directors established an Executive
Committee to act as the liaison with the Advisor on the Company's business plan
and investment policy decisions. The members of the Executive Committee are
Messrs. Cashwell, Phillips and Watts. The Executive Committee held two formal
meetings during 1993. In October 1993, the Board elected a President of the
Company who will perform the duties formerly the responsibility of the
Executive Committee.

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

Executive Officers

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

KARL L. BLAHA: Age 45, President (since October 1993) and Executive Vice
President and Director of Commercial Management (April 1992 to September 1993).

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

102
<PAGE> 103
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Executive Officers (Continued)

HAMILTON P. SCHRAUFF: Age 58, Executive Vice President and Chief Financial
Officer (since October 1991).

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

THOMAS A. HOLLAND: Age 51, Senior Vice President and Chief Accounting Officer
(since July 1990).

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

Officers

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

DREW D. POTERA: Age 34, Treasurer (since August 1991) and formerly Assistant
Treasurer (December 1990 to August 1991).

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

103
<PAGE> 104
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Officers (Continued)

ROBERT A. WALDMAN: Age 41, Secretary (since December 1989) and Vice President
(since January 1993).

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

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

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

Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's shares of Common Stock are required to report their ownership of the
Company's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Company is required to report any failure to file
by these dates during 1993. All of these filing requirements were satisfied by
the Company's Directors and executive officers and ten percent holders. In
making these statements, the Company has relied on the written representations
of its incumbent Directors and executive officers and its ten percent holders
and copies of the reports that they have filed with the Commission.

The Advisor

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

American Realty Advisors, Inc., an affiliate of Southmark, was the
advisor of the Company from July 1, 1987 to February 6, 1989. In February
1989, the Company's Board of Directors voted to retain BCM as the Company's
advisor. BCM is a corporation beneficially owned by a trust for the benefit of
the children of Gene E. Phillips, who served as

104
<PAGE> 105
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

The Advisor (Continued)

the Chairman of the Board and a Director of the Company until November 16,
1992. Ryan T. Phillips, the son of Mr. Phillips and a Director of the Company,
is also a director of BCM and a trustee of the trust for the benefit of the
children of Gene E. Phillips which owns BCM. Mr. Cashwell, a Director of the
Company, serves as President of BCM. Gene E. Phillips served as a director of
BCM until December 22, 1989 and as Chief Executive Officer of BCM until
September 1, 1992. Gene E. Phillips serves as a representative of the trust
for the benefit of his children which beneficially owns BCM and, in such
capacity, has substantial contact with the management of BCM and input with
respect to BCM's performance of advisory services to the Company. As of March
31, 1994, BCM owned 1,105,951 shares of the Company's Common Stock,
approximately 38% of the shares then outstanding.

The Advisory Agreement provides for the advisor to receive monthly base
compensation at the rate of .125% (1.5% on an annualized basis) of Average
Invested Assets. On October 23, 1991, based on the recommendation of BCM, the
Company's Advisor, the Company's Board of Directors approved a reduction in the
advisor's base fee by 50% effective October 1, 1991. This reduction remains in
effect until the Company's earnings for the four preceding quarters equals or
exceeds $2.00 per share.

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

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

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

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

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

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

105
<PAGE> 106
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

The Advisor (Continued)

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

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

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

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

Situations may develop in which the interests of the Company are in conflict
with those of one or more Directors or officers in their individual capacities
or of BCM, or of their respective affiliates. In addition to services
performed for the Company, as described above, BCM actively provides similar
services as agent for, and advisor to, other real estate enterprises, including
persons and entities involved in real estate development and financing,
including CMET, IORT and TCI. BCM also performs certain administrative
services for NRLP and NOLP, the operating partnership of NRLP, on behalf of
NRLP's and NOLP's general partner, SAMLP. The Advisory Agreement provides that
BCM may also serve as advisor to other entities. As advisor, BCM is a
fiduciary of the Company's public investors. In determining to which entity a
particular investment opportunity will be allocated, BCM will consider the
respective investment objectives of each entity and the appropriateness of a
particular investment in light of each such entity's existing mortgage note and
real estate portfolios and which entity has had uninvested funds for the
longest period of time. To the extent any particular investment opportunity is
appropriate to more than one such entity, such investment opportunity will be
allocated to the entity that

106
<PAGE> 107
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

The Advisor (Continued)

has had uninvested funds for the longest period of time, or, if appropriate,
the investment may be shared among various entities. See ITEM 13. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Certain Business Relationships."

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

MICKEY NED PHILLIPS: Director

RYAN T. PHILLIPS: Director

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

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

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

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

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

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

ROBERT A. WALDMAN: Vice President, Corporate Counsel and
Secretary

Mickey Ned Phillips is the brother of Gene E. Phillips and Ryan T. Phillips is
the son of Gene E. Phillips. Gene E. Phillips serves as a representative of
the trust established for the benefit of his children which owns BCM and, in
such capacity, Mr. Phillips has substantial contact with the management of BCM
and input with respect to its performance of advisory services to the Company.

Property Management

Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services for a fee of 5% or less of
the monthly gross rents collected on the properties under management. In many
cases, Carmel, Ltd. subcontracts with other entities for the provision of the
property-level management services to the Company at various rates. The
general partner of Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd.
are (i) SWI, of which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips
and (iii) a trust for the benefit of the children of Mr. Phillips. Carmel,
Ltd. subcon-

107
<PAGE> 108
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Property Management (Continued)

tracts the property-level management of the Company's shopping center to Carmel
Realty, Inc., which is owned by SWI.

Real Estate Brokerage

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

ITEM 11. EXECUTIVE COMPENSATION

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

The only direct remuneration paid by the Company is to those Directors who are
not officers or employees of BCM or its affiliated companies. The Company
compensates such Independent Directors at a rate of $5,000 per year, plus $500
per meeting attended and $300 per Audit Committee meeting attended. During
1993, $35,450 was paid to Independent Directors in total Directors' fees for
all meetings as follows: Al Gonzalez, $7,600; Tilmon Kreiling, Jr., $7,000;
Ryan T. Phillips, $8,100; G. Wayne Watts, $11,000; and David Kipper,
$1,750, a director through April 1993.

In July 1987, the Company's Board of Directors, including all of the
Independent Directors, approved the Company's 1987 Stock Option Plan (the
"Plan"). The Plan was approved by the Company's Stockholders at the Company's
annual meeting of stockholders held on June 8, 1988. The Plan was intended
principally as an incentive for, and as a means of encouraging ownership of the
Company's Common Stock by, eligible persons, including certain Directors and
officers of the Company. Options may be granted either as incentive stock
options (which qualify for certain favorable tax treatment), or as
non-qualified stock options. Incentive stock options can not be granted to,
among others, persons who are not employees of the Company, or to persons who
fail to satisfy certain criteria concerning ownership of less than 10% of the
Company's shares of Common Stock. The Plan is administered by the Stock Option
Committee, which currently consists of two Independent Directors of the
Company. The exercise price per share of an option can not be less than 100%
of the fair market value per share on the date of grant. The Company receives
no consideration for the grant of an option. As of March 31, 1994, there were
no stock options outstanding under the Plan.

108
<PAGE> 109
ITEM 11. EXECUTIVE COMPENSATION (Continued)

Performance Graph

The following graph compares the cumulative total shareholder return on the
Company's shares of Common Stock with the Dow Jones Equity Market Index ("DJ
Equity Index") and the Dow Jones Real Estate Investment Index ("DJ Real Estate
Index"). The comparison assumes that $100 was invested on December 31, 1988 in
the Company's shares of Common Stock and in each of the indices and further
assumes the reinvestment of all dividends. Past performance is not necessarily
an indicator of future performance.

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
THE COMPANY 100 37 8 21 26 97

DJ EQUITY INDEX 100 131 126 152 180 198

DJ REAL ESTATE INDEX 100 89 61 79 95 120
</TABLE>

109
<PAGE> 110
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of the Company's Common Stock both beneficially and of
record, both individually and in the aggregate, for those persons or entities
known by the Company to be the owner of more than 5% of the shares of the
Company's Common Stock as of the close of business on March 31, 1994.

<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership Class (1)
- ------------------------------------ ---------------------- ----------
<S> <C> <C>
Basic Capital Management, Inc. 1,105,951 38.3%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Donald C. Carter 417,359 14.5%
Sunninghill
Old Brookville, New York 11545

ATN Equity Partnership 195,000 6.8%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Continental Mortgage and Equity
Trust 204,522 7.1%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Oscar W. Cashwell 1,359,404 (2)(3) 47.1%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Ryan T. Phillips 1,130,979 (3)(4)(5) 39.2%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
</TABLE>

_________________________

(1) Based on 2,884,164 shares outstanding as of March 31, 1994.

(2) Includes 204,522 shares owned by CMET over which Oscar W. Cashwell may be
deemed to be beneficial owner by virtue of his position as President of
CMET. Also includes 48,931 shares owned by NRLP over which Mr. Cashwell
may be deemed to be beneficial owner by virtue of his positions as
President and director of SAMI, the managing general partner of SAMLP, the
general partner of NRLP. Mr. Cashwell disclaims beneficial ownership of
such shares.

110
<PAGE> 111
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Continued)

(3) Includes 1,105,951 shares owned by BCM over which Mr. Cashwell and Ryan T.
Phillips may be deemed to be the beneficial owners by virtue of their
positions as President and director, respectively, of BCM. Messrs.
Cashwell and Phillips disclaim beneficial ownership of such shares.

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

(5) Includes 445 shares owned by Ryan T. Phillips.

Security Ownership of Management. The following table sets forth the ownership
of shares of the Company's Common Stock, both beneficially and of record, both
individually in the aggregate, for the Directors and executive officers of the
Company, as of the close of business on March 31, 1994.

<TABLE>
<CAPTION>
Number of
Shares Beneficially Percent of
Name of Beneficial Owner Owned Class (1)
- ------------------------ -------------------------------- ----------
<S> <C> <C>
All Directors and 1,721,299 (2)(3)(4) 59.7%
Executive Officers (5)(6)(7)
as a group (eight
individuals)
</TABLE>
___________________________

(1) Based on 2,884,164 shares outstanding as of March 31, 1994.

(2) Includes 1,105,951 shares owned by BCM over which Ryan T. Phillips and
Oscar W. Cashwell may be deemed to be beneficial owners by virtue of their
positions as a director and President, respectively, of BCM. Also
includes 48,931 shares owned by NRLP over which Mr. Cashwell may be deemed
to be beneficial owner by virtue of his position as President and director
of SAMI, the managing general partner of SAMLP, the general partner of
NRLP and 204,522 shares owned by CMET over which Mr. Cashwell may be
deemed to be beneficial owner by virtue of his position as President of
CMET.

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

(4) Includes 445 shares owned by Ryan T. Phillips.

(5) Includes 608 shares owned directly over which Thomas A. Holland and his
wife jointly hold voting and dispositive power, and 83 shares held by Mr.
Holland in an individual retirement account.

(6) Includes 195,000 shares issued to ATN Equity Partnership ("ATN"). Such
shares are pledged as collateral to Southmark securing the payment
obligations to Southmark. As payments are made, shares are released and
returned to the Company by ATN. ATN is a general partnership of which the
Company and NRLP are the general partners. Pursuant to the partnership
agreement the Board of Directors of the Company retains all voting and
(subject to the pledge) dispositive power over such shares.

111
<PAGE> 112
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Continued)

(7) Includes 141,176 shares issued to Rosedale Equities, Inc., a wholly-owned
subsidiary of the Company. Such shares are pledged as additional
collateral for a loan secured by the Rosedale Towers Office Building.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Policies with Respect to Certain Activities

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

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

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

112
<PAGE> 113
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Policies with Respect to Certain Activities (Continued)

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

Certain Business Relationships

As mentioned above, BCM is a corporation of which Messrs. Cashwell, Blaha,
Schrauff, Holland, Potera and Waldman, serve as officers. BCM is beneficially
owned by a trust for the benefit of the children of Gene E. Phillips, the
trustees of which are Mickey Ned Phillips and Ryan T. Phillips. Mickey Ned
Phillips and Ryan T. Phillips (a Director of the Company), brother and son,
respectively, of Gene E. Phillips, are also directors of BCM.

Mr. Cashwell is the President of CMET, IORT and TCI, and owes fiduciary duties
to such entities as well as to BCM under applicable law. CMET, IORT, and
TCI have the same relationship with BCM as does the Company. In addition, BCM
has been engaged to perform certain administrative functions for NRLP and NOLP.
Mr. Phillips is a general partner of SAMLP, NRLP's and NOLP's general partner,
and is an officer and director of SAMLP's managing general partner, SAMI. BCM
is the sole shareholder of SAMI. The Company is a limited partner and a 76.8%
owner of SAMLP. Al Gonzalez, a Director of the Company, is the father of
Randall K. Gonzalez, who is a trustee or director of CMET, IORT and TCI, and
President and Managing Partner of TMC Realty Advisors, Inc. ("TMC"), an entity
which provides property-level management services to certain properties owned
by the Company. In 1993, TMC earned fees of $110,700 from the Company for
performing such services.

In August 1991, BCM funded a loan in the amount of $100,000 to Al Gonzalez. The
note is secured by a residence and bears interest at 2% above the prime rate.
The note matured on December 31, 1992. BCM is in negotiations with Mr.
Gonzalez to extend such loan.

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

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

As of March 31, 1994, BCM owned 1,105,951 shares of the Company's Common Stock,
approximately 38% of the shares then outstanding.

113
<PAGE> 114
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Certain Business Relationships (Continued)

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

Related Party Transactions

In April 1990, SAMLP made a $1.4 million unsecured loan to Equity Health and
Finance Corporation ("Equity Health"), an entity affiliated with BCM. The
Equity Health note bears interest at 12% per annum, originally matured on April
10, 1991, and has been subsequently extended to May 9, 1994. In June 1991,
Equity Health merged into BCM, and BCM assumed the note. The outstanding
balance of the note was $477,000 at December 31, 1993, including accrued but
unpaid interest.

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

In April 1991, the Company acquired for $208,000 in cash all of the capital
stock of a corporation which owned 181 developed residential lots located in
Fort Worth, Texas subject to $1.2 million of mortgage debt owed to CMET. The
loan was repaid in full in August 1993. CMET is an entity having the same
advisor as the Company and at March 31, 1994, the Company owned approximately
30% of CMET's outstanding shares of beneficial interest and CMET owned
approximately 7% of the outstanding shares of the Company's Common Stock.

In June 1992, the Company sold 397,359 newly issued shares of its Common Stock
to Donald C. Carter, a private investor for $1.9 million cash. Terms of the
sale agreement provide Mr. Carter with the option of requiring the Company to
reacquire up to 360,000 of the purchased shares at a price of $6.11 per share, a
total of $2.2 million. Such option is exercisable by Mr. Carter for a two-
year period expiring in March 1995. To secure its payment obligations under
the option agreement, the Company assigned its interest in the $22 million note
receivable secured by the Continental Hotel and Casino in Las Vegas, Nevada.
In addition, BCM and the trust that beneficially owns BCM have agreed to
guarantee the Company's payment obligation to purchase such shares.

114
<PAGE> 115
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Related Party Transactions (Continued)

In January 1992, the Company entered into a partnership agreement with an
entity affiliated with Mr. Carter to acquire 287 developed residential lots
adjacent to the Company's other residential lots in Fort Worth, Texas. The
Company paid $717,000 in cash for its 50% general partnership interest. The
partnership agreement designates the Company as managing general partner. The
partnership agreement also provides that Mr. Carter is guaranteed a 10% return
on his investment. During 1993, 18 of the lots were sold and at December 31,
1993, 269 lots remained to be sold.

In June 1992, the Company obtained a $3.3 million loan from Mr. Carter. The
note bears interest at 10% and matures in May 1995. Interest payments are made
monthly in addition to ten quarterly principal payments of $330,000 which
commenced March 1, 1993. The note is collateralized by an assignment of the
Company's interest in a partnership which owns residential lots in Fort Worth,
Texas and the Company's interest in undeveloped land in downtown Atlanta,
Georgia. The loan also provides for Mr. Carter's participation in the proceeds
from either the sale or refinancing of the Company's land in Atlanta, Georgia,
to the extent of 15.57% of the net proceeds, as defined, in excess of $10
million. Mr. Carter also had the right during a period beginning eighteen
months from the date of the loan and continuing ninety days thereafter to put
his participation to the Company in exchange for a payment of $623,000. On
December 2, 1993, Mr. Carter exercised his put which required full payment by
the Company within 30 days. Mr. Carter has agreed to extend the payment date
to January 2, 1995, and BCM and the trust that beneficially owns BCM, have
agreed to guarantee the Company's payment obligation.

In September 1992, the Company agreed to sell its entire holdings in NIRT to
Mr. Friedman, the President and a trustee of NIRT, and at the time the
President of the Company, and members of his family and his affiliates. At the
time, NIRT had the same advisor as the Company. BCM resigned as advisor to
NIRT effective March 31, 1994. The agreement provided for the Company to sell
its 741,592 NIRT shares at the then market price of $6.875 per share. As of
December 31, 1993, the Company had transferred all of its NIRT shares to Mr.
Friedman and his affiliates in exchange for cash of $2.9 million ($657,000 in
1992), and $2.2 million in securities comprised of 42,260 limited partner units
of NRLP, 105,096 shares of CMET, 10,075 shares of IORT and 118,500 shares of
TCI.

In 1993, the Company paid BCM and its affiliates $1.2 million in advisory and
mortgage servicing fees, $180,000 in real estate brokerage commissions,
$102,000 in loan arrangement fees and $45,000 in property management fees. In
addition, as provided in the Advisory Agreement, BCM received cost
reimbursements from the Company of $288,000 in 1993.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

115
<PAGE> 116
PART IV

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

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

1. Consolidated Financial Statements

Report of Independent Certified Public Accountants

Consolidated Balance Sheets -
December 31, 1993 and 1992

Consolidated Statements of Operations -
Years Ended December 31, 1993, 1992 and 1991

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1993, 1992 and 1991

Consolidated Statements of Cash Flows -
Years Ended December 31, 1993, 1992 and 1991

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Schedule I - Investments

Schedule II - Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees other than Related Parties

Schedule IX - Short-term Borrowings

Schedule X - Supplementary Statement of Operations Information

Schedule XI - Real Estate and Accumulated Depreciation

Schedule XII - Mortgage Loans on Real Estate

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

(THIS SPACE INTENTIONALLY LEFT BLANK.)

116
<PAGE> 117
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

3. Incorporated Financial Statements

Consolidated Financial Statements of National Realty, L.P. (Incorporated by
reference to Item 8 of National Realty, L.P.'s Annual Report on Form 10-K for
the year ended December 31, 1993).

Consolidated Financial Statements of Continental Mortgage and Equity Trust
(Incorporated by reference to Item 8 of Continental Mortgage and Equity Trust's
Annual Report on Form 10-K for the year ended December 31, 1993).

Consolidated Financial Statements of Income Opportunity Realty Trust
(Incorporated by reference to Item 8 of Income Opportunity Realty Trust's
Annual Report on Form 10-K for the year ended December 31, 1993).

Consolidated Financial Statements of Transcontinental Realty Investors, Inc.
(Incorporated by reference to Item 8 of Transcontinental Realty Investors,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1993).

4. Exhibits

The following documents are filed as Exhibits to this Report:

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

3.2 Amendment to Articles of Incorporation dated September 15, 1989
(Incorporated by reference to Exhibit No. 3.2 of the Registrant's
Registration Statement No. 33-19920 on Form S-11).

3.3 Articles of Amendment setting forth Certificate of Designation of
Series A Cumulative Participating Preferred Stock dated as of April
11, 1990 (Incorporated by reference to Exhibit No. 3-1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1990).

3.4 Articles of Amendment dated December 10, 1990 to Articles of
Incorporation (Incorporated by reference to Exhibit No. 3.4 of
Registrant's Current Report on Form 8-K dated December 5, 1990).

3.5 Amended By-laws of American Realty Trust, Inc., dated December 11,
1991. (Incorporated by reference to Exhibit No. 3.5 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991).

117
<PAGE> 118
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

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

4.1 Rights Agreement dated April 11, 1990 between American Realty Trust,
Inc. and American Stock Transfer and Trust Company, as Rights Agent
(Incorporated by reference to Registrant's Current Report on Form 8-K
dated April 20, 1990).

4.2 Amendment No. 1 to Rights Agreement dated March 5, 1991 between
American Realty Trust, Inc. and American Stock Transfer and Trust
Company, as Rights Agent (Incorporated by reference to Registrant's
Amendment No. 1 on Form 8 dated March 27, 1991).

4.3 Amendment No. 2 to Rights Agreement dated June 23, 1992 between
American Realty Trust, Inc. and American Stock Transfer and Trust
Company, as Rights Agent (Incorporated by reference to Registrant's
Amendment No. 2 on Form 8 dated June 30, 1992).

10.1 Agreement of Merger by and among American Realty Trust, Inc., Novus
Property Company and ART Maryland, Inc. dated September 22, 1986
(Incorporated by reference to Exhibit No. 2.1 to Registrant's
Registration Statement No. 33-8837 on Form S-4).

10.2 1987 Stock Option Plan (Incorporated by reference to Appendix E to
Proxy Statement/Prospectus filed as part of Registration Statement
No. 33-19636 on Form S-4).

10.3 Promissory notes executed by American Realty Trust, Inc. to First
City, Texas-Dallas dated as of September 29, 1989 (Incorporated by
reference to Exhibit No. 10.12 to the Registrant's Registration
Statement No. 33-19920 on Form S-11).

10.4 Collateral Assignment of Participation Agreement between American
Realty Trust, Inc. and First City, Texas-Dallas, dated as of
September 29, 1989 (Incorporated by reference to Exhibit No. 10.13 to
the Registrant's Registration Statement No. 33-19920 on Form S-11).

10.5 Participation Agreement between Collecting Bank, National Association
and American Realty Trust, Inc., dated as of September 29, 1989
(Incorporated by reference to Exhibit No. 10.14 to the Registrant's
Registration Statement No. 33-19920 on Form S-11).

10.6 Advisory Agreement between American Realty Trust, Inc. and Basic
Capital Management, Inc., formerly National Realty Advisors, Inc.,
dated as of October 4, 1989 (Incorporated by reference to Exhibit No.
10.15 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1989).

118
<PAGE> 119
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

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

10.7 Amendment No. 1 to the Advisory Agreement between American Realty
Trust, Inc. and Basic Capital Management, Inc., formerly National
Realty Advisors, Inc., dated as of December 5, 1989 (Incorporated by
reference to Exhibit No. 10.17 to the Registrant's Registration
Statement No. 33-19920 on Form S-11).

10.8 Amendment No. 2 to the Advisory Agreement between American Realty
Trust, Inc. and Basic Capital Management, Inc., formerly National
Realty Advisors, Inc., dated August 1, 1990 (Incorporated by
reference to Exhibit No. 10.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1990).

10.9 Loan Servicing Agreement between American Realty Trust, Inc. and
Basic Capital Management, Inc., formerly National Realty Advisors,
Inc., dated as of October 4, 1989 (Incorporated by reference to
Exhibit No. 10.16 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1989).

22.1 Subsidiaries of the Registrant.

28.1 Settlement Agreement and Mutual Release, dated as of December 27,
1991, between Southmark Corporation, et al and Gene E. Phillips, et
al (Incorporated by reference to Exhibit No. 28.1 to the Registrant's
Current Report on Form 8-K dated December 27, 1991).

28.2 Agreement dated as of February 25, 1992, between Gene E. Phillips,
William S. Friedman, American Realty Trust, Inc., Syntek West, Inc.,
National Realty Advisors, Inc., Transcontinental Realty Investors,
Inc., Continental Mortgage and Equity Trust, National Income Realty
Trust and Income Opportunity Realty Trust (Incorporated by reference
to Exhibit No. 28.1 to the Registrant's Current Report on Form 8-K
dated February 25, 1992).

28.3 Term Sheet, dated October 6, 1993, among National Realty, L.P.,
Syntek Asset Management, L.P., National Realty, L.P. Oversight
Committee and American Realty Trust, Inc. (incorporated by reference
to Exhibit No. 2 to the Registrant's Current Report on Form 8-K,
dated October 8, 1993).

(THIS SPACE INTENTIONALLY LEFT BLANK.)

119
<PAGE> 120
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

(b) Reports on Form 8-K:

A Current Report on Form 8-K, dated October 8, 1993, was filed with
respect to Item 5, which reports that the Registrant, Syntek Asset
Management, L.P., the general partner of National Realty, L.P. and
the National Realty, L.P. Oversight Committee reached an agreement in
principle evidenced by a detailed Term Sheet to nominate a candidate
for successor general partner for National Realty, L.P. and to
consummate the 1990 settlement of a class action lawsuit.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

120
<PAGE> 121
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

AMERICAN REALTY TRUST, INC.

Dated: April 14, 1994 By: /s/ KARL L. BLAHA
Karl L. Blaha President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

By: /s/ OSCAR W. CASHWELL By: /s/ TILMON KREILING, JR.
Oscar W. Cashwell Tilmon Kreiling, Jr.
Director Director

By: /s/ AL GONZALEZ By: /s/ RYAN T. PHILLIPS
Al Gonzalez Ryan T. Phillips
Director Director

By: /s/ G. WAYNE WATTS
G. Wayne Watts
Director

By: /s/ HAMILTON P. SCHRAUFF By: /s/ THOMAS A. HOLLAND
Hamilton P. Schrauff Thomas A. Holland
Executive Vice President and Senior Vice President and
Chief Financial Officer Chief Accounting Officer

Dated: April 14, 1994

121
<PAGE> 122
ANNUAL REPORT ON FORM 10-K

EXHIBIT INDEX

FOR THE YEAR ENDED DECEMBER 31, 1993

Exhibit Page
Number Description Number
- ------- ----------- ------
22.1 Subsidiaries of Registrant. 123

122

<PAGE> 1
EXHIBIT 22.1

SUBSIDIARIES OF THE REGISTRANT

Syntek Asset Management, L.P., a 76.8% owned Delaware limited partnership, and
Consolidated Equity Properties, Inc., a wholly-owned Nevada corporation, are
"significant subsidiaries" of the Registrant (as such term is defined in Rule
1-02(v) of Regulation S-X). The remaining subsidiaries of the Company,
considered in the aggregate, would not constitute a "significant subsidiary".

123