AMERICAN REALTY TRUST INC ET AL, S-4/A, 1997-04-29

AMERICAN REALTY TRUST INC ET AL
S-4/A, 1997-04-29
REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997

Registration Statement No. 333-21583

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------

AMENDMENT NO. 1
ON
FORM S-4
TO
FORM S-2
AND

FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
-------------------------

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

GEORGIA 54-0697989
(State of Incorporation) (I.R.S. Employer Identification No.)

6513
(Primary Standard Industrial)
Classification Code Number)
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Address and telephone number of principal executive offices)
ROBERT A. WALDMAN, ESQ.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Name, address and telephone number of agent for service)
-------------------------
Copy to:
THOMAS R. POPPLEWELL, ESQ.
Andrews & Kurth L.L.P.
4400 Thanksgiving Tower
Dallas, Texas 75201
-------------------------

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
===================================================================================================================================
Proposed
Title of Each Class Proposed Maximum
of Securities to be Amount to be Maximum Offering Aggregate Offering Amount of
Registered Registered Price Per Unit(1) Price(1) Registration Fee
- ------------------------------------------------------ ---------------- -------------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock, $2.00 par value...................... 12,500,000 SHARES $10.00 $125,000,000.00 $37,878.79 (3)
- ------------------------------------------------------ ---------------- -------------------- -------------------- -----------------
COMMON STOCK, $0.01 PAR VALUE......................... 8,750,000 SHARES (2)
- ------------------------------------------------------ ---------------- -------------------- -------------------- -----------------
</TABLE>

(1) ESTIMATED SOLELY FOR THE PURPOSE OF COMPUTING THE REGISTRATION FEE.
(2) COMMON STOCK OF THE REGISTRANT, TO BE ISSUED UPON CONVERSION OF THE
PREFERRED STOCK BEING REGISTERED HEREUNDER. SUCH SHARES OF COMMON STOCK
WILL, IF ISSUED, BE ISSUED FOR NO ADDITIONAL CONSIDERATION AND THEREFORE
NO REGISTRATION FEE IS REQUIRED.

(3) FEE PREVIOUSLY PAID.

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

<PAGE> 2

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

PURSUANT TO RULE 429, THE PROSPECTUS CONTAINED HEREIN ALSO RELATES TO
SHARES OF THE REGISTRANT'S PREFERRED STOCK AND COMMON STOCK PREVIOUSLY
REGISTERED ON FORM S-2 (REGISTRATION STATEMENT NO. 333-21583). THIS AMENDMENT
ALSO CONSTITUTES AN AMENDMENT NO. 1 TO FORM S-2, FILED TO THE REGISTRATION
STATEMENT NO. 333-21583.

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

<PAGE> 3

AMERICAN REALTY TRUST, INC.
-------------------------

CROSS REFERENCE SHEET TO FORM S-4

<TABLE>
<CAPTION>
Location in
Item Number and Caption Prospectus
----------------------- ----------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front Cover Page
of Prospectus........................................................ Cover Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus.............. Inside Front and Outside Back Cover Pages
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information.......................................................... *
4. Terms of the Transaction............................................. Outside Front Cover Page
5. Pro Forma Financial Information...................................... *
6. Material Contracts with the Company Being Acquired................... *
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters.................................... *
8. Interests of Named Experts and Counsel............................... *
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities........................................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.......................... *
11. Incorporation of Certain Information by Reference.................... *
12. Information with Respect to S-2 or S-3 Registrants................... THE COMPANY, THE BUSINESS OF THE
COMPANY, SELECTED FINANCIAL DATA,
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, FINANCIAL
STATEMENTS
13. Incorporation of Certain Information by Reference.................... INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
14. Information with Respect to Registrants other than
S-3 or S-2 Registrants............................................... *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies............................ **
16. Information with Respect to S-2 or S-3 Companies..................... **
17. Information with Respect to other than S-3 or S-2 Companies.......... **
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations are to be
Solicited............................................................ **
19. Information if Proxies, Consents or Authorizations are not to be
Solicited or in an Exchange Offer.................................... **
</TABLE>

* Not applicable
** To be included in the Prospectus by means of a post - effective
amendment.

<PAGE> 4

EXPLANATORY NOTE

Pursuant to its Registration Statement on Form S-2 (Reg. No.
333-21583), American Realty Trust, Inc. (the "Company") registered (i) the
offering by the Company from time to time of up to 5,000,000 shares of its
Preferred Stock and (ii) in the event such Preferred Stock is convertible, the
offering by the Company up to 3,500,000 shares of Common Stock, into which such
Preferred Stock is convertible. The Registration Statement on Form S-2 was
never declared effective by the Commission.

This Amendment No. 1 is filed for the purpose of amending the form of
the Registration Statement from Form S-2 to reduce the number of shares
registered therein to zero, and to amend the Registration Statement on Form S-4
(Registration Statement No. 333- 21591) to include the shares previously
registered on Form S-2.

<PAGE> 5

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

PROSPECTUS

SUBJECT TO COMPLETION, DATED APRIL 29, 1997

AMERICAN REALTY TRUST, INC.
PREFERRED STOCK
COMMON STOCK

American Realty Trust, Inc. (the "Company"), a Georgia corporation,
may offer from time to time shares of preferred stock, par value $2.00 per
share (the "Preferred Stock"), and in the event such Preferred Stock is
convertible, common voting stock, par value $.01 per share (the "Common
Stock"), into which such Preferred Stock is convertible having a public
offering price of up to an aggregate of $125,000,000 (or its equivalent based
on the exchange rate at the time of sale) in amounts, at prices and on terms to
be determined at the time of the offering. The Preferred Stock may be offered
in separate series, in amounts, at prices and on terms to be set forth in one
or more supplements to this Prospectus (each a "Prospectus Supplement").

The specific terms of the Preferred Stock and the Common Stock
(collectively, the "Offered Securities"), in respect of which this Prospectus
is being delivered will be set forth in the applicable Prospectus Supplement
and will include, where applicable, the specific number of shares, title,
stated value and liquidation preference of each share, issuance price, dividend
rate (or method of calculation), dividend payment dates, any redemption or
sinking fund provisions and any conversion or exchange fund provisions. The
Prospectus Supplement will also contain information, where applicable, about
certain United States federal income tax considerations relating to, and any
listing on a securities exchange of, the Offered Securities covered by the
Prospectus Supplement.

It is expected that the terms of acquisitions involving the issuance
of the shares of Offered Securities covered by this Prospectus will be
determined by direct negotiations with the owners or controlling persons of the
assets, businesses or securities to be acquired, and that the shares of Offered
Securities issued will be valued at prices reasonably related to the market
price of the Offered Securities either at the time an agreement is entered into
concerning the terms of the acquisition or at or about the time the shares are
delivered. No underwriting discounts or commissions will be paid, although
finder's fees may be paid in connection with certain acquisitions. Any person
receiving such fees may be deemed to be an "underwriter" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), and any profit
on the resale of shares of Offered Securities purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

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

The date of this Prospectus is April 29, 1997

-1-

<PAGE> 6

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports and other information with the Commission.
Reports and proxy and information statements filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661- 2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission. The address of such Web site is
"http://www.sec.gov". In addition, reports, proxy statements and other
information concerning the Company (symbol: "ARB") can be inspected and copied
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005-2601, on which the shares of Common Stock of the Company are
listed.

The Company has filed with the Commission a Registration Statement
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the shares of Preferred Stock and Common
Stock of the Company. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Preferred Stock and Common
Stock, reference is made to the Registration Statement and to the exhibits
thereto. Statements contained herein concerning the provisions of certain
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
may be inspected without charge at the office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained from
the Commission upon payment of the prescribed fees.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:

1. The Company's Report on Form 8-K, dated December 18, 1996, as
filed with the Commission on January 15, 1997.

2. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as filed with the Commission on March 31, 1997.

3. The Annual Report on Form 10-K for Continental Mortgage and Equity
Trust for the year ended December 31, 1996, as filed with the Commission on
March 14, 1997.

4. The Annual Report on Form 10-K for Income Opportunity Realty
Investors, Inc. for the year ended December 31, 1996, as filed with the
Commission on March 13, 1997.

5. The Annual Report on Form 10-K for Transcontinental Realty
Investors, Inc. for the year ended December 31, 1996, as filed with the
Commission on March 26, 1997.

6. The Annual Report on Form 10-K for National Realty, L.P. for the
year ended December 31, 1995, as filed with the Commission on March 25, 1997.

Each document filed subsequent to the date of this Prospectus pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to termination
of the offering of the Preferred Stock shall be deemed to be incorporated by

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<PAGE> 7

reference in this Prospectus and shall be part hereof from the date of filing
of such document. Any statement contained in a document that is deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is also deemed to be
incorporated by reference herein modifies or supersedes such statement, and any
statement contained in this Prospectus shall be deemed to be modified or
superseded to the extent that a statement contained in any subsequently filed
document that also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document described
above (other than exhibits). Requests for such copies should be directed to
American Realty Trust, Inc., 10670 North Central Expressway, Suite 300, Dallas,
Texas 75231, Attention: Investor Relations. The Company's telephone number is
(214) 692-4700.

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<PAGE> 8

RATIO OF EARNINGS TO FIXED CHARGES

The following table summarizes the ratio of the Company's earnings to
combined fixed charges and preferred stock dividends (the "Earnings to Combined
Fixed Charges Ratio") for each of the five fiscal years of the Company ended
December 31, 1996:

<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS * * * * *
</TABLE>

* Earnings were inadequate to cover fixed charges by $4,819,000, $189,000,
$1,390,000, $4,923,000 and $7,117,000 in 1996, 1995, 1994, 1993 and 1992,
respectively.

USE OF PROCEEDS

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

THE COMPANY

The Company, a Georgia corporation, is the successor to a District of
Columbia business trust organized pursuant to a declaration of trust dated July
14, 1961. The business trust merged into the Company on June 24, 1988. The
Company invests in equity interests in real estate (including equity securities
of real estate-related entities), leases, joint venture development projects
and partnerships and finances real estate and real estate activities through
investments in mortgage loans. The Company has invested in private and open
market purchases in the equity securities of Continental Mortgage and Equity
Trust ("CMET"), Income Opportunity Realty Investors, Inc. ("IORI"),
Transcontinental Realty Investors, Inc. ("TCI") and National Realty, L.P.
("NRLP").

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

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"). BCM is a contractual advisor under
the supervision of the Company's board of directors. The duties of BCM include,
among other things, locating, investigating, evaluating and recommending real
estate and mortgage note investment and sales opportunities, as well as
financing and refinancing sources for the Company. BCM also serves as a
consultant in connection with the Company's business plan and investment policy
decisions made by the Company's board of directors.

BCM is a company owned by a trust for the benefit of the children of
Gene E. Phillips, the Chairman of the Board and a Director of the Company until
November 16, 1992. Gene Phillips served as a director of BCM until December 22,
1989 and as Chief Executive Officer of BCM until September 1, 1992. Gene
Phillips currently serves as a representative of the trust for the benefit of
his children that owns BCM and, in such capacity, Gene Phillips 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, the son of Gene Phillips
and a Director of the Company until June 4, 1996, is also a director of BCM and
a trustee of the trust for the benefit of the children of Mr. Phillips which
owns BCM. As of April 11, 1997, BCM owned 5,115,060 shares of the Company's
Common Stock, approximately 39.6% of the shares then outstanding. BCM has been
providing advisory services to the Company since February 6, 1989. BCM also
serves as advisor to CMET, IORI and TCI. Randall M. Paulson, Bruce A. Endendyk
and Thomas A. Holland, executive officers of the Company, are also executive
officers of CMET, IORI and TCI. Oscar W. Cashwell, a Director of the Company,

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<PAGE> 9

served as Executive Vice President of BCM until January 10, 1997. Randall M.
Paulson, Executive Vice President of the Company, serves as President and sole
director of Syntek Asset Management, Inc. ("SAMI"), the managing general
partner of Syntek Asset Management, L.P. ("SAMLP"), the general partner of NRLP
and National Operating, L.P. ("NOLP"), the operating partnership of NRLP. Mr.
Phillips is also a general partner of SAMLP and served as a director and Chief
Executive Officer of SAMI until May 15, 1996. SAMI is a company owned by BCM.
BCM performs certain administrative functions for NRLP and NOLP on a cost
reimbursement basis.

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. 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 Gene Phillips is the sole shareholder, (ii) Gene
Phillips and (ii) a trust for the benefit of the children of Gene Phillips.
Carmel, Ltd. subcontracts the property-level management of the Company's
hotels, shopping centers, one of its office buildings and the Denver
Merchandise Mart to Carmel Realty, Inc. ("Carmel Realty") which is owned by
SWI. Carmel Realty is entitled to receive property and construction management
fees and leasing commissions in accordance with the terms of its property-level
management agreement with Carmel, Ltd.

Affiliates of the Advisor are also entitled to receive real estate
brokerage commissions in accordance with the terms of the Advisory Agreement.

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

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

THE BUSINESS OF THE COMPANY

GENERAL

The Company, a Georgia corporation, is the successor to a District of
Columbia business trust. The Company elected to be treated as a 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.

The Company's primary business is investing in equity interests in
real estate (including equity securities of real estate-related entities),
leases, joint venture development projects and partnerships and financing real
estate and real estate activities through investments in mortgage loans,
including first, wraparound and junior mortgage loans.

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 its mortgage notes. The Company also intends to pursue higher risk,
higher reward investments, such as developed, partially developed and
undeveloped land where it can obtain financing of a significant portion of a
property's purchase price. The Company intends to seek selected dispositions of
certain of its assets, in particular certain of its land holdings, where the
prices obtainable for such assets justify their disposition. The Company
intends to continue to service and hold for investment its mortgage notes. The
Company also intends to pursue its rights vigorously with respect to mortgage
notes receivable that are in default.

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<PAGE> 10

The Company's board of directors may devote available assets to
particular investments or types of investments, without restriction on the
amount or percentage of the Company's assets that may be so devoted to a single
investment or to any particular type of investment, and without limit on the
percentage of securities of any one issuer that the Company may acquire. The
Company's investment objectives and policies may be changed at any time by the
Company's board of directors without the approval of the Company's
shareholders.

The specific composition of the Company's real estate and mortgage
notes receivable portfolios from time to time depends largely on the judgment
of the Company's management as to changing investment opportunities and the
level of risk associated with specific investments or types of investments. The
Company's management intends to continue to maintain real estate and mortgage
notes receivable portfolios diversified by location and type of property. In
addition to its equity investments in real estate and mortgage notes, the
Company has also invested in private and open market purchases of the equity
securities of CMET, IORI, TCI and NRLP.

GEOGRAPHIC REGIONS

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.
The Company has no properties in this region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia.
The Company has one hotel in this region.

Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. The Company has one
commercial property in this region.

Midwest region comprised of the states of Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North
Dakota, Ohio, South Dakota, West Virginia and Wisconsin. The Company
has three commercial properties and one hotel in this region.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. The Company has one commercial property and
one hotel in this region.

Pacific region comprised of the states of California, Oregon and
Washington. The Company has no properties in this region.

Excluded from the above are 17 parcels of developed, partially developed and
undeveloped land and a single family residence in Dallas, Texas as described
below.

REAL ESTATE

At December 31, 1996, approximately 75% of the Company's assets were
invested in real estate and the equity securities of real estate entities. The
Company has invested in real estate located throughout the continental United
States, either on a leveraged or nonleveraged basis. The Company's real estate
portfolio consists of properties held for investment, investments in
partnerships, properties held for sale and investments in equity securities of
CMET, IORI, TCI and NRLP.

Types of Real Estate Investments. The Company's real estate consists
of commercial properties (office buildings, shopping centers and a merchandise
mart), hotels and developed, partially developed and undeveloped land. In
selecting new real estate investments, the location, age and type of property,
gross rents, lease terms, financial and business standing of tenants, operating
expenses, fixed charges, land values and physical condition are among the
factors considered. The Company may acquire properties subject to or assume
existing debt and may mortgage, pledge or

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<PAGE> 11

otherwise obtain financing for its properties. 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.

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

At December 31, 1996, the Company had no properties on which
significant capital improvements were in process.

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

The following table sets forth the percentages, by property type and
geographic region, of the Company's owned real estate (excluding the 17 parcels
of developed, partially developed and undeveloped land, and a single family
residence, described below) at December 31, 1996.

<TABLE>
<CAPTION>
Commercial
Region Properties Hotels
------ ---------- ------

<S> <C> <C>
Midwest........................ 60% 34%
Mountain....................... 20 33
Southwest...................... 20 -
Southeast...................... - 33
--- ---
100% 100%
</TABLE>

The foregoing table is based solely on the commercial square footage
and hotel rooms owned by the Company, and does not reflect the value of the
Company's investment in each region. Excluded from the above table are a single
family residence in Dallas, Texas and 17 parcels of developed, partially
developed and undeveloped land consisting of: 10 developed residential lots in
a residential subdivision in Fort Worth, Texas, 2 parcels of partially
developed land in Las Colinas, Texas, totaling 128.3 acres, 3.5 acres of
undeveloped land in downtown Atlanta, Georgia, 42.7 acres of partially
developed land in Denver, Colorado, 567.7 acres of partially developed land in
Houston, Texas, 280.0 acres of partially developed land in Dallas, Texas, 78.45
acres of partially developed land in Lewisville, Texas, 452.0 acres of
partially developed land in Irving, Texas, 420.0 acres of undeveloped land in
Duchense, Utah, 82.4 acres of undeveloped land in Oceanside, California, and 6
additional parcels of land totaling approximately 74.5 acres.

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<PAGE> 12

A summary of the activity in the Company's owned real estate portfolio
during 1996 is as follows:

<TABLE>
<S> <C>
Owned properties in real estate portfolio at January 1, 1996.. 15*
Properties acquired through purchase.......................... 12
Properties sold............................................... (1)

Owned properties in real estate portfolio at
December 31, 1996........................................... 26*
</TABLE>

- ---------------------
* Includes one residential subdivision with 22 developed residential lots at
January 1, 1996, and 10 developed residential lots at December 31, 1996.

Properties Held for Investment. Set forth below are the Company's
properties held for investment and the average annual rental rate for
commercial properties and the average daily room rate for hotels and occupancy
at December 31, 1996, 1995 and 1994 for commercial properties and average
occupancy during 1996, 1995 and 1994 for hotels:

<TABLE>
<CAPTION>
Rent Per Square Foot
Average Room Rate Occupancy
----------------- ---------
Square Footage/
Property Location Rooms 1996 1995 1994 1996 1995 1994
-------- -------- ----------------------- ---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Building
Rosedale Towers Minneapolis, MN 84,798 Sq.Ft. $14.88 $13.16 $14.46 91% 90% 94%

Shopping Center
Oak Tree Village Lubbock, TX 45,623 Sq.Ft. 7.98 7.34 * 89% 91% *
Park Plaza Manitowoc, WI 105,507 Sq.Ft. 5.61 5.72 5.65 100% 93% 93%

Merchandise Mart
Denver Mart Denver, CO 509,008 Sq.Ft. 15.33 14.53 14.18 95% 96% 97%

Hotels
Best Western Virginia Beach, VA 110 Rooms 41.11 * * 42% * *
Oceanside
Inn at the Mart Denver, CO 156 Rooms 46.66 44.69 42.38 36% 40% 42%
Kansas City
Holiday Inn Kansas City, MO 196 Rooms 66.46 61.66 52.47 79% 75% 75%

Single Family
Residence
Tavel Circle Dallas, TX 2,271 Sq.Ft.
</TABLE>

* Property was acquired in 1996 or 1995.

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

In April 1996, the Company refinanced the $5.1 million of mortgage
debt secured by the Denver Merchandise Mart in Denver, Colorado for $15.0
million. The new loan is secured by a mortgage against the Denver Merchandise

-8-

<PAGE> 13

Mart and a pledge of 632,000 newly issued shares of the Company's Common Stock.
The Company received net refinancing proceeds of $7.8 million after the payoff
of the existing mortgage debt, purchasing the ground lease on the Denver
Merchandise Mart for $678,000 and payment of various closing costs associated
with the refinancing. The new loan bears interest at a variable rate, currently
10.5% per annum, requires monthly principal and interest payments of $142,000
and matures in October 1997. The Company paid BCM a mortgage brokerage and
equity refinancing fee of $150,000 based upon the $15.0 million refinancing. In
May 1996, the Company purchased a 2,271 square foot single family residence in
Dallas, Texas, for $266,000 in cash. In August 1996, the Company obtained
mortgage financing on the residence in the amount of $173,000. The Company
received net financing proceeds of $168,000 after the payment of various
closing costs associated with the financing. The loan bears interest at a
variable rate, currently 9.25% per annum, requires monthly principal and
interest payments of $2,000 and matures in August 2008. The residence is
currently being leased.

In August 1996, the Company refinanced the $2.4 million of mortgage
debt secured by the Rosedale Towers Office Building in Roseville, Minnesota for
$2.8 million. The Company received net refinancing proceeds of $154,000 after
the payoff of the existing mortgage debt and payment of various closing costs
associated with the refinancing. The Company also received 564,704 shares of
Common Stock of the Company that it had pledged as additional collateral on the
retired mortgage debt. The new loan bears interest at 9.05% per annum, requires
monthly principal and interest payments of $24,000 and matures in August 2006.
The Company paid BCM a mortgage brokerage and equity refinancing fee of $28,000
based upon the $2.8 million refinancing.

Also in August 1996, the Company financed the previously unencumbered
Inn at the Mart in Denver, Colorado for $2.0 million to facilitate renovation
of the property. The Company received net financing proceeds of $890,000 after
the payment of various closing costs associated with the financing and a $1.1
million renovation holdback. The lender advanced the $1.1 million renovation
holdback in December 1996. The new loan bears interest at a variable rate,
currently 10.50% per annum and requires monthly interest only payments through
February 1, 1998. Commencing March 1, 1998, monthly payments of interest plus a
$3,000 principal paydown are required until maturity on September 1, 2001. The
Company paid BCM a mortgage brokerage and equity refinancing fee of $9,500
based upon the $2.0 million financing.

In December 1996, the Company purchased the Best Western Oceanside
Hotel in Virginia Beach, Virginia, for $6.8 million. The Company acquired the
property through Ocean Beach Partners, L.P. ("Ocean LP"), a newly formed
partnership of which a wholly-owned subsidiary of the Company is the 1% general
partner and the Company is the 99% Class B limited partner. In conjunction with
the acquisition, Ocean, LP issued 1,813,660 Class A limited partner units in
Ocean LP having an agreed value of $1.00 per partnership unit to the former
owners of the property. The Class A limited partner units are entitled to a
$.095 per unit annual preferred return. The Class A limited partners do not
otherwise participate in the income, loss or cash flow of the partnership. The
Class A limited partner units may be exchanged for Series D Cumulative
Preferred Stock in the Company at a rate of 20 units per share of Preferred
Stock. The Company obtained new mortgage financing for the remaining $5.0
million of the purchase price. The mortgage bears interest at 9.94% per annum,
requires monthly payments of principal and interest of $49,000 and matures in
January 2007.

In December 1996, the Company obtained second lien financing on the
Kansas City Holiday Inn in Kansas City, Missouri, of $3.2 million. The Company
received net financing proceeds of $3.0 million after the payment of various
closing costs associated with the financing. The mortgage bears interest at 15%
per annum, requires monthly interest payments of $41,000 and matures in
February 1999.

Properties Held for Sale. Set forth below are the Company's properties
held for sale, primarily undeveloped, partially developed and undeveloped land,
and the average annual rental rate and an occupancy at December 31, 1996, 1995,
and 1994 of its commercial property:

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<PAGE> 14

<TABLE>
<CAPTION>
Rent Per Square Foot Occupancy
-------------------- ---------
Acres/Lots/
Property Location Square Footage 1996 1995 1994 1996 1995 1994
--------- -------- --------------
Office Building
- ---------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mopac St. Louis, MO 400,000 Sq. Ft $ .16 $ .17 $ .14 100% 100% 100%

Land
- --------------
Atlanta Atlanta, GA 3.5 Acres
Las Colinas I Las Colinas, TX 68.0 Acres
BP Las Colinas Las Colinas, TX 60.3 Acres
Rivertrails I Ft. Worth, TX 10.0 Lots
Parkfield Denver, CO 442.7 Acres
Pin Oak Houston, TX 567.7 Acres
Valwood Dallas, TX 280.0 Acres
Lewisville Lewisville, TX 78.5 Acres
Valley Ranch Irving, TX 452.0 Acres
Jeffries Ranch Oceanside, CA 82.4 Acres
Bad Lands Duchense, Utah 420.0 Acres
Other
(6 properties) Various 74.5 Acres
</TABLE>

In October 1995, the Company purchased BP Las Colinas, a 92.6 acre
parcel of partially developed land in Las Colinas, Texas. In February 1996, the
Company entered into a contract to sell 72.5 acres of such parcel for $12.9
million. The contract called for the sale to close in two phases. In July 1996,
the Company completed the first phase sale of 32.3 acres for $4.9 million in
cash. In accordance with the terms of the term loan secured by such property,
the Company applied the net proceeds of the sale, $4.7 million, to pay down the
term loan, in exchange for that lenders' release of its collateral interest in
the 32.3 acres sold. The Company recognized a gain of $2.0 million on such
sale. In February 1997, the Company completed the second phase sale of 40.2
acres for $8.0 million, of which $7.2 million was paid in cash. Of the net
sales proceeds of $6.9 million, $1.5 million was used to payoff the underlying
debt secured by the BP Las Colinas parcel, pay a $500,000 maturity fee to the
lender, make a $1.5 million principal paydown on a note secured by Parkfield
land in Denver, Colorado with the same lender, and $1.0 million was applied as
a principal paydown on the term loan secured by the Las Colinas I land parcel.
In conjunction with the sale the Company provided $800,000 in purchase money
financing in the form of a six month unsecured loan. The loan bears interest at
12% per annum, with all accrued but unpaid interest and principal due at
maturity. The Company recognized a gain of $3.4 million on such sale, deferring
an additional $800,000 of gain until the loan is paid in full.

In March 1996, the Company sold 2.3 acres of the Las Colinas I land
parcel for $961,000 in cash. In accordance with the provisions of the term loan
secured by such parcel, the Company applied the net proceeds of the sale,
$891,000, to pay down the term loan. The Company recognized a gain of $538,000
on the sale. In May 1996, the Company sold an additional 2.3 acres of the Las
Colinas I land parcel for $941,000 in cash. In accordance with the provisions
of the term loan secured by such parcel, the Company applied the net proceeds
of the sale of $864,000 to pay down the term loan. The Company recognized a
gain of $534,000 on the sale.

In June 1996, the Company purchased Parkfield land, 442.7 acres of
partially developed land in Denver, Colorado, for $8.5 million. In connection
with the acquisition, the Company obtained mortgage financing of $7.5 million
and issued to the seller 15,000 shares of the Company's Series C Cumulative
Convertible Preferred Stock with an aggregate liquidation preference of $1.5
million. The excess financing proceeds of $500,000 were applied to the payment
of various closing costs associated with the acquisition. The loan bears
interest at 15% per annum, requires monthly interest only payments at a rate of
12% per annum, with the remaining 3% being deferred and added to the principal
balance of the loan. The principal balance, accrued and unpaid interest and a
$600,000 "maturity fee" is due

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<PAGE> 15

at the loan's maturity in June 1998. The Company paid a real estate brokerage
commission of $255,000 to Carmel Realty, based on the $8.5 million purchase
price.

Also in June 1996, the Company sold for $120,000 in cash a parcel of
land in Midland, Michigan that was leased under a long-term ground lease. The
Company recognized a gain of $44,000 on the sale.

In July 1996, the Company purchased Pin Oak land, 567.7 acres of
partially developed land in Houston, Texas for $6.2 million. The Company paid
$451,000 in cash and obtained seller mortgage financing for the remaining $5.7
million of the purchase price. The loan bears interest at 9% per annum,
required a $500,000 principal and interest payment on November 1, 1996 and
requires quarterly principal and interest payments of $145,000, thereafter. The
loan matures in August 1998. The Company paid a real estate brokerage
commission of $187,000 to Carmel Realty based on the $6.2 million purchase
price. In September 1996, the Company entered into a contract to sell the land
for a price in excess of the land's purchase price and carrying and estimated
selling costs. The sale, should it be consummated, would close on or about
December 1, 1997.

In August 1996, the Company purchased a pool of assets for $3.1
million from Southmark Corporation ("Southmark"), consisting of a total of
151.5 acres of unimproved land in California, Indiana and Idaho, various
percentage interests, ranging from 15% to 45%, in five partnerships and trusts
that hold an unsecured note receivable with a principal balance of $3.4 million
and Southmark's 19.2% limited partner interest in SAMLP, as more fully
discussed in "Investments in Real Estate Investment Trusts and Real Estate
Partnerships," below. To complete the acquisition, the Company borrowed an
additional $3.0 million from the lender whose term loan is secured by the Las
Colinas I land in Las Colinas, Texas. The term loan was amended to increase the
loan amount from $10.9 million to $13.9 million. The $3.0 million advance is
secured by the 82.4 acres of unimproved land acquired from Southmark in
Oceanside, California and the 19.2% limited partner interest in SAMLP.

Also in August 1996, the Company purchased Valwood land, 280 acres of
partially developed land in Dallas County, Texas, for $13.5 million. The
Company paid $3.8 million in cash and obtained new mortgage financing for the
remaining $9.7 million of the purchase price as a third advance under the term
loan from the Las Colinas I lender discussed above. The term loan was again
amended increasing the term loan amount from $13.9 million to $19.5 million
with an additional $4.0 million being loaned on an overline advance note. The
amendment also changed the principal reduction payments to $2.0 million in
November 1996 and $3.0 million on the last day of March 1997, June 1997,
September 1997 and January 1998, and added 240 acres of the Valwood land as
additional collateral on the term loan. All other terms of the term loan
remained unchanged. The Company paid a real estate brokerage commission of
$406,000 to Carmel Realty based on the $13.5 million purchase price. The $4.0
million overline advance note was repaid in full in December 1996.

In November 1996, the Company sold an additional 2.2 acres of the Las
Colinas I land parcel for $899,000 in cash. The Company used the net proceeds
of the sale of $749,000 to pay down the term loan secured by such parcel in
accordance with provisions of the loan. The Company recognized a gain of
$505,000 on the sale. At December 31, 1996, 68 acres of the Las Colinas I land
remained to be sold.

Also in November 1996, the Company purchased Lewisville land, 78.5
acres of undeveloped land in Lewisville, Texas, for $3.6 million. The Company
paid $1.1 million in cash and obtained mortgage financing for the remaining
$2.5 million of the purchase price. The mortgage bears interest at 10% per
annum, requires an annual interest payment of $250,000 on November 9, 1997, and
quarterly interest payments of $62,500 thereafter. The loan matures in October
1999. The Company paid a real estate brokerage commission of $237,000 to Carmel
Realty based on the $3.6 million purchase price.

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<PAGE> 16

otherwise participate in the income, loss or cash flow of the partnership. The
Class A limited partner units may be exchanged for Series E Cumulative
Convertible Preferred Stock of the Company at a rate of 100 units per share of
Preferred Stock. VRLP obtained new mortgage financing for the remaining $7.7
million of the purchase price. The mortgage bears interest at a variable rate
currently 10.25% per annum, requires monthly interest payments of $70,000, and
matures in December 1999. The Company paid a real estate brokerage commission
of $135,000 to Carmel Realty based on the $15.5 million purchase price.

In January 1997, the Company sold 3.0 acres of the Las Colinas I land
in Las Colinas, Texas, for $1.2 million in cash. The Company recognized a gain
of $697,000 on the sale.

In January 1997, the Company purchased Scout land, 546 acres of
undeveloped land in Tarrant County, Texas, for $2.2 million. The Company paid
$725,000 in cash and obtained mortgage financing for the remaining $1.5 million
of the purchase price. The mortgage bears interest at 16% per annum, requires
quarterly interest payments of $61,000 beginning on April 15, 1997, and matures
in January 2000. The Company paid a real estate brokerage commission of
$135,000 to Carmel Realty based on $2.2 million purchase price.

In March 1997, the Company purchased Katy Road land, 130.6 acres of
undeveloped land in Harris County, Texas for $5.0 million. The Company paid
$958,000 in cash and obtained seller financing for the remaining $4.0 million
of the purchase price. The mortgage bears interest at 9% per annum, requires
quarterly interest payments of $92,000, and matures in March 2000. The Company
paid a real estate brokerage commission of $209,000 to Carmel Realty based on
the $5.0 million purchase price.

In 1991, the Company purchased all of the capital stock of a
corporation which owned 198 developed residential lots in Fort Worth, Texas.
Through December 31, 1995, 176 of the residential lots had been sold. During
1996, 12 additional lots were sold for an aggregate gain of $24,000. At
December 31, 1996, 10 lots remained to be sold.

MORTGAGE LOANS

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

Types of Mortgage Activity. In addition to originating its own
mortgage loans, the Company 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, 1996
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, 1996, the obligors on $13.5 million or 24% of the
Company's mortgage notes receivable portfolio were affiliates of the Company.
Also at that date, $1.6 million or 3% 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, 1996), by both property type
and geographic region, of the properties that serve as collateral for the
Company's mortgage notes receivable at December 31, 1996.

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<PAGE> 17

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties Total
------ ---------- ---------- -----

<S> <C> <C> <C>
Mountain............ -- 72.79% 72.79%
Southeast........... -- 18.38 18.38
Southwest........... 2.47 -- 2.47
Midwest............. 6.36 -- 6.36
Northeast........... -- -- --
---- ----- -----
8.83% 91.17% 100.0%
==== ===== =====
</TABLE>

A summary of the activity in the Company's mortgage notes receivable portfolio
during 1996 is as follows:

<TABLE>
<S> <C>
Loans in mortgage notes receivable portfolio
at January 1, 1996.................. 10*
Loans funded........................... 1
Loan paid in full...................... (1)

Loans in mortgage notes receivable portfolio
at December 31, 1996............... 10
</TABLE>

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

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

During 1996, the Company collected $4.3 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. First mortgage loans
generally provide for level periodic payments of principal and interest
sufficient to substantially repay the loan prior to maturity, but may involve
interest-only payments or moderate or negative amortization of principal and a
"balloon" principal payment at maturity. With respect to first mortgage loans,
it is the Company's general policy to require that the borrower provide a
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 1996.

The borrower on a $1.7 million mortgage note receivable secured by
land in Osceola, Florida, failed to pay the note on its November 1, 1993
maturity. The Company instituted foreclosure proceedings and was awarded
summary judgment in January 1994. During 1994 and 1995, the borrower paid the
Company a total of $270,000 in nonrefundable fees to delay foreclosure of the
property until April 24, 1995. On April 21, 1995, the borrower filed for
bankruptcy protection. On August 24, 1996, the bankruptcy court's stay was
lifted allowing the Company to proceed with foreclosure. The note had a
principal balance of $1.6 million at December 31, 1996. On February 21, 1997,
the Company sold its note for $1.8 million in cash. The Company will recognize
a gain of approximately $150,000 on the sale.

Wraparound Mortgage Loans. The Company may invest in wraparound
mortgage loans, sometimes called all- inclusive loans, made on real estate
subject to prior mortgage indebtedness. A wraparound mortgage note is a
mortgage

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<PAGE> 18

note having an original principal amount equal to the outstanding balance under
the prior existing mortgage loan plus the amount actually advanced under the
wraparound mortgage loan.

Wraparound mortgage loans may provide for full, partial or no
amortization of principal. The Company's policy is to make wraparound mortgage
loans in amounts and on properties as to which it would otherwise make a first
mortgage loan. The following discussion briefly describes events that affected
previously funded wraparound mortgage loans during 1996.

In February 1996, the Company refinanced the $7.8 million of debt
collateralized by a mortgage note receivable with a principal balance of $18.2
million at December 31, 1996, which is secured by a shopping center in Las
Vegas, Nevada, for $12.0 million. The Company received net refinancing proceeds
of $2.3 million after the payoff of the existing debt, payment of various
closing costs associated with the refinancing and making a $1.5 million paydown
on the term loan secured by the Las Colinas I land in Las Colinas, Texas, in
exchange for that lender's release of its participation in the note receivable.
The new loan bears interest at 15% per annum, requires monthly principal and
interest payments of $152,000 and matures in February 1998.

In August 1990, the Company foreclosed on its fourth lien note
receivable secured by the Continental Hotel and Casino in Las Vegas, Nevada.
The Company acquired the hotel and casino through foreclosure subject to first
and second lien mortgages totaling $10.0 million. In June 1992, the Company
sold the hotel and casino for a $22.0 million wraparound mortgage note
receivable, a $500,000 unsecured note receivable, which was collected in full,
and $100,000 in cash. The $22.0 million note bears interest at 11% and was
scheduled to mature in July 1995. The Company recorded a deferred gain of $4.6
million in connection with the sale of the hotel and casino resulting from a
disputed third lien mortgage being subordinated to the Company's wraparound
mortgage note receivable. The Company and the borrower agreed to extend the
Company's wraparound mortgage note receivable to December 31, 1995. A one
percent extension fee was added to the principal balance of the wraparound
mortgage note. The monthly payments on the note remained at $175,000 per month
as did the other terms of the note. At the note's extended maturity, the
Company and the borrower again agreed to extend the Company's wraparound
mortgage note to July 1, 1996. A one percent extension fee was again added to
the principal balance of the Company's wraparound mortgage note. The monthly
payments on the wraparound mortgage note remained at $175,000 per month as did
the other terms of the note. The Company's modified wraparound note continued
to accrue interest at 11% per annum with any unpaid interest being added
monthly to the principal balance. In March 1997, the wraparound note was again
modified and extended. The wraparound note now matures in June 1999 with the
borrower having two one year extension options. The modified wraparound note
bears interest at 10.5% per annum the first year, 11.5% per annum the second
year and $12.5% per annum the third year and in any extension period and
requires an annual $500,000 principal paydown. The borrower is also required to
invest $2.0 million in improvements to the hotel and casino within four months
of the March 1997 modification and an additional $2.0 million prior to December
1997. The borrower has also pledged 1,500,000 shares of common stock in Crowne
Ventures, Inc., as additional collateral. The borrower is making payments in
accordance with the terms of the modified note. The Company's wraparound
mortgage note receivable had a principal balance of $27.6 million at December
31, 1996. Prior to the March 1997 modification and extension, the Company
recognized interest income on this wraparound mortgage note only to the extent
interest was collected.

In April 1996, the underlying liens relating to this wraparound
mortgage note receivable were refinanced for $16.8 million. The Company
received net cash of $11.2 million after the payoff of the underlying liens
then totaling $2.9 million, the payment of various closing costs associated
with the refinancing and making a $1.4 million paydown on the term loan secured
by the Las Colinas I land in Las Colinas, Texas, in exchange for that lender's
release of its participation in the wraparound note receivable. The new
underlying lien bears interest at 16.5% per annum, requires monthly interest
only payments of $180,000, at a rate of 12.5% per annum, with the remaining 4%
being deferred and added to the loan's principal balance. The loan matures in
April 1998. The Company paid BCM a mortgage brokerage and equity refinancing
fee of $168,000 based upon the $16.8 million refinancing.

Junior Mortgage Loans. The Company may invest in junior mortgage
loans. 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.

-14-

<PAGE> 19

The following discussion briefly describes the junior mortgage loans
funded in 1996 and the events that affected previously funded junior mortgage
notes during 1996.

In May 1996, the Company funded a $100,000 second lien mortgage
secured by a single family residence in Oklahoma City, Oklahoma. The mortgage
note receivable bears interest at 10% per annum, with the principal and all
accrued but unpaid interest being payable in a single installment on demand or
the note's June 1, 1998 maturity.

At December 31, 1996, the Company held a mortgage note receivable
secured by a third lien mortgage secured by a commercial property in South
Carolina and personal guaranties of several individuals. The note had an
extended maturity date of September 1, 1996. The Company and the borrower have
again agreed to extend the mortgage note receivable's maturity date to
September 1, 1997. The extension required an additional $90,000 principal
reduction payment payable in three equal monthly installments beginning
November 1, 1996. The Company received $85,000 of the required principal
reduction payments in 1996 and the remaining $5,000 in 1997. The monthly
interest, quarterly principal reduction payments of $25,000 and all other terms
remained the same. The principal balance of the note was $93,000 at December
31, 1996 and the note is performing in accordance with its modified terms.

The Company holds a junior mortgage note receivable secured by the
Williamsburg Hospitality House in Williamsburg, Virginia, that is subject to a
first lien mortgage of $12.0 million at December 31, 1996. In October 1993, the
then first lien debt was restructured and split into three pieces. During 1995,
the Company advanced the borrower $3.3 million to payoff the then second lien,
allowing the borrower to receive a $2.4 million discount offered by the lender
for early payoff of such lien. In conjunction with such advance, the Company
extended the maturity date of its note to April 1, 1996. All other terms of the
note remained unchanged. In December 1996, the underlying lien debt was
refinanced for $12.0 million. Of the loan proceeds, $9.0 million was used to
payoff the existing underlying lien, $700,000 was applied to the principal and
interest due the Company with the remainder of the loan proceeds being used to
fund a repair escrow and pay various closing costs associated with the
refinancing. The new first mortgage bears interest at 9.85% per annum, requires
monthly payments of principal and interest of $120,000 and matures in December
2001. The Company is the 1% general partner in the partnership owning the
property. The partnership paid a mortgage brokerage and equity refinancing fee
of $128,000 to BCM based on the $12.0 million purchase price.

At December 31, 1996, the Company held a mortgage note receivable
secured by an apartment complex in Merrillville, Indiana, with a principal
balance of $3.5 million. The property is owned by a subsidiary of Davister
Corp. ("Davister"), a general partner in a partnership that owns approximately
13.7% of the Company's outstanding shares of Common Stock. The note matured in
December 1996. The Company and borrower have agreed to a modification and
extension of the note. The modified note receivable continues to bear interest
at 10% per annum, requires monthly payments of principal and interest of
$42,000 and has an extended maturity date of December 2000. As additional
collateral for this loan, the Company has received a second lien on another
property owned by Davister as well as Davister's guarantee of the loan. The
note is performing in accordance with its modified terms.

INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS AND REAL ESTATE PARTNERSHIPS

The Company's investment in real estate entities includes (i) equity
securities of three publicly traded REITs (collectively the "REITs"), CMET,
IORI and TCI, (ii) units of limited partner interest of NRLP, (iii) a general
partner interest in NRLP and NOLP, through its 96% limited partner interest in
SAMLP, the general partner of NRLP and NOLP, and (iv) interests in real estate
joint venture partnerships. Gene E. Phillips, Chairman of the Board and a
Director of the Company until November 16, 1992, served until May 15, 1996 as a
director and Chief Executive Officer of SAMI, a company owned by BCM that
serves as SAMLP's managing general partner. Randall M. Paulson, Executive Vice
President of the Company, serves as the sole director and as President of SAMI.
Mr. Phillips is also a general partner of SAMLP. BCM, the Company's advisor,
serves as advisor to the REITs, and performs certain administrative and
management functions for NRLP and NOLP on behalf of SAMLP.

Since acquiring its initial investments in the equity securities of
the REITs and NRLP in 1989, the Company has made additional investments in the
equity securities of these entities through private and open market purchases.
The Company's cost with respect to shares of the REITs at December 31, 1996
totaled $27.0 million, and its cost with respect to units of limited partner
interest in NRLP totaled $29.7 million. The aggregate carrying value (cost plus
or

-15-

<PAGE> 20

minus equity in income or losses and less distributions received) of such
equity securities of the REITs and NRLP was $37.7 million at December 31, 1996
and the aggregate market value of such equity securities was $81.8 million. The
aggregate investee book value of the equity securities of the REITs and the
Company's share of NRLP's revaluation equity based upon the December 31, 1996
financial statements of each such entity was $63.0 million and $188.5 million,
respectively.

The Company's Board of Directors authorized the expenditure by the
Company of up to an aggregate of $25.0 million to acquire, in open market
purchases, units of NRLP and shares of the REITs, excluding private purchase
transactions which were separately authorized. In February 1997, the Company's
Board of Directors increased such authorization to $35.0 million. As of
December 31, 1996, the Company had expended $3.8 million to acquire units of
NRLP and an aggregate of $5.6 million to acquire shares of the REITs, in open
market purchases, in accordance with these authorizations. The Company expects
to make additional investments in the equity securities of the REITs and NRLP.

At December 31, 1996, SAMLP, the general partner of NRLP and NOLP,
owned 26,475 shares of TCI. The Company owns a 96% limited partnership interest
in SAMLP which the Company consolidates for financial statement purposes.

The purchases of the equity securities of the REITs and NRLP were made
for the purpose of investment and were based principally on the opinion of the
Company's management that the equity securities of each were and are currently
undervalued. The determination by the Company to purchase additional equity
securities of the REITs and NRLP is made on an entity-by-entity basis and
depends on the market price of each entity's equity securities relative to the
value of its assets, the availability of sufficient funds and the judgment of
the Company's management regarding the relative attractiveness of alternative
investment opportunities. Substantially all of the equity securities of the
REITs and NRLP owned by the Company are pledged as collateral for borrowings.
Pertinent information regarding the Company's investment in the equity
securities of the REITs and NRLP, at December 31, 1996, is summarized below
(dollars in thousands):

<TABLE>
<CAPTION>
Percentage Carrying Equivalent
of the Company's Value of Investee Market Value
Ownership at Investment at Book Value at of Investment at
Investee December 31, 1996 December 31, 1996 December 31, 1996 December 31, 1996
- -------- ----------------- ----------------- ----------------- -----------------

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

* At December 31, 1996, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $188.5
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, 1996.

Each of the REITs and NRLP own a considerable amount of real estate,
much of which, particularly in the case of NRLP, has been held for many years.
Because of depreciation, these entities may earn substantial amounts in periods
in which they sell real estate and will probably incur losses in periods in
which they do not. The Company's reported income or loss attributable to these
entities will differ materially from its cash flow attributable to them. The
Company does not have a controlling equity interest in any of the REITs and
therefore it cannot, acting by itself, determine either

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<PAGE> 21

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 REITs, and that the REITs have
the same advisor as the Company and that Mr. Paulson, an Executive Vice
President of the Company, is also the President of the REITs and BCM, the
Company's advisor, and is the President and sole director of SAMI, a Company
owned by BCM, that is the managing general partner of SAMLP, 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 these entities using 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 Company continues to account for its
investment in NRLP under the equity method due to the pending resignation of
SAMLP as general partner of NRLP and NOLP, as more fully discussed in "NRLP"
below. The carrying value of the Company's investment in these entities, as set
forth in the table above, is the original cost of each such investment adjusted
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 REITs,
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 the Partnership 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.

SAMI, a company owned by BCM, is the managing general partner of
SAMLP. 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 partner
interest. Concurrent with such transfer, GCLP refinanced all of the mortgage
debt associated with the transferred properties and the wraparound mortgage
note under a new first mortgage in the amount of $223.0 million.

The Company is a limited partner in SAMLP, holding a 96% limited
partner interest therein, which the Company consolidates for financial
statement purposes. As discussed in more detail under "Real Estate" above, in
August 1996, the Company purchased Southmark's 19.2% limited partner interest
in SAMLP. Gene E. Phillips and SAMI are the general partners of SAMLP.

SAMI, as the managing general partner of SAMLP, has discretion in
determining methods of obtaining funds for the Partnership's operations, and
the acquisition and disposition of its assets. The Partnership's governing
documents place no limitation on the amount of leverage that the Partnership
may incur either in the aggregate or with respect to any particular property or
other investment. At December 31, 1996, the aggregate loan-to-value ratio of
the Partnership's real estate portfolio was 44.6% computed on the basis of the
ratio of total property-related debt to aggregate appraised values. As of
December 31, 1996 NRLP owned 83 properties located in 22 states. These
properties consisted of 67 apartment complexes comprising 16,848 units, seven
office buildings with an aggregate 495,594 square feet and nine shopping
centers with an aggregate of 1.1 million square feet.

For the year ended December 31, 1996, the Partnership reported a net
loss of $375,000 compared to net income of $3.8 million for the year ended
December 31, 1995. The Partnership's net income in 1995 was attributable to a
$7.7 million gain on the sale of two apartment complexes. The Partnership's
loss from operations of $436,000 in 1996 was a 89% decrease when compared to
its $3.9 million loss from operations in 1995. The improvement in the
Partnership's 1996 operating results is due to a 1.2% increase in rents due to
increased rental rates at the Partnership's apartments and commercial
properties coupled with 1.5% decrease in operating expenses, primarily
interest.

The Partnership has paid quarterly distributions to unitholders since
the fourth quarter of 1993. In 1996, the Company received a total of $6.9
million in distributions from the Partnership. In 1995, the Company accrued 3.3
million in distributions from the Partnership that were received January 1996.

-17-

<PAGE> 22

The Partnership, SAMLP, Mr. Phillips and William S. Friedman, a
general partner of SAMLP until March 4, 1994, were among the defendants in a
class action lawsuit arising out of the transactions discussed above whereby
the Partnership was formed. An agreement settling such lawsuit as to the
defendants, the Partnership, SAMLP and Messrs. Phillips and Friedman (the
"Moorman Settlement Agreement"), became effective on July 5, 1990. The Moorman
Settlement Agreement provided for, among other things, the appointment of an
oversight committee for NRLP (the "NRLP Oversight Committee"); 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 the Partnership'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 the Partnership aggregating $5.5
million including a $2.5 million contributed by SAMLP. The Partnership also
agreed to pay certain settlement costs, including plaintiffs' attorneys' fees
in the amount of $3.4 million. The settlement plan remains in effect until the
withdrawal of SAMLP as general partner of NRLP and NOLP.

The Moorman Settlement Agreement provides for the resignation and
replacement of SAMLP as general partner if the price targets are not met for
two consecutive anniversary dates. The Partnership did not meet the unit price
targets for the first and second anniversary dates. On July 8, 1992, SAMLP
notified the NRLP Oversight Committee of the failure to meet the unit price
targets for two successive years and that it expects to resign as general
partner of NRLP and NOLP.

The withdrawal of SAMLP as general partner would require the
Partnership 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 $42.0 million at December 31, 1996 before
reduction for the principal balance ($4.2 million at December 31, 1996) and
accrued interest ($6.2 million at December 31, 1996) on the note receivable
from SAMLP for its original capital contribution to the Partnership.

In January 1995, NRLP, SAMLP, the NRLP Oversight Committee and William
H. Elliott executed an Implementation Agreement which provides for the
nomination of an entity controlled by Mr. Elliott as successor general partner
and for the resolution of all related matters under the Moorman Settlement
Agreement. On February 20, 1996, the parties to the Implementation Agreement
executed an Amended and Restated Implementation Agreement.

Provided that the successor general partner is elected pursuant to the
terms of the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as General Partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.

In September 1996, the Judge supervising the implementation of the
Moorman Settlement Agreement (the "Supervising Judge") entered an order
granting tentative approval of the Amended and Restated Implementation
Agreement and the form of notice to be sent to the original class members.
However, the order reserved jurisdiction to determine other matters which must
be resolved prior to final approval. On April 7, 1997, the Supervising Judge
issued an order granting final approval of the notice and scheduled a hearing
on June 27, 1997 for final approval of the Amended and Restated Implementation
Agreement. Upon final approval by the Supervising Judge, the proposal to elect
the successor general partner will be submitted to NRLP's unitholders for a
vote. In addition, the unitholders will vote upon amendments to the Partnership
Agreement which relate to the proposed compensation of the successor general
partner and other related matters.

Upon approval by NRLP's unitholders, SAMLP shall withdraw as General
Partner and the successor general partner shall take office. If the required
approvals are obtained, it is anticipated that the successor general partner
will be elected and take office during the third quarter of 1997.

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<PAGE> 23

The Amended and Restated Implementation Agreement provides that SAMLP,
and its affiliates owning units in the Partnership shall not vote to remove the
successor general partner, except for removal with cause, for a period of 36
months from the date the successor general partner takes office.

Upon the election and taking office of the successor general partner,
the class action settlement plan and the NRLP Oversight Committee shall
terminate. If the successor general partner is not elected, the existing
settlement shall remain in full force and effect and all of the provisions of
the Amended and Restated Implementation Agreement shall be voided, including
the compromise settlement, referred to above, of amounts owed by SAMLP and the
Partnership to each other.

On September 3, 1996, Joseph B. Moorman filed a Motion for Orders
Compelling Enforcement of the Moorman Settlement Agreement, Appointment of a
Receiver and Collateral Relief with the Court. The motion alleged that the
settling defendants had failed or refused to perform their obligations under
the Moorman Settlement Agreement and had breached the Moorman Settlement
Agreement. The motion also requested that SAMLP be removed as general partner
and a receiver be appointed to manage the Partnership. The motion also
requested that the Company be ordered to deliver to the Court all NRLP units
which had been purchased by the Company since August 7, 1991. A hearing was
held on this motion in October 1996. In January 1997, the Supervising Judge
entered an order denying the motion.

On January 27, 1997, Joseph B. Moorman filed motions to (i) discharge
the NRLP Oversight Committee and (ii) vacate the Court's orders and renewed his
prior motions to compel enforcement of the Moorman Settlement Agreement,
appoint a receiver over the Partnership, and for collateral relief against the
Company. Also on January 27, 1997, Robert A. McNeil filed motions to (i) be
installed as receiver for the Partnership, (ii) vacate the Court's orders, and
(iii) disband the NRLP Oversight Committee. A hearing on the motions to
discharge or disband the Oversight Committee and to vacate the Court's orders
was held on March 21, 1997, and the Supervising Judge ruled that neither Mr.
McNeil nor Mr. Moorman had standing to bring the motions.

In April 1995, the Company's Board of Directors approved the Company's
entering into a comfort and indemnification letter whereby the Company would
agree to indemnify Mr. Elliott and any entity controlled by Mr. Elliott which
is elected to serve as the successor general partner of NRLP and NOLP. Such
indemnification will stand behind any indemnification to which Mr. Elliott or
any entity controlled by Mr. Elliott may be entitled to under the NRLP
partnership agreement.

CMET. CMET is a California business trust which was organized on
August 27, 1980 and 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. CMET holds equity investments in
apartment complexes and commercial properties (office buildings, industrial
warehouses and shopping centers) throughout the continental United States.
CMET's apartment complexes and commercial properties are concentrated in the
Southeast, Southwest and Midwest regions of the continental United States. CMET
also holds mortgage notes receivable secured by real estate located in the
Southeast, Southwest and Midwest regions of the continental United States, with
a concentration in the Southeast and Southwest regions.

For the year ended December 31, 1996, CMET reported a net income of
$8.7 million as compared with a net loss of $1.4 million for the year ended
December 31, 1995. CMET's 1996 net income includes gains on the sale of real
estate and marketable equity securities of $10.1 million and an extraordinary
gain of $812,000, whereas CMET's net loss for 1995 included no such gains.
CMET's cash flow from property operations (rents collected less payments for
property operating expenses) improved to $19.8 million in 1996 compared to
$15.1 million in 1995. At December 31, 1996 CMET had total assets of $250
million which consisted of $7.4 million in mortgage notes and interest
receivable (net of allowance for estimated losses), $214.5 million in real
estate held for investment, $5.4 million in real estate held for sale, $19.8
million in investments in partnerships and other assets and $3.0 million in
cash and cash equivalents.

CMET has paid regular quarterly distributions since the first quarter
of 1993. The Company received a total of $1.5 million in distributions from
CMET in 1996.

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<PAGE> 24

IORI. IORI is a Nevada corporation which was originally organized on
December 14, 1984 as a California business trust and commenced operations on
April 10, 1985. Like CMET, IORI's 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. IORI
holds equity investments in apartment complexes and commercial properties
(office buildings) in the Pacific, Southeast, Southwest, and Midwest regions of
the continental United States. IORI holds one mortgage note receivable which is
secured by a shopping center in the Midwest region.

For the year ended December 31, 1996, IORI reported a net loss of
$568,000 as compared with a net loss of $906,000 for the year ended December
31, 1995. The decrease in IORI's net loss is due to a decrease in equity losses
of partnerships which improved from a loss of $744,000 in 1995 to income of
$85,000 in 1996. The equity loss in 1995 was primarily due to the writedown of
a wraparound mortgage note receivable by a partnership in which IORI has a 40%
general partner interest. IORI's cash flow from property operations decreased
to $3.5 million in 1996 from $3.9 million in 1995. At December 31, 1996, IORI
had total assets of $63.6 million which consisted of $46.7 million in real
estate held for investment, $6.6 million of real estate held for sale, $2.0
million in notes and interest receivable, $5.1 million in investments in
partnerships and other assets and $3.2 million in cash and cash equivalents.

IORI has paid regular quarterly dividends since the first quarter of
1993. The Company received a total of $186,000 in dividends from IORI in 1996.

TCI. TCI is a Nevada corporation which was originally organized on
September 6, 1983, as a California business trust, and commenced operations on
January 31, 1984. TCI also has investment policies similar to those of CMET and
IORI. TCI holds equity investments in a hotel, apartment complexes and
commercial properties (office buildings, industrial warehouses and shopping
centers) throughout the continental United States with a concentration in the
Northeast, Southeast and Southwest regions. TCI also holds mortgage notes
receivable secured by real estate located in the Northeast, Midwest, Southeast
and Southwest regions of the continental United States, with a concentration in
the Northeast and Southeast regions.

For the year ended December 31, 1996, TCI reported a net loss of $7.8
million as compared with a net loss of $3.7 million for the year ended December
31, 1995. TCI's net loss for 1996 includes gains on the sale of real estate of
$1.6 million and extraordinary gains of $256,000, whereas TCI's 1995 net loss
included gains on the sale of real estate of $5.8 million and an extraordinary
gain of $1.4 million. TCI's cash flow from property operations decreased to
$12.6 million in 1996 as compared to $15.3 million in 1995. At December 31,
1996, TCI had total assets of $245.4 million, which consisted of $8.6 million
in notes and interest receivable (net of allowance for estimated losses),
$216.4 million in real estate held for investment, $4.0 million in real estate
held for sale, $15.4 million in investments in real estate entities and other
assets and $1.0 million in cash and cash equivalents. At December 31, 1996, TCI
owned 341,500 shares of IORI's common stock, approximately 22.5% of IORI's
shares then outstanding.

TCI resumed the payment of quarterly dividends in the fourth quarter
of 1995. The Company received $373,000 in dividends from TCI in 1996.

SAMLP. As discussed in more detail under "Real Estate" above, in
August 1996, the Company purchased a pool of assets from Southmark for $3.1
million. Included in the asset pool was Southmark's 19.2% limited partner
interest in SAMLP. Such purchase increased the Company's limited partner
interest in SAMLP from 76.8% to 96%. Prior to February 25, 1992, the Company
had owned a 96% limited partner interest in SAMLP. In accordance with the
settlement of adversary proceedings with Southmark on February 25, 1992 the
Company assigned to Southmark a 19.2% limited partner interest in SAMLP. SAMLP
is the 1% general partner of and holder of a 1% interest in each of NRLP and
NOLP. Gene E. Phillips, a Director and Chairman of the Board of the Company
until November 16, 1992, is a general partner of SAMLP, and until March 4,
1994, William S. Friedman, a Director and President of the Company until
December 31, 1992, was also general Partner of SAMLP.

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

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<PAGE> 25

the management of the business affairs of SAMLP. Rather, Gene E. Phillips, as 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 the owner of, at the time,
in excess of 14% of the Company's outstanding shares of Common Stock, to
acquire 287 developed residential lots adjacent to the Company's other
residential lots in Fort Worth, Texas. The partnership agreement designates the
Company as managing general partner. The partnership agreement also provides
each of the partners with a guaranteed 10% return on their respective
investments. Through December 31, 1995, 132 residential lots had been sold. In
1996, an additional 52 lots were sold and at December 31, 1996 103 lots
remained to be sold. Through December 31, 1996, each partner had received
$172,000 in return of capital distributions and $181,000 in profit
distributions from the partnership.

R. G. Bond, Ltd. In June 1995, the Company purchased the corporate
general partner of a limited partnership which owns apartment complexes in
Illinois, Florida and Minnesota, with a total of 900 units. The corporate
general partner has a 1% interest in the partnership which is subordinated to a
priority return of the limited partner.

Campbell Center Associates, Ltd. In April 1996, the Company purchased
a 28% general partner interest in Campbell Center Associates, Ltd. which in
turn has a 56.25% interest in Campbell Centre Joint Venture, which owns a
413,175 square foot office building in Dallas, Texas. The purchase price of the
general partner interest was $550,000 in cash and a $500,000 note, which bears
interest at 8% per annum, requires monthly interest only payments commencing in
April 1997 and matures April 2000. In January 1997, the Company exercised its
option to purchase an additional 28% general partner interest in Campbell
Center Associates, Ltd. The purchase price was $300,000 in cash and a $750,000
note, which bears interest at 8% per annum, requires monthly interest only
payments commencing in April 1997 and matures in April 2000.

Highway 380/Preston Partners, Ltd. In July 1996, a newly formed
limited partnership, of which the Company is 1% general partner, purchased 580
acres of undeveloped land in Collin County, Texas for $5.7 million in cash. The
Company contributed $100,000 in cash to the partnership with the remaining $5.6
million being contributed by the limited partner. The partnership agreement
designates the Company as the managing general partner. In September 1996, the
partnership obtained financing of $2.8 million secured by the 580 acres of land
and personal guarantees of the limited partner. The loan bears interest at a
variable rate currently 9.75% per annum, requires monthly interest only
payments of $23,000 and matures in September 1998. The partnership agreement
also provides that the limited partner receive a 12% preferred cumulative
return on his investment before any sharing of partnership profits occurs.

OTHER EQUITY INVESTMENTS

Pizza World Supreme, Inc. In April 1996, a wholly-owned subsidiary of
the Company purchased for $10.7 million in cash 80% of the common stock of an
entity which in turn had acquired 26 operating pizza parlors in various
communities in California's San Joaquin Valley. Concurrent with the purchase,
the Company granted to an individual an option to purchase 36.25% of the
Company's subsidiary at any time for 36.25% of the Company's net investment in
such subsidiary. The Company anticipates taking such entity public during 1997.
Accordingly, the Company believes its control of such entity is temporary and
accounts for such entity under the equity method.

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<PAGE> 26

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------ ------------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenue......................... $ 26,979 $ 22,952 $ 23,070 $ 13,427 $ 11,481
Expense......................... 38,577 28,314 26,490 18,128 18,243
------------- ------------- ------------ ------------ -----------
(Loss) from operations.......... (11,598) (5,362) (3,420) (4,701) (6,762)
Equity in income (losses)
of investees.............. 2,004 (851) 292 (4,014) (3,388)
Gain on sale of real estate..... 3,659 2,594 379 481 566
------------- ------------- ------------ ------------ -----------
(Loss) before extraordinary
gain...................... (5,935) (3,619) (2,749) (8,234) (9,584)
Extraordinary gain.............. 381 783 323 3,807 --
------------- ------------- ------------ ------------ -----------
Net (loss)...................... (5,554) (2,836) (2,426) (4,427) (9,584)
Preferred Dividend
Requirement............... (113) -- -- -- --
Redeemable Common Stock,
accretion of discount..... -- -- -- (129) (258)
------------- ------------- ------------ ------------- -----------
(Loss) applicable to
Common Shares............. $ (5,667) $ (2,836) $ (2,426) $ (4,556) $ (9,842)
============== ============== ============ ============ ==========
PER SHARE DATA
(Loss) before extraordinary
gain...................... $ (.46) $ (.31) $ (.23) $ (.68) $ (.98)
Extraordinary Gain.............. .03 .07 .03 .31 --
------------- ------------- ------------ ------------ -----------
Net (loss) (.43) (.24) (.20) (.37) (.98)
Redeemable Common Stock,
accretion of discount..... -- -- -- (.01) (.03)
------------- ------------- ------------ -------------- -----------
(Loss) applicable to
Common shares............. $ (.43) $ (.24) $ (.20) $ (.38) $ (1.01)
============== ============== ============ ============ ===========
Dividends per share............. $ .15 $ -- $ -- $ -- $ --
Weighted average shares
outstanding............... 12,765,082 11,716,656 12,208,876 12,101,100 9,813,168

<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable, net........... $ 48,485 $ 49,741 $ 45,664 $ 51,769 $ 72,808
Real estate, net................ 119,035 59,424 47,526 52,437 45,317
Total assets.................... 235,037 162,033 137,362 139,861 151,010
Notes and interest
payable................... 127,863 61,163 45,695 53,693 63,698
Margin borrowings............... 40,044 34,017 26,391 16,147 9,681
Stockholders'
equity.................... 47,786 53,058 55,894 56,120 60,476
Book value per
share..................... $ 3.74 $ 4.53 $ 4.77 $ 5.56 $ 5.94
</TABLE>

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

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<PAGE> 27

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, 1996 aggregated
$1.3 million, compared with $1.1 million at December 31, 1995. Although the
Company anticipates that during 1997 it will generate excess cash from
operations, as discussed below, such excess cash is not sufficient to discharge
all of the Company's debt obligations as they mature. The Company will
therefore again rely on externally generated funds, including borrowings
against its investments in various real estate entities, mortgage notes
receivable, 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 $36.0 million are scheduled to mature during
1997. Included in scheduled 1997 maturities is $4.0 million secured by the BP
Las Colinas land in Las Colinas, Texas. In February 1997, the Company sold 40.2
acres of the BP Las Colinas land for $8.0 million consisting of $7.2 million in
cash and the Company accepting an $800,000 purchase money note for the
remainder of the sales price. The Company used $4.0 million of the cash
received to payoff such debt. In July 1996, the Company purchased Pin Oak land
in Houston, Texas. The Company borrowed $5.7 million of the land's purchase
price. In September 1996, the Company entered into a contract to sell the land
for cash in an amount in excess of its purchase price. The Company intends to
either payoff, extend the maturity dates or obtain alternate financing for the
remainder of its debt obligations that mature in 1997. There can be no
assurance, however, that these efforts to obtain alternate financing or debt
extensions will be successful.

The Company expects an increase in cash flow from property operations
in 1997. Such increase is expected to be derived from operations of the Inn at
the Mart, the Kansas City Holiday Inn, Best Western Oceanside Hotel and
Rosedale Towers Office Building. The Company is also expecting continued lot
sales at its Texas residential subdivision and substantial sales of the land to
generate additional cash flow.

In 1996, the Company sold a total of 39.1 acres of land in Las
Colinas, Texas in four separate transactions for a total of $6.8 million. The
Company applied the $6.5 million net sales proceeds to paydown the term loans
secured by such land. In January 1997, the Company sold an additional 3.0 acres
of land in Las Colinas, Texas for $1.2 million in cash.

In 1996, the Company purchased a total of 1,368.5 acres of land in
Denver, Colorado, Houston, Texas, Dallas County, Texas and Lewisville, Texas,
for a total of $32.1 million. The Company paid $5.4 million in cash, obtained
new or seller financing of $25.4 million and issued 15,000 shares of the
Company's Series C 10% Cumulative Preferred Stock with an aggregate liquidation
value of $1.5 million.

In April 1996, the Company purchased for $10.7 million in cash 80% of
the common stock of an entity that had acquired 26 operating pizza parlors in
various communities in California's San Joaquin Valley. Also in April 1996, the
Company purchased a 28% general partner interest in a partnership which has an
interest in an office building in Dallas, Texas, for $550,000 in cash and a
$500,000 note.

In May 1996, the Company purchased a 2,271 square foot single family
residence in Dallas, Texas, for $266,000 in cash. In August 1996, the Company
financed the residence for $173,000. The Company received net financing
proceeds of $168,000 after the payment of various closing costs associated with
the financing.

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In June 1996, the Company sold a tract of land that had been leased
under a long-term ground lease for $120,000 in cash.

In July 1996, a newly formed limited partnership of which the Company
is the 1% general partner acquired 580 acres of land in Collin County, Texas,
for $5.7 million in cash. The Company contributed $100,000 in cash to the
partnership.

In August 1996, the Company purchased a pool of assets for $3.1
million, from Southmark Corporation ("Southmark") consisting of undeveloped
land totaling 151.5 acres in California, Indiana and Idaho, various percentage
interests, ranging from 15% to 45%, in five partnerships and trusts that hold
an unsecured note receivable with a principal balance of $3.4 million and
Southmark's 19.2% limited partnership interest in Syntek Asset Management, L.P.
("SAMLP"). In connection with the acquisition, the Company borrowed $3.0
million.

In December 1996, a newly formed partnership, of which the Company is
the general partner and Class B limited partner, acquired the Best Western
Oceanside Hotel in Virginia Beach, Virginia for $6.8 million. In conjunction
with the acquisition, the partnership issued 1,813,660 Class A limited partner
units having an agreed value of $1.00 per unit, with the remaining $5.0 million
of the purchase price being obtained through a mortgage financing.

Also in December 1996, the Company acquired 452 acres of partially
developed land in Irving, Texas, for $15.5 million. In conjunction with the
acquisition, the Company became the general partner and Class B limited partner
in the partnership that owned the land. Of the purchase price $7.7 million was
financed with a mortgage loan and the remainder of the purchase price by the
issuance of 8,000,000 Class A limited partner units with an agreed value of
$1.00 per partner unit.

In January 1997, the Company purchased 546 acres of undeveloped land
in Tarrant County, Texas, for $2.2 million and in March 1997, the Company
purchased 130.6 acres of undeveloped land in Harris County, Texas, for $5.0
million. The Company paid a total of $1.7 million in cash (which was advanced
by the Company's Advisor) borrowing the remaining $5.5 million of the purchase
prices.

The Company expects that funds from existing cash resources,
collections on mortgage notes receivable, sales or refinancing of real estate
and/or mortgage notes receivable, and borrowings against its investments in
marketable equity securities, mortgage notes receivable, and to the extent
available borrowings, if required, from the Company's advisor, will be
sufficient to meet the cash requirements associated with the Company's current
and anticipated level of operations, maturing debt obligations and existing
commitments. To the extent that the Company's liquidity permits or financing
sources are available, the Company may make investments in real estate,
primarily investments in developed, partially developed and undeveloped land,
continue making additional investments in real estate entities and marketable
equity securities, and fund or acquire mortgage notes.

The Company expects that it will be necessary for it to sell $32.0
million, $47.6 million, and $15.3 million of such land during each of the next
three years, respectively, to satisfy the debt on land holdings as it matures.
If the Company is unable to sell at least the minimum amount of land to satisfy
the debt obligations on such land as it matures, the Company, if it was not
able to extend such debt, would either sell other of its assets to pay such
debt or return the property to the lender.

Notes Receivable. Scheduled principal maturities of $20.4 million are
due in 1997 of which $1.9 million is due on nonperforming notes receivable. In
February 1997, the Company sold one of the nonperforming notes with a principal
balance at December 31, 1996 of $1.6 million for $1.8 million in cash. The
balance of the Company's mortgage notes receivable are due over the next one to
ten years and provide for "balloon" principal payments. 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.

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wraparound mortgage note receivable, with an extended maturity of July 1, 1996.
In March 1997, the wraparound note was again modified and extended. The
wraparound note now matures in June 1999 with the borrower having two one year
extension options. The modified wraparound note bears interest at 10.5% per
annum the first year, 11.5% per annum the second year and 12.5% per annum the
third year, and any extension periods and requires an annual $500,000 paydown.
The borrower is also required to invest $2.0 million in improvements to the
hotel and casino within four months of the March 1997 modification and an
additional $2.0 million prior to December 1997. The note is performing in
accordance with its modified terms. The Company's wraparound mortgage note
receivable had a principal balance of $27.6 million at December 31, 1996.

At December 31, 1996, the Company held a mortgage note receivable
secured by an apartment complex in Merrillville, Indiana, with a principal
balance of $3.5 million. The note matured in December 1996. The Company and
borrower have agreed to a modification and extension of the note. The modified
note receivable continues to bear interest at 10% per annum, requires monthly
payments of principal and interest of $42,000 and has an extended maturity date
of December 2000.

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 spite of this perceived improvement in the real
estate market in general, the Company can give no assurance that it will not
continue to experience deterioration in cash flow from notes receivable 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 7.0% to
11.0%. Margin borrowings were $40.0 million (approximately 34.5% of market
value) at December 31, 1996, compared to $34.0 million at December 31, 1995.

In August 1996, the Company consolidated its existing National Realty,
L.P. ("NRLP") margin debt held by the various brokerage firms into a single
loan of $20.3 million. The loan is secured by the Company's NRLP units with a
market value of at least 50% of the principal balance of the loan. As of
December 31, 1996, 3,418,319 NRLP units with a market value of $44.9 million
were pledged as security for such loan.

Also in August 1996, the Company obtained a $2.0 million loan from a
financial institution secured by a pledge of equity securities of Continental
Mortgage and Equity Trust ("CMET"), Income Opportunity Realty Investors, Inc.
("IORI") and Transcontinental Realty Investors, Inc. ("TCI") (collectively the
"REITs") owned by the Company and Common Stock of the Company owned by Basic
Capital Management, Inc. ("BCM"), the Company's Advisor, with a market value of
$4.0 million. The Company received $2.0 million in net cash after the payment
of closing costs associated with the loan.

In September 1996, the same lender made a second $2.0 million loan.
The second loan is also secured by a pledge of equity securities of the REITs
owned by the Company and Common Stock of the Company owned by BCM with a market
value of $5.0 million. The Company received $2.0 million in net cash after the
payment of closing costs associated with the loan.

In February 1996, the Company refinanced $7.8 million of underlying
debt collateralized by a mortgage note receivable with a balance of $18.4
million which is secured by the Las Vegas Shopping Center in Las Vegas, Nevada,
for $12.0 million. The Company received net cash of $2.3 million after the
payoff of the existing debt, payment of closing costs associated with the
refinancing and making a $1.5 million paydown on the term loan secured by the
Las Colinas I land in Las Colinas, Texas in exchange for that lender's release
of its participation in the note receivable.

In April 1996, the Company refinanced the first and second lien
mortgage debt underlying its $22.0 million wraparound mortgage note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada, for $16.8
million. The Company received net cash of $11.2 million after the payoff of the
two underlying liens totaling $2.9 million, various closing costs associated
with the refinancing and making a $1.4 million paydown on the term loan

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secured by the Las Colinas I land in Las Colinas, Texas in exchange for that
lender's release of its participation in the note receivable.

Also in April 1996, the Company refinanced $5.1 million of first and
second lien mortgage debt secured by the Denver Merchandise Mart for $15.0
million. The Company received net refinancing proceeds of $7.8 million after
the payoff of the first and second lien debt, purchasing the ground lease on
Denver Merchandise Mart for $678,000 and payment of various closing costs
associated with the refinancing.

In August 1996, the Company refinanced the $2.4 million existing
mortgage debt secured by the Rosedale Towers Office Building in Roseville,
Minnesota for $2.8 million. The Company received net refinancing proceeds of
$154,000 after the payoff of the existing debt and payment of various closing
costs associated with the refinancing.

Also in August 1996, the Company financed the previously unencumbered
Inn at the Mart in Denver, Colorado for $2.0 million to facilitate renovating
the property. The Company received net financing proceeds of $890,000 after the
payment of various closing costs associated with the financing and a $1.1
million renovation holdback. The lender advanced the $1.1 million renovation
holdback in December 1996.

In October 1996, the Company completed the sale of $1.1 million in 11-
1/2% senior subordinated notes in a private placement.

In December 1996, the Company obtained second lien mortgage financing
of $3.2 million on the Kansas City Holiday Inn in Kansas City, Missouri. The
Company received net financing proceeds of $3.0 million after the payment of
various closing costs associated with the financing.

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

Equity securities of the REITs 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. In 1996, the Company
received total distributions from the REITs of $2.1 million and $6.9 million
from NRLP. The Company accrued $3.3 million in distributions from NRLP at
December 31, 1995 which were paid January 2, 1996. The Company anticipates
receiving distributions totaling $1.4 million from the REITs and $1.3 million
from NRLP in 1997.

On June 12, 1996, the Company's Board of Directors announced the
resumption of dividend payments on the Company's Common Stock at the initial
rate of $.05 per share. The Company paid dividends totaling $1.5 million or
$.15 per share in 1996.

Also on June 12, 1996, the Company announced the redemption of its
share purchase rights for $.01 per right. The redemption price, totaling
$101,000, was paid on July 8, 1996 to stockholders of record on June 21, 1996.

The Company's management reviews the carrying values of the Company's
properties and mortgage note receivable at least annually and whenever events
or a change in circumstances indicate that impairment may exist. Impairment is
considered to exist if, in the case of a property, the future cash flow from
the property (undiscounted and without interest) is less than the carrying
amount of the property. For notes receivable impairment is considered to exist
if it is probable that all amounts due under the terms of the note will not be
collected. In those instances where impairment is found to exist, a provision
for loss is recorded by a charge against earnings. The Company's mortgage

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note receivable review includes an evaluation of the collateral property
securing such note. The property review generally includes selective property
inspections, a review of the property's current rents compared to market rents,
a review of the property's expenses, a review of maintenance requirements, a
review of the property's cash flow, discussions with the manager of the
property and a review of properties in the surrounding area.

RESULTS OF OPERATIONS

1996 Compared to 1995. The Company reported a net loss of $5.6 million
in 1996 as compared to a net loss of $2.8 million in 1995. The primary factors
contributing to the increase in the Company's net loss are discussed in the
following paragraphs.

Net rental income (rents less property operating expenses) increased
from $4.6 million in 1995 to $4.8 million in 1996. This increase is primarily
attributable to increased rents at the Denver Merchandise Mart and increased
room rates and occupancy at the Kansas City Holiday Inn. Net rental income is
expected to increase in 1997 from continued improvement at the Kansas City
Holiday Inn and from a full years operations of the Best Western Oceanside
Hotel which was acquired in December 1996.

Interest income decreased from $4.9 million in 1995 to $4.7 million in
1996. This decrease is primarily attributable to a note receivable being paid
off in 1995. Interest income in 1997 is expected to approximate that of 1996.

Other income increased from $154,000 in 1995 to $1.6 million in 1996.
This increase is due to recognizing an unrealized gain of $486,000 on the
Company's trading portfolio of equity securities in 1996 compared to
recognizing an unrealized loss of $1.4 million in 1995. This increase was
offset in part by dividend income and gain on marketable equity securities
decreasing by $689,000 and $292,500 respectively.

Interest expense increased from $8.9 million in 1995 to $16.5 million
in 1996. The increase is primarily attributable to debt refinancings and the
debt incurred related to the purchase of six parcels of land in 1995 and 1996
and the Oaktree Shopping Center obtained in November 1995. Offsetting the
increase was a $161,000 decrease in interest expense due to the sale of an
apartment complex in February 1995. Interest expense for 1997 is expected to
increase from the continued acquisition of properties on a leveraged basis.

Advisory and mortgage servicing fees increased from $1.2 million in
1995 to $1.5 million in 1996. The increase is primarily attributable to the
Company's increase in gross assets, the basis for such fee. Such fee will
continue to increase as the Company's gross assets increase.

Depreciation increased from $1.7 million in 1995 to $2.0 million in
1996 due to $2.9 million in property improvements made in 1996.

Equity in income of investees improved from a loss of $851,000 in 1995
to income of $2.0 million in 1996. The increase in equity income is primarily
attributable to an improvement in income from property operations for both CMET
and NRLP, from increased rental rates and a decrease in operating expenses. The
1995 gains are attributable to the Company's equity share ($1.8 million) of
NRLP's fourth quarter gain on the sale of two apartment complexes, the
Company's equity share ($2.5 million) of TCI's gain on the sale of land in the
third quarter and an apartment complex in the fourth quarter of 1995, a $4.6
million gain representing the Company's equity share of the REIT's gain on sale
of real estate.

Gains on the sale of real estate increased from $2.6 million in 1995
to $3.7 million in 1996. In 1996, the Company recognized a $2.0 million gain on
the sale of 32.3 acres of the BP Las Colinas land in Las Colinas, Texas, and a
$1.1 million gain on the sale of 4.6 acres of the Las Colinas I land also in
Las Colinas, Texas. The 1995 gains are attributable to a $1.6 million gain
recognized on the sale of 6.9 acres of Las Colinas I land and a $924,000 gain
recognized on the sale of the Boulevard Villas Apartments in February 1995.

The Company reported $783,000 in extraordinary gains in 1995 compared
to $381,000 in extraordinary gains in 1996. The 1996 extraordinary gain is the
Company's share of TCI's extraordinary gain from the early payoff of debt

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and CMET's extraordinary gain from an insurance settlement. The 1995
extraordinary gain is the Company's equity share of TCI's extraordinary gain
from the early payoff of mortgage debt.

1995 Compared to 1994. The Company reported a net loss of $2.8 million
in 1995 as compared to a net loss of $2.4 million in 1994. The primary factors
contributing to the decrease in the Company's net loss are discussed in the
following paragraphs.

Net rental income (rents less property operating expenses) decreased
from $5.0 million in 1994 to $4.6 million in 1995. This decrease is primarily
attributable to the sale of four apartment complexes in November 1994 and the
sale of an additional apartment complex in February 1995 contributing a
combined $2.4 million to the decrease. Offsetting the decrease in part, is a
$1.2 million increase in net rental income from the Denver Merchandise Mart and
Inn at the Mart, acquired in the second quarter of 1994 and a $529,000 increase
at the Kansas City Holiday Inn due to increased room rates directly
attributable to the capital improvements made to the property in 1994.

Interest income increased from $4.0 million in 1994 to $4.9 million in
1995. This increase is primarily attributable to the Continental Hotel
wraparound mortgage note receivable performing throughout 1995.

Other income decreased from $1.1 million in 1994 to $154,000 in 1995.
This decrease is primarily attributable to the fourth quarter write down of the
Company's marketable equity securities trading portfolio by $998,000 due to a
decline in market value.

Interest expense increased from $7.9 million in 1994 to $8.9 million
in 1995. This increase is primarily due to a $1.2 million increase in margin
interest due to a $7.6 million increase in margin debt from December 1994 to
December 1995 and a $2.0 million increase due to the debt incurred in
connection with the Company's two land purchases in Las Colinas, Texas, during
1995. These increases are offset by a $1.5 million decrease due to a reduction
in debt as a result of the sale of four apartment complexes in November 1994
and an additional apartment complex in February 1995 and reductions in loan
principal balances.

Advisory and mortgage servicing fees were comparable in 1995 and 1994
at $1.2 million as were general and administrative expense at $2.6 million in
1995 and 1994.

Depreciation increased from $1.6 million in 1994 to $1.7 million in
1995. This increase is primarily attributable to the 1994 acquisitions of the
Denver Merchandise Mart and the Inn at the Mart offset by the sale of four
apartment complexes in November 1994 and the sale of an additional apartment
complex in February 1995.

Equity in income of investees decreased from a income of $292,000 in
1994 to a loss of $851,000 in 1995. This decrease in equity income is primarily
attributable to an increase in net loss of both IORI and TCI, resulting from a
$1.5 million writedown of a wraparound mortgage note receivable to the balance
of the underlying first lien mortgage by a partnership in which IORI and TCI
are the sole partners. Offsetting such losses in part, is the Company's equity
share ($1.8 million) of NRLP's fourth quarter gain on the sale of two apartment
complexes, the Company's equity share ($2.5 million) of TCI's gain on the sale
of land in the third quarter and an apartment complex in the fourth quarter of
1995.

Gains on the sale of real estate increased from $292,000 in 1994 to
$2.6 million in 1995. The 1995 gains are attributable to a $1.6 million gain
recognized on the sale of 6.9 acres of Las Colinas I land in Las Colinas,
Texas, acquired by the Company in May 1995 and a $924,000 gain recognized by
the Company on the sale of the Boulevard Villas Apartments in February 1995.

The Company reported $323,000 in extraordinary gains in 1994 compared
to $783,000 in extraordinary gains in 1995. The 1995 extraordinary gain is the
Company's equity share of TCI's extraordinary gain from the early payoff of
mortgage debt. In 1994, $273,000 of the extraordinary gain is the Company's
equity share of TCI's settlement of litigation with a lender and the remaining
$50,000 is due to a lender's forgiveness of a portion of a first mortgage, due
to the Company's early payoff of the second lien mortgage secured by the same
property.

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CONTINGENCIES

In January 1995, NRLP, SAMLP, the NRLP oversight committee and William
H. Elliott executed an Implementation Agreement which provides for the
nomination of an entity controlled by Mr. Elliott as successor general partner
of NRLP and National Operating, L.P. ("NOLP"), the operating partnership of
NRLP and for the resolution of all related matters under the 1990 settlement of
a class action lawsuit. In February 1996, the parties to the Implementation
Agreement executed an Amended and Restated Implementation Agreement.

Provided that the successor general partner is elected pursuant to the
terms of the Amended and Restated Implementation Agreement, SAMLP shall receive
$12.5 million from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as general partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.

In September 1996, the Judge appointed to supervise the class action
settlement (the "Supervising Judge") entered an order granting tentative
approval of the Amended and Restated Implementation Agreement and the form of
notice to be sent to the original class members. However, the order reserved
jurisdiction to determine other matters which must be resolved prior to final
approval. On April 7, 1997, the Supervising Judge issued an order granting
final approval of the notice and scheduled a hearing on June 27, 1997 for final
approval of the Amended and Restated Implementation Agreement. Upon final
approval by the Supervising Judge, the proposal to elect the successor general
partner will be submitted to the NRLP's unitholders for a vote. In addition,
the unitholders will vote upon amendments to the NRLP's Partnership Agreement
which relate to the proposed compensation of the successor general partner and
other related matters.

The Amended and Restated Implementation Agreement provides that SAMLP,
and its affiliates owning units in NRLP shall not vote to remove the successor
general partner, except for removal with cause, for a period of 36 months from
the date the successor general partner takes office.

Upon the election and taking office of the successor general partner,
the class action settlement and the NRLP oversight committee shall be
terminated. If the successor general partner is not elected, the existing class
action settlement shall remain in full force and effect and all of the
provisions of the Amended and Restated Implementation Agreement shall be
voided, including the compromise settlement of amounts owed by SAMLP and NRLP
to each other.

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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.

RECENT ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121 - "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of". The statement requires that long-lived assets be considered impaired "...
if the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset." If impairment exists,
an impairment loss shall be recognized, by a charge against earnings, equal to
"... the amount by which the carrying amount of the asset exceeds the fair
value of the asset." If impairment of a long-lived asset is recognized, the
carrying amount of the asset shall be reduced by the amount of the impairment,
shall be accounted for as the asset's "new cost" and such new cost shall be
depreciated over the asset's remaining useful life.

SFAS No. 121 further requires that long-lived assets held for sale
"... be reported at the lower of carrying amount or fair value less cost to
sell." If a reduction in a held for sale asset's carrying amount to fair value
less cost to sell is required, a provision for loss shall be recognized by a
charge against earnings. Subsequent revisions, either upward or downward, to a
held for sale asset's fair value less cost to sell shall be recorded as an
adjustment to the asset's carrying amount, but not in excess of the asset's
carrying amount when originally classified as held for sale. A corresponding
charge or credit to earnings is to be recognized. Long-lived assets held for
sale are not to be depreciated.
The Company adopted SFAS No. 121 effective January 1, 1996.

The adoption of SFAS No. 121 had no effect on the Company's net loss
for the nine months ended September 30, 1996, as the Company's one depreciable
asset classified as held for sale is fully depreciated and none of the
Company's other long lived assets are considered to be impaired.

ACQUISITION TERMS

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

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

DESCRIPTION OF THE CAPITAL STOCK

GENERAL

The Company is authorized by its Articles of Incorporation, as
amended, to issue up to 16,666,667 shares of Common Stock, $.01 par value per
share, and 20,000,000 shares of a special class of stock, $2.00 par value per
share (the "Special Stock"), which may be designated by the Company's board of
directors from time to time. The Preferred Stock to be offered hereunder will
be a series of the Special Stock.

COMMON STOCK

All shares of the Company's Common Stock are entitled to share equally
in dividends from funds legally available therefor, when declared by the
Company's board of directors, and upon liquidation or dissolution of the
Company, whether voluntary or involuntary (subject to any prior rights of
holders of the Special Stock), and to share equally in the assets of the
Company available for distributions to shareholders. Each holder of Common
Stock is entitled to one vote for each share held on all matters submitted to
the shareholders. There is no cumulative voting, redemption right, sinking fund
provision or right of conversion with respect to the Common Stock. The holders
of Common Stock do not have any preemptive rights to acquire additional shares
of Common Stock when issued. All outstanding shares of the Company are fully
paid and nonassessable. As of March 31, 1997, 13,479,348 shares of Common Stock
were issued and 12,194,644 shares were outstanding.

SPECIAL STOCK

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

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

The Prospectus Supplement relating to the series of Preferred Stock
being offered will describe its terms, including: (i) its title and stated
value; (ii) the number of shares offered, the liquidation preference per share
and the purchase price; (iii) the dividend rate(s), period(s) and/or payment
date(s) or method(s) of calculating dividends;

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(iv) whether dividends are cumulative or non-cumulative and, if cumulative, the
date from which dividends accumulate; (v) the procedures for any auction and
remarketing, if any; (vi) the provisions for a sinking fund, if any; (vii) the
provisions for redemption, if applicable; (viii) any listing of such Preferred
Stock on a securities exchange; (ix) the terms and conditions, if applicable,
for its conversion into Common Stock, including the conversion price (or manner
of calculation) and conversion period; (x) voting rights, if any; (xi) its
relative ranking and preferences as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company; and (xii)
any limitations on issuance of any series of Preferred Stock ranking senior to
or on a parity with such series of Preferred Stock as to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of the
Company. The Prospectus Supplement for such Preferred Stock will also include a
discussion of any material and/or special Federal income tax considerations
applicable to such Preferred Stock.

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

Series A Preferred Stock; Terminated Rights Plan. On April 11, 1990,
the board of directors of the Company designated 500,000 shares of the Series A
Cumulative Participating Preferred Stock (the "Series A Preferred Stock"),
adopted a preferred share purchase rights plan and approved the distribution to
shareholders of a dividend of one preferred share purchase right on each
outstanding share of the Company's Common Stock (the "Rights"). The rights plan
provided that one Right would be distributed to all shareholders of the Company
for each share of Common Stock owned of record by them as of April 23, 1990. In
addition, the rights plan required that the Company issue one Right with each
share of Common Stock that became outstanding thereafter so that all shares of
Common Stock would carry a Right. The Rights were primarily designed to assure
that all holders of Common Stock of the Company receive fair and equal
treatment in the event of any attempt to acquire the Company and to guard the
interest of such shareholders against partial tender offers, inadequate offers,
open market accumulations and other abusive or coercive tactics. The rights
plan was not adopted in response to any effort to acquire the Company, and the
Company has remained unaware of any such effort. On June 12, 1996, the board of
directors of the Company resolved to redeem the Rights held by the shareholders
of record as of June 21, 1996 at the redemption price of $.01 per Right. The
redemption price was paid on July 8, 1996. The decision by the board of
directors of the Company was based on a determination that the rights plan was
no longer necessary to protect the Company and its shareholders from coercive
tender offers.

On February 27, 1997, the board of directors of the Company deleted
the designation of the Series A Preferred Stock from the Articles of
Incorporation and none will be issued in the future.

Series B Preferred Stock. On April 3, 1996, the board of directors of
the Company designated 4,000 shares of Series B 10% Cumulative Preferred Stock
(the "Series B Preferred Stock") with a par value of $2.00 per share and a
preference on liquidation of $100 per share plus payment of accrued and unpaid
dividends. The Series B Preferred Stock is non-voting except as required by
law, and the Company is not required to maintain a sinking fund for such stock.

The Series B Preferred Stock is convertible, but only during a 30-day
period beginning May 8, 1998, into that number of shares of the Company's
Common Stock obtained by multiplying the number of shares being converted by
$100 and then dividing such sum by (in most instances) 90% of the simple
average of the daily closing price of the Common Stock for the 30 trading days
immediately preceding the conversion period on the market where the shares of
Common Stock of the Company are then regularly traded. The right of conversion
shall terminate at the close of business on the second full business day prior
to the date fixed for redemption and on the commencement of any liquidation,
dissolution or winding up of the Company.

The Series B Preferred Stock bears a cumulative dividend per share of
$10.00 per annum, payable quarterly in equal installments of $2.50. Dividends
on the Series B Preferred Stock are in preference to and with priority over
dividends upon the Common Stock. The Series B Preferred Stock ranks on a parity
as to dividends and upon liquidation, dissolution or winding up with all other
shares of Special Stock.

-32-

<PAGE> 37

The Company may from time to time redeem any or all of the Series B
Preferred Stock upon payment of the liquidation value of $100 per share plus
all accrued and unpaid dividends. There is no restriction on the repurchase or
redemption of the Series B Preferred Stock by the Company while there is any
arrearage in payment of dividends except that at the time of such repurchase or
redemption the Company must pay all accrued and unpaid dividends on the shares
being redeemed. As of April 1, 1997, 4,000 shares of the Series B Preferred
Stock were issued and outstanding.

Series C Preferred Stock. The board of directors of the Company
designated 16,500 shares of Series C 10% Cumulative Preferred Stock (the
"Series C Preferred Stock") on May 23, 1996, with a par value of $2.00 per
share and a preference on liquidation of $100 per share plus all accrued and
unpaid dividends. The Series C Preferred Stock is non-voting except as required
by law. The Company is not required to maintain a sinking fund for such stock.

Each share of Series C Preferred Stock is convertible, but only during
a 90-day period beginning on November 25, 1998, into the number of shares of
Common Stock obtained by multiplying the number of shares being converted by
$100 and dividing the result by (in most instances) 90% of the then-recent
average trading price for the Common Stock.

The Series C Preferred Stock bears a cumulative dividend per share of
$10.00 per annum, payable quarterly in equal installments of $2.50. Dividends
on the Series C Preferred Stock are in preference to and with priority over
dividends upon the Common Stock. The Series C Preferred Stock ranks on a parity
as to dividends and upon liquidation, dissolution or winding up with all other
shares of Special Stock. The dividends for the first twelve months are to be
paid in additional shares of Series C Preferred Stock.

The Company may from time to time redeem any or all of the Series C
Preferred Stock upon payment of the liquidation value of $100 per share plus
all accrued and unpaid dividends. There is no restriction on the repurchase or
redemption of the Series C Preferred Stock by the Company while there is any
arrearage in payment of dividends except that at the time of such repurchase or
redemption the Company must pay all accrued and unpaid dividends on the shares
being redeemed. As of April 1, 1997, 16,274 shares of the Series C Preferred
Stock were issued and outstanding.

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

The Series D Preferred Stock has a cumulative dividend per share of
9.5% per annum of the $20.00 liquidation preference, payable quarterly in equal
installments of $0.475. Dividends on the Series D Preferred Stock are in
preference to and with priority over dividends upon the Common Stock. The
Series D Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special Stock.

The Company may from time to time after June 1, 2001 redeem any or all
of the Series D Preferred Stock upon payment of the liquidation value of $20.00
per share plus all accrued and unpaid dividends. There is no restriction on the
repurchase or redemption of the Series D Preferred Stock by the Company while
there is any arrearage in payment of dividends except that at the tine of such
repurchase or redemption the Company must pay all accrued and unpaid dividends
on the shares being redeemed. As of April 1, 1997, no shares of the Series D
Preferred Stock were issued and outstanding.

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

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

-33-

<PAGE> 38

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

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

The Company may redeem any or all of the shares of Series E Preferred
Stock from time to time upon payment of $100.00 per share plus all accrued and
unpaid dividends. There is no restriction on the repurchase or redemption of
the Series E Preferred Stock by the Company while there is any arrearage in
payment of dividends except that at the time of such repurchase or redemption
the Company must pay all accrued and unpaid dividends on the shares being
redeemed. As of April 1, 1997, no shares of the Series E Preferred Stock were
issued and outstanding.

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

The description of the foregoing provisions of each series of the
Special Stock does not purport to be complete and is subject to and qualified
in its entirety by reference to the definitive Articles of Amendment of the
Articles of Incorporation relating to such series of Special Stock.

PLAN OF DISTRIBUTION

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

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

LEGAL MATTERS

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

-34-

<PAGE> 39

EXPERTS

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

-35-

<PAGE> 40

FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----

<S> <C>
Report of Independent Certified Public Accountants.....................F-2

Consolidated Balance Sheets -
December 31, 1996 and 1995..........................................F-3

Consolidated Statements of Operations -
Years Ended December 31, 1996, 1995 and 1994.......................F-5

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1996, 1995 and 1994........................F-6

Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, 1995 and 1994........................F-7

Notes to Consolidated Financial Statements............................F-10
</TABLE>

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

F-1

<PAGE> 41

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, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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. 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. 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, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

BDO Seidman, LLP

Dallas, Texas
March 26, 1997

F-2

<PAGE> 42
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
---------- ----------
(dollars in thousands)
<S> <C> <C>
Assets
Notes and interest receivable
Performing (including $13,563 in 1996 and
$14,657 in 1995 from affiliate)............................... $ 50,784 $ 51,840
Nonperforming, nonaccruing........................................... 1,627 1,827
---------- ----------
52,411 53,667

Less - allowance for estimated losses.................................. (3,926) (3,926)
---------- ----------
48,485 49,741
Real estate held for sale, net of accumulated
depreciation ($5,098 in 1996 and 1995)............................... 77,688 32,627

Less - allowance for estimated losses.................................. -- (3,328)
---------- ----------
77,688 29,299
Real estate held for investment net of accumu-
lated depreciation ($4,234 in 1996 and $2,646
in 1995)............................................................. 41,347 30,125

Marketable equity securities, at market value.......................... 2,186 2,093
Cash and cash equivalents.............................................. 1,254 1,054
Investments in equity investees........................................ 55,880 41,072
Other assets (including $3,336 in 1995 from
affiliate)........................................................... 8,197 8,649
---------- ----------
$ 235,037 $ 162,033
========== ==========
</TABLE>

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

F-3

<PAGE> 43

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED

<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
---------- ----------
(dollars in thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities
Notes and interest payable (including $8,973 in
1996 and $8,556 in 1995 to affiliates)............................... $ 127,863 $ 61,163
Margin borrowings...................................................... 40,044 34,017
Accounts payable and other liabilities
(including $4,584 in 1995 to affiliate).............................. 8,433 12,698
---------- ----------
176,340 107,878

Minority interest...................................................... 10,911 1,097

Commitments and contingencies

Stockholders' equity
Preferred Stock, $2.00 par value, authorized
20,000,000 shares; issued and outstanding
4,000 shares Series B................................................ 8 --
15,877 shares Series C............................................... 32 --
Common Stock, $.01 par value, authorized
16,666,667 shares; issued 13,479,348 shares in
1996 and 11,716,656 shares in 1995................................... 129 117
Paid-in capital........................................................ 68,601 66,661
Accumulated (deficit).................................................. (20,978) (13,720)
Treasury stock at cost, 564,704 shares................................. (6) --
---------- ----------
47,786 53,058
---------- ----------

$ 235,037 $ 162,033
========== ==========
</TABLE>

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

F-4

<PAGE> 44

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<Caption
Years Ended December 31,
--------------------------------------------
1996 1995 1994
----------- ----------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C>
Income
Rents............................................................ $ 20,658 $ 17,869 $ 18,013
Interest (including $539 in 1996, $506 in 1995 and $366 in
1994 from affiliates).......................................... 4,724 4,929 3,959
Other............................................................ 1,597 154 1,098
26,979 22,952 23,070
----------- ----------- ----------

Expenses
Property operations (including $892 in 1996, $1,200 in 1995
and $899 in 1994 to affiliates)................................ 15,874 13,260 13,013
Interest (including $418 in 1996, $437 in 1995 and $589
in 1994 to affiliates)......................................... 16,450 8,941 7,875
Advisory and servicing fees to affiliate......................... 1,539 1,195 1,242
General and administrative (including $691 in 1996, $516 in
1995 and $434 in 1994 to affiliate)............................ 2,712 2,554 2,562
Depreciation and amortization.................................... 2,002 1,691 1,620
Minority interest................................................ -- 671 169
----------- ----------- ----------
38,577 28,312 26,481
----------- ----------- ----------

(Loss) from operations............................................. (11,598) (5,360) (3,411)
Equity in income (losses) of investees............................. 2,004 (851) 292
Gain on sale of real estate........................................ 3,659 2,594 379
----------- ----------- ----------

(Loss) before income taxes......................................... (5,935) (3,617) (2,740)
Income tax expense................................................. --- 2 9
----------- ----------- ----------

(Loss) before extraordinary gain................................... (5,935) (3,619) (2,749)

Extraordinary gain................................................. 381 783 323
----------- ----------- ----------

Net (loss)......................................................... (5,554) (2,836) (2,426)

Preferred dividend requirement..................................... (113) -- --
----------- ----------- ----------

Net (loss) applicable to Common shares............................. $ (5,667) $ (2,836) $ (2,426)
=========== =========== ==========

Earnings per share
(Loss) before extraordinary gain................................... $ (.46) $ (.31) $ (.23)
Extraordinary gain................................................. .03 .07 .03
----------- ----------- ----------

Net (loss) applicable to Common shares............................. $ (.43) $ (.24) $ (.20)
=========== =========== ==========

Weighted average Common shares used in computing
earnings per share.............................................. 12,765,082 11,716,656 12,208,876
=========== =========== ==========

</TABLE>

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

F-5

<PAGE> 45

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Series B Series C Accumulated
Preferred Preferred Common Treasury Paid-in Earnings Stockholders
Stock Stock Stock Stock Capital (Deficit) Equity
--------- --------- --------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
January 1, 1994........... $ -- $ -- $ 102 $ -- $ 64,476 $ (8,458) $ 56,120
Reclassification of
Redeemable Common
Stock..................... -- -- 14 -- 2,186 -- 2,200
Common Stock
Issued.................... -- -- 9 -- (9) -- --
Common Stock
retired................... -- -- (8) -- 8 -- --
Net (loss).................. -- -- -- -- -- (2,426) (2,426)
--------- --------- --------- -------- -------- -------- --------
Balance
December 31, 1994......... -- -- 117 -- 66,661 (10,884) 55,894
Net (loss).................. -- -- -- -- -- (2,836) (2,836)
--------- --------- --------- -------- -------- -------- --------
Balance
December 31, 1995......... -- -- 117 -- 66,661 (13,720) 53,058
Common Stock issued......... -- -- 12 -- (12) -- --
Series B Preferred Stock
issued.................. 8 -- -- -- 392 -- 400
Series C Preferred Stock
issued.................. -- 30 -- -- 1,469 -- 1,499
Common stock cash
dividend ($.15 per
share).................. -- -- -- -- -- (1,491) (1,491)
Redemption of share
purchase rights ($.01
per right).............. -- -- -- -- -- (101) (101)
Series B Preferred Stock
cash dividends ($6.46
per share).............. -- -- -- -- -- (25) (25)
Series C Preferred Stock
stock dividend ($5.74
per share).............. -- 2 -- -- 85 (87) --
Treasury stock, at cost..... -- -- -- (6) 6 -- --
Net (loss) -- -- -- -- -- (5,554) (5,554)
--------- --------- --------- -------- -------- -------- --------
Balance
December 31, 1996......... $ 8 $ 32 $ 129 $ (6) $ 68,601 $(20,978) $ 47,786
========= ======== ======= ======== ======== ======== ========
</TABLE>

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

F-6

<PAGE> 46
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------
1996 1995 1994
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Rents collected.............................................. $ 19,013 $ 18,473 $ 17,130
Interest collected ($385 in 1996, $399 in
1995 and $366 in 1994 from affiliates)................ 4,304 4,845 3,829
Distributions from equity investees' operating activities.... 9,054 1,464 1,642
Interest paid (including $19 in 1995 and $213 in 1994 to
affiliate)............................................. (9,601) (8,296) (4,286)
Payments for property operations
(including $892 in 1996, $1,200 in 1995
and $899 in 1994 to affiliate)......................... (15,034) (13,442) (13,162)
Advisory fee paid to affiliate............................... (1,539) (1,195) (1,242)
General and administrative expenses paid
(including $691 in 1996, $516 in 1995 and
$434 in 1994 to affiliate)............................. (3,095) (2,448) (2,384)
Litigation settlement........................................ -- (100) (750)
Other....................................................... (1,084) 500 235
-------- -------- --------

Net cash provided by (used in) operating
activities.......................................... 2,018 (199) 1,012
Cash Flows From Investing Activities
Collections on notes receivable
(including $1,166 in 1996 and $394
in 1995 from affiliates).................................... 1,495 1,604 2,757
Purchase of marketable equity securities..................... (22,613) (19,394) (16,518)
Proceeds from sale of marketable equity securities........... 23,557 18,374 15,123
Notes receivable funded...................................... (250) (3,295) (700)
Proceeds from sale of real estate............................ 3,129 11,992 4,058
Return of capital distributions.............................. -- -- 514
Acquisitions of real estate.................................. (6,698) (21,394) --
Real estate improvements..................................... (2,862) (1,802) (2,168)
Investment in equity investees............................... (15,471) (7,169) (6,884)
------- ------ ------

Net cash (used in) investing activities................ (19,713) (21,084) (3,818)
</TABLE>

F-7

<PAGE> 47

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

<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Cash
Flows From Financing Activities
Proceeds from notes payable .................................. $ 58,520 $ 36,211 $ 710
Margin borrowings, net ....................................... 2,981 7,626 8,598
Proceeds from issuance of Preferred Stock .................... 400 -- --
Payments on notes payable (including $990 in 1995,
$1,320 in 1994 to affiliate) ........................... (32,382) (22,268) (5,151)
Southmark settlement payments ................................ -- -- (435)
Deferred borrowing costs ..................................... (5,028) (2,475) --
Net advances (payments) to/from affiliates ................... (4,979) 3,050 (1,566)
Dividends paid ............................................... (1,617) -- --
-------- -------- --------
Net cash provided by financing activities .............. 17,895 22,144 2,156
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ......... 200 861 (650)
Cash and cash equivalents, beginning of year ................. 1,054 193 843
-------- -------- --------
Cash and cash equivalents, end of year ....................... $ 1,254 $ 1,054 $ 193
======== ======== ========
Reconciliation of net (loss) to net cash provided
by (used in) operating activities
Net (loss) ................................................... $ (5,554) $ (2,836) $ (2,426)
Adjustments to reconcile net (loss) to net cash provided
by (used in) operating activities
Extraordinary gain ..................................... (381) (783) (323)
Gain on sale of real estate ............................ (3,659) (2,594) (379)
Depreciation and amortization .......................... 2,002 1,691 1,620
Equity in (income) losses of investees ................. (2,004) 851 (292)
Distributions from equity investees' operating
activities ........................................ 9,054 1,464 1,642
(Increase) decrease in accrued interest receivable ... (117) 79 (18)
Decrease in other assets ............................. 452 1,439 228
Increase (decrease) in accrued interest payable ...... 1,417 (5) 575
Increase in accounts payable and other liabilities ... 733 495 150
Other ................................................ 75 -- 235
-------- -------- --------
Net cash provided by (used in) operating ........... $ (2,018) $ (199) $ 1,012
activities ======== ======== ========

</TABLE>

F-8

<PAGE> 48

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

<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------
1996 1995 1994
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Schedule of noncash investing and financing activities
Acquisition of real estate financed by debt ............... $ 9,099 $ 21,394 $ 6,800
Stock dividends on Series C Preferred Stock ............... 87 -- --
Real estate sales financed by purchase money mortgages .... -- -- 1,400
Carrying value of real estate securities acquired through
assumption of debt with carrying value of
$6,080 in 1994 ......................................... -- -- 9,810
Sale of real estate subject to debt ....................... -- (5,878) --
Carrying value of real estate obtained in satisfaction
of a receivable with a carrying value of $125 .......... -- -- 125
Settlement with insurance company
Carrying value of real estate received ................. -- 1,619 --
Carrying value of notes receivable
participation received ........................... -- 1,500 --
Carrying value of notes receivable
returned ......................................... -- (32) --
Carrying value of real estate returned ................. -- (2,183) --
</TABLE>

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

F-9

<PAGE> 49
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 1994 and 1995 have been reclassified to conform
to the 1996 presentation. Shares and per share data have been restated for the
2 for 1 forward Common Stock splits effected February 17, 1997 and January 2,
1996.

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of consolidation. The Consolidated Financial Statements include
the accounts of ART, and all majority- owned subsidiaries and partnerships
other than National Realty, L.P. ("NRLP") and Pizza World Supreme, Inc.
("PWS"). The Company uses the equity method to account for its investment in
NRLP and PWS as control is considered to be temporary. See NOTE 2. "SYNTEK
ASSET MANAGEMENT, L.P." and NOTE 6. "INVESTMENTS IN EQUITY INVESTEES." All
significant intercompany transactions and balances have been eliminated.

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

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

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

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

F-10

<PAGE> 50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

Investments in equity investees. Because the Company may be considered
to have the ability to exercise significant influence over the operating and
investment policies of certain of its investees, 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 investee's operating income and any additional
investment and decreased by the Company's proportionate share of the investee's
operating losses and distributions received.

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

Revenue recognition on the sale of real estate. Sales of real estate
are recognized when and to the extent permitted by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No.
66"). Until the requirements of SFAS No. 66 for full profit recognition have
been met, transactions are accounted for using either the deposit, the
installment, the cost recovery or the financing method, whichever is
appropriate.

Fair value of financial instruments. The Company used the following
assumptions in estimating the fair value of its notes receivable, marketable
equity securities and notes payable. For performing notes receivable, the fair
value was estimated by discounting future cash flows using current interest
rates for similar loans. For nonperforming notes receivable the estimated fair
value of the Company's interest in the collateral property was used. For
marketable equity securities fair value was based on the year end closing
market price of each security. For notes payable the fair value was estimated
using current rates for mortgages with similar terms and maturities.

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

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, adjusted for the two for one forward Common Stock
splits effected February 17, 1997 and January 2, 1996.

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

In August 1996, the Company purchased a pool of assets from Southmark
Corporation ("Southmark") for $3.1 million. Included in the asset pool was
Southmark's 19.2% limited partner interest in Syntek Asset Management, L.P.
("SAMLP"). Such purchase increased the Company's limited partner interest in
SAMLP from 76.8% to 96%. SAMLP is the general partner of NRLP and National
Operating, L.P. ("NOLP"), the operating partnership of NRLP. Gene E. Phillips,
a Director and Chairman of the Board of Company until November 16, 1992, is a
general partner of SAMLP, and until March 4, 1994, William S. Friedman, a
Director and President of the Company until December 31, 1992, was also a
general partner of SAMLP.

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

F-11

<PAGE> 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

on July 5, 1990. The settlement agreement provided 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 was
paid by SAMLP in May 1994.

The settlement agreement provides for the resignation and replacement
of SAMLP as general partner if the unit price targets are not met for two
consecutive anniversary dates. NRLP did not meet the unit price targets for the
first and second anniversary dates. On July 8, 1992, SAMLP notified the NRLP
oversight committee of the failure of NRLP to meet the unit price targets for
two successive years and that it 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. Syntek Asset Management,
Inc. ("SAMI"), the managing general partner of SAMLP, has calculated the fair
value of such Redeemable General Partner Interest to be $40.2 million at
December 31, 1996, before reduction for the principal balance ($4.2 million at
December 31, 1996) and accrued interest ($6.2 million at December 31, 1996) on
the note receivable from SAMLP for its original capital contribution to the
Partnership.

In January 1995, NRLP, SAMLP, the NRLP oversight committee and William
H. Elliott executed an Implementation Agreement which provides for the
nomination of an entity controlled by Mr. Elliott as successor general partner
and for the resolution of all related matters under the class action
settlement. On February 20, 1996, the parties to the Implementation Agreement
executed an Amended and Restated Implementation Agreement.

Provided that the successor general partner is elected pursuant to the
terms of the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the NRLP. This amount represents a compromise settlement of
the net amounts owed by NRLP to SAMLP upon SAMLP's withdrawal as general
partner and any amounts which SAMLP and its affiliates may owe to NRLP. This
amount shall be paid to SAMLP pursuant to a promissory note in accordance with
the terms set forth in the Amended and Restated Implementation Agreement.

In September 1996, the Judge appointed to supervise the class action
settlement (The "Supervising Judge") entered an order granting tentative
approval of the Amended and Restate Implementation Agreement and the form of
notice to be sent to the original class members. However, the order reserved
jurisdiction to determine other matters which must be resolved prior to final
approval. Upon final approval by the Supervising Judge, the proposal to elect
the successor general partner will be submitted to the NRLP unitholders for a
vote. In addition, the unitholders will vote upon amendments to NRLP's
partnership agreement which relate to the proposed compensation of the
successor general partner and other related matters.

Upon approval by NRLP's unitholders, SAMLP shall resign as general
partner of NRLP and NOLP and the successor general partner shall take office.
If the required approvals are obtained, it is anticipated that the successor
general partner may be elected and take office during the third quarter of
1997.

The Amended and Restated Implementation Agreement provides that SAMLP,
and its affiliates owning units in NRLP, shall not vote to remove the successor
general partner, except for removal with cause, for a period of 36 months from
the date the successor general partner takes office.

F-12

<PAGE> 52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Upon the election and taking office of the successor general partner,
the class action settlement and the NRLP oversight committee shall be
terminated. If the successor general partner nominee is not elected, the
existing settlement shall remain in full force and effect and all of the
provisions of the Amended and Restated Implementation Agreement shall be
voided, including the compromise settlement referred to above.

On September 3, 1996, Joseph B. Moorman filed a Motion for Orders
Compelling Enforcement of the existing settlement agreement, appointment of a
receiver and collateral relief with the court. The motion alleges that the
settling defendants had failed or refused to perform their obligations under
the existing settlement agreements. The motion requested that SAMLP be removed
as general partner and a receiver be appointed to manage the Partnership. The
motion also requested that the Company be ordered to deliver to the court all
NRLP units which had been purchased by the Company since August 7, 1991. A
hearing was held on this motion on October 4, 1996, and the Court took the
matter under submission. On January 2, 1997, the Supervising Judge entered an
order denying the motion.

A hearing on the motions to discharge or disband the Oversight
Committee and to vacate the Court's orders was held on March 21, 1997, and the
Supervising Judge ruled that neither Mr. McNeil nor Mr. Moorman had standing to
bring the motions. The Supervising Judge also set June 27, 1997 as the hearing
date for final approval of the Amended and Restated Implementation Agreement.

NOTE 3. NOTES AND INTEREST RECEIVABLE

<TABLE>
<CAPTION>
1996 1995
--------------------------- -------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Notes Receivable
Performing (including $13,563
in 1996 and $14,657 in 1995
from affiliates)..................... $ 52,939 $ 55,161 $ 60,121 $ 56,335
Nonperforming, nonaccruing............. 1,884 1,584 1,784 1,784
--------- --------- --------- -----------
$ 54,823 $ 56,745 $ 61,905 58,119
========= =========

Interest receivable.................... 445 267
Unamortized premiums/
(discounts)......................... (162) (102)
Deferred gains......................... 4,617) (4,617)
--------- -----------
$ 52,411 $ 53,667
========= ===========
</TABLE>

F-13

<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company recognizes interest income on nonperforming notes
receivable on a cash basis. For the years 1996, 1995 and 1994 unrecognized
interest income on such nonperforming notes receivable totaled $1.6 million,
$1.2 million and $2.0 million, respectively.

Notes receivable at December 31, 1996, mature from 1997 to 2014 with
interest rates ranging from 6.0% to 12.9% and a weighted average rate of 9.84%.
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 $20.4 million
are due in 1997 of which $1.9 million is due on nonperforming notes receivable.
See NOTE 21. "SUBSEQUENT EVENTS."

Nonrecourse participations totaling $1.6 million and $1.1 million at
December 31, 1996 and 1995, respectively, have been deducted from notes
receivable.

In August 1990, the Company foreclosed on its fourth lien note
receivable secured by the Continental Hotel and Casino in Las Vegas, Nevada.
The Company acquired the hotel and casino through foreclosure subject to first
and second lien mortgages totaling $10.0 million. In June 1992, the Company
sold the hotel and casino accepting as partial payment a $22.0 million
wraparound mortgage note receivable. The $22.0 million note bears interest at
11% and was scheduled to mature in July 1995. The Company recorded a deferred
gain of $4.6 million in connection with the sale of the hotel and casino
resulting from a disputed third lien mortgage being subordinated to the
Company's wraparound mortgage note receivable. The Company and the borrower
agreed to extend the Company's wraparound mortgage note receivable to December
31, 1995. A one percent extension fee was added to the principal balance of the
wraparound mortgage note. The monthly payments on the note remained at $175,000
per month as did the other terms of the note. At the note's extended maturity,
the Company and the borrower again agreed to extend the Company's wraparound
mortgage note to July 1, 1996. A one percent extension fee was again added to
the principal balance of the Company's wraparound mortgage note. The monthly
payments on the wraparound mortgage note remained at $175,000 per month as did
the other terms of the note. The Company's modified wraparound note continued
to accrue interest at 11% per annum with any unpaid interest being added
monthly to the principal balance. In March 1997, the wraparound note was again
modified and extended. The wraparound note now matures in June 1999 with the
borrower having two one year extension options. The modified wraparound note
bears interest at 10.5% per annum the first year, 11.5% per annum the second
year and $12.5% per annum the third year and in any extension periods, and
requires an annual $500,000 principal paydown. The borrower is also required to
invest $2.0 million in improvements to the hotel and casino within four months
of the March 1997 modification and an additional $2.0 million prior to December
1997. The borrower has also pledged 1,500,000 shares of common stock in Crowne
Ventures, Inc., as additional collateral. The borrower is making payments in
accordance with the terms of the modified note. The Company's wraparound
mortgage note receivable had a principal balance of $27.6 million at December
31, 1996. Prior to the modification and extension, the Company recognized
interest income on this wraparound mortgage note only to the extent interest
was collected.

At December 31, 1996, the Company held a mortgage note receivable
secured by a third lien on a commercial property in South Carolina and personal
guaranties of several individuals. The note had an extended maturity date of
September 1, 1996. The Company and the borrower have again agreed to extend the
mortgage note receivable's maturity date to September 1, 1997. The extension
required an additional $90,000 principal reduction payment payable in three
equal monthly installments beginning November 1, 1996. The Company received
$85,000 of the required principal reduction payments in 1996 and the remaining
$5,000 in 1997. The monthly interest, quarterly principal reduction payments of
$25,000 and all other terms remained the same. The principal balance of the
note was $93,000 at December 31, 1996 and the note is now performing in
accordance with its modified terms.

F-14

<PAGE> 54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

accrued but unpaid interest being payable in a single installment on demand.
The mortgage note receivable matures June 1, 1998.

The borrower on a $1.7 million mortgage note receivable secured by
land in Osceola, Florida failed, to pay the note on its November 1, 1993
maturity. The Company instituted foreclosure proceedings and was awarded a
summary judgment in January 1994. During 1994 and 1995, the borrower paid the
Company a total of $270,000 in nonrefundable fees to delay foreclosure of the
property until April 24, 1995. On April 25, 1995, the borrower filed for
bankruptcy protection. On August 24, 1996, the bankruptcy court's stay was
lifted allowing the Company to proceed with foreclosure. The note had a
principal balance of $1.6 million at December 31, 1996. On February 2, 1997,
the Company sold its note for $1.8 million in cash. See NOTE 21. "SUBSEQUENT
EVENTS."

Related Party. The Company holds a junior mortgage note receivable
secured by the Williamsburg Hospitality House in Williamsburg, Virginia, that
is subject to a first lien mortgage of $12.0 million at December 31, 1996. In
October 1993, the then first lien debt was restructured and split into three
pieces. During 1995, the Company advanced the borrower $3.3 million to payoff
the then second lien, allowing the borrower to receive a $2.4 million discount
offered by the lender for early payoff of such lien. In conjunction with such
advance, the Company extended the maturity date of its note to April 1, 1996.
All other terms of the note remained unchanged. In December 1996, the
underlying lien debt was refinanced for $12.0 million. Of the loan proceeds,
$9.0 million was used to payoff the existing underlying lien, $700,000 was
applied to the principal and interest due the Company with the remainder of the
loan proceeds being used to fund a repair escrow and pay various closing costs
associated with the refinancing. The Company is the 1% general partner of the
partnership owning the property.

At December 31, 1996, the Company held a mortgage note receivable
secured by an apartment complex in Merriville, Indiana, with a principal
balance of $3.5 million. The property is owned by a subsidiary of Davister
Corp. ("Davister"), a general partner in a partnership that owns approximately
5.2% of the Company's outstanding shares of Common Stock. The note matured in
December 1996. The Company and borrower have agreed to a modification and
extension of the note. The modified note receivable continues to bear interest
at 10% per annum, requires monthly payments of principal and interest of
$42,000 and has an extended maturity date of December 2000. As additional
collateral for this loan, the Company has received a second lien on another
property owned by Davister as well as Davister's guarantee of the loan.

NOTE 4. REAL ESTATE

In May 1996, the Company sold an additional 2.3 acres of the Las
Colinas I land parcel for $941,000 in cash. In accordance with the provisions
of the term loan secured by such parcel, the Company applied the net proceeds
of the sale of $864,000 to paydown the term loan. The Company recognized a gain
of $534,000 on the sale.

Also in May 1996, the Company purchased a 2,271 square foot single
family residence in Dallas, Texas, for $266,000 in cash. In August 1996, the
Company financed the residence for $173,000. The Company received net financing
proceeds of $168,000 after the payment of various closing costs associated with
the financing. The loan bears interest at a variable rate, currently 9.25% per
annum, requires monthly principal and interest payments of $2,000 and matures
in August 2008. The residence is currently being leased.

F-15

<PAGE> 55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

bears interest at 15% per annum, requires monthly interest only payments at a
rate of 12% per annum, with the remaining 3% being deferred and added to the
principal balance of the loan. The principal balance, accrued and unpaid
interest and a $600,000 "maturity fee" are due at the loan's maturity in June
1998.

Also in June 1996, the Company sold for $120,000 in cash a parcel of
land in Midland, Michigan that was leased under a long-term ground land lease.
The Company recognized a gain of $44,000 on the sale.

In July 1996, the Company purchased Pin Oak land, 567.7 acres of
partially developed land in Houston, Texas for $6.2 million. The Company paid
$451,000 in cash and obtained seller mortgage financing for the remaining $5.7
million of the purchase price. The loan bears interest at 9% per annum,
required a $500,000 principal and interest payment on November 1, 1996 and
requires quarterly principal and interest payments of $145,000, thereafter. The
loan matures in August 1998. In September 1996, the Company entered into a
contract to sell the land for a price in excess of the land's purchase price
and carrying and estimated selling costs. The sale, should it be consummated,
would close on or about December 1, 1997.

In August 1996, the Company purchased a pool of assets for $3.1
million from Southmark Corporation ("Southmark"), consisting of a total of
151.5 acres of unimproved land in California, Indiana and Idaho, various
percentage interests, ranging from 15% to 45%, in five partnerships and trusts
that hold an unsecured note receivable with a principal balance of $3.4 million
and Southmark's 19.2% limited partner interest in SAMLP. See NOTE 2. "SYNTEK
ASSET MANAGEMENT, L.P." To complete the acquisition, the Company borrowed an
additional $3.0 million from the lender whose term loan is secured by the
Company's Las Colinas I land in Las Colinas, Texas. The term loan was amended
to increase the loan amount from $10.9 million to $13.9 million. The $3.0
million advance is secured by the 82.4 acres of unimproved land acquired from
Southmark in Oceanside, California and the 19.2% limited partner interest in
SAMLP.

Also in August 1996, the Company purchased Valwood land, 280 acres of
partially developed land in Dallas County, Texas for $13.5 million. The Company
paid $3.8 million in cash and obtained new mortgage financing for the remaining
$9.7 million of the purchase price, as a third advance under the term loan from
the lender discussed above. The term loan was again amended increasing the term
loan amount from $13.9 million to $19.5 million with an additional $4.0 million
being loaned on an overline advance note. The amendment also changed the
principal reduction payments to $3.0 million on the last day of March 1997,
June 1997, September 1997 and January 1998, and added 240 acres of the 280
acres of the Valwood land as additional collateral on the term loan. All other
terms of the term loan remained unchanged. The $4.0 million overline advance
was repaid in full in December 1996.

In November 1996, the Company sold an additional 2.2 acres of the 74.9
acre Las Colinas I land parcel for $899,000 in cash. The Company used the net
proceeds of the sale of $749,000 to pay down the term loan secured by such
parcel in accordance with provisions of the loan. The Company recognized a gain
of $505,000 on the sale.

Also in November 1996, the Company purchased Lewisville land, 78.5
acres of undeveloped land in Lewisville, Texas for $3.6 million. The Company
paid $1.1 million in cash and financed the remaining $2.5 million of the
purchase price. The mortgage bears interest at 10% per annum, requires an
annual interest payment of $250,000 on November 9, 1997, and quarterly interest
payments of $62,500 thereafter and matures in October 1999.

F-16

<PAGE> 56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In December 1996, the Company purchased the Best Western Oceanside
Hotel in Virginia Beach, Virginia, for $6.8 million. The Company acquired the
property through Ocean Beach Partners, L.P. ("Ocean L.P."), a newly formed
partnership of which a wholly-owned subsidiary of the Company, is the 1%
general partner and the Company is the 99% Class B limited partner. In
conjunction with the acquisition, Ocean L.P. issued 1,813,660 Class A limited
partner units in Ocean L.P. having an agreed value of $1.00 per partnership
unit to the former owners of the property. The Class A limited partner units
are entitled to a $.095 per unit preferred annual return. The Class A limited
partners do not otherwise participate in the income, loss or cash flow of the
partnership. The Class A limited partner units may be exchanged for Series D
Cumulative Preferred Stock in the Company at a rate of 20 units per share of
Preferred Stock. The Company obtained new mortgage financing for the remaining
$5.0 million of the purchase price. The mortgage bears interest at 9.94% per
annum, requires monthly payments of principal and interest of $49,000 and
matures in January 2007.

Also in December 1996, the Company purchased Valley Ranch land, 452
acres of partially developed land in Irving, Texas, for $15.5 million. In
conjunction with the acquisition, a wholly-owned subsidiary of the Company
became the 1% general partner and the Company became the 99% Class B limited
partner in Valley Ranch Limited Partnership ("VRLP"). VRLP issued 8,000,000
Class A limited partner units in VRLP having an agreed value of $1.00 per
partnership unit to the former VRLP limited partners. The Class A limited
partner units are entitled to a $.10 per unit preferred annual return for the
first 36-month period, $.11 per unit thereafter. The Class A limited partners
do not otherwise participate in the income, loss or cash flow of the
partnership. The Class A limited partner units may be exchanged for Series E
Preferred Cumulative Convertible Stock of the Company at a rate of 100 units
per share of Preferred Stock. The Company obtained new mortgage financing for
the remaining $7.7 million of the purchase price. The mortgage bears interest
at a variable rate, currently 10.25% per annum, requires monthly interest only
payments of $70,000 and matures in December 1999.

In 1991, the Company purchased all of the capital stock of a
corporation which owned 198 developed residential lots in Fort Worth, Texas.
Through December 31, 1995, 176 of the residential lots had been sold. During
1996, 12 additional lots have been sold for an aggregate gain of $24,000. At
December 31, 1996, 10 lots remained to be sold.

In February 1995, the Company sold the Boulevard Villas Apartments in
Las Vegas, Nevada, for $9.6 million. The Company received net cash of $3.4
million, after the payoff of $5.9 million in existing mortgage debt and the
payment of various closing costs associated with the sale. The Company
recognized a gain of $924,000 on the sale.

In May 1995, the Company purchased Las Colinas I, a 74.9 acre parcel
of partially developed land in Las Colinas, Texas, for $13.5 million. In
connection with the acquisition, the Company borrowed $15.0 million under a
term loan. In September 1995, the Company sold 6.9 acres of the Las Colinas I
land parcel, for $2.9 million in cash. In accordance with the provisions of the
term loan, the Company applied the net proceeds of the sale, $2.6 million, to
pay down the term loan.

In October 1995, the Company purchased BP Las Colinas land, a 92.6
acre parcel of partially developed land in Las Colinas, Texas, for $7.1
million. The Company paid $959,000 in cash and borrowed the remaining $6.1
million of the purchase price. The Company also pledged to the lender, as
additional collateral for the loan, $2.0 million of newly issued shares of the
Company's Common Stock.

F-17

<PAGE> 57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES

Activity in the allowance for estimated losses was as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------

<S> <C> <C> <C>
Balance January 1, ....................... $ 7,254 $ 8,201 $ 9,913
Amounts charged off ...................... -- (947) (1,712)
Writedown of property .................... (3,328) -- --
------- ------- -------

Balance December 31, ..................... $ 3,926 $ 7,254 $ 8,201
======= ======= =======
</TABLE>

NOTE 6. INVESTMENTS IN EQUITY INVESTEES

Real estate entities. The Company's investment in real estate entities
at December 31, 1996, includes (i) equity securities of three publicly traded
real estate investment trusts Continental Mortgage and Equity Trust ("CMET"),
Income Opportunity Realty Investors, Inc. ("IORI"), and Transcontinental Realty
Investors, Inc. ("TCI") (Collectively the "REITs"), (ii) units of limited
partner interest of NRLP, (iii) a general partner interest in NRLP and NOLP,
the operating partnership of NRLP, through its 96% limited partner interest in
SAMLP and (iv) interests in real estate joint venture partnerships. Gene E.
Phillips, the Chairman of the Board and a Director of the Company until
November 16, 1992, is a general partner of SAMLP, the general partner of NRLP
and NOLP and was a director and Chief Executive Officer of SAMI until May 15,
1996. Randall M. Paulson, an Executive Vice President of the Company, serves as
the sole director of SAMI and as President of the REITs, SAMI and BCM. In
addition, BCM serves as advisor to the REITs, and performs certain
administrative and management functions for NRLP and NOLP on behalf of SAMLP.

The Company accounts for its investment in the REITs, NRLP and the
joint venture partnerships using the equity method as more fully described in
NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investments in equity
investees." The Company continues to account for its investment in NRLP under
the equity method due to the pending resignation of SAMLP as general partner of
NRLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

Substantially all of the Company's equity securities of the REITs and
NRLP are pledged as collateral for borrowings. See NOTE 9. "MARGIN BORROWINGS."

F-18

<PAGE> 58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company's investment in real estate entities, accounted for using
the equity method, at December 31, 1996 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, 1996 December 31, 1996 December 31, 1996 December 31, 1996
- -------- ----------------- ----------------- ----------------- -----------------

<S> <C> <C> <C> <C>
NRLP 54.5% $ 14,421 $ * $ 44,997
CMET 40.6 14,141 32,148 18,789
IORI 29.6 2,719 6,625 4,838
TCI 30.5 6,318 24,204 13,131
-------- --------
$ 81,755
========

General partner
interest in NRLP and NOLP 6,607
Other (2,234)
--------
$ 41,972
========
</TABLE>

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

F-19

<PAGE> 59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company's investment in real estate entities, accounted for using the
equity method, at December 31, 1995 was as follows:

<S> <C> <C> <C> <C>
NRLP 51.1% $ 12,712 $ * $ 38,020
CMET 37.2 12,116 28,297 15,757
IORI 25.9 2,752 6,271 4,065
TCI 28.2 9,162 25,195 11,335
---------- --------
36,742 $ 69,177
========

General partner
interest in NRLP and NOLP 7,726
Other (3,396)
----------
$ 41,072
==========
</TABLE>

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

* At December 31, 1995, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $161.5
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, 1995.

The Company's management continues to believe that the market value of
each of the REITs and NRLP undervalues their assets and the Company has,
therefore, continued to increase its ownership in these entities in 1996, as
its liquidity has permitted.

In April 1996, the Company purchased a 28% general partner interest in
Campbell Center Associates, Ltd. Which in turn has a 56.25% interest in
Campbell Centre Joint Venture, which owns a 413,175 square foot office building
in Dallas, Texas. The purchase price of the general partner interest was
$550,000 in cash and a $500,000 note, which bears interest at 8% per annum,
requires monthly interest only payments commencing in April 1997 and matures
April 2000. In January 1997, the Company exercised its option to purchase an
additional 28% general partner interest in Campbell Center Associates, Ltd. The
purchase price was $300,000 in cash and a $750,000 note, which bears interest
at 8% per annum, requires monthly interest only payments commencing in April
1997 and matures in April 2000.

In July 1996, a newly formed limited partnership, of which the Company
is 1% general partner, purchased 580 acres of undeveloped land in Collin
County, Texas for $5.7 million in cash. The Company contributed $100,000 in
cash to the partnership with the remaining $5.6 million being contributed by
the limited partner. The partnership agreement designates the Company as the
managing general partner. In September 1996, the Partnership obtained financing
of $2.8 million secured by the 580 acres of land and personal guarantees of the
limited partners. The Partnership agreement also provides that the limited
partner receive a 12% preferred cumulative return on its investment before any
sharing of partnership profits occurs.

In June 1995, the Company purchased the corporate general partner of a
limited partnership which owns apartment complexes in Illinois, Florida and
Minnesota, with a total of 900 units. The purchase price of the corporate

F-20

<PAGE> 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

general partner was $628,000 in cash. The corporate general partner has a 1%
interest in the partnership which is subordinated to a priority return of the
limited partner.

In November 1994, the Company sold four apartment complexes to a newly
formed limited partnership in exchange for cash, a 27% limited partner interest
in the partnership and two mortgage notes receivable, secured by one of the
properties sold by the Company. In conjunction with the exchange transaction
the Company recorded a deferred gain of $5.6 million which is offset against
the Company's investment in the partnership.

In January 1992, the Company entered into a partnership which acquired
287 developed residential lots adjacent to the Company's other residential lots
in Fort Worth, Texas. The partnership agreement designates the Company as
managing general partner. The partnership agreement also provides each of the
partners with a guaranteed 10% return on their respective investments. Through
December 31, 1995, 132 of the residential lots owned by the partnership were
sold. During 1996, an additional 52 lots were sold with 103 lots remaining to
be sold at December 31, 1996. Through December 31, 1996, each partner had
received $172,000 in return of capital distributions and $181,000 in profit
distributions from the partnership.

Other equity investees. In April 1996, a wholly-owned subsidiary of
the Company purchased for $10.7 million in cash 80% of the common stock of an
entity which in turn had acquired 26 operating pizza parlors in various
communities in California's San Joaquin Valley. Concurrent with the purchase,
the Company granted to an individual an option to purchase 36.25% of the
Company's subsidiary at any time for the Company's net investment in such
subsidiary. The Company anticipates taking such entity public during 1997.
Accordingly, the Company believes its control of such entity is temporary and
accounts for such entity under the equity method.

F-21

<PAGE> 61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Property and notes
receivable, net ..................... $ 240,552 $ 239,728
Other assets ........................... 59,409 53,202
Notes payable .......................... (352,441) (338,534)
Other liabilities ...................... (19,294) (53,663)
--------- ---------
Equity ................................. $ (71,774) $ (99,267)
========= =========

<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues ............................... $ 124,044 $ 110,892 $ 107,546
Depreciation ........................... (11,148) (10,268) (10,034)
Interest ............................... (34,640) (34,956) (34,145)
Operating expenses ..................... (78,043) (69,572) (66,602)
--------- --------- ---------

Income (loss) before gains on sale of
real estate ......................... 213 (3,904) (3,235)
Gains on sale of real estate ........... 61 7,701 8,252
--------- --------- ---------
Net income ............................. $ 274 $ 3,797 $ 5,017
========= ========= =========
</TABLE>

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 equity share of:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income (loss) before gains on sale of
real estate ......................... $ 270 $(1,767) $(1,279)
Gains on sale of real estate ........... -- 1,884 1,923
------- ------- -------
Net income ............................. $ 270 $ 117 $ 644
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Property and notes
receivable, net ..................... $ 501,097 $ 466,220
Other assets ........................... 57,877 61,697
Notes payable .......................... (358,203) (318,161)
Other liabilities ...................... (19,849) (20,396)
--------- ---------
Equity ................................. $ 180,922 $ 189,360
========= =========
</TABLE>

F-22

<PAGE> 62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------

<S> <C> <C> <C>
Revenues ............................... $ 101,246 $ 94,730 $ 74,093
Depreciation ........................... (14,408) (13,950) (10,276)
Provision for losses ................... 844 (541) (1,429)
Interest ............................... (30,401) (28,102) (20,264)
Operating expenses ..................... (69,698) (65,471) (54,213)
--------- --------- ---------
(Loss) before gains on sale of
real estate and extraordinary
gains ............................... (12,417) (13,334) (12,089)
Gains on sale of real estate ........... 11,701 5,822 6,375
Extraordinary gains .................... 1,068 1,437 1,189
--------- --------- ---------
Net income (loss) ...................... $ 352 $ (6,075) $ (4,525)
========= ========= =========
<CAPTION>

The Company's equity share of:
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(Loss) before gains on sale of
real estate and extraordinary
gains ............................... (2,911) (3,356) (1,250)
Gains on sale of real estate ........... 4,645 2,463 895
Extraordinary gains .................... 381 783 273
--------- --------- ---------
Net income (loss) ...................... $ 2,115 $ (110) $ (82)
========= ========= =========
</TABLE>

The Company's cash flow from the REITs and NRLP is dependent on the
ability of each of the entities to make distributions. CMET and IORI have been
making regular quarterly distributions since the first quarter of 1993, NRLP
since the fourth quarter of 1993 and TCI since the fourth quarter of 1995. In
1996, the Company received distributions from the REITs totaling $ 2.1 million
and $6.9 million from NRLP. At December 31, 1995, the Company accrued $3.3
million in NRLP distributions which were paid January 2, 1996. In 1995, the
Company received total distributions from the REITs of $641,000 and $719,000
from NRLP.

The Company's investments in the REITs and NRLP were initially
acquired in 1989. In 1996, the Company purchased an additional $2.2 million of
equity securities of the REITs and NRLP.

NOTE 7. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO

In 1994, the Company began purchasing equity securities of entities
other than those of the REITs and NRLP to diversify and increase the liquidity
of its margin accounts. In 1996, the Company purchased $22.6 million and sold
$23.6 million of such securities. These equity securities are considered a
trading portfolio and are carried at market value. At December 31, 1996, the
Company recognized an unrealized decline in the market value of the equity
securities in its trading portfolio of $486,000. In 1996, the Company realized
a net gain of $29,000 from the sale of trading portfolio securities and
received $163,000 in dividends. At December 31, 1995, the Company recognized an
unrealized decline in the market value of the equity securities in its trading
portfolio of $998,000. In 1995, the Company realized a net gain of $349,000
from the sale of trading portfolio securities and received $852,000 in
dividends and $238,000 in return of capital distributions on such securities.
At December 31, 1994, the Company recognized an unrealized decline in the
market value of the equity securities in its trading portfolio of $24,000. In
1994, the Company realized a net loss of $101,000 from the sale of trading
portfolio securities and received $274,000 in dividends on such securities.
Unrealized and realized gains and losses in the trading portfolio are included
in other income in the accompanying Consolidated Statements of Operations.

F-23

<PAGE> 63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 8. NOTES AND INTEREST PAYABLE

Notes and interest payable consisted of the following:

<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Notes payable
Mortgage Loans................. $ 40,680 $ 68,385 $ 18,376 $ 22,086
Borrowings from financial
institutions................ 78,812 48,929 27,052 29,945
Notes payable to affiliates.... 1,658 4,176 1,554 4,176
-------- --------- -------- --------
$121,150 121,490 $ 46,982 56,207
======== ========

Interest payable (including
$4,798 in 1996 and $4,380
in 1995 to affiliate) 6,373 4,956
--------- --------
$ 127,863 $ 61,163
========= ========
</TABLE>

Scheduled principal payments on notes payable are due as follows:

<TABLE>
<S> <C>
1997........................................ $ 36,022
1998........................................ 47,552
1999........................................ 15,387
2000........................................ 1,108
2001........................................ 2,538
Thereafter.................................. 18,883
--------
$ 121,490
</TABLE>

Stated interest rates on notes payable ranged from 6.0% to 14% at
December 31, 1996, and mature in varying installments between 1997 and 2007. At
December 31, 1996, notes payable were collateralized by mortgage notes
receivable with a net carrying value of $18.2 million and by deeds of trust on
real estate with a net carrying value of $122.2 million.

In April 1996, the Company refinanced the $2.9 million of underlying
debt collateralized by a wraparound mortgage note receivable with a principal
balance of $27.6 million at December 31, 1996, which is secured by a hotel and
casino in Las Vegas, Nevada for $16.8 million. The Company received net cash of
$11.2 million after the payoff of the underlying liens, the payment of various
closing costs associated with the refinancing and making a $1.4 million paydown
on the term loan secured by the Las Colinas I land in Las Colinas, Texas, in
exchange for that lender's release of its participation in the wraparound note
receivable. The new loan bears interest at 16.5% per annum, requires monthly

F-24

<PAGE> 64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

interest only payments at a rate of 12.5% with the remaining 4% being deferred
and added to principal. The loan matures in April 1998.

Also in April 1996, the Company refinanced the $5.1 million mortgage
debt secured by the Denver Merchandise Mart in Denver, Colorado, for $15.0
million. The Company pledged 1,264,000 newly issued shares of the Company's
common stock as additional collateral for such loan. See NOTE 10. "COMMON
STOCK." The Company received net refinancing proceeds of $7.8 million after the
payoff of the existing mortgage debt, purchasing the ground lease on Denver
Merchandise Mart for $678,000 and payment of various closing costs associated
with the refinancing. The new loan bears interest at a variable rate, currently
10.5% per annum, requires monthly principal and interest payments of $142,000
and matures in October 1997.

In August 1996, the Company refinanced the $2.4 million mortgage debt
secured by the Rosedale Towers Office Building in Roseville, Minnesota for $2.8
million. The Company received net refinancing proceeds of $154,000 after the
payoff of the existing mortgage debt and payment of various closing costs
associated with the refinancing. The Company also received 564,704 shares of
Common Stock of the Company that it had pledged as additional collateral on the
refinanced mortgage debt. Such shares are held as treasury stock by the
Company. The new loan bears interest at 9.05% per annum, requires monthly
principal and interest payments of $24,000 and matures in August 2006.

Also in August 1996, the Company financed the previously unencumbered
Inn at the Mart in Denver, Colorado for $2.0 million to facilitate renovation
of the property. The Company received net financing proceeds of $890,000 after
the payment of various closing costs associated with the financing and a $1.1
million renovation holdback. Upon completion of the renovations, the lender
advanced the $1.1 million renovation holdback in December 1996. The loan bears
interest a variable rate, currently 10.50% per annum and requires monthly
interest only payments through February 1, 1998. Commencing March 1, 1998,
monthly payments of interest plus a $3,000 principal paydown are required until
the loan's maturity in September 2001.

In October 1996, the Company completed the sale of $1.1 million in 11-
1/2% senior subordinated notes in a private placement. Interest on the notes is
payable semi-annually on March 31 and September 30 of each year commencing
March 31, 1997. The notes mature September 30, 1999, and are subject to the
right of the Company to call the notes for early redemption at no penalty or
premium to the Company.

Notes payable to affiliates at December 31, 1996 and 1995 include a
$4.2 million note due to NRLP as payment for SAMLP's general partner interest
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 2. "SYNTEK ASSET
MANAGEMENT, L.P."

NOTE 9. MARGIN BORROWINGS

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 REITs, NRLP and the Company's trading
portfolio and bear interest rates ranging from 7.0% to 11.0%. Margin borrowings
were $40.0 million at December 31, 1996, and $34.0 million at December 31,
1995, 34.5% and 47%, respectively, of the market values of such equity
securities at such dates.

In August 1996, the Company consolidated its existing NRLP margin debt
held by the various brokerage firms into a single loan of $20.3 million. The
loan is secured by the Company's NRLP units with a market value of at least

F-25

<PAGE> 65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

50% of the principal balance of the loan. As of December 31, 1996, 3,418,319
NRLP units with a market value of $44.9 million were pledged as security for
such loan.

Also in August 1996, the Company obtained a $2.0 million loan from a
financial institution secured by a pledge of equity securities of REITs owned
by the Company and Common Stock of the Company owned by Basic Capital
Management, Inc. ("BCM"), the Company's Advisor, with a market value of $4.0
million. The Company received $2.0 million in net cash after the payment of
closing costs associated with the loan.

NOTE 10. COMMON STOCK

In April 1996, the Company issued 500,000 newly issued shares of
Common Stock to ND Investments, Inc., a wholly-owned subsidiary of the Company,
which in turn pledged such shares as additional collateral for the loan secured
by the BP Las Colinas land in Las Colinas, Texas. See NOTE 4. "REAL ESTATE."

Also in April 1996, the Company issued 1,264,000 newly issued shares
of Common Stock to Garden Capital Merchandise Mart, Inc., a wholly-owned
subsidiary of the Company, which pledged such shares as additional collateral
for the loan secured by Denver Merchandise Mart, in Denver, Colorado. See NOTE
8. "NOTES AND INTEREST PAYABLE."

NOTE 11. DIVIDENDS

In June 1996, the Company's Board of Directors resumed the payment of
dividends on the Company's Common Stock with the declaration of a second
quarter dividend of $.05 per share. The Company had last paid dividends on May
15, 1990. The Company paid common dividends totaling $1.5 million or $.15 per
share in 1996. The Company reported to the Internal Revenue Service that 100%
of the dividends paid in 1996 represented a return of capital.

NOTE 12. PREFERRED STOCK

In April 1996, the Company filed Articles of Amendment to its Articles
of Incorporation creating and designating a Series B 10% Cumulative Convertible
Preferred Stock, par value $2.00 per share, with a liquidation preference of
$100.00 per share. The Series B Preferred Stock consists of a maximum of 4,000
shares, all of which were sold April 4, 1996 for $400,000 in cash in a private
transaction. Dividends are payable at the rate of $10.00 per year or $2.50 per
quarter to stockholders of record on the 15th day of each March, June,
September and December when and as declared by the Board of Directors of the
Company. The Series B Preferred Stock may be converted to Common Stock of the
Company at 90% of the average closing price of the Company's Common Stock on
the prior 20 trading days.

In June 1996, the Company filed Articles of Amendment to its Articles
of Incorporation creating and designating a Series C 10% Cumulative Convertible
Preferred Stock, par value $2.00 per share, with a liquidation preference of
$100.00 per share. The Series C Preferred Stock consists of a maximum of 16,500
shares, of which 15,000 were issued on June 4, 1996 in connection with the
purchase of Parkfield land in Denver, Colorado. See NOTE 4. "REAL ESTATE."
Dividends are payable at a rate of $10.00 per year or $2.50 per quarter to
stockholders of record on the 15th day of each March, June, September and
December when and as declared by the Board of Directors of the Company. The
dividends for the first four quarters are to be paid in shares of Series C
Preferred Stock. In 1996, the Company issued a total of 877 shares of Series C
Preferred Stock to the Series C Preferred Stock stockholders in lieu of cash
dividends. The Series C Preferred Stock may be converted to Common Stock of the
Company at 90% of the

F-26

<PAGE> 66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

average closing price of the Company's Common Stock on the prior 20 trading
days. At December 31, 1996, 15,877 shares of Series C Preferred Stock was
issued and outstanding.

In December 1996, the Company filed Articles of Amendment to its
Articles of Incorporation, creating and designating a Series D 9.50% Cumulative
Preferred Stock, par value of $2.00 per share, with a liquidation preference of
$20.00 per share. The Series D Preferred Stock consists of a maximum of 91,000
shares. Dividends are payable at a rate of $1.90 per year of $.475 per quarter
to stockholders of record on the 15th day of each March, June, September and
December when and as declared by the Board of Directors of the Company. The
Class A limited partner units of Ocean L.P. may be exchanged for Series D
Preferred Stock at a rate of 20 units per share of Series D Preferred Stock. No
more than one-third of the Class A units held may be exchanged between January
1, 1997 and May 31, 2001. Between June 1, 2001 and May 31, 2006 all unexchanged
Class A units are exchangeable. At December 31, 1996, none of the Series D
Preferred Stock was issued. See NOTE 4. "REAL ESTATE."

Also in December 1996 the Company field Articles of Amendment to its
Articles of Incorporation, creating and designating a Series E 10% Cumulative
Convertible Preferred Stock, par value $2.00 per share, with a liquidation
preference of $100.00 per share. The Series E Preferred Stock consists of a
maximum of 80,000 shares. Dividends are payable at a rate of 10.00 per year or
$2.50 per quarter to Stockholders of record on the 15th day of each March,
June, September and December when and as declared by the Board of Directors of
the Company, for the period from November 4, 1996 to November 4, 1999 and
$11.00 per year, $2.75 per quarter thereafter. The Class A limited partner
units of VRLP may be exchanged for Series E Preferred Stock at a rate of 100
Class A units per share of Preferred Stock. No more than one-half of the Class
A units may be exchanged prior to May 4, 1997, thereafter all unexchanged Class
A units are exchangeable. Beginning November 4, 1998, the Series E Preferred
Stock may be converted to Common Stock of the Company at 80% of the average
closing price of the Company's Common Stock on the prior 20 trading days. Up to
37.50% of the preferred shares may be converted between November 4, 1998 and
November 3, 1999. Between November 4, 1999 and November 3, 2001 an additional
12.50% of the original preferred shares may be converted, and the remaining can
be converted as of November 4, 2001 and thereafter. At December 31, 1996, none
of the Series E Preferred Stock was issued. See NOTE 4. "REAL ESTATE."

NOTE 13. 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 a company owned by a trust for the benefit of the children of
Gene E. Phillips. Mr. Phillips served as Chairman of the Board and as a
Director of the Company until November 16, 1992. Mr. Phillips also served as a
director of BCM until December 22, 1989, and as Chief Executive Officer of BCM
until September 1, 1992. Mr. Phillips serves as a representative of the trust
for the benefit of his children that owns BCM and, in such capacity, has
substantial contact with the management of BCM and input with respect to BCM's
performance of advisory services to the Company. Ryan T. Phillips, a Director
of the Company until June 6, 1996, is a director of BCM and a trustee of the
trust that owns BCM. Oscar W. Cashwell, a Director of the Company, served as
Executive Vice President of BCM until January 10, 1997.

The Advisory Agreement provides that BCM shall receive base
compensation at the rate of 0.125% per month (1.5% on an annualized basis) of
the Company's Average Invested Assets. On October 23, 1991, based on the
recommendation of BCM, the Company's advisor, 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 $.50 per share.

F-27

<PAGE> 67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In addition to base compensation, the Advisory Agreement provides that
BCM, or an affiliate of BCM, receive an acquisition fee for locating, leasing
or purchasing real estate for the Company; a disposition fee for the sale of
each equity investment in real estate; a loan arrangement fee; an incentive fee
equal to 10% of net income for the year in excess of a 10% return on
stockholders' equity, and 10% of the excess of net capital gains over net
capital losses, if any; and a mortgage placement fee, on mortgage loans
originated or purchased.

The Advisory Agreement further provides that BCM shall bear the cost
of certain expenses of its employees not directly identifiable to the Company's
assets, liabilities, operations, business or financial affairs; and
miscellaneous administrative expenses relating to the performance 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.

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

NOTE 14. PROPERTY MANAGEMENT

Since February 1, 1990, affiliates of BCM have provided property
management services to the Company. Currently, Carmel Realty Services, Ltd.
("Carmel, Ltd.") provides property management services for a fee of 5% or less
of the monthly gross rents collected on the properties under its management.
Carmel, Ltd. subcontracts with other entities for 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 hotels, shopping
centers, one of its office buildings and the Denver Merchandise Mart to Carmel
Realty, Inc. ("Carmel Realty"), which is a company owned by SWI. Carmel Realty
is entitled to receive property and construction management fees and leasing
commissions in accordance with the terms of its property-level management
agreement with Carmel, Ltd.

F-28

<PAGE> 68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 15. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.

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

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Fees
Advisory and mortgage
servicing ....................... $1,539 $1,195 $1,242
Brokerage commissions .............. 1,889 905 497
Property and construction
management and leasing
commissions* .................... 892 1,200 899
Loan arrangement ................... 806 95 25
------ ------ ------
$5,126 $3,395 $2,663
------ ====== ======

Cost reimbursements .................... $ 691 $ 516 $ 434
====== ====== ======
</TABLE>

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

NOTE 16. 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, 1996, the Company had a tax net operating loss
carryforward of $17.7 million expiring through 2010.

At December 31, 1996, the Company has a deferred tax benefit of $5.2
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.

The components of tax expense are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----

<S> <C> <C> <C>
Income tax provision
Current................... $ -- $ 2 $ 9
========== =========== ===========
</TABLE>

NOTE 17. EXTRAORDINARY GAIN

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

In 1995, the Company recognized an extraordinary gain of $783,000
representing its equity share of TCI's extraordinary gain from the early payoff
of debt.

F-29

<PAGE> 69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In 1994, the Company recognized an extraordinary gain of $273,000
representing its equity share of TCI's extraordinary gain from settlement of
claims against it by a lender. The Company also recognized $50,000 from
forgiveness of a portion of a first mortgage due to the early payoff of the
second mortgage.

NOTE 18. RENTS UNDER OPERATING LEASES

The Company's operations include the leasing of an office building, a
merchandise mart and shopping centers. The leases thereon expire at various
dates through 2006. The following is a schedule of minimum future rents on
non-cancelable operating leases as of December 31, 1996:

<TABLE>
<S> <C> <C>
1997............................... $ 1,899
1998............................... 1,555
1999............................... 1,075
2000............................... 740
2001............................... 599
Thereafter......................... 1,444
------------
$ 7,302
</TABLE>

NOTE 19. COMMITMENTS AND CONTINGENCIES

The Company is involved in various lawsuits arising in the ordinary
course of business. In the opinion of the Company's management the outcome of
these lawsuits will not have a material impact on the Company's financial
condition, results of operations or liquidity.

F-30

<PAGE> 70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 20. QUARTERLY RESULTS OF OPERATIONS

The following is a tabulation of the Company's quarterly results of
operations for the years 1996 and 1995:

<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------
1996 March 31, June 30, September 30, December 31,
- ---------- --------------- ------------- --------------- --------------

<S> <C> <C> <C> <C>
Revenue........................ $ 6,790 $ 5,346 $ 7,306 $ 7,537
Expense........................ 8,255 8,555 9,279 12,488
--------------- ------------- --------------- --------------
(Loss) from operations......... (1,465) (3,209) (1,973) (4,951)
Equity in income of
investees................. 678 271 661 394
Gain on sale of
real estate............... 559 547 1,961 592
Extraordinary gain............. 13 247 121 --
--------------- ------------- --------------- --------------
Net income (loss).............. (215) (2,144) 770 (3,965)

Preferred dividend
requirement............... -- (17) (48) (48)
--------------- -------------- --------------- ---------------
Net income (loss)
applicable to
common shares............. $ (215) $ (2,161) $ 722 $ (4,013)
================ ============== =============== ===============

Earnings per share
Income (loss) before extra-
ordinary gain............. $ (.02) $ (.19) $ .05 $ (.28)
Extraordinary gain............. -- .02 .01 --
--------------- ------------- --------------- ---------------
Net income (loss).............. $ (.02) $ (.17) $ .06 $ (.28)
=============== ============= =============== ===============
<CAPTION>

Three Months Ended
--------------------------------------------------------------------------
1995 March 31, June 30, September 30, December 31,
- ---------- --------------- ------------- ---------------- --------------

<S> <C> <C> <C> <C>
Revenue........................ $ 6,080 $ 5,552 $ 7,066 $ 4,254
Expense........................ 6,940 7,311 6,523 7,540
--------------- ------------- ---------------- --------------
Income (loss) from
operations................ (860) (1,759) 543 (3,286)
Equity in income (losses)
of investees.............. (1,260) (1,699) (1,410) 3,518
Gains on sale of real estate... 924 24 1,596 50
Extraordinary gain............. 315 12 431 25
--------------- ------------- ---------------- --------------
Net income (loss).............. $ (881) $ (3,422) $ 1,160 $ 307
=============== ============= ================ ==============

Earnings per share
Income (loss) before extra-
ordinary gain............. $ (.20) $ (.59) $ .13 $ .05
Extraordinary gain............. .05 -- .07 .01
--------------- ------------- ---------------- --------------
Net income (loss).............. $ (.15) $ (.59) $ .20 $ .06
=============== ============= ================ ==============
</TABLE>

F-31

<PAGE> 71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 21. SUBSEQUENT EVENTS

In February 1997, the Company completed the second phase of the BP Las
Colinas land sale of 40.2 acres for $8.0 million, of which $7.2 million was in
cash. In conjunction with the sale, the Company provided $800,000 of purchase
money financing in the form of a six month unsecured loan. The loan bears
interest at 12% per annum, with all accrued but unpaid interest and principal
due at maturity. Of the net sales proceeds of $6.9 million, $1.5 million was
used to payoff the underlying debt secured by the land in Las Colinas, pay a
$500,000 maturity fee to the lender, make a $1.5 million principal paydown on
the note secured by the Parkfield land in Denver, Colorado with the same
lender, and $1.0 million was applied as a principal paydown on the term loan
secured by the Las Colinas I land parcel. The Company will recognize a gain of
$3.4 million on the sale, deferring the gain associated with the $800,000 loan
until it is paid in full.

In February 1997, the Company sold its mortgage note receivable secured by
land in Osceola, Florida for $1.8 million in cash. The note receivable had a
principal balance of $1.6 million at December 31, 1996 and had been in default
since November 1993. See NOTE 3. "NOTES AND INTEREST RECEIVABLE." The Company
will recognize a gain of approximately $150,000 on the sale.

In January 1997, the Company sold 3.0 acres of the Las Colinas I Land in
Las Colinas, Texas, for $1.2 million in cash. The Company recognized a gain of
$697,000 on the sale.

F-32

<PAGE> 72

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Explanatory Note.............................................1
Available Information........................................2
Incorporation of Certain Information
by Reference............................................2
Ratio of Earnings to Fixed Charges...........................4
Use of Proceeds..............................................4
The Company..................................................4
The Business of the Company..................................5
Selected Financial Data.....................................22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..........................................23
Acquisition Terms...........................................30
Description of the Capital Stock............................31
Plan of Distribution........................................34
Legal Matters...............................................34
Experts.....................................................35
Index to Consolidated Financial
Statements............................................F-1
Report of Independent Accountants..........................F-2
Consolidated Balance Sheets, December 31, 1996
and 1995..............................................F-3
Consolidated Statements of Operations, Three Years
Ended December 31, 1996, 1995 and 1994................F-5
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1996, 1995 and 1994..........F-6
Consolidated Statements of Cash Flows, Three Years
Ended December 31, 1996, 1995 and 1994................F-7
Notes to Consolidated Financial Statements................F-10

</TABLE>

PREFERRED STOCK

COMMON STOCK

AMERICAN REALTY TRUST,
INC.

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

PROSPECTUS

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

APRIL 29, 1997

-33-

<PAGE> 73

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Thirteen of the Company's Articles of Incorporation provides that,
to the fullest extent permitted by Georgia law, as the same exists or may be
hereafter be amended, no director of the Company shall be personally liable to
the Company or the shareholders of the Company for monetary damages for breach
of the duty of care as a director, provided that Article Thirteen does not
limit or eliminate liability for (i) a breach of duty involving an
appropriation of a business opportunity of the Company; (ii) an act or omission
not in good faith or involving intentional misconduct or a knowing violation of
law; or (iii) a transaction from which the director derived an improper
personal benefit. In addition, a director's liability will not be limited as to
any payment of a dividend or approval of a stock repurchase that is illegal
under Section 14-2-640 of the Georgia Business Corporation Code.

Article Thirteen applies only to claims against a director arising out of
his or her role as a director and not, if he or she is also an officer, his or
her role as an officer or in any other capacity. In addition, Article Thirteen
does not reduce the exposure of directors to liability under Federal securities
laws.

The Bylaws of the Company require the Company to indemnify any person who,
by reason of the fact that he is or was a director of the Company, is made or
is threatened to be made a party to an action, including an action brought by
the Company or its shareholders. The Bylaws provide that the Company will
indemnify such person against reasonably incurred expenses (including, but not
limited to, attorneys' fees and disbursements, court costs, and expert witness
fees), and against any judgments, fines and amounts paid in settlement,
provided that the Company shall not indemnify such person under circumstances
in which the Georgia Business Corporation Code, as in effect from time to time,
would not allow indemnification.

The Bylaws of the Company give the board of directors the power to cause
the Company to provide to officers, employees, and agents of the Company all or
any part of the right to indemnification afforded to directors of the Company
as set forth in the Bylaws, subject to the conditions, limitations and
obligations therein, upon a resolution to that effect identifying such officer,
employee or agent and specifying the particular rights provided.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

*3.1 -- Articles of Incorporation

*3.2 -- Amendment to Articles of Incorporation dated September 15,
1989

*3.3 -- Articles of Amendment setting forth Certificate of
Designation of Series A Cumulative Participating Preferred
Stock dated as of April 11, 1990

*3.4 -- Articles of Amendment dated December 10, 1990 to Articles
of Incorporation

*3.5 -- Amended By-laws of American Realty Trust, Inc., dated
December 11, 1991

*3.6 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations on Restrictions thereof of Special Stock of
American Realty Trust, Inc. (Series B 10% Cumulative
Preferred Stock) dated as of April 4, 1996

*3.7 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations on Restrictions thereof of Special Stock of
American Realty Trust, Inc. (Series C 10% Cumulative
Preferred Stock) dated as of June 4, 1996

II-1

<PAGE> 74

*3.8 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions thereof of Series D Cumulative
Preferred Stock of American Realty Trust, Inc. dated as of
August 2, 1996

*3.9 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions thereof of Series E Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated as of December 3, 1996

#3.10 -- Articles of Amendment of the Articles of Incorporation
deleting Certificate of Designation of Series A Cumulative
Participating Preferred Stock, dated as of February 28, 1997.

*4.1 -- Instruments defining the rights of security holders
(incorporated in Exhibit 3.1)

*5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the
legality of the Preferred Stock being offered

**11.1 -- Statement re: computation of per share earnings

**12.1 -- Statement re: computation of ratios

**15.1 -- Letter re: unaudited interim financial information

*21.1 -- Subsidiaries of the registrant

#23.1 -- Consent of BDO Seidman LLP (American Realty Trust, Inc.)

#23.2 -- Consent of BDO Seidman LLP (Continental Mortgage and
Equity Trust)

#23.3 -- Consent of BDO Seidman LLP (Income Opportunity Realty
Investors, Inc.)

#23.4 -- Consent of BDO Seidman LLP (Transcontinental Realty
Investors, Inc.)

#23.5 -- Consent of BDO Seidman LLP (National Realty, L.P.)

*23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP (incorporated
in Exhibit 5.1)

##24.1 -- Power of Attorney

**29.1 -- Financial Data Schedule

- ----------

* Previously filed.

** To be filed by amendment.

# Included herewith.

## Filed as an Exhibit to the Registrant's Registration Statement on Form S-4
(No. 333-21591), filed with the Commission on February 11, 1997 and
incorporated by reference therein.

ITEM 22. UNDERTAKINGS.

(a) The undersigned Company hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the change in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;

II-2

<PAGE> 75

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information
in this Registration Statement;

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above
do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.

(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to Item 15, above, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.

II-3

<PAGE> 76

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on the 29th day of April,
1997.

AMERICAN REALTY TRUST, INC.

By: /s/ KARL L. BLAHA
-----------------------------------------
Karl L. Blaha
President (Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date

/s/ KARL L. BLAHA
- --------------------------- President (Principal Executive April 29, 1997
Karl L. Blaha Officer) and Director

*
- --------------------------- Director April 29, 1997
Roy E. Bode

*
- --------------------------- Director April 29, 1997
Oscar W. Cashwell

*
- --------------------------- Director April 29, 1997
Al Gonzalez

*
- --------------------------- Director April 29, 1997
Dale A. Crenwelge

*
- --------------------------- Executive Vice President and April 29, 1997
Thomas A. Holland Chief Financial Officer
(Principal Financial and
Accounting Officer)

*By: /s/ KARL L. BLAHA
-----------------------
Karl L. Blaha
Attorney-in-Fact

II-4

<PAGE> 77
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
*3.1 -- Articles of Incorporation

*3.2 -- Amendment to Articles of Incorporation dated September 15,
1989

*3.3 -- Articles of Amendment setting forth Certificate of
Designation of Series A Cumulative Participating Preferred
Stock dated as of April 11, 1990

*3.4 -- Articles of Amendment dated December 10, 1990 to Articles
of Incorporation

*3.5 -- Amended By-laws of American Realty Trust, Inc., dated
December 11, 1991

<PAGE> 78

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
*3.8 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions thereof of Series D Cumulative
Preferred Stock of American Realty Trust, Inc. dated as of
August 2, 1996

#3.10 -- Articles of Amendment of the Articles of Incorporation
deleting Certificate of Designation of Series A Cumulative
Participating Preferred Stock, dated as of February 28, 1997.

*4.1 -- Instruments defining the rights of security holders
(incorporated in Exhibit 3.1)

*5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the
legality of the Preferred Stock being offered

**11.1 -- Statement re: computation of per share earnings

**12.1 -- Statement re: computation of ratios

**15.1 -- Letter re: unaudited interim financial information

*21.1 -- Subsidiaries of the registrant

#23.1 -- Consent of BDO Seidman LLP (American Realty Trust, Inc.)

#23.2 -- Consent of BDO Seidman LLP (Continental Mortgage and
Equity Trust)

#23.3 -- Consent of BDO Seidman LLP (Income Opportunity Realty
Investors, Inc.)

#23.4 -- Consent of BDO Seidman LLP (Transcontinental Realty
Investors, Inc.)

#23.5 -- Consent of BDO Seidman LLP (National Realty, L.P.)

*23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP (incorporated
in Exhibit 5.1)

##24.1 -- Power of Attorney

**29.1 -- Financial Data Schedule

</TABLE>

- ----------

* Previously filed.

** To be filed by amendment.

# Included herewith.

## Filed as an Exhibit to the Registrant's Registration Statement on Form S-4
(No. 333-21591), filed with the Commission on February 11, 1997 and
incorporated by reference therein.

<PAGE> 1
EXHIBIT 3.10

ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF
AMERICAN REALTY TRUST, INC.

deleting the

CERTIFICATE OF DESIGNATIONS

SERIES A CUMULATIVE PARTICIPATING PREFERRED STOCK

AMERICAN REALTY TRUST, INC.

(Pursuant to Sections 14-2-602(d) and (3) of the
Georgia Business Corporation Code)

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

American Realty Trust, Inc., a corporation organized and existing under
the Georgia Corporation Code (hereinafter called the "Corporation"), hereby
certifies:

THAT, pursuant to the authority conferred upon the board of directors
(the "Board of Directors") by the articles of incorporation, as amended (the
"Articles of Incorporation") of the Corporation and pursuant to Sections
14-2-602(d) and (e) of the Georgia Business Corporation Code (which Sections
provide that no shareholder action is required in order to effect these
articles of amendment), the Board of Directors by unanimous vote at a meeting
held on February 27, 1997, duly adopted certain recitals and resolutions
providing for the decrease in the number of shares contained in the
Corporation's Series A Cumulative Participating Preferred Stock from 500,000 to
0 and for the elimination of the Series A Preferred Stock from the Articles of
Incorporation and the Corporation's capital structure, which recitals and
resolutions are as follows:

WHEREAS, Article Five of the Articles of Incorporation authorizes the
Corporation to issue not more than 16,666,667 shares of common voting stock,
$0.01 par value per share (the "Common Stock"), and 20,000,000 shares of a
special class of stock, $2.00 par value per share (the "Special Stock"), which
Special Stock may be issued from time to time in one or more series and shall
be designated as the Board of Directors may determine to have such voting
powers, preferences, limitations and relative rights with respect to the shares
of each series of the class of Special Stock of the Corporation as expressly
provided in a resolution or resolutions providing for the issuance of such
series adopted by the Board of Directors which is vested with authority in
respect thereof;

WHEREAS, 500,000 shares of such Special Stock have been previously
designated as the Series A Cumulative Participating Preferred Stock prior to the
date hereof;

-1-

<PAGE> 2
WHEREAS, the Board of Directors of the Corporation originally
designated the Series A Cumulative Participating Preferred Stock in connection
with the adoption of a preferred share purchase rights plan and the issuance of
rights to all holders of the Corporation's Common Stock;

WHEREAS, the Corporation has terminated the aforesaid rights plan and
has redeemed all of the outstanding rights;

WHEREAS, no shares of the Series A Cumulative Participating Preferred
Stock are issued and outstanding;

WHEREAS, the Board of Directors has determined that the Corporation
will not issue shares of the Series A Cumulative Participating Preferred Stock;

WHEREAS, in light of the foregoing, the Board of Directors desires to
amend the Articles of Incorporation to decrease the number of authorized shares
of the Series A Cumulative Participating Preferred Stock from 500,000 to 0 and
thereby eliminate the Series A Cumulative Participating Stock from the
Corporation's capital structure;

NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority granted
to the Board of Directors by Article Five of the Articles of Incorporation and
under Section 14-2-602(d) and (e) of the Georgia Business Corporation Code, the
Board of Directors hereby amends the Articles of Incorporation (a) to decrease
the number of authorized shares of the Series A Cumulative Participating
Preferred Stock from 500,000 to 0 and thereby eliminate such series from the
Corporation's capital structure, with such 500,000 shares of the Special Stock
again being available to be designated pursuant to Article Five of the Articles
of Incorporation, and (b) to delete from the Articles of Incorporation the
Certificate of Designations of the Series A Cumulative Participating Preferred
Stock.

IN WITNESS WHEREOF, these Articles of Amendment are executed on behalf
of the Corporation by its President and attested by its Secretary as of the
27th day of February, 1997.

/s/ KARL L. BLAHA
--------------------------
Karl L. Blaha
President

Attest:

/s/ ROBERT A. WALDMAN
- -------------------------
Robert A. Waldman
Secretary

-2-

<PAGE> 1
EXHIBIT 23.1

Consent of Independent Certified Public Accountants

American Realty Trust, Inc.
Dallas, Texas

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 26, 1997, relating to the
consolidated financial statements of American Realty Trust, Inc. for the year
ended December 31, 1996.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP

BDO Seidman, LLP

Dallas, Texas
April 25, 1997

<PAGE> 1
EXHIBIT 23.2

Consent of Independent Certified Public Accountants

American Realty Trust, Inc.
Dallas, Texas

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March
21, 1997, relating to the consolidated financial statements and schedules of
Continental Mortgage and Equity Trust appearing in the Trust's Annual Report on
Form 10-K for the year ended December 31, 1996.

/s/ BDO SEIDMAN, LLP

BDO Seidman LLP

Dallas, Texas
April 25, 1997

<PAGE> 1
EXHIBIT 23.3

Consent of Independent Certified Public Accountants

American Realty Trust, Inc.
Dallas, Texas

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 7,
1997, relating to the consolidated financial statements and schedules of Income
Opportunity Realty Investors, Inc. and the financial statements and schedules
of Tri-City Limited Partnership appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.

/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP

Dallas, Texas
April 25, 1997

<PAGE> 1
EXHIBIT 23.4

Consent of Independent Certified Public Accountants

American Realty Trust, Inc.
Dallas, Texas

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 20,
1997, relating to the consolidated financial statements and schedules of
Transcontinental Realty Investors, Inc. appearing in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.

/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP

Dallas, Texas
April 25, 1997

<PAGE> 1
EXHIBIT 23.5

Consent of Independent Certified Public Accountants

American Realty Trust, Inc.
Dallas, Texas

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 14,
1997, relating to the consolidated financial statements and schedules of
National Realty L.P. appearing in the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1996.

/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP

Dallas, Texas
April 25, 1997