<DOCUMENT>
<TYPE>EX-4.2
<SEQUENCE>4
<FILENAME>d93379ex4-2.txt
<DESCRIPTION>CERTIFICATE OF DESIGNATION, PREFERENCES & RIGHTS
<TEXT>
<PAGE>
                                                                      APPENDIX D

                           CERTIFICATE OF DESIGNATION,
                             PREFERENCES AND RIGHTS

                                     OF THE

               10% SERIES H CUMULATIVE CONVERTIBLE PREFERRED STOCK

                                ($2.00 PAR VALUE)

                                       OF

                         AMERICAN REALTY INVESTORS, INC.


              Pursuant to Section 78.195, 78.1955 and 78.196 of the
                             Nevada Revised Statutes

         We, the undersigned, ______________________, President, and Robert A.
Waldman, Secretary, of American Realty Investors, Inc., a Nevada corporation
(the "Corporation"), pursuant to the provisions of Section 78.195, 78.1955 and
78.196 of the Nevada Revised Statutes, do hereby make this Certificate of
Designation, Preferences and Rights and do hereby state and certify that,
pursuant to the authority expressly vested in the Board of Directors of the
Corporation, as set forth in Article FOURTH of the Corporation's Restated
Articles of Incorporation, the Board of Directors, on ____________________
_____, 2002, unanimously adopted the following resolution creating a series of
its Preferred Stock, $2.00 par value, designated as "10% Series H Cumulative
Convertible Preferred Stock":

         RESOLVED, that the Board of Directors of the Corporation, pursuant to
the authority expressly vested in it by the Corporation's Restated Articles of
Incorporation, does hereby provide for the issuance of a series of the
authorized Preferred Stock, $2.00 par value, of the Corporation, and does hereby
fix and herein state the designation and amount thereof and the voting powers,
preferences and relative participating, optional and other special rights of the
shares of such series, and the qualifications, limitations or restrictions
thereon, as follows:

SECTION 1. Designation and Amount. The shares of such series shall be designated
as "10% Series H Cumulative Convertible Preferred Stock" (the "Series H
Preferred Stock") and each share of the Series H Preferred Stock shall have a
par value of $2.00 per share and a preference on liquidation as specified in
Section 6. The number of shares constituting the Series H Preferred Stock shall
be 684,000. Such number of shares may be increased or decreased by the Board of
Directors by filing articles of amendment as provided in the Nevada Revised
Statutes (the "NRS"); provided, that no decrease shall reduce the number of
shares of Series H Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants.

                                      D-1
<PAGE>


SECTION 2. Dividends and Distributions.

                  (a) The holders of shares of Series H Preferred Stock shall be
         entitled to receive, when, as, and if declared by the Board of
         Directors and to the extent permitted under the NRS, out of funds
         legally available for the purpose and in preference to and with
         priority over dividends upon all Junior Securities (as defined in
         Section 6), quarterly cumulative dividends payable in arrears in cash
         on the fifteenth day following the end of each calendar quarter (each
         such date being referred to herein as a "Quarterly Dividend Payment
         Date"), in an amount per share (rounded to the next highest cent) equal
         to 10% per annum of the Adjusted Liquidation Value, as determined
         immediately prior to the beginning of such calendar quarter assuming
         each year consists of 360 days and each quarter consists of 90 days.
         The term "Adjusted Liquidation Value" shall mean Liquidation Value (as
         defined in Section 6) plus all accrued and unpaid dividends through the
         applicable date.

                  (b) Dividends shall commence accruing cumulatively on
         outstanding shares of the Series H Preferred Stock from the date of the
         first issuance of Series H Preferred Stock to and including the date on
         which the Redemption Price (as defined in Section 9) of such shares is
         paid, whether or not there are profits, surplus or other funds of the
         Corporation legally available for the payment of such dividends.
         Dividends on the first Quarterly Dividend Payment Date shall accrue and
         shall be payable for a period of 45 days. Dividends payable on each
         Quarterly Dividend Payment Date shall be dividends accrued and unpaid
         through the last Business Day (as defined in Section 3(a)) of the
         immediately preceding calendar month. The Board of Directors may fix a
         record date for the determination of holders of shares of Series H
         Preferred Stock entitled to receive payment of a dividend or
         distribution declared thereon other than a quarterly dividend paid on
         the Quarterly Dividend Payment Date immediately after such dividend
         accrued; which record date shall be not more than 50 days prior to the
         date fixed for the payment thereof.

                  (c) So long as any shares of the Series H Preferred Stock are
         outstanding, the Corporation will not declare or pay any dividends on
         Junior Securities (other than dividends in respect of Common Stock
         payable in shares of Common Stock) or make, directly or indirectly, any
         other distribution of any sort in respect of Junior Securities, or any
         payment on account of the purchase or other acquisition of the Junior
         Securities, unless on the date of such declaration in the case of a
         dividend, or on such date of distribution or payment, in the case of
         such distribution or other payment (i) all accrued dividends on the
         Series H Preferred Stock for all past quarterly dividend periods in
         which dividends accrued have been paid in full and the full amount of
         accrued dividends for the then-current quarterly-yearly dividend
         periods have been paid or declared and a sum sufficient for the payment
         thereof set apart, and (ii) after giving effect to such payment of
         dividends, other distributions, purchase or redemption, the aggregate
         capital of the Corporation applicable to all capital stock of the
         Corporation then outstanding, plus the earned and capital surplus of
         the Corporation shall exceed the aggregate amount payable on
         involuntary dissolution, liquidation or winding up of the Corporation
         on all shares of the Preferred Stock, par value $2.00 per share, of the
         Corporation (the "Preferred Stock"), and all stock ranking prior to or
         on a parity with the Series H Preferred Stock as to dividends or assets
         outstanding after the payment of such dividends, other distributions,
         purchase or redemption. Dividends shall not be paid (in full or in
         part) or declared or set apart for payment (in full or in part) on any
         series of Preferred


                                       D-2
<PAGE>


         Stock (including the Series H Preferred Stock) for any dividend period
         unless all dividends, in the case dividends are being paid in full on
         the Series H Preferred Stock, or a ratable portion of all dividends, in
         the case dividends are not being paid in full on the Series H Preferred
         Stock, have been or are, contemporaneously, paid or declared and set
         apart for payment on all outstanding Preferred Stock entitled thereto
         for each dividend period terminating on the same or earlier date.

SECTION 3. Conversion Rights.

                  (a) The Series H Preferred Stock may be converted at any time
         at the option of the holders thereof during a 75 day period commencing
         on the 15th day after the Corporation publicly files its first Form
         10-Q (the "10-Q Issuance") with the Securities Exchange Commission (the
         "SEC") following the consummation of the merger of Income Opportunity
         Acquisition Corporation, a wholly owned subsidiary of the Corporation,
         with and into Income Opportunity Realty Investors, Inc. (the
         "Conversion Period") in accordance with Section 3(d) at the Conversion
         Ratio (as defined in Section 3(b)) into fully paid and nonassessable
         Common Stock of the Corporation; provided, however, that on the earlier
         of (w) the commencement of any liquidation, dissolution or winding up
         of the Corporation by the filing with the Secretary of State of the
         State of Nevada or with a federal bankruptcy court, (x) the adoption by
         the stockholders of the Corporation of any resolution authorizing the
         commencement thereof, (y) the dividends on the Series H Preferred Stock
         have not been declared in the amount of the dividend preference as of
         the first Business Day of any calendar quarter, or if declared, have
         not been paid by the fifth Business Day of such quarter, or (z) the
         Corporation is acquired in a merger or similar transaction, the right
         of conversion shall be immediately accelerated for all shares of Series
         H Preferred Stock issued and then outstanding. Unless otherwise
         provided herein, the term "Business Day" shall mean any day other than
         a Saturday, a Sunday, or a day on which banking institutions in Dallas,
         Texas are authorized or obligated by law or executive order to remain
         closed.

                  (b) For purposes of this Section 3, the term "Conversion
         Ratio" shall be and mean 2.25 shares of Common Stock of the Corporation
         for each 1 share of Series H Preferred Stock. The Conversion Ratio
         shall not be subject to any adjustment as a result of the issuance of
         any additional shares of Common Stock of the Corporation for any
         purpose, except for stock splits (whether accomplished by stock
         dividend or otherwise).

                  (c) Upon any conversion, fractional shares of Common Stock
         shall not be issued but any fractions shall be adjusted by the delivery
         of one additional share of Common Stock in lieu of any cash. Any
         accrued but unpaid dividends shall be convertible into shares of Common
         Stock as provided in this Section 3. The Corporation shall pay all
         issue taxes, if any, incurred in respect to the issuance of Common
         Stock on conversion; provided, however, that the Corporation shall not
         be required to pay any transfer or other taxes incurred by reason of
         the issuance of such Common Stock in names other than those in which
         the Series H Preferred Stock surrendered for conversion may stand.

                  (d) Any conversion of Series H Preferred Stock into Common
         Stock shall be made by the surrender to the Corporation at its
         principal executive offices (which shall be deemed to be the address
         most recently provided to the SEC as its principal executive offices


                                       D-3
<PAGE>


         for so long as the Corporation is required to file reports with the
         SEC) or at the office of the transfer agent for such shares, of the
         certificate or certificates representing the Series H Preferred Stock
         to be converted, duly endorsed or assigned (unless such endorsement or
         assignment is waived by the Corporation), together with a written
         request for conversion. The Corporation shall either (i) issue, as of
         the date of receipt by the Corporation of such surrender, shares of
         Common Stock calculated as provided above and evidenced by a stock
         certificate delivered to the holder as soon as practicable after the
         date of such surrender or (ii) within two Business Days after the date
         of such surrender advise the holder of the Series H Preferred Stock
         that the Corporation is exercising its option to redeem the Series H
         Preferred Stock pursuant to this Section 3, in which case the
         Corporation shall have 30 days from the date of such surrender to pay
         the holder cash in an amount equal to the Redemption Price for each
         share of Series H Preferred Stock so redeemed. The date of surrender of
         any Series H Preferred Stock shall be the date of receipt by the
         Corporation or its agent of such surrender of Series H Preferred Stock.

                  (e) A number of authorized shares of Common Stock sufficient
         to provide for the conversion of the Series H Preferred Stock
         outstanding upon the basis hereinbefore provided shall at all times be
         reserved for such conversion. If the Corporation shall propose to issue
         securities or to make any change in its capital structure which would
         change the number of shares of Common Stock into which each share of
         Series H Preferred Stock shall be convertible as herein provided, the
         Corporation shall at the same time also make proper provision so that
         thereafter there shall be a sufficient number of shares of Common Stock
         authorized and reserved for conversion of the outstanding Series H
         Preferred Stock on the new basis.

                  (f) The term "Common Stock" shall mean stock of the class
         designated as Common Stock, par value $0.01 per share, of the
         Corporation on the date hereof or stock of any class or classes
         resulting from any reclassification or reclassifications thereof, the
         right of which to share in distributions of both earnings and assets is
         without limitation in the Restated Articles of Incorporation of the
         Corporation, as may be amended from time to time, as to any fixed
         amount or percentage and which are not subject to redemption; provided,
         that if at any time there shall be more than one such resulting class,
         the shares of each such class then issuable on conversion of the Series
         H Preferred Stock shall be substantially in the proportion which the
         total number of shares of stock of each such class resulting from all
         such reclassifications bears to the total number of shares of stock of
         all such classes resulting from all such reclassifications.

                  (g) In the case the Corporation shall propose at any time
         before all shares of the Series H Preferred Stock have been redeemed by
         or converted into Common Stock:

                  (i)      to pay any dividend on the Common Stock outstanding
                           payable in Common Stock or to make any other
                           distribution, other than cash dividends to the
                           holders of the Common Stock outstanding; or

                  (ii)     to offer for subscription to the holders of the
                           Common Stock outstanding any additional shares of any
                           class or any other rights or options;


                                       D-4
<PAGE>


                  (iii)    to effect any reclassification or recapitalization of
                           the Common stock outstanding involving a change in
                           the Common Stock, other than a subdivision or
                           combination of the Common Stock outstanding; or

                  (iv)     to merge or consolidate with or into any other
                           corporation, or to sell lease or convey all or
                           substantially all of its property or business, or to
                           liquidate, dissolve or wind up;

         then, in each such case, the Corporation shall mail to the holders of
record of each of the shares of Series H Preferred Stock at their last known
addresses as shown on the Corporation's records a statement, signed by an
officer of the Corporation, with respect to the proposed action, such statement
to be mailed at least 30 days prior to the date of the taking of such action or
the record date for holders of the Common Stock for the purposes thereof,
whichever is earlier. If such statement relates to any proposed action referred
to in clauses (iii) or (iv) of this Section 3(g), it shall set forth such facts
with respect thereto as shall reasonably be necessary to inform the holders of
the Series H Preferred Stock as to the effect of such action upon the conversion
of such holders.

SECTION 4. Voting Rights and Powers. The holders of the shares of Series H
Preferred Stock shall have only the following voting rights:

                  (a) Except as may otherwise be specifically required by law or
         otherwise provided herein, the holders of the shares of Series H
         Preferred Stock shall not have the right to vote such stock, directly
         or indirectly, at any meeting of the stockholders of the Corporation,
         and such shares of stock shall not be counted in determining the total
         number of outstanding shares to constitute a quorum at any meeting of
         stockholders;

                  (b) In the event that, under the circumstances, the holders of
         the Series H Preferred Stock are required by law to vote upon any
         matter, the approval of such series shall be deemed to have been
         obtained only upon the affirmative vote of the holders of a majority of
         the shares of the Series H Preferred Stock then outstanding;

                  (c) Except as set forth herein, or as otherwise provided by
         these Restated Articles of Incorporation or by law, holders of the
         Series H Preferred Stock shall have no special voting rights and their
         consent shall not be required for the taking of any corporate action;

                  (d) Notwithstanding anything herein to the contrary, if and
         whenever at any time or times all or any portion of the dividends on
         Series H Preferred Stock for any six quarterly dividends, whether or
         not consecutive, shall be in arrears and unpaid, then and in any such
         event, the number of directors constituting the Board of Directors
         shall be increased by two, and the holders of Series H Preferred Stock,
         voting separately as a class, shall be entitled at the next annual
         meeting of stockholders, or at a special meeting of holders of Series H
         Preferred Stock called as hereinafter provided, to elect two directors
         to fill such newly created directorships. Each holder shall be entitled
         to one vote in such election for each share of Series H Preferred Stock
         held. At such time as all arrearages in dividends on the Series H
         Preferred Stock shall have been paid in full and dividends thereon for
         the current quarterly period shall have been paid or declared and a sum
         sufficient for the payment thereof set aside, then (i) the voting
         rights of holders of Series H Preferred Stock described in



                                       D-5
<PAGE>


         this Section 4(d) shall cease (subject always to revesting of such
         voting rights in the event of each and every similar future arrearages
         in quarterly dividends), (ii) the term of the directors then in office
         as a result of the voting rights described in this Section 4(d) shall
         terminate and (iii) the number of directors shall be reduced by the
         number of directors then in office elected pursuant to this Section
         4(d). A vacancy in the class of directors elected pursuant to this
         Section 4(d) shall be filled by a director chosen by the remaining
         directors of the class, unless such vacancy is filled pursuant to the
         final sentence of Section 4(g);

                  (e) At any time when the voting right described in Section
         4(d) shall have vested and shall remain in the holders of Series H
         Preferred Stock, such voting right may be exercised initially either at
         a special meeting of holders of Series H Preferred Stock or at any
         annual or special stockholders' meeting called for the purpose of
         electing directors, but thereafter it shall be exercised only at annual
         stockholders' meetings. If such voting right shall not already have
         been initially exercised, the Secretary of the Corporation may, and
         upon the written request of the holders of record of at least 10% of
         the shares of Series H Preferred Stock then outstanding shall, call a
         special meeting of the holders of Series H Preferred Stock for the
         purpose of electing two directors pursuant to Section 4(d), and notice
         thereof shall be given to the holders of Series H Preferred Stock in
         the same manner as that required to be given to holders of the Common
         Stock for the annual meeting of stockholders. Such meeting shall be
         held at the earliest practicable date upon the notice required for
         special meetings of stockholders of the Corporation, or, if none, at a
         time and place designated by the Secretary of the Corporation;

                  (f) At any meeting held for the purpose of electing directors
         at which the holders of Series H Preferred Stock shall have the right
         to elect directors as provided in Section 4(d), the presence in person
         or by proxy of the holders of at least 35% of the then outstanding
         shares of Series H Preferred Stock shall be required and be sufficient
         to constitute a quorum of Series H Preferred Stock for the election of
         directors by Series H Preferred Stock, and the vote of the holders of a
         majority of such shares so present in person or by proxy at any such
         meeting at which there shall be such a quorum shall be required and be
         sufficient to elect the members of the Board of Directors which the
         holders of the Series H Preferred Stock are entitled to elect as
         hereinabove provided. At any such meeting or adjournment thereof, (i)
         the absence of a quorum of the holders of Series H Preferred Stock
         shall not prevent the election of directors other than the directors to
         be elected by the holders of Series H Preferred Stock and (ii) in the
         case of holders of Series H Preferred Stock entitled to vote for the
         election of directors, a majority of the holders present in person or
         by proxy of such class, if constituting less than a quorum as
         hereinabove provided, shall have the power to adjourn the meeting for
         the election of the directors that the holders of such class are
         entitled to elect, from time to time until a quorum shall be present,
         and notice of such adjourned meeting need not be given unless otherwise
         required by law, provided that nothing herein shall affect the conduct
         of the meeting with respect to stockholders of any other class;

                  (g) Any director who shall have been elected or appointed
         pursuant to Section 4(d) shall hold office for a term expiring (subject
         to the earlier termination of the default in quarterly dividends) at
         the next annual meeting of stockholders, and during such term may be
         removed at any time, either with or without cause, only by the
         affirmative vote of the holders of record of a majority of the shares
         of Series H Preferred Stock then outstanding at a


                                       D-6
<PAGE>


         special meeting of such stockholders called for such purpose. Any
         vacancy created by such removal may also be filled at such meeting; and

                  (h) So long as any shares of Series H Preferred Stock remain
         outstanding, the Corporation shall not, without the vote or written
         consent of the holders of record of two-thirds of the outstanding
         shares of Series H Preferred Stock, amend its articles of
         incorporation, including this Certificate of Designation, Preferences
         and Rights of this Series H Preferred Stock, or bylaws if such
         amendment would materially alter or change the existing terms of the
         Series H Preferred Stock.

SECTION 5. Reacquired Shares. Any shares of Series H Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
permanently retired and canceled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth herein or
in any certificates of designations creating a series of Preferred Stock or any
similar stock or as otherwise required by law.

SECTION 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, and after paying and providing for
the payment of all creditors of the Corporation, the holders of shares of the
Series H Preferred Stock then outstanding shall be entitled, before any
distribution or payment is made upon any "Junior Securities" (defined to be and
mean the Common Stock and any other equity security of any kind which the
Corporation at any time has issued, issues or is authorized to issue if the
Series H Preferred Stock has priority over such securities as to dividends or
upon liquidation, dissolution or winding up), to receive a liquidation
preference in an amount in cash equal to $21.50 per share less any dividend
declared and paid after January 2, 2002 and prior to the issuance of shares of
the Series H Preferred Stock with respect to shares of the common stock, $0.01
par value, of Income Opportunity Realty Investors, Inc. plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Liquidation Value"), whether such liquidation
is voluntary or involuntary and the holders of the Series H Preferred Stock
shall not be entitled to any other or further Corporation, the net assets
available for distribution shall be insufficient to permit payment to the
holders of all outstanding shares of all series of Preferred Stock of the amount
to which they respectively shall be entitled, then the assets of the Corporation
to be distributed to such holders will be distributed ratably among them based
upon the amounts payable on the shares of each such series of Preferred Stock in
the event of voluntary or involuntary liquidation, dissolution or winding up, as
the case may be, in proportion to the full preferential amounts, together with
any and all arrearages to which they are respectively entitled. Upon any such
liquidation, dissolution or winding up of the Corporation, after the holders of
Preferred Stock have been paid in full the amounts to which they are entitled,
the remaining assets of the Corporation may be distributed to holders of Junior
Securities, including Common Stock, of the Corporation. The Corporation will
mail written notice of such liquidation, dissolution or winding up, not less
than 20 nor more than 50 days prior to the payment date stated therein, to each
record holder of Series H Preferred Stock. Neither the consolidation nor merger
of the Corporation into or with any other corporation or corporations, nor the
sale or transfer by the Corporation of all or any part of its assets, nor a
reduction in the capital stock of the Corporation, nor the purchase or
redemption by the Corporation of any shares


                                       D-7
<PAGE>


of its Preferred Stock or Common Stock or any other class of its stock will be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 6.

SECTION 7. Ranking. The Series H Preferred Stock shall rank on a parity as to
dividends and upon liquidation, dissolution or winding up with all other shares
of Preferred Stock issued by the Corporation; provided, however, that the
Corporation shall not issue any shares of Preferred Stock of any series which
are superior to the Series H Preferred Stock as to dividends or rights upon
liquidation, dissolution or winding up of the Corporation as long as any shares
of the Series H Preferred Stock are issued and outstanding, without the prior
written consent of the holders of a majority of such shares of Series H
Preferred Stock then outstanding voting separately as a class.

SECTION 8. Redemption at the Option of the Holder. The shares of Series H
Preferred Stock shall not be redeemable at the option of a holder of Series H
Preferred Stock.

SECTION 9. Redemption at the Option of the Corporation.

                  (a) (a) The Corporation shall have the right to redeem all or
         a portion of the Series H Preferred Stock issued and outstanding at any
         time and from time to time commencing 45 days after the 10-Q Issuance;
         provided, however, the Corporation must provide notice of redemption in
         accordance with Section 9(b) and the Corporation may not issue such
         notice until the 45th day after the 10-Q Issuance. The redemption price
         of the Series H Preferred Stock shall be an amount per share equal to
         the Liquidation Value (the "Redemption Price").

                  (b) Except as otherwise set forth herein, the Corporation may
         redeem all or a portion of any holder's shares of Series H Preferred
         Stock by giving such holder not less than 45 days nor more than 60 days
         notice thereof prior to the date on which the Corporation desires such
         shares to be redeemed, which date shall be a Business Day (the
         "Redemption Date"). Such notice shall be written and shall be hand
         delivered or mailed, postage prepaid, to the holder (the "Redemption
         Notice"). If mailed, such notice shall be deemed to be delivered when
         deposited in the United States Mail, postage prepaid, addressed to the
         holder of shares of Series H Preferred Stock at his address as it
         appears on the stock transfer records of the Corporation. The
         Redemption Notice shall state:

                  (i)      the total number of shares of Series H Preferred
                           Stock held by such holder;

                  (ii)     the total number of shares of the holder's Series H
                           Preferred Stock that the Corporation intends to
                           redeem;

                  (iii)    the Redemption Date and the Redemption Price; and

                  (iv)     the place at which the holder(s) may obtain payment
                           of the applicable Redemption Price upon surrender of
                           the share certificate(s).

                  (c) If fewer than all of the Series H Preferred Stock at any
         time outstanding shall be called for redemption, such shares shall be
         redeemed pro rata, by lot drawn or other manner deemed fair in the sole
         discretion of the Board of Directors to redeem one or more


                                       D-8
<PAGE>


         such shares without redeeming all such shares of Series H Preferred
         Stock. If such Redemption Notice shall have been so mailed, on or
         before the Redemption Date the Corporation may provide for payment of a
         sum sufficient to redeem the applicable number of shares of Series H
         Preferred Stock called for redemption either by (i) setting aside the
         sum required to be paid as the Redemption Price by the Corporation,
         separate and apart from its other funds, in trust for the account of
         the holder(s) of the shares of Series H Preferred Stock to be redeemed
         or (ii) depositing such sum in a bank or trust company (either located
         in the state where the principal executive office of the Corporation is
         maintained, such bank or trust company having a combined surplus of at
         least $20,000,000 according to its latest statement of condition, or
         such other bank or trust company as may be permitted hereby or by law)
         as a trust fund, with irrevocable instructions and authority to the
         bank or trust company to give or complete the notice of redemption and
         to pay, on or after the Redemption Date, the applicable Redemption
         Price on surrender of certificates evidencing the share(s) of Series H
         Preferred Stock so called for redemption and, in either event, from and
         after the Redemption Date (v) the share(s) of Series H Preferred Stock
         shall be deemed to be redeemed, (w) such setting aside or deposit shall
         be deemed to constitute full payment for such share(s), (x) such
         share(s) so redeemed shall not longer be deemed to be outstanding, (y)
         the holder(s) thereof shall cease to be stockholder of the Corporation
         with respect to such share(s), and (z) such holder(s) shall have no
         rights with respect thereto except the right to receive their
         proportionate share of the funds set aside pursuant hereto or deposited
         upon surrender of their respective certificates. Any interest on the
         funds so deposited shall be paid to the Corporation. Any and all such
         redemption deposits shall be irrevocable except to the following
         extent: any funds so deposited which shall not be required for the
         redemption of any shares of Series H Preferred Stock because of any
         prior sale or purchase by the Corporation other than through the
         redemption process, subsequent to the date of deposit but prior to the
         Redemption Date, shall be repaid to the Corporation forthwith and any
         balance of the funds so deposited and unclaimed by the holder(s) of any
         shares of Series H Preferred Stock entitled thereto at the expiration
         of one calendar year from the Redemption Date shall be repaid to the
         Corporation upon its request or demand therefore, and after any such
         repayment of the holder(s) of the share(s) so called for redemption
         shall look only to the Corporation for payment of the Redemption Price
         thereof. In addition to the redemption under this Section 9, the
         Corporation may redeem or repurchase shares of the Series H Preferred
         Stock from any holder(s) thereof who consents in writing to any such
         consented redemption. All shares of Series H Preferred Stock redeemed
         shall be canceled and retired and no shares shall be issued in place
         thereof, but such shares shall be restored to the status of authorized
         but unissued shares of Preferred Stock.

                  (d) On or before the Redemption Date, the holder who shall
         redeem such Series H Preferred Stock hereunder shall surrender the
         certificate or certificates representing such shares to the Corporation
         by mail, courier or personal delivery at the Corporation's principal
         executive office or other location so designated in the Redemption
         Notice, and upon the Redemption Date the Redemption Price shall be
         payable to the order of the person whose name appears on such
         certificate or certificates as the owner thereof, and each surrendered
         certificate shall be canceled and retired. In the event fewer than all
         of the shares represented by such certificates are redeemed, a new
         certificate shall be issued representing the unredeemed shares.


                                       D-9
<PAGE>


                  (e) If the Redemption Notice is not withdrawn prior to one
         Business Day before the Redemption Date, and if on or prior to the
         Redemption Date the Redemption Price is either paid or made available
         for payment, then notwithstanding that the certificates evidencing any
         of the shares of the Series H Preferred Stock so called for redemption
         have not been surrendered, (i) all rights with respect to such shares
         shall forthwith after the Redemption Date cease and terminate, to the
         full extent permitted by applicable law, except only the right of the
         holders to receive the Redemption Price without interest upon surrender
         of their certificates therefore, and (ii) to the full extent permitted
         by applicable law, such shares shall no longer be deemed outstanding
         for any purpose.

SECTION 10. Sinking Fund. The Corporation shall not be required to maintain any
so-called "sinking fund" for the retirement on any basis of the Series H
Preferred Stock.

SECTION 11. Fractional Shares. Except as otherwise set forth herein, the Series
H Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of shares of Series H Preferred Stock.

SECTION 12. Notice. Any notice or request made to the Corporation in connection
with the Series H Preferred Stock shall be given, and shall conclusively be
deemed to have been given and received three Business Days following deposit
thereof in writing, in the U.S. mails, certified mail, return receipt requested,
duly stamped and addressed to the Corporation, to the attention of its General
Counsel, at its principal executive offices (which shall be deemed by the
address most recently provided to the SEC at its principal executive offices for
so long as the Corporation is required to file reports with the SEC).

                               * * * * * * * * * *


                                      D-10
<PAGE>



         IN WITNESS WHEREOF, said American Realty Investors, Inc. has caused
this Certificate of Designation, Preferences and Rights of 10% Series H
Cumulative Convertible Preferred Stock to be duly executed by its President and
attested to by its Secretary this ______ day of ______________, 2002.

                                  AMERICAN REALTY INVESTORS, INC.

                                  By:
                                     -------------------------------------------
                                  Printed Name:
                                  Title: President
ATTEST:


-----------------------------------
Printed Name: Robert A. Waldman
Title:  Secretary


                                      D-11

</TEXT>
</DOCUMENT>
