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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950134-04-012027.txt : 20040812
<SEC-HEADER>0000950134-04-012027.hdr.sgml : 20040812
<ACCEPTANCE-DATETIME>20040811184812
ACCESSION NUMBER:		0000950134-04-012027
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20040915
FILED AS OF DATE:		20040812
EFFECTIVENESS DATE:		20040812

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMERICAN REALTY INVESTORS INC
		CENTRAL INDEX KEY:			0001102238
		STANDARD INDUSTRIAL CLASSIFICATION:	REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS [6510]
		IRS NUMBER:				752847135
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-15663
		FILM NUMBER:		04968139

	BUSINESS ADDRESS:	
		STREET 1:		1800 VALLEY VIEW LANE
		STREET 2:		SUITE 300
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
		BUSINESS PHONE:		4695224200

	MAIL ADDRESS:	
		STREET 1:		1800 VALLEY VIEW LANE
		STREET 2:		SUITE 300
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>d17554ddef14a.htm
<DESCRIPTION>DEFINITIVE PROXY STATEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>def14a</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="70%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="13%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="15%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3" nowrap align="center"><FONT size="2">OMB APPROVAL</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3" nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
OMB Number:
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">3235-0059</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Expires:
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>

<TD nowrap align="right" valign="top"><FONT size="2">July&nbsp;31, 2004</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2" nowrap align="left" valign="top"><FONT size="2">Estimated average burden<br>hours per

response</FONT></TD>

        <TD align="right" valign="bottom"><FONT size="2">14.73</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><font size="2"><B>UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B>
</font>

<P align="center"><FONT size="2"><B>SCHEDULE 14A</B>
</FONT>


<P align="center"><FONT size="2">Proxy Statement Pursuant to Section 14(a) of the Securities<BR>
Exchange Act of 1934 (Amendment No.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Filed by the Registrant &nbsp;&nbsp;<FONT face="wingdings">&#120;</FONT></FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Filed by a Party other than the Registrant &nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT></FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Check the appropriate box:</FONT></TD>
</TR>
</TABLE>
<p>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Preliminary Proxy Statement</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;
<B>Confidential, for Use of the Commission Only (as permitted by
Rule&nbsp;14a-6(e)(2))</B></FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#120;</FONT>&nbsp;&nbsp; Definitive Proxy Statement</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Definitive Additional Materials</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;
Soliciting Material Pursuant to &#167;240.14a-11(c) or &#167;240.14a-12</FONT></TD>
</TR>
</TABLE>


<P align="center">American Realty Investors, Inc.
<HR size="1">
<P align="center"><FONT size="2">(Name of Registrant as Specified In Its Charter)
</FONT>
<p>
<HR size="1">
<P align="center"><FONT size="2">(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of Filing Fee (Check the appropriate box):
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#120;</FONT>&nbsp;&nbsp; No fee required.</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(4) and
0-11.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)&nbsp;Title of each class of securities to which transaction applies:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)&nbsp;Aggregate number of securities to which transaction applies:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)&nbsp;Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule&nbsp;0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4)&nbsp;Proposed maximum aggregate value of transaction:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5)&nbsp;Total fee paid:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Fee paid previously with preliminary materials.</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Check box if any part of the fee is offset as provided by Exchange Act
Rule&nbsp;0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)&nbsp;Amount Previously Paid:</FONT></TD>
</TR>
</TABLE>
<HR size="1">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)&nbsp;Form, Schedule or Registration Statement No.:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)&nbsp;Filing Party:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4)&nbsp;Date Filed:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<p>
<center>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="20%"></TD>
        <TD width="80%"></TD>
</TR>
<TR valign="top">
        <TD valign="bottom"><font size="2">SEC 1913 (11-01)</font></TD>
        <TD><font size="2"><b>Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number.</b></font></TD>
</TR>
</TABLE>
</center>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>AMERICAN REALTY INVESTORS, INC.<BR>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS<BR>
TO BE HELD ON SEPTEMBER 15, 2004</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;American Realty Investors, Inc. will hold its Annual Meeting of
Stockholders on Wednesday, September&nbsp;15, 2004 at 3:30 p.m., local Dallas, Texas
time, at 1800 Valley View Lane, Suite&nbsp;300, Dallas, Texas 75234. The purpose of
the meeting is to:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Elect a Board of five directors to serve until the next Annual
Meeting of Stockholders and until their successors are duly-elected
and qualified.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ratify the appointment of Farmer, Fuqua &#038; Huff, P.C. as independent auditors.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Act upon such other matters as may properly be presented at the Annual Meeting.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only Stockholders of record at the close of business on August&nbsp;6, 2004
will be entitled to vote at the meeting.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your vote is important. Whether or not you plan to attend the meeting,
please complete, sign, date and return the enclosed proxy card in the
accompanying envelope provided or vote by telephone or through the designated
internet site. Your completed proxy or your telephone or internet vote will
not prevent you from attending the meeting and voting in person should you
choose.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dated:&nbsp;&nbsp;August&nbsp;6, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%" align="left" nowrap valign="top">&nbsp;</TD>
    <TD width="50%" align="left" nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" nowrap valign="top">&nbsp;</TD>
    <TD align="left" nowrap valign="top">By order of the Board of Directors,</TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD align="left" nowrap valign="top">&nbsp;</TD>
    <TD align="left" nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD align="left" nowrap valign="top">&nbsp;</TD>
    <TD align="left" nowrap valign="top">/s/ Louis J. Corna<BR>
Louis J. Corna<BR>
Executive Vice President, General Counsel,<BR>
Tax Counsel and Secretary</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>AMERICAN REALTY INVESTORS, INC.</B>



<P align="center" style="font-size: 10pt"><B>PROXY STATEMENT</B>



<P align="center" style="font-size: 10pt"><B>FOR THE ANNUAL MEETING OF STOCKHOLDERS</B>



<P align="center" style="font-size: 10pt"><B>TO BE HELD SEPTEMBER 15, 2004</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors of American Realty Investors, Inc. (the &#147;Company,&#148;
or &#147;we&#148; or &#147;us&#148;) is soliciting proxies to be used at the 2004 Annual Meeting of
Stockholders (the &#147;Annual Meeting&#148;). Distribution of this Proxy Statement and
a Proxy Form is scheduled to begin on August&nbsp;10, 2004. The mailing address of
the Company&#146;s principal executive offices is 1800 Valley View Lane, Suite&nbsp;300,
Dallas, Texas 75234.


<P align="center" style="font-size: 10pt"><B>About the Meeting</B>



<P align="left" style="font-size: 10pt"><B>Who Can Vote</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Record holders of Common Stock of the Company at the close of business on
August&nbsp;6, 2004 (the &#147;Record Date&#148;) may vote at the Annual Meeting. On that
date, 11,354,272 shares of Common Stock were outstanding. Each share is
entitled to cast one vote.


<P align="left" style="font-size: 10pt"><B>How Can You Vote</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you return your signed proxy or vote by telephone or the internet
before the Annual Meeting, we will vote your shares as you direct. You can
specify whether your shares should be voted for all, some or none of the
nominees for director. You can also specify whether you approve, disapprove or
abstain from the other proposal to ratify the selection of auditors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a proxy is executed and returned but no instructions are given, the
shares will be voted according to the recommendations of the Board of
Directors. The Board of Directors recommends a vote <B>FOR </B>Proposals 1 and 2.


<P align="left" style="font-size: 10pt"><B>Revocation of Proxies</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may revoke your proxy at any time before it is exercised by (a)
delivering a written notice of revocation to the Corporate Secretary, (b)
delivering another proxy that is dated later than the original proxy, or (c)
casting your vote in person at the Annual Meeting. Your last vote will be the
vote that is counted.


<P align="left" style="font-size: 10pt"><B>Vote Required</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders of a majority of the shares entitled to vote who are either present
in person or represented by a proxy at the Annual Meeting will constitute a
quorum for the transaction of business at the Annual Meeting. As of August&nbsp;6,
2004, there were 11,354,272 shares of Common Stock issued and outstanding. The
presence, in person or by proxy, of stockholders entitled to cast at least
5,677,137 votes constitutes a quorum for adopting the proposals at the Annual
Meeting. If you have properly


<P align="center" style="font-size: 10pt">-1-
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">signed and returned your proxy card by mail, you will be considered part of the
quorum, and the persons named on the proxy card will vote your shares as you
have instructed. If the broker holding your shares in &#147;street&#148; name indicates
to us on a proxy card that the broker lacks discretionary authority to vote
your shares, we will not consider your shares as present or entitled to vote
for any purpose.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A plurality of the votes cast is required for the election of directors.
This means that the director nominee with the most votes for a particular slot
is elected to that slot. A proxy that has properly withheld authority with
respect to the election of one or more directors will not be voted with respect
to the director or directors indicated, although it will be counted for
purposes of determining whether there is a quorum.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the other proposal, the affirmative vote of the holders of a majority
of the shares represented in person or by proxy entitled to vote on the
proposal will be required for approval. An abstention with respect to such
proposal will not be voted, although it will be counted for purposes of
determining whether there is a quorum. Accordingly, an abstention will have
the effect of a negative vote.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the Record Date, affiliates held 9,149,277 shares representing
approximately 80.6% of the shares outstanding. These affiliates have advised
the Company that they currently intend to vote all of their shares in favor of
the approval of both proposals.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you received multiple proxy cards, this indicates that your shares are
held in more than one account, such as two brokerage accounts, and are
registered in different names. You should vote each of the proxy cards to
ensure that all your shares are voted.


<P align="left" style="font-size: 10pt"><B>Other Matters to be Acted Upon at the Annual Meeting</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not know of any other matters to be validly presented or acted upon
at the Annual Meeting. Under our Bylaws, no business besides that stated in
the Annual Meeting Notice may be transacted at any meeting of stockholders. If
any other matter is presented at the Annual Meeting on which a vote may be
properly taken, the shares represented by proxies will be voted in accordance
with the judgment of the person or persons voting those shares.


<P align="left" style="font-size: 10pt"><B>Expenses of Solicitation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is making this solicitation and will pay the entire cost of
preparing, assembling, printing, mailing and distributing these proxy materials
and soliciting votes. Some of our directors, officers and employees may
solicit proxies personally, without any additional compensation, by telephone
or mail. Proxy materials will also be furnished without cost to brokers and
other nominees to forward to the beneficial owners of shares held in their
names.


<P align="left" style="font-size: 10pt"><B>Questions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may call our Investor Relations Department at 469-522-4245 if you have
any questions.


<P align="center" style="font-size: 10pt"><B>PLEASE VOTE &#151; YOUR VOTE IS IMPORTANT</B>



<P align="center" style="font-size: 10pt">-2-
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>Corporate Governance and Board Matters</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The affairs of the Company are managed by the Board of Directors. The
Directors are elected at the annual meeting of stockholders each year or
appointed by the incumbent Board of Directors and serve until the next annual
meeting of stockholders or until a successor has been elected or approved.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After December&nbsp;31, 2003, a number of changes occurred in the composition
of the Board of Directors of the Company, the creation of certain Board
Committees, the adoption of Committee charters, the adoption of a Code of
Ethics for Senior Financial Officers and the adoption of Guidelines for
Director Independence. The composition of the members of the Board of
Directors changed with the resignation of Earl D. Cecil (February&nbsp;29, 2004), as
well as the election of independent Directors Sharon Hunt and Ted R. Munselle
on February&nbsp;20, 2004.


<P align="left" style="font-size: 10pt"><B>Current Members of the Board</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The members of the Board of Directors on the date of this proxy statement,
and the committees of the Board on which they serve, are identified below:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Governance</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>and</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Audit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Nominating</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Director</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Committee</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Committee</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Committee</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Henry A. Butler</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sharon Hunt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Chair</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#252;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ted R. Munselle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Chair</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Chair</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ted P. Stokley</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Martin L. White</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#252;</FONT></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Role of the Board&#146;s Committees</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors has standing Audit, Compensation and Governance and
Nominating Committees.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Audit Committee</I></B>. The functions of the Audit Committee are described below
under the heading &#147;<I>Report of the Audit Committee.</I>&#148; The charter of the Audit
Committee is attached to this proxy statement as Appendix&nbsp;I, and is available
on the Company&#146;s Investor Relations website (<I>www.amrealtytrust.com</I>). The Audit
Committee was formed on February&nbsp;20, 2004, and the Board selected the current
members of the Audit Committee for the coming year, as shown above. All of the
members of the Audit Committee are independent within the meaning of SEC
regulations, the listing standards of the New York Stock Exchange and the
Company&#146;s <I>Corporate Governance Guidelines</I>. Mr.&nbsp;Munselle, a member and Chair of
the Committee, is qualified as an audit committee


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">financial expert within the meaning of SEC regulations and the Board has
determined that he has accounting and related financial management expertise
within the meaning of the listing standards of the New York Stock Exchange.
The predecessor Audit Committee met nine times during 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Governance and Nominating Committee</I></B>. The Governance and Nominating
Committee is responsible for developing and implementing policies and practices
relating to corporate governance, including reviewing and monitoring
implementation of the Company&#146;s <I>Corporate Governance Guidelines</I>. In addition,
the Committee develops and reviews background information on candidates for the
Board and makes recommendations to the Board regarding such candidates. The
Committee also prepares and supervises the Board&#146;s annual review of director
independence and the Board&#146;s performance self-evaluation. The charter of the
Governance and Nominating Committee was adopted on March&nbsp;22, 2004, and is
available on the Company&#146;s Investor Relations website (<i>www.amrealtytrust.com</I>).
On March&nbsp;22, 2004, the Board selected the members of the Governance and
Nominating Committee for the coming year, as shown above. All of the members of
the Committee are independent within the meaning of the listing standards of
the New York Stock Exchange and the Company&#146;s <I>Corporate Governance Guidelines.</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Compensation Committee</I></B>. The Compensation Committee is responsible for
overseeing the policies of the Company relating to compensation to be paid by
the Company to the Company&#146;s principal executive officer and any other officers
designated by the Board and make recommendations to the Board with respect to
such policies, produce necessary reports on executive compensation for
inclusion in the Company&#146;s proxy statement in accordance with applicable rules
and regulations and to monitor the development and implementation of succession
plans for the principal executive officer and other key executives and make
recommendations to the Board with respect to such plans. The charter of the
Compensation Committee was adopted on March&nbsp;22, 2004, and is available on the
Company&#146;s Investor Relations website (<i>www.amrealtytrust.com</i>). On March&nbsp;22,
2004, the Board selected the members of the Compensation Committee for the
coming year as shown above. All of the members of the Committee are
independent within the meaning of the listing standards of the New York Stock
Exchange and the Company&#146;s <I>Corporate Governance Guidelines</I>. The Compensation
Committee is to be comprised of at least two directors who are independent of
management and the Company.


<P align="left" style="font-size: 10pt"><B>Presiding Director</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2004, the Board created a new position of presiding director,
whose primary responsibility is to preside over periodic executive sessions of
the Board in which management directors and other members of management do not
participate. The presiding director also advises the Chairman of the Board and,
as appropriate, Committee chairs with respect to agendas and information needs
relating to Board and Committee meetings, provides advice with respect to the
selection of Committee chairs and performs other duties that the Board may from
time to time delegate to assist the Board in the fulfillment of its
responsibilities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Director Martin L. White will serve in this position during fiscal 2004,
and in March&nbsp;2004, the non-management members of the Board designated him to
serve in this position until the Company&#146;s 2004 annual meeting of stockholders.


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<P align="left" style="font-size: 10pt"><B>Selection of nominees for the Board</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Governance and Nominating Committee will consider candidates for Board
membership suggested by its members and other Board members, as well as
management and stockholders. The Committee may also retain a third-party
executive search firm to identify candidates upon request of the Committee from
time to time. A stockholder who wishes to recommend a prospective nominee for
the Board should notify the Company&#146;s Corporate Secretary or any member of the
Governance and Nominating Committee in writing with whatever supporting
material the stockholder considers appropriate. The Governance and Nominating
Committee will also consider whether to nominate any person nominated by a
stockholder pursuant to the provisions of the Company&#146;s bylaws relating to
stockholder nominations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once the Governance and Nominating Committee has identified a prospective
nominee, the Committee will make an initial determination as to whether to
conduct a full evaluation of the candidate. This initial determination will be
based on whatever information is provided to the Committee with the
recommendation of the prospective candidate, as well as the Committee&#146;s own
knowledge of the prospective candidate, which may be supplemented by inquiries
to the person making the recommendation or others. The preliminary
determination will be based primarily on the need for additional Board members
to fill vacancies or expand the size of the Board and the likelihood that the
prospective nominee can satisfy the evaluation factors described below. If the
Committee determines, in consultation with the Chairman of the Board and other
Board members as appropriate, that additional consideration is warranted, it
may request the third-party search firm to gather additional information about
the prospective nominee&#146;s background and experience and to report its findings
to the Committee. The Committee will then evaluate the prospective nominee
against the standards and qualifications set out in the Company&#146;s <I>Corporate
Governance Guidelines, </I>including:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the ability of the prospective nominee to represent the
interests of the stockholders of the Company;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the prospective nominee&#146;s standards of integrity, commitment
and independence of thought and judgment;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the prospective nominee&#146;s ability to dedicate sufficient
time, energy, and attention to the diligent performance of his or
her duties, including the prospective nominee&#146;s service on other
public company boards, as specifically set out in the Company&#146;s
<I>Corporate Governance Guidelines</I>;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the extent to which the prospective nominee contributes to
the range of talent, skill and expertise appropriate for the
Board;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the extent to which the prospective nominee helps the Board
reflect the diversity of the Company&#146;s stockholders, employees,
customers, guests and communities; and</TD>
</TR>

</TABLE>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willingness of the prospective nominee to meet any
minimum equity interest holding guideline.</TD>
</TR>

</TABLE>
<P align="left" style="font-size: 10pt">The Committee also considers such other relevant factors as it deems
appropriate, including the current composition of the Board, the balance of
management and independent directors, the need for Audit Committee expertise
and the evaluations of other prospective nominees. In connection with this
evaluation, the Committee determines whether to interview the prospective
nominee, and if warranted, one or more members of the Committee, and others as
appropriate, interview prospective nominees in person or by telephone. After
completing this evaluation and interview, the Committee makes a recommendation
to the full Board as to the persons who should be nominated by the Board, and
the Board determines the nominees after considering the recommendation and
report of the Committee.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Bylaws of the Company provide that any stockholder entitled to vote at
the Annual Meeting in the election of directors may nominate one or more
persons for election as directors at a meeting only if written notice of such
stockholders&#146; intention to make such nomination has been delivered personally
to, or has been mailed to and received by the Secretary at the principal office
of the Company not later than 60 nor more than 90&nbsp;days prior to the first
anniversary date of the preceding year&#146;s annual meeting. If a stockholder has
a suggestion for candidates for election, the stockholder should follow this
procedure. Each notice from a stockholder must set forth (i)&nbsp;the name and
address of the stockholder who intends to make the nomination and the name of
the person to be nominated, (ii)&nbsp;the class and number of shares of stock held
of record, owned beneficially and represented by proxy by such stockholder as
of the record date for the meeting and as of the date of such notice, (iii)&nbsp;a
representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person specified in the notice, (iv)&nbsp;a description
of all arrangements or understandings between such stockholder and each nominee
and any other person (naming those persons) pursuant to which the nomination is
to be made by such stockholder, (v)&nbsp;such other information regarding each
nominee proposed by such stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules, and (vi)&nbsp;the consent of each
nominee to serve as a director of the Company if so elected. The chairman of
the Annual Meeting may refuse to acknowledge the nomination of any person not
made in compliance with this procedure.


<P align="left" style="font-size: 10pt"><B>Determinations of director independence</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2004, the Board enhanced its <I>Corporate Governance Guidelines.</I>
The <I>Guidelines </I>adopted by the Board meet or exceed the new listing standards
adopted during the year by the New York Stock Exchange. The full text of the
<I>Guidelines </I>can be found in the Investor Relations section of the Company&#146;s
website (<i>www.amrealtytrust.com</I>). A copy may also be obtained upon request from
the Company&#146;s Corporate Secretary.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the <I>Guidelines, </I>the Board undertook its annual review of director
independence in March&nbsp;2004. During this review, the Board considered
transactions and relationships between each director or any member of his or
her immediate family and the Company and its subsidiaries and affiliates,
including those reported under <I>&#147;Certain Relationships and Related Transactions&#148;</I>
below. The Board also examined transactions and relationships between directors
or their affiliates and members of the Company&#146;s senior management or their
affiliates. As provided in the <I>Guidelines</I>,


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">the purpose of this review was to determine whether any such relationships
or transactions were inconsistent with a determination that the director is
independent.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of this review, the Board affirmatively determined that
directors Ted R. Munselle, Martin L. White and Sharon Hunt are each independent
of the Company and its management under the standards set forth in the
<I>Corporate Governance Guidelines</I>.


<P align="left" style="font-size: 10pt"><B>Board meetings during fiscal 2003</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board met seven times during fiscal 2003. No incumbent director
attended fewer than 75% of the meetings of the Board, and each director
attended all of the meetings of the Committees on which he or she served.
Under the Company&#146;s <I>Corporate Governance Guidelines</I>, each Director is expected
to dedicate sufficient time, energy and attention to ensure the diligent
performance of his or her duties, including by attending meetings of the
stockholders of the Company, the Board and Committees of which he or she is a
member.


<P align="left" style="font-size: 10pt"><B>Directors&#146; compensation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each non-employee director receives an annual retainer of $45,000 plus
reimbursement for expenses. The Chairman of the Board receives an additional
fee of $4,500 per year. Each director who serves as a member of the Audit
Committee receives a fee of $300 for each Committee meeting attended. The
Chairman of the Audit Committee also receives an annual fee of $500. In
addition, each independent director receives an additional fee of $1,000 per
day for any special services rendered by him to the Company outside of his or
her ordinary duties as a director, plus reimbursement of expenses. The Company
also reimburses directors for travel expenses incurred in connection with
attending Board, committee and stockholder meetings and for other
Company-business related expenses. Directors who are also employees of the
Company or its Advisor receive no additional compensation for service as a
director.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2003, $146,000 was paid to the non-employee directors in total
directors&#146; fees for all services, including the annual fee for service during
the period from January&nbsp;1, 2003 through December&nbsp;31, 2003. Those fees received
by directors were Earl D. Cecil ($49,000), Ted P. Stokley ($48,000), Martin L.
White ($24,000) and Joseph Mizrachi, a former director who resigned in July
2003 ($25,000).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;1999, the stockholders of a predecessor of the Company approved the
Directors Stock Option Plan which was assumed by the Company in 2000 (the
&#147;Directors Plan&#148;) which provides for the availability of options to purchase up
to 40,000 shares of Common Stock. The Directors Plan provides for automatic
annual grants of options to directors of the Company who, at the time of grant
of an option are not, and have not been for at least one year, either an
employee or officer of the Company or any of its affiliates. Options granted
pursuant to the Directors Plan are immediately exercisable and expire on the
earlier of the first anniversary of the date on which a director ceases to be a
director or ten years from the date of grant. Each non-employee director was
granted an option to purchase 1,000 shares at an exercise price of $17.71 per
share on January&nbsp;11, 1999, the date stockholders approved the Directors Plan.
On January&nbsp;1, 2000, 2001, 2002, 2003 and 2004, each qualifying director was
granted an option to purchase 1,000 shares at an exercise price


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<P align="left" style="font-size: 10pt">of $18.53, $13.625, $9.87, $8.09 and $9.13 per share, respectively. Each
qualifying director will be awarded an option to purchase an additional 1,000
shares on January 1 of each year. At December&nbsp;31, 2003, options covering 1,000
shares were exercisable at $13.625 per share, options covering 2,000 shares
were exercisable at $9.87 and options covering 3,000 shares were exercisable at
$8.09 per share.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;1998, stockholders of a predecessor of the Company approved the
1997 Stock Option Plan (the &#147;Option Plan&#148;) which provides for options to
purchase up to 300,000 shares of Common Stock. The Option Plan was assumed by
the Company in August&nbsp;2000. The Option Plan is intended principally as an
incentive for and as a means of encouraging ownership of the Company&#146;s Common
Stock by eligible persons, including directors and officers of the Company.
Options may be granted either as an incentive stock option (which qualifies for
certain favorable tax treatment) or as a non-qualified stock option. Incentive
stock options cannot be granted to, among others, persons who are not employees
of the Company or any parent or subsidiary of the Company, or to persons who
fail to satisfy certain criteria concerning ownership of less than 10% of the
shares of Common Stock of the Company. The Option Plan is administered by the
Stock Option Committee, which currently consists of three independent directors
of the Company, Messrs.&nbsp;Munselle and White and Ms.&nbsp;Hunt. The exercise price
per share of an option will not be less than 100% of the fair market value per
share on the date of grant. The Company receives no consideration for the
grant of an option. At December&nbsp;31, 2003, options covering 92,250 shares were
outstanding under the Option Plan. No options were granted under the Option
Plan in 2003. None of the executive officers (Messrs.&nbsp;Branigan, Corna or
Lowenberg) nor any of the directors of the Company hold any options under the
Option Plan.


<P align="left" style="font-size: 10pt"><B>Stockholders communication with the Board</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholders and other parties interested in communicating directly with
the presiding director or with the non-Management directors as a group may do
so by writing to Ted R. Munselle, Director, Post Office Box 830163, Richardson,
Texas 75083-0163. Effective March&nbsp;22, 2004, the Governance and Nominating
Committee of the Board also approved a process for handling letters addressed
to members of the Board but received at the Company. Under that process, the
Corporate Secretary of the Company reviews all such correspondence and
regularly forwards to the Board a summary of all such correspondence and copies
of all correspondence that, in the opinion of the Corporate Secretary, deals
with the functions of the Board or committees thereof or that he otherwise
determines requires their attention. Directors may at any time review a log of
all correspondence received by the Company that is addressed to members of the
Board and received by the Company and request copies of any such
correspondence. Concerns relating to accounting, internal controls or auditing
matters are immediately brought to the attention of the Chairman of the Audit
Committee and handled in accordance with procedures established by the Audit
Committee with respect to such matters.


<P align="left" style="font-size: 10pt"><B>Code of Ethics</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has adopted a Code of Business Conduct and Ethics, which applies to
all directors, officers and employees (including those of the Contractual
Advisor). In addition, the Company has adopted a code of ethics entitled &#147;Code
of Ethics for Senior Financial Officers&#148; that


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">applies to the principal executive officer, president, principal financial
officer, chief financial officer, principal accounting officer and controller.
The text of both documents is available on the Company&#146;s Investor Relations
website (<I>www.amrealtytrust.com</I>). The Company intends to post amendments to or
waivers from its Code of Ethics for Senior Financial Officers (to the extent
applicable to the Company&#146;s chief executive officer, principal financial
officer or principal accounting officer) at this location on its website.


<P align="left" style="font-size: 10pt"><B>Compliance With Section&nbsp;16(a) of Reporting Requirements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;16(a) under the Securities Exchange Act of 1934 requires the
Company&#146;s directors, executive officers and any persons holding 10% or more of
the Company&#146;s shares of Common Stock are required to report their ownership of
the Company&#146;s shares of Common Stock and any changes in that ownership to the
Securities and Exchange Commission (the &#147;Commission&#148;) on specified report
forms. Specific due dates for these reports have been established, and the
Company is required to report any failure to file by these dates during each
fiscal year. All of these filing requirements were satisfied by the Company&#146;s
directors and executive officers and holders of more than 10% of the Company&#146;s
Common Stock during the fiscal year ended December&nbsp;31, 2003. In making these
statements, the Company has relied upon the written representations of its
directors and executive officers and the holders of 10% or more of the
Company&#146;s Common Stock and copies of the reports that each has filed with the
Commission.


<P align="center" style="font-size: 10pt"><B>Security Ownership of Certain Beneficial Owners and Management</B>



<P align="left" style="font-size: 10pt"><B>Security Ownership of Certain Beneficial Owners</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the ownership of the Company&#146;s Common
Stock, both beneficially and of record, both individually and in the aggregate,
for those persons or entities known by the Company to be the beneficial owners
of more than 5% of its outstanding Common Stock as of the close of business on
August&nbsp;6, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount and Nature of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Approximate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Address of Beneficial Owner</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficial Ownership*</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent of Class**</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic Capital Management, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6,703,045</TD>
    <TD nowrap valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">59.0</TD>
    <TD nowrap valign="top">%</TD>
</TR>

<TR valign="bottom">
    <TD>1800 Valley View Lane, Suite&nbsp;300<BR>
Dallas, Texas 75234</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Prime Income Asset Management, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,437,208</TD>
    <TD nowrap valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">12.7</TD>
    <TD nowrap valign="top">%</TD>
</TR>

<TR valign="bottom">
    <TD>1800 Valley View Lane, Suite&nbsp;300<BR>
Dallas, Texas 75234</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Realty Investors, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,140,253</TD>
    <TD nowrap valign="top">(a)(b)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.7</TD>
    <TD nowrap valign="top">%</TD>
</TR>

<TR valign="bottom">
    <TD>1800 Valley View Lane, Suite&nbsp;300<BR>
Dallas, Texas 75234</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-9-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount and Nature of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Approximate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Address of Beneficial Owner</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficial Ownership*</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent of Class**</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ryan T. Phillips</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,167,855</TD>
    <TD nowrap valign="top">(a)(b)(d)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.9</TD>
    <TD nowrap valign="top">%</TD>
</TR>

<TR valign="bottom">
    <TD>1800 Valley View Lane, Suite&nbsp;300<BR>
Dallas, Texas 75234</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Transcontinental Realty Investors, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">746,972</TD>
    <TD nowrap valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.6</TD>
    <TD nowrap valign="top">%</TD>
</TR>

<TR valign="bottom">
    <TD>1800 Valley View Lane, Suite&nbsp;300<BR>
Dallas, Texas 75234</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><HR size="1" noshade width="12%" align="left">
<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Includes 6,703,045 shares owned by Basic Capital Management, Inc.
(&#147;BCM&#148;), over which each of the directors of BCM, Ryan T. Phillips and Mickey
Ned Phillips, may be deemed to be beneficial owners by virtue of their
positions as directors of BCM. The directors of BCM disclaim beneficial
ownership of such shares.</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Includes 1,437,208 shares owned by Prime Income Asset Management, Inc.
(&#147;PIAMI&#148;), over which each of the directors of PIAMI, Ryan T. Phillips and
Mickey Ned Phillips, may be deemed to be beneficial owners by virtue of their
positions as directors of PIAMI. The directors of PIAMI disclaim beneficial
ownership of such shares.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Each of the directors of Transcontinental Realty Investors, Inc.
(&#147;TCI&#148;), Henry A. Butler, Sharon Hunt, Ted R. Munselle, Ted P. Stokely and
Martin L. White may be deemed to be the beneficial owners by virtue of their
positions as directors of TCI. The directors of TCI disclaim such beneficial
ownership.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Includes 27,602 shares owned by the Gene E. Phillips&#146; Children&#146;s Trust
of which Ryan T. Phillips is a beneficiary.


<P align="left" style="font-size: 10pt"><B>Security Ownership of Management</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the ownership of the Company&#146;s Common
Stock, both beneficially and of record, both individually and in the aggregate
for the directors and executive officers of the Company as of the close of
business on August&nbsp;6, 2004:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="41%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Address of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount and Nature of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Approximate Percent</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Beneficial Owner</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficial Ownership*</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Class**</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mark W. Branigan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,887,225</TD>
    <TD nowrap valign="top">(3)(4)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">78.3</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Henry A. Butler</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">749,972</TD>
    <TD nowrap valign="top">(1)(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.6</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Louis J. Corna</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,887,225</TD>
    <TD nowrap valign="top">(3)(4)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">78.3</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sharon Hunt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">746,972</TD>
    <TD nowrap valign="top">(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.6</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">J.C. Lowenberg III</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,887,225</TD>
    <TD nowrap valign="top">(3)(4)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">78.3</TD>
    <TD nowrap valign="top">%</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-10-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Address of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount and Nature of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Approximate Percent</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Beneficial Owner</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficial Ownership*</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Class**</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ted R. Munselle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">746,972</TD>
    <TD nowrap valign="top">(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.6</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ted P. Stokely</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">748,972</TD>
    <TD nowrap valign="top">(1)(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.6</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Martin L. White</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">747,972</TD>
    <TD nowrap valign="top">(1)(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.6</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">All directors and
executive officers as
a group (eight
people)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,893,225</TD>
    <TD nowrap valign="top">(3)(4)(5)(6)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">78.3</TD>
    <TD nowrap valign="top">%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><HR size="1" noshade width="12%" align="left">



<DIV align="left" style="font-size: 10pt">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&#147;Beneficial Ownership&#148; means the sole or shared power to vote, or to
direct the voting of, a security or investment power with respect to a
security, or any combination thereof.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**&nbsp;Percentages are based upon 11,354,272 shares of Common Stock
outstanding at August&nbsp;6, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Each of Messrs.&nbsp;Butler, Stokely, White and Earl D. Cecil, a director
until February&nbsp;29, 2004, have options to purchase shares of Common Stock of ARI
which are exercisable within 60&nbsp;days of August&nbsp;6, 2004.
</DIV>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Includes 746,972 shares owned by TCI, over which the members of the
Board of Directors of ARI may be deemed to be the beneficial owners by virtue
of their positions as members of the Board of Directors of TCI. The members of
the Board of Directors of ARI disclaim beneficial ownership of such shares.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Includes 746,972 shares owned by TCI, over which the executive
officers of ARI may be deemed to be the beneficial owners by virtue of their
positions as executive officers of TCI. The executive officers of ARI disclaim
beneficial ownership of such shares.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Includes 6,703,045 shares owned by BCM, over which the executive
officers of ARI may be deemed to be the beneficial owners by virtue of their
positions as executive officers of BCM. The executive officers of ARI disclaim
beneficial ownership of such shares.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Includes 1,437,208 shares owned by PIAMI, over which the executive
officers of ARI may be deemed to be the beneficial owners by virtue of their
positions as executive officers of PIAMI. The executive officers of ARI
disclaim beneficial ownership of such shares.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Includes 6,000 shares which may be acquired by the current directors
of ARI pursuant to stock option plans.


<P align="center" style="font-size: 10pt">-11-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>PROPOSAL 1</B>



<P align="center" style="font-size: 10pt"><B>ELECTION OF DIRECTORS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Five directors are to be elected at the Annual Meeting. Each director
elected will hold office until the 2005 Annual Meeting. All of the nominees
for director are now serving as directors. Each of the nominees has consented
to being named in this proxy statement as a nominee and has agreed to serve as
a director if elected. The persons named on the proxy card will vote for all
of the nominees for director listed unless you withhold authority to vote for
one or more of the nominees. The nominees receiving a plurality of votes cast
at the Annual Meeting will be elected as directors. Abstentions and broker
non-votes will not be treated as a vote for or against any particular nominee
and will not affect the outcome of the election of directors. Cumulative
voting for the election of directors is not permitted. If any director is
unable to stand for re-election, the Board will designate a substitute. If a
substitute nominee is named, the persons named on the proxy card will vote for
the election of the substitute director.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The nominees for directors are listed below, together with their ages,
terms of service, all positions and offices with the Company or the Company&#146;s
advisor, other principal occupations, business experience and directorships
with other companies during the last five years or more. The designation
&#147;affiliated&#148; when used below with respect to a director means that the director
is an officer, director or employee of the Company or the advisor.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Henry A. Butler, 53 (Affiliated)</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Broker &#150; Land Sales (since 1992) for BCM; Director (since July&nbsp;2003) of
the Company and TCI and Director (December&nbsp;2001 to July&nbsp;1, 2003) of Income
Opportunity Realty Investors, Inc. (&#147;IOT&#148;).


<P align="left" style="font-size: 10pt"><B>Sharon Hunt, 61</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Licensed Realtor with Virginia Cook Realtors; President and Owner (until
sold in 1997) of Sharon&#146;s Pretzels, Inc. (a Texas food products entity);
Director (1991-2000) of a 501(c)(3) non-profit corporation (involved in
acquisition, renovation and operation of real estate); Director (since February
2004) of the Company and TCI.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Ted. R. Munselle, 48</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vice President and Chief Financial Officer (since October&nbsp;1998) of
Landmark Nurseries, Inc.; Director (since February&nbsp;2004) of the Company and
TCI; Certified Public Accountant employed in the accounting industry until 1998
when he entered his current employment.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Ted P. Stokely, 70 (Affiliated)</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General Manager (since January&nbsp;1995) of ECF Senior Housing Corporation, a
non-profit corporation; General Manager (since January&nbsp;1993) of Housing
Assistance Foundation, Inc., a non-profit corporation; part-time unpaid
Consultant (since January&nbsp;1993) of Eldercare Housing


<P align="center" style="font-size: 10pt">-12-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">Foundation, a non-profit corporation; General Manager (since April&nbsp;2002)
of Unified Housing Foundation, Inc., a non-profit corporation; Director and
Chairman of the Board of the Company (since November&nbsp;2002); and Director (since
April&nbsp;1990) and Chairman of the Board (since January&nbsp;1995) of TCI and IOT.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Martin L. White, 64</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Executive Officer (since 1995) of Builders Emporium, Inc.; Chairman
and Chief Executive Officer (since 1993) of North American Trading Company
Ltd.; President and Chief Operating Officer (since 1992) of Community Based
Developers, Inc.; Director of TCI (since January&nbsp;1995); Director of the Company
(since July&nbsp;2003) and Director (1995 to March&nbsp;15, 2004) of IOT.


<P align="center" style="font-size: 10pt"><B>The Board of Directors unanimous recommends a vote FOR<BR>
the election of all of the Nominees named above.</B>



<P align="center" style="font-size: 10pt"><B>PROPOSAL 2</B>



<P align="center" style="font-size: 10pt"><B>RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee has appointed Farmer, Fuqua &#038; Huff, P.C. as the
independent auditor of American Realty Investors, Inc. for the 2004 fiscal
year. The Company&#146;s Bylaws do not require that stockholders ratify the
appointment of Farmer, Fuqua &#038; Huff, P.C. as the Company&#146;s independent auditor.
The Audit Committee will consider the outcome of this vote in its decision to
appoint an independent auditor next year; however, it is not bound by the
stockholders&#146; decision. Even if the selection is ratified, the Audit
Committee, in its sole discretion, may change the appointment at any time
during the year if it determines that such a change would be in the best
interest of the Company and its stockholders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A representative of Farmer, Fuqua &#038; Huff, P.C. will attend the Annual
Meeting. The representative will have an opportunity to make a statement if he
or she desires to do so and will be available to respond to appropriate
questions from the stockholders.


<P align="center" style="font-size: 10pt"><B>The Board of Directors recommends a vote FOR the ratification of the appointment of<BR>
Farmer, Fuqua &#038; Huff, P.C. as the Company&#146;s independent auditor.</B>



<P align="center" style="font-size: 10pt"><B>Change in the Company&#146;s Certifying Accountant</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective June&nbsp;1, 2004, the Board of Directors of the Company engaged the
Plano, Texas firm of Farmer, Fuqua &#038; Huff, P.C. as the independent accountant
to audit the Company&#146;s financial statements for the fiscal year ending December
31, 2004. During the Company&#146;s two most recent fiscal years and any subsequent
interim period, the Company did not consult with Farmer, Fuqua &#038; Huff, P.C. or
any of its members about the application of accounting principles to any
specified transaction or any other matter.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The engagement effective June&nbsp;1, 2004 of Farmer, Fuqua &#038; Huff, P.C. as a
new, independent accountant for the Company, necessarily resulted in the
termination or dismissal of the principal accountant which had audited the
Company&#146;s financial statements for the past two fiscal years and at December
31, 2002 and 2003, BDO Seidman LLP. BDO Seidman LLP&#146;s anticipated fee proposal
estimate to the Company for the balance of 2004 after the first quarter ended
was expected to be greater than the fee proposal of Farmer, Fuqua &#038; Huff, P.C.
for the same work. During the Company&#146;s two most recent fiscal years and any
subsequent interim period, BDO Seidman LLP&#146;s report on the Company&#146;s financial
statements for those two most recent fiscal years and the subsequent interim
period through June&nbsp;1, 2004, there were no disagreements between the Company
and BDO Seidman LLP concerning any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to BDO Seidman LLP&#146;s satisfaction would have
caused them to make reference to the subject matter of the disagreement in
connection with their report; there were no reportable events as described in
Item&nbsp;304(a)(1)(v) of Regulation&nbsp;S-K.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BDO Seidman LLP&#146;s reports dated April&nbsp;11, 2003 and April&nbsp;15, 2004 on the
Company&#146;s financial statements for the years ended December&nbsp;31, 2002 and 2003
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
Each report did contain an &#147;emphasis&#148; paragraph highlighting that management
had indicated its intent to sell income-producing properties and refinance or
extend debt secured by real estate to meet its liquidity needs.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The decision to change was approved by the Audit Committee of the Board of
Directors of the Company, consisting of Ted R. Munselle (Chairman), Martin L.
White and Sharon Hunt.


<P align="center" style="font-size: 10pt"><B>Fiscal Years 2002 and 2003 Audit Firm Fee Summary</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the aggregate fees for professional
services rendered to the Company for the years 2003 and 2002 by the Company&#146;s
then principal accounting firm, BDO Seidman, LLP:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Type of Fees</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Audit Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">376,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">352,568</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Audit-Related Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Tax Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214,150</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">All Other Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13,605</TD>
    <TD nowrap>(a)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">137,923</TD>
    <TD nowrap>(b)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total Fees:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">539,565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">704,641</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

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</DIV>



<P align="left" style="font-size: 10pt"><HR size="1" noshade width="12%" align="left">



<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All other fees for 2003 are related to the Company&#146;s Form 8-K ($750),
the Company&#146;s cash tender offer for shares of common stock of TCI and IOT
($3,735) and for training ($9,120).</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All other fees for 2002 are related to the Company&#146;s tender offer for
the shares of common stock of TCI and IOT ($119,623), debt analysis ($12,300)
and other activities ($6,000).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All services rendered by the principal auditors are permissible under
applicable laws and regulations and were pre-approved by either the Board of
Directors or the Audit Committee, as


<P align="center" style="font-size: 10pt">-14-
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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">required by law. The fees paid the principal auditors for services as
described in the above table fall under the categories listed below:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Audit Fees</I>. These are fees for professional services performed
by the principal auditor for the audit of the Company&#146;s annual
financial statements and review of financial statements included in
the Company&#146;s 10-Q filings and services that are normally provided in
connection with statutory and regulatory filing or engagements.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Audit-Related Fees</I>. These are fees for assurance and related
services performed by the principal auditor that are reasonably
related to the performance of the audit or review of the Company&#146;s
financial statements. These services include attestations by the
principal auditor that are not required by statute or regulation and
consulting on financial accounting/reporting standards.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tax Fees</I>. These are fees for professional services performed by
the principal auditor with respect to tax compliance, tax planning,
tax consultation, returns preparation and review of returns. The
review of tax returns includes the Company and its consolidated
subsidiaries.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>All Other Fees</I>. These are fees for other permissible work
performed by the principal auditor that do not meet the above category
descriptions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These services are actively monitored (as to both spending level and work
content) by the Audit Committee to maintain the appropriate objectivity and
independence in the principal auditor&#146;s core work, which is the audit of the
Company&#146;s consolidated financial statements.


<P align="center" style="font-size: 10pt"><B>Report of the Audit Committee<BR>
Of the Board of Directors</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee oversees the Company&#146;s auditing, accounting and
financial reporting processes on behalf of the Board. The Audit Committee also
recommends to the Board of Directors the selection of the Company&#146;s independent
accountants.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee&#146;s job is one of oversight as set forth in its charter,
a copy of which is attached as Appendix&nbsp;I. It is not a duty of the Audit
Committee to prepare the Company&#146;s financial statements, to plan or conduct
audits or to determine that the Company&#146;s financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
Management of the Company is responsible for preparing the Company&#146;s financial
statements and for maintaining internal controls. The independent auditors are
responsible for auditing the financial statements and for expressing an opinion
as to whether those audited financial statements fairly present the financial
position, results of operations and cash flows of the Company in conformity
with generally accepted accounting principles.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee has reviewed and discussed the audited consolidated
financial statements of the Company for the 2003 fiscal year with management,
and has discussed with the


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">independent accountants the matters required to be discussed by Statement
on Auditing Standards No.&nbsp;61 (Codification of Statements on Auditing Standards,
AU SEC. 380) which includes, among other things, matters related to the conduct
of the audit of the Company&#146;s financial statements. The Audit Committee has
received the written disclosures and the letter from the independent
accountants required by Independence Standards Board Standard No.&nbsp;1
(Independence Discussions with Audit Committees), and the Audit Committee has
discussed with representatives of the independent accountants their
independence.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based upon the review and discussions described above, the Audit Committee
recommended to the Board of Directors, and the Board has approved, that the
audited consolidated financial statements be included in the Company&#146;s Annual
Report on Form 10-K for the year ended December&nbsp;31, 2003, filed with the
Securities and Exchange Commission. The Audit Committee and the Board have
also selected Farmer, Fuqua &#038; Huff, P.C. as the Company&#146;s independent auditors
for fiscal year 2004.


<P align="center" style="font-size: 10pt">AUDIT COMMITTEE


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
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    <TD width="30%"></TD>
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    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
</TR>
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<TR valign="bottom">
    <TD align="left" valign="top">Sharon Hunt
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Ted R. Munselle
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">Martin L. White</TD>
</TR>

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</DIV>



<P align="left" style="font-size: 10pt"><B>Pre-Approval Policy for Audit and Non-Audit Services</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Sarbanes-Oxley Act of 2002 (the &#147;SO Act&#148;), and the rules of the
Securities and Exchange Commission (the &#147;SEC&#148;), the Audit Committee of the
Board of Directors is responsible for the appointment, compensation and
oversight of the work of the independent auditor. The purpose of the
provisions of the SO Act and the SEC rules for the Audit Committee role in
retaining the independent auditor is two-fold. First, the authority and
responsibility for the appointment, compensation and oversight of the auditors
should be with directors who are independent of management. Second, any
non-audit work performed by the auditors should be reviewed and approved by
these same independent directors to ensure that any non-audit services
performed by the auditor do not impair the independence of the independent
auditor. To implement the provisions of the SO Act, the SEC issued rules
specifying the types of services that an independent auditor may not provide to
its audit client, and governing the Audit Committee&#146;s administration of the
engagement of the independent auditor. As part of this responsibility, the
Audit Committee is required to pre-approve the audit and non-audit services
performed by the independent auditor in order to assure that they do not impair
the auditor&#146;s independence. Accordingly, the Audit Committee has adopted a
pre-approval policy for audit and non-audit services (the &#147;Policy&#148;), which sets
forth the procedures and conditions pursuant to which services to be performed
by the independent auditor are to be pre-approved. A copy of the Policy is
attached as Appendix&nbsp;II. Consistent with the SEC rules establishing two
different approaches to approving non-prohibited services, the policy of the
Audit Committee covers pre-approval of audit services, audit-related services,
international administration tax services, non-U.S. income tax compliance
services, pension and benefit plan consulting and compliance services, and U.S.
tax compliance and planning. At the beginning of each fiscal year, the Audit
Committee will evaluate other known potential engagements of the independent
auditor, including the scope of work proposed to be performed and the proposed
fees, and approve or reject each service, taking into account whether services
are permissible under applicable law and the possible impact of each non-audit
service on the independent auditor&#146;s


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">independence from management. Typically, in addition to the generally pre-approved
services, other services would include due diligence for an acquisition that
may or may not have been known at the beginning of the year. The Audit
Committee has also delegated to any member of the Audit Committee designated by
the Board or the financial expert member of the Audit Committee
responsibilities to pre-approve services to be performed by the independent
auditor not exceeding $25,000 in value or cost per engagement of audit and
non-audit services, and such authority may only be exercised when the Audit
Committee is not in session.


<P align="center" style="font-size: 10pt"><B>Compensation Committee Report</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has no employees, payroll or benefit plans and pays no
compensation to its executive officers. The executive officers of the Company
who are also officers or employees of Prime Income Asset Management LLC
(&#147;Prime&#148;) are compensated by Prime. Such executive officers perform a variety
of services for Prime, and the amount of their compensation is determined
solely by Prime. Prime does not allocate the cash compensation of its officers
among the various entities for which it may serve as advisor or sub-advisor.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The only remuneration paid by the Company is to the directors who are not
officers or directors of Prime. These independent directors (i)&nbsp;review the
business plan of the Company to determine that it is in the best interest of
the stockholders, (ii)&nbsp;review the advisory contract, (iii)&nbsp;supervise the
performance of the Company&#146;s advisor and review the reasonableness of the
compensation paid to the advisor in terms of the nature and quality of services
performed, (iv)&nbsp;review the reasonableness of the total fees and expenses of the
Company, and (v)&nbsp;select, when necessary, a qualified independent real estate
appraiser to appraise properties acquired. See &#147;Directors&#146; Compensation&#148; for a
description of the compensation paid.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee is responsible for overseeing the policies of
the Company relating to compensation to be paid by the Company, if any, to
certain designated officers and to make recommendations to the Board with
respect to compensation policies, produce necessary reports and executive
compensation for inclusion in the proxy statement, and to monitor the
development and implementation of succession plans. The charter of the
Compensation Committee was adopted on March&nbsp;22, 2004, and the members of the
Compensation Committee, all of whom are independent within the meaning of the
listing standards of the New York Stock Exchange and the Company&#146;s corporate
governance guidelines, are listed below. Since its formation on March&nbsp;22,
2004, the Compensation Committee has not performed any task to report other
than to review its existing charter.


<P align="center" style="font-size: 10pt">COMPENSATION COMMITTEE


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
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<TR valign="bottom">
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
</TR>
<!-- End Table Head -->
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<TR valign="bottom">
    <TD align="left" valign="top">Sharon Hunt
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Ted R. Munselle
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">Martin L. White</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Compensation Committee Interlocks and Insider Participation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Compensation Committee is made up of non-employee directors
who have never served as officers of, or been employed by, the Company. None
of the Company&#146;s executive


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">officers serve on a board of directors of any entity
that has a director or officer serving on this Committee.


<P align="left" style="font-size: 10pt"><B>Executive Officers</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive officers of the Company are Mark W. Branigan, Executive Vice
President &#150; Residential; Louis J. Corna, Executive Vice President &#150; Tax,
General Counsel/Tax Counsel and Secretary; and J.C. Lowenberg III, Executive
Vice President and Chief Financial Officer, all of whom are employed by Prime.
None of the executive officers receive any direct remuneration from the Company
nor do any hold any options granted by the Company. Their positions with the
Company are not subject to a vote of stockholders. The ages, terms of service
and all positions and offices with the Company, Prime, BCM, other affiliated
entities, other principal occupations, business experience and directorships
with other publicly-held companies during the last five years or more are set
forth below.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mark W. Branigan, 49</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Vice President&#150;Residential (since June&nbsp;2001), Executive Vice
President and Chief Financial Officer (August&nbsp;2000 to June&nbsp;2001), Vice
President&#150;Director of Construction (August&nbsp;1999 to August&nbsp;2000) of the Company,
IOT, TCI and BCM; Director (September&nbsp;2000 to June&nbsp;2001) of the Company, IOT
and TCI; Executive Vice President&#150;Residential (since July&nbsp;2003) of Prime and
PIAMI; Executive Vice President&#150;Residential Asset Management (January&nbsp;1992 to
October&nbsp;1997) of American Realty Trust, Inc. (&#147;ART&#148;); and Real Estate
Consultant (November&nbsp;1997 to July&nbsp;1999).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Louis J. Corna, 56</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Vice President&#150;Tax, General Counsel/Tax Counsel and Secretary
(since February&nbsp;2004), Executive Vice President (October&nbsp;2001 to February
2004), Executive Vice President and Chief Financial Officer (June&nbsp;2001 to
October&nbsp;2001) and Senior Vice President&#150;Tax (December&nbsp;2000 to June&nbsp;2001) of the
Company, TCI, IOT and BCM; Executive Vice President, General Counsel/Tax
Counsel and Secretary (since February&nbsp;2004), Executive Vice President&#150;Tax (July
2003 to February&nbsp;2004) of Prime and PIAMI; Private Attorney (January&nbsp;2000 to
December&nbsp;2000); Vice President&#150;Taxes and Assistant Treasurer (March&nbsp;1998 to
January&nbsp;2000) of IMC Global, Inc.; Vice President&#150;Taxes (July&nbsp;1991 to February
1998) of Whitman Corporation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>J.C. Lowenberg III, 50</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Vice President and Chief Financial Officer (since July&nbsp;1, 2004) of
the Company, TCI, BCM, Prime and PIAMI; Accounting Consultant focusing on
engagements involving due diligence for commercial real estate acquisitions and
dispositions (2001 to June&nbsp;2004); Chief Financial Officer (2000 to 2001) of
Reallinx, Inc., a start-up ASP and high-speed broadband service provider;
Contract Consultant (1999 to 2000); Vice President &#151; Treasurer and Chief
Financial Officer (1997 to 1999) of Summers Investments, Inc. and Summers
Group, a national real estate development and management company; Senior Vice President &#151; Financial
Administration/Corporate Chief Accounting Officer (1996 to 1997) of Paragon
Group, Inc.; CPA (since 1990).


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the foregoing executive officers, the Company has several
vice presidents and assistant secretaries who are not listed herein.


<P align="left" style="font-size: 10pt"><B>The Advisor</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the Board of Directors is directly responsible for managing the
affairs of the Company and for setting the policies which guide it, day-to-day
operations are performed by a contractual advisor under the supervision of the
Board of Directors. The duties of the advisor include, among other things,
locating, investigating, evaluating and recommending real estate and mortgage
note investment and sales opportunities, as well as financing and refinancing
sources. The advisor also serves as a consultant to the Board of Directors in
connection with the business plan and investment decisions made by the Board.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to July&nbsp;1, 2003, BCM served as the advisor to the Company since
August&nbsp;3, 2000. On July&nbsp;1, 2003, PIAMI became the advisor to the Company until
October&nbsp;1, 2003, when it was replaced by Prime. PIAMI is the sole member of
Prime. PIAMI is owned by Syntek West, Inc. (21%) and Realty Advisors, Inc.
(79%). Syntek West, Inc. (&#147;SWI&#148;) is a Nevada corporation owned by Gene E.
Phillips. Realty Advisors, Inc. (&#147;RAI&#148;) is a Nevada corporation owned by a
Trust for the benefit of the children of Gene E. Phillips. Mr.&nbsp;Phillips is not
an officer or director of Prime, but serves as a representative of the owners
of Prime and is involved in daily consultation with the officers of Prime and
has significant influence over the conduct of Prime&#146;s business, including the
rendering of advisory services and the making of investment decisions for
itself and the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Advisory Agreement, Prime is required to annually formulate and
submit for Board approval a budget and business plan containing a twelve-month
forecast of operations and cash flow, a general plan for asset sales and
purchases, borrowing activity and other investments. Prime is required to
report quarterly to the Board on the Company&#146;s performance against the business
plan. In addition, all transactions require prior Board approval, unless they
are explicitly provided for in the approved plan or are made pursuant to
authority expressly delegated to Prime by the Board.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Advisory Agreement also requires prior approval of the Board for the
retention of all consultants and third party professionals, other than legal
counsel. The Advisory Agreement provides that Prime shall be deemed to be in a
fiduciary relationship to the stockholders; contains a broad standard governing
Prime&#146;s liability for losses by the Company; and contains guidelines for
Prime&#146;s allocation of investment opportunities as among itself, the Company and
other entities it advises.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Advisory Agreement provides for the advisor to receive monthly base
compensation at the rate of 0.0625% per month (0.75% on an annualized basis) of
Average Invested Assets.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to base compensation, Prime, an affiliate of Prime, or a
related party receives the following forms of additional compensation:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) an acquisition fee for locating, leasing or purchasing real
estate for the Company in an amount equal to the lesser of (a)&nbsp;the
amount of compensation


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<P align="left" style="margin-left:3%; font-size: 10pt">customarily charged in similar arm&#146;s-length
transactions, or (b)&nbsp;up to 6% of the costs of acquisition, inclusive
of commissions, if any, paid to non-affiliated brokers;



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) a disposition fee for the sale of each equity investment in
real estate in an amount equal to the lesser of (a)&nbsp;the amount of
compensation customarily charged in similar arm&#146;s-length transactions,
or (b)&nbsp;3% of the sales price of each property, exclusive of fees, if
any, paid to non-affiliated brokers;



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) a loan arrangement fee in an amount equal to 1% of the
principal amount of any loan made to the Company arranged by Prime;



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) an incentive fee equal to 10% of net income for the year in
excess of a 10% return on stockholders&#146; equity, and 10% of the excess
of net capital gains over net capital losses, if any, realized from
sales of assets;



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) a mortgage placement fee, on mortgage loans originated or
purchased, equal to 50%, measured on a cumulative basis, of the total
amount of mortgage origination and placement fees on mortgage loans
advanced by the Company for the fiscal year.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Advisory Agreement further provides that Prime shall bear the cost of
certain expenses of its employees, excluding fees paid to the Company&#146;s
directors; rent and other office expenses of both Prime and the Company (unless
the Company maintains office space separate from that of Prime); costs not
directly identifiable to the Company&#146;s assets, liabilities, operations,
business or financial affairs; and miscellaneous administrative expenses
relating to the performance by Prime of its duties under the Advisory
Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If and to the extent that the Company shall request of Prime, or any
director, officer, partner or employee of Prime, to render services to the
Company other than those required to be rendered by Prime 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.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Advisory Agreement automatically renews from year to year unless
terminated in accordance with its terms. Management believes that the terms of
the Advisory Agreement are at least as fair as could be obtained from
unaffiliated third parties.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Situations may develop in which the interests of the Company are in
conflict with those of one or more directors or officers in their individual
capacities or of Prime, or of their respective affiliates. In addition to
services performed for the Company, as described below, Prime actively provides
similar services as agent for, and advisor to, other real estate enterprises,
including persons and entities involved in real estate developing and
financing, including IOT and TCI. The Advisory Agreement provides that Prime
may also serve as advisor to those entities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As advisor, Prime is a fiduciary of the Company&#146;s public investors. In
determining to which entity a particular investment opportunity will be
allocated, Prime will consider the respective investment objectives of each
entity and the appropriateness of a particular investment in light of


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">each such entity&#146;s existing mortgage note and real estate portfolios and business plan.
To the extent any particular investment opportunity is appropriate to more than
one such entity, such investment opportunity will be allocated to the entity
that has had funds available for investment for the longest period of time, or,
if appropriate, the investment may be shared among various entities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The managers and principal officers of Prime are set forth below:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="26%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Office(s)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mickey N. Phillips
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manager</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ryan T. Phillips
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manager</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mark W. Branigan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President &#150;- Residential</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Louis J. Corna
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President &#151; Tax, General Counsel/Tax
Counsel and Secretary</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J.C. Lowenberg III
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President and Chief Financial Officer</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dan S. Allred
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President &#150;- Land Development</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Micky N. Phillips is the brother of Gene E. Phillips, and Ryan T. Phillips
is the son of Gene E. Phillips.


<P align="left" style="font-size: 10pt"><B>Property Management and Real Estate Brokerage</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Affiliates of BCM provided property management services to the Company.
Currently, Triad Realty Services, Ltd. (&#147;Triad&#148;), an affiliate, and Carmel
Realty, Inc. (&#147;Carmel&#148;) provide property management services to the Company&#146;s
properties for a fee of 5% or less of the monthly gross rents collected on the
residential properties under its management and 3% or less of the monthly gross
rents collected on the commercial properties under its management. Triad and
Carmel subcontract with other entities for the provision of property-level
management services at various rates. The general partner of Triad is BCM.
The limited partner of Triad is Highland Realty Services, Inc. (&#147;Highland&#148;), a
related party. Until December&nbsp;2002, Triad subcontracted the property-level
management and leasing of 12 of the Company&#146;s commercial properties (shopping
centers, office buildings and merchandise mart) to Regis Realty, Inc.
(&#147;Regis&#148;), a related party, which was a company owned by GS Realty Services,
Inc. Regis was entitled to receive property and construction management fees
and leasing commissions in accordance with the terms of its property-level
management agreement with Triad. Since January&nbsp;1, 2003, Regis Realty I, LLC
(&#147;Regis I&#148;) has provided these services. Regis I is owned by Highland. Regis
Hotel Corporation, a related party, managed eight of the Company&#146;s hotels until
December&nbsp;2002. Since January&nbsp;1, 2003, Regis Hotel I, LLC has managed eight of
the Company&#146;s hotels. The sole member of Regis I and Regis Hotel I,
LLC is Highland. Carmel is a company previously owned by First Equity
Properties, Inc., which is a company affiliated with BCM. On May&nbsp;1, 2004,
Regis I acquired the ownership of Carmel.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Regis I, a related party, provides real estate brokerage services to the
Company and receives brokerage commissions in accordance with the Advisory
Agreement.


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<P align="center" style="font-size: 10pt"><B>Certain Relationships and Related Transactions</B>



<P align="left" style="font-size: 10pt"><B>Policies with Respect to Certain Activities</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article&nbsp;ELEVENTH of the Company&#146;s Articles of Incorporation provides that
the Company shall not, directly or indirectly, contract or engage in any
transaction with (1)&nbsp;any director, officer or employee of the Company, (2)&nbsp;any
director, officer or employee of the advisor, (3)&nbsp;the advisor, or (4)&nbsp;any
affiliate or associate (as such terms are defined in Rule&nbsp;12b-2 under the
Securities Exchange Act of 1934, as amended) of any of the aforementioned
persons, unless (a)&nbsp;the material facts as to the relationship among or
financial interest of the relevant individuals or persons and as to the
contract or transaction are disclosed to or are known by the Company&#146;s Board of
Directors or the appropriate committee thereof, and (b)&nbsp;the Company&#146;s Board of
Directors or appropriate committee thereof determines that such contract or
transaction is fair to the Company and simultaneously authorizes or ratifies
such contract or transaction by the affirmative vote of a majority of
independent directors of the Company entitled to vote thereon. Article
ELEVENTH defines an &#147;Independent Director&#148; (for purposes of that Article) as
one who is neither an officer or employee of the Company, nor a director,
officer or employee of the Company&#146;s advisor. This definition predates the
Company&#146;s director independence guidelines adopted in February&nbsp;2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s policy is to have such contracts or transactions approved or
ratified by a majority of the disinterested directors with full knowledge of
the character of such transactions, as being fair and reasonable to the
stockholders at the time of such approval or ratification under the
circumstances then prevailing. Such directors also consider the fairness of
such transactions to the Company. Management believes that, to date, such
transactions have represented the best investments available at the time and
that they were at least as advantageous to the Company as other investments
that could have been obtained. The Company may enter into future transactions
with entities the officers, directors or stockholders of which are also
officers, directors or stockholders of the Company, if such transactions would
be beneficial to the operations of the Company and consistent with the
Company&#146;s then-current investment objectives and policies, subject to approval
by a majority of disinterested directors as discussed above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company does not prohibit its officers, directors, stockholders or
related parties from engaging in business activities of the types conducted by
the Company.


<P align="left" style="font-size: 10pt"><B>Certain Business Relationships</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective July&nbsp;1, 2003, PIAMI became the advisor to the Company and TCI.
PIAMI is owned by Realty Advisors (79%) and Syntek West, Inc. (21%). On
October&nbsp;1, 2003, Prime, which is 100% owned by PIAMI, replaced PIAMI as the
advisor to the Company and TCI. Prime is a company for which Messrs.&nbsp;Branigan,
Corna and Lowenberg serve as executive officers. The executive officers of the
Company also serve as executive officers of TCI and Messrs.&nbsp;Corna and Branigan
also serve as executive officers of IOT, and owe fiduciary duties to each of
those entities as well as to Prime under applicable law. TCI has the same
relationship with Prime as does the Company.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company contracts with affiliates of BCM for property management
services. Currently, Triad, an affiliate, and Carmel provide such property
management services. The general partner of Triad is BCM. The limited partner
of Triad is Highland, a related party. Triad subcontracts the property-level
management of 12 of the Company&#146;s commercial properties (office buildings,
shopping centers and a merchandise mart) to Regis I, a related party, which is
a company also owned by Highland. Regis I also provides real estate brokerage
services to the Company and receives brokerage commissions in accordance with
the Advisory Agreement. Regis Hotel I, LLC manages ARI&#146;s eight hotels. Carmel
is a company previously owned by First Equity Properties, Inc., which is a
company affiliated with BCM. On May&nbsp;1, 2004, Regis I acquired the ownership of
Carmel.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company owns an equity interest in each of IOT and TCI. At December
31, 2003, the Company, through two wholly-owned subsidiaries, owned
approximately 80% of TCI&#146;s outstanding common stock and TCI owned approximately
24% of IOT&#146;s outstanding common stock.


<P align="left" style="font-size: 10pt"><B>Related Party Transactions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, the Company, TCI, IOT, BCM and Prime have each engaged in,
and may continue to engage in, business transactions, including real estate
partnerships, with related parties. Management believes that all of the
related party transactions represented the best investments available at the
time and were at least as advantageous to the Company as could have been
obtained from unrelated parties.


<P align="left" style="font-size: 10pt"><B>Operating Relationships</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;1997, a predecessor of the Company entered into leases with BCM and
an affiliate of BCM for space at the One Hickory Centre Office Building,
construction of which was completed in December&nbsp;1998. The BCM leases,
effective upon the Company&#146;s obtaining permanent financing of the building,
were for 75,852 square feet (approximately 75% of the building), had terms of
ten and fifteen years and provided for annual base rent of $19.25 per square
foot for the first year. In January&nbsp;2001, both leases were terminated, and the
Company entered into a new lease with BCM, effective October&nbsp;1, 2000. The new
lease is for 59,463 square feet (approximately 62% of the building), has a term
of three years, and provides for annual base rent of $1.3&nbsp;million, or $21.50
per square foot. Effective March&nbsp;1, 2002, the lease was amended to 57,879
square feet (approximately 59% of the building), with an annual base rent of
$1.2&nbsp;million, or $21.50 per square foot. In April
2002, the Company sold the subsidiary which owns the building to TCI. In
October&nbsp;2003, the Company re-acquired the building from IOT.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, the Company paid the advisors, their affiliates and a related
party $6&nbsp;million in advisory fees, $411,000 in mortgage brokerage and equity
refinancing fees, $254,000 in property acquisition fees, $4.7&nbsp;million in real
estate brokerage commissions and $2.5&nbsp;million in property and construction
management fees and leasing commissions, net of property management fees paid
to subcontractors, other than affiliates of BCM and Prime. In addition, as
provided in the Advisory Agreement, in 2003, BCM and Prime together as advisors
received cost reimbursements of $4.1&nbsp;million.


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<P align="left" style="font-size: 10pt"><B>Partnership Transactions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BCM has entered into put agreements with certain holders of Class&nbsp;A
limited partnership units of Ocean Beach Partners, L.P. The Class&nbsp;A units are
convertible into Series&nbsp;D Cumulative Preferred Stock of the Company. The put
price of the Series&nbsp;D Cumulative Preferred Stock is $20 per share plus accrued
but unpaid dividends.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BCM has entered into put agreements with the holders of the Class&nbsp;A units
of ART Palm, L.P. Such Class&nbsp;A units are convertible into Series&nbsp;C Cumulative
Preferred Stock of the Company. The put price for the Class&nbsp;A units is $1 per
unit, and the put price for either the Series&nbsp;C Cumulative Preferred Stock or
the Company&#146;s Common Stock is 90% of the average daily closing price of the
Company&#146;s Common Stock for the prior 20 trading days. The put agreement, as
amended June&nbsp;18, 2004, calls for the Company to repurchase the outstanding
Class&nbsp;A units on December&nbsp;31, 2004 (750,000 units), December&nbsp;31, 2005 (875,000
units), and December&nbsp;31, 2006 (5,938,750 units).


<P align="left" style="font-size: 10pt"><B>Advances and Losses</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, the Company and its affiliates have made advances to
each other, which have not had specific repayment terms, do not bear interest,
are unsecured and have been reflected in the Company&#146;s financial statements as
other assets or other liabilities. At December&nbsp;31, 2003, after accounting for
affiliate purchases and sales, amounts still owed by the Company were $367,000
to IOT, and amounts owed to the Company were $2&nbsp;million by BCM. The Company
also owed $1.4&nbsp;million to affiliates related to cash received upon the sale of
apartments to Metra.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;1999, the Company funded a $4.7&nbsp;million loan to Realty
Advisors, Inc., an affiliate. The loan, to provide funds for acquisitions or
working capital needs, was secured by all of the outstanding shares of common
stock of American Reserve Life Insurance Company. The loan bore interest at
10.25% per annum, and matured in November&nbsp;2001. In January&nbsp;2000, $100,000 was
collected. In November&nbsp;2001, the maturity date was extended to November&nbsp;2004.
The collateral was changed to a subordinate pledge of 850,000 shares of the
Company&#146;s Common Stock owned by BCM. The shares are also pledged to a lender
on the Company&#146;s behalf. The interest rate was changed to 2% over the prime
rate, currently 6.25% per annum, and the accrued but unpaid interest of
$984,000 was added to the principal. The new principal balance is $5.6
million. All principal and accrued interest are due at maturity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2000, a loan with a remaining principal balance of $2.6&nbsp;million
to Lordstown, L.P. matured. The loan, to provide funds to purchase for resale
various parcels of land, was secured by a second lien on land in Ohio and
Florida, by 100% of the general and limited partner interest in Partners
Capital, Ltd., the limited partner of Lordstown, L.P., and a profits interest
in subsequent land sales. A corporation controlled by Richard D. Morgan is the
general partner of Lordstown, L.P. Mr.&nbsp;Morgan served as a director of the
Company until October&nbsp;2001. In December&nbsp;2003, the note was exchanged with
Regis I, a related party, for three notes receivable (i) $1.4&nbsp;million from
Unified Housing of Harvest Hill, LLC (&#147;Harvest Hill&#148;); (ii) $1.4&nbsp;million from
Unified Housing of Harvest Hill I, LLC (&#147;Harvest Hill I&#148;); and (iii) $2.1
million from Unified Housing of Harvest Hill III, LLC (&#147;Harvest Hill III&#148;),
related parties. All three notes bear interest at 12%, mature in October&nbsp;2013,
and require monthly payments of interest, to the extent surplus cash is
available, beginning in


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">November&nbsp;2003. No payments have been received to date.
Ted P. Stokely, Chairman of the Board and a director of the Company, is the
general manager of Unified Housing Foundation, Inc. (&#147;Unified&#148;), a related
party, which is the sole member of each of Harvest Hill, Harvest Hill I and
Harvest Hill III.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2000, an unsecured loan with a remaining principal balance of
$1.8&nbsp;million to Warwick of Summit, Inc. (&#147;Warwick&#148;) matured. The loan was made
to provide funds to purchase, renovate and expand a shopping center property in
Warwick, Rhode Island. All principal and interest were due at maturity. In
February&nbsp;2002, $275,000 of interest was received. In March&nbsp;2003, $27,000 of
principal and $223,000 of interest was received. In April&nbsp;2003, $149,000 of
principal and $26,000 of interest was received. In July&nbsp;2003, $10,000 of
interest was received. Richard D. Morgan, a Warwick shareholder, served as a
director of the Company until October&nbsp;2001. In December&nbsp;2003, the note was
sold to Prime for $1.8&nbsp;million to reduce the Company&#146;s affiliate debt.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2000, a loan with a principal balance of $1.6&nbsp;million to
Bordeaux Investments Two, LLC (&#147;Bordeaux&#148;) matured. The loan, to provide funds
to purchase and renovate a shopping center property in Oklahoma City, Oklahoma,
was secured by (a)&nbsp;a 100% interest in Bordeaux, which owns a shopping center in
Oklahoma City, Oklahoma; (b)&nbsp;100% of the stock of Bordeaux Investments One,
Inc., which owns 6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and
(c)&nbsp;the personal guarantees of the Bordeaux members. Richard D. Morgan, a
Bordeaux member until July&nbsp;2003, served as a director of the Company until
October&nbsp;2001. In July&nbsp;2003, the members of Bordeaux assigned 100% of the
membership interest in Bordeaux to the Company in payment of the note. The
Company recorded real estate assets of $8.8&nbsp;million and assumed $7.2&nbsp;million of
mortgage debt and other liabilities on the shopping center and the undeveloped
land. No gain or loss was recorded on this transaction. In December&nbsp;2003, the
shopping center was exchanged with Regis I, a related party, for three notes
receivable, (i) $1.4&nbsp;million from Harvest Hill; (ii) $1.4&nbsp;million from Harvest
Hill I; and (iii) $2.1&nbsp;million from Harvest Hill III, related parties. All
three notes bear interest at 12%, mature in October&nbsp;2013, and require monthly
payments of interest, to the extent surplus cash is available, beginning in
November&nbsp;2003. No payments have been received to date. Ted P. Stokely,
Chairman of the Board and a director of the Company, is the general manager of
Unified, a related party, which is the sole member of each of Harvest Hill,
Harvest Hill I and Harvest Hill III.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2001, the Company funded $13.6&nbsp;million of a $15&nbsp;million unsecured line
of credit to One Realco Corporation (&#147;One Realco&#148;). A wholly-owned subsidiary
of One Realco owns approximately 2.1% of the outstanding shares of the
Company&#146;s Common Stock. One Realco
periodically borrows money to meet its cash obligations. The line of
credit bore interest at 12% per annum. All principal and interest were due at
maturity in February&nbsp;2002. The line of credit is guaranteed by BCM. In June
2001, $394,000 in principal and $416,000 in interest was collected. In
December&nbsp;2001, $21,000 in principal and $804,000 in interest was collected. In
February&nbsp;2002, the line of credit was increased to $18&nbsp;million, accrued but
unpaid interest of $217,000 was added to the principal and the maturity date
was extended to February&nbsp;2004. In March&nbsp;2002, the Company funded an additional
$1.8&nbsp;million, increasing the outstanding principal balance to $15.5&nbsp;million.
In October&nbsp;2002, $856,900 in interest was collected by the return of 85,690
shares of the Company&#146;s Series&nbsp;A Preferred Stock. In June&nbsp;2003, the Company
sold a participating interest in $5.8&nbsp;million of the $15.5&nbsp;million balance to
BCM, receiving 314,141 TCI shares from BCM. In February&nbsp;2004,


<P align="center" style="font-size: 10pt">-25-
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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">$2.3&nbsp;million in
interest was collected, accrued but unpaid interest of $161,000 was added to
the principal, the maturity date was extended to February&nbsp;2007, and the
interest rate was changed to 2% over the prime rate, currently 6.25%. All
principal and interest are due at maturity. Ronald E. Kimbrough, Acting
Principal Executive Officer, Executive Vice President and Chief Financial
Officer of the Company until May&nbsp;31, 2004, was a 10% shareholder of One Realco.
Mr.&nbsp;Kimbrough did not participate in the day-to-day operations or management
of One Realco.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2002, the Company converted $4.5&nbsp;million of its receivable from
BCM to a recourse note receivable. This transaction was to provide the Company
with additional security over that provided by an unsecured receivable. The
note bore interest at 10% per annum, matured in March&nbsp;2004, and required
quarterly payments of principal and accrued interest, beginning in December
2002. In December&nbsp;2003, the Company received 92,052 shares of TCI common stock
in payment of the note and accrued interest.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;2, 2003, the Company exchanged all of its 674,971 IOT shares with
BCM, receiving 650,000 TCI shares from BCM. In addition, BCM executed a
promissory note in favor of the Company in the amount of $526,000. After the
exchange, the Company owned 72.9% of the outstanding shares of TCI. On June
30, 2003, the Company sold a participating interest in $5.8&nbsp;million of its
$15.5&nbsp;million line of credit receivable from One Realco to BCM, receiving
314,141 TCI shares from BCM. After the transaction, the Company owned 76.8% of
the outstanding shares of TCI. In December&nbsp;2003, the Company purchased 88,600
TCI shares in market transactions and 204,633 TCI shares in private
transactions with related parties for a total of $1.4&nbsp;million. At December&nbsp;31,
2003, the Company owned 80% of the outstanding shares of TCI. The Company no
longer owns any IOT shares. At December&nbsp;31, 2003, the Company owned 19.2% of
IOT through TCI&#146;s ownership of IOT shares. The Company ceased consolidation of
IOT&#146;s accounts and operations effective June&nbsp;2, 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2003, the Company sold its interest in Milano Restaurants
International Corp. (&#147;MRI&#148;) to Gruppa Florentina, LLC (&#147;Gruppa&#148;) for $18.5
million, receiving $7.4&nbsp;million in cash after debt assumption and providing
purchase money financing of $2.3&nbsp;million. The Company owns 20% of Gruppa,
thereby retaining a 20% interest in MRI. The Company remains as the guarantor
of $8.7&nbsp;million of assumed debt and is one of the guarantors of $7.5&nbsp;million in
new debt obtained by Gruppa. Due to the debt guarantees and the Company&#146;s
continuing ownership of interest in MRI, management has determined that this
should be accounted for as a financing transaction. In September&nbsp;2003, the
Company sold the note to SWI for $2.3&nbsp;million, plus accrued but unpaid
interest.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2003, Encino Executive Plaza, Ltd., of which ART Encino, Inc.,
a subsidiary of the Company, is the sole general partner, borrowed $1.6&nbsp;million
from IOT which was then advanced as loans secured by partnership interests to
the Class&nbsp;A Limited Partners of Encino Executive Plaza, Ltd. The loan from IOT
bore interest at 2% per annum and matures in June&nbsp;2006. All principal and
interest are due at maturity. Effective January&nbsp;1, 2004, the interest rate was
changed to 5.49%.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Property Transactions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2002, IOT purchased 100% of the outstanding common shares of
Rosedale Corporation (&#147;Rosedale&#148;), a wholly-owned subsidiary of the Company,
for $5.1&nbsp;million. The purchase price was determined based upon the market
value of the property exchanged, using a market rate multiple of net operating
income. Rosedale owned the Rosedale Towers Office Building. The Company
guaranteed that the asset would produce at least a 12% annual return on the
purchase price for a period of three years from the purchase date. If the
asset failed to produce the 12% return, the Company would pay IOT any
shortfall. In addition, if the asset failed to produce the 12% return for a
calendar year, IOT could require the Company to repurchase the shares of
Rosedale for the purchase price. The business purpose of the transaction was
for IOT to make an equity investment in Rosedale, anticipating a profitable
return, and for the Company to receive cash for its equity investment.
Management classified this related-party transaction as a note payable to IOT.
After IOT sold the Rosedale Towers Office Building to an unrelated buyer in
December&nbsp;2002, the Company owed $2.1&nbsp;million to IOT for remaining principal and
a 12% return. In April&nbsp;2003, the Company repaid $2&nbsp;million in principal and
accrued interest. In August&nbsp;2003, the Company repaid the remaining principal
and accrued interest.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2002, TCI purchased all of the general and limited partnership
interest in Garden Confederate Point, L.P. (&#147;Confederate Point&#148;) from the
Company for $1.9&nbsp;million. The purchase price was determined based upon the
market value of the property exchanged using a market rate multiple of net
operating income. Confederate Point owned the Confederate Point Apartments.
The Company guaranteed that the asset would produce at least a 12% annual
return on the purchase price for a period of three years from the purchase
date. If the asset failed to produce the 12% return for a calendar year, TCI
could require the Company to repurchase the interests in Confederate Point for
the purchase price. The business purpose of this transaction was for TCI to
make an equity investment in Confederate Point anticipating a profitable return
and to reduce the Company&#146;s payable to BCM. Management classified this
related-party transaction as a note payable to TCI. Failure to notify and
receive approval from the lender for this transaction may constitute an event
of default under the terms of the debt assumed by TCI. In November&nbsp;2003, the
Confederate Point Apartments were sold to an unrelated buyer. The Company
repaid $2&nbsp;million in principal and accrued interest.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2002, the Company purchased all the general and limited partnership
interests in Chalet North, L.P. (&#147;Chalet North&#148;) from BCM for $3&nbsp;million.
Chalet North owned the Pinecrest Apartments. The purchase price was determined
based on the market value of the property exchanged, using a market rate
multiple of net operating income. The Company assumed debt of $1.4&nbsp;million.
The Company&#146;s receivable from BCM was reduced by $1.6&nbsp;million, and no cash was
paid to the Company. The business purpose of the transaction was to reduce the
affiliate payable owed by BCM to the Company. In June&nbsp;2003, the Company sold
the Pinecrest Apartments to an
unrelated party. The Company received $1.1&nbsp;million cash and recognized a
$304,000 loss on the sale.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2002, the Company purchased the Tiberon Trails Apartments
(&#147;Tiberon&#148;) from BCM for $12.3&nbsp;million. The purchase price was determined
based on the market value of the property exchanged, using a multiple of net
operating income. The Company assumed debt of $6.4&nbsp;million.


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">The Company&#146;s receivable from BCM was reduced by $5.9&nbsp;million, and no cash was paid to the
Company. The business purpose of the transaction was to reduce the affiliate
payable owed by BCM to the Company. In March&nbsp;2004, the Company sold Tiberon.
In December&nbsp;2003, the Company recognized a writedown of $2&nbsp;million to reduce
the value of Tiberon to its net realizable value.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2002, the Company obtained 71.4% interest in Realty Advisors
Korea, Ltd. (&#147;RAK&#148;) from BCM for $6&nbsp;million. The business purpose of the
transaction was to reduce the affiliate payable owed by BCM to the Company.
The Company&#146;s receivable from BCM was reduced by $6&nbsp;million, and no cash was
paid to the Company. At the date of acquisition, RAK&#146;s assets consisted of
$2.3&nbsp;million in cash, $3&nbsp;million in deposits and marketable securities, and
$225,000 in other assets. RAK&#146;s net equity was $5.5&nbsp;million. The Company
recorded $1.9&nbsp;million in goodwill as a result of this transaction. On June&nbsp;30,
2003, the Company sold its 71.4% interest in RAK to Realty Advisors for $6
million, reducing the Company&#146;s affiliate debt. Realty Advisors also paid the
Company $600,000, representing 10% interest on the $6&nbsp;million price paid by the
Company to purchase the 71.4% interest in RAK in 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2002, the Company sold the Lakeshore Villas Apartments to
Housing for Seniors of Humble, LLC (&#147;Humble&#148;), a related party, for $22
million, paying $764,000 after payment of closing costs and debt paydown and
providing purchase money financing of $8.4&nbsp;million. The Company&#146;s first note
had a principal amount of $2&nbsp;million. The note was unsecured, and was
guaranteed by Unified, a related party. The second note had a principal amount
of $6.4&nbsp;million and was secured by a pledge by Unified of 100% of the member
interest in Humble. Both notes bore interest at 11.5% per annum, matured in
December&nbsp;2009, and required quarterly payments beginning in March&nbsp;2003.
Richard W. Humphrey, a director of the Company until July&nbsp;2003, is the
President of Humble and the President and Treasurer of Unified. Ted. P.
Stokely, Chairman of the Board and a director of the Company, is the general
manager of Unified. In December&nbsp;2003, both notes were sold to IOT for $8.4
million, plus accrued interest, to reduce the Company&#146;s affiliate debt.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2003, TCI purchased the Bridgeview Plaza and Cullman shopping
centers from the Company for $8.7&nbsp;million and $2&nbsp;million, respectively, to
reduce the Company&#146;s affiliate debt. The purchase price was determined using a
market rate multiple of net operating income. TCI assumed debt of $2.7&nbsp;million
on Cullman. TCI received $5.1&nbsp;million cash on the subsequent financing of the
shopping center.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2003, the Company purchased the Travelers land from IOT for $25
million, paying $1.9&nbsp;million in cash and giving a wrap note payable to IOT for
$22.8&nbsp;million. The note bears interest at 5.49%, requires monthly payments
sufficient to pay the installments due on the underlying debt and matures in
October&nbsp;2006. The principal is due at maturity.


<P align="center" style="font-size: 10pt"><B>PERFORMANCE GRAPH</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following graph compares the cumulative total stockholder return on
the Company&#146;s shares (ART&#146;s shares prior to August&nbsp;2000) of Common Stock with
the Dow Jones US Equity Market Index (&#147;Total U.S. Market Index&#148;) and the Dow
Jones Real Estate Investment Index (&#147;Real Estate Index&#148;). The comparison
assumes that $100 was invested on December&nbsp;31, 1998, in shares of Common Stock
of the Company, and in each of the indices and further assumes the reinvestment
of all distributions. Past performance is not necessarily an indicator of
future performance.


<P align="center" style="font-size: 10pt">-28-
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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt"><IMG src="d17554dd1755401.gif" ALT="PERFORMANCE GRAPH">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1998</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">ARI</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">104.17</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">83.52</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60.34</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">49.57</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">55.94</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Real Estate Index</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">94.69</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">120.74</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">134.99</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">139.90</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">191.51</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total US Market Index</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">122.54</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">111.35</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">98.08</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">76.43</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">99.92</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B>OTHER MATTERS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors knows of no other matters that may be properly or
should be brought before the Annual Meeting. However, if any other matters are
properly brought before the Annual Meeting, the persons named in the enclosed
proxy or their substitutes will vote in accordance with their best judgment on
such matters.


<P align="center" style="font-size: 10pt"><B>FINANCIAL STATEMENTS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audited financial statements of the Company, in comparative form for
the years ended December&nbsp;31, 2003 and 2002 are contained in the 2003 Annual
Report to Stockholders, which was separately mailed to stockholders in advance
of this proxy statement. However, such report and the financial statements
contained therein are not to be considered part of this solicitation.


<P align="center" style="font-size: 10pt"><B>SOLICITATION OF PROXIES</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>THIS PROXY STATEMENT IS FURNISHED TO STOCKHOLDERS TO SOLICIT PROXIES ON
BEHALF OF THE BOARD OF DIRECTORS OF AMERICAN REALTY INVESTORS, INC. </B>The cost
of soliciting proxies will be born by the Company. Directors and


<P align="center" style="font-size: 10pt">-29-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;officers of the Company may, without additional compensation, solicit by mail, in person or
by telecommunication.


<P align="center" style="font-size: 10pt"><B>FUTURE PROPOSALS OF STOCKHOLDERS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholder proposals for our Annual Meeting to be held in 2005 must be
received by us by December&nbsp;31, 2004, and must otherwise comply with the rules
promulgated by the Securities and Exchange Commission to be considered for
inclusion in our proxy statement for that year. Any stockholder proposal,
whether or not to be included in our proxy materials, must be sent to our
Corporate Secretary at 1800 Valley View Lane, Suite&nbsp;300, Dallas, Texas 75234.


<P align="center" style="font-size: 10pt"><HR size="1" noshade width="25%" align="center">



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>COPIES OF AMERICAN REALTY INVESTORS, INC.&#146;S ANNUAL REPORT FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2003 TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM
10-K ARE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO
AMERICAN REALTY INVESTORS, INC., 1800 VALLEY VIEW LANE, SUITE 300, DALLAS,
TEXAS 75234, ATTN: INVESTOR RELATIONS.</B>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dated: August 6, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">


<TR valign="bottom" style="padding-top: 1em">
    <TD>&nbsp;</TD>
    <TD align="left" nowrap valign="top"><DIV style="margin-left:10px; text-indent:-10px">By order of the Board of Directors,</DIV></TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD>&nbsp;</TD>
    <TD align="left" nowrap valign="top">/s/ Louis J. Corna<BR>
Louis J. Corna, Executive Vice President,<BR>
General Counsel, Tax Counsel and Secretary</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-30-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>APPENDIX I</B>



<P align="center" style="font-size: 10pt"><B>AMERICAN REALTY INVESTORS, INC.<BR>
AUDIT COMMITTEE CHARTER</B>



<P align="left" style="font-size: 10pt"><B>Organization</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee of the Board of Directors shall be comprised of at
least three directors who are independent of management and the Company. Each
member of the Audit Committee must be determined to be independent under the
New York Stock Exchange (&#147;NYSE&#148;) standards and must meet the additional
requirements under the Exchange Act. Under these requirements, an Audit
Committee member may not accept, directly or indirectly, any consulting,
advisory or other compensatory fee from the Company, other than director fees.
Also, an Audit Committee member may not be an affiliated person of the Company.
Members of the Audit Committee shall be considered independent if they have no
relationship to the Company that may interfere with the exercise of their
independent judgment from management and the Company. All Audit Committee
members will be financially literate, and at least one member shall be an
&#147;audit committee financial expert,&#148; as defined by the SEC.


<P align="left" style="font-size: 10pt"><B>Statement of Policy</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee shall provide assistance to directors in fulfilling
their oversight responsibility to the shareholders, potential shareholders, and
investment community relating to: the integrity of the Company&#146;s financial
statements, the Company&#146;s compliance with legal and regulatory requirements,
the independent auditor&#146;s qualifications and independence, and the performance
of the Company&#146;s internal audit function and the independent auditors. In so
doing, it is the responsibility of the audit committee to maintain free and
open communication among the directors, the independent auditors and the
financial management of the Company. It is the expectation of the Audit
Committee that the financial management will fulfill its responsibility of
bringing any significant items to the attention of the Audit Committee.


<P align="left" style="font-size: 10pt"><B>Responsibilities</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In carrying out its responsibilities, the Audit Committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the directors and shareholders that the
corporate accounting and reporting practices of the Company are in accordance
with pertinent requirements.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a listing of the Audit Committee&#146;s responsibilities:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General</I></B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Obtain annually the full Board of Directors&#146; approval of this
Charter and review and reassess this Charter as conditions dictate.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">I-1
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each Committee meeting with, the
Board of Directors.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Report the results of the annual audit to the Board of Directors.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Investigate any matter brought to its attention within the scope
of its duties, with the power to retain outside legal, accounting or
other advisors for this purpose if, in its judgment, that is
appropriate.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review, consider and authorize any proposal to hire employees or
former employees of the independent auditors.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Monitor procedures for the receipt, retention and treatment of
complaints received from employees regarding accounting, internal
control or auditing matters, including the confidential and anonymous
submission by employees regarding questionable accounting or auditing
practices.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Include a report of the Audit Committee in the proxy statement.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On an annual basis, conduct a self evaluation.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD colspan="3" nowrap align="left"><B><I>Meetings and Communications</I></B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">9.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Hold regularly scheduled meetings.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">10.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Periodically, the Committee will meet privately with the
independent auditors, with the Company&#146;s Chief Financial Officer and
with the Company&#146;s internal auditor to discuss issues and concerns
warranting Committee attention.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">11.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review the financial statements contained in the annual report to
the shareholders. Discuss such annual report with management and the
independent auditors, including the Company&#146;s disclosures under
Management&#146;s Discussion and Analysis of Financial Condition and
Results of Operations. Determine that the independent auditors are
satisfied with the disclosure and content of the financial statements
to be presented to the shareholders. Review with financial management
and the independent auditors the results of their timely analysis of
significant financial reporting issues and practices, including
changes in, or adoptions of, accounting principals and disclosure
practices, and discuss other matters required to be communicated to
the Committee by the auditors.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">12.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review with the independent auditors, the Company&#146;s internal
auditor, and financial and accounting personnel the adequacy and
effectiveness of the accounting and financial controls of the Company,
and elicit recommendations for the improvement of such internal
controls or particular areas where new or more detailed controls or
procedures are desirable.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">I-2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">13.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review, in general, earnings press releases, quarterly filings,
and financial information and earnings guidance provided to analysts
and rating agencies.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">14.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Discuss policies with respect to risk assessment and risk
management.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><I>&nbsp;</I></B></TD>
    <TD width="1%"><B><I>&nbsp;</I></B></TD>
    <TD><B><I>Independent Auditors</I></B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">15.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Committee shall be directly responsible for the appointment,
termination, compensation and oversight of the independent auditors,
including resolution of any disagreements between management and the
independent auditors. The Committee will have a clear understanding
with the independent auditors that they are ultimately accountable to
the Audit Committee, as the shareholders&#146; representatives, who have
the ultimate authority in deciding to engage, evaluate, and if
appropriate, terminate their services.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">16.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Preapprove all audit and non-audit services provided by the
independent auditors, with appropriate pre-approval authority
delegated to the Audit Committee Chairperson. Any decisions of the
Audit Committee Chairperson will be presented to the full Audit
Committee at its next regularly scheduled meeting.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">17.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Meet with the independent auditors and financial management of
the Company to review the scope of the proposed audit and quarterly
reviews for the current year and the procedures to be utilized. At
the conclusion thereof, the results of such audit or reviews,
including any audit problems or difficulties, any comments or
recommendations of the independent auditors, along with management&#146;s
responses to these issues, shall be communicated to the Committee.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">18.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On an annual basis, obtain from the independent auditors a
written communication delineating all their relationships and
professional services as required by Independence Standards Board
Standard No.&nbsp;1, Independence Discussions with Audit Committees.
Additionally, such annual written communication will describe any
issue that would materially affect the independent auditors&#146; ability
to effectively provide services to the Company and render an audit
opinion. Obtain and review at least annually a report from the
independent auditors describing that firm&#146;s internal quality-control
procedures; any material issues raised by the most recent
quality-control review, or peer review of the firm, or by any inquiry
or investigation by governmental or professional authorities, within
the preceding five years, respecting one or more independent audits
carried out by the firm, and steps taken to deal with any such issues.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">19.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On an annual basis, evaluate the independent auditor&#146;s
qualifications, performance and independence, including the review and
evaluation of the lead partner of the independent auditor. Assure the
regular rotation of the lead audit partner as required by law.
Periodically consider and evaluate the prudence of rotation of the
independent auditor. Present conclusions to the Board of Directors.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">I-3
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>APPENDIX II</B>



<P align="center" style="font-size: 10pt"><B>AMERICAN REALTY INVESTORS, INC.<BR>
PREAPPROVAL POLICY FOR AUDIT AND NON-AUDIT SERVICES</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Sarbanes-Oxley Act of 2002 (the &#147;SO Act&#148;), and the rules of the
Securities and Exchange Commission (the &#147;SEC&#148;), the Audit Committee of the
Board of Directors is responsible for the appointment, compensation and
oversight of the work of the independent auditor. The purpose of the
provisions of the SO Act and the SEC rules for the Audit Committee role in
retaining the independent auditor is twofold. First, the authority and
responsibility for the appointment, compensation and oversight of the auditors
should be with directors who are independent of management. Second, any
non-audit work performed by the auditors should be reviewed and approved by
these same independent directors to ensure that any non-audit services
performed by the auditor do not impair the independence of the independent
auditor.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To implement the provisions of the SO Act, the SEC has issued rules
specifying the types of services that an independent auditor may not provide to
its audit client and governing the Audit Committee&#146;s administration of the
engagement of the independent auditor. As part of this responsibility, the
Audit Committee is required to pre-approve the audit and non-audit services
performed by the Company&#146;s independent auditor in order to assure that they do
not impair the auditor&#146;s independence. Accordingly, the Audit Committee is
adopting this preapproval policy for Audit and Non-Audit Services (the
&#147;Policy&#148;), which sets forth the procedures and conditions pursuant to which
services to be performed by the independent auditor are to be preapproved.


<P align="left" style="font-size: 10pt"><B>Prohibited Non-Audit Services by the Independent Auditor.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Securities Exchange Act of 1934 (the &#147;Exchange Act&#148;) has been amended
to prohibit the Company from engaging the independent auditor to perform the
following types of services, all of which may be deemed to be prohibited
activities:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>bookkeeping or other services related to the accounting
records or financial statements of the audit client.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>financial information systems design and implementation.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>appraisal or evaluation services, fairness opinions or contribution-in-kind reports.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>actuarial services.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>internal audit out-sourcing services.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>management functions or human resources.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>broker or dealer, investment adviser, or investment banking services.</TD>
</TR>

</TABLE>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>legal services and expert services unrelated to the audit.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any other service that the Public Company Accounting
Oversight Board determines, by regulation, is impermissible.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><B>Non-Prohibited Services.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SEC&#146;s rules establish two different approaches to preapproving
non-prohibited services. Proposed non-prohibited services may be preapproved
either by the Audit Committee agreeing to a general framework with descriptions
of allowable services (&#147;general preapproval&#148;) or by the Audit Committee
preapproving specific services (&#147;specific preapproval&#148;). The Company&#146;s Audit
Committee believes that the combination of these two approaches will result in
an effective and efficient procedure to preapprove services that may be
performed by the independent auditor. As set forth in this policy, unless a
type of service has received general preapproval, it will require specific
preapproval by the Audit Committee if it is to be provided by the independent
auditor.


<P align="left" style="font-size: 10pt"><B>Services Subject to General Preapproval.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following types or categories of services are hereby given general
preapproval:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Audit Services. </I></B>The annual audit services engagement scope and
terms will be subject to the general preapproval of the Audit
Committee. Audit services include auditing of the annual financial
statements (including required quarterly reviews), and other
procedures required to be performed by the independent auditor to be
able to form an opinion on the Company&#146;s consolidated financial
statements. Audit services also include the attestation engagement
for the independent auditor&#146;s report on management&#146;s assertion on
internal controls for financial reporting. Audit services also
include financial or statutory audits for subsidiaries of the Company,
consultations related to accounting, financial reporting or disclosure
matters, SEC registration statements, periodic reports and other
documents filed with the SEC, comfort letters and consents and other
associated services. Audit-related services include audits of
employee benefit plans, due diligence services pertaining to potential
business acquisitions/dispositions, internal control reviews and other
attestation services. The Audit Committee will monitor the audit
services engagement throughout the year and will also approve, if
necessary, any changes in terms and conditions resulting from changes
in audit scope, Company structure or other items. The Audit Committee
will request that the audit engagement letter with the independent
auditor be addressed to the Chairman of the Audit Committee and that
the Chairman of the Audit Committee execute the engagement letter on
behalf of the Company.


<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Audit-Related Services. </I></B>Audit-related services are assurances and
related services that are recently related to the performance of the
audit or review of the financial statements (including research and
consultation regarding accounting and financial reporting
transactions). The Audit Committee believes that the provision of
audit-related services does not impair the independence of the auditor
and is


<P align="center" style="font-size: 10pt">II-2
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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="margin-left:3%; font-size: 10pt">consistent with the SEC&#146;s rules on auditor independence, and
therefore, the Audit Committee will grant general preapproval to
substantially all audit-related services.


<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>International Administration Tax Services. </I></B>The independent
auditor can provide international administration and tax services,
such as tax compliance, tax planning, tax advice, and related support
services without impairing the auditor&#146;s independence. Therefore, the
Audit Committee will grant general preapproval to international
administration and tax services that have generally been provided by
the auditor, that the Audit Committee has reviewed and believes would
not impair the independence of the auditor and that are consistent
with the SEC&#146;s rules on auditor independence.


<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Non-U.S. Income Tax Compliance Services. </I></B>The independent auditor
can provide non-U.S. income tax compliance services to the Company
without impairing the auditor&#146;s independence. Therefore, the Audit
Committee will grant general preapproval to the tax compliance
services that have generally been provided by the auditor, that the
Audit Committee has reviewed and believes will not impair the
independence of the auditor, and that are consistent with the SEC&#146;s
rules on auditor independence.


<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Pension and Benefit Plan Consulting and Compliance Services. </I></B>The
independent auditor can provide pension and benefit plan consulting
and compliance services without impairing the auditor&#146;s independence.
Therefore, the Audit Committee will grant general preapproval to the
pension and benefit plan consulting and compliance services generally
provided by the auditor, that the Audit Committee has reviewed and
believes will not impair the independence of the auditor and that are
consistent with the SEC rules on auditor independence.


<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>U.S. Tax Compliance and Planning. </I></B>U.S. federal, state and local
tax compliance and planning, as well as U.S. federal, state or
international transfer pricing advice or documentation and tax
compliance can be provided by the independent auditor to the Company
without impairing the auditor&#146;s independence. Therefore, the Audit
Committee will grant general preapproval to tax compliance and
planning services that have been historically provided by the auditor,
that the Audit Committee has reviewed and believes will not impair the
independence of the auditor and that are consistent with the SEC&#146;s
rules on auditor independence.


<P align="left" style="font-size: 10pt"><B>Services Subject to Specific Preapproval.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following items are subject to specific preapproval and engagement by
the Audit Committee.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Preparation of Statutory Accounts and Tax Planning Services &#151; Non-U.S.</I></B>
The Audit Committee believes that there exists the potential for
impairment of auditor independence or for an overlap with prohibited
services for certain tax planning services and for preparation of
non-U.S. statutory accounts. Accordingly,


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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="margin-left:3%; font-size: 10pt">specific preapproval will be required for these services in order
for the Audit Committee to have an opportunity to review the scope of
work to be provided by the auditor in connection with these services.


<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Services. </I></B>All other services not described in &#147;Services
Subject to General Preapproval&#148; above shall be subject to specific
preapproval and engagement by the Audit Committee.


<P align="left" style="font-size: 10pt"><B>Delegation.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As provided in the SO Act and the SEC&#146;s rules, the Audit Committee may
delegate either type of preapproval authority to its chairperson or any other
Audit Committee member or members. The member to whom such authority is
delegated shall report for informational purposes only any preapproval
decisions to the Audit Committee at its next meeting. The Audit Committee will
not delegate to management the Audit Committee&#146;s responsibilities to preapprove
services performed by the independent auditor. Any preapproval of services
under this delegated authority to either the chairperson of the Audit Committee
or the financial expert member of the Audit Committee shall not exceed $25,000
in value or cost per engagement of audit and non-audit services, and the
authority may only be exercised when the Audit Committee is not in session.


<P align="left" style="font-size: 10pt"><B>Procedures.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The procedures the Audit Committee will employ in implementing this policy
are as follows:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) In advance of the Fall Audit Committee meeting each year, the
Chief Financial Officer and independent auditor shall jointly submit
to the Audit Committee a schedule of audit, audit-related, tax and
other non-audit services that are subject to general preapproval.
Such schedule will be in a format to be determined but shall include a
time line covering the performance of the work.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Audit Committee will review and approve the types of
services and review the projected fees for the next fiscal year at its
regularly scheduled Fall meeting. The fee amounts on such schedule
will be updated as necessary and at any subsequent Audit Committee
meetings. Additional preapproval will be required if actual fees for
a service are expected to exceed 9% of the originally-preapproved
amount. This additional preapproval should be obtained in the same
manner as a specific preapproval described below.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If, subsequent to the general preapproval of scheduled services by
the Audit Committee, the Company through management would like to
engage the independent auditor to perform a service not included on
the general preapproval schedule, a request should be submitted to the
general counsel and the principal executive officer. If they
determine that the service can be performed without impairing the
independence of the auditor, then a discussion and approval of the
service will be included on the agenda for the next
regularly-scheduled Audit Committee meeting. If the timing for the
service needs to commence before the next


<P align="center" style="font-size: 10pt">II-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left:3%; font-size: 10pt">Audit Committee meeting, the chairperson of the Audit Committee,
or any other member of the Audit Committee designated by the Audit
Committee can provide specific preapproval.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Approval by the Audit Committee for the auditor to perform
any non-audit service does not require that management engage the
Company&#146;s independent auditor to perform those services. Management
may seek to engage other third parties to perform non-audit services
for which the Audit Committee has given preapproval to be performed by
the independent auditor.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Once preapproval has been obtained from the Audit Committee
for services to be performed by the independent auditor, the
appropriate management member may engage the auditor and execute any
necessary document for the performance of non-audit services within
the scope of the preapproval.



<P align="center" style="font-size: 10pt">II-5
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>ANNUAL MEETING OF STOCKHOLDERS OF</B>


<P align="center" style="font-size: 18pt"><B>AMERICAN REALTY INVESTORS, INC.</B>


<P align="center" style="font-size: 10pt"><B>September&nbsp;15, 2004</B>



<P align="left" style="font-size: 10pt">PROOF # 1


<P align="center" style="font-size: 12pt">Please date, sign and mail<BR>
your proxy card in the<BR>
envelope provided as soon<BR>
as possible.

<P align="center" style="font-size: 10pt"><FONT face="wingdings">&#234;</FONT> Please detach along perforated line and mail in the envelope provided
<FONT face="wingdings">&#234;</FONT><BR>

<P>
<DIV style="width: 100%; border: 1px solid black; padding: 11px;">


<P align="center" style="font-size: 8pt">
<B>The Board of Directors of American Realty Investors, Inc. recommends approval
of all nominees for<br>election as directors and a vote FOR ratification of the appointment of Farmer,
Fuqua and Huff, P.C. as independent auditors.<br>PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.<br>PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE </B><FONT face="Wingdings">&#120;</FONT>
</DIV>

<P><DIV style="position: relative; float: left; margin-right: 1%; width: 48%">
<P align="left" style="font-size: 10pt">1. Election of Directors:


<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>NOMINEES:</B></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>FOR ALL NOMINEES</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">O Henry A. Butler</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">O Sharon Hunt</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">O Ted R. Munselle</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">O Ted P. Stokely</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">O Martin L. White</TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>WITHHOLD AUTHORITY<BR>
FOR ALL NOMINEES</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR><TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR><TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>FOR ALL EXCEPT</B><BR>
(See instructions below)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="89%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>INSTRUCTION:</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To withhold authority to vote for any individual nominee(s), mark <B>&#147;FOR ALL EXCEPT&#148;</B>
and fill in the circle next to each nominee you wish to withhold, as shown here: <FONT face="wingdings">&#108;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><HR size="1" noshade width="100%" align="center"></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><HR size="1" noshade width="100%" align="center"></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method. <FONT face="Wingdings">&#111;</FONT></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


</DIV>
<DIV style="position: relative; float: right; margin-left: 1%; width: 48%">
<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">ABSTAIN</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ratification of the Appointment of Farmer, Fuqua &#038; Huff, P.C.
as Independent Auditors
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="8" align="left" valign="top">In their discretion on any other matters which may
properly come before the meeting or any adjournment(s) thereof.</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="9" valign="top" align="left"><B>THIS PROXY WILL BE VOTED AS DIRECTED BUT IF NO
DIRECTION IS INDICATED, IT WILL
BE VOTED FOR ALL NOMINEES AND FOR RATIFICATION OF THE APPOINTMENT OF FARMER, FUQUA &amp;
HUFF, P.C. AS INDEPENDENT AUDITORS. ON OTHER MATTERS THAT MAY COME BEFORE SAID MEETING,
THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE ABOVE-NAMED PERSONS.</B></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="9" valign="top" align="left"></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


</DIV>
<BR clear="all"><BR>
<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Signature of Stockholder<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>&nbsp;Date:<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Signature of Stockholder<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>&nbsp;Date:<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Note:</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When
signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PROOF # 2


<P align="center" style="font-size: 10pt"><B>AMERICAN REALTY INVESTORS, INC.</B>



<P align="center" style="font-size: 10pt"><B>THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF<BR>
STOCKHOLDERS TO BE HELD SEPTEMBER 15, 2004.</B>



<P align="center" style="font-size: 10pt"><B>THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned stockholder of AMERICAN REALTY INVESTORS, INC. hereby appoints
TED P. STOKELY and LOUIS J. CORNA, and each of them proxies with full power of
substitution in each of them, in the name, place and stead of the undersigned,
as attorneys and proxies to vote all shares of
Common Stock, par value $0.01 per share, of AMERICAN REALTY INVESTORS, INC.
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
to be held on September&nbsp;15, 2004 at 3:30 p.m., local Dallas, Texas time, at
1800 Valley View Lane, Suite&nbsp;300, Dallas, Texas 75234, or any adjournment(s)
thereof, with all powers the undersigned would possess if personally present,
as indicated on the reverse side hereof, for the transaction of such business
as may properly come before said meeting or any adjournment(s) thereof, all as
set forth in the August&nbsp;6, 2004 Proxy Statement for said meeting.


<P align="center" style="font-size: 10pt"><B>(Continued and to be signed on the reverse side)</B>




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end

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
