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<SEC-DOCUMENT>0000950134-06-019205.txt : 20061017
<SEC-HEADER>0000950134-06-019205.hdr.sgml : 20061017
<ACCEPTANCE-DATETIME>20061017163140
ACCESSION NUMBER:		0000950134-06-019205
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20061120
FILED AS OF DATE:		20061017
DATE AS OF CHANGE:		20061017
EFFECTIVENESS DATE:		20061017

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:		061148955

	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>d40317def14a.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>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON. D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>SCHEDULE 14A</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 12pt"><B>Proxy Statement Pursuant to Section&nbsp;14(a) of the<BR>
Securities Exchange of 1934</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Filed by the Registrant&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 1pt">Filed by a Party other than the Registrant&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Check the appropriate box:
</DIV>


<DIV style="margin-top: 6pt">
<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="2%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Preliminary Proxy Statement.</TD>
</TR>

<TR>
    <TD style="font-size: 1pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)).</TD>
</TR>

<TR>
    <TD style="font-size: 1pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Definitive Proxy Statement.</TD>
</TR>

<TR>
    <TD style="font-size: 1pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Definitive Additional Materials.</TD>
</TR>

<TR>
    <TD style="font-size: 1pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Soliciting Material Pursuant to Section&nbsp;I40.14A-1l(c) or Section&nbsp;240.14a-12.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>AMERICAN REALTY INVESTORS, INC.</B>
</DIV>

<DIV align="center"><DIV style="font-size: 3pt; margin-top: 1pt; width: 100%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt">(Name of Registrant as Specified In Its Charter)</DIV>


<DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 100%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt">(Name of Person(s) Filing Proxy Statement if other than the Registrant)</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Payment of Filing Fee (Check the appropriate box):
</DIV>


<DIV style="margin-top: 6pt">
<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="2%" nowrap align="left"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No fee required.</TD>
</TR>

<TR>
    <TD style="font-size: 1pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(1) and 0-11.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="2%" nowrap align="left">1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Title of each class of securities to which transaction applies:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Aggregate number of securities to which transaction applies:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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):</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Proposed maximum aggregate value of transaction:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Total fee paid:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="2%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fee paid previously with preliminary materials.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
</DIV>


<DIV style="margin-top: 6pt">
<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="2%" nowrap align="left">1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amount Previously Paid:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Form, Schedule or Registration Statement No.:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Filing Party:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Date Filed:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></TD>
</TR>



</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</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 style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AMERICAN REALTY INVESTORS, INC.<BR>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS<BR>
TO BE HELD ON NOVEMBER 20, 2006</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;American Realty Investors, Inc. will hold its Annual Meeting of Stockholders on
Monday, November&nbsp;20, 2006 at 1:00 p.m., local Dallas. Texas time, at 1800 Valley View Lane, Suite
300, Dallas. Texas 75234. The purpose of the meeting is to:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#149;</B>&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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#149;</B>&nbsp;&nbsp;Ratify
the appointment of Farmer, Fuqua &#038; Huff, P.C. as the independent registered
public accounting firm.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#149;</B>&nbsp;&nbsp;Act upon such other matters as may properly be presented at the Annual Meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only
Stockholders of record at the close of business on October&nbsp;13, 2006 will be entitled to
vote at the meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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. Your completed proxy
will not prevent you from attending the meeting and voting in person should you choose.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dated: October&nbsp;17, 2006.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">By order of the Board of Directors,</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">/s/ Louis J. Corna</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&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">Louis J. Corna</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">Executive Vice President, General Counsel,</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">Tax Counsel and Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</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" style="font-size: 10pt; margin-top: 18pt"><B>AMERICAN REALTY INVESTORS, INC.</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>PROXY STATEMENT</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>FOR THE ANNUAL MEETING OF STOCKHOLDERS</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>TO BE HELD NOVEMBER 20, 2006</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 2006 Annual Meeting of Stockholders (the &#147;Annual
Meeting&#148;). Distribution of this Proxy Statement and a Proxy Form is scheduled to begin on October
17, 2006. The mailing address of the Company&#146;s principal executive offices is 1800 Valley View
Lane, Suite&nbsp;300, Dallas, Texas 75234.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>About the Meeting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Who Can Vote</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Record holders of Common Stock of the Company at the close of business on Friday, October
13, 2006 (the &#147;Record Date&#148;) may vote at the Annual Meeting. On that date, 10,787,391 shares of
Common Stock were outstanding. Each share is entitled to cast one vote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>How Can You Vote</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you return your signed proxy 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Revocation of Proxies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may revoke your proxy at any time before it is exercised by (a)&nbsp;delivering a written
notice of revocation to the Corporate Secretary, (b)&nbsp;delivering another proxy that is dated later
than the original proxy, or (c)&nbsp;casting your vote in person at the Annual Meeting. Your last vote
will be the vote that is counted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Vote Required</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 October&nbsp;13,
2006, there were 10,787,391
shares of Common Stock issued and outstanding. The presence, in person or by proxy, of
stockholders entitled to cast at least 5,393,696 votes constitutes a quorum for adopting the
proposals at the Annual Meeting. If you have properly
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of the Record Date, affiliates held 9,149,277 shares representing approximately 84.8% 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Matters to be Acted Upon at the Annual Meeting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Expenses of Solicitation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Available Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our internet website address is <U><I>www.amrealtytrust.com.</I></U> We make available free
of charge through our website our Annual Reports on Form 10-K,
Quarterly Reports on Forms 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section&nbsp;16 and amendments to those reports
as soon as reasonably practicable after we electronically file or furnish such materials to the
Securities and Exchange Commission. In addition, we have posted the Charters of our Audit
Committee, Compensation Committee, and our Governance and Nominating Committee, as well as our Code
of
</DIV>

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

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Business Conduct and Ethics, Code of Ethics for Senior Financial Officers. Corporate Governance
Guidelines and Director Independence Standards, all under separate headings. These charters and
principles are not incorporated in this instrument by reference. We will also provide a copy of
these documents free of charge to stockholders upon written request. The Company issues Annual
Reports containing audited financial statements to its common stockholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Questions</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">You may call our Investor Relations Department at 800-400-6407 if you have any questions.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>PLEASE VOTE &#151; YOUR VOTE IS IMPORTANT</B>

</DIV>

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Corporate Governance and Board Matters</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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), the cessation of Martin L.
White as a director (November&nbsp;22, 2005). as well as the election of independent Directors Sharon
Hunt and Ted R. Munselle effective on February&nbsp;20, 2004, and
Robert A. Jakuszewski on November&nbsp;22,
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Current Members of the Board</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The members of the Board of Directors (all of whom were elected by the stockholders at
the last annual meeting held on November&nbsp;22, 2005) on the date of this proxy statement, and the
committees of the Board on which they serve, are identified below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Audit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><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" colspan="3"><B>Committee</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Committee</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Committee</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Henry A. Butler</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sharon Hunt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Chair</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Robert A. Jakuszewski</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Chair</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ted R. Munselle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Chair</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ted P. Stokely</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Role of the Board&#146;s Committees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors has standing Audit. Compensation and Governance and Nominating
Committees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><B>Audit
Committee</B></I><B>. </B>The functions of the Audit Committee are described below under the heading
<I>&#147;Report of the Audit Committee,&#148; </I>The charter of the Audit Committee was adopted February&nbsp;19, 2004,
and is available on the Company&#146;s Investor Relations website <U><I>(www.amrealtytrust.com).</I></U> The
Audit Committee was formed on February&nbsp;19, 2004, and the Board selected the current members of the
Audit Committee for the coming year on December&nbsp;15, 2005, 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 financial expert within the
meaning of SEC regulations and the Board has determined that he has accounting and related
financial
</DIV>

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

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">management expertise within the meaning of the listing standards of the New York Stock Exchange.
All of the members of the Audit Committee meet the independence and experience requirements of the
listing standards of the New York Stock Exchange. The Audit Committee met eight times during 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><B>Governance
and Nominating Committee.</B> </I>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;17,
2004, and is available on the Company&#146;s Investor Relations website (www.amrealtytrust.com). The
Board selected the current members of the Governance and Nominating Committee for the coming year
on December&nbsp;15, 2005, 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 Governance and Nominating Committee met one time during 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I><B>Compensation
Committee.</B> </I>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;17, 2004, and is available on the
Company&#146;s Investor Relations website <U>(<I>www.amrealtytrust.com).</I></U> The Board selected the
current members of the Compensation Committee for the coming year on December&nbsp;15, 2005, 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. The Compensation Committee met one time during 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Presiding Director</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;17, 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Former director, Martin L. White, served in such position from June&nbsp;17, 2004 to November&nbsp;22,
2005. In December&nbsp;2005, the non-management members of the Board designated Ted R. Munselle to
serve in this position until the Company&#146;s annual meeting of stockholders to be held following the
fiscal year ended December&nbsp;31, 2005.
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Selection of Nominees for the Board</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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:
</DIV>

<DIV style="margin-top: 6pt">
<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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></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>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willingness of the prospective nominee to meet any minimum equity
interest holding guideline.</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-6-<!-- /Folio -->
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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) 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)
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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Determinations of Director Independence</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 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>(<U>www.amrealtytrust.com</U>).</I> A copy may also be obtained upon request from
the Company&#146;s Corporate Secretary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the <I>Guidelines, </I>the Board undertook its annual review of director independence in
February&nbsp;2006. 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>the
purpose of this review was to determine whether any such relationships or transactions were
inconsistent with a determination that the director is independent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of this review, the Board affirmatively determined that directors Ted R.
Munselle, Robert A. Jakuszewski and Sharon Hunt are each independent of the Company and its
management under the standards set forth in the <I>Corporate Governance Guidelines.</I>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-7-<!-- /Folio -->
</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">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Board Meetings During Fiscal 2005</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board met 14 times during fiscal 2005. 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. In addition, the independent directors met in
executive session three times during fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Directors&#146; Compensation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2005, $184,500 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 1, 2005 through
December&nbsp;31, 2005. Those fees received by directors were Martin L. White, a director who did not
stand for reelection on November&nbsp;22, 2005 ($45,000), Sharon Hunt
($45,000), Ted R. Munselle
($45,000), Ted P. Stokely ($49,500) and Robert A. Jakuszewski ($0).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
11, 1999, the date stockholders approved the Directors Plan. On
January 1, 2000, 2001, 2002, 2003,
2004 and 2005, each qualifying director was granted an option to purchase 1,000 shares at an
exercise price of $18,53, $13,625, $9,87, $8,09, $9,13 and $9,70 per share, respectively. Each
qualifying director was awarded an option to purchase an additional 1,000 shares on January 1 of
each year. The Directors Plan was terminated by the Board of Directors on December&nbsp;15, 2005. At
January 1, 2006, options covering 1,000 shares were exercisable at $8.09, options covering 2,000
shares were exercisable at $9.13 per share and options covering 4,000 shares were exercisable at
$9.70 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-8-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 was administered by the Stock Option Committee, which
consisted of three independent directors of the Company, Messrs. Munselle and White and Ms.&nbsp;Hunt.
The exercise price per share of an option is not be less than 100% of the fair market value per
share on the date of grant. The Company received no consideration for the grant of an option. At
December&nbsp;31, 2005, options covering 70,750 shares were outstanding under the Option Plan, of which
options covering 68,250 are exercisable at $ 16.35 per share and of which options covering 2,500
are exercisable at $18.53 per share. No options were granted under the Option Plan in 2005. The
Option Plan was terminated by the Board of Directors on
December&nbsp;15, 2005. None of the executive
officers (Messrs.&nbsp;Abney or Corna) nor any of the directors of the Company hold any options under
the Option Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Stockholders Communication with the Board</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Code of Ethics</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 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 (<U><I>www.amrealtytrust.com</I></U>). 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 principal executive officer, principal financial officer or principal
accounting officer) at this location on its website.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Compliance with Section&nbsp;16(a) of Reporting Requirements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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, 2005. 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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Security Ownership of Certain Beneficial Owners and Management</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Security Ownership of Certain Beneficial Owners</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
October&nbsp;17, 2006.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&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" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Basic Capital
Management, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6,703,045</TD>
    <TD nowrap>(a)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">62.14</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">1800 Valley View Lane, Suite&nbsp;300<br>
Dallas, Texas 75234</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 0em">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Prime Income
Asset Management, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1,671,658</TD>
    <TD nowrap>(b)(c)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15.50</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">1800 Valley View Lane, Suite&nbsp;300<br>
Dallas, Texas 75234</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 0em; background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Realty
Advisors, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8,374,703</TD>
    <TD nowrap>(a)(b)(c)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">77.63</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">1800 Valley View Lane, Suite&nbsp;300<br>
Dallas, Texas 75234</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 0em">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Ryan T.Phillips</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8,402,305</TD>
    <TD nowrap>(a)(b)(c)(e)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">77.89</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">1800 Valley View Lane,Suite&nbsp;300<br>
Dallas, Texas 75234</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 0em; background: #cceeff">

<TD><DIV style="margin-left:0px; text-indent:-0px">Transcontinental Realty Investors, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">746,972</TD>
    <TD nowrap>(d)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.92</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">1800 Valley View Lane, Suite&nbsp;300<br>
Dallas, Texas 75234</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>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</TD>
</TR>

</TABLE>



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

<DIV align="center">
<TABLE style="font-size: 10pt; margin-top: 6pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="top">
 <TD width="2%">&nbsp;</TD>
    <TD align="right" width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
      <TD>beneficial owners by virtue of their positions as directors of BCM. The directors of BCM
disclaim beneficial ownership of such shares.</TD>
</TR>
<TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR><TD width="2%">&nbsp;</TD>
    <TD valign="top" align="right" width="2%">(b)</TD>
    <TD width="1%">&nbsp;</TD>
      <TD>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.</TD>
</TR>
<TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR>
<TD width="2%">&nbsp;</TD>
    <TD valign="top" align="right" width="2%">(c)</TD>
    <TD width="1%">&nbsp;</TD>
      <TD>Includes
234,450 shares owned by One Realco Stock Holdings, Inc.
(&#147;ORSH&#148;), a wholly-
owned subsidiary of PIAMI over which each of the directors of ORSH, Steven A. Abney and Louis J.
Corna, may be deemed to be the beneficial owners by virtue of their positions as directors of ORSH.
The directors of ORSH disclaim beneficial ownership of such shares.</TD>
</TR>
<TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR>
<TD width="2%">&nbsp;</TD>
    <TD valign="top" align="right" width="2%">(d)</TD>
    <TD width="1%">&nbsp;</TD>
      <TD>Each of the directors of Transcontinental Realty Investors, Inc. (&#147;TCI&#148;), Henry A.
Butler, Sharon Hunt, Robert A. Jakuszewski, Ted R. Munselle and Ted P. Stokely may be deemed to be
the beneficial owners by virtue of their positions as directors of TCI. The current directors of
TCI disclaim such beneficial ownership.</TD>
</TR>
<TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR>
<TD width="2%">&nbsp;</TD>
    <TD align="right" width="2%">(e)</TD>
    <TD width="1%">&nbsp;</TD>
      <TD>Includes
27,602 shares owned by the Gene E. Phillips&#146; Children&#146;s Trust of which Ryan T.
Phillips is a beneficiary.</TD>
</TR>

</TABLE>
</DIV>







<DIV align="left" style="font-size: 10pt; margin-top: 6pt">
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Security Ownership of Management</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
October&nbsp;17, 2006.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&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 Beneficial</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</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Steven A. Abney</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9,121,675</TD>
    <TD nowrap>(3)(4)(5)(6)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84.56</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Henry A. Butler</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">749,972</TD>
    <TD nowrap>(1)(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.95</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Louis J. Corna</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9,121,675</TD>
    <TD nowrap>(3)(4)(5)(6)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84.56</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sharon Hunt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">747,972</TD>
    <TD nowrap>(1)(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.92</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Robert A. Jakuszewski</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">746,972</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.92</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ted R. Munselle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">747,972</TD>
    <TD nowrap>(1)(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.93</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ted P. Stokely</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">749,972</TD>
    <TD nowrap>(1)(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.95</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">All directors and executive officers
as a group (seven people)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9,128,675</TD>
    <TD nowrap>(1)(2)(3)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84.62</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)(5)(6)(7)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>&#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.</TD>
</TR>

</TABLE>


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





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD colspan="3">**  Percentages are based upon 10,787,391 shares of Common Stock outstanding at October
17, 2006.</TD>
</TR>
 <TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR valign="top">
    <TD  align="left" nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Each
of Messrs.&nbsp;Butler, Munselle, Stokely, and Ms.&nbsp;Hunt have options to purchase shares of
Common Stock of ARI which are exercisable within 60&nbsp;days of October&nbsp;17, 2006.</TD>
</TR>
 <TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR valign="top">
    <TD  align="left" nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>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 current members of the Board of Directors of ARI disclaim beneficial
ownership of such shares.</TD>
</TR>
 <TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR valign="top">
    <TD  align="left" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD>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.</TD>
</TR>
 <TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR valign="top">
    <TD  align="left" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD>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.</TD>
</TR>
 <TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR valign="top">
    <TD  align="left" nowrap>(5)</TD>
    <TD>&nbsp;</TD>
    <TD>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.</TD>
</TR>
 <TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR valign="top">
    <TD  align="left" nowrap>(6)</TD>
    <TD>&nbsp;</TD>
    <TD>
Includes 234,450 shares owned by ORSH over which the executive officers of ORSH may be
deemed to be the beneficial owners by virtue of their positions as executive officers of ORSH. The
executive officers of ORSH disclaim beneficial ownership of such shares.</TD>
</TR>
<TR style="font-size:3pt"><TD align="center" valign="top">&nbsp;</TD></TR>
<TR valign="top">
    <TD  align="left" nowrap>(7)</TD>
    <TD>&nbsp;</TD>
    <TD>

Includes
7,000 shares which may be acquired by the current directors of ARI pursuant to
stock options.</TD>
</TR>
</TABLE>






<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>PROPOSAL 1</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>ELECTION OF DIRECTORS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Five directors are to be elected at the Annual Meeting. Each director elected will hold
office until the 2007 Annual Meeting. All of the nominees for director are now serving as
directors of the Company. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-12-<!-- /Folio -->
</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="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Henry A. Butler, 55 (Affiliated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Broker&#151;
Land Sales (since July&nbsp;2003) for Prime Income Asset Management, LLC and (1992 to June
2003) for Basic Capital Management. Inc. (&#147;BCM&#148;): Director (since July&nbsp;2003) of the Company and
(since December&nbsp;2001) TCI and Director (December&nbsp;2001 to July&nbsp;1, 2003) of Income Opportunity
Realty Investors. Inc. (&#147;IOT&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Sharon Hunt, 63</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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&#150;2000) of a 501(c)(3)
non-profit corporation (involved in acquisition, renovation and operation of real estate):
Director (since February&nbsp;2004) of the Company and TCI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Robert A. Jakuszewski, 43</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vice President &#151; Sales and Marketing (since September&nbsp;1998) of New Horizons Communications,
Inc.; Consultant (January&nbsp;1998 &#150; September&nbsp;1998) for New Horizon Communications. Inc.; Regional
Sales Manager (1996-1998) of Continental Funding; Territory Manager
(1992&#150;1996) of Sigvaris, Inc.;
Senior Sales Representative (1988&#150;1992) of Mead Johnson Nutritional Division, USPNG; Sales
Representative (1986&#150;1987) of Muro Pharmaceutical, Inc. Mr.&nbsp;Jakuszewski has been a director of IOT
since March&nbsp;16, 2004, and a director of TCI and the Company since November&nbsp;22, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Ted. R. Munselle, 50</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Ted P. Stokely, 72 (Affiliated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
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
1995) of TCI and IOT.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>The Board of Directors unanimously recommends a vote FOR<BR>
the election of all of the Nominees named above.</B>

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-13-<!-- /Folio -->
</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" style="font-size: 10pt; margin-top: 6pt"><B>PROPOSAL 2</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED<BR>
PUBLIC ACCOUNTING FIRM</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Audit Committee has appointed Farmer, Fuqua &#038; Huff, P.C. as the independent
registered public accounting firm of American Realty Investors, Inc. for the 2006 fiscal
year and to conduct quarterly reviews through September&nbsp;30, 2006. 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 registered public accounting firm.
Farmer, Fuqua &#038; Huff, P.C.
has served as the Company&#146;s independent registered public accounting firm for each of
the two fiscal years ended December&nbsp;31, 2004 and 2005. The Audit Committee will consider
the outcome of this vote in its decision to appoint an independent registered public
accounting firm 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 anytime during the year if it determines that such a change would be
in the best interest of the Company and its stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>The Board of Directors recommends a vote FOR the ratification<BR>
of the appointment of Farmer, Fuqua </B><B><I>&#038; </I></B><B>Huff, P.C.<BR>
as the Company&#146;s independent registered public accounting firm.</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Fiscal Years 2004 and 2005 Audit Firm Fee Summary</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the aggregate fees for professional services
rendered to the Company for the years 2005 and 2004 by the Company&#146;s principal
accounting firms, BDO Seidman, LLP and Farmer, Fuqua &#038; Huff, P.C.:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&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="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Farmer, Fuqua</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>BDO Seidman,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Farmer, Fuqua</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>BDO Seidman,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Type of Fee</B></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>&#038; Huff, P.C.</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>LLP</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>&#038; Huff, P.C.</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>LLP</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">183,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">102,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">208,442</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit-Related Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">32,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">169,412</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">All Other Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">216,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">85,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">102,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">377,854</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 required by law. The fees paid the principal auditors for
services as described in the above table fall under the categories listed below:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&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
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Report of the Audit Committee<BR>
Of the Board of Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee of the Board of Directors is composed of three directors, each of whom
satisfies the requirements of independence, experience and financial literacy under the
requirements of the New York Stock Exchange and the SEC. The Audit Committee has directed the
preparation of this report and has approved its content and submission to the stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee operates under a written charter adopted by the Board of Directors. The
Committee&#146;s responsibilities are set forth in this charter which is available on our website at
<U><I>www.amrealtytrust.com</I></U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee assists the Board in fulfilling its responsibilities for general oversight
of the integrity of the Company&#146;s financial statements, the adequacy of the Company&#146;s system of
internal controls, the Company&#146;s risk management, the Company&#146;s compliance with legal and
regulatory requirements, the independent auditors&#146; qualifications and independence, and the
performance of the Company&#146;s independent auditors. The Committee has sole authority over the
selection of the Company&#146;s independent auditors and manages the Company&#146;s relationship with its
independent auditors. The Committee has the authority to obtain advice and assistance from outside
legal, accounting or other advisors as the Committee deems necessary to carry out its duties and
receive appropriate funding, as determined by the Committee, from the Company for such advice and
assistance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee met eight times during 2005. The Committee schedules its meetings with a view
to ensuring that it devotes appropriate attention to all of its tasks. The Committee&#146;s meetings
include private sessions with the Company&#146;s independent auditors without the presence of the
Company&#146;s management, as well as executive sessions consisting of only Committee members. The
Committee also meets senior management from time to time.
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management is responsible for the Company&#146;s financial reporting process, including its system
of internal control over financial reporting and for the preparation of consolidated financial
statements in accordance with accounting principles generally accepted in the United States of
America. The Company&#146;s independent auditors are responsible for auditing those financial
statements in accordance with professional standards and expressing an opinion as to their
material conformity with accounting principles generally accepted in the United States of America
and for auditing management&#146;s assessment of, and the effective
operation of, internal control over
financial reporting. The Committee&#146;s responsibility is to monitor and review the Company&#146;s
financial reporting process and discuss management&#146;s report on the Company&#146;s internal control over
financial reporting. It is not the Committee&#146;s duty or responsibility to conduct audits or
accounting reviews or procedures. The Committee has relied, without independent verification, on
management&#146;s representation that the financial statements have been prepared with integrity and
objectivity and in conformity with accounting principles generally accepted in the United States
of America and on the opinion of the independent registered public accountants included in their
report on the Committee&#146;s financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of its oversight of the Company&#146;s financial statements, the Committee reviews and
discusses with both management and the Company&#146;s independent registered public accountants all
annual and quarterly financial statements prior to their issuance.
During 2005, management advised
the Committee that each set of financial statements reviewed had been prepared in accordance with
accounting principles generally accepted in the United States of America, and reviewed significant
accounting and disclosure issues with the Committee. These reviews include discussions with the
independent accountants of the matters required to be discussed pursuant to Statement on Auditing
Standards No.&nbsp;61 (Codification of Statements on Auditing Standards), including the quality (not
merely the acceptability) of the Company&#146;s accounting principles, the reasonableness of
significant judgments, the clarity of disclosures in the financial statements and disclosures
related to critical accounting practices. The Committee has also
discussed with Farmer, Fuqua &#038;
Huff, P.C. matters relating to its independence, including a review of audit and non-audit fees,
and written disclosures from Farmer, Fuqua &#038; Huff, P.C. to the Company pursuant to Independence
Standards Board Standard No.&nbsp;1 (Independence Discussions with Audit Committees). The Committee
also considered whether non-audit services, provided by the independent accountants are compatible
with the independent accountant&#146;s independence. The Company also received regular updates on the
amount of fees and scope of audit, audit-related and tax services provided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Committee reviewed key initiatives and programs aimed at strengthening the
effectiveness of the Company&#146;s internal and disclosure control structure. As part of this process,
the Committee continued to monitor the scope and adequacy of the Company&#146;s internal controls,
reviewed staffing levels and steps taken to implement recommended improvements in any internal
procedures and controls.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the Committee&#146;s discussion with management and the independent accountants and the
Committee&#146;s review of the representation of management and the report of the independent
accountants to the Board of Directors, the Audit Committee recommended to the Board of Directors,
and the Board of Directors 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, 2005, filed
with the Securities and Exchange Commission. The Audit Committee and the Board of Directors have
also selected Farmer, Fuqua &#038; Huff, P.C. as the Company&#146;s independent registered public accountants
and auditors for the fiscal year ending December&nbsp;31, 2006.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-16-<!-- /Folio -->
</DIV>


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


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">AUDIT COMMITTEE
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sharon Hunt
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Ted R. Munselle
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">Robert A. Jakuszewski</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Pre-Approval Policy for Audit and Non-Audit Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 written 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. 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 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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Compensation Committee Report</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee of the Board of Directors is comprised of at least two directors
who are independent of management and the Company. Each member of the Compensation Committee must
be determined to be independent by the Board under the Corporate Governance Guidelines on Director
Independence adopted by the Board and under the NYSE standards for non-employee directors and Rule
16b-3(b)(3)(i) of the rules and regulations promulgated under the Securities Exchange Act of 1934
and the requirements for &#147;outside directors&#148; set forth in Treasury Regulations. Section&nbsp;27(e)(3).
Each member of the Committee is to be free of any relationship that, in the judgment of the Board,
from time to time may interfere with the exercise of his or her independent judgment. Each
Committee member is appointed annually subject to removal at any time by the Board and serves until
his or her
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-17-<!-- /Folio -->
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Committee appointment is terminated by the Board. The Compensation Committee is composed of three
directors, each of whom meets the standards described above.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purposes of the Compensation Committee is to oversee the policies of the Company relating
to compensation to be paid by the Company to the Company&#146;s principal executive officer (&#147;CEO&#148;) and
any other officers designated by the Board and make recommendations to the Board with respect to
such policies, produce necessary reports and executive compensation for inclusion in the Company&#146;s
proxy statement, in accordance with applicable rules and regulations, and monitor the development
and implementation of succession plans for the CEO and other key executives and make
recommendations to the Board with respect to such plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The only remuneration paid by the Company is to 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)
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)
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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The charter of the Compensation Committee was adopted on March&nbsp;17, 2004, and the members of
the Compensation Committee, all of whom are independent within the meaning of the listing
standards of the NYSE and the Company&#146;s Corporate Governance Guidelines, are listed below. Since
its formation on March&nbsp;17, 2004, the Compensation Committee has annually reviewed its existing
charter and regularly performed the tasks described above relating to the business plan, advisory
contract, reasonableness of compensation paid to the advisor, and the reasonableness of the total
fees and expenses of the Company.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">COMPENSATION COMMITTEE
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sharon Hunt
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Ted R. Munselle
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">Robert A. Jakuszewski</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Compensation Committee Interlocks and Insider Participation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 officers
serve on a board of directors of any entity that has a director or officer serving on this
Committee.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-18-<!-- /Folio -->
</DIV>

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




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Executive Officers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive officers of the Company are Steven A. Abney, Executive Vice President and
Chief Financial Officer, and Louis J. Corna, Executive Vice President. General Counsel, Tax
Counsel and Secretary; 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Steven A. Abney, 51</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Vice President and Chief Financial Officer (since September&nbsp;2005) of the
Company and TCI. Mr.&nbsp;Abney was Vice President-Finance and Chief Accounting Officer/Principal
Financial Officer (from November&nbsp;2001 to February&nbsp;2005) of and employed (from November&nbsp;2001 to
August&nbsp;2005) by CRT Properties, Inc. (f/k/a Koger Equity. Inc.), a Boca Raton, Florida-based real
estate enterprise which had securities listed on the New York Stock
Exchange until September&nbsp;27,
2005. For more than four years prior thereto, Mr.&nbsp;Abney was Executive Vice President and Chief
Financial Officer of Konover and Associates, Inc., a privately-held real estate developer based in
Farmington, Connecticut. Mr.&nbsp;Abney has been a Certified Public Accountant since 1980.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Louis J. Corna, 58</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Vice President, General Counsel/Tax Counsel and Secretary (since February
2004), Executive Vice President-Tax (October&nbsp;2001 to February 2004), Executive Vice President-Tax
and Chief Financial Officer (June&nbsp;2001 to October&nbsp;2001) and Senior Vice President-Tax (December
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-Tax (July&nbsp;2003 to February
2004) of Prime and PIAMI; Private Attorney (January&nbsp;2000 to
December&nbsp;2000); Vice President-Taxes
and Assistant Treasurer (March&nbsp;1998 to January&nbsp;2000) of IMC
Global. Inc.; Vice President-Taxes
(July&nbsp;1991 to February&nbsp;1998) of Whitman Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>The Advisor</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
1, 2003, PIAMI became the advisor to the Company until
October&nbsp;1, 2003, when it was replaced by
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-19-<!-- /Folio -->
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Prime.
PIAMI is the sole member of Prime. PIAMI is owned by Syntek West, Inc. (20%) and
Realty Advisors, LLC (80%). Syntek West, Inc. (&#147;SWF&#148;) is a Nevada corporation owned by Gene E.
Phillips. Realty Advisors, LLC is a Nevada limited liability Company, the sole member of which is
Realty Advisors, Inc. (&#147;RAI&#148;), 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&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 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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) a disposition fee for the sale of each equity&#146; 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:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&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.
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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&#146; Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
July&nbsp;1, 2005, the Company and Prime entered into a Cash Management Agreement to
further define the administration of the Company&#146;s day-to-day investment operations, relationship
contracts, flow of funds and deposit and borrowing of funds. Under the Cash Management Agreement,
all funds of the Company are delivered to Prime which has a deposit liability to the Company and is
responsible for payment of all payables and investment of all excess funds which earn interest at
the <I>Wall Street Journal </I>Prime Rate plus 1% per annum, as set quarterly on the first day of each
calendar quarter. Borrowings for the benefit of the Company bear the same interest rate. The term
of the Cash Management Agreement is coterminous with the Advisory Agreement, and it is
automatically renewed each year unless terminated with the Advisory Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prime may assign the Advisory Agreement only with the prior consent of the Company.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The managers and principal officers of Prime are set forth below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" 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="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mickey N. Phillips
</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">Ryan T. Phillips
</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">Steven A. Abney
</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">Louis J. Corna
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President, General Counsel, Tax Counsel
and Secretary</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Property Management and Real Estate Brokerage</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Triad Realty Services LP (&#147;Triad&#148;), an affiliate of Prime, and Carmel Realty. Inc.
(&#147;Carmel&#148;) provide property management services to the Company&#146;s properties for a fee of 6% 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 PIAMI. The limited partner of Triad is Highland
Realty Services. Inc. (&#147;Highland&#146;&#146;), a related party. Triad subcontracts the property-level
management and leasing of 30 of the Company&#146;s commercial properties (shopping centers, office
buildings and individual warehouses) to Regis Realty I, LLC (&#147;Regis I&#148;), which is entitled to
receive property and construction management fees and leasing commissions in accordance with the
terms of its property-level management agreement with Triad. Regis I is owned by Highland. Since
January&nbsp;1, 2003, Regis Hotel I, LLC has managed eleven 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 Prime. On May&nbsp;1, 2004, Regis I acquired the
ownership of Carmel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Certain Relationships and Related Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Policies with Respect to Certain
Activities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
</DIV>


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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">transaction by the affirmative vote of a majority of independent directors of the Company entitled
to vote thereon. Article&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Certain Business Relationships</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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. LLC (80%) and Syntek West, Inc. (20%). On October 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;Abney and Corna serve as executive officers. The executive officers of the Company also
serve as executive officers of TCI and Messrs.&nbsp;Abney and Corna 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company contracts with affiliates of Prime for property management services. Currently,
Triad, an affiliate, and Carmel provide such property management services. The general partner of
Triad is PIAMI. 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 seven 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company owns an equity interest in each of IOT and TCI. At December&nbsp;31, 2005, the
Company, through two wholly-owned subsidiaries, owned approximately 82% of TCI&#146;s outstanding
common stock and TCI owned approximately 24% of lOT&#146;s outstanding common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Related Party Transactions</B>
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Operating Relationships</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2003, the Company entered into a lease with Prime for space at the One
Hickory Centre Office Building, construction of which was completed in December&nbsp;1998. The lease is
for 59,115 square feet (approximately 59% 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 May&nbsp;1, 2004,
the lease was amended to 54,404 square feet (approximately 56% of the building), with an annual
base rent of $1.2&nbsp;million, or $21.50 per square foot. In November&nbsp;2005, the lease was amended to
48,151 square feet (approximately 49% of the building), with an annual base rent of $1&nbsp;million,
or $21.50 per square foot.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company received rents in 2005 of $56,000, and in 2004 of $69,000 from BCM for BCM&#146;s
lease at Addison Hangar. BCM leases a corporate jet that is housed at the hangar, and the Company
has available space at the hangar.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, the Company paid Prime, its affiliates and a related party $9.4&nbsp;million in advisory
fees, $3.7&nbsp;million in net income fees, $1.1&nbsp;million in incentive fees, $822,000 in loan
arrangement fees, $3.5&nbsp;million in property acquisition fees, $5.5&nbsp;million in real estate brokerage
commissions and $1.7&nbsp;million in property and construction management fees and leasing commissions,
net of property management fees paid to subcontractors, other than affiliates of Prime. In
addition, as provided in the Advisory Agreement, in 2004, Prime as advisor received cost
reimbursements of $4.4&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Partnership Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
18, 2004, calls for the Company to repurchase 5,188,750 outstanding Class&nbsp;A units on December&nbsp;31,
2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Advances and Loans</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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, did not bear interest
until July&nbsp;1, 2005, are
unsecured and have been reflected in the Company&#146;s financial statements as other assets or other
liabilities. At December&nbsp;31, 2004, after accounting for affiliate purchases and sales, amounts
still owed by the Company were $260,000 and $1.2&nbsp;million to IOT and Regis I, respectively.
Effective July&nbsp;1, 2005, such advances bear
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">interest
at 1% above prime rate (currently 7.75%) per annum. Also, at December&nbsp;31, 2005, the
Company was owed $29.7&nbsp;million and $1.1&nbsp;million by Prime and Regis I, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 pledge of 850,000 shares of the Company&#146;s Common Stock owned by BCM. The interest
rate was changed to 2% over the prime rate, and the accrued but
unpaid interest of $984,000 was
added to the principal. The new principal balance is $5.6&nbsp;million. In September&nbsp;2003, $673,000 in
accrued interest was collected. In August&nbsp;2004, $342,000 in accrued interest was collected. In
November&nbsp;2004, the maturity date was extended to November&nbsp;2006. All principal and accrued interest
are due at maturity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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
2003, the note was exchanged with Regis I, a related party, for three notes receivable (i) $1.4
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&nbsp;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 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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;). At the time of inception of such loan, a subsidiary of One
Realco owned approximately 2.15<I>% </I>of the outstanding shares of Common Stock of the Company. 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&nbsp;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
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, $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 8.75% 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2003, Encino Executive Plaza, Ltd., of which ART Encino, Inc., then a subsidiary
of the Company, as 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 5.49% per
annum and matured June&nbsp;30,
2006. All principal and interest were due at maturity. Such indebtedness was satisfied at maturity
along with other indebtedness owed to IOT by conveyance of certain real property to IOT which had
been subject to all inclusive wraparound notes. Effective
June&nbsp;30, 2006, the Company sold its
interest in ART Encino, Inc. to an unaffiliated third party for $1.000 cash.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January&nbsp;2004, ARI issued 200,000 shares of Series&nbsp;A 10% Cumulative Convertible Preferred
Stock to Prime, ARI&#146;s advisor. In February&nbsp;2004,50,000 additional shares were issued to Prime.
ARI&#146;s affiliate receivable was increased by $2.5&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2004, ARI obtained financing of $7.5&nbsp;million on the Katy land tract. The funds,
along with additional cash of $6.3&nbsp;million, were sent to an affiliate. Subsequently, the affiliate
paid off the existing loan balance on an ARI property.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2004, ARI obtained an unsecured loan of $5&nbsp;million. The proceeds of $5&nbsp;million
were received by an affiliate of ARI, increasing ARI&#146;s affiliate receivable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2004, ARI obtained financing of $11.5&nbsp;million on a hotel property. The proceeds of
$11&nbsp;million were received by an affiliate, increasing ARI&#146;s affiliate receivable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April&nbsp;2004, $825,000 was advanced under a security loan arrangement with a financial
institution. The proceeds were paid to an affiliate increasing ARIs affiliate receivable.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-26-<!-- /Folio -->
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
July&nbsp;2004, ARI obtained a loan of $3.2&nbsp;million secured by a contract for sale of the
Waters Edge III Apartments. The proceeds of $3.2&nbsp;million were received by an affiliate, increasing
ARI&#146;s affiliate receivable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, ARI advanced $3.3&nbsp;million to the Class&nbsp;A Limited Partners of Edina Park
Plaza Associates. Limited Partnership, of which a subsidiary ARI is the general partner. The loans
bear interest at 10% per annum and mature in September&nbsp;2017. Interest due to ARI will be deducted
from the quarterly return owned by ARI to the Class&nbsp;A Limited Partners, eliminating the quarterly
payments. The outstanding principal is due at maturity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Property Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2003, the Company sold seven properties to subsidiaries of Unified. The
Company sold 39.3 acres of Pioneer Crossing land for $3.9&nbsp;million, 10.7 acres of Marine Creek land
for $1.5&nbsp;million, the Limestone at Vista Ridge Apartments for $19&nbsp;million, the Cliffs of El Dorado
Apartments for $13.4&nbsp;million, the Limestone Canyon Apartments for $18&nbsp;million, the Sendero Ridge
Apartments for $29.4&nbsp;million, and Tivoli Apartments for $16.1&nbsp;million. All of the transactions
included the assumption of debt and notes receivable to the Company for the remainder of the
purchase price. Ted Stokely, Chairman of the Board of the Company, is the General Manager of
Unified. Richard Humphrey, who is employed by Regis I, is President of Unified. Since Unified is
considered a related party to the Company, and the Company is deemed to have continued involvement
and control of these entities, these transactions have not yet been recorded as sales. Instead,
these transactions have been accounted for on the deposit method, and the properties and
corresponding debt will continue to be consolidated by the Company. All of these transactions were
approved by the Board of Directors of the Company. Mr.&nbsp;Stokely abstained from voting on all of
these transactions. The loans on Limestone Canyon Apartments, Limestone at Vista Ridge Apartments
and Tivoli Apartments were approved by their prospective lenders for transfer to the purchasing
entities. The Company has guaranteed the loans on both of these
transfers. Also, Marine Creek land
and the Cliffs of El Dorado Apartments were recognized as sales during 2004. Management is
currently seeking lender approval on the transfer of the notes associated with Sendero Ridge
Apartments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2003, the Company sold a tract of Marine Creek land to a subsidiary of Unified
for $1.5&nbsp;million, receiving cash and a note receivable. This sale was not recognized as a sale at
that time because Unified is considered a related party with the Company deemed to have continuing
involvement and control. In February&nbsp;2004. Marine Creek was refinanced, which paid in full the
Company&#146;s note payable on the land. The Company recorded the sale of the land and received a note
receivable of $270,000, which was the difference between the sales price and the amount of the
Company&#146;s note payable. In August&nbsp;2005, the note was paid in full. The Company recorded the sale
of the Marine Creek land due to the payment received of the note receivable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2004, the Company purchased the Treehouse Apartments from an affiliate, with a net
purchase price of $7.5&nbsp;million after assumption of debt and a
note receivable, less cash received
of $500,000. The note receivable was from the sale of the Cliffs of El Dorado Apartments to a
related party in 2003. At that time, the sale of the Cliffs of El Dorado Apartments was not
recorded as a sale for accounting purposes. The Company recorded the sale of the Cliffs of El
Dorado Apartments in May&nbsp;2004, when payment was received for the Cliffs of El Dorado Apartments
note receivable.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-27-<!-- /Folio -->
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2004, the Company sold Limestone Canyon II land to a subsidiary of Unified for
$720,000 in the form of a seller note receivable. As no cash was received, the Company elected to
continue consolidating this tract of land until the requirements for the sale have been met. No
sale was recognized, and no note receivable has been recorded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2002, the Company, TCI and IOT sold 28 apartment properties to partnerships
controlled by Metra Capital, LLC (&#147;Metra&#148;). Innovo Group, Inc. (&#147;Innovo&#148;) is a limited partner in
the partnerships that purchased the properties. Joseph Mizrachi, then a director of the Company,
controlled approximately 11.67% of the outstanding common stock of Innovo. Management determined
to treat the sales as financing transactions, and the Company and TCI continued to report the
assets and the new debt incurred by Metra on their financial statements. The partnership
agreements for each of these partnerships stated that the Metra Partners, as defined, receive cash
flow distributions at least quarterly in an amount sufficient to provide them with a 15%
cumulative compounded annual rate of return on their investment capital, as well as a cumulative
compounded annual amount of 0.50% of the average outstanding balance of the mortgage indebtedness
secured by any of these properties. These distributions to the Metra Partners had priority over
distributions to any other partners. In August&nbsp;2004, the Company, TCI and IOT instituted an action
in Texas State District Court regarding the transaction. During April&nbsp;2005, resolution of the
litigation occurred, settling all liabilities remaining from the original partnership arrangements
which included a return of investor equity, a cessation of any preferential return, prospective
asset management fees and miscellaneous fees and transaction costs from the Plaintiffs as a
prepayment of a preferred return, along with a delegation of management and corresponding payment
of management fees to Prime, and a motion to dismiss the action as a part of the resolution. Of
the prepayment, the Company recognized expense of $525,000 and a reduction in liabilities of $3.2
million during the second quarter of 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the resolution in April&nbsp;2005 of the litigation filed August&nbsp;10, 2004, by
the Company, TCI and IOT, the Company owns 31.3% of Midland Odessa Properties. Inc. (formerly
Innovo Realty, Inc.) (&#147;MOPI&#148;), the balance of which is owned by TCI (48.8%) and IOT (19.95%). MOPI
in turn is a 30% limited partner in several &#147;Metra&#148; partnerships formed in 2002 when the Company,
TCI and IOT sold certain residential properties to partnerships controlled by Metra. The original
sale transactions were accounted for as refinancing transactions with the Company continuing to
report the assets and new debt incurred by certain of the Metra partnerships on the Company&#146;s
financial statements. As properties are sold to independent third parties, the transactions are
reported as sales.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PERFORMANCE GRAPH</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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,
2000, 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.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-28-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN</B><BR>
AMONG AMERICAN REALTY INVESTORS, INC.<BR>
THE DOW JONES US TOTAL MARKET INDEX<BR>
AND THE DOW JONES US REAL ESTATE INDEX
</DIV>
<P>
<DIV align="center">

<IMG src="d40317d4031701.gif" alt="(PERFORMANCE GRAPH)">
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="25"></TD>
</TR>

<TR>
    <TD colspan="25" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="25"></TD>
</TR>

<TR>
    <TD colspan="25" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;ARI
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47.59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;Real Estate Index
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">127.51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">142.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">147.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">202.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">265.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;Total U.S. Market Index
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90.87</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62.37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81.54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left">

</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>OTHER MATTERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-29-<!-- /Folio -->
</DIV>

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audited financial statements of the Company, in comparative form for the years ended
December&nbsp;31, 2005 and 2004 are contained in the 2005 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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SOLICITATION OF PROXIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&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 officers of the Company may, without additional compensation, solicit by
mail, in person or by telecommunication.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>FUTURE PROPOSALS OF STOCKHOLDERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholder proposals for our Annual Meeting to be held in 2007 must be received by us by
December&nbsp;31, 2006, 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>COPIES OF AMERICAN REALTY INVESTORS, INC.&#146;S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER
31, 2005 TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (WITHOUT EXHIBITS) ARE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE THROUGH OUR
WEBSITE </B><B><I><U>WWW. AMREALTYTRUST.COM</u> </I></B><B>OR UPON WRITTEN REQUEST TO AMERICAN REALTY INVESTORS, INC., 1800 VALLEY
VIEW LANE, SUITE 300, DALLAS, TEXAS 75234, ATTN: INVESTOR RELATIONS.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dated: October&nbsp;17, 2006.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">By Order of the Board of Directors, <BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Louis J. Corna
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Louis J. Corna&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Executive Vice President, General Counsel,<BR>
Tax Counsel and Secretary&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->-30-<!-- /Folio -->
</DIV>


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



<DIV style="font-family: Helvetica,Arial,sans-serif">




<DIV align="center" style="font-size: 12pt; margin-top: 18pt"><B>ANNUAL
MEETING OF STOCKHOLDERS OF</B>
</DIV>


<DIV align="center" style="font-size: 24pt; margin-top: 18pt"><B>AMERICAN REALTY INVESTORS, INC.
</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 18pt"><B>November 20, 2006</B>
</DIV>


<DIV align="center" style="font-size: 18pt; margin-top: 48pt">Please date, sign and mail<br> your proxy card in the<br> envelope provided as soon<br> as possible.
</DIV>


<DIV align="center" style="font-size: 8pt; margin-top: 28pt"><FONT face="Symbol" style="font-size: 17pt">&#175;</FONT>Please detach along perforated line and mail in the envelope provided. <FONT face="Symbol" style="font-size: 17pt">&#175;</FONT>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD>&nbsp;</TD>
    <TD valign="top" bgcolor="#000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
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</TD>
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</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD style="border-top: 1px solid #000000;  border-left: 1px solid #000000;  border-right: 1px solid #000000; border-bottom: 1px solid #000000" colspan="3" align="center" valign="top"><B>The Board of Directors of American Realty Investors, Inc. recommends approval of all nominees for election as directors <br>
and a vote FOR ratification of the appointment of Farmer, Fuqua and Huff, P.C. as independent registered public accounting firm.<br> PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.  PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
</B> <Font face="Wingdings">&#120;</Font></TD>
</TR>
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</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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    <TD align="left" valign="top">&nbsp;</TD>
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    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">ABSTAIN&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" valign="top" align="left">1. Election of Directors: </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ratification of the Appointment of Farmer, Fuqua &#038; Huff, P.C.  as Independent Registered Public Accounting Firm</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 18pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 18pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 18pt">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top"><b>NOMINEES:</b>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
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    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" rowspan="2"><FONT face="Wingdings" style="font-size: 18pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" valign="bottom" align="left"><B>FOR ALL NOMINEES</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="middle"><font face="wingdings">&#161;</font></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="middle">Henry A. Butler</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="middle">3.</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" valign="middle">  In their discretion on any other matters which may properly come before the meeting or any adjournment(s) thereof.
</TD>

</TR>

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

    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><font face="wingdings">&#161;</font>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sharon Hunt</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT face="Wingdings" style="font-size: 18pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" valign="top" align="left"><B>WITHHOLD AUTHORITY<br> FOR ALL NOMINEES</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><font face="wingdings">&#161;<br>&#161;<br>&#161;</font></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">Ted R. Munselle<br>Ted P. Stokely<br>Robert A. jakuszewski</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>

<TD colspan="10" rowspan="2" align="left" valign="top"><div align="justify"><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 &#038; 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></div></TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT face="Wingdings" style="font-size: 18pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>FOR ALL EXCEPT<BR> </B>(See instructions below)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD colspan="3" valign="top" align="left"><DIV style="margin-top: 25pt"><B><U>INSTRUCTION:</U></B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" valign="top"><DIV style="margin-top: 25pt">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" size="1">&#108;</font></DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
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</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="12" align="left" valign="top" style="border-top: 1px solid #000000; border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
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</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
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    <TD nowrap align="right" valign="top">&nbsp;</TD>
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</TR>
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    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" valign="top" align="left"><DIV align="justify">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.</DIV></TD>

    <TD align="left" valign="top"><FONT face="Wingdings" style="font-size: 18pt">&#111;</FONT></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
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</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
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    <TD nowrap align="right" valign="top">&nbsp;</TD>
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    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom" style="font-size: 1pt">
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="middle" nowrap><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;Signature of Shareholder
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD style="border: 1px solid #000000" align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="middle">Date:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="middle" nowrap>Signature of Shareholder
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="middle">Date:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border: 1px solid #000000"><BR>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="margin-top: 1pt">
<TABLE width="96%" border="0" cellpadding="0" cellspacing="0" style="font-size: 7pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">&nbsp;&nbsp;&nbsp;&nbsp;<B>Note:</B></TD>
    <TD>&nbsp;</TD>
    <TD style="font-size: 7pt"><DIV align="justify">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.</DIV></TD>
</TR>
</TABLE>
</DIV>
<DIV align="center" style="margin-top: -8pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom" style="font-size: 8pt" >
    <TD width="1%">&nbsp;</TD>
    <TD bgcolor="#000000" width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="93%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD bgcolor="#000000" width="2%">&nbsp;</TD>

</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
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</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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<!-- End Table Body -->
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<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">

<DIV align="center" style="margin-top: 300pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
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<TR valign="bottom" style="font-size: 8pt">
    <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 nowrap><font face="wingdings">&#111;</FONT></TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
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</DIV>



<DIV align="center" style="font-size: 12pt; margin-top: 30pt"><B>AMERICAN REALTY INVESTORS, INC.</B>
</DIV>



<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF<br>
STOCKHOLDERS TO BE HELD NOVEMBER 20, 2006.
</B>
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 5pt; margin-right: 5pt">&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 Monday, November 20, 2006 at 1:00 p.m., local Dallas, Texas
time, at 1800 Valley View Lane, Suite 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 October 17, 2006 Proxy Statement for said meeting.
</DIV>


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

<DIV align="center" style="margin-top: 28pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
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    <TD>&nbsp;</TD>
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    <TD align="left" valign="top">&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">14475</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD bgcolor="#000000" align="left" valign="top" colspan="2" nowrap>&nbsp;</TD>
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%(`@``#L_
`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
