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<SEC-DOCUMENT>0000950134-01-502445.txt : 20010528
<SEC-HEADER>0000950134-01-502445.hdr.sgml : 20010528
ACCESSION NUMBER:		0000950134-01-502445
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010710
FILED AS OF DATE:		20010525

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INCOME OPPORTUNITY REALTY INVESTORS INC /TX/
		CENTRAL INDEX KEY:			0000949961
		STANDARD INDUSTRIAL CLASSIFICATION:	REAL ESTATE INVESTMENT TRUSTS [6798]
		IRS NUMBER:				752615944
		STATE OF INCORPORATION:			CA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		
		SEC FILE NUMBER:	001-14784
		FILM NUMBER:		1647751

	BUSINESS ADDRESS:	
		STREET 1:		10670 N CENTRAL EXPRSWY STE 300
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75231
		BUSINESS PHONE:		2146924700

	MAIL ADDRESS:	
		STREET 1:		10670 NORTH CENTRAL EXPRESSWAY
		STREET 2:		SUITE 600
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75231
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>d87355ddef14a.txt
<DESCRIPTION>DEFINITIVE PROXY STATEMENT
<TEXT>

<PAGE>   1

                                  UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                  SCHEDULE 14A
                                 (RULE 14a-101)

                    INFORMATION REQUIRED IN PROXY STATEMENT

                            SCHEDULE 14A INFORMATION

          PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
                    EXCHANGE ACT OF 1934 (AMENDMENT NO.   )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S>                                       <C>
[ ]  Preliminary Proxy Statement          [ ]  Confidential, for Use of the
                                               Commission Only (as permitted by
                                               Rule 14a-6(e)(2))
[X]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant to Rule 14a-12
</TABLE>

                   Income Opportunity Realty Investors, Inc.
- --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
   (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

   [X]  No fee required.
   [ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

   (1)  Title of each class of securities to which transaction applies:

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

   (2)  Aggregate number of securities to which transaction applies:

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

   (3)  Per unit price or other underlying value of transaction computed
        pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
        filing fee is calculated and state how it was determined):

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

   (4)  Proposed maximum aggregate value of transaction:

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

   (5)  Total fee paid:

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

   [ ]  Fee paid previously with preliminary materials.
   [ ]  Check box if any part of the fee is offset as provided by Exchange Act
        Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
        paid previously. Identify the previous filing by registration statement
        number, or the Form or Schedule and the date of its filing.

   (1)  Amount Previously Paid:

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

   (2)  Form, Schedule or Registration Statement No.:

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

   (3)  Filing Party:

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

   (4)  Date Filed:

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

<PAGE>   2

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                                 DALLAS, TEXAS

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                            TO BE HELD JULY 10, 2001

Dear Stockholder:

     You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of Income Opportunity Realty Investors, Inc. which will be held on Tuesday, July
10, 2001, at 10:00 a.m. at 1800 Valley View Lane, Suite 300, Dallas, Texas. The
purposes of the Annual Meeting are:

     (1) to elect four directors; and

     (2) to transact any other business that may properly come before the
meeting.

     You must be a stockholder of record at the close of business on May 24,
2001, to vote at the Annual Meeting.

     Whether you plan to attend or not, please sign, date, and return the
enclosed proxy card in the envelope provided. You may also attend and vote at
the Annual Meeting.

Dated: May 28, 2001

                                           By Order of the Board of Directors

                                           /s/ ROBERT A. WALDMAN
                                           Robert A. Waldman
                                           Senior Vice President, General
                                           Counsel
                                           and Corporate Secretary
<PAGE>   3

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                                 DALLAS, TEXAS

                                PROXY STATEMENT

                     FOR THE ANNUAL MEETING OF STOCKHOLDERS
                          TO BE HELD ON JULY 10, 2001

     This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Income Opportunity Realty Investors, Inc. (the
"Company") of proxies to be used at the Annual Meeting of Stockholders (the
"Annual Meeting") for a vote upon (1) the election of four directors, and (2)
the transaction of any other business as may properly come before the meeting or
any adjournments thereof.

     The Annual Meeting will be held at 10:00 a.m., Central time, on Tuesday,
July 10, 2001, at 1800 Valley View Lane, Suite 300, Dallas, Texas. The Company's
financial statements for the year ended December 31, 2000, were audited by BDO
Seidman, LLP. A representative from BDO Seidman is expected to be present at the
Annual Meeting to respond to appropriate questions, and the representative will
have an opportunity to make a statement if such representative desires to do so.
This Proxy Statement and the form of proxy are first being mailed to
stockholders on or about May 28, 2001.

     The Annual Report for the year ended December 31, 2000, has preceded this
proxy statement and was previously mailed to all stockholders under separate
cover.

STOCKHOLDERS ENTITLED TO VOTE

     Only holders of record of issued and outstanding shares of the Company's
common stock (the "Common Stock") at the close of business on May 24, 2001 (the
"Record Date"), are entitled to vote at the Annual Meeting and at any
adjournments thereof. At the close of business on May 24, 2001, there were
1,514,045 shares outstanding. Each holder is entitled to one vote for each share
held on the Record Date.

VOTING OF PROXIES

     When the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions noted on the proxy. As to the election of the four directors,
stockholders may choose to vote for all of the nominees or withhold authority
for voting for any one or all of the nominees.

     In the absence of other instructions, the shares represented by a properly
executed and submitted proxy will be voted in favor of each of the nominees for
election to the Board of Directors. The Board of Directors does not know of any
other business to be brought before the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting, it is the intention of the
persons named in the enclosed proxy to vote the proxy in accordance with their
judgment on such matters.

VOTE REQUIRED FOR ELECTION OR APPROVAL

     Pursuant to Section 2.6 of the Bylaws of the Company, a majority of the
issued and outstanding shares entitled to vote at a meeting of stockholders,
represented in person or by proxy, shall constitute a quorum at such meeting.
Section 2.7 also provides that election of any director requires the affirmative
vote of a majority of the votes cast at a meeting of stockholders by holders of
shares entitled to vote thereon.

     Abstentions will be included in vote totals and, as such, will have the
same effect on each proposal as a negative vote. Broker non-votes, if any, will
not be included in vote totals and, as such, will have no effect on any
proposal.

     As of May 24, 2001, management and affiliates held 862,465 shares
representing approximately 57% of the shares outstanding. Such parties intend to
vote all of such shares for the election of directors.

                                        1
<PAGE>   4

REVOCATION OF PROXIES

     A proxy is enclosed. Any stockholder who executes and delivers the proxy
may revoke the authority granted thereunder at any time prior to its use by
giving written notice of such revocation to American Stock Transfer and Trust
Company, 6201 15th Avenue, Brooklyn, New York 11219, or by executing and
delivering a proxy bearing a later date by mail or through Internet voting. A
STOCKHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE ANNUAL
MEETING. MERE ATTENDANCE AT THE MEETING IS NOT SUFFICIENT TO REVOKE A PROXY.

FUTURE PROPOSALS OF STOCKHOLDERS

     Any proposal intended to be presented by a stockholder at the 2002 Annual
Meeting of Stockholders of the Company must be received at the principal office
of the Company not later than April 1, 2002, in order to be considered for
inclusion in the Company's proxy statement and form of proxy (as the case may
be) for that meeting.

                                 PROPOSAL ONE:

                             ELECTION OF DIRECTORS

     The Board of Directors currently consists of four members and all Directors
are elected annually. The following persons have been nominated to serve as
directors of the Company: Ted P. Stokely, R. Douglas Leonhard, Martin L. White
and Edward G. Zampa.

     Each of the nominees is currently a director of the Company. Each of the
nominees has been nominated by the Board of Directors to serve for an additional
term until the next Annual Meeting of Stockholders or until his successor shall
have been duly elected and qualified. Each nominee has consented to being named
in this Proxy Statement as a nominee and has agreed to serve as a director if
elected. When a proxy is properly executed and returned, the shares represented
thereby will be voted in favor of the election of each of the nominees, unless
authority to vote for any such nominee is specifically withheld. Cumulative
voting for the election of directors is not permitted. If any nominee is unable
to serve or will not serve (an event which is not anticipated), then the proxy
holder will cast votes for such other person(s) as he or she may select in place
of such nominee(s).

     The nominees for directors are listed below, together with their age, terms
of service, all positions and offices with the Company or the Company's advisor,
Basic Capital Management, Inc. ("BCM"), other principal occupations, and offices
with the Company or the Company's advisor, BCM, other principal occupations,
business experience and directorships with other companies during the last five
years or more. The designation "Affiliated," when used below with respect to a
director, means that the director is an officer, director or employee of the
Advisor or an officer of the Company. The designation "Independent," when used
below with respect to a director, means the director is neither an officer of
the Company nor a director, officer or employee of the Advisor, although the
Company may have certain business or professional relationships with such
director as discussed below under "Certain Business Relationships and Related
Transactions".

<TABLE>
<CAPTION>
              NAME, PRINCIPAL OCCUPATIONS, BUSINESS EXPERIENCE AND DIRECTORSHIPS                  AGE
              ------------------------------------------------------------------                  ---
<S>                                <C>                                                            <C>
TED P. STOKELY                     Director (Independent) (since April 1990) and Chairman of      67
                                   the Board (since January 1995)
General Manager (since January 1995) of ECF Senior Housing Corporation, a nonprofit
corporation; General Manager (since January 1993) of Housing Assistance Foundation, Inc., a
nonprofit corporation; Part-time unpaid consultant (since January 1993) of Eldercare Housing
Foundation, a nonprofit corporation; and Director (since April 1990) and Chairman of the Board
(since January 1995) of Transcontinental Realty Investors, Inc. ("TCI")
</TABLE>

                                        2
<PAGE>   5

<TABLE>
<CAPTION>
              NAME, PRINCIPAL OCCUPATIONS, BUSINESS EXPERIENCE AND DIRECTORSHIPS                  AGE
              ------------------------------------------------------------------                  ---
<S>                                <C>                                                            <C>
R. DOUGLAS LEONHARD                Director (Independent)                                         65
                                   (since January 1998)
Director (since November 1998) and Chairman (since October 1999) of OpTel, Inc.; Senior Vice
President (1986 to 1997) of LaCantera Development Company, a wholly-owned subsidiary of USAA;
and Director (since January 1998) of TCI
MARTIN L. WHITE                    Director (Independent)                                         61
                                   (since January 1995)
Chief Executive Officer (since 1995) of Builders Emporium, Inc.; Chairman and Chief Executive
Officer (since 1993) of North American Trading Company, Ltd.; President and Chief Operating
Officer (since 1992) of Community Based Developers, Inc.; and Director (since January 1995) of
TCI
EDWARD G. ZAMPA                    Director (Independent)                                         65
                                   (since January 1995)
General Partner (since 1976) of Edward G. Zampa and Company; and Director (since January 1995)
of TCI
</TABLE>

     THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
THE NOMINEES NAMED ABOVE.

BOARD COMMITTEES

     The Board of Directors held sixteen meetings during 2000. For such year, no
incumbent Director attended fewer than 75% of the aggregate of (i) the total
number of meetings held by the Board during the period for which he had been a
Director and (ii) the total number of meetings held by all committees of the
Board on which he served during the period that he served.

     The Board of Directors has an Audit Committee, the function of which is to
review the Company's operating and accounting procedures.

     The Board of Directors does not have Nominating or Compensation Committees.

AUDIT COMMITTEE

     The Audit Committee meets periodically with the independent auditors;
reviews annual financial statements and the independent auditors' work and
report thereon; reviews the independent auditors' report on internal controls
and related matters; selects and recommends to the Board of Directors the
appointment of the independent auditors reviews the letter of engagement and
statement of fees which pertain to the scope of the annual audit and certain
special audit and non-audit work which may be required or suggested by the
independent auditors; receives and reviews information pertaining to internal
audits; directs and supervises special investigations; and performs any other
functions deemed appropriate by the Board of Directors. Members of the Audit
Committee are Messrs. Stokely, Leonhard, and White, each of whom is independent
(as defined in Section 121(A) of the American Stock Exchange Company Guide). The
Board of Directors has adopted a written charter for the Audit Committee, a copy
of which is attached to this Proxy Statement as Attachment A. The Audit
Committee met four times during 2000.

AUDIT COMMITTEE REPORT

     The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.

                                        3
<PAGE>   6

     The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and the
Company including the matters in the written disclosures required by the
Independence Standards Board.

     The Committee discussed with the Company's independent auditors the overall
scope and plans for their audit. The Committee meets with the independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting.

     In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2000, for filing with the Securities and Exchange
Commission. The Committee has also recommended, subject to Board approval, the
selection of the Company's independent auditors.

                                            AUDIT COMMITTEE

                                            Ted P. Stokely
                                            R. Douglas Leonhard
                                            Martin L. White

Dated: March 23, 2001

                                        4
<PAGE>   7

OLIVE LITIGATION

     In February 1990, the Company together with Continental Mortgage and Equity
Trust ("CMET"), TCI and National Income Realty Trust ("NIRT"), three real estate
entities with, at the time, the same officers, directors or trustees and advisor
as the Company, entered into a settlement (the "Settlement") of a class and
derivative action entitled Olive et al. v. National Income Realty Trust et al.
relating to the operation and management of each of the entities. On April 23,
1990, the court granted final approval of the terms of the Settlement. The
Settlement was modified in 1994 (the "Modification").

     On January 27, 1997, the parties entered into an amendment to the
Modification, effective January 9, 1997 (the "Olive Amendment"). The Olive
Amendment provided for the settlement of additional matters raised by
plaintiffs' counsel in 1996. The Court issued an order approving the Olive
Amendment on July 3, 1997.

     The Olive Amendment provided that the Company's Board retain a
management/compensation consultant or consultants to evaluate the fairness of
the BCM advisory contract and any contract of its affiliates with the Company,
CMET and TCI, including, but not limited to, the fairness to the Company, CMET
and TCI of such contracts relative to other means of administration. In 1998,
the Board engaged a management/compensation consultant to perform the evaluation
which was completed in September 1998.

     In 1999, plaintiffs' counsel asserted that the Board did not comply with
the provision requiring such engagement and requested that the Court exercise
its retained jurisdiction to determine whether there was a breach of this
provision of the Olive Amendment. In January 2000, the Board engaged another
management/compensation consultant to perform the required evaluation again.
This evaluation was completed in April 2000 and was provided to plaintiffs'
counsel. The Board believes that any alleged breach of the Olive Amendment has
been fully remedied by the Board's engagement of the second consultant. Although
several status conferences have been held on this matter, there has been no
Court order resolving whether there was any breach of the Olive Amendment.

     In October 2000, plaintiffs' counsel asserted that the stock option
agreement to purchase TCI shares, which was entered into by the Company and an
affiliate of the Company, American Realty Investors, Inc. ("ARI"), in October
2000 with Gotham Partners, breached a provision of the Modification. As a result
of this assertion, the Company assigned all of its rights to purchase the TCI
shares under this stock option agreement to ARI. The Board believes that all
provisions of the Settlement, Modification and the Olive Amendment terminated on
April 28, 1999. However, in September 2000, the Court ruled that certain
provisions of the Modification continue to be effective after the termination
date. This ruling has been appealed to the United States Court of Appeals for
the Ninth Circuit by the Company and TCI.

                                        5
<PAGE>   8

EXECUTIVE OFFICERS

     The following persons currently serve as executive officers of the Company:
Karl L. Blaha, President; Bruce A. Endendyk, Executive Vice President; Mark W.
Branigan, Executive Vice President and Chief Financial Officer; and David W.
Starowicz, Executive Vice President -- Acquisitions, Sales and Construction.
Their positions with the Company are not subject to a vote of stockholders. The
age, terms of service, all positions and offices with the Company or BCM, other
principal occupations, business experience and directorships with other
companies during the last five years or more of each executive officer are set
forth below.

<TABLE>
<CAPTION>
                                                                                                 AGE
                                                                                                 ---
<S>                                 <C>                                                          <C>
KARL L. BLAHA                       President (since September 1999), Executive Vice             53
                                    President -- Commercial Asset Management (July 1997 to
                                    September 1999) and Executive Vice President and Director
                                    of Commercial Management (April 1992 to August 1995).
President (since September 1999), Executive Vice President -- Commercial Asset Management
(July 1997 to September 1999) and Executive Vice President and Director of Commercial
Management (April 1992 to August 1995) of BCM and TCI; President and director (since August
2000) of American Realty Investors, Inc. ("ARI"); Director (since June 1996), President (since
October 1993) and Executive Vice President and Director of Commercial Management (April 1992
to October 1993) of American Realty Trust, Inc. ("ART"); President and Director (since 1996)
of First Equity Properties, Inc., which is 50% owned by BCM; and Director (since December
1998), President (since September 1999) and Executive Vice President -- Commercial Asset
Management (January 1998 to September 1999) of NRLP Management Corp. ("NMC"), a wholly owned
subsidiary of ART and the general partner of National Realty, L.P.("NRLP") and National
Operating, L.P.("NOLP").
BRUCE A. ENDENDYK                   Executive Vice President                                     52
                                    (since January 1995).
Executive Vice President (since January 1995) of BCM, ART and TCI, and (since January 1998) of
NMC; Executive Vice President (since August 2000) of ARI; and Management Consultant (November
1990 to December 1994).
MARK W. BRANIGAN                    Executive Vice President and Chief Financial Officer         46
                                    (since August 2000), Vice President -- Director of
                                    Construction (August 1999 to August 2000) and Executive
                                    Vice President -- Residential Asset Management (January
                                    1992 to October 1997).
Executive Vice President and Chief Financial Officer (since August 2000), Vice
President -- Director of Construction (August 1999 to August 2000) and Executive Vice
President -- Residential Asset Management (January 1992 to October 1997) of BCM, ART and TCI;
Executive Vice President and Chief Financial Officer (since August 2000) and Director (since
September 2000) of ARI; and real estate consultant (November 1997 to July 1999).
DAVID W. STAROWICZ                  Executive Vice President -- Acquisitions, Sales and          45
                                    Construction (since March 2001), Executive Vice
                                    President -- Commercial Asset Management (September 1999
                                    to March 2001), and Vice President (May 1992 to September
                                    1999).
Executive Vice President -- Acquisitions, Sales and Construction (since March 2001), Executive
Vice President -- Commercial Asset Management (September 1999 to March 2001), Vice President
(May 1992 to September 1999) and Asset Manager (November 1990 to May 1992) of BCM, ART and
TCI; Executive Vice President -- Acquisitions, Sales and Construction (since March 2001), and
Executive Vice President -- Commercial Asset Management (August 2000 to March 2001) of ARI.
</TABLE>

OFFICERS

     Although not an executive officer of the Company, Robert A. Waldman
currently serves as Senior Vice President, Secretary and General Counsel. His
position with the Company is not subject to a vote of

                                        6
<PAGE>   9

stockholders. His age, term of service, all positions and offices with the
Company or BCM, other principal occupations, business experience and
directorships with other companies during the last five years or more are set
forth below.

<TABLE>
<CAPTION>
                                                                                                 AGE
                                                                                                 ---
<S>                                 <C>                                                          <C>
ROBERT A. WALDMAN                   Senior Vice President and General Counsel (since January     48
                                    1995), Vice President (December 1990 to January 1995) and
                                    Secretary (December 1993 to February 1997 and since June
                                    1999).
Senior Vice President and General Counsel (since January 1995), Vice President (December 1990
to January 1995) and Secretary (December 1993 to February 1997 and since June 1999) of TCI;
Senior Vice President and General Counsel (since January 1995), Vice President (January 1993
to January 1995) and Secretary (since December 1989) of ART; Senior Vice President and General
Counsel (since November 1994), Vice President and Corporate Counsel (November 1989 to November
1994) and Secretary (since November 1989) of BCM; and Senior Vice President, Secretary and
General Counsel (since January 1998) of NMC and (since August 2000) of ARI.
</TABLE>

COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF 1934

     Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's shares of common stock are required to report their ownership of the
Company's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Company is required to report any failure to file
by these dates during 2000. All of these filing requirements were satisfied by
its Directors and executive officers and ten percent holders. In making these
statements, the Company has relied on the written representations of its
incumbent Directors and executive officers and its ten percent holders and
copies of the reports that they have filed with the Commission.

THE ADVISOR

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

     BCM has served as the Company's advisor since March 1989. BCM is a company
of which Messrs. Blaha, Endendyk, Branigan and Starowicz serve as executive
officers. BCM is owned by a trust for the benefit of the children of Gene E.
Phillips. Mr. Phillips serves as a representative of his children's trust which
owns BCM and, in such capacity, had, until June 2000, substantial contact with
the management of BCM and input with respect to its performance of advisory
services to the Company.

     BCM has served as advisor to the Company since March 28, 1989. The current
Advisory Agreement was entered into effective October 15, 1998.

     Under the Advisory Agreement, BCM 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. BCM is required to report
quarterly to the Board on the Company's performance against the business plan.
In addition, all transactions require prior Board approval unless they are
explicitly provided for in the approved business plan or are made pursuant to
authority expressly delegated to BCM by the Board.

     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 BCM shall be deemed to be in a
fiduciary relationship to the stockholders, contains a broad standard governing
BCM's

                                        7
<PAGE>   10

liability for losses by the Company, and contains guidelines for BCM's
allocation of investment opportunities as among itself, the Company and other
entities it advises.

     The Advisory Agreement provides for BCM to be responsible for the
day-to-day operations of the Company and to receive an advisory fee comprised of
a gross asset fee of .0625% per month (.75% per annum) of the average of the
gross asset value (total assets less allowance for amortization, depreciation or
depletion and valuation reserves) and an annual net income fee equal to 7.5% of
the Company's net income.

     The Advisory Agreement also provides for BCM to receive an annual incentive
sales fee equal to 10% of the amount, if any, by which the aggregate sales
consideration for all real estate sold by the Company during the fiscal year
exceeds the sum of: (1) the cost of each property as originally recorded in the
Company's books for tax purposes (without deduction for depreciation,
amortization or reserve for losses), (2) capital improvements made to such
assets during the period owned, and (3) all closing costs, (including real
estate commissions) incurred in the sale of such property. However, no incentive
fee shall be paid unless (a) such real estate sold in such fiscal year, in the
aggregate, has produced an 8% simple annual return on the net investment,
including capital improvements, calculated over the holding period before
depreciation and inclusive of operating income and sales consideration and (b)
the aggregate net operating income from all real estate owned for each of the
prior and current fiscal years shall be at least 5% higher in the current fiscal
year than in the prior fiscal year.

     Additionally, pursuant to the Advisory Agreement, BCM or an affiliate of
BCM is to receive an acquisition commission for supervising the acquisition,
purchase or long-term lease of real estate equal to the lesser of (1) up to 1%
of the cost of acquisition, inclusive of commissions, if any, paid to
nonaffiliated brokers or (2) the compensation customarily charged in
arm's-length transactions by others rendering similar property acquisition
services as an ongoing public activity in the same geographical location and for
comparable property; provided that the aggregate purchase price of each property
(including acquisition fees and all real estate brokerage commissions) may not
exceed such property's appraised value at acquisition.

     The Advisory Agreement requires BCM or any affiliate of BCM to pay to the
Company one-half of any compensation received from third parties with respect to
the origination, placement or brokerage of any loan made by the Company.
However, the compensation retained by BCM or any affiliate of BCM shall not
exceed the lesser of (1) 2% of the amount of the loan commitment or (2) a loan
brokerage and commitment fee which is reasonable and fair under the
circumstances.

     The Advisory Agreement also provides that BCM or an affiliate of BCM is to
receive a mortgage or loan acquisition fee with respect to the purchase of any
existing mortgage loan equal to the lesser of (1) 1% of the amount of the loan
purchased or (2) a loan brokerage or commitment fee which is reasonable and fair
under the circumstances. Such fee will not be paid in connection with the
origination or funding of any mortgage loan by the Company.

     Under the Advisory Agreement, BCM or an affiliate of BCM also is to receive
a mortgage brokerage and equity refinancing fee for obtaining loans or
refinancing on properties equal to the lesser of (1) 1% of the amount of the
loan or the amount refinanced or (2) a brokerage or refinancing fee which is
reasonable and fair under the circumstances. However, no such fee shall be paid
on loans from BCM or an affiliate of BCM without the approval of the Board of
Directors. No fee shall be paid on loan extensions.

     Under the Advisory Agreement, BCM is to receive reimbursement of certain
expenses incurred by it in the performance of advisory services to the Company.

     Under the Advisory Agreement, all or a portion of the annual advisory fee
must be refunded by BCM if the Operating Expenses of the Company (as defined in
the Advisory Agreement) exceed certain limits specified in the Advisory
Agreement based on the book value, net asset value and net income of the Company
during the fiscal year. BCM was not required to refund any of the 2000 annual
advisory fee under this provision.

     Additionally, if management were to request that BCM render services other
than those required by the Advisory Agreement, BCM or an affiliate of BCM is
separately compensated for such additional services on

                                        8
<PAGE>   11

terms to be agreed upon from time to time. The Company has hired Triad Realty
Services, Ltd. ("Triad"), an affiliate of BCM, to provide management for the
Company's properties and the Company has engaged, on a non-exclusive basis,
Regis Realty, Inc. ("Regis"), a related party, on a non-exclusive basis to
perform brokerage services for the Company.

     BCM may only assign the Advisory Agreement with the prior consent of the
Company.

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

<TABLE>
<S>                                    <C>
Mickey N. Phillips:..................  Director
Ryan T. Phillips:....................  Director
Karl L. Blaha:.......................  President
Mark W. Branigan:....................  Executive Vice President and Chief Financial Officer
Rick D. Conley:......................  Executive Vice President -- Marketing and Promotion
Bruce A. Endendyk:...................  Executive Vice President
David W. Starowicz:..................  Executive Vice President -- Acquisitions, Sales and
                                       Construction
Dan S. Allred:.......................  Senior Vice President -- Land Development
Michael E. Bogel:....................  Senior Vice President -- Projects Manager
Louis J. Corna:......................  Senior Vice President -- Director of Tax
Robert A. Waldman:...................  Senior Vice President, Secretary and General Counsel
</TABLE>

     Mickey N. Phillips is Gene E. Phillips' brother and Ryan T. Phillips is
Gene E. Phillips' son. Gene E. Phillips serves as a representative of the trust
established for the benefit of his children which owns BCM and, in such
capacity, had, until June 2000, substantial contact with the management of BCM
and input with respect to its performance of advisory services to the Company.

     On August 18, 2000, the Board of Directors approved the renewal of the
advisory agreement with BCM through the next annual meeting of stockholders.
Subsequent renewals of the advisory agreement with BCM do not require the
approval of the stockholders but do require Board approval.

PROPERTY MANAGEMENT

     Since February 1, 1990, affiliates of BCM have provided property management
services. Currently, Triad provides such property management services for a fee
of 5% or less of the monthly gross rents collected on the residential properties
under its management and 3% or less of the monthly gross rents collected on the
commercial properties under its management. Triad subcontracts with other
entities for the provision of the property-level management services to the
Company at various rates. The general partner of Triad is BCM. The limited
partners of Triad are Gene E. Phillips and GS Realty Services, Inc. ("GS
Realty"), a related party, which is a company not affiliated with Mr. Phillips
or BCM. Triad subcontracts the property-level management and leasing of the
Company's seven office buildings and the two commercial properties owned by real
estate partnerships in which the Company and TCI are partners to Regis, a
related party, which is a company owned by GS Realty. Regis 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.

REAL ESTATE BROKERAGE

     Regis also provides real estate brokerage services on a non-exclusive
basis. Regis is entitled to receive a real estate brokerage commission for
property acquisitions and sales in accordance with the following sliding scale
of total fees to be paid: (1) maximum fee of 4.5% on the first $2.0 million of
any purchase or sale transaction of which no more than 3.5% would be paid to
Regis or affiliates; (2) maximum fee of 4% on transaction amounts between $2.0
million to $5.0 million of which no more than 3% would be paid to Regis or
affiliates; (3) maximum fee of 3% on transaction amounts between $5.0 million to
$10.0 million of which no

                                        9
<PAGE>   12

more than 2% would be paid to Regis or affiliates; and (4) maximum fee of 2% on
transaction amounts in excess of $10.0 million of which no more than 1.5% would
be paid to Regis or affiliates.

EXECUTIVE COMPENSATION

     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 BCM, the Company's advisor, are
compensated by BCM. Such executive officers perform a variety of services for
BCM and the amount of their compensation is determined solely by BCM. BCM does
not allocate the cash compensation of its officers among the various entities
for which it serves as advisor.

     The only remuneration paid by the Company is to the Directors who are not
officers or directors of BCM or its affiliated companies. The Independent
Directors (1) review the business plan of the Company to determine that it is in
the best interest of the stockholders, (2) review the advisory contract, (3)
supervise the performance of the Company's advisor and review the reasonableness
of the compensation paid to the advisor in terms of the nature and quality of
services performed, (4) review the reasonableness of the total fees and expenses
of the Company and (5) select, when necessary, a qualified independent real
estate appraiser to appraise properties acquired.

     Each Independent Director receives compensation in the amount of $15,000
per year plus reimbursement for expenses, and the Chairman of the Board receives
an additional fee of $1,500 per year for serving in such position. The members
of the Audit Committee receive a fee of $250 for each committee meeting
attended. 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 ordinary duties as Director, plus reimbursement of expenses.

     During 2000, $104,500 was paid to the Independent Directors in total
Directors' fees for all services, including the annual fee for service during
the period January 1, 2000, through December 31, 2000, and 2000 special service
fees as follows: Richard W. Douglas (a Director until June 2000), $7,500; Larry
E. Harley (a Director until June 2000), $7,500; R. Douglas Leonhard, $18,000;
Murray Shaw (a Director until March 2001), $18,000; Ted P. Stokely, $19,000;
Martin L. White, $17,250; and Edward G. Zampa, $19,250.

                                        10
<PAGE>   13

PERFORMANCE GRAPH

     The following performance graph compares the cumulative total stockholder
return on the Company's shares of Common Stock with the Dow Jones Equity Market
Index ("DJ Equity Index") and the Dow Jones Real Estate Investment Index ("DJ
Real Estate Index"). The comparison assumes that $100 was invested on December
31, 1995, in the Company's shares of Common Stock and in each of the indices and
further assumes the reinvestment of all distributions. Past performance is not
necessarily an indicator of future performance.

                              [PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
                                             1995     1996     1997     1998     1999     2000
                                            ------   ------   ------   ------   ------   ------
<S>                                         <C>      <C>      <C>      <C>      <C>      <C>
The Company...............................  100.00   116.55   125.79    77.45    69.68   121.76
DJ Equity Index...........................  100.00   122.02   160.84   200.88   246.53   223.68
DJ Real Estate Index......................  100.00   134.61   158.95   125.39   118.72   151.39
</TABLE>

                                        11
<PAGE>   14

  Security Ownership of Certain Beneficial Owners and Management

     Security Ownership of Certain Beneficial Owners.  The following table sets
forth the ownership of the Company's shares of common stock, both beneficially
and of record, both individually and in the aggregate, for those persons or
entities known by the Company to be beneficial owners of more than 5% of its
shares of common stock as of the close of business on May 24, 2001.

<TABLE>
<CAPTION>
                                                              AMOUNT AND
                                                              NATURE OF
                                                              BENEFICIAL   PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER                            OWNER       CLASS(1)
- ------------------------------------                          ----------   ----------
<S>                                                           <C>          <C>
American Realty Trust, Inc. ................................   409,935       27.1%
  1800 Valley View Lane
  Suite 300
  Dallas, Texas 75234
Transcontinental Realty Investors, Inc. ....................   345,728       22.8%
  1800 Valley View Lane
  Suite 300
  Dallas, Texas 75234
Basic Capital Management, Inc...............................   106,802        7.1%
  1800 Valley View Lane
  Suite 300
  Dallas, Texas 75234
</TABLE>

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

(1) Percentage is based upon 1,514,045 shares of common stock outstanding at May
    24, 2001.

     Security Ownership of Management.  The following table sets forth the
ownership of the Company's shares of 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 May 24, 2001.

<TABLE>
<CAPTION>
                                                              AMOUNT AND NATURE
                                                                OF BENEFICIAL     PERCENT OF
NAME OF BENEFICIAL OWNER                                            OWNER          CLASS(1)
- ------------------------                                      -----------------   ----------
<S>                                                           <C>                 <C>
All Directors and Executive Officers as a group (8
  individuals)..............................................    862,465(2)(3)       57.0%
</TABLE>

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

(1) Percentages are based upon 1,514,045 shares of common stock outstanding at
    May 24, 2001.

(2) Includes 345,728 shares owned by TCI of which the Directors may be deemed to
    be beneficial owners by virtue of their positions as directors of TCI and
    409,935 shares owned by ART and 106,802 shares owned by BCM, of which the
    executive officers of the Company may be deemed to be beneficial owners by
    virtue of their positions as executive officers or directors or ART and BCM.
    The Directors and executive officers of the Company disclaim beneficial
    ownership of such shares. Each of the directors of ART may be deemed to be
    beneficial owners of the shares owned by ART by virtue of their positions as
    directors of ART. Each of the directors of BCM may be deemed to be
    beneficial owners of the shares owned by BCM by virtue of their positions as
    directors of BCM. The directors of ART and BCM disclaim such beneficial
    ownership.

CERTAIN BUSINESS RELATIONSHIPS

     In February 1989, the Board of Directors voted to retain BCM as the
Company's advisor. BCM is a Company of which Messrs. Blaha, Endendyk, Branigan
and Starowicz serve as executive officers. BCM is owned by a trust for the
benefit of the children of Gene E. Phillips. Mr. Phillips serves as a
representative of his children's trust which owns BCM and, in such capacity,
had, until June 2000, substantial contact with the management of BCM and input
with respect to BCM's performance of advisory services to the Company.

     Since February 1990, affiliates of BCM have provided property management
services to the Company. Currently, Triad provides such property management
services. The general partner of Triad is BCM. The

                                        12
<PAGE>   15

limited partners of Triad are Gene E. Phillips and GS Realty, a related party,
which is a company not affiliated with Mr. Phillips or BCM. Triad subcontracts
the property-level management and leasing of the Company's seven office
buildings and the two commercial properties owned by real estate partnerships in
which the Company and TCI are partners to Regis, a related party, which is a
company owned by GS Realty.

     Prior to May 2000, affiliates of BCM have provided brokerage services, on a
non-exclusive basis, for the Company and received brokerage commissions in
accordance with a brokerage agreement. Currently, Regis performs such brokerage
services.

     The Directors and officers of the Company also serve as directors and
officers of TCI. The Directors owe fiduciary duties to such entity as well as to
the Company under applicable law. TCI has the same relationship with BCM as the
Company. BCM also serves as advisor to ARI. Messrs. Blaha, Endendyk, Branigan
and Starowicz serve as executive officers of ARI.

RELATED PARTY TRANSACTIONS

     Historically, the Company has 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 third parties.

     The Company is a partner with TCI in the Tri-City Limited Partnership,
Nakash Income Associates and TCI Eton Square, L.P. TCI owns 345,728 shares of
the Company, an approximate 22.6% interest.

     In 2000, the Company paid BCM and its affiliates and related parties $2.0
million in advisory and net income fees, $1.5 million in property acquisition
fees, $1.3 million in brokerage commissions, and $602,000 in property management
and construction supervision fees and leasing commissions (net of property
management fees paid to subcontractors, other than Regis). In addition, as
provided in the Advisory Agreement, BCM received cost reimbursements of $287,000
in 2000.

     Restrictions on Related Party Transactions.  Article FOURTEENTH of the
Company's Articles of Incorporation provides that the Company shall not,
directly or indirectly, contract or engage in any transaction with (1) any
director, officer or employee of the Company, (2) any director, officer or
employee of the advisor, (3) the advisor or (4) any affiliate or associate (as
such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended) of any of the aforementioned persons, unless (a) 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 Board of Directors or the appropriate committee thereof and (b) the Board
of Directors or committee thereof determines that such contract or transaction
is fair to the Company and simultaneously authorizes or ratifies such contract
or transaction by the affirmative vote of a majority of independent directors of
the Company entitled to vote thereon.

     Article FOURTEENTH defines an "independent director" as one who is neither
an officer or employee of the Company nor a director, officer or employee of the
Company's advisor.

                         SELECTION OF AUDITORS FOR 2001

     On the recommendation of the Audit Committee, the Board of Directors has
selected BDO Seidman, LLP as the auditors for the Company for the 2001 fiscal
year. The Company's auditors for the 2000 fiscal year were BDO Seidman, LLP. A
representative of BDO Seidman, LLP is expected to attend the Annual Meeting.
They will have an opportunity to made a statement if they desire to do so and
will be available to respond to appropriate questions.

ASSURANCE FEES

     The aggregate fees billed by BDO Seidman, LLP, the Company's independent
auditors, for all assurance professional services rendered for the year ended
December 31, 2000 were $49,000.

                                        13
<PAGE>   16

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

     There were no fees billed to the Company by BDO Seidman, LLP for
professional services rendered for information technology services relating to
financial information systems design and implementation for the year ended
December 31, 2000.

ALL OTHER FEES

     The aggregate fees billed for services rendered to the Company by BDO
Seidman, LLP, other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees," for the year
ended December 31, 2000 were $22,000.

                                 OTHER MATTERS

     Management knows of no other matters that may properly be, or that are
likely to be, brought before the meeting. However, if any other matters are
properly brought before the meeting, the persons named in the enclosed proxy or
their substitutes will vote in accordance with their best judgment on such
matters.

                              FINANCIAL STATEMENTS

     The audited financial statements of the Company, in comparative form for
the years ended December 31, 2000, 1999 and 1998, are contained in the 2000
Annual Report to Stockholders. However, such report and the financial statements
contained therein are not to be considered part of this solicitation.

                            SOLICITATION OF PROXIES

     THIS PROXY STATEMENT IS FURNISHED TO STOCKHOLDERS TO SOLICIT PROXIES ON
BEHALF OF THE DIRECTORS OF THE COMPANY.  The cost of soliciting proxies will be
borne by the Company. Directors and officers of the Company may, without
additional compensation, solicit by mail, in person or by telecommunication. In
addition, the Company has retained Georgeson Shareholder Communications ("GSC")
to assist in the solicitation of proxies. An agreement with GSC provides that it
will distribute materials relating to the solicitation of proxies, contact
stockholders to confirm receipt of materials and answer questions relating
thereto. GSC is to be paid a base fee of $5,000 plus out-of-pocket expenses and
is to be indemnified against certain liability incurred as a result of the
provision of such services.

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

COPIES OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31,
2000, TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K ARE AVAILABLE TO
STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INCOME OPPORTUNITY REALTY
INVESTORS, INC., 1800 VALLEY VIEW LANE, SUITE 300, DALLAS, TEXAS 75234,
ATTENTION: DIRECTOR OF INVESTOR RELATIONS.

                                            By Order of the Board of Directors

                                            /s/KARL BLAHA
                                            Karl L. Blaha
                                            President

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR THE FOUR
NOMINEES ON THE ENCLOSED PROXY. REGARDLESS OF HOW YOU WISH TO VOTE YOUR SHARES,
YOUR BOARD OF DIRECTORS URGES YOU TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED
PROXY.

                                        14
<PAGE>   17

                                                                    ATTACHMENT A

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.

                            AUDIT COMMITTEE CHARTER

PURPOSE

     The Audit Committee of the Board of Directors is a committee appointed by
the Board:

     - To review the adequacy of corporate financial reporting, accounting
       systems and controls;

     - To assure that the Company generates financial statements that are
       complete, accurate, consistently prepared and not materially misleading;
       and

     - To secure compliance with the Company's internal policies, standards of
       business conduct, and external regulatory requirements.

MEMBERSHIP

     The Audit Committee shall be comprised of at least three directors all of
whom are independent directors who shall be given full access to and will
encourage full and free interchange among the Company's Board of Directors,
President, Chief Financial Officer, other Company executives and the designated
certified public accountants. Members of the Audit Committee are expected to be
financially literate, informed and vigilant in pursuing their duties.

RESPONSIBILITIES

     The Audit Committee's specific responsibilities are to:

     - Recommend selection of the firm of independent certified public
       accountants to audit the financial statements of the Company for the
       fiscal year and review the compensation for their services and the
       proposed scope of the annual examination.

     - Ensure that the auditors are accountable to the Audit Committee of the
       Board of Directors.

     - Review with the firm of independent certified public accountants and
       Company management:

          1. the results of the audit for that year end;

          2. the Company's annual financial statements and related footnotes;

          3. the effectiveness and adequacy of the Company's financial and
     accounting organization and financial reporting system;

          4. the effectiveness and adequacy of the Company's internal control
     environment; and

          5. The adequacy of financial controls and effectiveness of the data
     processing system.

     - Require a written statement confirming the independence of the certified
       public accountants, including assessing the impact and extent of
       non-audit services they are also providing.

     - Provide oversight responsibility for the audit engagement.

     - Inquire of management and the independent accountants about significant
       risks or exposures.

     - Assess the steps management has taken to minimize such risks to the
       Company.

     - Review with Company legal counsel and tax executives, the legal and
       regulatory matters that may have a material impact on the Company's
       financial statements.

                                       A-1
<PAGE>   18

     - Review with Company management:

          1. The annual audit plan and any changes to it; and

          2. Significant audit findings during the year and management's
     responses thereto.

     - Meet with the independent accountants at least once per year in separate
       private sessions to discuss any matters that the Audit Committee or these
       groups believe should be discussed with the Audit Committee.

     In performing these duties the Audit Committee should

     - Convene at least four times each fiscal year.

     - Report its activities to the Board at least once a year.

     - Review earnings results each quarter prior to release.

     - Annually review the charter of the Audit Committee of the Board of
       Directors.

     - Complete Committee Questionnaire on Audit Committee member independence.

                                       A-2
<PAGE>   19



                 Please Detach and Mail in the Envelope Provided



      PLEASE MARK YOUR
  [X] VOTES AS IN THIS
      EXAMPLE.


<TABLE>
<S>             <C>                 <C>                          <C>                                    <C>    <C>       <C>
               FOR all nominees              WITHHOLD
            listed at right (except          AUTHORITY
               as marked to the       to vote for all nominees
                contrary below)           listed at right
                                                                                                         FOR   AGAINST   ABSTAIN

1. ELECTION                                                      2. OTHER BUSINESS: I AUTHORIZE the       [ ]     [ ]       [ ]
   OF                  [ ]                   [ ]                    aforementioned proxies in their
   DIRECTORS:                                                       discretion to vote upon such other
                         NOMINEES: Ted P. Stokely                   business as may properly come
                                   R. Douglas Leonhard              before the Annual Meeting and any
                                   Martin L. White                  adjournments thereof.
                                   Edward G. Zampa
                                                                 When a proxy card is properly executed and returned, the
Instruction: To withhold authority                               Shares represented thereby will be voted in favor of the
to vote for any individual                                       election of each of the nominees, unless authority to vote
nominee, write that nominee's                                    for any such nominee is specifically withheld. There will be
name in the space below.                                         no cumulative voting for the election of Directors. If any
                                                                 nominee is unable to serve or will not serve (an event which
- -----------------------------------                              is not anticipated), then the person acting pursuant to the
                                                                 authority granted under the proxy will cast votes for the
                                                                 remaining nominees and, unless the Board of Directors takes
                                                                 action to reduce the number of Directors, for such other
                                                                 person(s) as he or she may select in place of such nominees.

                                                                 PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY.







Signature                    Dated:             , 2001   Signature (if held jointly)                       Dated:           , 2001
         -------------------       -------------                                    ----------------------       -----------

NOTE: Please sign exactly as name appears herein. When shares are held by joint tenants, both should sign. When signing as
      attorney, executor, administrator, trustee or guardian, please give full title as such. When signing for corporation,
      please sign full corporate name by an authorized officer. When signing for a partnership, please sign partnership
      name by an authorized person. If shares are held in more than one capacity, this proxy shall be deemed valid for all
      shares held in all capacities.
</TABLE>

<PAGE>   20











         THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                    PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
                            TO BE HELD JULY 10, 2001


         The undersigned hereby appoints MARK W. BRANIGAN and ROBERT A. WALDMAN,
and each of them, Proxies, with full power of substitution in each of them, in
the name, place and stead of the undersigned, to be at the Annual Meeting of
Stockholders of INCOME OPPORTUNITY REALTY INVESTORS, INC., to be held on
Tuesday, July 10, 2001, at 10:00 a.m., or at any adjournments thereof, according
to the number of votes that the undersigned would be entitled to vote if
personally present, upon the following matters:

            (CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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