AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 2002            REGISTRATION NO. 333-83292




                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM S-4
                                 AMENDMENT NO. 1
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                        -------------------------------



                         AMERICAN REALTY INVESTORS, INC.
             (Exact name of Registrant as specified in its charter)


                                                                                    
             NEVADA                                        6510                                        75-2847135
(State or other jurisdiction of                (Primary Standard Industrial               (I.R.S. Employer Identification No.)
 incorporation or organization)                Classification Code Number)



               1800 VALLEY VIEW LANE, SUITE 300, DALLAS, TX 75234
   (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                    REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
                         -------------------------------



                                ROBERT A. WALDMAN
                        1800 VALLEY VIEW LANE, SUITE 300
                               DALLAS, TEXAS 75234
                                 (469) 522-4200
                              (469) 522-4360 (FAX)
NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                               AGENT FOR SERVICE)


                         -------------------------------
                                 WITH COPIES TO:

     STEVEN C. METZGER, ESQ.                            JEFFREY M. SONE, ESQ.
 PRAGER METZGER & KROEMER, PLLC                         JACKSON WALKER L.L.P.
   2626 COLE AVENUE, SUITE 900                       901 MAIN STREET, SUITE 6000
       DALLAS, TEXAS 75204                               DALLAS, TEXAS 75202
         (214) 969-7600                                    (214) 953-6000
      (214) 523-3838 (FAX)                               (214) 953-5822(FAX)
                              --------------------


        Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement.

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

        If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering............................... [ ]

        If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering...................................................... [ ]




                                                    CALCULATION OF REGISTRATION FEE
====================================================================================================================================
                                                                    PROPOSED MAXIMUM
        TITLE OF EACH CLASS OF SECURITIES           AMOUNT TO BE   OFFERING PRICE PER      PROPOSED MAXIMUM           AMOUNT OF
                TO BE REGISTERED                      REGISTERED          UNIT          AGGREGATE OFFERING PRICE  REGISTRATION FEE
====================================================================================================================================
                                                                                                      
10% Series G Cumulative Redeemable Convertible
preferred stock, par value $2.00 per share          4,021,254(1)     Not applicable        $128,119,079.97(2)       $11,786.96(3)
Common stock, par value $0.01 per share            10,161,895(4)     Not applicable             $0(5)                    $0(6)
10% Series H Cumulative Redeemable Convertible
preferred stock, par value $2.00 per share            683,282(7)     Not applicable        $24,821,801.25(8)          $2,283.61(9)
Common stock, par value $0.01 per share             1,538,734(10)    Not applicable             $0                       $0
        Total:                                                                             $153,578,081.22            $14,070.57


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


(1) Represents the maximum number of shares of Series G redeemable convertible
preferred stock of American Realty Investors, Inc. ("ARL") estimated to be
issued in connection with the merger of Transcontinental Realty Investors, Inc.
("TCI") described herein at the exchange ratio of one share of Series G
redeemable convertible preferred stock for each share of TCI's common stock
outstanding (other than shares owned by ARL and its subsidiaries).

(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rules 457(f)(1) and 457(c) of the Securities Act of 1933, as amended
(the "Securities Act"), the registration fee is based on the product of (i)
$15.93, the average of the high and low sales price of TCI common stock on
February 15, 2002, as reported by the New York Stock Exchange, and (ii) the
maximum number of shares of TCI common stock estimated to be converted or
cancelled pursuant to the merger.

(3) Previously paid.

(4) Represents the maximum number of shares of common stock of ARL estimated to
be issued upon conversion of the shares of Series G redeemable convertible
preferred stock, assuming each record holder receives one share of ARL common
stock in lieu of a fractional share. Pursuant to Rule 416, there are also
registered hereunder an indeterminate number of additional shares of ARL common
stock as may be issuable as a result of stock splits, stock dividends and other
provisions of the Series G redeemable convertible preferred stock.

(5) No additional consideration will be received in connection with the
conversion of the shares of preferred stock.

(6) Pursuant to Rule 457(i), no filing fee is due.

(7) Represents the maximum number of shares of Series H redeemable convertible
preferred stock of ARL estimated to be issued in connection with the merger of
Income Opportunity Realty Investors, Inc. ("IOT") described herein at the
exchange ratio of one share of Series H redeemable convertible preferred stock
for each share of IOT's common stock outstanding (other than shares owned by ARL
and its subsidiaries and TCI).

(8) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rules 457(f)(1) and 457(c) of the Securities Act, the registration
fee is based on the product of (i) $17.25, the average of the high and low sales
price of IOT common stock on February 15, 2002, as reported by the American
Stock Exchange, and (ii) the maximum number of shares of IOT common stock
estimated to be converted or cancelled pursuant to the merger.

(9) Previously paid.

(10) Represents the maximum number of shares of common stock of ARL estimated to
be issued upon conversion of the shares of Series H redeemable convertible
preferred stock, assuming each record holder receives one share of ARL common
stock in lieu of a fractional share. Pursuant to Rule 416, there are also
registered hereunder an indeterminate number of additional shares of ARL common
stock as may be issuable as a result of stock splits, stock dividends and other
provisions of the Series H redeemable convertible preferred stock.



The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.



The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.


        Subject to Completion, Dated May 14, 2002.



AMERICAN REALTY           TRANSCONTINENTAL REALTY         INCOME OPPORTUNITY
INVESTORS, INC.           INVESTORS, INC.                 REALTY INVESTORS, INC.


        To the stockholders of American Realty Investors, Inc., Transcontinental
Realty Investors, Inc. and Income Opportunity Realty Investors, Inc.:

        As the result of a court approved settlement of litigation involving,
among others, a subsidiary of American Realty Investors, Inc. ("ARL"),
Transcontinental Realty Investors, Inc. ("TCI") and Income Opportunity Realty
Investors, Inc. ("IOT"), ARL has agreed to acquire all of the outstanding common
stock of TCI and IOT through the merger of TCI and IOT with two subsidiaries of
ARL. The mergers will not be consummated unless, in each case, sufficient cash
is available to ARL to pay the cash merger consideration due as a result of the
mergers. If the mergers are approved by the ARL, TCI and IOT stockholders and
sufficient cash is available to ARL, wholly-owned subsidiaries of ARL will be
merged into TCI and IOT, with TCI and IOT being the surviving corporations (the
mergers and related transactions are collectively referred to as the business
combination).

        In order to complete the business combination, we must, among other
things, obtain the required approval of the ARL, TCI and IOT stockholders.
However, if the stockholders of ARL and only one of either TCI or IOT approve
their merger, that merger alone may be consummated. In addition to being a
condition to the settlement of the lawsuit, we believe that the business
combination will benefit the stockholders of all three companies and we ask for
your support in voting for the mergers at the special meetings.


        When the mergers are completed, holders of TCI's and IOT's common stock
(other than ARL and its affiliates) will receive $17.50 and $19.00,
respectively, in cash less any dividends declared and paid on the TCI common
stock after January 2, 2002 or, if they affirmatively elect, one share of newly
issued ARL Series G or Series H redeemable convertible preferred stock for each
share of TCI or IOT common stock they currently own, respectively. Each share of
TCI and IOT common stock held by certain affiliates of ARL will be converted
into one share of the Series G or Series H redeemable convertible preferred
stock, respectively. Shares of the TCI and IOT common stock held by ARL and its
subsidiaries will be cancelled. The cash prices to be received by TCI and IOT
stockholders are less than the calculated book value per common share at
December 31, 2001. See "Comparative per Share Information."

        During a 75 day period commencing on the 15th day after ARL publicly
files its first Form 10-Q with the Securities and Exchange Commission following
the consummation of the TCI merger and the IOT merger, the Series G and the
Series H redeemable convertible preferred stock may be converted at the option
of the holder into 2.5 and 2.25 shares of ARL common stock, respectively.
Beginning 45 days after ARL files its first Form 10-Q following the consummation
of the TCI and/or IOT mergers, ARL may provide notice of and thereafter redeem
the Series G and Series H redeemable convertible preferred stock upon payment of
the liquidation value of $20.00 and $21.50 per share, respectively. By electing
to receive Series H redeemable convertible preferred stock, stockholders of IOT
will no longer be stockholders in Real Estate Investment Trust, or REIT, but
will become stockholders in a taxable corporation and, therefore, will not
receive 95% of ARL's income in the form of dividends as they did for IOT.

        At December 31, 2001, the total value of TCI assets and liabilities was
$644,902,000 and $495,967,000, respectively. No goodwill is acquired or
generated through the business combination. Likewise, the total value of IOT
assets and liabilities was $78,091,000 and $56,611,000, respectively and no
goodwill is acquired or generated through the business combination.

        The Series G and H redeemable convertible preferred stock have limited
voting rights and, except as otherwise provided by law, may vote (i) only with
respect to an amendment to ARL's restated articles of incorporation or bylaws
that would materially alter the existing terms of such class of preferred stock
and (ii) at any time or times for the election of two directors when all or any
portion of the dividends on such class for any six quarterly dividends, whether
or not consecutive, shall be in arrears and unpaid.

        1,168,774 shares of the Series G redeemable convertible preferred stock
and 106,802 shares of the Series H redeemable convertible preferred stock will
be issued to affiliates of ARL. In the event that each stockholder of TCI and
IOT, other than persons or entities affiliated with ARL, elects to receive
shares of the Series G redeemable convertible preferred stock or the Series H
redeemable convertible preferred stock, respectively, persons not affiliated
with ARL will hold approximately 2,853,080 shares of Series G redeemable
convertible preferred stock and 576,480 shares of Series H redeemable
convertible preferred stock, representing approximately 70.9% and 84.4% of all
issued and outstanding shares of the Series G redeemable convertible preferred
stock and the Series H redeemable convertible preferred stock, respectively. In
the event all stockholders of TCI and IOT elect to receive cash in exchange for
their shares of TCI and IOT common stock (other than affiliates of ARL who must
take preferred stock) the maximum cash consideration payable in the aggregate to
the TCI and IOT stockholders would be $49,928,900 and $10,953,120, respectively.


        The boards of directors of ARL, TCI and IOT have approved the mergers
and recommend that their respective stockholders vote for the merger proposals
as described in the attached materials.


        ARL stockholders will vote at ARL's special meeting on Wednesday, June
26, 2002, at 2:00 p.m., local time, at 1800 Valley View Lane, Suite 300, Dallas,
Texas.

        TCI stockholders will vote at TCI's special meeting on Wednesday, June
26, 2002, at 3:00 p.m., local time, at 1800 Valley View Lane, Suite 300, Dallas,
Texas.

        IOT stockholders will vote at IOT's special meeting on Wednesday, June
26, 2002, at 4:00 p.m., local time, at 1800 Valley View Lane, Suite 300, Dallas,
Texas.

        Your vote is important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented at
the special meetings. You may vote your shares by completing the enclosed proxy
card, by telephoning the transfer agent or by voting on the Internet. Using the
control number provided to you on your proxy card, call toll-free 1-800-PROXIES
to vote by telephone or access www.voteproxy.com to vote on the Internet. You
may also cast your vote in person at the special meetings.









        The shares of common stock of ARL and TCI are traded on the New York
Stock Exchange under the symbols "ARL" and "TCI", respectively. The shares of
common stock of IOT are traded on the American Stock Exchange under the symbol
"IOT". On _____, 2002, the average of the high and low price for the common
stock of ARL, TCI and IOT was $____, $_____ and $____, respectively.

SEE THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 28 FOR A DISCUSSION OF
CERTAIN FACTORS THAT STOCKHOLDERS SHOULD CONSIDER WHEN DECIDING HOW TO VOTE.


NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE PREFERRED STOCK OR COMMON STOCK TO
BE ISSUED UNDER THIS JOINT PROXY STATEMENT AND PROSPECTUS OR DETERMINED IF THIS
JOINT PROXY STATEMENT AND PROSPECTUS IS TRUTHFUL OR INCOMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This joint proxy statement and prospectus is dated ___________, 2002, and is
first being mailed to stockholders on or about _____________, 2002.






                  NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF
                         AMERICAN REALTY INVESTORS, INC.
                      TO BE HELD JUNE 26, 2002 AT 2:00 P.M.


To Our Stockholders:


        You are invited to attend the special meeting of stockholders of
American Realty Investors, Inc. ("ARL"). The meeting will be held at 1800 Valley
View Lane, Suite 300, Dallas, Texas on June 26, 2002 at 2:00 p.m. local time. At
the special meeting, ARL's stockholders will be asked to consider and vote upon:


        -   A PROPOSAL TO APPROVE THE TCI MERGER WHEREBY ARL WILL ACQUIRE ALL OF
            THE OUTSTANDING COMMON STOCK OF TRANSCONTINENTAL REALTY INVESTORS,
            INC. ("TCI") THROUGH THE MERGER OF A RECENTLY FORMED WHOLLY-OWNED
            SUBSIDIARY OF ARL WITH AND INTO TCI;

        -   A PROPOSAL TO APPROVE THE IOT MERGER WHEREBY ARL WILL ACQUIRE ALL OF
            THE OUTSTANDING COMMON STOCK OF INCOME OPPORTUNITY REALTY INVESTORS,
            INC. ("IOT") THROUGH THE MERGER OF A RECENTLY FORMED WHOLLY-OWNED
            SUBSIDIARY OF ARL WITH AND INTO IOT; AND

        -   ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING
            OR ANY ADJOURNMENTS THEREOF.


THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE FOR THE
MERGERS DESCRIBED ABOVE.

        Only holders of record of ARL's common stock at the close of business on
May 10, 2002, the record date, are entitled to notice of, and to vote at, the
special meeting and any adjournments or postponements thereof. None of the
stockholders are entitled to dissenters' or appraisal rights in connection with
the mergers.

        Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date the accompanying proxy card and return
it in the enclosed prepaid envelope. You may also submit a proxy by telephone by
calling 1-800-PROXIES or over the Internet by accessing www.voteproxy.com and
following the instructions in the proxy statement and on the enclosed proxy
card. If you vote by phone or by Internet, you may vote separately on each of
the two merger proposals. If you attend the Special Meeting, you may revoke your
proxy and vote in person if you wish to do so. However, if you hold your shares
in a brokerage account, you cannot vote in person at the Special Meeting. If you
have instructed your broker to vote your shares, you must follow your broker's
instructions regarding how to change your vote.


                                        By Order of the Board of Directors of
                                        AMERICAN REALTY INVESTORS, INC.


                                       /s/ Robert A. Waldman
                                       -----------------------------------------
                                       Robert A. Waldman, Senior Vice President,
                                       General Counsel and Secretary
                                       American Realty Investors, Inc.



Dallas, Texas
May__, 2002






                  NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF
                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                      TO BE HELD JUNE 26, 2002 AT 3:00 P.M.


To Our Stockholders:


        You are invited to attend the special meeting of stockholders of
Transcontinental Realty Investors, Inc. ("TCI"). The meeting will be held at
1800 Valley View Lane, Suite 300, Dallas, Texas on June 26, 2002 at 3:00 p.m.
local time. At the special meeting, TCI's stockholders will be asked to consider
and vote upon:


        -   A PROPOSAL TO APPROVE THE TCI MERGER WHEREBY AMERICAN REALTY
            INVESTORS, INC., ("ARL") WILL ACQUIRE ALL OF THE OUTSTANDING COMMON
            STOCK OF TCI THROUGH THE MERGER OF A RECENTLY FORMED WHOLLY-OWNED
            SUBSIDIARY OF ARL WITH AND INTO TCI; AND

        -   ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING
            OR ANY ADJOURNMENTS THEREOF.

        After careful consideration, the board of directors of TCI have
determined that the terms of the proposed TCI merger are fair to and in the best
interests of TCI's stockholders.


THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE FOR THE
MERGER AND OTHER MATTERS DESCRIBED ABOVE.

        Only holders of record of TCI's common stock at the close of business on
May 10, 2002, the record date, are entitled to notice of, and to vote at, the
special meeting and any adjournments or postponements thereof. None of the
stockholders are entitled to dissenters' or appraisal rights in connection with
the merger.

        Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date the accompanying proxy card and return
it in the enclosed prepaid envelope. You may also submit a proxy by telephone by
calling 1-800-PROXIES or over the Internet by accessing www.voteproxy.com and
following the instructions in the proxy statement and on the enclosed proxy
card. If you attend the Special Meeting, you may revoke your proxy and vote in
person if you wish to do so. However, if you hold your shares in a brokerage
account, you cannot vote in person at the Special Meeting. If you have
instructed your broker to vote your shares, you must follow your broker's
instructions regarding how to change your vote.


                                       By Order of the Board of Directors of
                                       TRANSCONTINENTAL REALTY INVESTORS, INC.


                                       /s/ Robert A. Waldman
                                       -----------------------------------------
                                       Robert A. Waldman, Senior Vice President,
                                       General Counsel and Secretary
                                       Transcontinental Realty Investors, Inc.



Dallas, Texas
May ___, 2002






                  NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF
                    INCOME OPPORTUNITY REALTY INVESTORS, INC.
                      TO BE HELD JUNE 26, 2002 AT 4:00 P.M.


To Our Stockholders:


        You are invited to attend the special meeting of stockholders of Income
Opportunity Realty Investors, Inc. ("IOT"). The meeting will be held at 1800
Valley View Lane, Suite 300, Dallas, Texas on June 26, 2002 at 4:00 p.m. local
time. At the special meeting, IOT's stockholders will be asked to consider and
vote upon:


        -   A PROPOSAL TO APPROVE THE IOT MERGER WHEREBY AMERICAN REALTY
            INVESTORS, INC. ("ARL"), WILL ACQUIRE ALL OF THE OUTSTANDING COMMON
            STOCK OF IOT THROUGH THE MERGER OF A RECENTLY FORMED WHOLLY-OWNED
            SUBSIDIARY OF ARL WITH AND INTO IOT; AND

        -   ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING
            OR ANY ADJOURNMENTS THEREOF.

        After careful consideration, the board of directors of IOT have
determined that the terms of the proposed IOT merger are fair to and in the best
interests of IOT's stockholders.


THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE FOR THE
MERGER AND OTHER MATTERS DESCRIBED ABOVE.

        Only holders of record of IOT's common stock at the close of business on
May 10, 2002, the record date, are entitled to notice of, and to vote at, the
special meeting and any adjournments or postponements thereof. None of the
stockholders are entitled to dissenters' or appraisal rights in connection with
the merger.

        Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date the accompanying proxy card and return
it in the enclosed prepaid envelope. You may also submit a proxy by telephone by
calling 1-800-PROXIES or over the Internet by accessing www.voteproxy.com and
following the instructions in the proxy statement and on the enclosed proxy
card. If you attend the Special Meeting, you may revoke your proxy and vote in
person if you wish to do so. However, if you hold your shares in a brokerage
account, you cannot vote in person at the Special Meeting. If you have
instructed your broker to vote your shares, you must follow your broker's
instructions regarding how to change your vote.


                                       By Order of the Board of Directors of
                                       INCOME OPPORTUNITY REALTY INVESTORS, INC.


                                       /s/ Robert A. Waldman
                                       -----------------------------------------
                                       Robert A. Waldman, Senior Vice President,
                                       General Counsel and Secretary
                                       Income Opportunity Realty Investors, Inc.



Dallas, Texas
May __, 2002





                                TABLE OF CONTENTS




                                                                                                   PAGE
                                                                                            
Summary.................................................................................................1
Forward Looking Statements.............................................................................27
Risk Factors...........................................................................................28
The Special Meetings...................................................................................38
Special Factors........................................................................................43
Interests of Directors and Officers of ARL, TCI and IOT in the Business Combination....................79
The Plans of Merger....................................................................................81
Comparison of Ownership of Shares......................................................................86
The Advisor - BCM.....................................................................................100
Certain Relationships and Related Transactions of BCM, ARL, TCI and IOT...............................107
Certain Information Regarding TCI Common Stock and IOT Common Stock...................................114
Information about ARL.................................................................................117
   Business of ARL....................................................................................117
   Properties of ARL..................................................................................123
   Legal Proceedings..................................................................................139
   Selected Financial Data of ARL.....................................................................140
   Management's Discussion and Analysis of ARL........................................................141
   Quantitative and Qualitative Disclosures About Market Risks of ARL.................................151
   Management of ARL..................................................................................152
   Security Ownership of Certain Beneficial Owners and Management of ARL..............................154
   Description of the Capital Stock of ARL............................................................157
Information about TCI.................................................................................174
   Business of TCI....................................................................................174
   Properties of TCI..................................................................................178
   Legal Proceedings..................................................................................194
   Selected Financial Data of TCI.....................................................................196
   Management's Discussion and Analysis of TCI........................................................197
   Quantitative and Qualitative Disclosures Regarding Market Risk of TCI..............................206
   Management of TCI..................................................................................206
   Executive Compensation of TCI......................................................................208
   Security Ownership of Certain Beneficial Owners and Management of TCI..............................210
Information about IOT.................................................................................213
   Business of IOT....................................................................................213
   Properties of IOT..................................................................................216
   Legal Proceedings of IOT...........................................................................223
   Selected Financial Data of IOT.....................................................................225
   Management's Discussion and Analysis of IOT........................................................226
   Quantitative and Qualitative Disclosures Regarding Market Risk of IOT..............................232
   Management of IOT..................................................................................233
   Directors and Executive Officers...................................................................233
   Executive Compensation.............................................................................234
   Security Ownership of Certain Beneficial Owners and Management of IOT..............................235
Securityholder Proposals..............................................................................238
Legal Matters.........................................................................................238
Experts...............................................................................................238
Where You Can Find More Information...................................................................238
Glossary of Terms.....................................................................................240
Financial Statements:.................................................................................F-1

Appendices:
Agreement and Plan of Merger (TCI Merger)......................................................Appendix A
Agreement and Plan of Merger (IOT Merger)......................................................Appendix B
Certificate of Designation of the Series G redeemable convertible preferred stock .............Appendix C
Certificate of Designation of the Series H redeemable convertible preferred stock .............Appendix D
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. Fairness Opinion
      Concerning TCI...........................................................................Appendix E
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. Fairness Opinion
      Concerning IOT...........................................................................Appendix F




                                       i



                      JOINT PROXY STATEMENT AND PROSPECTUS

        This joint proxy statement and prospectus is being used to solicit votes
with respect to stockholder meetings for each of American Realty Investors,
Inc., Transcontinental Realty Investors, Inc. and Income Opportunity Realty
Investors, Inc. called to approve a proposed business combination of those
companies. "We", "us" and "our" as used in this joint proxy statement and
prospectus means American Realty Investors, Inc., Transcontinental Realty
Investors, Inc. and Income Opportunity Realty Investors, Inc.

                                     SUMMARY


        This summary highlights material information from this joint proxy
statement and prospectus and may not contain all information that is important
to you. You should read carefully this entire joint proxy statement and
prospectus and the documents to which we have referred you. The following
summary is qualified in its entirety by reference to the detailed information
appearing elsewhere in this joint proxy statement and prospectus.


                                    OVERVIEW

        As part of this joint proxy statement and prospectus, three public
companies, American Realty Investors, Inc. ("ARL"), Transcontinental Realty
Investors, Inc. ("TCI") and Income Opportunity Realty Investors, Inc. ("IOT"),
are seeking stockholder approval of two proposed mergers whereby TCI and IOT
will become subsidiaries of ARL. Together, these mergers are often referred to
as the "business combination." The business combination is the result of a court
approved settlement that is described below under "The Olive Settlement."

THE PARTIES

        The material parties that are discussed throughout this joint proxy
statement and prospectus statement include the following:


        AMERICAN REALTY INVESTORS, INC. ("ARL") is a publicly traded Nevada
        corporation engaged primarily in the business of owning and operating a
        portfolio of real estate and financing real estate and real estate
        activities through investments in mortgage loans. ARL holds a diverse
        portfolio of equity real estate located across the United States,
        including office buildings, apartments, hotels, shopping centers and
        developed and undeveloped land. The day-to-day operations of ARL are
        managed by Basic Capital Management, Inc. ("BCM"), a contractual
        advisor, under the supervision of ARL's board of directors.

        TRANSCONTINENTAL REALTY INVESTORS, INC. ("TCI") is a publicly traded
        Nevada corporation engaged primarily in the business of owning and
        operating a portfolio of real estate and financing real estate and real
        estate activities through investments in mortgage loans similar to ARL.
        The day-to-day operations of TCI are performed by BCM, a contractual
        advisor, under the supervision of TCI's board of directors. As of the
        third quarter of 2000, TCI no longer met the requirements for tax
        treatment as a real estate investment trust, or REIT, and cannot qualify
        for REIT status for at least five years.




                                       1



        INCOME OPPORTUNITY REALTY INVESTORS, INC. ("IOT") is a publicly traded
        Nevada corporation primarily engaged in the business of owning and
        operating a portfolio of real estate and financing real estate and real
        estate activities through investments in mortgage loans. IOT is a REIT.
        The day-to-day operations of IOT are performed by BCM, a contractual
        advisor, under the supervision of IOT's board of directors.


        BASIC CAPITAL MANAGEMENT, INC. ("BCM") is a contractual advisor that is
        responsible for managing the affairs of ARL, TCI and IOT and for
        advising the respective boards on setting the policies which guide ARL,
        TCI and IOT. The day-to-day operations of ARL, TCI and IOT are performed
        by BCM under the supervision of each respective board. Among other
        things, BCM locates, investigates, evaluates and recommends real estate
        and mortgage loan investments and sales opportunities, as well as
        financing and refinancing sources. BCM also serves as a consultant to
        ARL's, TCI's and IOT's boards of directors in connection with the
        business plan and investment policy decisions made by each board.


        GENE E. PHILLIPS ("MR. PHILLIPS") serves as the representative of a
        trust for the benefit of his children that indirectly owns BCM. As
        representative of the trust, Mr. Phillips has substantial contact with
        the management of BCM and input with respect to BCM's performance of
        advisory services for ARL, TCI and IOT. Mr. Phillips does not own any
        stock of ARL, TCI or IOT.


        ARL, TCI, IOT and BCM have substantially the same management and have
ownership affiliations as seen in the chart below.




          ARL                                    TCI                                           IOT

Out of 11,375,127 shares of          Out of 8,042,594 shares of TCI               Out of 1,438,945 shares of IOT
ARL common stock outstanding         common stock outstanding as of               common stock outstanding as of
as of March 15, 2002:                March 15, 2002:                              March 15, 2002:
                                                                            

        -   BCM owns 6,269,344               -   ARL indirectly owns 3,994,300            -   ARL indirectly owns 409,935
            (55.1%)                              (49.7%)                                      (28.5%)
        -   TCI owns 746,972                 -   BCM owns 1,166,947 (14.5%)               -   BCM owns 106,802 (7.4%)
            (6.6%)                           -   Non-affiliates own 2,854,827             -   TCI owns 345,728 (24.0%)
        -   Non-affiliates own                   (35.5%)                                  -   Non-affiliates own 576,480
             2,649,350 (23.3%)                                                                (40.06%)



        The principal operating offices of each of ARL, TCI, IOT and BCM are
located at 1800 Valley View Lane, Suite 300, Dallas, Texas 75234. The telephone
number for each corporation is 469-522-4200.

                              THE OLIVE SETTLEMENT


        The business combination being proposed results from a court approved
settlement of a lawsuit styled Jack Olive, et. al. v. National Income Realty
Trust, et al, Case No. C89 4331 MHP pending in the United States District Court
for the Northern District of California (the "Olive Litigation"). The claims in
the Olive Litigation related to the operation and management of TCI and IOT.
Defendants in the lawsuit included, among others, American Realty Trust, Inc. (a
subsidiary of ARL, "ART"), TCI, IOT, BCM and Mr. Phillips.




                                       2





           TCI and IOT are parties to a 1990 settlement of litigation known as
the Olive Settlement. The Olive Settlement is a settlement of a federal class
and derivative action lawsuit commenced in 1989. The action alleged that the
boards of directors of TCI and IOT had breached the governing documents of the
companies in 1989 by appointing a new advisor for the companies. It also
alleged a breach of trust and a breach of fiduciary duty owed by the board
members to each company by retaining BCM as the advisor to each company
without stockholder approval. The lawsuit sought the removal of the board
members and the appointment of an interim receiver pending the election of a
new board. A Stipulation of Settlement was entered into in February 1990. The
1990 Stipulation of Settlement required (i) cash distributions to be made to
stockholders over the next twelve months, (ii) the addition of three new
independent board members to the board of each company; and (iii) the
establishment of special board committees to review certain related party
transactions. The original settlement was modified in 1995 and the
modification was amended in 1997. Periodically, since 1990, designated
Settlement Counsel, George Donaldson, has challenged the compliance of the
parties under the Olive Settlement, the modification and the amendment and has
unsuccessfully sought to remove BCM from its advisory position to TCI, IOT and
other entities. Settlement Counsel also sought to, from time to time, remove
some or all of the directors of TCI, IOT and other entities

           The most recent disputes arise from Settlement Counsel's
allegations that the boards of TCI and IOT had breached the modification to
the Stipulation of Settlement. In 1999, Settlement Counsel alleged that the
boards had failed to comply with the requirement that a
management/compensation consultant be engaged to review the contracts with BCM
and its affiliates. In July 2000, Settlement Counsel alleged that the board of
TCI had breached a settlement provision by authorizing TCI to make a $3
million loan to BCM and a $9 million loan to ART. In October 2000, Settlement
Counsel alleged that the board of IOT had breached a settlement provision by
authorizing IOT to enter into a stock option agreement to purchase shares of
TCI from a third party. Settlement Counsel requested that the TCI and IOT
advisory contracts with BCM be terminated, that the board members be removed
and that a receiver be appointed to operate TCI and IOT.

           The boards of directors of TCI and IOT denied the allegations and
believe there has been no breach of any of the settlement provisions. Although
there have been several status conferences concerning these matters, there has
been no court order or action resolving or affirming the allegations of
breaches of the settlement.

           The parties to the Olive Litigation acknowledged that further and
substantial expense and time would be necessary to litigate the matters raised
by the pending requests made by Settlement Counsel that the court exercise its
retained jurisdiction over the parties' prior settlement agreements. Thus, in
order to finally put an end to the Olive Litigation and to avoid the anticipated
expense, inconvenience, distraction, and risk of further legal proceedings, the
parties concluded that it was desirable to compromise, settle and discharge all
claims arising from such matters while at the same time devising a mechanism to
enable all stockholders of TCI and IOT to convert their common stock in TCI or
IOT into cash or, if they affirmatively elected, preferred stock of ARL.

           To that end, after arm's length negotiations, TCI, IOT and ARL, as
the parent corporation of ART, entered into the Second Amendment to the
Modification of Stipulation of Settlement






                                       3



(the "Settlement Agreement"), dated October 17, 2001. Following notice to all
stockholders of TCI and IOT, the Settlement Agreement obtained final approval of
the Court on February 12, 2002. The Settlement Agreement provides that if the
stockholders so approve, TCI and IOT will become subsidiaries of ARL through the
mechanism of freeze-out mergers. As part of the mergers, stockholders (other
than Mr. Phillips, BCM, ARL and ART (collectively the "Affiliated Entities") or
their affiliates) are to receive $19 per share in cash for IOT common stock or
$17.50 per share in cash for TCI common stock, which amounts shall be reduced by
any dividends paid after January 2, 2002 on the TCI or IOT common stock,
respectively. In the mergers, the stockholders of TCI and IOT not affiliated
with the Affiliated Entities have the opportunity (but no obligation) to
affirmatively elect to receive shares of preferred stock of ARL having a
liquidation value of $21.50 per share in exchange for IOT common stock or $20
per share in exchange for TCI common stock, which amounts shall be reduced by
any dividends paid after January 2, 2002 on the TCI or IOT common stock,
respectively. In the mergers, the Affiliated Entities will receive shares of the
ARL preferred stock for the shares of common stock of TCI and IOT held by them,
provided, however, that shares of TCI and IOT common stock held by ARL and its
subsidiaries will be cancelled. The purchase prices and liquidation values have
been established under the Settlement Agreement. The cash consideration to be
paid to the nonaffiliated TCI and IOT stockholders is to be guaranteed by and
becomes an obligation of the Affiliated Entities. The mergers are to occur only
after the satisfaction of certain conditions, including the approval of each
merger by a majority of the shares held by the nonaffiliated TCI and IOT
stockholders, as applicable, who vote by in person or by proxy at meetings of
stockholders called for that purpose. The ARL board of directors has determined
that it will not enter into the TCI and IOT mergers until, in each case,
sufficient cash is available to ARL, either from its own resources or from TCI
or IOT immediately after the mergers, to pay the cash merger consideration due
as a result of the mergers.

           In order to proceed with the mergers under the Settlement Agreement,
the Affiliated Entities have been required to perform certain matters which are
described in this joint proxy statement and prospectus, including filing of
materials with the Securities and Exchange Commission ("SEC") and completion of
that process prior to March 31, 2002. The other requirements were:


           -          obtaining a fairness opinion from a reputable investment
                      banking firm that the consideration to be paid to the
                      nonaffiliated TCI and IOT stockholders in each merger (or
                      the tender offers described below) is fair from a
                      financial point of view, and

           -          placement of a $1,000,000 deposit in escrow to cover the
                      costs and fees necessary to compel the payment of any
                      liquidated damages.


           If the SEC review process of this joint proxy statement and
prospectus was not completed by March 31, 2002, unless extended by the consent
of Settlement Counsel, the Affiliated Entities would be in default under the
Settlement Agreement and liable for liquidated damages equal to $5 for each
share of TCI and IOT common stock. The Affiliated Entities may cure that default
by filing tender offers for all of the shares of IOT and TCI stock held by
nonaffiliated stockholders, with respect to the cash option, at a cash price
equal to or better than the amount specified under the mergers ($19 per share
for IOT common stock, and $17.50 per share for TCI common stock). If the tender
offers are substantially completed within 120 days following the





                                       4




making of such tender offers, the Affiliated Entities will be deemed to have
fully complied with the Settlement Agreement.

           Although the SEC review process was not completed by March 31, 2002,
ARL has requested an extension of that date from Settlement Counsel in order to
allow additional time to complete the comment process on the joint proxy
statement and prospectus. Although Settlement Counsel has not provided a written
agreement to extend that date at this time, he has not refused to do so and has
not alleged a default. ARL believes that there will be no problem with the
extension as long as a good faith effort is made to complete this process as
soon as possible.


           Under the Settlement Agreement, except to the extent necessary to
obtain the requisite quorum of any vote of stockholders in connection with the
mergers, the Affiliated Entities and TCI and IOT will not engage in any
solicitation activity directed at the nonaffiliated stockholders in any manner
which would have the effect of causing a nonaffiliated stockholder to accept
preferred stock rather than cash.




                                       5




              QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION


1.Q:       WHAT IS BEING PROPOSED?  (SEE PAGES 43 and 81)
           A: Two separate mergers are being proposed as the result of the
Settlement Agreement. In each merger, a newly formed subsidiary of ARL would be
merged with and into TCI or IOT, as the case may be, and TCI and IOT would
become a subsidiary of ARL. The two mergers are not dependent upon each other,
and if the stockholders of one company do not approve their merger, only the
approved merger will be consummated.

2.Q:       WHAT WILL I RECEIVE IN THE MERGER? (SEE PAGES 26, 50 and 81)

           A: Each share of TCI and IOT common stock will be converted into
$17.50 and $19.00 in cash, respectively, (less the amount of any dividends paid
after January 2, 2002) or, at the affirmative election of the TCI or IOT
stockholder, one share of ARL 10% Series G cumulative convertible preferred
stock (the "Series G redeemable convertible preferred stock") or one share of
the ARL 10% Series H cumulative convertible preferred stock (the "Series H
redeemable convertible preferred stock"), respectively. Outstanding shares of
TCI and IOT common stock held by ARL or its subsidiaries will be cancelled and
shares of TCI and IOT common stock held by BCM and other affiliates of ARL will
be exchanged for shares of Series G and Series H redeemable convertible
preferred stock, respectively. If all of the holders of the TCI and IOT common
stock other than BCM and other affiliates of ARL elect to convert their shares
of TCI common stock to Series G redeemable convertible preferred stock, they
will own approximately 70.9% of the issued and outstanding shares of the Series
G redeemable convertible preferred stock. BCM and other affiliates of ARL would
own the remaining shares of Series G redeemable convertible preferred stock. If
all of the holders of IOT common stock other than BCM and other affiliates of
ARL elect to convert their shares to Series H redeemable convertible preferred
stock, they would own approximately 84.4% of the issued and outstanding shares
of the Series H redeemable convertible preferred stock. BCM and other affiliates
of ARL would own the remaining shares of Series H redeemable convertible
preferred stock.

           ARL will apply to list the Series G and Series H redeemable
convertible preferred stock, and the shares of ARL common stock issuable upon
conversion of the Series G and Series H redeemable convertible preferred stock
on the New York Stock Exchange ("NYSE"), however, the NYSE may not accept the
shares for listing.

           The cash price per share to be paid by ARL was determined in
connection with the settlement of a derivative lawsuit, the Olive Litigation,
which has been approved by a federal court. The cash prices were negotiated
between and agreed to by ARL and by George Donaldson, the Settlement Counsel
representing the interests of the nonaffiliated stockholders of TCI and IOT. In
the course of considering and negotiating the terms of settlement, Settlement
Counsel considered the net asset values of TCI and IOT, the book value of TCI
and IOT on a per share basis and the historical trading prices of the common
stock of TCI and IOT. The cash prices to be received by TCI and IOT stockholders
are less than the calculated book value per common share at December 31, 2001,
which were $26.95 and $24.48, respectively. See "Comparative per Share
Information." The exchange ratio of one share of ARL preferred stock for each
one share of TCI or IOT common stock was determined in connection with the




                                       6




settlement of the Olive Litigation. The liquidation value for each series of ARL
preferred stock also was determined in the litigation settlement. The
liquidation value of each series of ARL preferred was set at an amount higher
than the respective cash prices being offered for each TCI or IOT share which
will provide a stockholder with a higher cash return upon redemption of the ARL
preferred stock.

           The conversion ratio for converting the Series G and Series H
redeemable convertible preferred stock into ARL common stock was determined by
and between ARL and Houlihan Lokey, the independent investment advisor to TCI
and IOT, who has opined that the proposed transaction is fair from a financial
point of view to the nonaffiliated stockholders of TCI and IOT.

3.Q:       WHAT ARE THE MATERIAL TERMS OF THE TCI MERGER AND THE IOT MERGER?
(SEE PAGES 81 to 84)


           A: Copies of the forms of agreements and plans of merger that have
been approved by each board of directors as applicable are attached as APPENDIX
A and APPENDIX B to this joint proxy statement and prospectus.


           Although the ARL, TCI and IOT boards of directors have approved the
terms of the merger agreements, the merger agreements will not be executed until
after the stockholders approve the mergers and other conditions precedent
thereto are met. Additionally, ARL has determined not to enter into the merger
agreements unless it has sufficient cash available to it to pay the cash merger
consideration.


           CONDITIONS OF THE MERGERS. Completion of the mergers is dependent
upon the fulfillment of a number of conditions, including the following material
conditions:

           -          all necessary consents from third parties having been
                      obtained

           -          no restraining order, injunction, order or decree of any
                      court having been issued

           -          the filing by the parties of all documents and instruments
                      required to be filed with governmental entities

           -          no action having been taken by any state or federal
                      government or agency which would prevent the merger or
                      impose material conditions on the merger


           -          although not part of the merger agreements, ARL has
                      determined not to enter into the merger agreements unless
                      it has sufficient cash available to it, either from its
                      own resources or from TCI or IOT immediately after the
                      mergers, to pay the cash merger consideration

           The merger agreements may be terminated by one or more parties at any
time prior to the effective time of the mergers if the following events occur:

           -          mutual written consent

           -          the merger is prohibited by law or a court order

           -          the other party materially breaches any representation,
                      covenant or agreement in the merger agreement and the
                      breach has not been remedied within twenty days after
                      written notice




                                       7



           -          by the other party if the other board of directors
                      withdraws or modifies its approval or recommendation of
                      the merger agreement in any manner materially adverse to
                      the other party


4.Q:       WHAT ARE THE TERMS OF THE SERIES G AND SERIES H REDEEMABLE
CONVERTIBLE PREFERRED STOCK? (SEE PAGES 163-164)


           A: The Series G and Series H preferred shares are both convertible
and redeemable. During a 75 day period commencing on the 15th day after ARL
publicly files its first Form 10-Q with the SEC following the consummation of
the TCI merger and the IOT merger, the Series G and Series H redeemable
convertible preferred stock may be converted at the option of the holder into
2.5 and 2.25 shares of ARL common stock, respectively. The liquidation value of
the Series G and Series H redeemable convertible preferred stock shall be
reduced by any dividends paid on the TCI and IOT common stock, respectively,
after January 2, 2002 and prior to conversion. Beginning 45 days after ARL files
its first Form 10-Q following the consummation of the TCI and/or IOT mergers,
ARL may provide notice of and thereafter redeem the Series G and Series H
redeemable convertible preferred stock upon payment of the liquidation value of
$20.00 and $21.50 per share, respectively. ARL may redeem any or all of the
Series G and Series H redeemable convertible preferred stock upon payment of the
liquidation value plus all accrued and unpaid dividends by giving the holder
thereof not less than 45 days nor more than 60 days notice thereof prior to the
date on which ARL desires such shares redeemed. The Series G and Series H
redeemable convertible preferred stock receive a liquidation preference of
$20.00 and $21.50, respectively, less dividends declared and paid after January
2, 2002 upon any liquidation, dissolution or winding up of ARL before any
distribution or payment to the ARL common stock holders. No such preference is
available for the TCI or IOT common stock.

           The holders of Series G and Series H redeemable convertible preferred
stock do not vote for the election of directors or on any matter except: (i) as
otherwise provided by law, (ii) with respect to an amendment to ARL's articles
of incorporation or bylaws that would materially alter or change the existing
terms of the Series G and Series H redeemable convertible preferred stock,
respectively, (iii) as to the Series G redeemable convertible preferred stock,
at any time or times for the election of two directors when all or any portion
of the dividends on the Series G redeemable convertible preferred stock for any
six quarterly dividends, whether or not consecutive, shall be in arrears and
unpaid; and (iv) as to the Series H redeemable convertible preferred stock, at
any time or times for the election of two directors when all or any portion of
the dividends on the Series H redeemable convertible preferred stock for any six
quarterly dividends, whether or not consecutive, shall be in arrears and unpaid.
In the event of (iii) above, the number of directors constituting the board of
directors of ARL shall be increased by two and the holders of Series G
redeemable convertible preferred stock, voting separately as a class, shall be
entitled to elect two directors to fill the newly created directorships with
each holder being entitled to one vote in the election for each share of Series
G redeemable convertible preferred stock held. In the event of (iv) above, the
number of directors constituting the board of directors of ARL shall be
increased by two and the holders of Series H redeemable convertible preferred
stock, voting separately as a class, shall be entitled to elect two directors to
fill the newly created directorships with each holder being entitled to one vote
in the election for each share of Series H redeemable convertible preferred
stock held.



                                       8



           In addition to the conversion and redemption features and the voting
rights set forth above, there are other differences between the Series G and H
redeemable convertible preferred stock and the TCI common stock and IOT common
stock, respectively. For a description of additional differences see "Comparison
of Ownership of Shares." The full text of the description of the Series G and
Series H redeemable convertible preferred stock is set forth in Appendix C and
D, respectively.

5.Q:       WHAT IS THE INTENDED ACCOUNTING TREATMENT OF THE TCI MERGER AND IOT
MERGER? (SEE PAGE 84)

           A: ARL will account for the mergers under the purchase method of
accounting. At December 31, 2001, the total value of TCI assets and liabilities
was $644,902,000 and $495,967,000, respectively. No goodwill is acquired or
generated through the business combination. Likewise, the total value of IOT
assets and liabilities was $78,091,000 and $56,611,000, respectively and no
goodwill is acquired or generated through the business combination.

6.Q:       WILL I RECOGNIZE INCOME TAX GAIN OR LOSS IN THE TCI MERGER OR IOT
MERGER? (SEE PAGES 76-78)


           A: The mergers involve numerous federal income tax consequences to
you, depending in part on whether you are a common stockholder of TCI or IOT.


           Each merger will be a taxable event for United States federal income
tax purposes. The TCI and IOT stockholders who do not affirmatively elect to
receive preferred stock in the mergers will recognize gain or loss equal to the
difference between (i) the amount of cash they receive in connection with the
merger and (ii) their tax basis in their stock of TCI common stock or IOT common
stock, as the case may be. The TCI and IOT stockholders who affirmatively elect
to receive preferred stock in connection with the mergers will recognize gain or
loss equal to the difference between (i) the fair market value of the shares of
preferred stock received in the merger and (ii) their tax basis in their shares
of TCI common stock or IOT common stock, as the case may be. The mergers will
not be a taxable event to the ARL stockholders. Each stockholder receiving
preferred stock in the mergers will be responsible for reporting the fair market
value of the shares on its tax return. Assuming that the preferred stock is not
listed on the NYSE or another exchange at the date of the closing of the
mergers, it is unlikely that a stockholder receiving preferred stock could
establish that the fair market value of the shares was less than the cash that
the stockholder could have received. We will not obtain an opinion as to the
fair market value of the shares at the date of closing.


           We urge you to carefully read the complete explanation of the tax
consequences of the mergers beginning on page 76.


           TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE
MERGERS TO STOCKHOLDERS WILL DEPEND UPON THE FACTS OF EACH INDIVIDUAL'S
SITUATION. WE URGE YOU TO CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF
THE MERGER'S TAX CONSEQUENCES TO YOU.



                                       9



7.Q:       ARE THERE RISKS INVOLVED IN THE MERGERS? (SEE PAGES 28-37)


           A: Yes. In considering whether or not to vote in favor of your
merger, ARL, TCI and IOT stockholders should carefully consider all of the
information set forth in this joint proxy statement and prospectus and, in
particular, should evaluate the factors set forth under the caption "Risk
Factors" herein. These factors include, among other things:

                          RISKS RELATED TO THE MERGERS


           -          Substantial amounts of cash are required for the mergers

           -          Substantial property sales or loans are necessary

           -          Lender consents may be necessary to complete the mergers

           -          The mergers are separate transactions

           -          A tender offer may be made in order to avoid a penalty


                    RISKS RELATED TO THE ARL PREFERRED STOCK


           -          The value of the ARL preferred stock is uncertain; ARL may
                      not have sufficient cash to pay the dividend contemplated
                      on the ARL preferred stock

           -          The Series G and Series H redeemable convertible preferred
                      stock have limited voting rights

           -          Affiliates of ARL may hold a majority of the Series G and
                      Series H redeemable convertible preferred stock after the
                      mergers are completed


                     RISKS RELATED TO THE COMBINED BUSINESS


           -          ARL will need to sell property and borrow money to meet
                      its liquidity needs

           -          ARL will have substantial debt after the mergers

           -          BCM and its affiliates own or control more than a majority
                      of the voting securities of each of ARL, TCI and IOT, and
                      will own more than a majority of the voting securities of
                      ARL after the mergers

           -          Management of ARL, TCI and IOT are subject to conflicts of
                      interest because most members of management of BCM and ARL
                      are also members of management of TCI and IOT

           -          Real estate investments are subject to varying degrees of
                      risks and are relatively illiquid

           -          Developing and managing real estate assets is a highly
                      competitive business

           -          A substantial portion of assets of the combined business
                      of ARL, TCI and IOT will consist of real estate and
                      mortgage notes receivable secured by income producing real
                      estate located in the Midwest, Northeast and Southwest
                      regions of the United States

           -          The real estate assets of the combined business of ARL,
                      TCI and IOT will be subject to industry-specific operating
                      risks, any or all of which may adversely affect the
                      results of the operations of the combined business




                                       10



8.Q:       ARE THERE ADVERSE CONSEQUENCES OR NEGATIVE FACTORS ASSOCIATED WITH
THE MERGERS? (SEE PAGE 59)

           A:         Yes. In addition to the risks involved in the mergers
discussed above, the mergers involve other adverse consequences and negative
factors, including the following:

           -          Following the mergers, the non-affiliated stockholders of
                      IOT and TCI who receive cash for their shares will cease
                      to participate in any future earnings and growth of either
                      IOT or TCI

           -          The mergers will result in a taxable transaction for the
                      stockholders of IOT and TCI

           -          Based upon the unaudited pro forma consolidated financial
                      statements, the mergers would have resulted in earnings
                      per share of ARL common stock that are less than the
                      historical earnings per share of IOT common stock and TCI
                      common stock

           -          The book value per share of IOT common stock and TCI
                      common stock at December 31, 2001 exceeds the per share
                      cash consideration offered to the non-affiliated
                      stockholders of IOT and TCI, respectively, pursuant to the
                      mergers

           -          As a result of the IOT merger, stockholders of IOT
                      electing to receive shares of the preferred stock of ARL
                      will no longer be holders of an equity interest in a REIT,
                      which is required to distribute 95% of its net income in
                      the form of dividends each year

9.Q:       HOW WILL THE BUSINESS COMBINATION BE FINANCED?  (SEE PAGES 59-62)

           A: The estimated cash requirements to pay the amounts to the
nonaffiliated TCI and IOT stockholders if all elect to take the cash merger
consideration and to pay all expenses (including prepayments of indebtedness) of
the transactions is approximately $94,235,000. The actual amount required to
purchase the TCI common stock and IOT common stock will depend on the number of
stockholders who affirmatively elect to receive Series G and Series H redeemable
convertible preferred stock. Consequently, the greater number of stockholders
who affirmatively elect to receive Series G and Series H redeemable convertible
preferred stock the less funds will be required to pay the cash merger
consideration. ARL and TCI intend to first seek new loans, which they expect to
be able to obtain from several lenders aggregating at least $37,718,438. ARL and
TCI also have available a number of real property assets which, if necessary,
should be able to be sold (or utilized as collateral for loans) to realize at
least $86,943,135, which is based upon ARL's estimate of the sales price of the
properties using the industry formula of net operating income multiplied by a
standard market rate minus the sum of the debt, prepayment penalties, closing
costs and fees payable to BCM. ARL expects to sell 15 properties and TCI expects
to sell 18 properties consisting of apartments and office buildings. These sums
total an estimated $86,943,135. If all such loans are entered into and all
available properties are sold any remaining difference (presently estimated at
$30,425,987) will be available to ARL for working capital purposes. ARL
presently has no written commitments for any of the expected loans and has no
written or oral contracts to sell any assets.


10.Q:      WILL I HAVE DISSENTERS' OR APPRAISAL RIGHTS IN THE MERGER?
(SEE PAGE 41)


           A: No.



                                       11



11.Q:      HAVE TCI AND IOT RECEIVED A FAVORABLE OPINION FROM THEIR FINANCIAL
ADVISORS CONCERNING THE TCI MERGER AND IOT MERGER AS APPLICABLE? (SEE PAGES
63-65)

           A: Yes. Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
("Houlihan Lokey"), has delivered its opinion to the board of TCI that, based
upon the assumptions and analyses contained in its letter dated February 1,
2002, after allowing for the factors and assumptions stated in its opinion and
as of that date, the consideration being offered to the TCI stockholders, other
than ARL and its affiliates, in the merger is fair from a financial point of
view.

           Houlihan Lokey has delivered its opinion to the board of IOT that,
based upon the assumptions and analyses contained in its letter dated February
1, 2002, after allowing for the factors and assumptions stated in its opinion
and as of that date, the consideration being offered to the IOT stockholders,
other than ARL and its affiliates in the merger, is fair from a financial point
of view.


           These opinions are attached as APPENDICES E and F. We encourage you
to read these opinions.


12.Q:      DO PERSONS INVOLVED IN THE MERGERS HAVE INTERESTS THAT DIFFER FROM
MINE? (SEE PAGES 79-80)


           A: Yes. In considering your board's recommendation that you vote for
the merger, you should be aware that the determination of the boards of ARL, TCI
and IOT to participate in the mergers may have been affected by conflicts of
interest. In particular:


           The boards of directors of TCI and IOT are identical. Additionally,
the executive officers of ARL, TCI, IOT and BCM are essentially the same
persons. Each of the individuals, as a result of their multiple positions, owe
fiduciary duties to the stockholders of all three of ARL, TCI and IOT. At times,
they may be confronted by issues, including the mergers, that present them with
potentially conflicting interests and obligations. Furthermore, in accordance
with the advisory agreements that each of ARL, TCI and IOT have with BCM (as
discussed under the heading "The Advisor"), BCM will receive a fee upon the
sale, if any, of the properties that may be sold to fund the payment of the cash
merger consideration. For the properties available for sale as of April 15,
2002, the amount of the fee is estimated to be $3,038,815. See "Special Factors
- Financing the Business Combination."


           It is currently expected that the officers and directors of ARL, TCI
and IOT will remain the same after the business combination with the exception
that the TCI and IOT board members shall become members of the ARL board. As a
result of these business relationships, the directors and officers of ARL, TCI
and IOT could be more likely to support or recommend the business combination,
the agreements and plans of merger and related matters than might otherwise be
the case. You should consider whether these interests may have influenced these
directors and officers to support or recommend the business combination. The
directors of ARL, TCI and IOT were aware of these interests and considered them
in approving the mergers.


           None of the individual officers and directors of ARL, TCI, IOT and
BCM will receive individual compensation, shares, forgiveness of debt, options,
severance benefits, earn outs or other amounts that could be considered
compensation related to the successful consummation of




                                       12



the business combination. Certain officers and directors of ARL, TCI and IOT
that own shares of ARL common stock will be treated as affiliates and will
receive shares of the ARL preferred stock in return for their TCI and IOT common
stock.

13.Q:      WHAT PERCENTAGE OF OUTSTANDING SHARES OF ARL, TCI AND IOT ARE HELD BY
OFFICERS, DIRECTORS AND THEIR AFFILIATES? (SEE PAGES 40 AND 41)

           A: The directors, executive officers and the affiliates of the
directors and executive officers of ARL beneficially own 61.7% of the
outstanding shares of ARL voting with respect to the TCI and IOT mergers. After
completion of the TCI and IOT mergers, the directors, executive officers and the
affiliates of the directors and executive officers of ARL will beneficially own
70% of the outstanding shares of ARL, assuming the conversion of all shares of
Series G and Series H redeemable convertible preferred stock, if any, received
in the mergers.

           The directors, executive officers and the affiliates of the directors
and executive officers of TCI (including ARL and its affiliates) own 64.5% of
the outstanding shares of TCI voting with respect to the TCI merger. All
outstanding shares of TCI common stock will be cancelled or exchanged upon
completion of the TCI merger. The directors, executive officers and the
affiliates of the directors and executive officers of TCI will, indirectly and
directly, beneficially own 70.2% of the outstanding common stock of ARL after
completion of the TCI mergers, assuming conversion of all shares of Series G
redeemable convertible preferred stock received in the merger.

           The directors, executive officers and the affiliates of the directors
and executive officers of IOT (including ARL, TCI and their affiliates) own
59.9% of the outstanding shares of IOT voting with respect to the IOT merger.
All outstanding shares of IOT common stock will be cancelled or exchanged upon
completion of the IOT merger. The directors and executive officers and
affiliates of the directors and executive officers of IOT will, indirectly and
directly, beneficially own 70.2% of the outstanding common stock of ARL after
the completion of the IOT merger, assuming conversion of all shares of Series H
redeemable convertible preferred stock received in the merger.

           BCM will own 64.9% of the outstanding common stock of ARL after
completion of the TCI and IOT mergers, assuming conversion of all shares of
Series G and Series H redeemable convertible preferred stock received in the
mergers.

14.Q:      WHAT VOTE IS REQUIRED TO APPROVE MY MERGER? (SEE PAGE 40)


           A:  Approval of the TCI merger requires:


           -          The affirmative vote of a majority of the votes cast at
                      the TCI meeting

           -          The affirmative vote of a majority of the votes cast by
                      the holders of shares of TCI common stock voting at the
                      TCI meeting not held by Mr. Phillips, BCM or ARL and their
                      affiliates

           -          The affirmative vote of a majority of the votes cast in
                      favor of the TCI merger at the ARL meeting



                                       13



           Approval of the IOT merger requires:


           -          The affirmative vote of a majority of the votes cast at
                      the IOT meeting

           -          The affirmative vote of a majority of the votes cast by
                      the holders of shares of IOT common stock voting at the
                      IOT meeting not held by Mr. Phillips, BCM or ARL and their
                      affiliates

           -          The affirmative vote of a majority of the votes cast in
                      favor of the IOT merger at the ARL meeting


           In the event the stockholders of either TCI or IOT approve their
merger but the stockholders of the other company do not, the approved merger may
be consummated, but the other one will not.


           ARL and its affiliates currently own 5,215,324 shares of TCI common
stock representing approximately 64.5% of the outstanding TCI shares and 862,465
shares of IOT common stock representing approximately 59.9% of the outstanding
IOT shares. Although ARL and its affiliates and TCI and IOT intend to vote their
shares in favor of the mergers, the affirmative vote of a majority of the
nonaffiliated shares is needed to authorize the merger.

15.Q:      IF THE MERGERS ARE APPROVED AND I AFFIRMATIVELY ELECT TO RECEIVE
SHARES OF THE ARL PREFERRED STOCK WILL THESE SHARES BE LISTED FOR TRADING? (SEE
PAGE 26)

           A: ARL will apply to list the Series G and Series H redeemable
convertible preferred stock, and the shares of ARL common stock issuable upon
conversion of the Series G and Series H redeemable convertible preferred stock,
on the NYSE. There can be, however, no assurance that the shares will be listed.
The listing of the preferred and common shares for trading on the NYSE is not a
condition to the respective obligations of TCI and IOT to consummate the
mergers.

16.Q:      DO THE BOARDS OF DIRECTORS OF ARL, TCI AND IOT RECOMMEND VOTING IN
FAVOR OF THE TCI MERGER AND IOT MERGER AS APPLICABLE? (SEE PAGES 71-73)


           A: ARL. The ARL board of directors has approved the TCI merger
agreement and the IOT merger agreement and unanimously recommends that its
stockholders vote "for" the mergers. In reaching its decision to approve and
recommend the mergers, the ARL board of directors considered, among other
factors, the following:


           -          The current and historical market prices of the TCI and
                      IOT common stock relative to the historical market prices
                      of the ARL common stock and relative to the merger
                      consideration

           -          The history of the negotiations leading to establishment
                      of the merger consideration and the structure of the
                      proposed transactions

           -          The advice of TCI's and IOT's financial advisor that the
                      consideration to be offered to the non-affiliated public
                      stockholders of TCI and IOT was fair from a financial
                      point of view

           -          The fact that the cash merger consideration offered for
                      the TCI common stock and the IOT common stock was less
                      than the respective current book value of such stock





                                       14



           -          The view of the ARL board of directors that an increase in
                      the size and diversity of ARL's portfolio would increase
                      the development opportunities available to ARL

           -          The view of the ARL board of directors that an increase in
                      the size of ARL's business and real estate portfolio would
                      increase ARL's financial flexibility

           -          The expectation of the ARL board of directors that the
                      cash to be paid as merger consideration could be raised in
                      large part from sales of real estate held by TCI and IOT

           -          The expectation of the ARL board of directors that the TCI
                      and IOT mergers would not be consummated unless, in each
                      case, sufficient cash was available to ARL to pay the cash
                      merger consideration due as a result of the mergers

           -          The terms of the merger agreements, including that there
                      is no financing condition and each can be terminated
                      without penalty by either party; the expectation of the
                      ARL board of directors that the merger agreements would
                      not be entered into until after the requisite stockholder
                      approval had been obtained; and the possibility that a
                      third party may seek to acquire TCI or IOT before such
                      approval could be obtained making it unlikely that a
                      merger with that entity would occur

           -          The fact that stockholders of TCI and IOT affiliated with
                      ARL will accept preferred stock of ARL in lieu of cash as
                      merger consideration

           -          The fact that the TCI and IOT mergers are not conditioned
                      upon one another

           -          The fact that if either of the mergers was not
                      consummated, ARL may be required to pay a penalty of $5.00
                      per outstanding share of the common stock of the entity
                      not being acquired unless it commenced a tender offer for
                      such shares for at least the same cash consideration
                      offered in the failed merger, and that the consummation of
                      either merger may not occur due to reasons outside of
                      ARL's control

           -          The time and management resources necessary to solicit
                      stockholder approval and consummate the mergers

           -          The ARL board of directors' understanding that any
                      regulatory approvals necessary to consummate the TCI and
                      IOT mergers could be obtained

           -          The various risks and uncertainties involved in the
                      mergers, including the risks described under the heading
                      "Risk Factors"


           TCI. The TCI board of directors has determined that the terms of the
proposed TCI merger are fair to and in the best interests of the nonaffiliated
TCI stockholders, approved the TCI merger agreement and unanimously recommends
that its stockholders vote "for" the TCI merger. In reaching its decision to
approve and recommend the TCI merger, the TCI board of directors considered,
among other factors, the following:


           -          The current and historical market prices of TCI common
                      stock relative to the merger consideration and the fact
                      that the $17.50 per share merger consideration represented
                      a 44.6% premium over the average closing price of TCI
                      common stock over the thirty trading days prior to October
                      23, 2001

           -          The fact that the merger consideration is all cash

           -          The fact that holders of TCI common stock have the
                      opportunity to affirmatively elect to receive ARL
                      preferred stock instead of cash




                                       15





           -          The view of the TCI board of directors that the trading
                      value for shares of TCI common stock was not likely to
                      exceed the merger price in the near term if TCI remained
                      independent

           -          The potential stockholder value that could be expected to
                      be generated from other strategic options available to TCI

           -          The financial presentation of Houlihan Lokey and the
                      opinion to the effect that the consideration to be offered
                      to the nonaffiliated TCI stockholders pursuant to the TCI
                      merger agreement was fair from a financial point of view
                      to those holders

           -          The terms of the TCI merger agreement, as reviewed by the
                      TCI board of directors with TCI legal advisors

           -          The TCI board of directors' determination, based on the
                      fact that no other offers to acquire TCI common stock have
                      been made at a level equal to or better than the merger
                      consideration of $17.50 per share before or after initial
                      press reports on and after October 23, 2001, that ARL had
                      agreed to acquire the nonaffiliated stockholder interest
                      in TCI and after discussing with TCI's advisors the
                      potential risks, costs and benefits of contacting other
                      third parties, that there was insufficient reason to
                      justify the risk of delay in proceeding with the favorable
                      transaction with ARL

           -          The view of the TCI board of directors that the regulatory
                      approvals necessary to consummate the TCI merger could be
                      obtained

           -          The fact that TCI will no longer exist as an independent
                      company and its stockholders will no longer participate in
                      the growth of TCI

           -          The fact that gains from an all cash transaction would be
                      taxable to TCI stockholders for U.S. federal income tax
                      purposes

           -          Book value per share of TCI common stock exceeds the
                      offered cash value per share, but the market price per
                      share of TCI common Stock has historically been less than
                      the book value per share of TCI common stock calculated
                      from a financial standpoint

           -          Based upon the unaudited pro forma consolidated financial
                      statements, the mergers may result in earnings per share
                      of ARL that are less than the historical earnings per
                      share of TCI and IOT

           -          The risk exists that ARL will have to raise capital from
                      another source, refinance indebtedness or sell assets
                      (including assets of TCI and IOT) to produce proceeds
                      sufficient to finance the cash payments to the TCI holders
                      of common stock not affiliated with ARL

           -          A substantial increase in leverage may be a result of the
                      merger of TCI into ARL, which increase in leverage is not
                      presently quantifiable

           -          There may not be sufficient ARL cash to pay dividends on
                      ARL preferred stock as a result of the substantial
                      indebtedness which may be required to be incurred pursuant
                      to the mergers. See also "Information About ARL --
                      Security Ownership of Certain Beneficial Owners and
                      Management of ARL."


           IOT. The IOT board of directors has determined that the terms of the
proposed IOT merger are fair to and in the best interests of the nonaffiliated
IOT stockholders, approved the IOT merger agreement and unanimously recommends
that its stockholders vote "for" the IOT merger. In reaching its decision to
approve and recommend the IOT merger, the IOT board of directors considered,
among other factors, the following:




                                       16



           -          The current and historical market prices of IOT common
                      stock relative to the merger consideration and the fact
                      that the $19.00 per share merger consideration represented
                      a 28.7% premium over the average closing price of IOT
                      common stock over the thirty trading days prior to October
                      23, 2001

           -          The fact that the merger consideration is all cash

           -          The fact that holders of IOT stock have the opportunity to
                      affirmatively elect to receive ARL preferred stock instead
                      of cash

           -          The view of the IOT board of directors that the trading
                      value for shares of IOT common stock was not likely to
                      exceed the merger price in the near term if IOT remained
                      independent

           -          The potential stockholder value that can be expected to be
                      generated from other strategic options available to IOT

           -          The financial presentation of Houlihan Lokey and the
                      opinion to the effect that the consideration to be offered
                      to the nonaffiliated IOT stockholders pursuant to the IOT
                      merger agreement was fair from a financial point of view
                      to those holders

           -          The terms of the IOT merger agreement, as reviewed by the
                      IOT board of directors with IOT legal advisors

           -          The IOT board of directors' determination, based on the
                      fact that no other offers to acquire IOT common stock have
                      been made at a level equal to or better than the merger
                      consideration of $19 per share before or after initial
                      press reports on and after October 23, 2001, that ARL had
                      agreed to acquire the nonaffiliated stockholder interest
                      in IOT and after discussing with IOT's advisors the
                      potential risks, costs and benefits of contacting other
                      third parties, that there was insufficient reason to
                      justify the risk of delay in proceeding with the favorable
                      transaction with ARL

           -          The view of the IOT board of directors, the regulatory
                      approvals necessary to consummate the IOT merger could be
                      obtained

           -          IOT will no longer exist as an independent company and its
                      stockholders will no longer participate in the growth of
                      IOT

           -          The fact that gains from an all cash transaction would be
                      taxable to IOT stockholders for U.S. federal income tax
                      purposes

           -          Book value per share of IOT common stock exceeds the
                      offered cash value per share, but the market price per
                      share of IOT common stock has historically been less than
                      the book value per share of IOT common stock calculated
                      from a financial standpoint

           -          Based upon the unaudited pro forma consolidated financial
                      statements, the merger may result in earnings per share of
                      ARL that are less than the historical earnings per share
                      of IOT and TCI

           -          The risk exists that ARL will have to raise capital from
                      another source, refinance indebtedness or sell assets
                      (including assets of IOT and TCI) to produce proceeds
                      sufficient to finance the cash payments to the IOT holders
                      of common stock not affiliated with ARL

           -          A substantial increase in leverage may be a result of the
                      merger of IOT into ARL, which increase in leverage is not
                      presently quantifiable

           -          There may not be sufficient ARL cash to pay dividends on
                      ARL Preferred Stock as a result of the substantial
                      indebtedness which may be required to be incurred pursuant




                                       17




                      to the transactions. See also "Security Ownership of
                      Certain Beneficial Owners and Management of ARL"

           -          As a result of the merger, IOT stockholders will no longer
                      be holders of an equity interest in a REIT and therefore,
                      will not receive 95% of REIT net income in the form of
                      dividends each year. See "Comparative Per Share
                      Information" for the amount of IOT distributions during
                      the last two years. During the year ended December 31,
                      2000, IOT paid dividends equal to $0.45 per share of IOT
                      common stock and paid no dividends in 2001.


17.Q:      WHEN DO THE COMPANIES EXPECT TO COMPLETE THE MERGERS? (SEE PAGE 81)


           A: Assuming the mergers receive the required stockholder approval
from the stockholders of ARL, TCI and IOT, the mergers will occur at the time
ARL determines it has sufficient cash available to it, either from its own
resources or from TCI or IOT, immediately after the mergers, to pay the cash
merger consideration due as a result of the mergers.


18.Q:      WHEN DO I ELECT WHETHER TO RECEIVE ARL PREFERRED STOCK OR CASH? (SEE
PAGE 83)


           A: At the time you send in the letter of transmittal mentioned below
you will elect whether to receive ARL preferred stock or cash.


19.Q:      WHERE AND AT WHAT TIME WILL THE MEETINGS BE HELD? (SEE PAGE 38)

           A: The ARL special meeting will be held on Wednesday, June 26, 2002,
at the offices of ARL at 1800 Valley View Lane, Suite 300, Dallas, Texas, at
2:00 p.m., Central Time.

           The TCI special meeting will be held on Wednesday, June 26, 2002, at
the offices of TCI at 1800 Valley View Lane, Suite 300, Dallas, Texas, at 3:00
p.m., Central Time.

           The IOT special meeting will be held on Wednesday, June 26, 2002, at
the offices of IOT at 1800 Valley View Lane, Suite 300, Dallas, Texas, at 4:00
p.m., Central Time.

20.Q:      WHAT DO I NEED TO DO NOW?  (SEE PAGE 38)


           A: Please mail your signed proxy card in the enclosed return envelope
as soon as possible so that your shares of stock may be represented at the
appropriate meeting.


21.Q:      IF MY SHARES ARE HELD BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR
ME? (SEE PAGE 39)


           A: Your broker may vote shares on the merger only if you instruct
your broker how to vote. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your shares. If you do not
tell your broker how to vote, your shares will not be voted on the merger. If
you hold your shares in a brokerage account, you cannot vote in person at your
meeting.


22.Q:      CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD? (SEE
PAGE 39)


                                       18

           A: Yes. You may change your vote at any time before your proxy is
voted at your meeting. You may do this by sending a written notice stating that
you would like to revoke your proxy or by completing and submitting a new proxy
card bearing a later date than the proxy relating to the same shares to our
transfer agent, American Stock Transfer & Trust Company, 6201 15th Avenue,
Brooklyn, New York 11219, attention Joe Alicia. You may also attend your meeting
and vote in person. Simply attending the meeting, however, will not revoke your
proxy. If you hold your shares in a brokerage account and you have instructed
your broker to vote, you must follow your broker's instructions regarding how to
change your vote.


23.Q:      SHOULD I SEND IN MY CERTIFICATES NOW?  (SEE PAGE 84)

           A: No. After the mergers are approved and the business combination is
consummated, you will receive a letter of transmittal with instructions for
exchanging shares in TCI and IOT for cash or, at your affirmative election,
shares of either Series G redeemable convertible preferred stock or Series H
redeemable convertible preferred stock, respectively.

24.Q:      I'VE LOST MY CERTIFICATE.  WHAT SHOULD I DO?  (SEE PAGE 83)


           A: The letter of transmittal mentioned above will contain complete
instructions for a lost certificate.


25.Q:      WHO CAN I CONTACT FOR MORE INFORMATION?  (SEE PAGE 39)


           A: ARL, TCI and IOT stockholders who have questions about the mergers
may call Investor Relations at 1-800-400-6407.




                                       19




                       RATIO OF EARNINGS TO FIXED CHARGES

           The following table summarizes the ratio of ARL's earnings to fixed
charges and preferred stock dividends at the dates set forth below:




                                                                                    Years Ended December 31,
                                                               2001            2000           1999            1998           1997
                                                               ----            ----           ----            ----           ----
                                                                                                             
Ratio of earnings to fixed charges
and preferred stock dividends                                  1.16            1.00           1.09             **             **




**Earnings were inadequate to cover fixed charges and preferred stock dividends
by $23,982,000, $2,634,000 and $5,667,000 in 1998 and 1997, respectively.





                                       20






                          SUMMARY FINANCIAL DATA OF ARL


           The following is a summary of financial data incorporated by
reference in this joint proxy statement and prospectus. You should read the
following data in conjunction with the more detailed information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of ARL" and the ARL consolidated financial statements and related
notes included elsewhere in this joint proxy statement and prospectus.





                                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                ----------------------------------------------------------------------------------
                                                         2001             2000            1999           1998           1997
                                                         ----             ----            ----           ----           ----
                                                                       (dollars in thousands, except per share)
                                                                                                   
EARNINGS DATA
Revenue........................................  $      166,018   $       172,750  $     193,980   $      87,086  $        57,031
Expense........................................         243,166           272,045        324,789         165,111           90,252
                                                    ------------     -------------   ------------     -----------    -------------

(Loss) from operations.........................        (77,148)          (99,295)      (130,809)        (78,025)         (33,221)
Equity in income of investees..................           8,803             5,246         11,847          37,966           10,497
Gain on sale of real estate....................          83,414            96,728        129,260          17,254           20,296
                                                    ------------     -------------   ------------     -----------    -------------

Income (loss) before extra-ordinary gain.......          15,069             2,679         10,298        (22,805)          (2,428)
Extraordinary gain.............................             ---               ---            ---             ---              ---
                                                    ------------     -------------   ------------     -----------    -------------
Net income (loss)..............................          15,069             2,679         10,298        (22,805)          (2,428)
Preferred dividend requirement.................         (2,485)           (2,327)        (2,281)         (1,177)            (206)
                                                    ------------     -------------   ------------     -----------    -------------
Income (loss) applicable to Common shares......  $       12,584   $           352  $       8,017   $    (23,982)  $       (2,634)
                                                    ============     =============   ============     ===========    =============

PER SHARE DATA

Net income (loss) before extraordinary gain....  $         1.07   $           .03  $         .75   $      (2.24)  $         (.22)
Extraordinary gain.............................             ---               ---            ---             ---              ---
                                                    ------------     -------------   ------------     -----------    -------------

Net income (loss) applicable to Common shares..  $         1.07   $           .03  $         .75   $      (2.24)  $         (.22)
                                                    ============     =============   ============     ===========    =============
Dividends per Common share.....................             ---   $           ---  $         .05   $         .20  $           .20
                                                 $
Weighted average shares outstanding............      11,714,374        10,399,890     10,759,416      10,695,388       11,710,013


                                                                             FOR THE YEARS ENDED DECEMBER 31,
                                                    -------------------------------------------------------------------------------
                                                        2001               2000         1999           1998             1997
                                                        ----               ----         ----           ----             ----
                                                                                                    
BALANCE SHEET DATA
Real estate, net...............................  $      588,203           653,744  $      771,630   $     734,907  $       302,453
Notes and interest receivable, net.............          30,382            13,831          38,604          52,053           25,526
Total assets...................................         758,763           787,015         919,546         918,605          433,799
Notes and interest payable.....................         564,298           616,331         706,196         768,272          261,986
Margin borrowings..............................          28,040            13,485          33,264          35,773           53,376
Stockholders' equity...........................          85,884            73,402          46,266          38,272           63,453
Book value per share...........................  $         7.33              7.06  $         4.30   $        3.58  $          5.42





                                       21





                          SUMMARY FINANCIAL DATA OF TCI


           The following is a summary of financial data incorporated by
reference in this joint proxy statement and prospectus. You should read the
following data in conjunction with the more detailed information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of TCI" and the TCI consolidated financial statements and related
notes included elsewhere in this joint proxy statement and prospectus.





                                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                         ----------------------------------------------------
                                                                2001              2000             1999
                                                                ----              ----             ----
                                                                                  
       EARNINGS DATA

       Rents..........................................    $      134,911   $       139,357  $         82,039
       Property expense...............................            80,562            78,061            44,497
                                                             ------------     -------------    --------------
       Operating income...............................            54,349            61,296            37,542
       Other income...................................           (3,002)             1,814               555
       Other expense..................................            85,806            83,878            48,395
       Gain on sale of real estate....................            54,270            50,550            40,517
                                                             ------------     -------------    --------------
       Net income (loss)..............................            19,811            29,782            30,219
       Preferred dividend requirement.................             (172)              (22)              (30)
                                                             ------------     -------------    --------------
       Net income (loss) applicable to Common shares..    $       19,639   $        29,760  $         30,189
                                                             ============     =============    ==============
       Basic and Diluted Earnings Per Share Net income
           (loss) applicable to Common shares.........    $         2.32   $          3.45  $           7.05
                                                             ============     =============    ==============
       Dividends per Common share.....................               ---   $           .54  $            .60
       Weighted average Common shares outstanding.....         8,478,377         8,631,621         4,283,574



                                                                   FOR THE YEARS ENDED DECEMBER 31,
                                                                  --------------------------------
                                                                 2001             2000             1999
                                                                 ----             ----             ----
                                                                                  
       BALANCE SHEET DATA
       Real estate held for investment, net...........    $      622,171   $       639,040  $        599,746
       Real estate held for sale, net.................
            Foreclosed................................               516             1,824             1,790
            Other.....................................               ---               ---               ---
       Notes and interest receivable, net.............            22,049             8,172            11,530
       Total assets...................................           709,152           731,885           714,195
       Notes and interest payable.....................           461,037           501,734           503,406
       Stockholders' equity...........................           216,768           200,560           179,112
       Book value per share...........................    $        26.95   $         23.22  $          20.76






                                                          FOR THE YEARS ENDED DECEMBER 31,
                                                         ----------------------------------
                                                                 1998             1997
                                                                 ----             ----
                                                                     
       EARNINGS DATA

       Rents..........................................    $        69,829  $        54,462
       Property expense...............................             38,282           32,424
                                                             -------------    -------------
       Operating income...............................             31,547           22,038
       Other income...................................                739            2,311
       Other expense..................................             38,320           33,154
       Gain on sale of real estate....................             12,940           21,404
                                                             -------------    -------------
       Net income (loss)..............................              6,906           12,599
       Preferred dividend requirement.................                (1)              ---
                                                             -------------    -------------
       Net income (loss) applicable to Common shares..    $         6,905  $        12,599
                                                             =============    =============
       Basic and Diluted Earnings Per Share Net income
           (loss) applicable to Common shares.........    $          1.78  $          3.22
                                                             =============    =============
       Dividends per Common share.....................    $           .60  $          .28*
       Weighted average Common shares outstanding.....          3,876,797        3,907,221



                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                         --------------------------------
                                                                 1998             1997
                                                                 ----             ----
                                                                     
       BALANCE SHEET DATA
       Real estate held for investment, net...........    $       347,389  $       269,845
       Real estate held for sale, net.................
            Foreclosed................................              1,356            1,356
            Other.....................................                ---            3,630
       Notes and interest receivable, net.............              1,493            3,947
       Total assets...................................            382,203          319,135
       Notes and interest payable.....................            282,688          222,029
       Stockholders' equity...........................             91,132           86,133
       Book value per share...........................    $         23.35  $         22.15









                                       22




                          SUMMARY FINANCIAL DATA OF IOT


           The following is a summary of financial data incorporated by
reference in this joint proxy statement and prospectus. You should read the
following data in conjunction with the more detailed information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of IOT" and the IOT consolidated financial statements and related
notes included elsewhere in this joint proxy statement and prospectus.





                                                                      FOR THE YEARS ENDED DECEMBER 31,
                                                         ----------------------------------------------------
                                                                  2001             2000              1999
                                                                  ----             ----              ----
                                                                  (dollars in thousands, except per share)
                                                                                  
       EARNINGS DATA
       Rents............................................. $       13,001   $        13,731  $         15,968
       Property expense..................................          6,591             6,969             6,768
                                                             ------------     -------------    --------------
       Operating income..................................          6,410             6,762             9,200

       Interest income...................................            194               319                29
       Income (loss) from equity partnerships............            (9)              (61)               148
                                                             ------------     -------------    --------------
       Gain on sale of real estate.......................            ---            20,878             1,525
                                                             ------------     -------------    --------------
                                                                     185            21,136             1,702

       Other expense.....................................         10,057            11,104             9,580
                                                             ------------     -------------    --------------
       Net income (loss)................................. $      (3,462)   $        16,794  $          1,322
                                                             ============     =============    ==============

       PER SHARE DATA
       Net income (loss)................................. $       (2.32)   $         11.03  $            .87
                                                             ============     =============    ==============
       Dividends per share............................... $          ---   $           .45  $            .60
       Weighted average Common shares outstanding........      1,493,675         1,522,510         1,527,386

                                                                    FOR THE YEARS ENDED DECEMBER 31,
                                                             ------------------------------------------------
                                                                  2001            2000             1999
                                                                  ----            ----             ----
       BALANCE SHEET DATA
       Real estate held for investment, net...............$       87,315   $        86,277  $         86,542
       Real estate held for sale, net ....................                             ---               ---
       Notes and interest receivable, net.................           505             1,500               ---
       Total assets.......................................        91,833            96,519            91,185
       Notes and interest payable.........................        54,426            54,206            62,852
       Stockholders' equity...............................        35,222            39,998            23,991
       Book value per share...............................$        24.48   $         26.42  $          15.69






                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                         -----------------------------------
                                                                  1998           1997
                                                                  ----           ----
                                                      (dollars in thousands, except per share)
                                                                      
       EARNINGS DATA
       Rents.............................................. $        14,326  $        12,221
       Property expense...................................           6,462            5,900
                                                              -------------    -------------
       Operating income...................................           7,864            6,321

       Interest income....................................             172              266
       Income (loss) from equity partnerships.............             113               52
                                                              -------------    -------------
       Gain on sale of real estate........................             180            3,953
                                                              -------------    -------------
                                                                       465            4,271

       Other expense......................................           9,008            7,275
                                                              -------------    -------------
       Net income (loss).................................. $         (679)  $         3,317
                                                              =============    =============

       PER SHARE DATA
       Net income (loss).................................. $         (.44)  $          2.18
                                                              =============    =============
       Dividends per share................................ $           .60  $           .40
       Weighted average Common shares outstanding.........       1,521,832        1,519,888

                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                          ----------------------------------
                                                                   1998            1997
                                                                   ----            ----
       BALANCE SHEET DATA
       Real estate held for investment, net............... $        83,691  $        81,914
       Real estate held for sale, net ....................             ---              ---
       Notes and interest receivable, net.................             ---            2,010
       Total assets.......................................          88,695           90,309
       Notes and interest payable.........................          60,786           61,323
       Stockholders' equity...............................          23,560           25,131
       Book value per share............................... $         15.44  $         16.53







                                       23

                        COMPARATIVE PER SHARE INFORMATION


           The following tables set forth per share data of the shares of TCI
and IOT common stock on a historical and pro forma combined and equivalent basis
under three scenarios: (i) all nonaffiliated stockholders of TCI and IOT common
stock take all cash for their shares of TCI and IOT common stock, respectively,
(ii) all nonaffiliated stockholders of TCI and IOT take all Series G and H
redeemable convertible preferred stock for their shares of TCI and IOT common
stock, respectively, and (iii) 50% of the nonaffiliated stockholders of TCI and
IOT accept cash and 50% of the nonaffiliated stockholders of TCI and IOT accept
Series G and H redeemable convertible preferred stock for their shares of TCI
and IOT common stock. In each of these scenarios, the affiliated stockholders of
TCI and IOT receive Series G and Series H redeemable convertible preferred stock
for their shares, respectively. Pro forma equivalent information for TCI and IOT
was calculated by multiplying the pro forma per share amounts for ARL by the
exchange ratio of 2.50 for TCI and 2.25 for IOT common stock. These tables
should be read in conjunction with the historical financial statements and notes
thereto and the unaudited pro forma combined financial information included
elsewhere in this joint proxy statement and prospectus.

                        COMPARATIVE PER SHARE INFORMATION
                           (ALL CASH TO NONAFFILIATED)






                                             ARL COMMON STOCK                    TCI COMMON STOCK
                                     ---------------------------------    ----------------------------------
                                                         PROFORMA                              PROFORMA
                                                       COMBINED AND                          COMBINED AND
                                     HISTORICAL         EQUIVALENT         HISTORICAL         EQUIVALENT
                                                                                      
Income (loss) per common share,
diluted
Year ended December 31, 2001.....          $1.07                $1.12            $2.32                $1.32
Year ended December 31, 2000.....           0.04                 1.90             3.45                 1.48

Cash dividend per common share
Year ended December 31, 2001.....              -                    -                -                    -
Year ended December 31, 2000.....              -                    -             0.54                 0.54

Book value per common share
Year ended December 31, 2001.....           7.55                 8.49            26.95                 8.47
Year ended December 31, 2000.....           6.45                 7.56            23.22                 7.15






                                                  IOT COMMON STOCK
                                        -----------------------------------
                                                              PROFORMA
                                                            COMBINED AND
                                          HISTORICAL         EQUIVALENT
                                                           
Income (loss) per common share,
diluted
Year ended December 31, 2001.....             $ (2.32)              $ 0.78
Year ended December 31, 2000.....                11.03                1.04

Cash dividend per common share
Year ended December 31, 2001.....                    -                   -
Year ended December 31, 2000.....                 0.45                0.45

Book value per common share
Year ended December 31, 2001.....                24.48                7.59
Year ended December 31, 2000.....                26.42                6.52





                        COMPARATIVE PER SHARE INFORMATION
        (ALL SERIES G AND SERIES H REDEEMABLE CONVERTIBLE PREFERRED STOCK
                               TO NONAFFILIATED)





                                                                  ARL COMMON STOCK                    TCI COMMON STOCK
                                                           ----------------------------------    ---------------------------------
                                                                                  PROFORMA                             PROFORMA
                                                                                 COMBINED AND                         COMBINED AND
                                                          HISTORICAL              EQUIVALENT     HISTORICAL            EQUIVALENT
                                                                                                           
Income (loss) per common share,
diluted
Year ended December 31, 2001.......                         $1.07                      $0.74       $2.32                  $0.92
Year ended December 31, 2000.......                          0.04                       1.20        3.45                   1.09

Cash dividend per common share
Year ended December 31, 2001.......                             -                          -           -                      -
Year ended December 31, 2000.......                             -                          -        0.54                   0.54

Book value per common share
Year ended December 31, 2001.......                          7.55                       8.40       26.95                   8.31
Year ended December 31, 2000.......                          6.45                      12.26       23.22                   7.47






                                                                  IOT COMMON STOCK
                                                           ----------------------------------
                                                                                  PROFORMA
                                                                                 COMBINED AND
                                                          HISTORICAL              EQUIVALENT
                                                                          
Income (loss) per common share,
diluted
Year ended December 31, 2001.......                        $(2.32)                     $0.70
Year ended December 31, 2000.......                          11.03                      0.98

Cash dividend per common share
Year ended December 31, 2001.......                              -                         -
Year ended December 31, 2000.......                           0.45                      0.45

Book value per common share
Year ended December 31, 2001.......                          24.48                      7.79
Year ended December 31, 2000.......                          26.42                      6.82




                                       24






                        COMPARATIVE PER SHARE INFORMATION
   (50% CASH AND 50% SERIES G AND H REDEEMABLE CONVERTIBLE PREFERRED STOCK TO
                        THE NONAFFILIATED STOCKHOLDERS)





                                              ARL COMMON STOCK            TCI COMMON STOCK              TCI COMMON STOCK
                                      ----------------------------   ---------------------------   ------------------------------
                                                        PROFORMA                     PROFORMA                         PROFORMA
                                                      COMBINED AND                  COMBINED AND                     COMBINED AND
                                      HISTORICAL       EQUIVALENT    HISTORICAL      EQUIVALENT    HISTORICAL         EQUIVALENT
                                                                                                    
Income (loss) per common share,
diluted
Year ended December 31, 2001.......     $1.07             $0.89        $2.32            $1.08       $(2.32)              $0.74
Year ended December 31, 2000.......      0.04              1.48         3.45             1.26        11.03                1.02

Cash dividend per common share
Year ended December 31, 2001.......         -                 -            -                -            -                   -
Year ended December 31, 2000.......         -                 -         0.54             0.54         0.45                0.45

Book value per common share
Year ended December 31, 2001.......      7.55              8.43        26.95             8.37        24.48                7.70
Year ended December 31, 2000.......      6.45              9.54        23.22             7.35        26.42                6.68





                                       25

                     MARKET PRICES AND DIVIDEND INFORMATION

           As of October 22, 2001, the last full trading day prior to the public
announcement of the mergers, the table below sets forth the closing prices per
share of the common stock of ARL, TCI and IOT:




                                                                                            Closing Price
                                                                                            -------------
                                                                                           
                     ARL Common Stock...................................................       $11.62
                     TCI Common Stock...................................................       $12.00
                     IOT Common Stock...................................................       $14.76



           The shares of ARL common stock and the shares of TCI common stock are
traded on the NYSE under the symbols "ARL" and "TCI," respectively. The shares
of IOT common stock are traded on the American Stock Exchange ("AMEX") under the
symbol "IOT." As of the record date, there were 5,415 record holders of ARL
common stock, 7,258 record holders of TCI common stock and 1,351 record holders
of IOT common stock. As of the record date, there were no restrictions on TCI's
or IOT's ability to pay dividends. The following table sets forth the quarterly
high and low reported sales prices of ARL, TCI and IOT common stock, as well as
the quarterly distributions, declared per share, as applicable, for the periods
indicated below.




                                          ARL                                     TCI
                                     COMMON STOCK(1)                          COMMON STOCK
                        --------------------------------------     ------------------------------------
                           HIGH        LOW       DIVIDENDS(2)         HIGH       LOW      DIVIDENDS(3)
                           ----        ---       ----------           ----       ---      ----------
                                                                           
1999:
-----
First Quarter              $---        $---            $---         $16 3/8     $11 5/8         $.15
Second Quarter             ---         ---              ---          12 1/2      11 3/8          .15
Third Quarter              ---         ---              ---          13 7/16     10 7/8          .15
Fourth Quarter             ---         ---              ---          13 1/8      11 1/4          .15
2000:
-----
First Quarter              ---         ---              ---          13          10 13/16        .18
Second Quarter             ---         ---              ---          13 1/2       2 7/8          .18
Third Quarter             17           7                ---          16          11 1/2          .18
Fourth Quarter            17 1/4      13 7 16           ---          16           8 7/8          ---
2001:
-----
First Quarter             14 1/2      12 1/2            ---          12 9/16      8 3/16         ---
Second Quarter            12 10/16     9 3/4            ---          16           8 15/16        ---
Third Quarter             12          10 1/8            ---          14 3/4      11 11/16        ---
Fourth Quarter            13           9 3/4            ---          16 3/8      11 5/8          ---
2002:
First Quarter              9.93        6.48             ---          16.82       15.70           ---





                                            IOT
                                        COMMON STOCK
                            --------------------------------------
                               HIGH       LOW          DIVIDENDS(3)
                               ----       ---          ----------
                                              
1999:
-----
First Quarter                   $8        $6 3/8           $.15
Second Quarter                7 3/4        5 5/8            .15
Third Quarter                 7 1/8        5 1/8            .15
Fourth Quarter                5 7/8        4 3/4            .15
2000:
-----
First Quarter                 7 1/2        5 1/4            .15
Second Quarter                7 1/2        2                .15
Third Quarter                10 1/4        6 3/4            .15
Fourth Quarter                9 1/4        8                ---
2001:
-----
First Quarter                 9 1/8        7 5/8            ---
Second Quarter                8 3/16       6 15/16          ---
Third Quarter                13 1/2        9 1/16           ---
Fourth Quarter               23 1/2       12 3/4            ---
2002:
First Quarter                18.30        17.30             ---




           Although ARL will apply to have the Series G and Series H redeemable
convertible preferred stock, and the shares of ARL common stock issuable upon
conversion of the Series G and Series H redeemable convertible preferred stock,
listed on the NYSE, there is no assurance the NYSE will list the shares. The
listing of the preferred and common shares for trading on the NYSE is not a
condition to the respective obligations of TCI and IOT to consummate the
mergers.


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

(1) Trading of ARL common stock on the NYSE commenced on August 3, 2000.

(2) It is the policy of ARL to determine annually whether to pay dividends. In
accordance with that policy, ARL did not pay any dividends in 2000 or 2001.

(3) During the fourth quarter of 2000, IOT and TCI discontinued the payment of
dividends.

                                       26



                           FORWARD LOOKING STATEMENTS

           The SEC encourages companies to disclose forward-looking information
so that investors can better understand a company's future prospects and make
informed investment decisions. These statements may be made directly in this
joint proxy statement and prospectus referring to ARL, TCI or IOT, and they may
also be made a part of this joint proxy statement and prospectus by reference to
other documents filed by us with the SEC, which is known as "incorporation by
reference."

           Words such as "anticipate," "estimate," "expect," "project,"
"intend," "plan," "believe," "target," "objective," "strategy," "goal" and words
and terms of similar substance used in connection with any discussion of future
operating or financial performance, or the acquisition by ARL of TCI and/or IOT,
identify forward-looking statements. Forward-looking statements are based on
management's current views about future events and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. The following risks
could cause or contribute to actual results differing materially from those
described in the forward-looking statements:

           -          inability to obtain, or to meet conditions imposed for,
                      regulatory approval of pending acquisitions and
                      divestitures

           -          availability, terms and development of capital

           -          business abilities and judgment of personnel

           -          changes in, or the failure to comply with, governmental
                      regulations, particularly those affecting the environment
                      and water quality

           -          competition

           -          success of operating initiatives, advertising and
                      promotional efforts

           -          existence of adverse publicity or litigation

           -          changes in business strategy or plans

           -          quality of management

           -          general economic, business and financial market conditions

           -          the ability to satisfy the conditions to closing set forth
                      in the merger agreements

           -          other factors described in our filings with the SEC


           We caution you not to place undue reliance on our forward-looking
statements, which speak only as of the date of this joint proxy statement and
prospectus or the date of the documents incorporated by reference in this joint
proxy statement and prospectus. Except as required by law, we are under no
obligation, and expressly disclaim any obligation, to update or alter any
forward-looking statements, whether as a result of new information, future
events or otherwise.

           For additional information about factors that could cause actual
results to differ materially from those described in the forward-looking
statements, please see the quarterly reports on Form 10-Q and the annual reports
on Form 10-K as well as current reports on Form 8-K that ARL, TCI and IOT have
filed with the SEC as described under "Where You Can Find More Information."

           All forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section.




                                       27




                                  RISK FACTORS

           You should carefully consider the risks described below and other
information in this joint proxy statement and prospectus before you decide how
to vote on the mergers of TCI and IOT with ARL. If the mergers are approved,
stockholders of TCI and IOT should also consider these risk factors again before
they decide to exercise their right to affirmatively elect to receive preferred
stock of ARL instead of cash for their shares of the common stock of TCI or IOT.


           The plan to merge ARL, TCI and IOT involves risk. Some of those risks
relate to the proposed transactions themselves. Other risks relate to the
preferred stock of ARL being offered or to the businesses of ARL, TCI and IOT
themselves. The risk factors described below are the material risk factors faced
by ARL, TCI and IOT and their stockholders.


                          RISKS RELATED TO THE MERGERS

           SUBSTANTIAL AMOUNTS OF CASH ARE REQUIRED FOR THE MERGERS. A
substantial amount of cash is necessary to fund the cash payments to the
stockholders of TCI and IOT required in the mergers and to pay expenses
associated with the mergers. Also, the combined business of ARL, TCI and IOT
have substantial indebtedness due in the next twelve months that must be repaid
or refinanced.

           -          Nonaffiliated TCI and IOT stockholders will be entitled to
                      receive up to an aggregate of $60,882,020 in cash for
                      their shares of the common stock of TCI and IOT if none
                      affirmatively elect to receive the preferred stock of ARL

           -          ARL, TCI and IOT expect to incur approximately $27,149,311
                      in costs in connection with the mergers, including
                      prepayment of indebtedness and fees and commissions
                      associated with property sales necessary to raise cash to
                      fund payments to the stockholders of TCI and IOT


           -          as of March 31, 2002, ARL, TCI and IOT have approximately
                      $385,159,557 in loans coming due in the next twelve months
                      that must be repaid or refinanced

Approximately $94,235,586 must be raised in order to fund all of the obligations
related to the mergers, and an additional $385,659,557 in the next twelve months
to repay or refinance maturing indebtedness. ARL does not currently have this
much cash presently available. Although ARL, TCI and IOT expect to be able to
raise the cash necessary to fund the transactions required in connection with
the mergers and their continuing combined business by selling real estate and
obtaining new loans, there can be no assurance that sales will be made or that
loans will be obtained, or that they will be made or obtained on terms favorable
to the combined business of ARL, TCI and IOT. The ARL board of directors has
determined that the TCI and IOT mergers would not be consummated unless, in each
case, sufficient cash was available to ARL, either from its own resources or
from TCI or IOT immediately after the mergers, to pay the cash merger
consideration due as a result of the mergers. If ARL, TCI and IOT are not able
to raise the cash anticipated through the sale of real estate and obtaining new
loans, the mergers may be delayed or abandoned and the ongoing combined business
of ARL, TCI and IOT may be adversely affected.




                                       28


           SUBSTANTIAL PROPERTY SALES OR LOANS ARE NECESSARY. ARL, TCI and IOT
expect to raise most of the cash necessary to fund all of the obligations
related to the mergers from the sale of real estate or loans. Because ARL, TCI
and IOT may need to sell assets before the mergers, they may not receive the
best possible prices for their properties and may have to incur higher expenses
than would otherwise be incurred. Real estate assets are not readily saleable.
The consummation of the sales anticipated by ARL, TCI and IOT will be subject to
a number of contingencies outside of their control, including:


           -          the buyers' ability to obtain any necessary financing

           -          the satisfactory completion of any due diligence review
                      made by the buyers and the buyers' lenders

           -          satisfactory completion of any environmental review and
                      other review of the subject properties' legal compliance


           Similarly, the consummation of any potential loans to ARL, TCI or IOT
will be subject to contingencies outside of their control.

           LENDER CONSENT MAY BE NECESSARY. ARL, TCI and IOT have each borrowed
substantial amounts of money to buy and develop real estate. Some of ARL, TCI or
IOT's loan agreements may contain provisions limiting their ability to do the
mergers or requiring advance consent for the mergers by lenders. In some cases,
ARL, TCI and IOT may disagree with their lenders about the interpretation of
these provisions. To the extent that ARL, TCI and IOT are unable to get any
necessary lender consents, or to the extent that they have disagreements with
their lenders regarding the mergers, the businesses of ARL, TCI and IOT may be
adversely affected and the mergers may be delayed or abandoned

           THE MERGERS ARE SEPARATE TRANSACTIONS. TCI and IOT are separate
companies. TCI and IOT will each enter into a separate merger agreement with ARL
and their stockholders will receive different compensation as a result of the
merger. It is possible that the stockholders of TCI or IOT will vote to approve
a merger with ARL and that the stockholders of the other will not. If one of
these companies does not approve the merger, ARL may be adversely affected and
may not have sufficient cash to consummate the other merger. If the stockholders
of either TCI or IOT do not approve the merger, but the stockholders of the
other do, the merger of ARL and the other company may be delayed or abandoned.


           A TENDER OFFER MAY BE MADE IN ORDER TO AVOID A PENALTY. In connection
with the Settlement Agreement, ARL agreed to propose the mergers to the
stockholders of TCI and IOT. It was also agreed that if the stockholders of TCI
or IOT did not approve the mergers, ARL can make a tender offer for the shares
of the common stock of the company or companies that did not approve the merger.
Making a tender offer for the shares of TCI or IOT would be expensive for ARL,
and there can be no assurance that it would be able to arrange the necessary
financing to make and consummate such a transaction. If ARL does not make the
tender offer required by the Settlement Agreement it could be liable for damages
of approximately $14,265,400 (or $5.00 for each share of TCI stock it does not
acquire) and/or $2,882,400 (or $5.00 for each share of IOT stock it does not
acquire.)




                                       29


                    RISKS RELATED TO THE ARL PREFERRED STOCK


           If the mergers are consummated, stockholders of TCI and IOT will
receive cash for their shares of TCI and IOT common stock unless they elect to
receive shares of ARL preferred stock instead. The opportunity to receive shares
of ARL preferred stock instead of cash will be given to stockholders of TCI and
IOT after the mergers are completed, if they are completed. Electing to receive
shares of ARL preferred stock is a decision to invest in the stock of ARL and is
subject to the risks of investing in the combined business of ARL, TCI and IOT.
Investing in the preferred stock of ARL is also subject to risks related to the
terms and nature of the Series G and Series H redeemable convertible preferred
stock. TCI and IOT stockholders should carefully review the risks described
below before electing to take ARL preferred stock instead of cash.


           VALUE OF THE ARL PREFERRED STOCK IS UNCERTAIN. There can be no
assurance regarding the value of the ARL preferred stock. Along with the risks
associated with owning securities generally, stockholders of TCI and IOT should
consider the following specific risks associated with the ARL preferred stock:


           -          although ARL will apply to list the preferred stock to be
                      offered to TCI and IOT stockholders on the NYSE, the
                      exchange may not accept them for listing. Even if the
                      shares of ARL preferred stock are listed on an exchange,
                      an active trading market for them may not develop

           -          there can be no assurance that an active trading market
                      for the ARL preferred stock will develop, even if those
                      shares are listed on the NYSE. As a result, holders of the
                      ARL preferred stock may not be able to sell those shares
                      for cash when they wish to or may be limited in the number
                      of shares that they are able to sell at any one time

           -          stockholders of TCI and IOT who affirmatively elect to
                      receive ARL preferred stock instead of cash for their
                      shares of TCI or IOT will be investing in the combined
                      business of ARL. If there is a trading market for the ARL
                      preferred stock after the mergers, the value of those
                      shares will rise and fall based upon many factors,
                      including the results of ARL's business operations and its
                      financial condition. There can be no assurance that the
                      ARL preferred stock will rise in value

           -          the preferred stock to be offered to stockholders of TCI
                      and IOT will have a annual dividend which will be payable
                      quarterly. Although the preferred stock has a dividend,
                      ARL is only obligated to pay the dividend when it is
                      declared and when it has sufficient funds to do so. Unpaid
                      dividends will accumulate until paid, but will not bear
                      interest. Because ARL will need to pay substantial amounts
                      to consummate the mergers and to repay or refinance
                      indebtedness in the next twelve months, there can be no
                      assurance that ARL will have sufficient cash to pay the
                      dividend contemplated on the shares of ARL preferred stock
                      to be offered to stockholders of TCI and IOT

           -          even if it is able to fund its near term cash needs, ARL's
                      ability to declare and pay dividends on its preferred
                      stock will depend upon the results of its business
                      operations, the terms of loan agreements it may have and
                      the amount of cash it has available from time to time.
                      Dividends on ARL's preferred stock will only be payable
                      when its board of directors determines it has sufficient
                      cash available and that it is otherwise appropriate to do
                      so. Unpaid dividends on the ARL preferred stock will not
                      bear interest



                                       30





           -          ARL has other shares of preferred stock outstanding that
                      are entitled to dividends. ARL can only pay dividends on
                      its preferred stock if it pays dividends on all of the
                      shares of preferred stock entitled to dividends at the
                      same time. As of March 31, 2002, ARL has 2,778,878.75
                      shares of its Series A, E and F preferred stock
                      outstanding. Those shares require the payment of a total
                      of approximately $613,727 in dividends quarterly. If all
                      of the stockholders of TCI and IOT elect to receive
                      preferred stock instead of cash, ARL will add
                      approximately 7,484,006 shares of preferred stock
                      outstanding with a dividend requirement of approximately
                      $1,736,398 quarterly

           -          stockholders of TCI and IOT who affirmatively elect to
                      receive shares of ARL preferred stock instead of cash will
                      each receive one share of preferred stock for each share
                      of TCI or IOT common stock that they hold. No adjustment
                      in this exchange ratio will be made to reflect changes in
                      the market prices of the shares of ARL, TCI or IOT. Shares
                      of the ARL preferred stock to be issued to TCI and IOT
                      stockholders who elect to receive them instead of cash
                      will be convertible into shares of ARL common stock in the
                      future. The number of shares of ARL common stock you will
                      receive if you convert a share of ARL preferred stock has
                      already been set and will not be adjusted if the market
                      value of ARL's common stock declines in the future

           THE ARL PREFERRED STOCK HAS LIMITED VOTING RIGHTS. The ARL shares of
Series G redeemable convertible preferred stock and Series H redeemable
convertible preferred stock have very limited voting rights. The holders of
Series G redeemable convertible preferred stock and Series H redeemable
convertible preferred stock are not voting for the election of directors or on
any matter except: (i) as otherwise provided by law, (ii) with respect to an
amendment to ARL's articles of incorporation or bylaws that would materially
alter or change the existing terms of such series of preferred stock, and (iii)
at any time or times for the election of two directors when all or any portion
of the dividends on such series of preferred stock for any six quarterly
dividends, whether or not consecutive, shall be in arrears and unpaid. In the
latter event, the number of directors constituting the board of directors of ARL
shall be increased by two and the holders of such Series G redeemable
convertible preferred stock or Series H redeemable convertible preferred stock,
as applicable, voting separately as a class, shall be entitled to elect two
directors to fill the newly created directorships with each holder being
entitled to one vote in the election for each share of such preferred stock held
by such stockholder.

           AFFILIATES OF ARL MAY HOLD A MAJORITY OF THE ARL PREFERRED STOCK.
Affiliates of ARL own a substantial number of shares of the common stock of TCI
and IOT. If the mergers occur, shares of TCI and IOT held by ARL's affiliates
will be converted into preferred stock of ARL. Thus, a majority of the issued
and outstanding shares of the ARL preferred stock to be issued as a result of
the mergers may by held by affiliates of ARL. Affiliates of ARL may be able to
control any vote of holders of the Series G and H redeemable convertible
preferred stock, including any vote to amend the terms of the Series G and H
redeemable convertible preferred stock and the rights of the holders of the
Series G and H redeemable convertible preferred stock.




                                       31


                     RISKS RELATED TO THE COMBINED BUSINESS

           The combined businesses of ARL, TCI and IOT will be subject to risks.
If the mergers are consummated, stockholders of TCI and IOT will receive cash
for their shares of TCI and IOT common stock unless they affirmatively elect to
receive shares of ARL preferred stock instead. The opportunity to receive shares
of ARL preferred stock instead of cash will be given to stockholders of TCI and
IOT after the mergers are completed, if they are completed. Electing to receive
shares of ARL preferred stock is a decision to invest in the stock of ARL and is
subject to the risks of investing in the combined businesses of ARL, TCI and
IOT. TCI and IOT stockholders should carefully review the risks described below
before affirmatively electing to take ARL preferred stock instead of cash.

           ARL WILL NEED TO SELL PROPERTY AND BORROW MONEY TO MEET ITS LIQUIDITY
NEEDS. The combined business of ARL, TCI and IOT will need to sell properties or
borrow additional amounts to repay maturing debt and to fund their ongoing
business operations. There can be no assurance that the combined business will
be able to make the required property sales for favorable prices or at all, or
that it will be able to borrow additional funds on favorable terms or at all. In
connection with considering an investment in the ARL preferred stock,
stockholders of TCI and IOT should consider the following risks related to the
indebtedness and liquidity needs of the combined business of ARL, TCI and IOT:


           -          in addition to the substantial amounts of cash that will
                      be needed to fund the cash payments to the nonaffiliated
                      stockholders, the combined business of ARL, TCI and IOT
                      will need to raise approximately $385,659,557 to repay or
                      refinance debts maturing in the next twelve months. The
                      combined business of ARL, TCI and IOT will have
                      approximately $385,659,557 of indebtedness coming due in
                      the next twelve months out of a total debt of
                      $1,138,673,000. After consummating the mergers and paying
                      related expenses, ARL on a pro forma basis expects to have
                      approximately $11,121,000 of cash and negotiable
                      securities on hand to meet its obligations

           -          ARL, TCI and IOT have significant debt service obligations
                      when compared to their available cash flow. As of December
                      31, 2001, after giving effect to the mergers and related
                      transactions on a pro forma basis, the combination of ARL,
                      TCI and IOT would have had total debt of approximately
                      $1,138,673,000 and total stockholders equity of
                      approximately $117,109,000, if no stockholders of TCI and
                      IOT elect to receive ARL preferred stock instead of cash.
                      For the twelve months ended December 31, 2001, after
                      giving effect to the mergers and assuming that no TCI or
                      IOT stockholder elects to receive ARL preferred stock
                      instead of cash, the interest expense for the combined
                      business of ARL, TCI and IOT would have been $130,877,000
                      as compared to net available cash flow of approximately
                      $112,358,008.

           -          the ongoing business operations of the combined business
                      of ARL, TCI and IOT will require substantial amounts of
                      cash from property sales, new borrowings or sales of
                      securities. A large portion of the assets of ARL, TCI and
                      IOT consist of undeveloped real estate that produces
                      little or no income. In addition, ARL, TCI and IOT have
                      made substantial commitments in connection with the
                      development of property. For the period ended December 31,
                      2001, the combined business operations of ARL, TCI and
                      IOT, on a pro forma basis, would have had revenues of
                      approximately $356,772,000 and expenses, exclusive of debt
                      service and non-cash expenses such as




                                       32




                      depreciation and amortization of approximately
                      $295,517,000. Based upon the anticipated sales of
                      properties set forth under "Special Factors -- Financing
                      of the Business Combination" management anticipates that
                      the combined business of ARL, TCI and IOT will generate an
                      additional $30,425,987 during the next twelve months after
                      paying the costs and expenses related to the mergers
                      assuming nonaffiliated stockholders take cash for the
                      shares of TCI and IOT common stock.


           ARL WILL HAVE SUBSTANTIAL DEBT. ARL, TCI and IOT each have
substantial indebtedness and the combined business of ARL, TCI and IOT will be
highly leveraged. This high level of indebtedness will subject the combined
business to risk. Among those risks are the following:

           -          the combined businesses of ARL, TCI and IOT may be limited
                      in their ability to grow by a lack of cash or the
                      availability of loans for new acquisitions

           -          the combined business of ARL, TCI and IOT may be forced to
                      sell properties on disadvantageous terms if it is unable
                      to refinance maturing debt obligations


           -          the interest expense of the combined business of ARL, TCI
                      and IOT could increase if general interest rates increase,
                      because 30.7% of their loans are floating rate loans and
                      another 58.7% come due and must be refinanced within the
                      next three years


           -          the substantial leverage of the combined business of ARL,
                      TCI and IOT will increase their vulnerability to economic
                      downturns and could place them at a competitive
                      disadvantage to competitors having lower levels of debt

           -          high levels of debt could limit the ability of the
                      combined businesses of ARL, TCI and IOT to react to
                      changing conditions in the real estate industry or the
                      economy generally

           -          failure by the combined business to comply with financial
                      and other restrictive covenants in loan agreements, or
                      failure to make debt service payments could result in
                      events of default under those and other loan agreements
                      that, if not cured or waived, could harm the business or
                      could result in the bankruptcy of one or more subsidiaries
                      of ARL, TCI or IOT or of the combined business as a whole


           CONTROL BY BCM AND RELATED CONFLICTS OF INTEREST. ARL, TCI and IOT
are each managed and controlled by BCM. The combined business of ARL, TCI and
IOT will continue to be managed by BCM as well. ARL, TCI and IOT have no
employees. Instead, pursuant to a written advisory agreement, BCM provides
services for specific compensation. This arrangement will continue after the
mergers and ARL does not expect to employ any full-time personnel. ARL expects
to continue to rely upon BCM and the facilities, personnel and resources of BCM
to conduct ARL's operations, including the sale of ARL property and the
borrowing required to meet ARL's liquidity needs. Also, BCM and its affiliates
own or control more than a majority of the voting securities of each of ARL, TCI
and IOT, and will own more than a majority of the voting securities of ARL after
the merger. It is estimated that pursuant to its advisory agreements with ARL,
TCI and IOT, BCM will receive $3,038,815 in incentive fees and finance fees
earned from gains resulting from property sales and when finance or refinance
transactions are consummated with respect to the potential sale of properties to
finance the expenses of the business combination. The interest of BCM may be
different from those of other stockholders of ARL, TCI and IOT, and may be
different from those of other holders of the ARL preferred stock. BCM's position
may have a number of effects on the combined business of




                                       33



ARL, TCI and IOT which may affect the value of the ARL common and preferred
stock, including:


           -          BCM and its affiliates can control the election of all
                      members of the board of directors of ARL at the present
                      time, and will continue to have that control after the
                      mergers


           -          BCM and its affiliates are able, and will be able after
                      the mergers, to prevent any transaction that would result
                      in a change of control of ARL

           -          dealings between ARL and BCM after the mergers may not be
                      at arms length

           -          BCM as the contractual advisor and BCM's officers and
                      directors are entitled to indemnification from ARL from
                      any action or claims with respect to liability for debts
                      or obligations of ARL and TCI and IOT

           The executive officers of each of ARL, TCI and IOT may have conflicts
of interest because the executive officers of BCM and ARL are also the executive
officers of TCI and IOT. These potential conflicts may arise because:

           -          BCM's personnel and other resources must be allocated
                      among ARL, TCI and IOT

           -          BCM will be subject to conflicts between its obligations
                      as an advisor to each of TCI and IOT, on the one hand, and
                      its interests as an affiliate and advisor of ARL on the
                      other

           -          decisions may have to be made with respect to the
                      extension, modification, or termination of the advisory
                      agreements with each of ARL, TCI and IOT


           DEPENDENCE ON REAL ESTATE INVESTMENTS. ARL, TCI and IOT each invest
primarily in real estate. Real estate investments are subject to varying degrees
of risk and are relatively illiquid. The performance of real estate assets and
ARL's resulting ability to pay dividends to its stockholders may be adversely
affected by a number of factors, including:

           -          the general economic climate and local real estate
                      conditions (such as oversupply of or reduced demand for
                      space and changes in market rental rates)

           -          the perceptions of prospective tenants of the safety,
                      convenience and attractiveness of the properties

           -          the ability of the owner of the properties to provide
                      adequate management, maintenance and insurance

           -          the ability to collect on a timely basis all rent from
                      tenants and interest from borrowers

           -          the expense of periodically renovating, repairing and
                      reletting spaces

           -          increasing operating costs (including real estate taxes
                      and utilities) which may not be passed through to tenants.
                      Certain significant expenditures associated with
                      investments in real estate (such as mortgage payments,
                      real estate taxes, insurance and maintenance costs) are
                      generally not reduced when circumstances cause a reduction
                      in rental revenues from the investment

           -          governmental regulations, local rent control or
                      stabilization ordinances


                                       34


           ENVIRONMENTAL REGULATIONS. Under various federal, state and local
environmental laws, ordinances and regulations, an owner of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances on the property. These laws often impose environmental liability
without regard to whether the owner knew of, or was responsible for, the
presence of hazardous or toxic substances. The presence of hazardous substances,
or the failure to remediate them properly, may adversely affect the owner's
ability to sell or rent the property or to borrow money using the property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
these substances at a disposal or treatment facility, whether or not the
facility is owned or operated by this person. Certain laws impose liability for
release of asbestos-containing materials into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with asbestos-containing materials. In connection with the ownership
(directly or indirectly), operation, management and development of real
properties, the combined business of ARL, TCI and IOT may be considered an owner
or operator of these properties or as having arranged for the disposal or
treatment of hazardous or toxic substances and, therefore, potentially liable
for removal or remediation costs, as well as for other related costs, including
governmental fines and injuries to persons and property.

           COMPETITION. Developing and managing real estate assets is a highly
competitive business. The combined business of ARL, TCI and IOT will compete
with many public and private real estate investment entities, including
financial institutions (such as mortgage banks, pension funds and real estate
investment trusts), other institutional investors and individuals for property
to purchase. In addition, developed real estate owned by the combined business
of ARL, TCI and IOT will compete for tenants and customers with other developed
real estate owned by third parties. Many of the competitors in the business of
purchasing, developing and managing real estate are considerably larger, have
greater financial resources and may have management personnel with more
experience than the officers of the combined business of ARL, TCI and IOT will
have.

           GEOGRAPHIC CONCENTRATION. A substantial portion of assets of the
combined business of ARL, TCI and IOT will consist of real estate and mortgage
notes receivable secured by income producing real estate such as apartment
complexes, office buildings, shopping centers and partnership interests located
in the Midwest, Northeast and Southwest regions of the United States. Specific
geographic regions of the United States from time to time will experience weaker
regional economic conditions and housing markets, and, consequently, will
experience higher rates of loss and delinquency on mortgage loans. Any
concentration of assets in a region may present risks in addition to those
generally present for similar real estate assets or mortgage-backed or
asset-backed securities without this concentration.

           REAL ESTATE OPERATING RISKS. The real estate assets of the combined
business of ARL, TCI and IOT will be subject to industry-specific operating
risks, any or all of which may adversely affect the results of the operations of
the combined business. All properties are subject to increases in operating
expenses, including: cleaning, electricity, heating, ventilation and
air-conditioning, elevator repair and maintenance, insurance and administrative
costs, and other general costs associated with security, landscaping, repairs,
regulatory compliance and maintenance. While commercial tenants are often
obligated to pay a portion of these escalating costs, there can be no assurance
that they will agree to pay these costs in the absence of a



                                       35



contractual duty or that their payments will fully cover these costs. If
operating expenses increase, the local rental market, governmental regulations
or the lease may limit the extent to which rents may be increased to meet
expenses without decreasing occupancy rates. To the extent rents cannot be
increased or costs controlled, the cash flow and financial condition of the
combined business of ARL, TCI and IOT will be adversely affected. Industry
specific risks related to the asset of the combined business of ARL, TCI and IOT
include the following:


           -          APARTMENT PROPERTIES. Market values of apartments can be
                      affected significantly by the supply and demand in the
                      geographic market for the properties and, therefore, may
                      be subject to adverse economic conditions. Market values
                      of apartments may vary as a result of economic events or
                      governmental regulations outside the control of the
                      borrower or lender. Governmental regulations such as rent
                      control laws may impact the future cash flow of the
                      apartments.

           -          UNDEVELOPED PROPERTY. Undeveloped real estate (raw land)
                      generates little or no income. To the extent that
                      undeveloped real estate is purchased with the proceeds of
                      debt, as a result, the costs of holding it will greatly
                      exceed any income it may generate. In addition, the market
                      value of undeveloped real estate tends to fluctuate
                      greatly, depending upon many factors, including local and
                      national economic conditions, interest rates, local
                      development conditions, local land use regulations, the
                      nature and quality of surrounding developed real estate.

           -          HOTEL PROPERTIES. Like any income producing property, the
                      income generated by a hotel property is subject to local,
                      regional and national economic conditions and competition.
                      However, because the income is primarily generated by
                      short-term occupancies, the level of income responds more
                      quickly to market conditions. Sensitivity to competition
                      may require more frequent improvements and renovations
                      than other properties. To the extent a hotel is affiliated
                      with a regional, national or international chain, changes
                      in the public perception of the affiliated chain may have
                      an impact on the income generated by the hotel. In
                      addition, since the hotel industry is generally seasonal,
                      income generated by a hotel property will fluctuate in
                      accordance with the particular demand characteristics of
                      the market in which it is located.

           -          OFFICE AND RETAIL PROPERTIES. The market value of office
                      buildings and shopping centers is affected by the risk
                      that a lease may not be renewed, that the space may not be
                      released and that the terms of renewal or release
                      (including the cost of required renovations or concessions
                      to tenants) may be less favorable than current lease
                      terms.

           -          INVESTMENTS IN NON-RECOURSE MORTGAGE LOANS. Mortgage loans
                      may or may not be recourse obligations of the borrower and
                      generally will not be insured or guaranteed by
                      governmental agencies or otherwise. In the event of a
                      default under this type of a loan, ARL may have to
                      foreclose the mortgage or protect its investment by
                      acquiring title to the property. Taking title to a
                      property may require investing in substantial improvements
                      or repairs in order to maximize the property's investment
                      potential. Borrowers may contest enforcement of
                      foreclosure or other remedies, seek bankruptcy protection
                      against foreclosure and/or bring claims for lender
                      liability in response to actions to enforce mortgage
                      obligations. Because of relatively high "loan-to-value"
                      ratios and declines in the value of the mortgaged
                      property, the





                                       36




                      amount received in foreclosure may be less than the amount
                      outstanding under the mortgage loan.


           -          PARTICIPATION IN LOANS MADE BY OTHERS. The combined
                      business of ARL, TCI and IOT may participate in loans
                      originated by other real estate lenders or investors such
                      as financial institutions. A participant in a loan or
                      investment originated by another entity may not have the
                      sole authority, or any authority, to declare a default
                      under the mortgage or to control the management or
                      disposition of the financed property or any related
                      foreclosure proceedings.

           -          SUBORDINATED INTERESTS. The combined business of ARL, TCI
                      and IOT may make loans that are subordinated to other
                      obligations of the debtor. Any investments in subordinated
                      mortgage loans involve additional risks, including the
                      lack of control over collateral and related foreclosure
                      proceedings.

           -          INVESTMENTS IN PARTNERSHIPS OR JOINT VENTURES. The
                      combined business of ARL, TCI and IOT will have
                      investments in one or more partnerships, joint ventures or
                      similar entities where responsibility for the conduct of
                      the business of the investment is shared with a third
                      party. As a result, the success of such an investment will
                      be subject to risks that the third party may become
                      bankrupt or fail to perform its obligations, have
                      different economic goals than the combined business, take
                      actions which are contrary to the interests of the
                      combined business or be unable to agree upon the proper
                      conduct of the investment's business.

           -          RISK OF TERRORISM. Office buildings, hotels and other
                      properties are subject to the risk that terrorists or
                      other persons may damage or destroy them, or that their
                      value may be damaged or destroyed as a result of damage to
                      or destruction of neighboring properties. In addition, to
                      the extent that added security measures made necessary by
                      changing political conditions increases the cost of
                      operating real property investments, operating income from
                      and value of such properties may be reduced.

           -          AMERICANS WITH DISABILITIES ACT. Under the Americans with
                      Disabilities Act ("ADA"), places of public accommodation
                      and commercial facilities are required to meet
                      requirements related to access and use by disabled
                      persons. Compliance with ADA requirements could require
                      both structural and non-structural changes to the
                      properties in which the combined business of ARL, TCI and
                      IOT invests. Noncompliance could result in fines imposed
                      by the federal government or an award of damages to
                      private litigants. The combined business of ARL, TCI and
                      IOT may be required to incur additional and unexpected
                      costs to ensure compliance with the ADA in the future. A
                      number of additional federal, state and local laws exist
                      which impose additional burdens or restrictions on owners
                      with respect to access by disabled persons. Those laws may
                      require modifications or restrict renovations to
                      properties owned by the combined business of ARL, TCI and
                      IOT. The ultimate amount of the cost of compliance with
                      the ADA or other related laws is not currently
                      ascertainable. Any substantial unexpected costs of
                      compliance with the ADA and similar statutes could
                      adversely affect the results of operations of the combined
                      business of ARL, TCI and IOT.




                                       37




                              THE SPECIAL MEETINGS

INTRODUCTION

           This joint proxy statement and prospectus is being furnished in
connection with the solicitation of proxies by the ARL, TCI and IOT boards of
directors for use in connection with the special meeting to be held by each
entity and any adjournments or postponements of the meetings.

ARL SPECIAL MEETING


           The special meeting of holders of ARL common stock will be held on
June 26, 2002 at 2:00 p.m., Dallas time at 1800 Valley View Lane, Suite 300,
Dallas, Texas. The purpose of the ARL meeting is to consider and vote upon the
proposal to approve the TCI merger and the IOT merger and the corresponding
agreements and plans of merger.


TCI SPECIAL MEETING


           The special meeting of holders of TCI common stock will be held on
June 26, 2002 at 3:00 p.m., Dallas time at 1800 Valley View Lane, Suite 300,
Dallas, Texas. The purpose of the TCI meeting is to consider and vote upon the
proposal to approve the TCI merger and the TCI agreement and plan of merger.


IOT SPECIAL MEETING


           The special meeting of holders of IOT common stock will be held on
June 26, 2002 at 4:00 p.m., Dallas time at 1800 Valley View Lane, Suite 300,
Dallas, Texas. The purpose of the IOT meeting is to consider and vote upon the
proposal to approve the IOT merger and the IOT agreement and plan of merger.


VOTING INSTRUCTIONS

           VOTING BY WRITTEN PROXY CARD. To vote by written proxy card, sign and
date each proxy card you receive and return it in the prepaid envelope. If a
stockholder is a corporation or partnership, the accompanying proxy card must be
signed in the full corporate or partnership name by a duly authorized person. If
the proxy card is signed pursuant to a power of attorney or by an executor,
administrator, trustee or guardian, the signer's full title must be given and a
certificate or other evidence of appointment must be furnished. If shares are
owned jointly, each joint owner must sign the proxy card.


           VOTING BY TELEPHONE OR THE INTERNET. Instructions for a stockholder
of record to vote by telephone or the Internet are set forth on the enclosed
proxy card. To vote by telephone, call toll-free 1-800-PROXIES and follow the
instructions using the control number provided to you on the proxy card. To vote
by Internet, access the web page at www.voteproxy.com and follow the
instructions using the control number provided to you on the proxy card. The
telephone and Internet voting procedures are designed to authenticate votes cast
by use of a personal identification number. The procedures, which comply with
Nevada law, allow stockholders to appoint a proxy to vote their shares and to
confirm that their instructions have been properly




                                       38




recorded. ARL stockholders may vote separately on each of the two merger
proposals when voting by proxy or Internet.

           Any ARL, TCI or IOT stockholder signing and delivering a proxy has
the power to revoke the proxy at any time prior to its use by:

           a.         filing with the corporate secretary of ARL, TCI or IOT, as
applicable, a written revocation of the proxy or a duly executed proxy;

           b.         submitting another proper proxy bearing a later date than
that of the proxy first given by:

                      -          signing and returning a proxy card to either
                                 the corporate secretary of ARL, TCI or IOT, as
                                 applicable;

                      -          following the telephone voting instructions to
                                 change your vote by calling toll-free
                                 1-800-PROXIES and using the control number
                                 provided on the proxy card;

                      -          following the Internet voting instructions to
                                 change your vote by accessing the web page at
                                 www.voteproxy.com and using the control number
                                 provided on the proxy card; or

           c.         attending and voting in person at the meeting.

           Shares represented by a properly executed proxy, and all properly
completed proxies voted by telephone or the Internet, which are delivered
pursuant to this solicitation (and not later revoked) will be voted in
accordance with the instructions indicated on the proxy, and at the discretion
of the proxy holders on all other matters properly addressed at the meeting. If
an ARL, TCI or IOT stockholder executes a proxy without instructions, the votes
represented by the proxy will be submitted in favor of the proposals.

           Your broker may vote shares on the merger only if you instruct your
broker how to vote. A "broker non-vote" occurs when a broker or nominee holding
shares for a beneficial owner does not vote because the broker or nominee lacks
the authority to vote on a particular proposal and has not received any voting
instructions from the beneficial owner. Broker non-votes will be treated as
shares that are present for purposes of determining the presence of a quorum;
however, for purposes of determining the outcome of any matter in which brokers
or nominees have no discretionary power to vote, broker non-votes will be
treated as not present and not entitled to vote with respect to that matter. You
should follow the directions provided by your broker regarding how to instruct
your broker to vote your shares. If you do not tell your broker how to vote,
your shares will not be voted on the merger. If you hold your shares in a
brokerage account, you cannot vote in person at your meeting. If you hold your
shares in a brokerage account and you have instructed your broker to vote, you
must follow your broker's instructions regarding how to change your vote.


           If the stockholders have any questions regarding the business
combination, they should contact Investor Relations at 1-800-400-6407.



                                       39


RECORD DATE; VOTES REQUIRED


           ARL. Only holders of shares of ARL common stock of record at the
close of business on the record date, May 10, 2002, will be entitled to notice
of and to vote at the ARL special meeting. The mergers and merger agreements
will be approved by ARL if the mergers receive the affirmative vote, in person
or by proxy, of a majority of the votes cast at the ARL meeting. The holders of
a majority of the outstanding stock entitled to vote, present in person or by
proxy, will constitute a quorum for purposes of the ARL meeting. As of the
record date for the ARL special meeting, there were 11,375,127 shares of ARL
common stock outstanding. BCM, TCI and the members of the board of directors and
executive officers of ARL and its affiliates beneficially owned, as of the
record date, 7,026,516 shares, which represent approximately 61.7% of the
outstanding shares. After completion of the TCI and IOT mergers, the directors,
executive officers and affiliates of ARL will beneficially own 70.0% of the
outstanding shares of ARL, assuming that all TCI and IOT stockholders take
Series G and Series H redeemable convertible preferred stock in the mergers and
the conversion of all shares of Series G and Series H redeemable convertible
preferred stock received in the mergers. The directors, executive officers and
the affiliates of the directors and executive officers of TCI and IOT will,
indirectly and directly, beneficially own 70.2% of the outstanding common stock
of ARL after completion of the TCI and IOT mergers, assuming that all TCI and
IOT stockholders take Series G and Series H redeemable convertible preferred
stock in the mergers and the conversion of all shares of Series G and Series H
redeemable convertible preferred stock received in the mergers. BCM will own
64.9% of the outstanding common stock of ARL after completion of the TCI and IOT
mergers, assuming that all TCI and IOT stockholders take Series G and Series H
redeemable convertible preferred stock in the mergers and the conversion of all
shares of Series G and Series H redeemable convertible preferred stock received
in the mergers. Each share of ARL common stock entitles its holder to cast one
vote on matters as to which voting is permitted or required by Nevada law. BCM,
TCI and, to the knowledge of ARL, the members of the board of directors and
executive officers of ARL and their affiliates intend to vote their shares in
favor of the mergers, however, a majority of the nonaffiliated shares is needed
to approve the mergers. Since the ARL bylaws require the affirmative vote of a
majority of the votes cast at the meeting, abstentions and broker non-votes will
be excluded when calculating the number of votes required for approval of the
proposals.

           TCI. Only holders of shares of TCI common stock of record at the
close of business on the record date, May 10, 2002, will be entitled to notice
of and to vote at the TCI special meeting. The TCI merger and the TCI merger
agreement will be approved by TCI if the TCI merger receives the affirmative
vote, in person or by proxy, of (1) a majority of the votes cast at the TCI
meeting and (2) a majority of the votes cast by the holders of shares of TCI
common stock not held by Mr. Phillips, BCM or ARL, voting at the TCI meeting,
whether in person or by proxy. The holders of a majority of the shares of voting
stock, present in person or by proxy, will constitute a quorum for purposes of
the TCI meeting. As of the record date for the TCI special meeting, there were
8,042,594 shares of TCI common stock outstanding. Each share of TCI common stock
entitles its holder to cast one vote on matters as to which voting is permitted
or required by Nevada law. ARL (indirectly), BCM (directly and indirectly) and
the members of the board of directors and executive officers of TCI and its
affiliates beneficially owned, as of the record date for the TCI special
meeting, 5,217,722 shares, which represent approximately 64.6% of the
outstanding shares. ARL, BCM and, to the knowledge of TCI, the members of the
board of directors and the executive officers of TCI and its affiliates intend
to vote their shares in




                                       40




favor of the TCI merger. Since the TCI bylaws require the affirmative vote of a
majority of the votes cast at the meeting, abstentions and broker non-votes will
be excluded when calculating the number of votes required for approval of the
proposals.

           IOT. Only holders of shares of IOT common stock record at the close
of business on the record date, May 10, 2002, will be entitled to notice of and
to vote at the IOT special meeting. The IOT merger and merger agreement will be
approved by IOT if the merger receives the affirmative vote, in person or by
proxy, of (1) a majority of the votes cast at the IOT meeting and (2) a majority
of the votes cast by the holders of shares of IOT common stock not held by Mr.
Phillips, BCM or ARL, voting at the IOT meeting, whether in person or by proxy.
The holders of a majority of the shares of voting stock, present in person or by
proxy, will constitute a quorum for purposes of the IOT meeting. As of the
record date for the IOT special meeting, there were 1,438,945 shares of IOT
common stock outstanding. Each share of IOT common stock entitles its holder to
cast one vote on matters as to which voting is permitted or required by Nevada
law. ARL (indirectly), BCM and the members of the board of directors and
executive officers of IOT and its affiliates beneficially owned, as of the
record date for the IOT special meeting, 862,465 shares, which represent
approximately 59.9% of the outstanding shares. ARL, TCI, BCM and, to the
knowledge of IOT, the members of the board of directors and the executive
officers of IOT and its affiliates intend to vote their shares in favor of the
IOT merger. Since the IOT bylaws require the affirmative vote of a majority of
the votes cast at the meeting, abstentions and broker non-votes will be excluded
when calculating the number of votes required for approval of the proposals.


APPRAISAL RIGHTS

           None of the ARL, TCI or IOT stockholders will be entitled to
dissenters or appraisal rights as a result of or in connection with the mergers.




SOLICITATION OF PROXIES


           The boards of directors of ARL, TCI and IOT are soliciting proxies
for use in connection with the special meetings to be held by each entity and
any adjournments or postponements of either meeting. ARL, TCI and IOT will bear
equally the expense of the proxy solicitation. The costs of the proxy
solicitation are estimated to be $7,000. Georgeson Stockholder Communications,
Inc. has been retained to act as proxy solicitor in connection with the special
meetings. The proxy solicitor may contact ARL, TCI and IOT stockholders by mail,
telephone, telex, telegraph and personal interviews and may request brokers,
dealers and other nominee stockholders to forward the proxy materials to
beneficial owners of ARL, TCI or IOT shares. The proxy solicitor will receive a
fee estimated not to exceed $30,000 for these services, plus reimbursement of
out-of-pocket expenses. ARL, TCI and IOT will indemnify the proxy solicitor
against certain liabilities and expenses in connection with the mergers,
including liabilities under federal securities laws. The telephone number of the
proxy solicitor is 212-805-7000.





                                       41




OTHER MATTERS FOR ACTION AT THE SPECIAL MEETINGS

           The ARL, TCI and IOT boards of directors are not aware of any matters
to be presented for action at any of the special meetings other than those
described in this joint proxy statement and prospectus. If other matters should
properly come before any special meeting, it is intended that the holders of
proxies solicited by this joint proxy statement and prospectus will vote on
those matters in their discretion.




                                       42




                                 SPECIAL FACTORS

GENERAL


           The following is a description of all material matters concerning the
business combination. Pursuant to the business combination, wholly-owned
subsidiaries of ARL will be merged with and into TCI and IOT and TCI and IOT
will become subsidiaries of ARL. If the TCI stockholders approve their merger
and the merger is consummated, each share of outstanding TCI common stock will
be converted into $17.50 in cash (less the amount of any dividend declared and
paid after January 2, 2002 by TCI on the TCI common stock) unless the TCI
stockholder affirmatively elects to receive one share of Series G redeemable
convertible preferred stock in exchange for each share of outstanding TCI common
stock. Outstanding shares of TCI common stock held by ARL, its subsidiaries or
TCI will be cancelled and shares of TCI common stock held by BCM and other
affiliates of ARL will be exchanged for shares of Series G redeemable
convertible preferred stock. Similarly, if the IOT stockholders approve their
merger, each share of outstanding IOT common stock will be converted into $19.00
in cash (less the amount of any dividends declared and paid after January 2,
2002 by IOT on the IOT common stock) unless the IOT stockholder affirmatively
elects to receive one share of Series H redeemable convertible preferred stock.
Outstanding shares of IOT held by ARL, its subsidiaries, TCI or IOT will be
cancelled and each share of IOT common stock held by BCM and other affiliates of
ARL will be exchanged for shares of Series H redeemable convertible preferred
stock. Notwithstanding the foregoing, the ARL board of directors has determined
that ARL would not enter into the merger agreements unless, in each case,
sufficient cash was available to ARL, either from its own resources or from TCI
or IOT immediately after the mergers, to pay the cash merger consideration due
as a result of the mergers.


THE COMPANIES

           AMERICAN REALTY INVESTORS, INC. ("ARL"). A publicly traded (NYSE)
Nevada corporation engaged primarily in the business of owning and operating a
portfolio of real estate and financing real estate and real estate activities
through investments in mortgage loans.

           TRANSCONTINENTAL REALTY INVESTORS, INC. ("TCI"). A publicly traded
(NYSE) Nevada corporation engaged primarily in the business of owning and
operating a portfolio of real estate and financing real estate and real estate
activities through investments in mortgage loans.

           INCOME OPPORTUNITY REALTY INVESTORS, INC. ("IOT"). A publicly traded
(AMEX) Nevada corporation engaged primarily in the business of owning and
operating a portfolio of real estate and financing real estate and real estate
activities through investments in mortgage loans. IOT is a real estate
investment trust.

           TRANSCONTINENTAL REALTY ACQUISITION CORPORATION. A Nevada corporation
recently formed as a wholly-owned subsidiary of ARL that will merge with and
into TCI.

           INCOME OPPORTUNITY ACQUISITION CORPORATION. A Nevada corporation
recently formed as a wholly-owned subsidiary of ARL that will merge with and
into IOT.


                                       43


           The principal operating offices of each of ARL, TCI, IOT, Income
Opportunity Acquisition Corporation and Transcontinental Realty Acquisition
Corporation are located at 1800 Valley View Lane, Suite 300, Dallas, Texas
75234. The telephone number for each corporation is 469-522-4200.

BACKGROUND OF THE BUSINESS COMBINATION


           TCI and IOT are parties to a 1990 settlement of litigation known as
the Olive Settlement. The original settlement has been modified and the
modification has been the subject of an amendment. Periodically, since 1990,
designated Settlement Counsel, George Donaldson, has challenged the compliance
of the parties under the Olive Settlement, the modification and the amendment
and has unsuccessfully sought to remove BCM from its advisory position to TCI,
IOT and other entities. Settlement Counsel also sought to, from time to time,
remove some or all of the directors of TCI, IOT and other entities.

           On June 14, 2000, Mr. Phillips and A. Cal Rossi, Jr. were indicted*
by a Grand Jury in the Southern District of New York, charged with conspiracy to
commit securities fraud and kickback and wire fraud schemes. Mr. Phillips is a
representative of a trust for the benefit of his children that indirectly owns
BCM. As a representative of the trust, Mr. Phillips has substantial contact with
the management of BCM and input with respect to BCM's performance of advisory
services for ARL, TCI and IOT. Mr. Rossi serves as an officer of BCM, ARL, TCI
and IOT. Following the announcement of the indictments the market values of TCI
and IOT common stock declined precipitously, thereby exposing certain owners of
the securities to margin calls. Sales under margin calls were averted in almost
all instances, but one brokerage firm sold a large block of stock in TCI to an
investment fund. On October 3, 2001, ARL entered into an option to purchase the
TCI common stock from the investment fund at a price of $16.50 per share. Mr.
Donaldson, Settlement Counsel under the Olive Settlement, read about the
purchase option agreement and inquired as to whether or not there was interest
in a transaction whereby all of the shares owned by non-affiliates in IOT and
TCI might be purchased by ARL for cash.

           In early July 2000, Henry W. Simon, Jr. and the Fort Worth, Texas law
firm of Simon, Warner & Doby, were employed to represent BCM, Mr. Phillips, ART
and ARL. On October 12, 2000, Mr. Simon attended a hearing in San Francisco in
the Olive Litigation. After the hearing there was a brief conversation between
Messrs. Simon and Donaldson in which the possibility of finally settling the
disputes in the Olive Settlement by offering cash to nonaffiliated TCI and IOT
stockholders was discussed.

           On October 31, 2000, Mr. Simon met with his clients and others about
the status and possibilities of the proposed purchase of stock and settlement.
These parties contacted Settlement Counsel by telephone, informing him that
there was some willingness to consider attempts to determine cash prices which
would be agreeable to all parties and acceptable to Judge Marilyn H. Patel,
Chief Judge, United States District Court for the Northern District of
California. Judge Patel would have to make a finding that each price offered was
fair pursuant to the class action provisions which govern the derivative
litigation. Later the same day, Mr. Simon


------------------
* On February 13, 2002, following a lengthy trial, Messrs. Phillips
and Rossi were acquitted of all charges in the U.S. District Court, Southern
District of New York.


                                       44




attended a meeting with Ted P. Stokely, Chairman of the board of TCI and IOT,
and Robert A. Waldman, General Counsel to ARL, TCI and IOT, to discuss the
mechanics leading toward a possible settlement. On November 3, 2000, Settlement
Counsel, Mr. Phillips and Mr. Simon met to negotiate a possible pricing
structure. Mr. Phillips indicated that he might consider recommending that ARL
acquire the shares of common stock held by nonaffiliated TCI stockholders for
$16 per share and nonaffiliated IOT stockholders for $14 per share.

           On November 15, 2000, Mr. Waldman contacted representatives of
Houlihan Lokey in Los Angeles, California to discuss Houlihan Lokey's interest
in providing a fairness opinion which would be necessary in the event the
parties reached an agreement on prices. Houlihan Lokey indicated that they would
be pleased to work in furtherance of the transaction. Houlihan Lokey prepared a
draft retainer agreement among IOT, TCI and Houlihan Lokey, and sent it to Mr.
Waldman.

           On November 17, 2000, at meetings of the boards of directors of TCI
and IOT, the members were advised that Settlement Counsel had expressed an
initial interest in a buy out by ARL of all nonaffiliated stockholders at $16
per TCI share and $14 per IOT share, subject to further information and
negotiation as to price. In attendance at the meetings were directors R. Douglas
Leonhard*, Martin L. White, Edward G. Zampa* and Ted P. Stokely. Also attending
the meetings were Mark W. Branigan, then a director of ARL and Chief Financial
Officer of ARL, TCI and IOT, Karl L. Blaha, then a director of ARL and President
of ARL, TCI and IOT, and Robert A. Waldman, Senior Vice President, General
Counsel and Secretary of ARL, TCI and IOT.

           On November 20, 2000, Settlement Counsel, Mr. Waldman, Mr. Phillips
and Mr. Simon met in Dallas to discuss the proposals made and responses received
between the parties. At that time Settlement Counsel indicated that he would not
consider any price less than $16.50 per share for the TCI shares, which was the
option price agreed to between ARL and the investment fund. Settlement Counsel
took the position, that under no circumstances would he agree to any settlement
in which the cash price per share to be paid to the nonaffiliated TCI
stockholders was less than the amount ARL would have to pay by April 2001 to
exercise its options for the TCI shares purchased from a private investment
fund. Accordingly, the price of $16.50 cash per share became Settlement
Counsel's absolute floor for the purchase price for the TCI shares.
Additionally, Settlement Counsel advised that in order to go forward he wished
to engage Green Street Advisors, Inc. to review asset values of TCI and IOT.
Settlement Counsel was unwilling to commit to support any specific price until
Green Street completed its review of the value of TCI and IOT. Settlement
Counsel also advised that whatever price might be agreed upon would be based
upon a current appraisal and evaluation of the underlying assets of the subject
companies.


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

* Messrs. Leonhard and Zampa resigned as directors of TCI and IOT on December
14, 2001. Messrs. Leonhard and Zampa were directors of both TCI and IOT, but
held no other position in any of TCI, IOT or ARL. Mr. Leonhard did not provide
any reason for his resignation; Mr. Zampa advised that his workload had
increased and time no longer permitted him to continue; neither individual
advised of any disagreement with any policies or practices or operations of
either TCI or IOT, nor did either individual furnish TCI or IOT with any letter
describing any disagreement and requesting that the matter be disclosed. See
also Current Report on Form 8-K for event occurring December 14, 2001 of TCI and
IOT.



                                       45







           The ARL board of directors met on November 22, 2000, to consider the
possible acquisition of the shares of nonaffiliated stockholders at TCI and IOT.
Present at that meeting were ARL directors Richard D. Morgan**, Karl L.
Blaha***, Collene C. Currie, Roy E. Bode****, Joseph Mizrachi and Mr. Branigan
and Mr. Waldman. The ARL board determined that management should proceed with
negotiations on this matter.

           During the month of December 2000, Mr. Simon discussed with
Settlement Counsel the appropriate procedure to advise Judge Patel that the
parties were considering settlement. On December 21, 2000, Mr. Simon approved a
form of Statement of the Case to be submitted by Settlement Counsel, which would
formally advise Judge Patel that the parties were discussing a settlement.
During January 2001, Messrs. Simon and Waldman prepared at the request of
Settlement Counsel certain historical summaries of the trading values of stocks
involved and facilitated the exchange of information between BCM and Green
Street in order to expedite the analysis of the underlying values of TCI and
IOT. On February 14, 2001, Mr. Simon discussed with Settlement Counsel certain
discounts and other assumptions which ARL felt were appropriate in reaching
final values. These discussions continued with telephone conversations on
February 22, 23, and 28, 2001. On March 7, 2001, Settlement Counsel and Adam
Markman of Green Street met with Messrs. Simon and Waldman in Dallas to review
additional information regarding certain assets. Following that meeting and
several other conversations but prior to April 12, 2001, Messrs. Simon and
Phillips and Settlement Counsel reached a tentative agreement to propose final
cash prices of $16.50 for each of the TCI shares and $19 for each of the IOT
shares.

           On or about February 1, 2001, Settlement Counsel forwarded to Mr.
Simon and Mr. Phillips an initial report from Green Street which, while not a
complete economic analysis, reflected some of the methodology to be used by
Green Street. Issues arose with Mr. Phillips and Mr. Blaha over the assumptions
contained within the methodology, as follows:

           -          Mr. Phillips and his advisors disputed the appropriate cap
                      rate for many of the apartment properties which would
                      depend, to a great extent, on whether those particular
                      properties might be classified as "B" or "C" apartment
                      projects. And, as a function of the cap Mr. Phillips and
                      Mr. Branigan analyzed the capital budgets, both past and
                      projected for these properties

           -          With reference to raw land Mr. Phillips and his advisors
                      debated the effect on probable value of the sale of
                      parcels out of a large tract. The questions raised were
                      how indicative a single or even several separate parcel
                      sales might be toward fixing the value of a tract of 100
                      plus acres

           -          Additionally, issues were raised as to the economic
                      significance of pending, unclosed contracts

           -          Mr. Phillips and his advisors debated the proper criteria
                      to utilize in attempting to determine the economic values
                      to be obtained if a large number of the properties,



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


** Richard D. Morgan resigned as a director of ARL on October 25, 2001. Mr.
Morgan did not provide any reason for his resignation and did not advise of any
disagreement with any policies or practices or operations of ARL, nor did he
furnish ARL with any letter describing any disagreement and requesting that the
matter be disclosed.

*** Karl L. Blaha resigned as a director of ARL and from his positions as
President of ARL, TCI and IOT on February 5, 2002. Mr. Blaha did not provide any
reason for his resignation and did not advise of any disagreement with any
policies or practices or operations of either ARL, TCI or IOT, nor did he
furnish ARL, TCI or IOT with any letter describing any disagreement and
requesting that the matter be disclosed. See also Current Report on Form 8-K for
event occurring December 14, 2001 of TCI and IOT.


**** Roy E. Bode did not stand for re-election at ARL's Annual Meeting on July
10, 2001 and therefore ceased to be a director of ARL on that date.



                                       46





                      particularly those grouped in the same markets, were to be
                      placed on the market within a six to twelve month period

           On February 14, 2001, Simon discussed with Settlement Counsel certain
discounts and other assumptions which ARL felt were appropriate in reaching
final values. These discussions continued with telephone conversations on
February 22, 23, and 28, 2001.

           These conversations were critical to the final result. The prospect
of lowered interest rates, as the result of a national recession and possible
action by the Federal Reserve Board, would produce higher values for older
properties because such rates facilitated both sales and refinancing. However,
Mr. Phillips and his advisors disputed the lasting effect of such a monetary
policy. Mr. Phillips pointed out that lowered rates increased new construction,
which, while it generated economic activity, also increased competition. And,
the recession, arguably, affected the collectibility of rent. Generally, it was
Phillips' view that immediate conditions should be seen in a longer context,
leading generally to lower value for these older units. Settlement Counsel
disputed the discounting of current conditions.

           On March 7, 2001, Settlement Counsel and Adam Markman of Green Street
met with Messrs. Simon and Waldman in Dallas, Texas to review additional
information regarding certain assets. Following that meeting and several other
conversations but prior to April 12, 2001, Settlement Counsel and Messrs. Simon
and Phillips reached a tentative agreement to propose final cash prices of
$16.50 for each of the TCI common stock and $19 for each of the IOT common
stock. Other criteria and assumptions commonly utilized in the evaluation of
real estate were likewise raised and debated through these discussions.

           On March 20, 26, 27, and 30, 2001, Mr. Simon held telephone
conversations with Settlement Counsel to complete the data base from which the
final agreed prices might be determined. On April 10, 2001, Mr. Phillips and Mr.
Simon met with Settlement Counsel in California and reached an initial agreement
that Settlement Counsel was authorized to communicate to Judge Patel. In May
2001, Settlement Counsel delivered a letter to Judge Patel concerning the
proposed settlement of the litigation which included the proposed purchase
prices of $16.50 per TCI share and $19.00 per IOT share. On May 8, 2001, Mr.
Simon appeared before Judge Patel in a conference format and discussed with the
Court the nature of the proposed settlement, the steps necessary to achieve both
a resolution of all open issues between the parties and the subsequent judicial
and regulatory approvals which would be needed to implement the transaction.

           In June and July 2001, Settlement Counsel, aided by the Green Street
evaluation team, continued to review data in order to reach an agreement on the
share prices. On July 26, 2001, Mr. Simon met with Mr. Phillips in his Dallas
office to review the summary pages of the Green Street report for TCI. On July
30, 2001, Mr. Simon met with Settlement Counsel in the offices of BCM in Dallas,
Texas to discuss the initial evaluations submitted by Green Street. On the
following day, July 31, 2001, Mr. Markman of Green Street joined the meetings
with Settlement Counsel, Mr. Phillips, certain asset managers of BCM, and others
in the Dallas offices of BCM. Mr. Markman also viewed some of the more
significant TCI properties located in the Dallas area.




                                       47



           Negotiations regarding comparative values and their effect upon
proposed price per share provisions of a joint settlement continued during the
month of August 2001. ARL desired that there be an alternative election offered
to TCI and IOT stockholders whereby a stockholder could (if a clear affirmative
election to do so is made) accept preferred stock in ARL in lieu of the cash
amounts of $16.50 per TCI share and $19 per IOT share. Settlement Counsel
negotiated for a penalty if the transaction is not completed by ARL and urged
that the TCI data warranted an increase in the cash price to be paid to TCI
stockholders. Just prior to August 30, 2001, Settlement Counsel, Mr. Phillips,
and the other participants from BCM agreed upon (a) an increase in the price to
be offered TCI stockholders from $16.50 per share to $17.50 per share; (b) a
preferred stock election as to each offeree; (c) a $5.00 per share penalty for
failure to complete the transaction; and (d) a tender offer procedure, providing
the same considerations, in the event that the regulatory process with the SEC
could not be completed satisfactorily or expeditiously.

           On August 30, 2001, the TCI and IOT directors held special meetings
at which time they approved the terms of the proposed settlement subject to
completion of due diligence and negotiation of a final agreement. In attendance
at the meetings were directors Messrs. Leonhard, White, Zampa and Stokely. Also
attending the meetings were Messrs. Blaha, Corna and Waldman. Mr. Waldman
reviewed the terms of the proposed settlement which had been negotiated between
the parties. They discussed the need to obtain approval from the Court and from
the nonaffiliated stockholders of TCI and IOT. The Settlement Agreement was
drafted by Messrs. Donaldson and Simon in September 2001. Mr. Simon discussed
the proposed joint settlement with Settlement Counsel on a daily basis during
September and the early part of October. Mr. Simon met with Settlement Counsel
in San Francisco on October 3 and 4, 2001 to continue discussions of the
Settlement Agreement. Commencing on October 12, 2001, Mr. Simon broadened his
activities to discuss all aspects of the then "draft" form of the Settlement
Agreement, along with ancillary documents to be filed therewith, with Jessica
Pers and David Goldstein of the Heller Ehrman White & McAuliffe law firm,
special counsel to the boards of directors of TCI and IOT in the Olive
Litigation.

           On October 15, 2001, Mr. Simon discussed certain new concerns with
Messrs. Donaldson and Waldman, Eric Redwine, an attorney for BCM, and again with
Ms. Pers. Ms. Pers, by letter, and in telephone conferences raised a concern
regarding whether or not the language embodied in the draft agreement might be
read to indicate that an appeal, then pending, was being abandoned by the
appellants. It was agreed that a part of the Settlement Agreement would be a
voluntary abatement, assuming the consent of the 9th Circuit Court of Appeals,
in the pending appeal over issues of jurisdiction which arose from an earlier
order from Judge Patel in which the Court declared that it had jurisdiction to
continue consideration of certain activities of the TCI and IOT directors and of
BCM and its officers.

           On October 18, 2001, the written Settlement Agreement was filed with
Judge Patel. Ms. Pers suggested new language which would make it clear that the
appeal, if abated, was not being abandoned or resolved by agreement and would
revive in the event the contemplated settlement failed to come to fruition. On
October 23, 2001, a press release was issued on behalf of ARL, TCI and IOT
announcing the preliminary agreement with Settlement Counsel providing for ARL
to acquire all of the outstanding common stock of TCI and IOT. On October 25,
2001, the boards of directors of TCI and IOT held special meetings with the
representatives of Houlihan




                                       48




Lokey. The directors reviewed the settlement proposal and discussed with
Houlihan Lokey the procedures that Houlihan Lokey would apply in analyzing the
fairness of the proposed transaction. It was noted that Houlihan Lokey would
render an opinion as to the fairness from a financial point of view of the
consideration to be received by the TCI and IOT nonaffiliated public
stockholders.

           On the morning of December 10, 2001, counsel reported to Judge Patel
on their progress and received the Court's comments. That afternoon and evening
the parties worked through the Court's comments, as well as certain comments
relayed to the parties from Stephen Taylor, the Special Master. On December 11,
2001, Messrs. Simon and Donaldson had extensive telephone conversations with all
participants in the negotiation process which resulted in certain changes being
made to the documents and, upon accomplishment of such changes, the documents
then believed to be in final form were filed with Judge Patel. The Court signed
the order preliminarily approving the Settlement Agreement on December 18, 2001.
The Court also approved a proposed Notice of Proposed Settlement of Derivative
Action which was then mailed to all stockholders of TCI and IOT. The Notice
described the proposed settlement and advised that a Settlement Hearing would be
held on February 4, 2002.

           On February 1 and 4, 2002, the TCI board of directors met by
telephone conference to review a draft of a board presentation prepared by
Houlihan Lokey, which contained proposed revisions to the timing of the
conversion period of the preferred stock available by affirmative election by
the TCI stockholders. During that meeting, discussions ensued concerning the
probable timing based upon potential filings by ARL depending upon the
consummation of the TCI merger. The TCI board of directors concluded that the
recommended change in timing of conversion periods would be beneficial to those
TCI stockholders who affirmatively elect to receive preferred stock. Following
these discussions, the TCI directors reaffirmed their February 1, 2002,
determination that the terms of the Settlement Agreement and contemplated merger
are procedurally and substantively fair to the nonaffiliated TCI stockholders as
previously described.

           On February 1 and 4, 2002, the IOT board of directors met by
telephone conference to review a draft of the board presentation prepared by
Houlihan Lokey, which contained proposed revisions to the timing of the
conversion period of the preferred stock available by affirmative election by
the IOT stockholders. During that meeting, discussions ensued concerning the
probable timing based upon potential filings by ARL depending upon the
consummation of the IOT merger. The IOT board of directors concluded that the
recommended change in timing of conversion periods would be beneficial to those
IOT stockholders who affirmatively elect to receive preferred stock. Following
these discussions, the IOT directors reaffirmed their February 1, 2002,
determination that the terms of the Settlement Agreement and contemplated merger
are procedurally and substantively fair to the nonaffiliated IOT stockholders as
previously described.

           On February 4, 2002, the board of directors of ARL had a telephonic
board meeting to begin consideration of the proposed acquisitions of TCI and IOT
by ARL in the manner contemplated by the Settlement Agreement. Present at the
meeting were Ms. Currie and Messrs. Cecil, Humphrey and Mizrachi. Also attending
the meeting were Ronald E. Kimbrough, Mr. Waldman, Jeffrey Sone and Tiffany
Marchesoni. Following a discussion of the proposed transaction, the ARL board
adjourned until the following afternoon to permit members of the board to
consider information provided by management and to receive additional
information





                                       49




requested by members of the board. The meeting of the ARL board reconvened on
February 5, 2002. In attendance were directors Ms. Currie and Messrs. Cecil and
Humphrey. Also attending the meeting were Messrs. Kimbrough, Waldman, Sone and
Tiffany Marchesoni. The board received presentations from management regarding
the proposed transaction, including detailed presentations regarding ARL's
proposed plan for raising the funds necessary to pay for shares of TCI and IOT
common stock to be purchased from stockholders not affiliated with ARL or BCM.
In addition, the ARL board received representations from legal counsel to ARL
and discussed with management of ARL and ARL's legal counsel matters relating to
the proposed transactions. Mr. Cecil, Ms. Currie and Mr. Humphrey were present,
in person, at the meeting of the ARL board on February 5. Messrs. Blaha and
Mizrachi were not present. Following an extended discussion regarding the
proposed transactions among ARL, TCI and IOT and other matters related to the
current and proposed business operations of ARL, the board again adjourned its
meeting until the following afternoon. Subsequent to the adjournment of the ARL
board's meeting on February 5, Mr. Blaha tendered his resignation as a member of
the ARL board and as an officer of ARL, TCI and IOT. Mr. Blaha did not
communicate the reasons for his resignation to the ARL board or to the boards of
TCI or IOT.

           On February 6, 2002, the ARL board reconvened telephonically. Present
for the entire meeting were Ms. Currie and Messrs. Humphrey and Mizrachi. Mr.
Cecil joined the meeting after it was in progress. Also attending the meeting
were Messrs. Kimbrough, Waldman, and Sone and Ms. Marchesoni. Following a
discussion of the proposed transaction, the board unanimously approved the
proposed business combination between ARL and each of TCI and IOT and determined
to recommend that stockholders of ARL approve the transactions. Following these
actions, the board adjourned its meeting.


           On February 12, 2002 the Court signed the order finally approving the
Settlement Agreement.


DETERMINATION OF MERGER CONSIDERATION

           The merger consideration was determined through negotiations by and
between representatives of ARL and Settlement Counsel in the Olive Litigation.
The parties desired to reach a settlement which would allow the nonaffiliated
TCI and IOT stockholders to obtain a fair price for their common stock and
resolve the ongoing litigation. Settlement Counsel sought to obtain the highest
cash price possible for the shares. Green Street reviewed the assets of both
companies and advised Settlement Counsel on the underlying net asset values. The
agreed upon cash prices per share were greater than the current or historical
trading prices and less than the estimated net asset value per share.

           ARL desired to provide the stockholders with an opportunity to
continue to participate in the ongoing business combination through stock
ownership. Therefore, the proposal to allow stockholders to affirmatively elect
to receive one share of ARL preferred stock for each one share of TCI or IOT
common stock was set forth. Each series of the preferred stock was set with a
liquidation value per share at a premium above the cash price per share. ARL set
the annual dividend on the preferred stock at 10%. The conversion ratio was not
determined by the board of directors of ARL until after Houlihan Lokey completed
their evaluation and calculated a range of conversion ratios based on such
evaluation. Initially Houlihan Lokey's engagement was limited




                                       50




to rendering an opinion as to the fairness from a financial point of view of the
consideration to be received by the IOT and TCI nonaffiliated public
stockholders. The scope of the engagement was subsequently expanded and Houlihan
Lokey was requested to conduct negotiations on behalf of the TCI and IOT boards
of directors with representatives of ARL with respect to the terms of the
proposed transaction, including the conversion ratios for each series of
preferred stock and the timing of ARL's right to redeem the preferred stock.

           Houlihan Lokey advised the TCI and IOT boards that the conversion
ratios should be such that the stockholders would receive a number of shares of
ARL common stock with a range of underlying net asset values that approximates
the range of the underlying net asset values of the shares of TCI or IOT common
stock they had exchanged for one share of ARL preferred stock. They also
suggested that the ARL preferred shares should not be redeemable until the
nonaffiliated stockholders had an opportunity to evaluate the resulting business
combination and convert to ARL common stock.


TCI'S PURPOSE AND REASONS FOR THE TCI MERGER


           Pursuant to the Settlement Agreement, TCI received an offer to its
stockholders at $17.50 cash per share. That offer (in the form of the merger of
TCI into ARL) was at a significant premium over the average closing price of TCI
common stock over the thirty trading days prior to October 23, 2001. The TCI
board of directors received a suggestion of the concept of a cash offer through
advice initially in November 2000 and continued with periodic updates, through
mid-October 2001. Although the actual amount of the offer was not finalized
until October 23, 2001, the concept of the offer at a range reflecting a
significant premium over the then market price was known. Once actually
received, the TCI board of directors began the analysis process by employment of
Houlihan Lokey as an independent financial advisor and reviewing information to
determine the potential fairness of the offer to the TCI stockholders.

           In reaching its decision to approve the TCI merger agreement and to
recommend that TCI stockholders approve the TCI merger agreement, the TCI board
of directors consulted with management and its legal and financial advisors. The
TCI board of directors reviewed various information available to it and provided
by management, financial advisors and counsel and considered a number of
factors, including those described below. During its review, the TCI board of
directors did not address whether any of the various factors, information or
advice should be considered as a positive or negative factor affecting their
respective determinations. In certain instances, one or more of the factors
might be considered to be both positive and negative depending upon the
importance to the reviewer. The factors were simply viewed as a whole, and the
individual members of the TCI board of directors did not find it necessary to
make any list of so-called positive factors or so-called negative factors. The
TCI board of directors considered a number of factors including, without
limitation, the following:


        -       The current and historical market prices of TCI common stock
                relative to the merger consideration and the fact that the
                $17.50 per share merger consideration represented a 44.6%
                premium over the average closing price of TCI common stock over
                the thirty trading days prior to October 23, 2001.



                                       51




           -          The fact that the merger consideration is all cash, which
                      provides certainty of value to nonaffiliated TCI
                      stockholders compared to a transaction in which
                      stockholders would only receive stock.

           -          The fact that nonaffiliated TCI stockholders have the
                      opportunity to affirmatively elect to receive ARL
                      preferred stock instead of cash.


           -          It is the view of the TCI board of directors that the
                      trading value for shares of TCI common stock was not
                      likely to exceed the merger price in the near term if TCI
                      remained independent.

           -          The potential stockholder value that could be expected to
                      be generated from other strategic options available to
                      TCI, including (a) remaining independent and continuing to
                      implement its growth strategy, or (b) pursuing other
                      strategic alternatives, as well as the risks and
                      uncertainties associated with those alternatives.


           -          The financial presentation of Houlihan Lokey and the
                      opinion of that firm delivered on February 1, 2002 to the
                      TCI board of directors to the effect that, based upon and
                      subject to the matters set forth in that opinion, as of
                      February 1, 2002, the consideration to be offered to the
                      nonaffiliated TCI public stockholders pursuant to the TCI
                      merger agreement was fair from a financial point of view
                      to those holders.


           -          The terms of the TCI merger agreement, as reviewed by the
                      TCI board of directors with TCI legal advisors including:


                      -          the absence of any financing condition

                      -          no termination fee if the TCI merger agreement
                                 is terminated

                      -          consummation of the TCI merger agreement
                                 resolving expensive, inconvenient and
                                 distracting litigation

           -          The TCI board of directors' determination, based on the
                      fact that no other offers to acquire TCI common stock have
                      been made at a level equal to or better than the merger
                      consideration of $17.50 per share before or after initial
                      press reports on and after October 23, 2001, that ARL had
                      agreed to acquire the nonaffiliated stockholder interest
                      in TCI and after discussing with TCI's advisors the
                      potential risks, costs and benefits of contacting other
                      third parties, that there was insufficient reason to
                      justify the risk of delay in proceeding with the favorable
                      transaction with ARL.



           -          In the view of the TCI board of directors, based upon the
                      advice of management after consultation with its legal
                      counsel, the regulatory approvals necessary to consummate
                      the TCI merger could be obtained.

           -          TCI will no longer exist as an independent company, and
                      its stockholders will no longer participate in the growth
                      of TCI or the pursuit of its standalone business plan and
                      other factors set forth in the TCI certificate of
                      incorporation.

           -          Under the terms of the TCI merger agreement, the fact that
                      gains from an all cash transaction would be taxable to TCI
                      stockholders for U.S. federal income tax purposes.


           The TCI board of directors has an awareness that the book value per
share of TCI common stock from a financial standpoint exceeds the cash offered
of $17.50 per share. Historically, market value per share of TCI common stock
has, for more than the past ten years been less than the calculated book value
per share from a financial standpoint. Based upon





                                       52









unaudited pro forma consolidated financial statements giving effect to the
merger of TCI into ARL resulting earnings per share would be less than the
historical earnings per share of TCI. The board of directors of TCI is also
aware that ARL may have to raise capital from other sources, refinance
indebtedness or sell assets (including assets owned by TCI) to produce proceeds
sufficient to finance the cash payments in the merger to TCI stockholders, all
of which is likely to result in a substantial increase in the amount of leverage
as a result of the merger. By virtue of these factors, it is possible that there
may not be sufficient ARL cash to allow the payment of dividends on the Series G
redeemable convertible preferred stock as a result of the substantial debt to be
incurred and increase of leverage.

        During its consideration of the transaction with ARL, the TCI board of
directors were also aware that certain directors and executive officers of TCI
may have interests in the merger that are different from or in addition to those
of nonaffiliated TCI stockholders generally, as described under "Interests of
Directors and Officers in the Business Combination." Specifically, the executive
officers of BCM, ARL, TCI and IOT are the same. TCI and IOT have the same
directors and Mr. Earl Cecil is a director of ARL, TCI and IOT. The multiple
positions held by these individuals causes them to owe fiduciary duties to more
than one company in the business combination.


        The discussion of the information and factors considered and given and
weighed by the TCI board of directors is not intended to be exhaustive, but it
is believed to address the material information and factors considered by the
TCI board of directors. In view of the number and variety of these factors, the
TCI board of directors did not find it practicable to make specific assessments
of or otherwise assign relative weights to, the specific factors and analyses
considered in reaching its determination. The determination to approve and
recommend the TCI merger agreement was made after consideration of all of the
factors and analyses as a whole. In addition, individual members of the TCI
board of directors may have given different weights to different factors.

IOT'S PURPOSE AND REASONS FOR THE IOT MERGER


        Pursuant to the Settlement Agreement, IOT received an offer to its
stockholders at $19 cash per share. That offer (in the form of the merger of IOT
into ARL) was at a significant premium over the average closing price of IOT
common stock over the thirty trading days prior to October 23, 2001. The IOT
board of directors received a suggestion of the concept of a cash offer through
advice initially in November 2000 and continued with periodic updates, through
mid-October 2001. Although the actual amount of the offer was not finalized
until October 23, 2001, the concept of the offer at a range reflecting a
significant premium over the then market price was known. Once actually
received, the IOT board of directors began the analysis process by employment of
Houlihan Lokey as an independent financial advisor and reviewing information to
determine the potential fairness of the offer to the IOT stockholders.

        In reaching its decision to approve the IOT merger agreement and to
recommend that IOT stockholders approve the IOT merger agreement, the IOT board
of directors consulted with management and its legal and financial advisors. The
IOT board of directors reviewed various information available to it and provided
by management, financial advisors and counsel and considered a number of
factors, including those described below. During its review, the IOT





                                       53





board of directors did not address whether any of the various factors,
information or advice should be considered as a positive or negative factor
affecting their respective determinations. In certain instances, one or more of
the factors might be considered to be both positive and negative depending upon
the importance to the reviewer. The factors were simply viewed as a whole, and
the individual members of the IOT board of directors did not find it necessary
to make any list of so-called positive factors or so-called negative factors.
The IOT board of directors considered a number of factors including, without
limitation, the following:


        -   The current and historical market prices of IOT common stock
            relative to the merger consideration, and the fact that the $19 per
            share merger consideration represented a 28.7% premium over the
            average closing price of IOT common stock over the thirty trading
            days prior to October 23, 2001.

        -   The fact that the merger consideration is all cash, which provides
            certainty of value to nonaffiliated IOT stockholders compared to a
            transaction in which stockholders would only receive stock.
        -   The fact that nonaffiliated IOT stockholders have the opportunity to
            affirmatively elect to receive ARL preferred stock instead of cash.

        -   It is the view of the IOT board of directors that the trading value
            for shares of IOT common stock was not likely to exceed the merger
            price in the near term if IOT remained independent.

        -   The potential stockholder value that can be expected to be generated
            from other strategic options available to IOT, including (a)
            remaining independent and continuing to implement its growth
            strategy, or (b) pursuing other strategic alternatives, as well as
            the risk and uncertainties associated with those alternatives.

        -   The financial presentation of Houlihan Lokey and the opinion of that
            firm delivered on February 1, 2002 to the IOT board of directors to
            the effect that, based upon and subject to the matters set forth in
            that opinion, as of February 1, 2002, the consideration to be
            offered to the nonaffiliated IOT public stockholders pursuant to the
            IOT merger agreement was fair from a financial point of view to
            those holders.

        -   The terms of the IOT merger agreement, as reviewed by the IOT board
            of directors with IOT legal advisors including:


                -   the absence of any financing condition
                -   no termination fee if the IOT merger agreement is terminated
                -   consummation of the IOT merger agreement finally putting to
                    end an expensive, inconvenient, distracting litigation

        -   The IOT board of directors' determination, based on the fact that no
            other offers to acquire IOT common stock have been made at a level
            equal to or better than the merger consideration of $19 per share
            before or after initial press reports on and after October 23, 2001,
            that ARL had agreed to acquire the nonaffiliated stockholder
            interest in IOT and after discussing with IOT's advisors the
            potential risks, costs and benefits of contacting other third
            parties, that there was insufficient reason to justify the risk of
            delay in proceeding with the favorable transaction with ARL.




                                       54




        -   In the view of the IOT board of directors, based upon the advice of
            management after consultation with its legal counsel, the regulatory
            approvals necessary to consummate the IOT merger could be obtained.
        -   IOT will no longer exist as an independent company, and its
            stockholders will no longer participate in the growth of IOT or the
            pursuit of its standalone business plan and other factors set forth
            in the IOT certificate of incorporation.
        -   Under the terms of the IOT merger agreement, the fact that gains
            from an all cash transaction would be taxable to IOT stockholders
            for U.S. federal income tax purposes.


        The IOT board of directors is aware that the book value per share of IOT
common stock from a financial standpoint exceeds the cash offered of $19 per
share. Historically, market value per share of IOT common stock has for several
years been less than the calculated book value per share from a financial
standpoint. Based upon unaudited pro forma consolidated financial statements
giving effect to the merger of IOT into ARL resulting earnings per share could
be are less than the historical earnings per share of IOT. The IOT board of
directors is also aware that ARL may have to raise capital from other sources,
refinance indebtedness or sell assets (including assets owned by IOT) to produce
proceeds sufficient to finance the cash payments in the merger to IOT
stockholders, all of which is likely to result in a substantial increase in the
amount of leverage as a result of the merger. By virtue of these factors, it is
possible that there may not be sufficient ARL cash to allow the payment of
dividends on the Series H redeemable convertible preferred stock as a result of
the substantial debt to be incurred and increase of leverage. As a result of the
merger, IOT stockholders will no longer be holders of an equity interest in a
REIT and therefore will not receive 95% of the net income from any REIT in the
form of dividends each year. During the year ended December 31, 2000, IOT paid
dividends equal to $0.45 per share of IOT common stock and paid no dividends in
2001.

        During its consideration of the transaction with ARL, the IOT board of
directors were also aware that certain directors and executive officers of IOT
may have interests in the merger that are different from or in addition to those
of nonaffiliated IOT stockholders generally, as described under "Interests of
Directors and Officers in the Business Combination."


        The discussion of the information and factors considered and given and
weighted by the IOT board of directors is not intended to be exhaustive, but it
is believed to address the material information and factors considered by the
IOT board of directors. In view of the number and variety of these factors, the
IOT board of directors did not find it practicable to make specific assessments
of or otherwise assign relative weights to, the specific factors and analyses
considered in reaching its determination. The determination to approve and
recommend the IOT merger agreement was made after consideration of all of the
factors and analyses as a whole. In addition, individual members of the IOT
board of directors may have given different weights to different factors.

ARL'S PURPOSE AND REASONS FOR THE MERGER


        ARL's purpose in pursuing the merger is to acquire the businesses of TCI
and IOT at what ARL believes to be an attractive price and on what it believes
to be attractive terms. In addition, ARL believes that by combining and
integrating under ARL the businesses and





                                       55





operations of ARL, IOT and TCI, ARL will be able to enjoy greater financial and
operational flexibility, and may enjoy better access to capital. ARL's
opportunity to acquire TCI and IOT arose, in part, from the court approved
settlement of certain litigation against TCI, IOT and certain of their
affiliates known as Jack Olive, et. al. v. National Income Realty Trust, et.
al., Case No. C89 4331 MHP pending in the United States District Court for the
Northern District of California (the "Olive Litigation"). The claims in the
Olive Litigation related to the operation and management of TCI and IOT. As
described elsewhere in this joint proxy statement and prospectus under "Summary
- The Olive Settlement" the parties to the litigation have entered into a
settlement, after arms length negotiation, providing that if the stockholders of
TCI and IOT so approve, TCI and IOT will become subsidiaries of ARL through the
mechanism of the proposed mergers. As a result of the mergers, if consummated,
stockholders of TCI and IOT (other than Mr. Phillips, BCM, ARL and ART) will
receive $17.50 and $19.00 in cash for each of their shares of the common stock
of TCI or IOT, respectively. Stockholders of TCI and IOT who are entitled to
receive cash for their shares of the common stock of TCI or IOT will also, under
the proposed settlement, have the opportunity to affirmatively elect to receive
shares of the preferred stock of ARL in lieu of cash. BCM and affiliates of BCM,
ART, ARL and Mr. Phillips have agreed to receive shares of the ARL preferred
stock offered hereby for their shares of the common stock of TCI and IOT, thus
reducing the amount of cash necessary to consummate the proposed transactions.
The proposed transactions were negotiated by ARL's management and presented to
the ARL board of directors for approval. After consideration of the proposals,
the ARL board unanimously approved the transactions and recommended that the
stockholders of ARL approve the TCI and IOT merger agreements.

        In reaching its decision to approve and recommend to the ARL
stockholders the TCI merger agreement and the IOT merger agreement, the ARL
board of directors consulted with management, reviewed materials provided to it
by management as part of management's presentation to the board and pursuant to
requests from the board, consulted with its legal advisors and discussed the
proposed transactions among its members. The ARL board of directors considered a
great deal of information, advice and a number of factors in reaching its
decision, including those described below. Although individual members of the
board may have considered some information, factors or advice more or less
important than others, and in view of the number and variety of this
information, factors and advice, the ARL board did not find it practicable or
useful, as a board, to make specific assessments of or to otherwise assign
relative weights to the factors, information and advice considered in reaching
its decisions. Instead, the determination to approve and recommend the TCI and
IOT merger agreements was made after consideration of all of the factors,
information and advice as a whole and after discussion thereof by the board. In
its discussion, the ARL board did not specifically address whether any of
various factors, information or advice considered positively or negatively
affected their determination. Among the information, factors and advice
considered by the ARL board were the following:

        -   The ARL board reviewed information concerning the historical market
            prices for the TCI, IOT and ARL common stock. In doing so, the board
            noted that the proposed merger consideration represented a 44.6%
            premium over the average closing price of the TCI common stock over
            the thirty trading days prior to October 23, 2001 and a 28.7%
            premium over the average closing price for the IOT common stock for
            the



                                       56





            same period. The board also compared the historical relationship
            between the prices for shares of ARL's common stock and shares of
            TCI's and IOT's common stock.
        -   In considering the merger consideration to be offered for the shares
            of TCI and IOT common stock, the ARL board was advised by management
            of ARL of the history of negotiations among representatives of ARL,
            TCI and IOT with respect to the merger consideration and the
            structure of the proposed transactions. In addition, the board was
            advised of the advice rendered to the boards of TCI and IOT by their
            financial advisor to the effect that based upon and subject to
            certain matters to be reflected in an opinion, as of February 1,
            2002, the consideration to be offered to the non-affiliated public
            stockholders of TCI and IOT was fair from a financial point of view
            to those stockholders. The ARL board was not provided with a copy of
            TCI and IOT's financial advisors opinion or board presentation.
        -   In considering the cash merger consideration to be offered for the
            TCI common stock and IOT common stock, the ARL board noted that in
            each case, the cash consideration was less than the current book
            value per share of the common stock of TCI and IOT.
        -   The ARL board reviewed the real estate portfolios of ARL, TCI and
            IOT and expressed the view that the proposed combination of those
            portfolios would benefit ARL by increasing the size and diversity of
            its portfolio and increasing the number of development opportunities
            available to it. The board noted, in coming to this conclusion, that
            TCI and IOT have the largest number of their properties in the
            Southwest region of the United States, while ARL has its greatest
            concentration of properties in the Southeast.
        -   The ARL board expected that an increase in the size of the portfolio
            of real estate properties under ARL's control, and an increase in
            the size of its business generally, would increase ARL's financial
            flexibility. Among other things, the board felt that an larger
            portfolio would increase that likelihood that properties would be
            available for sale or mortgage when ARL or its subsidiaries required
            cash for development activities. In addition, the board felt that a
            larger entity would be more attractive as a borrower to capital
            sources.
        -   The ARL board carefully reviewed with ARL's management the
            anticipated cash requirements of ARL's business in the future if the
            TCI and IOT mergers, or either of them, were consummated, and
            management's expectations regarding steps necessary to assure that
            sufficient cash was available to meet ARL's obligations to pay the
            cash portion of the merger consideration. The ARL board understood
            that the cash to be paid as merger consideration could be raised in
            large part from the sales of real estate held by TCI and IOT.
        -   The ARL board expects that the consummation of each of the TCI and
            IOT mergers will be dependent upon the availability of sufficient
            cash to consummate those transactions, and that ARL will not
            consummate the TCI merger or the IOT merger, respectively, unless
            management believes such cash is available at the time of the
            merger.
        -   The ARL board carefully reviewed the terms of the proposed merger
            agreements with TCI and IOT with management and its legal counsel
            and noted that neither of the merger agreements were expected to be
            entered into until after the stockholders of ARL and TCI or IOT, as
            the case may be, had approved the proposed merger. In





                                       57




            connection with its review, the ARL board noted that the proposed
            merger agreements did not contain a financing condition and could be
            terminated without penalty by either party. In addition, the ARL
            board noted that because the merger agreements would not be executed
            until stockholder approval is obtained, it is possible that a third
            party might seek to acquire either TCI or IOT before such approval
            could be obtained, making it unlikely that a merger with that entity
            would occur.
        -   The ARL board noted that ARL affiliates hold approximately 14.9% and
            7.4% of the issued and outstanding common stock of TCI and IOT,
            respectively, and that those stockholders will accept preferred
            stock of ARL in lieu of cash as merger consideration.
        -   The ARL board noted that the TCI and IOT mergers are not conditioned
            upon one another, meaning that, subject to stockholder approval and
            the availability of necessary cash, either of the mergers could be
            consummated, even if the other was not.
        -   The ARL board noted that if ARL were unable or unwilling to
            consummate either of the proposed mergers, it would become obligated
            to pay a penalty of $5.00 per outstanding share of the common stock
            of the entity not being acquired unless it initiated a tender offer
            for such shares for at least the same consideration proposed in the
            mergers with respect to the cash consideration. The ARL board
            further noted that consummation of the mergers might not occur for a
            number of reasons outside of ARL's control, including failure to
            obtain the necessary stockholder approvals of TCI or IOT or the lack
            of sufficient cash available to ARL, TCI or IOT, as the case may be,
            to pay the cash portion of the merger consideration.
        -   The ARL board considered, based upon the advice of management and
            after consultation with legal counsel, the time and management
            resources necessary to solicit the requisite stockholder approval of
            the mergers and to consummate the mergers.
        -   The ARL board considered the steps necessary to consummate the
            mergers, in addition to those required to solicit stockholder
            approval, and based upon the advice of management and after
            consultation with legal counsel, was of the view that such steps,
            including the obtaining of necessary regulatory and other approvals,
            could be obtained.
        -   The ARL board considered the various risks and uncertainties
            involved in the mergers, including the risks described under the
            heading "Risk Factors" in this joint proxy statement and prospectus.

        During its consideration of the proposed transactions with TCI and IOT,
the ARL board was aware that certain executive officers and directors of ARL may
have interests in the proposed transactions that are different from or in
addition to those of ARL's non-affiliated stockholders generally, all as
described under "Interests of Directors and Officers in the Business
Combination."

        The foregoing discussion of the information, factors and advice
considered by the ARL board of directors is not intended to be exhaustive, but
is believed to address the material





                                       58




information, factors and advice considered by the ARL board of directors in
reaching its determination to approve and recommend the TCI and IOT merger
agreements.

ADVERSE CONSEQUENCES AND NEGATIVE FACTORS ASSOCIATED WITH THE MERGERS

        The mergers involve risks, uncertainties, adverse consequences,
detriments and negative factors, including, without limitation, the following:

        -   The risks and uncertainties described in this joint proxy statement
            and prospectus under the heading "RISK FACTORS" beginning on page 28
        -   Following the mergers, the non-affiliated stockholders of IOT and
            TCI who receive cash for their shares will cease to participate in
            any future earnings and growth of either IOT or TCI
        -   The mergers will result in a taxable transaction for the
            stockholders of IOT and TCI, including those who may otherwise have
            preferred retaining their stock in order to defer the occurrence of
            a taxable event
        -   Based upon the unaudited pro forma consolidated financial
            statements, the mergers would have resulted in earnings per share of
            ARL common stock that are less than the historical earnings per
            share of IOT common stock and TCI common stock
        -   The book value per share of IOT common stock and TCI common stock at
            December 31, 2001 exceeds the per share cash consideration offered
            to the non-affiliated stockholders of IOT and TCI, respectively,
            pursuant to the mergers
        -   As a result of the IOT merger, stockholders of IOT electing to
            receive shares of the preferred stock of ARL will no longer be
            holders of an equity interest in a REIT, which is required to
            distribute 95% of its net income in the form of dividends each year.
            During the year ended December 31, 2000, IOT paid dividends equal to
            $0.45 per share of IOT common stock. IOT paid no dividends in 2001

        The foregoing discussion is not intended to be exhaustive, but includes
material risks, uncertainties, adverse consequences, detriments and negative
factors associated with the mergers in general. The adverse consequences and
detriments of the mergers to each stockholder may be different from those
described above depending on the facts and circumstances applicable to such
stockholder.


FINANCING OF THE BUSINESS COMBINATION


        ARL estimates that approximately $94,235,586 will be required if all
nonaffiliated TCI and IOT stockholders take cash in exchange for their shares of
TCI common stock and IOT common stock, and to pay the related fees and expenses
of the transactions. The actual amount required to purchase such shares and pay
the related expenses will depend on the number of stockholders who affirmatively
elect to receive Series G and Series H redeemable convertible preferred stock.
Consequently, the greater number of stockholders who affirmatively elect to
receive Series G and Series H redeemable convertible preferred stock the less
funds will be required to pay the cash merger consideration and certain of the
related expenses. The following table contains an itemized list of funds
applicable to the individual mergers as well as funds that apply to both
mergers. This table assumes that all nonaffiliated TCI and IOT stockholders take
the cash merger consideration.





                                       59






        APPLICATION OF FUNDS SPECIFIC            AMOUNT OF
                TO TCI MERGER                      FUNDS                SOURCE OF FUNDS


                                                          
Purchase of 2,853,080 shares of TCI common                       Cash from the sources set forth
        stock at $17.50 per share from all                       in the Source of Funds table below
        nonaffiliated TCI stockholders......     $49,928,900


 Sunset Management loan secured by 2,601,798                     ARL intends to satisfy the loan by
         shares of TCI common stock..........    $20,000,000     substituting ARL stock that will be
                                                                 secured by $40,000,000 of equity
                                                                 from TCI and IOT income properties
                                                                 for the TCI common stock now used
                                                                 as collateral, otherwise ARL must
                                                                 pay off this loan


Dynamic Finance loan secured by 843,311                          ARL intends to satisfy the loan by
        shares of TCI common stock..........      $4,000,000     substituting ARL stock owned by BCM
                                                                 as collateral for the TCI common
                                                                 stock now used as collateral, otherwise
                                                                 ARL must pay off this loan

Preferred Bank loan secured by 249,191 shares                    ARL intends to satisfy the loan by
        of TCI common stock.................        $250,000     substituting ARL stock owned by BCM
                                                                 as collateral for the TCI common stock
                                                                 now used as collateral, otherwise ARL
                                                                 must pay off this loan

    Subtotal................................     $74,178,900











        APPLICATION OF FUNDS SPECIFIC            AMOUNT OF
                TO IOT MERGER                      FUNDS              SOURCE OF FUNDS

                                                           
Purchase of 576,480 shares of IOT common
        stock at $19.00 per share from                            Cash from the sources set forth
        nonaffiliated IOT stockholders......     $10,953,120      in the Source of Funds table below

Beal Bank loan secured by 250,000 shares of                       ARL intends to satisfy the loan by
        IOT common stock....................      $3,000,000      substituting ARL stock owned by BCM
                                                                  as collateral for the IOT common
                                                                  stock now used as collateral, otherwise
                                                                  ARL must pay off this loan
    Subtotal............................... .    $13,953,120







                                       60




 APPLICATION OF FUNDS APPLICABLE TO BOTH THE     AMOUNT OF
             TCI AND IOT MERGERS                   FUNDS               TYPE OF FUNDS

                                                           
Payment to George Donaldson, Settlement
        Counsel, pursuant to the Olive                            Cash from the sources set forth
        Settlement .........................        $875,000      in the Source of Funds table below

                                                                  Cash from the sources set forth
Professional fees...........................        $590,000      in the Source of Funds table below

                                                                  Cash from the sources set forth
Advisory fees on property sales.............      $3,038,566      in the Source of Funds table below



                                                                  ARL will satisfy the margin loan by
Payment of a margin loan with a brokerage firm                    substituting stock of ARL
        secured by 300,000 shares of TCI  common                  owned by BCM as collateral for
        stock and 150,000 shares of  IOT common                   the TCI and IOT common stock now
        stock ..............................      $1,600,000      used as collateral, otherwise
                                                                  ARL must pay off this loan

    Subtotal................................      $6,103,566
    TOTAL...................................     $94,235,586



        ARL expects the amount of funds needed to complete the business
combination to be funded first through new loans and, if necessary, through
internally generated funds from the sale (or use as collateral for loans) of a
number of assets. The amount of loans and the sale of assets, if necessary, will
depend on the number of stockholders who accept cash rather than affirmatively
elect to receive Series G and Series H redeemable convertible preferred stock.
The more stockholders who elect to receive Series G and Series H redeemable
convertible preferred stock will reduce the amount of cash needed to pay the
cash merger consideration and in turn will affect the amount of loans and
whether the assets need to be sold. At the date of this joint proxy statement
and prospectus, while preliminary discussions for new financings have occurred,
no written formal commitment has been issued by any of the lenders. Similarly,
no stated or effective interest rates or other material terms of any financing
arrangement have been agreed. ARL, TCI and IOT have available a number of real
property assets which should be able to be sold (or used as collateral for
loans), if such funds are necessary, however, presently there are no written or
oral contracts to sell any of the assets. The table set forth below summarizes
the expected loans and the expected sales of real property that ARL may use to
fund the business combination. Some or all of the loans and property sales may
not be required depending on the amount of cash needed. The properties listed
below are more fully described under "Information about ARL -- Properties of
ARL," "Information about TCI -- Properties of TCI" and "Information about IOT --
Properties of IOT," as applicable. In the event the cash from loans and any
sales of assets is greater than needed to satisfy the cash merger consideration
requirements, ARL and its subsidiaries will use the excess for working capital
purposes.




                                       61





                                                                  AMOUNT OF NET
                                                                  CASH EXPECTED
                      SOURCE OF FUNDS                            TO BE GENERATED

                                                                
ARL expects to enter into new loans that total in the
      aggregate $20,000,000 that will be secured by
      approximately 4,000,000 shares of ARL stock with
      a market value of $40,000,000.......................          $20,000,000
ARL expects to obtain new loans that are secured by the
        following properties(+)...........................          $ 8,231,543







                  PROPERTY                          LOCATION
                                           
        Williamsburg Hospitality  House         Williamsburg, VA
        Cross County Mall                       Mattoon, IL
        Conradi House                           Tallahassee, FL
        Villager                                Ft. Walton, FL
        One Hickory Center                      Farmers Branch, TX




                                                          
TCI expects to obtain new loans that are secured by the
        following properties(+):..........................    $9,486,895






              PROPERTY                             LOCATION
                                             
        The Forum                                Richmond, VA
        Jefferson Office Building                Washington, DC
        Durham Center                            Durham, NC
        Autumn Chase Apartments                  Midland, TX
        Gladstell Forest                         Curee, TX
        Treehouse-Irving                         Irving, TX
        Westwood Square                          Odessa, TX
        Surf Hotel                               Chicago, IL
        Majestic Hotel                           San Francisco, CA
        City Suites Hotel                        Chicago, IL





                                                         
  ARL expects to sell the following properties(++)...        $24,327,259






                 PROPERTY                              LOCATION
                                             
        Regency on Kennedy Apts                   Tampa, FL
        Confederate Pointe                        Jacksonville, FL
        Pheasant Ridge                            Belleview, NE
        Oak Tree Square                           Grandview, MO
        Woodsong                                  Smyrna, GA
        Whispering Pines                          Topeka, KS
        Centura Towers                            Farmers Branch, TX
        Greenbriar                                Tallahassee, FL
        Lake Chateau                              Thomasville, GA
        LeeHills                                  Tallahassee, FL
        Northside Villas                          Tallahassee, FL
        Pine Crest West                           Tallahassee, FL
        Rolling Hills                             Tallahassee, FL
        Valley Hi                                 Tallahassee, FL



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


(+) Properties available as of April 15, 2002. The available properties are
subject to change depending on interim sales and market conditions.

(++) Properties available as of April 1, 2002. The available properties are
subject to change depending on interim sales and market conditions.



                                       62




                                                      
        White Pines                                      Tallahassee, FL

  TCI expects to sell the following properties(++)...        $62,615,876






            PROPERTY                        LOCATION
                                       
       4242 Cedar Springs                   Dallas, TX
       Bay Plaza I                          Tampa, FL
       Bay Plaza II                         Tampa, FL
       Bonita Plaza                         Bonita, CA
       Country Club Villas                  Largo, FL
       Country Crossing                     Tampa, FL
       Gladstell                            Houston, TX
       Heritage on the River                Jacksonville, FL
       In the Pines                         Gainesville, FL
       Limestone Canyon                     Austin, TX
       Plantation                           Tulsa, OK
       Plaza Tower                          St. Petersburg, FL
       Quail Creek                          Lawrence, KS
       Sandstone                            Mesa, AZ
       Somerset Place                       Texas City, TX
       Stone Oak Place                      San Antonio, TX
       Summerfield                          Orlando, FL
       Allen Land                           McKinney, TX





                                                         
  Total..............................................        $124,661,573



OPINION OF FINANCIAL ADVISOR


        The board of directors of each of TCI and IOT retained Houlihan Lokey,
pursuant to engagement letters dated October 4, 2001 (the "Engagement Letters"),
to render fairness opinions, from a financial point of view, to public TCI
common stockholders and public IOT common stockholders, in each case excluding
those stockholders affiliated with ARL, of the consideration to be received by
the nonaffiliated TCI stockholders and the nonaffiliated IOT stockholders in the
merger of TCI and IOT with two subsidiaries of ARL pursuant to which (a)
nonaffiliated TCI stockholders will receive: (i) $17.50 in cash or (ii) if they
affirmatively elect, one share of newly issued ARL Series G redeemable
convertible preferred stock for each share of TCI common stock that they
currently own and (b) nonaffiliated IOT stockholders will receive: (i) $19.00 in
cash or (ii) if they affirmatively elect, one share of newly issued ARL Series H
redeemable convertible preferred stock. Both the Series G redeemable convertible
preferred stock and Series H redeemable convertible preferred stock are
convertible into ARL common stock based upon the terms, conditions and exchange
ratios set forth herein. Houlihan Lokey and the board of directors of each of
TCI and IOT amended the Engagement Letters on February 1, 2002, to provide for
Houlihan Lokey's performance of certain additional financial advisory services
on behalf of the board of directors of each of TCI and IOT, specifically,
conducting negotiations with ARL regarding the mergers. Houlihan Lokey did not
set the cash offering price in the mergers of $17.50 per share for TCI
stockholders or $19 per share for IOT




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

(++) Properties available as of April 1, 2002. The available properties are
subject to change depending on interim sales and market conditions.



                                       63






stockholders. These amounts were determined by negotiation between Settlement
Counsel and representatives of ARL. Houlihan Lokey advised the TCI and IOT
boards of directors as to the range of exchange ratios for the conversion
factors of ARL Series G and H Preferred Stock implied by the financial analysis
conducted by Houlihan Lokey and assisted the boards of directors in negotiating
such exchange ratios. See "Special Factors -- Background of the Business
Combination and -- Determination of Merger Consideration."

        Houlihan Lokey is a nationally recognized investment banking firm that
provides financial advisory services in connection with mergers and
acquisitions, leveraged buyouts, business valuations for a variety of regulatory
and planning purposes, recapitalizations, financial restructurings, and private
placements of debt and equity securities. In November of 1999, Houlihan Lokey
acted as financial advisor to an affiliate of ARL, TCI and IOT, National Realty,
L. P. ("NRLP"), and rendered a fairness opinion with respect to the
consideration to be received by unitholders of NRLP in connection with a
business combination. The board of directors of each of TCI and IOT selected
Houlihan Lokey to provide the financial advisory services described herein upon
a referral from NRLP and because of Houlihan Lokey's reputation as a nationally
recognized valuation and financial consulting firm that has substantial
experience providing valuation and consulting services. TCI agreed to pay
Houlihan Lokey a fee of $340,000 and IOT agreed to pay Houlihan Lokey a fee of
$60,000, in each case for its preparation and delivery of a fairness opinion
plus reasonable out-of-pocket expenses that may be incurred by Houlihan Lokey in
connection herewith, plus a refundable indemnification deposit of $42,500 from
TCI and a refundable indemnification deposit of $7,500 from IOT. In accordance
with the Settlement Agreement in the Olive Litigation, Mr. Phillips, BCM and ARL
are required to reimburse TCI and IOT for such expenses. Pursuant to the
amendment to the Engagement Letters, TCI and IOT agreed to jointly pay Houlihan
Lokey an additional fee of $100,000 for the additional services described below.
No portion of Houlihan Lokey's fee is contingent upon the successful completion
of the mergers or any other related transaction. Houlihan Lokey has been
retained by TCI and IOT to deliver fairness opinions to the board of directors
of TCI and IOT and provide certain additional financial advisory services on
behalf of the board of directors of each of TCI and IOT, specifically, to
conduct negotiations with ARL regarding the terms of the Series G redeemable
convertible preferred and the Series H redeemable convertible preferred. With
respect to the negotiations with ARL, Houlihan Lokey advised the TCI and IOT
boards of directors with respect to the range of exchange ratios implied by
Houlihan Lokey's financial analysis and recommended that the boards of directors
ensure that the stockholders that received the ARL preferred stock would have an
adequate opportunity to evaluate the ARL combined business operation and to
convert the Series G and Series H redeemable convertible preferred stock into
ARL common stock. Houlihan Lokey also negotiated with representatives of ARL at
the direction of the boards of directors of IOT and TCI regarding the timing of
redeeming the preferred stock and converting the preferred stock. The exchange
ratio was determined by the boards of directors of ARL, IOT and TCI following
negotiations conducted by Houlihan Lokey and representatives of ARL. The
limitations on voting rights of the preferred stock were determined by ARL. TCI
and IOT agreed to indemnify Houlihan Lokey and its affiliates against certain
liabilities, including liabilities under federal securities laws that arise out
of the engagement of Houlihan Lokey.



                                       64





        At joint meetings of the TCI and IOT boards of directors on February 1,
2002, Houlihan Lokey rendered its oral opinion regarding the consideration to be
received by the stockholders of TCI and IOT in connection with the mergers.
Thereafter, Houlihan Lokey assisted the TCI and IOT boards of directors with
respect to certain negotiations regarding modifications to the terms of the
Series G redeemable convertible preferred stock and Series H redeemable
convertible preferred stock. On February 4, 2002, Houlihan Lokey confirmed in
writing, that as of February 1, 2002, and subject to and based upon the various
qualifications and assumptions set forth in its written opinions, the
consideration to be received by the stockholders of TCI and IOT in connection
with the mergers was fair, from a financial point of view, to the nonaffiliated
TCI stockholders and the nonaffiliated IOT stockholders. The full text of
Houlihan Lokey's opinions, which set forth the assumptions made, general
procedures followed, factors considered and limitations on the review undertaken
by Houlihan Lokey in rendering its opinions are attached hereto as APPENDIX E
and APPENDIX F and are incorporated herein by reference. The discussion of the
opinions below is qualified in its entirety by reference to the opinions. You
are urged to read Houlihan Lokey's opinions in their entirety carefully for a
description of the procedures followed, the factors considered and the
assumptions made by Houlihan Lokey.

        Houlihan Lokey's opinions to the TCI and IOT boards of directors address
only the fairness from a financial point of view of the consideration to be
received in the mergers. Houlihan Lokey's opinions do not constitute a
recommendation as to how any person should vote with respect to the mergers or a
recommendation as to the form and amount of consideration that any person should
elect in connection with the mergers. Houlihan Lokey is not rendering any
opinion on the current or prospective public share prices of any of TCI, IOT or
ARL (collectively, the "Subject Companies"). Houlihan Lokey's opinions also do
not address TCI's or IOT's underlying business decision to effect the mergers,
the tax consequences of the mergers, the fair market value of any of the Subject
Companies' assets either individually or collectively, or the reasonableness of
any aspect of the mergers not expressly addressed in its fairness opinions.
Houlihan Lokey has not been requested to, is not obligated to and does not
intend to update, revise or reaffirm its fairness opinion in connection with the
mergers. Events that could affect the fairness of the mergers, from a financial
point of view, include adverse changes in industry performance or market
conditions and changes to the business, financial condition and results of
operations of the Subject Companies.


        In arriving at its fairness opinions, among other things, Houlihan Lokey
assumed that: (i) each Series G share will have a liquidation preference of
$20.00 per share and will pay a cash dividend of 10 percent per annum; (ii) each
Series H share will have a liquidation preference of $21.50 per share and will
pay a cash dividend of 10 percent per annum; (iii) at the holders' option, each
Series G share is convertible into 2.5 shares of ARL common stock during a 75
day period commencing on the fifteenth day after the public issuance of ARL's
form 10-Q (the "10-Q Issuance Date") to the public following the close date of
the mergers; (iv) at the holders' option, each Series H share is convertible
into 2.25 shares of ARL common stock during a seventy-five day period commencing
on the fifteenth day after the 10-Q Issuance Date following the close date of
the mergers; and (v) the Series G and Series H shares will be redeemable by ARL
90 days after the 10-Q Issuance Date following the close date of the mergers at
the liquidation preference plus any accrued and unpaid dividends thereon.



                                       65




In  arriving at its fairness opinions, among other things, Houlihan Lokey:

    1.  met with certain members of the senior management of the Subject
        Companies and their advisor, BCM, to discuss the operations, financial
        condition, future prospects and projected operations and performance of
        the Subject Companies;

    2.  visited certain facilities and business offices of the Subject
        Companies;

    3.  reviewed the Subject Companies' annual reports to stockholders and on
        Form 10-K for the fiscal years ended December 31, 2000 and quarterly
        reports on Form 10-Q for the three quarters ended September 30, 2001,
        which Subject Companies' management have identified as being the most
        current financial statements available;

    4.  reviewed forecasts and projections prepared by the Subject Companies
        management with respect to the Subject Companies' apartment, retail,
        industrial, hotel and office building assets for the years ended
        December, 2002 through 2006;

    5.  requested the latest appraisals on the Subject Companies' income
        producing properties and any and all appraisals for the Subject
        Companies' land assets, and reviewed such appraisals as were provided by
        management;

    6.  reviewed ARL's Land Portfolio Book dated September 2001;

    7.  reviewed certain estimated valuations of TCI and IOT prepared in
        connection with the Settlement Agreement;

    8.  reviewed the historical market prices and trading volume for the Subject
        Companies' publicly traded securities;

    9.  reviewed certain other publicly available financial data for certain
        companies that Houlihan Lokey deems comparable to the Subject Companies;
        and

    10. conducted such other studies, analyses and inquiries as Houlihan Lokey
        deemed appropriate.

ANALYSES


        In order to determine the fairness, from a financial point of view, of
the consideration to be received by the nonaffiliated IOT stockholders and the
nonaffiliated TCI stockholders in the mergers, Houlihan Lokey determined an
indicated range per share of equity net asset values for ARL, IOT and TCI and
compared such per share concluded equity net asset values to each other and to
the ARL per share public trading price. This analysis was premised upon a
valuation of each of the Subject Companies' income and non-income producing
properties and other assets and considered their respective liabilities.


        In determining the value of the Subject Companies' income producing
properties, Houlihan Lokey conducted several analyses, including the following:
(1) a "Net Asset Value" approach whereby Houlihan Lokey (a) applied
capitalization rates to historical and projected




                                       66



adjusted net operating income for each of the income producing properties held
by the Subject Companies (the "Income Producing Properties") and (b) estimated
the present value of the projected future cash flows to be generated from the
Income Producing Properties by applying a discount rate to the projected future
cash flow, (2) a "Portfolio" approach whereby Houlihan Lokey determined a level
of earnings considered to be representative of future performance of the Subject
Companies, and capitalized such figure with a risk-adjusted rate, and (3)
various other analyses. Houlihan Lokey used the following valuation
methodologies to determine the value of the land assets: historical sales price
per square foot, outstanding offers and letters of intent, management estimates
and book value. In addition, certain assets, such as Pizza World, Signature
Athletic Club and parking lots, were valued by employing the market multiple
approach and other assets, including notes receivable and oil and gas
operations, were valued at book value.

NET ASSET VALUE APPROACH - INCOME PRODUCING PROPERTY

DIRECT CAPITALIZATION


        In conducting the direct capitalization net asset value approach,
Houlihan Lokey applied (x) rates from publicly available capitalization rates
estimated in the Second Quarter 2001 Market Monitor and the Fall 2001 Real
Estate Outlook by Cushman & Wakefield, Inc. and The Appraisal Institute to (y)
each of the Income Producing Properties (i) adjusted net operating income for
the twelve months ended September 30, 2001 and (ii) projected adjusted net
operating income for the fiscal year ended December 31, 2002. The capitalization
rates used in the direct capitalization approach ranged from 8.9% to 15.9% for
the twelve-month period ended September 30, 2001 and from 9.3% to 16.4% for the
twelve month period ended December 31, 2002. Capitalization rates applied in
individual property valuations were determined with reference to the type of
property being evaluated and adjusted based on historical and/or projected
occupancy rates for such property, as applicable.


DISCOUNTED CASH FLOW


        In conducting the discounted cash flow net asset value approach,
Houlihan Lokey applied a discount rate to the projected future cash flows of
each Income Producing Property to arrive at present value of such Income
Producing Property. The applicable Subject Company provided Houlihan Lokey with
the property level historical and projected financial information used to
determine the net operating income of each property. The discount rates used in
the discounted cash flow approach ranged from 11.3% to 18.3% and were intended
to reflect risks of ownership of the relevant Income Producing Property and the
associated risks of realizing the stream of projected future cash flows. The
discount rates applied by Houlihan Lokey in its analysis were based on discount
rates for office, industrial and retail properties published by Cushman &
Wakefield, Inc. Discount rates applied in individual property valuations were
determined with reference to the types of property being evaluated and adjusted
based on historical and/or projected occupancy rates for such property, as
applicable. Houlihan Lokey's ability to use the discounted cash flow method of
valuation was limited by the lack of availability of necessary forecasts for
certain Income Producing Properties resulting from changes in tenant occupancy
or other factors that effect projected performance for certain Income Producing
Properties. Accordingly, Houlihan Lokey utilized the discount cash flow method
only for those assets with forecasts considered





                                       67



relevant. Additionally, based upon Houlihan Lokey's discussions with management,
due diligence and analysis of projections, in some instances the discount rate
was adjusted to reflect additional uncertainty and risk associated with the
projections.

SELECTED ASSET VALUES

        Based upon the valuation indications of both the direct capitalization
and discounted cash flow analyses, Houlihan Lokey selected a range of values for
each asset. Following the determination of the individual income producing
property asset values, each property's value was allocated to the Subject
Companies based on respective ownership of the assets.

PORTFOLIO (MARKET) APPROACH - INCOME PRODUCING PROPERTY

        The Subject Companies own various real estate assets that were combined,
based on asset types, into portfolios. Property level financial data was
provided by the applicable Subject Company based on internally prepared property
operating statements. The market approach consists of determining a level of
earnings and capitalizing this figure by an appropriate risk-adjusted rate. This
approach provides an indication of value for the security, which corresponds
with the particular earnings figure being capitalized. For purposes of
determining the value of the Income Producing Properties owned by the Subject
Companies, net operating income was utilized as a representative level of
earnings for the office, hotel, apartment, retail and industrial assets.

        In using the portfolio (market) approach, Houlihan Lokey applied
debt-free market capitalization rates to net operating income of the various
categories of Income Producing Properties of the Subject Companies, in each case
to arrive at the values of the Income Producing Properties.

        Houlihan Lokey utilized the Subject Companies' internal financial
statements to determine consolidated net operating income for the twelve months
ended September 30, 2001 and management projections for the twelve months ended
December 31, 2002. In performing the portfolio (market) analysis, Houlihan Lokey
applied capitalization rates ranging from 9.5% to 15.0% to the net operating
income for the twelve months ended September 30, 2001.

ARL VALUATION


        Because of the nature of ARL's assets and the diversity in type of
property, age, rental history and other factors, no single valuation methodology
was likely to produce an accurate indication of the value of ARL. As a result,
Houlihan Lokey engaged in a valuation of each ARL asset individually by applying
one or more valuation methodologies that were most likely to yield a meaningful
indication of value. Houlihan Lokey then aggregated the range of indicated
values for each property to determine the range of concluded enterprise values
and concluded equity net asset values for ARL taken as a whole. Based on the
portfolio (market) analysis conducted by Houlihan Lokey, Houlihan Lokey
estimated a range of asset value for ARL's income producing property as follows:
(1) $230.5 million to $254.7 million for the ARL apartment portfolio, (2) $50.7
million to $55.8 million for the ARL office portfolio, (3) $70.7 million to
$77.1 million for the ARL shopping center portfolio and (4) $68.8 million to
$80.3 million for ARL's hotel portfolio. In utilizing the "Net Asset Value"
approach, Houlihan Lokey estimated a range of




                                       68




asset value for ARL's income producing property as follows: (1) $237.6 million
to $248.8 million for apartment assets, (2) $59.4 million to $65.0 million for
hotel assets, (3) $120.9 million to $133.0 million for office assets and (4)
$84.4 million to $90.6 million for retail assets. Houlihan Lokey estimated a
range of asset values for ARL's land assets of $290.0 million to $400.0 million.
The estimate asset value for other assets such as investments in joint ventures,
Pizza World, oil & gas operations, notes receivable, accounts receivable,
escrows and earnest money, net other liabilities such as accounts payable,
property taxes and accrued expenses, was $27.6 million to $35.1 million.
Houlihan Lokey estimated a range of value for ARL's investment in real estate
securities of $7.8 million to $10.5 million for ARL's 28.3 percent ownership
interest in IOT and $86.9 million to $123.6 million for ARL's 49.7 percent
ownership interest in TCI. These estimated values were calculated based upon
ARL's percentage ownership in TCI and IOT multiplied by Houlihan Lokey's
concluded equity net asset values for TCI and IOT.

        Based on the approaches discussed above, Houlihan Lokey estimated a
range of concluded enterprise values for ARL of $873.7 million to $1,071.8
million, a range of concluded equity net asset values for ARL of $126.3 million
to $262.8 million and a range of per share concluded equity net asset values of
$11.10 to $23.10.

IOT VALUATION


        Because of the nature of IOT's assets and the diversity in type of
property, age, rental history and other factors, no single valuation methodology
was likely to produce an accurate indication of the value of IOT. As a result,
Houlihan Lokey engaged in a valuation of each IOT asset individually by applying
one or more valuation methodologies that were most likely to yield a meaningful
indication of value. Houlihan Lokey then aggregated the range of indicated
values for each property to determine the range of concluded enterprise values
and concluded equity net asset values for IOT taken as a whole. Based on the
portfolio (market) analysis conducted by Houlihan Lokey, Houlihan Lokey
estimated a range of asset value for IOT's income producing property as follows:
(1) $23.8 million to $26.3 million for the IOT apartment portfolio and (2) $38.1
million to $41.9 million for the IOT office portfolio. In utilizing the "Net
Asset Value" approach, Houlihan Lokey estimated a range of asset value for IOT's
income producing property as follows: (1) $21.5 million to $22.8 million for
apartment assets and (2) $41.3 million to $50.2 million for office assets. The
estimated asset value for IOT's land assets was $24.6 million to $31.6 million.
The estimated asset value for other assets such as investments in joint
ventures, notes receivable, accounts receivable and escrow deposits, net other
liabilities such as accounts payable, property taxes and security deposits was
-$0.6 million to $0.5 million.


        Based on the approaches discussed above, Houlihan Lokey estimated a
range of concluded enterprise values for IOT of $86.3 million to $102.7 million,
a range of concluded equity net asset values for IOT of $27.4 million to $37.0
million and a range of per share concluded equity net asset values of $19.04 to
$25.71.

TCI VALUATION


        Because of the nature of TCI's assets and the diversity in type of
property, age, rental history and other factors, no single valuation methodology
produced an accurate indication of the




                                       69





value of TCI. As a result, Houlihan Lokey engaged in a valuation of each TCI
asset individually by applying one or more valuation methodologies that were
most likely to yield a meaningful indication of value. Houlihan Lokey then
aggregated the range of indicated values for each property to determine the
range of concluded enterprise values and concluded equity net asset values for
TCI taken as a whole. Based on the portfolio (market) analysis conducted by
Houlihan Lokey, Houlihan Lokey estimated a range of asset value for TCI's income
producing property as follows: (1) $221.0 million to $244.3 million for the TCI
apartment portfolio, (2) $200.6 million to $220.7 million for the TCI office
portfolio, (3) $25.6 million to $28.0 million for the TCI shopping center
portfolio, (4) $49.7 million to $54.7 million for the TCI industrial portfolio
and (5) $13.1 million to $15.1 million for TCI's hotel portfolio. In utilizing
the "Net Asset Value" approach, Houlihan Lokey estimated a range of asset value
for TCI's income producing property as follows: (1) $270.4 million to $296.0
million for apartment assets (2) $17.6 million to $18.6 million for hotel
assets, (3) $51.7 million to $60.7 million for industrial/warehouse assets, (4)
$225.9 million to $261.8 million for office assets and (5) $28.0 million to
$32.5 million for retail assets. Houlihan Lokey estimated a range of asset
values for TCI's land assets from $68.0 million to $97.0 million. The estimated
asset value for other assets such as investments in joint ventures, the
Signature Athletic Club, Alamo and West End parking lots, notes receivable,
advances to affiliates, accounts receivable, pending purchases and escrow
deposits, net other liabilities such as accounts payable, property taxes and
security deposits was $10.9 million to $15.1 million. Houlihan Lokey estimated a
range of asset value for TCI's investment in real estate securities of $6.6
million to $8.9 million for TCI's 24 percent ownership interest in IOT and $8.0
million to $16.6 million for TCI's 6.3 percent ownership interest in ARL. These
estimated values were calculated based upon TCI's percentage ownership in ARL
and IOT multiplied by Houlihan Lokey's concluded equity net asset values for ARL
and IOT.


        Based on the approaches discussed above, Houlihan Lokey estimated a
range of concluded enterprise values for TCI of $645.3 million to $754.1
million, a range of concluded equity net asset values for TCI of $173.7 million
to $247.2 million and a range of per share concluded equity net asset values of
$20.70 to $29.45.

EXCHANGE RATIO ANALYSIS

        Based on the foregoing valuation estimates, Houlihan Lokey notes that
the indicated exchange ratios based on net asset values of IOT and TCI and the
lowest estimated net asset value of ARL was 1.71 to 2.32 for IOT and 1.86 to
2.65 for TCI on an after tax basis and 1.24 to 1.81 for IOT and 1.42 to 2.10 on
a before tax basis.


        In conclusion, Houlihan Lokey's analyses indicated that the
consideration being offered to the nonaffiliated TCI stockholders and the
nonaffiliated IOT stockholders in connection with the mergers is fair from a
financial point of view.


        Houlihan Lokey's opinions are based on the business, economic, market
and other conditions as they existed as of February 1, 2002, and on the
projected financial information provided to Houlihan Lokey as of that date. In
rendering its opinions, Houlihan Lokey has relied upon and assumed, without
independent verification, that the historical and projected financial
information (including the future value and estimated sale dates of the land
held for sale) provided to Houlihan Lokey by the Subject Companies has been
reasonably and accurately




                                       70



prepared based upon the best current available estimates of the financial
results and condition of the Subject Companies. Houlihan Lokey did not
independently verify the accuracy or completeness of the information supplied to
it with respect to the Subject Companies and does not assume responsibility with
respect to it. Except as set forth above, Houlihan Lokey did not make any
independent appraisal of the specific properties or assets of the Subject
Companies.

        The summary set forth above describes the material points of more
detailed analyses performed by Houlihan Lokey in arriving at its fairness
opinions. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinions, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, or portions of this summary, could create an incomplete
view of the processes underlying the analyses set forth in Houlihan Lokey's
fairness opinions. In its analysis, Houlihan Lokey made numerous assumptions
with respect to the Subject Companies, industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of the respective entities. The estimates contained in the
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be more or less favorable than suggested by the
analyses. However, there were no specific factors reviewed by Houlihan Lokey
that did not support its opinions. Additionally, analyses relating to the value
of businesses or securities are not appraisals. Accordingly, the analyses and
estimates are inherently subject to substantial uncertainty.

DETERMINATION AND RECOMMENDATION OF THE TCI BOARD OF DIRECTORS


        On February 1, 2002, the TCI board of directors met by telephone
conference to consider the recommendation of the TCI merger, to approve the
filing of documents with the SEC and to authorize the executive officers to
finalize this joint proxy statement and prospectus and the related filings. At
that meeting, counsel for TCI reviewed and compared the terms of the TCI merger
agreement to the requirements under the Settlement Agreement. At that meeting,
Houlihan Lokey made a presentation to the TCI board of directors on the
financial analyses performed by Houlihan Lokey in connection with its fairness
analysis. Houlihan Lokey also made a presentation concerning the fairness of the
consideration to be offered to the nonaffiliated TCI stockholders in the merger
and delivered their opinion that the amount of the consideration to be offered
in the TCI merger was fair from a financial point of view to those nonaffiliated
TCI stockholders. Following the presentations, all of the TCI directors
determined that the terms of the Settlement Agreement and contemplated merger
were procedurally and substantively fair to the nonaffiliated TCI stockholders
and approved the terms of the merger and the TCI merger agreement. The TCI board
of directors believe that the following helped insure the procedural fairness of
the proposed TCI merger to the nonaffiliated TCI stockholders, all as required
by the Settlement Agreement:



                                       71






        -   That the TCI board of directors obtain an opinion from Houlihan
            Lokey that the consideration to be offered to the nonaffiliated TCI
            stockholders in the merger is fair to them from a financial point of
            view.
        -   The procedural mechanism for approval of the TCI merger agreement
            requires the affirmative vote of a majority of the votes cast by
            nonaffiliated TCI stockholders.
        -   The TCI board of directors was aware that all affiliated TCI
            stockholders will receive ARL preferred stock in the merger rather
            than cash.
        -   The terms of the proposed TCI merger were dictated principally from
            the Settlement Agreement from arms length negotiations between
            Settlement Counsel and counsel for ARL.
        -   The TCI merger will afford nonaffiliated TCI stockholders with the
            opportunity (but no obligation) to make an affirmative election to
            receive securities rather than cash.

        -   The terms of the proposed TCI merger were not determined at a time
            when market prices were unusually depressed by virtue of the
            occurrence of any extraordinary or unique event.


        On February 1 and 4, 2002, the TCI board of directors again met by
telephone conference to review a revised form of opinion from Houlihan Lokey,
which contained proposed revisions to the timing of the conversion period of the
preferred stock available by affirmative election by the TCI stockholders.
During that meeting, discussions ensued concerning the probable timing based
upon potential filings by ARL depending upon the consummation of the TCI merger.
The TCI board of directors concluded that the recommended change in timing of
conversion periods would be beneficial to those TCI stockholders who
affirmatively elect to receive preferred stock. Following these discussions, the
TCI directors reaffirmed their February 1, 2002 determination that the terms of
the Settlement Agreement and contemplated merger are procedurally and
substantively fair to the nonaffiliated TCI stockholders as previously
described.


        The Houlihan Lokey opinion was rendered to the TCI board of directors
for its consideration in determining whether to approve the TCI merger agreement
and does not constitute a recommendation to any TCI stockholder as to how such
stockholder should vote.


        Based upon all of the information available to the TCI board of
directors, the TCI board of directors unanimously concluded that the terms and
provisions of the TCI merger and TCI merger agreement were fair to and in the
best interests of the nonaffiliated TCI stockholders, approved the TCI merger
agreement and recommended that the TCI stockholders approve the TCI merger
agreement and the transactions contemplated thereby.


DETERMINATION AND RECOMMENDATION OF THE IOT BOARD OF DIRECTORS


        On February 1, 2002, the IOT board of directors met by telephone
conference to consider the recommendation of the IOT merger, to approve the
filing of documents with the SEC and to authorize the executive officers to
finalize this joint proxy statement and prospectus and the related filings. At
that meeting, counsel for IOT reviewed and compared the terms of the IOT merger
agreement to the requirements under the Settlement Agreement. At that meeting,
Houlihan Lokey made a presentation to the IOT board of directors on the
financial analyses performed by Houlihan Lokey in connection with its fairness
analysis. Houlihan Lokey also made a presentation concerning the fairness of the
consideration to be offered to the nonaffiliated




                                       72




IOT public stockholders in the IOT merger and delivered their opinion that the
amount of the consideration to be offered in the IOT merger, was fair from a
financial point of view to those nonaffiliated IOT stockholders. Following the
presentations, all of the IOT directors determined that the terms of the
Settlement Agreement and contemplated IOT merger were procedurally and
substantively fair to the nonaffiliated IOT stockholders and approved the terms
of the IOT merger and the IOT merger agreement. The IOT board of directors
believe that the following helped insure the procedural fairness of the proposed
IOT merger to the nonaffiliated IOT stockholders, all as required by the
Settlement Agreement:


        -   That the IOT board of directors obtain an opinion from Houlihan
            Lokey that the consideration to be offered to the nonaffiliated IOT
            public stockholders in the merger is fair to them from a financial
            point of view.
        -   The procedural mechanism for approval of the IOT merger agreement
            requires the affirmative vote of a majority of the votes cast by
            nonaffiliated IOT stockholders.
        -   The IOT board of directors was aware that all affiliated IOT
            stockholders will receive ARL preferred stock in the merger rather
            than cash.
        -   The terms of the proposed IOT merger were dictated principally from
            the Settlement Agreement from arms length negotiations between
            Settlement Counsel and counsel for ARL.
        -   The IOT merger will afford nonaffiliated IOT stockholders with the
            opportunity (but no obligation) to make an affirmative election to
            receive securities rather than cash.

        -   The terms of the proposed IOT merger were not determined at a time
            when market prices were unusually depressed by virtue of the
            occurrence of any extraordinary or unique event.


        On February 1 and 4, 2002, the IOT board of directors again met by
telephone conference to review a revised form of opinion from Houlihan Lokey,
which contained proposed revisions to the timing of the conversion period of the
preferred stock available by affirmative election by the IOT stockholders.
During that meeting, discussions ensued concerning the probable timing based
upon potential filings by ARL depending upon the consummation of the IOT merger.
The IOT board of directors concluded that the recommended change in timing of
conversion periods would be beneficial to those IOT stockholders who
affirmatively elect to receive preferred stock. Following these discussions, the
IOT directors reaffirmed their February 1, 2002 determination that the terms of
the Settlement Agreement and contemplated merger are procedurally and
substantively fair to the nonaffiliated IOT stockholders as previously
described.


        The Houlihan Lokey opinion was rendered to the IOT board of directors
for its consideration in determining whether to approve the IOT merger agreement
and does not constitute a recommendation to any IOT stockholder as to how such
stockholder should vote.


        Based upon all of the information available to the IOT board of
directors, the IOT board of directors unanimously concluded that the terms and
provisions of the IOT merger and IOT merger agreement were fair to and in the
best interests of the nonaffiliated IOT stockholders, approved the IOT merger
agreement and recommended that the stockholders approve the IOT merger agreement
and the transactions contemplated thereby.



                                       73




EFFECTS OF THE MERGERS; ARL AFTER THE MERGERS


        ARL, TCI and IOT have substantially the same management, and affiliated
ownership. While the three companies operate as a group of related companies,
each is a separate and distinct entity and as such, each has separate SEC
reporting obligations, each files separate tax returns with the Internal Revenue
Service and state tax authorities, and each entity has its own board of
directors, including one or more independent directors. Each entity presently
has the same contractual advisor, BCM, and each entity attempts to operate
efficiently given this three entity structure by, among other things, having the
same contractual advisor which results in a consolidation of the general and
administrative functions of the three companies at the BCM level, and in common
offices located in Dallas, Texas. However, the three entity structure does
necessarily result in certain inefficiencies and higher costs. Among the
detriments of the current structure to each of the three entities and their
respective nonaffiliated stockholders are the following:

        -   the need for and costs of three separate outside audits
        -   the need for and costs of filing separate SEC reports and separate
            tax returns for each of the three entities
        -   the need for and costs of maintaining three separate boards of
            directors, each with at least one or more separate independent
            directors, and of holding separate board meetings and annual
            stockholder meetings for each of the three entities
        -   inefficiencies resulting from the need to maintain separate books
            and records for three public companies, and to institute and
            maintain procedural safeguards to protect the interests of the
            separate minority interests in each of the three entities
        -   a limited number of shares in the hands of the public available
            which results in illiquidity of the common equity of the three
            entities, when compared to the enhanced liquidity that should exist
            if substantially all of the common equity of the three entities were
            traded as a single common security
        -   difficulties in explaining to the capital markets the business plan
            and strategy on a company-by-company basis, as opposed to a
            consolidated basis and the interrelations between the ownership,
            businesses and management of the three entities
        -   the difficulty of matching the available assets with the available
            opportunities of the three companies on a company-by-company basis,
            as opposed to a consolidated basis

        If the mergers are consummated, TCI and IOT will each become
subsidiaries of ARL. If both mergers are consummated, the current unaffiliated
TCI and IOT stockholders will no longer own their shares of stock. Therefore,
they will not benefit from any future earnings or growth of TCI or IOT or
benefit from any increase of the value of TCI or IOT and will no longer bear the
risk of any decrease in value of TCI or IOT. Instead, former stockholders will
have the right to receive at consummation of the merger, $17.50 in cash for each
share of TCI common stock held, and $19.00 in cash for each share of IOT common
stock held. The benefit to the holders of the TCI common stock and the IOT
common stock of the transaction is the payment of a premium, in cash, above the
respective market values for such stock prior to the announcement of the merger
agreements. This cash payment assures that all nonaffiliated TCI and IOT
stockholders will receive a specific cash amount for their respective shares
rather than taking the risks associated with attempting to sell their shares in
the open market. The detriment to such



                                       74




holders (if any) is their inability to participate as a continuing stockholder
in the possible future growth of either TCI or IOT.

        TCI's and IOT's common stock are each currently registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of
the mergers, the TCI common stock will be delisted from the NYSE, the IOT common
stock will be delisted from the AMEX, the registration of the TCI common stock
and IOT common stock under the Exchange Act will be terminated, and TCI and IOT
will each be relieved of the obligation to comply with the proxy rules of
Regulation 14a under Section 14 of the Exchange Act. Further, TCI and IOT will
no longer be subject to periodic reporting requirements of the Exchange Act and
will cease filing information with the SEC. There will be cost savings
attributable to TCI and IOT no longer being public companies, including legal
and other fees and administrative expenses of personnel relating to the filing
of public documents, and maintenance of boards of directors and committees
required under the federal securities laws and the rules and regulations of the
NYSE and the AMEX.

        After consummation of the mergers, ARL will be the only remaining public
entity of the three. The directors of ARL immediately prior to the effectiveness
of the mergers will be the directors of ARL immediately after the mergers, and
the three directors of TCI and IOT will join the board of directors of ARL
following the mergers. The directors of TCI and IOT will not continue to be the
directors of TCI and IOT after the mergers. The officers of ARL, TCI and IOT
immediately prior to the effective time of the mergers will be the officers of
the entities immediately after the mergers. Similarly, no change in the
certificate of incorporation or bylaws of any of the entities is contemplated
prior to the effective time of the mergers or after the consummation of the
mergers.


        ARL expects that the business and operations of all three entities will
be continued substantially as they are currently conducted (except that TCI and
IOT will be operated as subsidiaries of ARL) but some adjustments will be
necessitated by the financing of the consideration to be paid to the
nonaffiliated TCI stockholders and nonaffiliated IOT stockholders in connection
with the mergers. Except as stated in this joint proxy statement and prospectus,
management of ARL does not currently intend to dispose of any specific assets or
operations of ARL, TCI or IOT other than in the ordinary course of their
respective businesses. Management will, from time to time, continue to evaluate
and review the businesses, operations and properties of all of the entities and
make such changes as are deemed appropriate.


        Other than by virtue of the mergers (and any possible tender offers
described elsewhere in this joint proxy statement and prospectus), ARL, TCI, IOT
and BCM have no current plans or proposals which relate to or would result in an
extraordinary corporate transaction involving TCI or IOT or any of their
subsidiaries, such a merger, reorganization or liquidation, or a sale or
transfer of a material amount of assets involving TCI or IOT or any of their
subsidiaries, or any material change in the present dividend rate or policy, or
capitalization or indebtedness (except as contemplated by the financing
arrangements described in this joint proxy statement and prospectus) involving
TCI or IOT or any of their subsidiaries, or any change in the present board or
management of TCI or IOT, or any other material change in ARL's or TCI's or
IOT's corporate structure or business. However, management of ARL will review
proposals or may propose the acquisition or disposition of assets or other
changes in ARL and its subsidiaries'



                                       75




business, corporate structure, capitalization, management or dividend policy
that they consider to be in the best interests of ARL and its stockholders.
Neither ARL nor its management has formulated any specific plans regarding
repayment of indebtedness incurred in connection with the mergers, but it is
anticipated that such indebtedness will be repaid primarily with or by means of
cash from operations of the businesses of ARL and its subsidiaries.


CONDUCT OF THE BUSINESS OF EITHER OR BOTH OF TCI OR IOT IF EITHER MERGER IS NOT
CONSUMMATED


        If either of the mergers is not consummated, the board of directors of
TCI or IOT or both and current management will continue to operate each entity's
business substantially as presently operated.

FEDERAL INCOME TAX CONSIDERATIONS

        This section summarizes material U.S. federal income tax considerations
relevant to the stockholders of TCI and IOT participating in the mergers. This
discussion is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury Regulations, judicial decisions and
current administrative rulings and pronouncements, all as of the date of this
document and any of which may be changed at any time with retroactive effect.
There can be no assurance that future legislation, regulations, administrative
rulings or court decisions would not alter the tax consequences set forth below.
The discussion does not address all aspects of federal income taxation that may
be important to particular stockholders in light of their personal investment
circumstances or to stockholders subject to special treatment under the federal
income tax laws (such as dealers in securities, life insurance companies,
foreign persons, broker-dealers, regulated investment companies, tax-exempt
entities, financial institutions, taxpayers subject to the alternative minimum
tax, taxpayers who acquired their TCI or IOT stock as compensation and persons
holding their stock as part of a "straddle," "hedge" or other integrated
investment) and does not address any aspect of state, local or foreign taxation.
For purposes of this discussion, it is assumed that the TCI and IOT stock are
held by the TCI and IOT stockholders respectively, as capital assets at the time
of the consummation of the mergers, within the meaning of Section 1221 of the
Code. THEREFORE, STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGERS AND RELATED TRANSACTIONS,
INCLUDING APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.

        No ruling has been or will be obtained from the Internal Revenue Service
in connection with the mergers. TCI and IOT stockholders should be aware that an
opinion of counsel is not binding on the Internal Revenue Service or the courts,
and no assurance can be given that the Internal Revenue Service will not
challenge the tax treatment of the mergers.

        The following are the material United States federal income tax
consequences of the mergers. The following discussion is based on and subject to
the Code, the regulations promulgated thereunder, existing administrative
interpretations and court decisions and any related laws, all of which are
subject to change, possibly with retroactive effect. This discussion does not
address all aspects of United States federal income taxation that may be
important to you in light of your particular circumstances or if you are subject
to special rules, such as rules relating to:


                                       76




        -   stockholders who are not citizens or residents of the United States
        -   financial institutions
        -   tax exempt organizations
        -   insurance companies
        -   dealers in securities


        Each stockholder receiving preferred stock in the mergers will be
responsible for reporting the fair market value of the shares on its tax return.
Assuming that the preferred stock is not listed on the NYSE or another exchange
at the date of the closing of the mergers, it is unlikely that a stockholder
receiving preferred stock could establish that the fair market value of the
shares was less than the cash that the stockholder could have received. We will
not obtain an opinion as to the fair market value of the shares at the date of
closing.


        Jackson Walker L.L.P. has concluded that the mergers will not qualify as
tax-free reorganizations and accordingly they will be taxable transactions. The
mergers will have the following federal income tax consequences upon the TCI,
IOT and ARL stockholders:

        1.  The TCI stockholders who receive cash in the TCI merger will
            recognize gain or loss equal to the difference between (i) the cash
            received by them; and (ii) their tax basis of their shares of TCI.

        2.  The TCI stockholders who receive preferred stock in the TCI merger
            will recognize gain or loss equal to the difference between (i) the
            fair market value of the preferred stock received by them; and (ii)
            their tax basis of their shares of TCI.

        3.  The IOT stockholders who receive cash in the IOT merger will
            recognize gain or loss equal to the difference between (i) the cash
            received by them; and (ii) their tax basis of their shares of IOT.

        4.  The IOT stockholders who receive preferred stock in the IOT mergers
            will recognize gain or loss equal to the difference between (i) the
            fair market value of the preferred stock received by them; and (ii)
            their tax basis of their shares of IOT.

        5.  The tax basis of the preferred stock received by TCI and IOT
            stockholders in the merger will equal the fair market value of the
            preferred shares at the date the TCI and IOT stockholders own the
            shares of preferred stock.

        6.  The holding period for the shares of our preferred stock received by
            TCI and IOT stockholders will not include the holding period of
            their TCI or IOT shares.

        7.  ARL stockholders will not recognize gain or loss as a result of the
            mergers.

        The foregoing discussion is not based upon an advance ruling by the
United States Treasury Department but upon an opinion of Jackson Walker L.L.P.,
counsel to ARL. The foregoing discussion is not intended to be a complete
analysis or description of all potential United States federal income tax
consequences or any other consequences of the mergers. In addition, the
discussion does not address tax consequences which may vary with, or are


                                       77




contingent on, your individual circumstances. Moreover, this discussion does not
address any non-income tax or any foreign, state or local tax consequences of
the mergers. Accordingly, we strongly urge you to consult with your tax adviser
to determine the particular United States federal, state, local or foreign
income or other tax consequences to you of the mergers.

        The above discussion addresses only the federal income tax
considerations of the proposed transactions to a TCI or an IOT stockholder
generally. The federal, state, local and foreign tax consequences of the
proposed transactions and the ownership and disposition of stock in ARL are
complex and, in some cases, uncertain. These consequences also may vary based
upon the individual circumstances of each stockholder. Accordingly, TCI and IOT
stockholders are urged to consult, and must rely upon, their own tax advisors as
to the tax consequences to them of the acquisition, ownership and disposition of
stock in ARL, including the applicability of any state, local or foreign tax
laws and any pending or proposed legislation.

REGULATORY APPROVALS

        At any time before or after the completion of the merger, the Antitrust
Division of the Justice Department, the Federal Trade Commission or another
third party could seek to enjoin or rescind the mergers on antitrust grounds.



                                       78





             INTERESTS OF DIRECTORS AND OFFICERS OF ARL, TCI AND IOT
                           IN THE BUSINESS COMBINATION


        Some of the directors and officers of ARL have interests in the business
combination that are different from, or in addition to, the interests of ARL
stockholders generally, and that may present actual or potential conflicts of
interest. Likewise, some of the directors and officers of TCI and IOT have
interests that are different from, or in addition to, the interests of TCI and
IOT stockholders generally. These interests, to the extent material, are
described below. The ARL, TCI and IOT boards of directors were aware of these
interests and considered them, among other matters, in approving the respective
agreements and plans of merger and the business combination.

DIRECTORS AND EXECUTIVE OFFICERS


        Messrs. Branigan, Corna, Kimbrough and Starowicz, who serve as executive
officers of ARL, also serve as executive officers of TCI, IOT and BCM. Each of
the individuals, as a result of their position with ARL, owe fiduciary duties to
the stockholders of ARL in addition to the fiduciary duties owed to the
stockholders of TCI and IOT. Mr. Earl Cecil is a director of each of ARL, TCI
and IOT. Additionally, TCI and IOT have the same officers and directors and,
therefore, the directors owe fiduciary duties to both TCI and IOT. At times,
each of these individuals may be confronted by issues, including the business
combination, that present them with potentially conflicting interests and
obligations. Furthermore, in accordance with the advisory agreements that each
of ARL, TCI and IOT have with BCM (as discussed under the heading "The
Advisor"), BCM will receive a fee upon the sale, if any, of the properties that
may be sold to fund the payment of the cash merger consideration. For the
properties available for sale as of April 1, 2002, the amount of the fee is
estimated to be $3,038,815. See "Special Factors - Financing the Business
Combination."

        None of the individual officers and directors of ARL, TCI, IOT or BCM
will receive individual compensation, shares, forgiveness of debt, options, or
severance benefits, or earn outs or any other amounts that could be considered
compensation related to the successful consummation of either the TCI or IOT
merger. Certain officers and directors currently hold shares as described below
and will be treated as affiliates and will receive shares of ARL preferred stock
in return for their TCI and IOT common stock.


        It is currently expected that the directors and officers of ARL, TCI and
IOT will remain the same after the business combination except that the three
directors of TCI and IOT will become directors of ARL. As a result of these
interests as well as those set forth below, the directors and officers of ARL,
TCI and IOT could be more likely to vote to approve the business combination,
the agreements and plans of merger and related matters than if they did not hold
these interests. You should consider whether these interests may have influenced
these directors and officers to support or recommend the business combination.

STOCK OWNERSHIP


        Some of the executive officers and directors of ARL, TCI and IOT own
stock and options of ARL, TCI and IOT. See "Security Ownership of Certain
Beneficial Owners and Management





                                       79






of ARL," "Security Ownership of Certain Beneficial Owners and Management of TCI"
and "Security Ownership of Certain Beneficial Owners and Management of IOT" for
a detailed breakdown of share ownership before and after the mergers. As a
result, these executive officers and directors may benefit from that ownership
if the business combination is approved.


STOCK OPTIONS


        Certain members of the ARL and TCI boards of directors and management
have been issued options pursuant to certain option plans of ARL and TCI. As of
the record date, executive officers and directors of ARL held options to
purchase a total of 13,000 shares of ARL common stock at exercise prices of
between $9.87 per share and $18.53 per share. Directors of TCI held options to
purchase a total of 30,000 shares of TCI common stock at exercise prices of
between $8.875 per share and $16.05 per share.


OTHER AGREEMENTS AND BENEFIT PLANS

        Neither ARL, TCI or IOT has any employees, employment agreements,
benefit plans or other agreements with stockholders. As a result, the directors
and executive officers of each company may have different interests in the
business combination arising primarily from their ownership of stock in either
ARL, TCI or IOT.

INDEMNIFICATION AND INSURANCE

        ARL has agreed to cause TCI and IOT to maintain, for a period of three
years after the completion of the business combination, the current provisions
and policies regarding indemnification of officers and directors, provided that
TCI or IOT may substitute policies having at least the same coverage and
containing terms that are no less advantageous to the insured.




                                       80




                               THE PLANS OF MERGER


        Provided ARL has sufficient funds available to it, either from its own
resources or from TCI and IOT immediately after the mergers, to pay the cash
merger consideration, ARL and each of TCI and IOT will execute and deliver an
agreement and plan of merger following approval of the mergers by ARL's
stockholders and, in the case of TCI and IOT, approval by their respective
stockholders of the mergers. The mergers will be consummated contemporaneously
with or promptly following the execution and delivery of the agreements and
plans of merger. The following is a discussion of the material provisions of
each agreement and plan of merger. The full text of each agreement and plan of
merger is attached as Appendix A and Appendix B to this joint proxy statement
and prospectus and are incorporated herein by reference. We encourage you to
read the applicable agreement and plan of merger in its entirety.


THE MERGER


        According to the terms of each agreement and plan of merger, at the
effective time of each merger, two separate recently formed wholly-owned
subsidiaries of ARL will merge with TCI and IOT, respectively. The acquisitions
of TCI and IOT are not dependent upon each other. If the stockholders of one
company do not approve their respective merger, only the approved merger may be
consummated. TCI and IOT will survive the merger.


EFFECTIVE TIME OF THE MERGER

        The closing of the transactions contemplated by the merger agreements
will take place contemporaneously with or as soon as practicable following the
execution and delivery of each merger agreement. The closing cannot take place
until after the stockholders of TCI or IOT approve their respective mergers.
Additionally, the ARL board of directors has determined that the TCI and IOT
mergers would not be consummated unless, in each case, sufficient cash was
available to ARL, either from its own resources or from TCI or IOT immediately
after the mergers, to pay the cash merger consideration due as a result of the
mergers.


        As soon as practicable after the closings, the articles of mergers in
connection with each respective merger will be filed with the Secretary of State
of the State of Nevada, as provided in the Nevada Mergers and Exchanges of
Interest Act. The times at which the articles of merger are filed in Nevada and
the Secretary of State issues a certificate of merger is referred to as the
"effective time" of each respective merger.


CONVERSION OF SHARES - EXCHANGE RATIO


        If the TCI stockholders approve their merger, each share of outstanding
TCI common stock will be converted into $17.50 in cash or upon the affirmative
election of the stockholder, one share of Series G redeemable convertible
preferred stock. The cash consideration shall be reduced by any dividend TCI
pays on the TCI common stock after January 2, 2002. Each share of outstanding
TCI common stock held by BCM and other affiliates of ARL will be converted into
one share of Series G redeemable convertible preferred stock and each
outstanding share held by TCI, ARL or its subsidiaries will be cancelled.



                                       81





        If the IOT stockholders approve their merger, each share of outstanding
IOT common stock will be converted into $19.00 in cash or, upon the affirmative
election of the stockholder, one share of ARL Series H redeemable convertible
preferred stock. The cash consideration shall be reduced by any dividend IOT
pays on the IOT common stock after January 2, 2002. Each share of outstanding
IOT common stock held by BCM and other affiliates of ARL will be converted into
one share of Series H redeemable convertible preferred stock and each
outstanding share held by IOT, TCI, ARL or its subsidiaries will be cancelled.


CLOSING

        Contemporaneously with the execution and delivery of the merger
agreements, or promptly thereafter, a closing will take place at the offices of
Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas or at such
other place as ARL, TCI, IOT and the two newly formed subsidiaries mutually
agree upon.

REPRESENTATIONS AND WARRANTIES

        The merger agreements contain representations and warranties by ARL and
its two recently formed subsidiaries relating to:


        -   organization and qualification
        -   capitalization
        -   authority
        -   the absence of a breach or any violation of ARL's and its two
            recently formed subsidiaries' articles of incorporation, bylaws, or
            similar governing documents
        -   statutory approvals
        -   compliance with laws
        -   accuracy of information in the documents filed with the SEC
        -   accuracy of information in financial statements contained in the
            documents filed with the SEC
        -   absence of certain changes or events
        -   absence of litigation
        -   absence of undisclosed liabilities
        -   accuracy of information in the joint proxy statement and prospectus
        -   vote required to approve the merger
        -   accuracy of representations, warranties, and statements contained in
            any certificate or schedule
        -   stock option plans
        -   affiliate agreements
        -   taxes
        -   brokers and finders




                                       82




        The respective merger agreements contain representations and warranties
by TCI and IOT relating to:


        -   organization and qualification
        -   capitalization
        -   authority
        -   the absence of a breach or a violation of TCI's or IOT's articles of
            incorporation, bylaws, or similar governing documents
        -   consents and approvals
        -   statutory approvals
        -   compliance with laws
        -   accuracy of information in documents filed with the SEC
        -   accuracy of information in financial statements contained in
            documents filed with the SEC
        -   absence of certain changes or events
        -   absence of litigation
        -   absence of undisclosed liabilities
        -   accuracy of information in the joint proxy statement and prospectus
        -   vote required to approve the merger agreement
        -   accuracy of representations, warranties, and statements contained in
            any certificate or schedule
        -   stock option plans affiliate agreements
        -   taxes
        -   brokers and finders


INDEMNIFICATION

        The surviving corporations have agreed to maintain the current
provisions regarding indemnification of officers and directors contained in the
charter and bylaws of TCI and/or IOT and each of their respective subsidiaries
and any directors, officers or employees indemnification agreements of TCI
and/or IOT or their respective subsidiaries.

EXCHANGE OF CERTIFICATES


        At the effective time of the mergers, all shares of TCI and IOT common
stock will cease to be outstanding and will automatically be cancelled and
retired. Each certificate formerly representing TCI and IOT common stock other
than those held by ARL and its subsidiaries, TCI or IOT will represent ownership
of the right to receive either cash or ARL preferred stock, as applicable,
issuable in the mergers until those certificates are surrendered to the exchange
agent. The exchange agent for the merger is American Stock Transfer and Trust
Company.

        As soon as possible after the completion of the mergers, the exchange
agent will mail you a form of letter of transmittal and instructions for your
use in making your election and exchanging your common stock certificates for
cash or ARL preferred stock certificates. When





                                       83




you surrender your certificates, together with a signed letter of transmittal,
you will receive in exchange either cash or certificate(s) representing whole
shares of ARL preferred stock to which you are entitled.

        YOU SHOULD NOT SEND YOUR CERTIFICATES TO THE EXCHANGE AGENT UNTIL YOU
RECEIVE A LETTER OF TRANSMITTAL.

ACCOUNTING TREATMENT


        The mergers will be accounted for under the purchase method of
accounting. Accordingly, ARL will record the assets and liabilities of TCI and
IOT and the consideration paid.

CONSEQUENCES UNDER FEDERAL SECURITIES LAWS; RESALE OF ARL STOCK

        The sale of shares of Series G and Series H redeemable convertible
preferred stock issuable in connection with the mergers has been registered
under the Securities Act. Accordingly, there will be no federal securities law
restrictions upon the resale or transfer of the shares by stockholders, except
for those stockholders who are considered affiliates of ARL, TCI or IOT, as that
term is defined in Rule 144 and Rule 145 adopted under the Securities Act.

        Series G and Series H redeemable convertible preferred stock received by
those stockholders who are considered to be affiliates of ARL, TCI or IOT may be
resold without registration only as provided for by Rule 145 or as otherwise
permitted under the Securities Act. Persons who may be considered to be
affiliates of ARL, TCI or IOT generally include individuals or entities that
control, are controlled by or are under common control with, ARL, TCI or IOT,
and may include the executive officers and directors of ARL, TCI and IOT.

MANAGEMENT AND BOARD OF DIRECTORS AFTER THE MERGERS

        Following the completion of the business combination, the board of
directors of ARL will consist of the combined boards of all three entities and
will be seven in number. No other changes in the directors, executive officers
or management of ARL, TCI or IOT are anticipated.


        During the past five years, none of ARL, TCI, IOT, BCM, Transcontinental
Realty Acquisition Corporation, Income Opportunity Acquisition Corporation or
any of their respective executive officers or directors was (i) convicted in a
criminal proceeding during the past five years (excluding traffic violations or
other minor offenses, if any), or (ii) a party to any judicial or administrative
proceeding during the past five years (except for matters that were dismissed
without sanction or settlement, if any) that resulted in a judgment, decree or
final order enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws.

EXPENSES OF THE MERGERS

        If the mergers are consummated, all fees and expenses incurred in
connection with the mergers will be paid by the party incurring those fees and
expenses, except for the fees and expenses for the fairness opinions, which ARL
is required to pay pursuant to the Settlement


                                       84





Agreement. Estimated fees and expenses incurred or to be incurred in connection
with the business combination are approximately as follows:




                          DESCRIPTION AMOUNT
                                                           
Legal fees and expenses......................................   $  500,000
Accounting fees and expenses.................................       64,751
    Houlihan Lokey...........................................      500,000
    Fees to BCM relating to property expected to be sold         3,038,815
    and loans to be obtained to finance the business
    combination..............................................
Printing, mailing and distribution expenses..................       30,000
Paying agent fees and expenses...............................       10,000
SEC filing fees..............................................       14,130
Miscellaneous fees and expenses..............................       10,000
        Total................................................   $4,167,696




        The fees to BCM ($3,038,815) relate to incentive fees and finance fees
earned when gains result from property sales and finance or refinance
transactions are consummated. These fees will be expensed by ARL, TCI and IOT in
the period when earned by BCM.




                                       85





                        COMPARISON OF OWNERSHIP OF SHARES


        After the effective time of the mergers, IOT and TCI stockholders will
be offered the opportunity to affirmatively elect to become stockholders of ARL.
The following is a comparison of the rights of holders of the TCI common stock
and IOT common stock, on the one hand, and the Series G and Series H redeemable
convertible preferred stock they will be offered the opportunity to acquire, on
the other. No holder of TCI or IOT common stock will be required to acquire
Series G or Series H redeemable convertible preferred stock. Instead, following
the mergers, if they occur, holders of the TCI and IOT common stock will be
offered the opportunity to affirmatively elect to receive Series G or Series H
redeemable convertible preferred stock in lieu of the cash they would otherwise
receive.





--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                     MANAGEMENT
--------------------------------------------------------------------------------------------------------------------
                                                                         
Under the Nevada Revised Statutes (the   IOT is subject to the same NRS         The holders of Series G redeemable
"NRS"), the business and affairs of a    provisions.                            convertible preferred stock and
Nevada corporation are managed by or                                            Series H redeemable convertible
under the directors of its board of      Each share of  IOT common stock        preferred stock are not voting for
directors, whose members are generally   entitles its holder to cast one vote   the election of directors except
elected by a majority vote.              on matters as to which voting is       when all or any portion of the
                                         permitted or required by Nevada law,   dividends on such class of preferred
Each share of  TCI common stock          including the election of directors.   stock for any six quarterly
entitles its holder to cast one vote                                            dividends, whether or not
on matters as to which voting is         The IOT Articles of Incorporation      consecutive, shall be in arrears and
permitted or required by Nevada law,     require a  board consisting of not     unpaid, as the case may be.  During
including the election of directors.     fewer than 3 nor more than 12          the period such dividends are in
                                         directors, the exact number to be      arrears, and only during such
The TCI Articles of Incorporation        determined by the board.               period, the number of directors
require a minimum of 3 directors and a                                          constituting the board of directors
maximum of 12 directors on its board.    Pursuant to IOT's Articles of          of ARL shall be increased by two and
                                         Incorporation, any director of IOT     the holders of Series G redeemable
The Articles of Incorporation and        may be removed from office at any      convertible preferred stock or
Bylaws of TCI provide that any           time, with or without cause, by the    Series H redeemable convertible
director of TCI may be removed from      affirmative vote of the holders of     preferred stock, as the case may be,
office at any time, for cause, by the    not less than two-thirds (2/3) of      voting separately as a class, shall
affirmative vote of the holders of not   the outstanding stock of IOT voting    be entitled to elect two directors
less than 80% of the outstanding stock   thereon.                               to fill the newly created
of TCI voting thereon.                                                          directorships with each holder being
                                                                                entitled to one vote in the election
                                                                                for each share of such class of
                                                                                preferred stock held.

                                                                                ARL's Restated Articles of
                                                                                Incorporation provide that it shall
                                                                                be managed by a board
--------------------------------------------------------------------------------------------------------------------







                                       86





--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
                                                                                consisting of not fewer than 3
                                                                                nor more than 12 directors, the
                                                                                exact number to be determined by the
                                                                                board.

                                                                                According to ARL's Restated Articles
                                                                                of Incorporation, any director of
                                                                                ARL may be removed from office at
                                                                                any time, with or without cause, by
                                                                                the affirmative vote of the holders
                                                                                of not less than two-thirds (2/3) of
                                                                                the outstanding stock of ARL voting
                                                                                thereon; provided that any director
                                                                                elected by a particular class or
                                                                                series of shares pursuant to ARL's
                                                                                Restated Articles of Incorporation
                                                                                may be removed only by the
                                                                                applicable vote of the holders of
                                                                                such class or series.
----------------------------------------------------------------------------------------------------------------------
                                                  FIDUCIARY DUTIES
----------------------------------------------------------------------------------------------------------------------
Under Nevada law, directors are          IOT is subject to the same NRS         ARL is subject to the same NRS
charged with the duty to exercise        provisions.                            provisions.
their powers in good faith with a view
to the interests of the corporation.
Directors must use reasonable due
diligence to protect corporate
property.
----------------------------------------------------------------------------------------------------------------------
                                                    VOTING RIGHTS
----------------------------------------------------------------------------------------------------------------------
Each share of TCI common stock           Each share of IOT common stock         The holders of Series G preferred
entitles its holder to cast one vote     entitles its holder to cast one vote   and Series H redeemable convertible
on matters as to which voting is         on matters as to which  voting is      preferred stock are not voting for
permitted or required by Nevada law,     permitted or required by Nevada law,   the election of directors or on any
including the election of directors,     including the election of directors,   matter except: (i) as otherwise
amendments to TCI's Articles of          amendments to IOT's articles of        provided by law, (ii) with respect
Incorporation, mergers and other         incorporation, mergers and other       to an amendment to ARL's Restated
extraordinary transactions.              extraordinary transactions.            Articles of Incorporation or Bylaws
                                                                                that would materially alter or
                                                                                change the existing terms of such
                                                                                class of preferred stock, as the
                                                                                case may be, and (iii) at any time
                                                                                or times for the election of two
                                                                                directors when all or any portion of
                                                                                the dividends on such class of
----------------------------------------------------------------------------------------------------------------------







                                       87






--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
                                                                                preferred stock for any six
                                                                                quarterly dividends, whether or not
                                                                                consecutive, shall be in arrears and
                                                                                unpaid.  In the latter event, and
                                                                                only during such period that such
                                                                                dividends are in arrears, the number
                                                                                of directors constituting the board
                                                                                of directors of ARL shall be
                                                                                increased by two and the holders of
                                                                                such class of Series G redeemable
                                                                                convertible preferred stock or
                                                                                Series H redeemable convertible
                                                                                preferred stock, as the case may be,
                                                                                voting separately as a class, shall
                                                                                be entitled to elect two directors
                                                                                to fill the newly created
                                                                                directorships with each holder being
                                                                                entitled to one vote in the election
                                                                                for each share of such class of
                                                                                preferred stock held.

                                                                                In the event that the Series G
                                                                                redeemable convertible preferred
                                                                                stock or Series H redeemable
                                                                                convertible preferred stock are
                                                                                required to vote on a matter as
                                                                                provided by law, the approval shall
                                                                                be deemed to have been obtained only
                                                                                upon the affirmative vote of the
                                                                                holders of a majority of the shares
                                                                                of such class of preferred stock
                                                                                outstanding.
----------------------------------------------------------------------------------------------------------------------
                                                  VOTING PROCEDURES
                                              ANNUAL / SPECIAL MEETINGS
----------------------------------------------------------------------------------------------------------------------
The NRS provides that a corporation is   IOT is subject to the same NRS         The holders of Series G redeemable
entitled to make bylaws pertaining to    provisions.  In addition, IOT's        convertible preferred stock and H
the calling and holding of meetings of   Bylaws provide that the annual         redeemable convertible preferred
its stockholders.  The TCI Bylaws        meeting of stockholders for the        stock are not voting for the
provide that the annual meeting of       election of directors shall be held    election of directors except when
stockholders for the election of         within the first eight months of       all or any portion of the dividends
directors and for such other business    each calendar year, or as soon as      on such class of preferred stock for
as may be stated in the                  practicable thereafter. Each           any six quarterly dividends, whether
                                         meeting of the stockholders shall
----------------------------------------------------------------------------------------------------------------------






                                       88





--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
notice of the meeting, shall be held     be held at such place within           or not consecutive, shall be in
at such place, either within or          the United States and at such          arrears and unpaid.  During the
without the state of                     time and date as the board of          period such dividends are in
Nevada, and within the first eight       directors shall determine. The         arrears, and only during such
months of each calendar year as          IOT Articles of Incorporation          period, the number of directors
determined by the board of directors.    and Bylaws provide that special        constituting the board of directors
The TCI Articles of Incorporation and    meetings of the stockholders           of ARL shall be increased by two and
Bylaws provide that special meetings     may only be called by the              the holders of Series G redeemable
of the stockholders may only be called   president, secretary or by             convertible preferred stock or
by the president, secretary or by        resolution of the board of             Series H redeemable convertible
resolution of the board of directors.    directors.                             preferred stock, as the case may be,
                                                                                voting separately as a class, shall
                                         No action may be taken by written      be entitled to elect two directors
                                         consent except upon the written        to fill the newly created
                                         consent in writing by all of the       directorships with each holder being
                                         stockholders of IOT voting thereon.    entitled to one vote in the election
                                                                                for each share of such class of
                                                                                preferred stock held.

                                                                                Such special meeting for the
                                                                                election of directors may be called
                                                                                by the holders of 10% of such class
                                                                                of Series G redeemable convertible
                                                                                preferred stock or Series H
                                                                                redeemable convertible preferred
                                                                                stock issued and outstanding.
--------------------------------------------------------------------------------------------------------------------
                                                AMENDMENTS TO CHARTER
----------------------------------------------------------------------------------------------------------------------
The NRS requires the approval of the     IOT is subject to the same NRS         The ARL Restated Articles of
holders of a majority of all             provisions.                            Incorporation  contain a provision
outstanding shares voting to approve                                            which requires the approval of the
proposed amendments to a corporation's   In addition, IOT's Articles of         holders of a majority of all
charter. The holders of the              Incorporation provide that the         outstanding shares voting to approve
outstanding shares of a particular       affirmative vote of at least 75% of    proposed amendments to a
class are voting as a class on a         the votes cast by such holders of      corporation's charter.  The holders
proposed amendment if the amendment      stock voting thereon shall be          of Series G redeemable convertible
would alter or change the power,         required to alter, amend or repeal     preferred stock and Series H
preferences or special rights of one     the provisions of IOT's Articles of    redeemable convertible preferred
or more series of any class so to        Incorporation pertaining to (i) the    stock are not voting on amendments
affect them adversely.                   size of the board of directors, (ii)   to ARL's Restated Articles of
                                         the procedures for amending the        Incorporation or on any matter
TCI's Articles of Incorporation          corporation's bylaws, (iii) the        except as otherwise provided by law
provide that the affirmative vote of     provisions for obtaining written       or with respect to an amendment to
at least 75% of the votes cast           consents of the stockholders and the   ARL's Restated
                                         procedures for calling a
--------------------------------------------------------------------------------------------------------------------






                                       89





--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
  by such holders of stock voting         special meeting of the                Articles of Incorporation would
  thereon shall be required to            stockholders, (iv) IOT's              materially alter or change the
  alter, amend or repeal the              election not to be governed by        existing terms of such class of
  provisions of TCI's Articles of         the statutes contained in NRS         preferred stock.
  Incorporation pertaining to (i)         78.411 to 78.444 "Combinations
  the size of the board of                with Interested stockholders"
  directors, (ii) the procedures          and the statutes contained in
  for amending the corporation's          NRS 78.378 to 78.3793
  bylaws, (iii) the provisions for        "Acquisition of Controlling
  obtaining written consents of           Interest" or (v) IOT's
  the stockholders and the                requirement to obtain the
  procedures for calling a special        approval of two-thirds (2/3) of
  meeting of the stockholders,            the holders of the voting stock
  (iv) TCI's election not to be           to approve certain mergers or
  governed by the statutes                business combinations, or to
  contained in NRS 78.411 to              adopt any provision inconsistent
  78.444 "Combinations with               therewith; provided, however,
  Interested stockholders" and the        that the requirement for such a
  statutes contained in NRS 78.378        75% vote shall not be required
  to 78.3793 "Acquisition of              for any alteration, amendment,
  Controlling Interest", (v) TCI's        repeal or adoption of such
  requirement to obtain the               provision recommended by more
  approval of two-thirds (2/3) of         than 50% of the entire board of
  the holders of the voting stock         directors.
  for certain mergers or business
  combinations, (vi) the
  procedures governing the removal
  of directors, or (vii) the
  procedures governing the board's
  consideration of certain
  mergers, acquisitions or
  business combinations, or to
  adopt any provision inconsistent
  therewith; provided, however,
  that the requirement for such a
  75% vote shall not be required
  for any alteration, amendment,
  repeal or adoption of such
  provision recommended by more
  than 50% of the entire board of
  directors.
----------------------------------------------------------------------------------------------------------------------
                                                AMENDMENTS TO BYLAWS
----------------------------------------------------------------------------------------------------------------------
The NRS provides that subject to the     IOT is subject to the same NRS         ARL's Restated Articles of
restrictions set forth in a              provisions.  The IOT Articles of       Incorporation and Bylaws provide
corporation's bylaws, the directors      Incorporation provide that the         that the Bylaws may be amended by
may make the bylaws of the               Bylaws may be amended by the board     the board of directors or a majority
corporation.  The TCI Articles of        of directors or the approval of no     of the outstanding stock of ARL
Incorporation provide                    less than 75% of the                   voting
----------------------------------------------------------------------------------------------------------------------







                                       90






--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
  that the Bylaws may be amended          holders of the voting stock of        thereon. The holders of Series G
  by a majority of the directors          IOT voting thereon.                   redeemable convertible preferred
  or by the affirmative vote of                                                 stock and Series H redeemable
  the holders of not less than 75%                                              convertible preferred stock are
  of the outstanding stock of TCI                                               not voting for amendments to
  voting thereon.                                                               ARL's Bylaws or on any matter
                                                                                except as otherwise provided by
                                                                                law or if such amendment to
                                                                                ARL's Bylaws would materially
                                                                                alter or change the existing
                                                                                terms of such class of preferred
                                                                                stock.
--------------------------------------------------------------------------------------------------------------------
                                             DIVIDENDS AND DISTRIBUTIONS
----------------------------------------------------------------------------------------------------------------------
Pursuant to the NRS, distributions may   IOT is subject to the same NRS         Each share of Series G redeemable
be made to stockholders (i) unless TCI   provisions.                            convertible preferred stock has a
would not be able to pay its debts as                                           cumulative dividend per share of
they become due in the usual course of                                          10.00% per annum of the $20.00
business, or (ii) except as otherwise                                           liquidation preference, payable
specifically allowed by TCI's Articles                                          quarterly in equal installments of
of Incorporation, its total assets                                              $0.5, if and when declared by the
would be less than the sum of its                                               board and to the extent permitted
total liabilities plus the amount that                                          under the NRS.  Dividends on the
would be needed, if the corporation                                             Series G redeemable convertible
were to be dissolved at the time of                                             preferred stock are in preference to
distribution, to satisfy the                                                    and with priority over dividends
preferential rights upon dissolution                                            upon the ARL common stock.  The
of stockholders whose preferential                                              Series G redeemable convertible
rights are superior to those receiving                                          preferred stock ranks on a parity as
the distribution.                                                               to dividends and upon liquidation,
                                                                                dissolution or winding up with all
                                                                                other shares of ARL preferred stock.

                                                                                Each share of Series H redeemable
                                                                                convertible preferred stock has a
                                                                                cumulative dividend per share of
                                                                                10.00% per annum of the $21.50
                                                                                liquidation preference, payable
                                                                                quarterly in equal installments of
                                                                                $0.5375, if and when declared by the
                                                                                board and to the extent permitted
                                                                                under the NRS.  Dividends on the
                                                                                Series H redeemable convertible
                                                                                preferred stock are in preference to
                                                                                and with priority over
----------------------------------------------------------------------------------------------------------------------




                                       91








--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
                                                                                dividends upon the ARL common
                                                                                stock. The Series H redeemable
                                                                                convertible preferred stock
                                                                                ranks on a parity as to
                                                                                dividends and upon liquidation,
                                                                                dissolution or winding up with
                                                                                all other shares of ARL
                                                                                preferred stock.
----------------------------------------------------------------------------------------------------------------------
                                                  CONVERSION RIGHTS
----------------------------------------------------------------------------------------------------------------------
                                                                                During a 75 day period commencing on
                                                                                the 15th day after ARL publicly
                                                                                files its first Form 10-Q with the
                                                                                SEC following the consummation of
                                                                                the TCI merger, the Series G
None.                                    None.                                  redeemable convertible preferred
                                                                                stock may be converted at the option
                                                                                of the holder of Series G redeemable
                                                                                convertible preferred stock into 2.5
                                                                                shares of ARL common stock for each
                                                                                share of Series G redeemable
                                                                                convertible preferred stock.

                                                                                During a 75 day period commencing on
                                                                                the 15th day after ARL publicly
                                                                                files its first Form 10-Q with the
                                                                                SEC following the consummation of
                                                                                the IOT merger, the Series H
                                                                                redeemable convertible preferred
                                                                                stock may be converted at the option
                                                                                of the holder of Series H redeemable
                                                                                convertible preferred stock into
                                                                                2.25 shares of ARL common stock for
                                                                                each share of Series H redeemable
                                                                                convertible preferred stock.
----------------------------------------------------------------------------------------------------------------------
                                                  REDEMPTION RIGHTS
----------------------------------------------------------------------------------------------------------------------
                                                                                ARL may provide notice of its
                                                                                intention to redeem the Series G
                                                                                redeemable convertible preferred
                                                                                stock no earlier than 45 days after
                                                                                ARL publicly files its first Form
None.                                    None.                                  10-Q with the SEC
----------------------------------------------------------------------------------------------------------------------





                                       92








--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
                                                                                following the consummation of
                                                                                the TCI merger. After that time,
                                                                                ARL may redeem any or all of the
                                                                                Series G redeemable convertible
                                                                                preferred stock upon payment of
                                                                                the liquidation value of $20.00
                                                                                per share plus all accrued and
                                                                                unpaid dividends by giving the
                                                                                holder thereof not less than 45
                                                                                days nor more than 60 days
                                                                                notice thereof prior to the date
                                                                                on which ARL desires such shares
                                                                                redeemed.

                                                                                ARL may provide notice of its
                                                                                intention to redeem the Series H
                                                                                redeemable convertible preferred
                                                                                stock no earlier than 45 days after
                                                                                ARL publicly files its first Form
                                                                                10-Q with the SEC following the
                                                                                consummation of the IOT merger.
                                                                                After that time, ARL may redeem any
                                                                                or all of the Series H redeemable
                                                                                convertible preferred stock upon
                                                                                payment of the liquidation value of
                                                                                $21.50 per share plus all accrued
                                                                                and unpaid dividends by giving the
                                                                                holder thereof not less than 45 days
                                                                                nor more than 60 days notice thereof
                                                                                prior to the date on which the
                                                                                Corporation desires such shares
                                                                                redeemed.
----------------------------------------------------------------------------------------------------------------------
                                               LIQUIDATION/DISSOLUTION
----------------------------------------------------------------------------------------------------------------------
Under the NRS, a dissolution must be     IOT is subject to the same NRS         The holders of Series G redeemable
initiated by the board of directors      provisions.  Upon a liquidation,       convertible preferred stock and
and approved by the holders of a         dissolution or winding up of IOT,      Series H redeemable convertible
majority of the outstanding voting       IOT will distribute the remaining      preferred stock are not voting on
shares of the corporation.               assets, if any, to the holders of      any liquidation or distribution
                                         IOT common stock after paying or       except as otherwise provided by law,
Upon a liquidation, dissolution or       adequately providing for the payment   respectively.
winding up of TCI, TCI will distribute   of all of its liabilities and
the remaining assets, if any, to the     obligations.                           Upon any liquidation, dissolution or
holders of TCI common stock after                                               winding up of ARL, and after paying
paying or                                                                       and providing for the payment of all
                                                                                creditors of ARL,
----------------------------------------------------------------------------------------------------------------------







                                       93








--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
adequately providing for the                                                    the holders of Series G
payment of all of its liabilities and                                           redeemable convertible preferred
obligations.                                                                    stock shall be entitled, before
                                                                                any distribution or payment is
                                                                                made to the ARL common stock, to
                                                                                receive a liquidation preference
                                                                                in an amount in cash equal to
                                                                                $20.00 per share less any
                                                                                dividend declared and paid after
                                                                                January 2, 2002 and prior to the
                                                                                issuance of shares of Series G
                                                                                redeemable convertible preferred
                                                                                stock with respect to shares of
                                                                                TCI common stock plus an amount
                                                                                equal to accrued and unpaid
                                                                                dividends and distributions
                                                                                thereon, whether or not
                                                                                declared, to the date of such
                                                                                payment. Holders of Series G
                                                                                redeemable convertible preferred
                                                                                stock are not entitled to any
                                                                                further distributions.

                                                                                Upon any liquidation,
                                                                                dissolution or winding up of
                                                                                ARL, and after paying and
                                                                                providing for the payment of all
                                                                                creditors of ARL, the holders of
                                                                                Series H redeemable convertible
                                                                                preferred stock shall be
                                                                                entitled, before any
                                                                                distribution or payment is made
                                                                                to the ARL common stock, to
                                                                                receive a liquidation preference
                                                                                in an amount in cash equal to
                                                                                $21.50 per share less any
                                                                                dividend declared and paid after
                                                                                January 2, 2002 and prior to the
                                                                                issuance of shares of Series H
                                                                                redeemable convertible preferred
                                                                                stock with respect to IOT common
                                                                                stock plus an amount equal to
                                                                                accrued and unpaid dividends and
                                                                                distributions thereon, whether
                                                                                or not declared, to the date of
                                                                                such payment. Holders of Series
                                                                                H redeemable
--------------------------------------------------------------------------------------------------------------------






                                       94





--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
                                                                                convertible preferred stock are
                                                                                not entitled to any further
                                                                                distributions.
----------------------------------------------------------------------------------------------------------------------
                                                  PREEMPTIVE RIGHTS
----------------------------------------------------------------------------------------------------------------------
Under the NRS, the stockholders of a     IOT is subject to the same NRS         No holder of Series G redeemable
corporation organized after October 1,   provisions.  The IOT Articles of       convertible preferred stock or H
1991 do not have a preemptive right to   Incorporation do not contain a         redeemable convertible preferred
acquire unissued shares, treasury        provision granting the holders of      stock shall have preemptive rights
shares or securities convertible into    IOT common stock preemptive rights.    to acquire any securities issued or
such shares unless the corporation's                                            sold by ARL because of his ownership
articles of incorporation provide                                               of such class of preferred stock.
otherwise.  The TCI Articles of
Incorporation do not contain a
provision granting the holders of TCI
common stock preemptive rights.
----------------------------------------------------------------------------------------------------------------------
                                                   TRANSFERABILITY
----------------------------------------------------------------------------------------------------------------------
Shares of TCI common stock are freely    Shares of IOT common stock are         Shares of Series G redeemable
transferable except for shares issued    freely transferable except for         convertible preferred stock and
to affiliates of TCI.  Transfers of      shares issued to affiliates of IOT.    Series H redeemable convertible
shares of stock held by affiliates are   Transfers of shares of stock held by   preferred stock will be freely
restricted by federal and state          affiliates are restricted by federal   transferable, except for shares
securities laws.  The shares are         and state securities laws.  The        issued to affiliates of ARL.
listed on the NYSE under the symbol      shares are listed on the AMEX under    Transfers of shares of stock held by
"TCI".                                   the symbol "IOT".                      affiliates are restricted by federal
                                                                                and state securities laws.
----------------------------------------------------------------------------------------------------------------------
                                                  INSPECTION RIGHT
----------------------------------------------------------------------------------------------------------------------
The NRS provides that any person who     IOT is subject to the same NRS         In addition to the foregoing
has been a stockholder of record of a    provisions. IOT's Bylaws provide       provisions of the NRS, ARL's Bylaws
corporation for at least 6 months        that any stockholder of IOT may        provide that any person who has been
immediately preceding his demand, or     inspect and copy during usual          a stockholder of record of any
any person holding, or thereunto         business hours the Bylaws, minutes     corporation and owns or has been
authorized in writing by the holders     of the proceedings of meetings of      authorized by the holders of at
of, at least 5% of all of its            stockholders, annual statements of     least 15% of all of its outstanding
outstanding shares, upon at least 5      its affairs and voting trust           shares, is entitled to inspect and
days' written demand is entitled to      agreements on file at IOT's            copy the corporate financial records
inspect in person or by agent or         principal office.                      upon at least 5 days' written notice.
attorney, during usual business hours,
a copy certified by the secretary of
state of the corporation's articles of
incorporation, as amended, a copy
certified by an officer of the
----------------------------------------------------------------------------------------------------------------------





                                       95








--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
corporation of its bylaws, as amended,
and the corporation's stock ledger and
make copies therefrom.

The TCI Bylaws provide that any
stockholder may inspect and copy the
bylaws, stockholder minutes, annual
statements of its affairs and any
voting trust agreements.
----------------------------------------------------------------------------------------------------------------------
                                            BUSINESS COMBINATIONS/MERGERS
----------------------------------------------------------------------------------------------------------------------
Under the NRS, stockholders have the     IOT is subject to the same NRS         The ARL Restated Articles of
right, subject to certain exceptions,    provisions.  In addition, IOT's        Incorporation do not contain any
to vote on all mergers to which the      Articles of Incorporation requires     provision requiring a supermajority
corporation is a party. In certain       the affirmative vote of not less       vote with respect to mergers.  The
circumstances, different classes of      than two-thirds (2/3) of the           holders of Series G redeemable
securities may be voting separately as   outstanding stock of IOT voting        convertible preferred stock or
a class with respect to mergers. Under   thereon on certain mergers or          Series H redeemable convertible
the NRS, unless the articles of          business combinations with, or         preferred stock are not voting on
incorporation, the board of directors    proposed on behalf of any affiliate    mergers to which the corporation is
or the merger statutes require a         of any interested stockholder,         a party except  (i) as otherwise
greater vote, a plan of merger must be   excluding the stock held by such       provided by law and (ii) with
approved by a majority of the voting     interested stockholder.  The           respect to an amendment to ARL's
power of the stockholders voting         requirement is not be applicable in    Restated Articles of Incorporation
thereon.                                 any merger or business combination     or Bylaws in connection with such
                                         if the transaction is approved by a    merger that would materially alter
TCI's Articles of Incorporation          majority of the board.                 or change the existing terms of such
requires the affirmative vote of not                                            class of preferred stock,
less than two-thirds (2/3) of the                                               respectively.
outstanding stock of TCI voting
thereon on certain mergers or business
combinations with, or proposed on
behalf of any affiliate of any
interested stockholder, excluding the
stock held by such interested
stockholder.  The requirement is not
be applicable in any merger or
business combination if the
transaction is approved by a majority
of the board.

The approval of the surviving
----------------------------------------------------------------------------------------------------------------------





                                       96





--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
corporation in a merger is not
required under the NRS if: (i) the
articles of incorporation of the
surviving domestic corporation will
not differ from its articles before
the merger, (ii) each stockholder
holds the same number of shares in the
surviving corporation immediately
after the merger as prior thereto, and
such shares have identical
designations, preferences, limitations
and relative rights, (iii) the number
of voting shares in the surviving
corporation immediately after the
merger, plus the voting power of the
shares issued in the merger, does not
exceed the voting power of the shares
prior to the merger by more than 20%,
and (iv) the number of shares entitled
to participate without limitations in
distributions immediately after the
merger, plus the number of shares
entitled to participate without
limitations in distributions shares
issued in the merger, does not exceed
the number of shares entitled to
participate without limitations in
distributions prior to the merger by
more than 20%.
----------------------------------------------------------------------------------------------------------------------
                                           DISSENTERS' OR APPRAISAL RIGHTS
----------------------------------------------------------------------------------------------------------------------
Under the NRS, dissenting stockholders   IOT is subject to the same NRS         ARL is subject to the same NRS
of a corporation engaged in certain      provisions.                            provisions.
major corporate transactions are
entitled to appraisal rights.
Appraisal rights permit a stockholder
to receive cash equal to the fair
market value of the stockholders'
shares (as determined by agreement by
the parties or by a court), in lieu of
the consideration such stockholder
----------------------------------------------------------------------------------------------------------------------





                                       97





--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         
would otherwise receive in any such
transaction.

Under the NRS, a stockholder is
entitled to dissent from, and obtain
payment for the fair value of his
shares in the event of consummation
of, a plan of merger or plan of
exchange in which the corporation is a
party and any corporate action taken
pursuant to a vote of the stockholders
to the extent that the articles of
incorporation, bylaws or a resolution
of the board of directors provides
that voting or nonvoting stockholders
are entitled to dissent and obtain
payment for their shares.

Notwithstanding, the NRS provides that
stockholders do not have dissenters'
rights of appraisal in connection with
a merger or plan of exchange if their
shares are securities listed on a
national securities exchange or if
they are designated as a national
market system security on an
interdealer quotation system by the
National Association of Securities
Dealers, Inc. or are securities held
by 2,000 stockholders of record,
unless (1) the articles of
incorporation provide otherwise or (2)
the stockholders voting thereon are
required to accept anything except (a)
cash or owners' interest in (i) the
surviving corporation or (ii) an
entity whose securities were listed on
a national securities exchange,
included on the national market system
by the National Association of
--------------------------------------------------------------------------------------------------------------------




                                       98







--------------------------------------------------------------------------------------------------------------------
                                                                                 SERIES G REDEEMABLE CONVERTIBLE
                                                                                   PREFERRED STOCK AND SERIES H
                                                                                 REDEEMABLE CONVERTIBLE PREFERRED
           TCI COMMON STOCK                        IOT COMMON STOCK                             STOCK
--------------------------------------------------------------------------------------------------------------------
                                                                         


Securities Dealers, Inc., or held of
record by at least 2,000 holders or
(b) a combination thereof.
----------------------------------------------------------------------------------------------------------------------
                                        LIMITATION OF LIABILITY OF MANAGEMENT
----------------------------------------------------------------------------------------------------------------------
Under the NRS, a corporation, through    IOT's Articles of Incorporation        The ARL Restated Articles of
its articles of incorporation, may       contain such a provision eliminating   Incorporation contain such a
limit or eliminate the personal          the personal liability of directors    provision eliminating the personal
liability of directors to the            to the corporation and its             liability of directors to the
corporation and its stockholders for     stockholders for damages for breach    corporation and its stockholders for
damages for breach of fiduciary duty.    of fiduciary duty to the fullest       damages for breach of fiduciary duty
However, this provision excludes any     extent permitted under the NRS.        to the fullest extent permitted
limitation on liability for (i) acts                                            under the NRS.
or omissions which involve intentional
misconduct, fraud or a knowing
violation of law or (ii) the payment
of distributions in violation of NRS
Section 78.300.  The TCI Articles of
Incorporation contain such a provision
eliminating the personal liability of
directors to the corporation and its
stockholders for damages for breach of
fiduciary duty to the fullest extent
permitted under the NRS.
----------------------------------------------------------------------------------------------------------------------





                                       99


                                THE ADVISOR - BCM


        Although the boards of directors are directly responsible for managing
the affairs of ARL, TCI and IOT and for setting the policies which guide each,
the day-to-day operations of each entity are performed by BCM, a contractual
advisor, under the supervision of each board. The duties of BCM include, among
other things, locating, investigating, evaluating and recommending real estate
and mortgage loan investment and sales opportunities as well as financing and
refinancing sources. BCM also serves as consultant to each entity's board of
directors in connection with the business plan and investment policy decisions
made by each board.


        BCM, an affiliate, has served as advisor to ARL since its organization
in July 2000 (and to ART since February 6, 1989) and to TCI and IOT since March
1989 pursuant to separate Advisory Agreements. The Advisory Agreements are
similar with the exception of the compensation provisions, which are discussed
separately below. The business address of BCM is 1800 Valley View Lane, Suite
300, Dallas, Texas 75234; its telephone number of BCM is 469-522-4200.


        BCM is a company of which Messrs. Branigan, Corna, Kimbrough 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, has substantial
contact with the management of BCM and input with respect to BCM's performance
of advisory services to ARL, TCI and IOT.

        As of March 15, 2002, BCM owned 6,269,344 shares of ARL's common stock,
or approximately 55.1% of the shares outstanding; 1,193,422 shares of TCI's
common stock, or approximately 14.8% of the shares outstanding; and 106,802
shares of IOT's common stock or approximately 7.4% of the shares outstanding.


ARL COMPENSATION TO BCM


        The ARL Advisory Agreement provides for BCM to receive monthly base
compensation at the rate of 0.0625% per month (0.75% on an annualized basis) of
Average Invested Assets. As of December 31, 2001, the compensation paid to BCM
in 2001 under the ARL Advisory Agreement was $6,714,671.


        In addition to base compensation, BCM, an affiliate of BCM, or a related
party receives the following forms of additional compensation:


        -   an acquisition fee for locating, leasing or purchasing real estate
            for ARL in an amount equal to the lesser of (i) the amount of
            compensation customarily charged in similar arms length transactions
            or (ii) up to 6% of the costs of acquisition, inclusive of
            commissions, if any, paid to nonaffiliated brokers
        -   a disposition fee for the sale of each equity investment in real
            estate in an amount equal to the lesser of (i) the amount of
            compensation customarily charged in similar arms length transactions
            or (ii) 3% of the sales price of each property, exclusive of fees,
            if any, paid to nonaffiliated brokers




                                      100



        -   a loan arrangement fee in an amount equal to 1% of the principal
            amount of any loan made to ARL arranged by BCM
        -   an incentive fee equal to 10% of net income for the year in excess
            of a 10% return on stockholders' equity, and 10% of the excess of
            net capital gains over net capital losses, if any, realized from
            sales of assets
        -   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 ARL for the fiscal year

        The ARL Advisory Agreement further provides that BCM shall bear the cost
of certain expenses of its employees, excluding fees paid to ARL's directors;
rent and other office expenses of both BCM and ARL (unless ARL maintains office
space separate from that of BCM); costs not directly identifiable to ARL's
assets, liabilities, operations, business or financial affairs; and
miscellaneous administrative expenses relating to the performance by BCM of its
duties under the ARL Advisory Agreement.

        If and to the extent that ARL shall request BCM, or any director,
officer, partner or employee of BCM, to render services to ARL other than those
required to be rendered by BCM under the ARL Advisory Agreement, such additional
services, if performed, will be compensated separately on terms agreed upon
between such party and ARL from time to time.


        The ARL Advisory Agreement may be terminated by BCM for any reason
without penalty upon sixty (60) days' written notice to ARL. Additionally, the
directors or the holders of a majority in interest of the then outstanding
shares of ARL may terminate the ARL Advisory Agreement for any reason without
penalty upon sixty (60) days' written notice to BCM. ARL may also terminate the
ARL Advisory Agreement in the event of an assignment by BCM, except in the event
of an assignment to a corporation, association, trust, or other successor
organization which may take over the property and carry on the affairs of BCM.

        The ARL Advisory Agreement may be terminated immediately at the sole
option of the directors of ARL upon written notice of termination provided to
BCM, if BCM (i) violates any provision of the ARL Advisory Agreement, and fails
to cure such default within thirty (30) days after notice of such violation,
(ii) is adjudged a bankrupt or insolvent by a court of competent jurisdiction,
or an order is made by a court of competent jurisdiction for the appointment of
a receiver, liquidator or trustee for BCM or for all or substantially all of its
property by reason of the foregoing, or approving any petition filed against the
BCM for its reorganization and such adjudication or order shall remain in full
force for a period of thirty (30) days and (ii) institutes proceedings for
voluntary bankruptcy or files a petition seeking reorganization under the
Federal bankruptcy laws, or for relief under any law for the relief of debtors,
or consents to the appointment of a receiver for itself or for all or
substantially all of its properties, or makes a general assignment for the
benefit of its creditors, or admits in writing its inability to pay its debts
generally as they become due. BCM must give written notice to the directors of
ARL within seven (7) days after the occurrence of any of the events specified in
(ii) and (iii) above.


        The ARL Advisory Agreement automatically renews from year to year unless
terminated in accordance with its terms. ARL's management believes that the
terms of the ARL Advisory Agreement are at least as fair as could be obtained
from unaffiliated third parties.


                                      101





        Situations may develop in which the interests of ARL are in conflict
with those of one or more directors or officers in their individual capacities
or of BCM, or of their respective affiliates. In addition to services performed
for ARL, as described above, BCM actively provides similar services as agent
for, and advisor to, other real estate enterprises, including persons and
entities involved in real estate development and financing, including IOT and
TCI. The ARL Advisory Agreement provides that BCM may also serve as advisor to
other entities.


        As advisor, BCM is a fiduciary of ARL's public investors. In determining
to which entity a particular investment opportunity will be allocated, BCM will
consider the respective investment objectives of each entity and the
appropriateness of a particular investment in light of each such entity'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. See "Certain
Relationships and Related Transactions of ARL, TCI and IOT--Certain Business
Relationships."




        During the year ended December 31, 2001, ARL paid BCM $20.2 million in
compensation under the ARL Advisory Agreement.

TCI AND IOT COMPENSATION TO BCM


        If the TCI and IOT mergers are approved and consummated, it is
contemplated that the Advisory Agreements with TCI and IOT will be terminated.
The Advisory Agreements with each of TCI and IOT provide for BCM to receive an
advisory fee comprised of a gross asset fee of .0625% per month (0.75% 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 either TCI's or IOT's net income.

        Under the Advisory Agreements with TCI and IOT, 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 IOT'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 Agreements with TCI and IOT also require prior approval of
the board for the retention of all consultants and third party professionals,
other than legal counsel. The Advisory Agreements with TCI and IOT provide that
BCM shall be deemed to be in a fiduciary relationship to the stockholders;
contains a broad standard governing BCM's liability for losses by TCI and IOT;
and contain guidelines for BCM's allocation of investment opportunities as among
itself, TCI and IOT and other entities it advises.

        The Advisory Agreements also provide 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 either TCI or IOT during the
fiscal year exceeds the sum of: (1) the cost of each such





                                      102




property as originally recorded in TCI's or IOT'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 by either TCI
or IOT and (3) all closing costs, (including real estate commissions) incurred
in the sale of such real estate. 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 TCI and IOT Advisory Agreements, 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 arms
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 real estate brokerage commissions) may not exceed such
property's appraised value at acquisition.

        The TCI and IOT Advisory Agreements require BCM or any affiliate of BCM
to pay TCI and IOT one-half of any compensation received from third parties with
respect to the origination, placement or brokerage of any loan made by TCI or
IOT; provided, however, that 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 TCI and IOT Advisory Agreements also provide 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 by TCI or IOT equal to the lesser
of (1) 1% of the amount of the loan purchased or (2) a 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 TCI
or IOT.

        Under the TCI and IOT Advisory Agreements, 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 TCI or
IOT board of directors, as the case may be. No fee shall be paid on loan
extensions.

        Under the TCI and IOT Advisory Agreements, BCM is to receive
reimbursement of certain expenses incurred by it in the performance of advisory
services. Under the Advisory Agreements, all or a portion of the annual advisory
fee must be refunded by BCM if the operating expenses of TCI or IOT (as defined
in the TCI and IOT Advisory Agreements) exceed certain limits specified in the
Advisory Agreement, based on the book value, net asset value and net income of
TCI or IOT during the fiscal year. BCM was required to refund to IOT $265,000 of
the 2001 advisory fee under this provision.



                                      103






        Additionally, if management were to request that BCM render services to
TCI or IOT other than those required by the TCI and IOT Advisory Agreements, BCM
or an affiliate of BCM is separately compensated for such additional services on
terms to be agreed upon from time to time. TCI and IOT have hired Triad Realty
Services, Ltd. ("Triad"), an affiliate of BCM, to perform property management
for TCI's and IOT's properties. Triad provides such property management services
for a fee of 5% or less of the monthly gross rents collected on residential
properties and 3% or less of the monthly gross rents collected on commercial
properties under its management. Also, TCI and IOT have engaged, on a
non-exclusive basis, Regis Realty, Inc. ("Regis"), a related party, to perform
brokerage services for TCI and IOT. Regis is entitled to receive a real estate
commission for property purchases 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 3.5% on transaction
amounts between $2.0 million-$5.0 million of which no more than 3% would be paid
to Regis or affiliates; (3) maximum fee of 2.5% on transaction amounts between
$5.0 million-$10.0 million of which no 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. BCM may
only assign the TCI and IOT Advisory Agreements with the prior consent of TCI
and IOT.

        The TCI and IOT Advisory Agreements may be terminated by BCM for any
reason without penalty upon one hundred twenty (120) days' written notice to TCI
or IOT. Additionally, a majority of the directors who are not Affiliates of BCM
or the holders of a majority in interest of the then outstanding shares of TCI
or IOT may terminate the TCI or IOT Advisory Agreement for any reason without
penalty upon sixty (60) days' written notice to BCM. Notwithstanding, TCI or IOT
may terminate the TCI or IOT Advisory Agreement without penalty and without
notice to BCM in the event of any material change in the ownership, control or
management of BCM. TCI or IOT may also terminate the TCI or IOT Advisory
Agreement in the event of an assignment by BCM without the prior consent of TCI
or IOT.

        The TCI and IOT Advisory Agreements may be terminated immediately at the
sole option of the directors of TCI or IOT upon written notice of termination
provided to BCM, if BCM (i) violates any provision of the TCI or IOT Advisory
Agreement, and fails to cure such default within thirty (30) days after notice
of such violation, (ii) is adjudged a bankrupt or insolvent by a court of
competent jurisdiction, or an order is made by a court of competent jurisdiction
for the appointment of a receiver, liquidator or trustee for BCM or for all or
substantially all of its property by reason of the foregoing, or approving any
petition filed against the BCM for its reorganization and such adjudication or
order shall remain in full force for a period of thirty (30) days and (iii)
institutes proceedings for voluntary bankruptcy or files a petition seeking
reorganization under the Federal bankruptcy laws, or for relief under any law
for the relief of debtors, or consents to the appointment of a receiver for
itself or for all or substantially all of its properties, or makes a general
assignment for the benefit of its creditors, or admits in writing its inability
to pay its debts generally as they become due. BCM must give written notice to
the directors of TCI or IOT within seven (7) days after the occurrence of any of
the events specified in (ii) and (iii) above.


        During the year ended December 31, 2001, TCI paid BCM $22.9 million
under the TCI Advisory Agreement and IOT paid BCM $1.7 million under the IOT
Advisory Agreement.


                                      104




DIRECTORS AND PRINCIPAL OFFICERS OF ADVISOR

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




        Name                             Position
        ----                             --------
                                      
        Mickey N. Phillips..........     Director*
        Ryan T. Phillips............     Director*
        Mark W. Branigan............     Executive Vice President -- Residential
        Louis J. Corna..............     Executive Vice President - Tax
        Ronald E. Kimbrough.........     Executive Vice President and Chief Financial Officer
        David W. Starowicz..........     Executive Vice President--Commercial Asset
                                         Management
        Robert A. Waldman...........     Senior Vice President, General Counsel and Secretary





MARK W. BRANIGAN: Age 47, Executive Vice President - Residential (since June
2001), Director (September 2000 to June 2001), and Executive Vice President and
Chief Financial Officer (August 2000 to June 2001) of ARL. Executive Vice
President - Residential (since June 2001), Executive Vice President and Chief
Financial Officer (August 2000 to June 2001), Vice President - Director of
Construction (August 1999 to August 2000) and Executive Vice President -
Residential Management (January 1992 to October 1997) of BCM, TCI and IOT; Vice
President - Director of Construction (August 1999 to August 2000) and Executive
Vice President - Residential Asset Management (January 1992 to October 1997) of
ART; and real estate consultant (November 1997 to July 1999).

LOUIS J. CORNA: Age 54, Executive Vice President - Tax (since October 2001),
Executive Vice President and Chief Financial Officer (June 2001 to October
2001), and Senior Vice President - Tax (December 2000 to June 2001) of ARL.
Executive Vice President - Tax (since October 2001), Executive Vice President
and Chief Financial Officer (June 2001 to October 2001) and Senior Vice
President - Tax (December 2000 to June 2001) of BCM, TCI and IOT; Private
Attorney (January 2000 to December 2000); Vice President - Taxes and Assistant
Treasurer (March 1998 to January 2000) of IMC Global, Inc.; and Vice President -
Taxes (July 1991 to February 1998) of Whitman Corporation.

RONALD E. KIMBROUGH: Age 49, Acting Principal Executive Officer (since February
2002) and Executive Vice President and Chief Financial Officer (since January
2002) of ARL. Acting Principal Executive Officer (since March 2002) and
Executive Vice President and Chief Financial Officer (since January 2002) of
BCM, TCI and IOT; Controller (September 2000 to January 2002) of BCM; Director,
Vice President and Treasurer (since February 2002) of First Equity Properties,
Inc.; Vice President and Treasurer (January 1998 to September 2000) of Syntek
West, Inc. and One Realco Corporation; and Consultant (1997).

DAVID W. STAROWICZ: Age 46, Executive Vice President - Commercial Asset
Management (since April 2002), Executive Vice President--Acquisitions, Sales and


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


* Mickey N. Phillips is the brother of Gene E. Phillips and Ryan T. Phillips is
the son of Gene E. Phillips. Gene E. Phillips serves as a representative of the
trust established for the benefit of his children which owns BCM and, in such
capacity, has substantial contact with the management of BCM and input with
respect to its performance of advisory services for ARL, TCI and IOT.


                                      105





Construction (March 2001 to April 2002) and Executive Vice President--Commercial
Asset Management (August 2000 to March 2001) of ARL. Executive Vice President -
Commercial Asset Management (since April 2002), Executive Vice
President--Acquisitions, Sales and Construction (March 2001 to April 2002),
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, TCI and IOT; and Executive Vice President - Commercial
Asset Management (September 1999 to August 2000), Vice President (May 1992 to
September 1999) and Asset Manager (November 1990 to May 1992) of ART.

ROBERT A. WALDMAN: Age 49, Senior Vice President, Secretary and General Counsel
(since August 2000) of ARL. 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 IOT and TCI; 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 and General Counsel (since January
1995), Vice President (January 1993 to January 1995) and Secretary (since
December 1989) of ART.


        The business address of each director and executive officer is 1800
Valley View Lane, Suite 300, Dallas, Texas 75234. The business telephone number
of each person is 469-522-4200. Each director and executive officer is a citizen
of the United States.




                                      106



                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                            OF BCM, ARL, TCI AND IOT


POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

        ARL. Article ELEVENTH of ARL's Articles of Incorporation provides that
ARL shall not, directly or indirectly, contract or engage in any transaction
with (1) any director, officer or employee of ARL, (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 ARL's board of directors or the appropriate committee thereof and (b) ARL's
board of directors or committee thereof determines that such contract or
transaction is fair to ARL and simultaneously authorizes or ratifies such
contract or transaction by the affirmative vote of a majority of independent
directors of ARL entitled to vote thereon.

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

        ARL'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
ARL. 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 ARL as other investments that could have been obtained.

        ARL expects to enter into future transactions with entities the
officers, directors or stockholders of which are also officers, directors or
stockholders of ARL, if such transactions would be beneficial to the operations
of ARL and consistent with ARL's then-current investment objectives and
policies, subject to approval by a majority of disinterested directors as
discussed above.

        ARL does not prohibit its officers, directors, stockholders or related
parties from engaging in business activities of the types conducted by ARL.

        TCI. Article FOURTEENTH of TCI's Articles of Incorporation provides that
TCI shall not, directly or indirectly, contract or engage in any transaction
with (1) any director, officer or employee of TCI, (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 TCI and simultaneously authorizes or ratifies such contract or





                                      107





transaction by the affirmative vote of a majority of independent directors of
TCI entitled to vote thereon.

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

        IOT. Article FOURTEENTH of IOT's Articles of Incorporation provides that
IOT shall not, directly or indirectly, contract or engage in any transaction
with (1) any director, officer or employee of IOT, (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 IOT's board of directors or the appropriate committee thereof and (b) IOT's
board of directors or committee thereof determines that such contract or
transaction is fair to IOT and simultaneously authorizes or ratifies such
contract or transaction by the affirmative vote of a majority of independent
directors of IOT entitled to vote thereon.

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


CERTAIN BUSINESS RELATIONSHIPS


        BCM, ARL's, TCI's and IOT's contractual advisor, is a company of which
Messrs. Branigan, Corna, Kimbrough and Starowicz serve as executive officers.
BCM is a company 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, has substantial contact with the management of
BCM and input with respect to BCM's performance of advisory services.

        ARL, TCI and IOT contract with affiliates of BCM for property management
services. Currently, Triad, an affiliate, and Carmel Realty, Inc. ("Carmel"),
provide such property management services. The general partner of Triad is BCM.
The limited partner of Triad is GS Realty Services, Inc. ("GS Realty"), a
related party, which is not affiliated with BCM. Triad and Carmel subcontract
the property-level management of 13 of ARL's commercial properties (office
buildings, shopping centers and a merchandise mart) and eight of its hotels to
Regis, a related party, which is a company owned by GS Realty. Regis also
provides real estate brokerage services to ARL and receives brokerage
commissions in accordance with the advisory agreement between ARL and BCM.
Carmel is a company owned by First Equity Properties, Inc., which is a company
affiliated with BCM.

        ARL owns an equity interest in each of IOT and TCI. See "Properties of
ARL - Investments in Real Estate Companies and Real Estate Partnerships."

        With respect to TCI, Triad also subcontracts the property-level
management and leasing of 51 of TCI's commercial properties, its four hotels and
the commercial properties owned by a real estate partnership in which TCI and
IOT are partners to Regis. Regis also provides real





                                      108





estate brokerage services for TCI, on a non-exclusive basis, and receives
brokerage commissions in accordance with the brokerage agreement.

        Regarding IOT, Triad also subcontracts the property-level management and
leasing of IOT's seven office buildings and two commercial properties owned by
real estate partnerships in which IOT and TCI are partners to Regis. Prior to
May 1, 2000, affiliates of BCM provided brokerage services for IOT, on a
non-exclusive basis, and received brokerage commissions in accordance with a
brokerage agreement. Currently, Regis performs such brokerage services for IOT.

        At March 15, 2002, ARL indirectly owned approximately 49.7% of TCI's
outstanding common stock. At December 31, 2001, TCI owned 345,728 shares of
IOT's common stock, an approximate 24% interest and 746,972 shares of ARL common
stock, an approximate 6.6% interest which were primarily purchased in open
market transactions in 1990 and 1991 at a total cost of $1.6 million.

        The executive officers of TCI and IOT also serve as officers of ARL, and
owe fiduciary duties to each of those entities as well as BCM under applicable
law. The directors and officers of IOT also serve as directors and officers of
TCI. The directors owe fiduciary duties to TCI as well as to IOT under
applicable law. IOT and TCI have the same relationship with BCM as does ARL.


RELATED PARTY TRANSACTIONS


        Historically, ARL, TCI and IOT 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 ARL, TCI and IOT as could have been obtained from unrelated
third parties.

        In 2001, ARL paid BCM, its affiliates and a related party $6.7 million
in advisory fees, $166,000 in net income fees, $3.8 million in incentive fees,
$1.1 million in mortgage brokerage and equity refinancing fees, $92,000 in
property acquisition fees, $5.9 million in real estate brokerage commissions and
$3.9 million in property and construction management fees and leasing
commissions, net of property management fees paid to subcontractors, other than
affiliates of BCM. In addition, as provided in the ARL Advisory Agreement, BCM
received cost reimbursements of $2.8 million.

        In 2001, IOT paid BCM and its affiliates and related parties $817,000 in
advisory fees and $312,000 in property and construction management fees and
leasing commissions, net of property management fees paid to subcontractors
other than Regis. In addition, from time-to-time, IOT has made advances to BCM,
which generally have not had specific repayment terms and have been reflected in
IOT's financial statements as other assets or other liabilities from affiliates.
At December 31, 2001, BCM advanced IOT $593,000. As of March 2002, IOT has
repaid that amount to BCM.

        In 2001, TCI paid BCM, its affiliates and related parties $10.8 million
in advisory incentive and net income fees, $45,000 in mortgage brokerage and
equity refinancing fees, $2.4




                                      109





million in property acquisition fees, $3.8 million in real estate brokerage
commissions and $2.6 million in property and construction management fees and
leasing commissions, net of property management fees paid to subcontractors,
other than affiliates of BCM. In addition, as provided in the TCI Advisory
Agreement, BCM received cost reimbursements of $2.6 million.

        In addition, from time-to-time, ARL and its affiliates have made
advances to each other, which generally have not had specific repayment terms
and have been reflected in ARL's financial statements as other assets or other
liabilities. Also, incentive fees and net income fees payable to BCM for 2001
are accrued throughout the year and are due by March 31, 2002. At December 31,
2001, ARL owed $10.1 million ($4.0 million for fees owed for 2001), $980,000 and
$257,000 to BCM, TCI and GS Realty, respectively. In January 2002, ARL paid the
$257,000 due to GS Realty. At December 31, 2001, TCI had receivables of $11.6
million, $1.9 million and $608,000 from BCM, GS Realty, and ARL, respectively.
Also at December 31, 2001, TCI owed $1.0 million and $39,000 to GS Realty and
BCM, respectively. In January 2002, TCI paid the $1.0 million due to GS Realty
and in March 2002, TCI paid the $39,000 to BCM. At December 31, 2001, BCM
advanced IOT $593,000. As of March 2002, IOT has repaid that amount to BCM.

        In October 1999, ARL funded a $4.7 million loan to Realty Advisors,
Inc., an affiliate. The loan 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 2001. In January 2000, $100,000 was
collected. In November 2001, the maturity date was extended to November 2004.
The collateral was changed to a subordinate pledge of 850,000 shares of ARL
common stock owned by BCM. The shares are also pledged to a lender on ARL's
behalf. The interest rate was changed to 2% over the prime rate, currently 6.75%
per annum, and the accrued but unpaid interest of $984,000 was added to the
principal. The new principal balance is $5.6 million. All principal and accrued
interest are due at maturity.

        In March 2000, a loan with a principal balance of $2.5 million to
Lordstown, L.P., matured. The loan is 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. At December 2001, the loan, and $741,000 of accrued
interest, remained unpaid. At March 2002, settlement terms are being negotiated.
A corporation controlled by Richard D. Morgan is the general partner of
Lordstown, L.P. Mr. Morgan served as a director of ARL until October 2001.

        In March 2001, ARL funded $13.6 million of a $15.0 million unsecured
line of credit to One Realco Corporation ("One Realco"), which owns
approximately 14.8% of the outstanding shares of ARL's common stock. The line of
credit bears interest at 12.0% per annum. All principal and interest were due at
maturity in February 2002. The line of credit is guaranteed by BCM. In June
2001, $394,000 in principal and $416,000 in interest was collected. In December
2001, $21,000 in principal and $804,000 in interest was collected. In February
2002, the maturity date was extended to February 2004. All principal and
interest are due at maturity. Ronald E. Kimbrough, Executive Vice President and
Chief Financial Officer of ARL, is a 10% stockholder of One Realco. During 2001,
Mr. Kimbrough did not participate in day-to-day operations or management of One
Realco.



                                      110





        In December 2000, an unsecured loan with a principal balance of $1.7
million to Warwick of Summit, Inc. ("Warwick") matured. All principal and
interest were due at maturity. At December 2001, the loan, and $451,000 of
accrued interest, remained unpaid. At March 2002, settlement terms are being
negotiated. Richard D. Morgan, a Warwick stockholder, served as a director of
ARL until October 2001.

        In December 2000, a loan with a principal balance of $1.6 million to
Bordeaux Investments Two, L.L.C. ("Bordeaux"), matured. The loan is secured by
(1) a 100% interest in Bordeaux, which owns a shopping center in Oklahoma City,
Oklahoma; (2) 100% of the stock of Bordeaux Investments One, Inc., which owns
6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and (3) the personal
guarantees of the Bordeaux members. At December 2001, the loan, and $471,000 of
accrued interest, remained unpaid. At March 2002, settlement terms are being
negotiated. Richard D. Morgan, a Bordeaux member, served as a director of ARL
until October 2001.

        In December 1998, in connection with the settlement of litigation
relating to the original formation of NRLP, NRLP Management Corp. ("NMC"),
assumed responsibility for repayment to NRLP of the $12.2 million paid by NRLP
to settle the litigation. The loan bore interest at a variable rate and required
annual payments of accrued interest plus principal payments of $500,000 in each
of the first three years, $750,000 in each of the next three years, $1.0 million
in each of the next three years, with payment in full of the remaining balance
in the tenth year. The note was guaranteed by ART. The note was to mature upon
the earlier of the liquidation or dissolution of NRLP, NMC ceasing to be general
partner or March 31, 2009. Upon the merger of ART and NRLP into ARL, the loan
was cancelled.

        In October 1997, ARL entered into leases with BCM and an affiliate of
BCM, for space at the One Hickory Centre Office Building, construction of which
was completed in December 1998. The BCM leases, effective upon ARL obtaining
permanent financing of the building, were for 75,852 sq. ft. (approximately 75%
of the building), had terms of ten and fifteen years and provided for annual
base rent of $19.25 per sq. ft. for the first year. In January 2001, both leases
were terminated, and ARL entered into a new lease with BCM, effective October 1,
2000. The new lease is for 59,463 sq. ft. (approximately 62% of the building),
has a term of three years, and provides for annual base rent of $1.3 million or
$21.50 per sq. ft. Effective March 1, 2002, the lease was amended to 57,879 sq.
ft. (approximately 59% of the building), with an annual base rent of $1.2
million, or $21.50 per sq. ft.





        BCM has entered into put agreements with certain holders of the Class A
limited partner units of Ocean Beach Partners, L.P. The Class A units are
convertible into Series D Cumulative preferred stock of ARL. The put price of
the Series D preferred stock is $20.00 per share plus accrued but unpaid
dividends.


        BCM has entered into put agreements with the holders of the Class A
limited partner units of Valley Ranch L.P. Such Class A units are convertible
into Series B Cumulative Convertible preferred stock of ARL which is further
convertible into common stock of ARL. The put price for the Class A units is
$1.00 per unit and the put price for either the Series B redeemable convertible
preferred stock or ARL's common stock is 80% of the average daily closing price
of ARL's common stock for the prior 20 trading days. In March 1999, ARL reached



                                      111





agreement with the Class A unitholders of Valley Ranch, L.P. to acquire their
eight million Class A units for $1.00 per unit. In 1999, three million units
were purchased, an additional one million units were purchased in January 2000
and two million units in May 2001. ARL has committed to purchase the remaining
two million units in May 2002.

        BCM has entered into put agreements with the holders of the Class A
units of ART Palm, L.P. Such Class A units are convertible into Series C
Cumulative Convertible preferred stock of ARL. The put price for the Class A
units is $1.00 per unit and the put price for either the Series C preferred
stock or ARL's common stock is 90% of the average daily closing price of ARL's
common stock for the prior 20 trading days. The put agreement calls for ARL to
repurchase the Class A units as follows: June 30, 2002, 1,625,000 units; June
30, 2003, 1,625,000 units; December 31, 2005, 1,625,000 units; and December 31,
2006, 8,563,750 units.


        TCI is a 63.7% limited partner and IOT is a 36.3% general partner in the
Tri-City Limited Partnership ("Tri-City") which owns the Chelsea Square Shopping
Center. In February 2000, the Chelsea Square Shopping Center was financed in the
amount of $2.1 million. Tri-City received net cash of $2.0 million after the
payment of various closing costs. The mortgage bore interest at a fixed rate of
10.24% per annum until February 2001, and a variable rate thereafter, currently
10% per annum, requires monthly payments of principal and interest of $20,601
and matures in February 2005. TCI received a distribution of $1.3 million of the
net financing proceeds. IOT received a distribution of $739,000 of the net
financing proceeds.


        In May 2001, ARL exchanged with TCI two parcels of land, a 10.5 acre
tract of Vista Ridge land and an 8.88 acre tract of Hollywood Casino land, for
the 168 unit Glenwood Apartments. ARL received net cash of $3.2 million on the
subsequent sale of the apartments.

        In December 2001, TCI, purchased 100% of the outstanding common shares
of National Melrose, Inc. ("NM"), a wholly-owned subsidiary of ARL, for $2.0
million. NM owns the Executive Court Office Building. ARL has guaranteed that
the asset will produce at least a 12% annual return on the purchase price for a
period of three years from the purchase date. If the asset fails to produce the
annual return, ARL will pay TCI any shortfall. In addition, if the asset fails
to produce the 12% return for a calendar year, TCI may require ARL to repurchase
the shares of NM for the purchase price. Management has classified this related
party transaction as a note payable to TCI.

        In January 2002, IOT purchased 100% of the outstanding common shares of
Rosedale Corporation ("Rosedale"), a wholly-owned subsidiary of ARL, for $5.1
million. Rosedale owns the Rosedale Towers Office Building. ARL has guaranteed
that the asset will produce at least a 12% annual return on the purchase price
for a period of three years from the purchase date. If the asset fails to
produce the 12% return, ARL will pay IOT any shortfall. In addition, if the
asset fails to produce the 12% return for a calendar year, IOT may require ARL
to repurchase the shares of Rosedale for the purchase price. Management has
classified this related party transaction as a note payable to IOT.

        In January 2002, TCI purchased 100% of the common shares of ART Two
Hickory Corporation ("Two Hickory"), a wholly-owned subsidiary of ARL, for $4.4
million. Two Hickory owns the Two Hickory Centre Office Building. ARL has
guaranteed that the asset will





                                      112



produce at least a 12% annual return on the purchase price for a period of three
years from the purchase date. If the asset fails to produce the 12% return, ARL
will pay TCI any shortfall. In addition, if the asset fails to produce the 12%
return for a calendar year, TCI may require ARL to repurchase the shares of Two
Hickory for the purchase price. Management has classified this related party
transaction as a note payable to TCI.

        In March 2002, ARL received $600,000 and exchanged with TCI a 24.5 acre
tract of Rasor land, a 16.89 acre tract of Lakeshore Villas Apartments land and
the 45,623 sq. ft. Oaktree Village Shopping Center for the 80,278 sq. ft. Plaza
on Bachman Creek Shopping Center. ARL received $4.4 million on the subsequent
financing of the shopping center.

        In 2001, TCI received $120,000 in rent from BCM for BCM's lease at
Addison Hanger.

        In February 2002, TCI sold a $2.0 million senior participation interest
in a loan to IOT.

        The directors and officers of TCI also serve as directors and officers
of IOT. The directors owe fiduciary duties to IOT as well as to TCI under
applicable law. IOT has the same relationship with BCM as TCI. At December 31,
2001, TCI owned 746,972 shares of ARL common stock which were primarily
purchased in open market transactions in 1990 and 1991 at a total cost of $1.6
million. The officers of TCI also serve as officers of ARL. BCM also serves as
advisor to ARL and at March 15, 2002, ARL owned approximately 50% of TCI's
outstanding common stock. At December 31, 2001, the market value of the ARL
common shares was $7.4 million.

        TCI established on April 13, 2000, the Director Stock Option Plan (the
"TCI Director Plan") which became effective upon subsequent approval of the
stockholders of TCI at an Annual Meeting of Stockholders held on October 10,
2000. Under the terms of the TCI Director Plan, successive options covering
5,000 shares of TCI common stock each were automatically granted to each
director on the date of effectiveness of the TCI Director Plan, and on each
January 1 of each subsequent year in which the individual served as a director
of TCI. Pursuant to the TCI Director Plan, two former directors of TCI, Edward
G. Zampa and R. Douglas Leonhard, each held options covering 5,000 shares at an
exercise price of $8.975 per share, and an additional 5,000 shares at an
exercise price of $14.875 per share. On January 30, 2002, TCI entered into
separate agreements with Messrs. Leonhard and Zampa pursuant to which TCI
repurchased all options held by each at a price based upon a $16 per share sale
price of common stock, less the aggregate amount of the exercise price under
each option. As a result of the Purchase Agreements, each of Messrs. Leonhard
and Zampa received an aggregate of $41,225 in settlement, and the outstanding
options previously held by each under the TCI Director Plan have been cancelled.

        Options covering an aggregate of 30,000 shares remain outstanding at
exercise prices ranging from $8.875 per share to $16.05 per share, by Ted
Stokely (15,000 shares) and Martin L. White (15,000 shares).


INDEBTEDNESS OF MANAGEMENT

        As of the record date, no director or executive officer of ARL, TCI or
IOT has any indebtedness to ARL, TCI or IOT.



                                      113



                          CERTAIN INFORMATION REGARDING
                      TCI COMMON STOCK AND IOT COMMON STOCK

PURCHASES OF TCI COMMON STOCK


        The following sets forth for each quarter during 2000: (a) the amount of
TCI common stock purchased by BCM, (b) the range of prices paid by BCM, and (c)
the average purchase price paid by BCM, based on information obtained from
documents filed with the SEC.





---------------------------------------------------------------------------------------
                         NUMBER OF                 RANGE OF                 AVERAGE
QUARTER              SHARES PURCHASED             PRICES PAID            PURCHASE PRICE
---------------------------------------------------------------------------------------
  2000
---------------------------------------------------------------------------------------
                                                                
 First                     None                       --                        --
---------------------------------------------------------------------------------------
 Second                   347,400               $6.69 to $13.38               $9.62
---------------------------------------------------------------------------------------
 Third                    99,300               $11.63 to $14.25               $12.51
---------------------------------------------------------------------------------------
 Fourth                     900                $16.00 to $16.63               $16.32
---------------------------------------------------------------------------------------



        On October 3, 2000, pursuant to a Stock Option Agreement dated October
3, 2000, Gotham Partners, LP and Gotham Partners III, LP (both New York limited
partnerships) and Gotham Partners International, Ltd., a Canadian Island company
(all collectively "Gotham") granted to ARL and IOT, jointly, an option to
purchase 1,858,900 shares of TCI common stock (the "Option") at an exercise
price of $12 per share (a total price of $22,306,800). Such Option became
exercisable on January 1, 2001 through 5:00 p.m., central standard time, on
April 4, 2001 (the "Option Period") and was only to be exercised as to the whole
of such Option (not in part). As a fee for the Option, ARL and IOT paid to
Gotham an initial option fee of $5,576,700 ($3 per share) at the time of
execution of the Option and were obligated to pay Gotham on or before December
15, 2000, the remaining portion of the option fee of $2,788,350 ($1.50 per
share), which was not paid but became an obligation payable at the time of
exercise of such Option. On October 19, 2000, IOT assigned all of its right,
title and interest in and to the Option to ARL. On April 4, 2001, ARL gave
notice of exercise of the Option in accordance with the terms of the Option and
paid to Gotham in cash the balance of the option fee of $2,788,350; within three
business days thereafter, Gotham delivered the 1,858,900 shares of TCI common
stock to a brokerage account of EQK Holdings, Inc. ("EQK Holdings") and ARL paid
the full exercise price of $22,306,800 into the brokerage account of EQK
Holdings which was then paid to Gotham. These 1,858,900 shares of TCI common
stock are currently owned by EQK Holdings, an indirect, wholly-owned subsidiary
of ARL.


        Except as set forth above, there were no other purchases by ARL, IOT,
TCI or BCM of any shares of TCI common stock during the past two years that were
reported in documents filed with the SEC.




                                      114


PURCHASES OF IOT COMMON STOCK

        The following sets forth for each quarter during 2000: (a) the amount of
IOT common stock purchased by BCM, (b) the range of prices paid by BCM, and (c)
the average purchase price paid by BCM, based on information obtained from
docuemnts filed with the SEC.




---------------------------------------------------------------------------------------
                         NUMBER OF                 RANGE OF                 AVERAGE
QUARTER              SHARES PURCHASED             PRICES PAID            PURCHASE PRICE
---------------------------------------------------------------------------------------
                                                               
 First                     None                       --                        --
---------------------------------------------------------------------------------------
 Second                    6,700                $6.63 to $6.50                $6.57
---------------------------------------------------------------------------------------
 Third                     None                       --                        --
---------------------------------------------------------------------------------------
 Fourth                    None                       --                        --
---------------------------------------------------------------------------------------




        Except as set forth above, there wee no other purchases by ARL, IOT, TCI
or BCM of any shares of IOT common stock during the past two years that were
reported in documents filed with the SEC.


ARRANGEMENTS RELATING TO TCI COMMON STOCK AND IOT COMMON STOCK

        Pursuant to the Option discussed above, Gotham agreed to a "standstill"
for a period of two years from the date of the Option and agreed not to purchase
directly or indirectly any security issued by ARL, TCI or IOT, provided,
however, the standstill was to terminate if the additional option fee was not
made or paid on or before December 15, 2000, or if the Option was not exercised
prior to April 4, 2001. Such Option was exercised prior to April 4, 2001, and
the additional option fee was paid. Gotham had also executed a proxy covering
the shares of TCI common stock that was subject to the Option (a total of
1,858,900 shares) in favor of ARL to attend to the Annual Meeting of
Stockholders of TCI on October 10, 2000, to represent, vote, execute consents
and otherwise act for Gotham only in approving the four proposals set forth in
TCI's Proxy Statement for such Annual Meeting dated December 11, 2000.

        BCM has pledged 920,507 shares of TCI common stock to Sunset Management,
LLC pursuant to a loan agreement with such lender. BCM has also pledged 36,689
shares of TCI common stock to Dynamic Finance Corporation as collateral for a
guaranty of indebtedness of an affiliate of BCM under a loan agreement with such
lender. The remaining 209,751 shares of TCI common stock directly owned by BCM
may be deemed to be "collateral" for borrowings pursuant to margin or other
account arrangements with bankers and brokerage firms relating to accounts of
BCM. Such arrangements are standard arrangements involving margin securities of
up to a specified percentage of the market value of the shares and bear interest
at varying rates and contain only standard default and similar provisions, the
operation of any of which should not give any other person immediate voting
power or investment power over such securities. Such arrangements exist with the
shares of TCI common stock and other securities held in such accounts, and it is
impracticable at any given time to determine the amounts, if any, with respect
to the shares of TCI common stock and interest costs under such arrangements
vary with applicable costs and account balances.


        EQK Holdings has pledged 2,601,798 shares of TCI common stock to Sunset
Management, LLC pursuant to a loan agreement with such lender. EQK Holdings has
also pledged 843,111 shares of TCI common stock to Dynamic Finance Corporation
as collateral for




                                      115



indebtedness under a loan agreement with such lender. EQK Holdings has also
pledged 249,191 shares of TCI common stock to Preferred Bank as collateral for a
guaranty of indebtedness of ART under a loan agreement with such lender. The
remaining 300,000 shares of TCI common stock owned directly by EQK Holdings may
be deemed to be "collateral" for borrowings pursuant to margin or other account
arrangements with bankers and brokerage firms relating to accounts of EQK
Holdings. Such arrangements are standard arrangements involving margin
securities of up to a specified percentage of market value of the shares and
bear interest at varying rates and contain only standard default and similar
provisions, the operation of any of which should not give any other person
immediate voting power or investment power over such securities. Such
arrangements exist with the shares of TCI common stock and other securities held
in such accounts, and it is impracticable at any given time to determine the
amounts, if any, with respect to the shares of TCI common stock and interest
costs under such arrangements may vary with applicable costs and account
balances.


        EQK Holdings has pledged 250,000 shares of IOT common stock to Beal Bank
as additional collateral. An additional 153,400 shares of IOT common stock owned
by EQK Holdings and 106,802 shares of IOT common stock owned by BCM may be
deemed to be "collateral" for borrowings pursuant to margin or other account
arrangements with bankers and brokerage firms relating to accounts of EQK
Holdings and BCM, respectively. Such arrangements are standard arrangements
involving margin securities of up to a specified percentage of the market value
of the shares and bear interest at varying rates and contain only standard
default and similar provisions, the operation of any of which should not give
any person immediate voting power or investment power over such securities. Such
arrangements exist with the shares of IOT common stock and other securities held
in such accounts and it is impracticable at any time to determine the amounts,
if any, with respect to these shares of IOT common stock and interest costs
under such arrangements vary with applicable costs and account balances.

        All 345,728 shares of IOT common stock owned by TCI are located at a
brokerage firm in a cash account (not margin account), and do not serve as
"collateral" for any borrowings pursuant to any margin account arrangement or
otherwise.



                                      116






                              INFORMATION ABOUT ARL

                                 BUSINESS OF ARL

        ARL, a Nevada corporation, is the successor through merger to American
Realty Trust, Inc. ("ART"), a Georgia corporation and National Realty, L.P.
("NRLP"), a Delaware partnership.

        ARL files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document filed by ARL
at the SEC's public reference room in Washington, D.C. The public reference room
at the SEC's office in Washington, D.C. is located at 450 Fifth Street, N.W.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. ARL's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at "http:\\www.sec.gov." In addition, because the common stock of ARL is listed
on the NYSE, reports and other information concerning ARL (symbol: "ARL") can
also be inspected at the office of the NYSE, Inc., 20 Broad Street, New York,
New York 10005.

        On November 3, 1999, ART and NRLP jointly announced the agreement of
their respective boards to combine, in a tax-free exchange, under a new company,
ARL. Prior to December 31, 1998, ART accounted for its investment in NRLP under
the equity method. As of December 31, 1998, upon the election of a wholly-owned
subsidiary of ART as general partner of NRLP, ART began consolidation of NRLP's
accounts at that date and consolidation of its operations subsequent to that
date.

        The merger transaction was closed on August 2, 2000. NRLP unitholders,
except for ART, received one share of ARL common stock for each unit of NRLP
held. ART stockholders received .91 shares of ARL common stock for each share of
ART common stock held. Each share of ART preferred stock was converted into one
share of preferred stock of ARL, having substantially the same rights as ART's
preferred stock. The ART shares of common stock ceased trading on the New York
Stock Exchange on August 2, 2000. ARL common stock commenced trading on the New
York Stock Exchange on August 3, 2000. For financial reporting purposes, the
merger is treated as the purchase of NRLP by ART; accordingly, the historical
information presented for ARL is that of ART.

        On October 23, 2001, ARL, TCI, and IOT jointly announced a preliminary
agreement with Settlement Counsel of the derivative action entitled Olive et al.
v. National Income Realty Trust, et al. for complete settlement of all disputes
in the lawsuit. In February 2002, the court granted final approval of the
proposed settlement. Under the proposal, ARL would acquire all of the
outstanding shares of IOT and TCI not currently owned by ARL for a cash payment
or shares of ARL preferred stock. ARL will pay $17.50 cash per TCI share and
$19.00 cash per IOT share for the stock held by nonaffiliated stockholders. ARL
will issue one share of Series G redeemable convertible preferred stock with a
liquidation value of $20.00 per share for each share of TCI common stock for
stockholders who affirmatively elect to receive ARL Preferred Stock in lieu of
cash. ARL will issue one share of Series H redeemable convertible preferred
stock with a liquidation value of $21.50 per share for each share of IOT common
stock for stockholders who affirmatively elect to receive ARL preferred stock in
lieu of cash. All



                                      117



affiliated stockholders will receive ARL preferred stock. Each share of Series G
redeemable convertible preferred stock will be convertible into 2.5 shares of
ARL common stock, and each share of Series H redeemable convertible preferred
stock will be convertible into 2.25 shares of ARL common stock during a 75-day
period that commences fifteen days after the date of the first ARL Form 10-Q
filing that occurs after the closing of the merger transaction. Upon the
acquisition of IOT and TCI shares, TCI and IOT would become wholly-owned
subsidiaries of ARL. The transaction is subject to the execution of a definitive
merger agreement and a vote of the stockholders of all three entities. ARL has
the same advisor as TCI and IOT, and TCI and IOT have the same board of
directors.

BUSINESS PLAN AND INVESTMENT POLICY

        ARL's primary business is investing in equity interests in real estate
(including equity securities of real estate-related entities), leases, joint
venture development projects and partnerships and, to a lesser extent, financing
real estate and real estate activities through investments in mortgage loans,
including first, wraparound and junior mortgage loans. Information regarding the
real estate and mortgage notes receivable portfolios of ARL is set forth in
"Properties" and in Schedules III and IV to the ARL consolidated financial
statements included elsewhere in this joint proxy statement and prospectus.

        ARL, through its wholly owned subsidiary, Pizza World Supreme, Inc.
("PWSI"), operates and franchises pizza parlors featuring pizza delivery,
carry-out and dine-in under the trademarks "Me-N-Ed's," "Slices" and "Angelo &
Vito's" in California and Texas. The first Me-N-Ed's pizza parlor opened in
1962. At December 31, 2001, there were 59 pizza parlors in operation, consisting
of 47 owned and 12 franchised pizza parlors. One of the owned pizza parlors was
in Texas and the remainder were in California.

        ARL's businesses are not seasonal. With regard to real estate
investments, ARL is seeking both current income and capital appreciation. ARL's
plan of operation is to continue, to the extent its liquidity permits, to make
equity investments in income producing real estate such as hotels, apartments or
commercial properties or equity securities of real estate-related entities. ARL
also intends to continue to pursue higher risk, higher reward investments, such
as improved and unimproved land where it can obtain financing of substantially
all of a property's purchase price. ARL intends to seek selected dispositions of
certain of its assets, in particular, selected income producing properties in
stabilized markets and certain of its land holdings where the prices obtainable
for such assets justify their disposition. ARL has determined that it will no
longer actively seek to fund or purchase mortgage loans. However, it may, in
selected instances, originate mortgage loans or it may provide purchase money
financing in conjunction with a property sale. See "--Properties of ARL" and
Schedules III and IV to the ARL consolidated financial statements included
elsewhere in this joint proxy statement and prospectus.

        ARL's board of directors has broad authority under ARL's governing
documents to make all types of investments, and may devote available assets to
particular investments or types of investments, without restriction on the
amount or percentage of assets that may be allocated to a single investment or
to any particular type of investment, and without limit on the percentage of
securities of any one issuer that may be acquired. Investment objectives and
policies may be changed at any time by the board without stockholder approval.



                                      118



        The specific composition of ARL's real estate portfolio will depend
largely on the judgment of management as to changing investment opportunities
and the level of risk associated with specific investments or types of
investments. Management intends to attempt to maintain a real estate portfolio
diversified by location and type of property.

        In addition to its equity investments in real estate, ARL has also
invested in private and open market purchases of the equity securities of IOT
and TCI, both affiliates of ARL. See "--Properties of ARL --Investments in Real
Estate Companies and Real Estate Partnerships."

MANAGEMENT OF THE COMPANY

        Although the board of directors is directly responsible for managing the
affairs of ARL and for setting the policies which guide it, its day-to-day
operations are performed by BCM, a contractual advisor 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 in connection with ARL's business plan
and investment policy decisions made by the board. BCM is a company 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, has substantial contact with the management of BCM and input with
respect to its performance of advisory services to ARL. As of March 15, 2002,
BCM owned 6,269,344 shares of ARL's common stock, approximately 55.1% of the
shares then outstanding. BCM is more fully described in "The Advisor -- BCM."
BCM has been providing advisory services to ARL since February 6, 1989. BCM also
serves as advisor to IOT and TCI. The officers of ARL are also officers of IOT,
TCI and BCM.

        Affiliates of BCM have provided property management services to ARL.
Currently, Triad Realty Services, Ltd. ("Triad"), an affiliate, and Carmel
Realty, Inc. ("Carmel") provide such property management services. Triad and
Carmel subcontract with other entities for property-level management services.
The general partner of Triad is BCM. The limited partner of Triad is also a
related party. Triad subcontracts the property-level management and leasing of
13 of ARL's commercial properties (shopping centers, office buildings and a
merchandise mart) and eight of its hotels to Regis Realty, Inc. ("Regis"), also
a related party. 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. Carmel is a company owned by
First Equity Properties, Inc., which is a company affiliated with BCM.

        Regis is also entitled to receive real estate brokerage commissions in
accordance with the terms of the Advisory Agreement as discussed in "The Advisor
-- BCM."

        ARL has no employees itself, but PWSI has 921 employees. Employees of
BCM render services to ARL. See "The Advisor -- BCM."

COMPETITION

        REAL ESTATE. The real estate business is highly competitive, and ARL
competes with numerous entities engaged in real estate activities (including
certain entities described in "Certain Relationships and Related Transactions of
ARL, TCI and IOT--Related Party




                                      119



Transactions"), some of which have greater financial resources than ARL.
Management believes that success against such competition is dependent upon the
geographic location of the property, the performance of property-level managers
in areas such as marketing, collections and control of operating expenses, the
amount of new construction in the area and the maintenance and appearance of the
property. Additional competitive factors with respect to commercial properties
are the ease of access to the property, the adequacy of related facilities, such
as parking, and sensitivity to market conditions in setting rent levels. With
respect to apartments, competition is also based upon the design and mix of the
units and the ability to provide a community atmosphere for the tenants. With
respect to hotels, competition is also based upon the market served, i.e.,
transient, commercial or group users. Management believes that beyond general
economic circumstances and trends, the rate at which properties are renovated or
the rate new properties are developed in the vicinity of each of ARL's
properties, in particular its improved and unimproved land, are also competitive
factors.

        To the extent that ARL seeks to sell any of its properties, the sales
prices for the properties may be affected by competition from other real estate
entities and financial institutions, also attempting to sell properties in areas
where ARL's properties are located, as well as aggressive buyers attempting to
dominate or penetrate a particular market.

        As described above and in "Certain Relationships and Related
Transactions of ARL, TCI and IOT --Related Party Transactions," the officers of
ARL also serve as officers of IOT and TCI, both of which are also advised by
BCM, and both of which have business objectives similar to ARL's. ARL's officers
and advisor owe fiduciary duties to both IOT and TCI as well as to ARL under
applicable law. In determining whether a particular investment opportunity will
be allocated to ARL, IOT or TCI, management and BCM consider the respective
investment objectives of each and the appropriateness of a particular investment
in light of the existing real estate and mortgage notes receivable portfolios of
each. To the extent that any particular investment opportunity is appropriate to
more than one of the entities, the investment opportunity will be allocated to
the entity which has had funds available for investment for the longest period
of time or, if appropriate, the investment may be shared among all or some of
the entities.

        In addition, also as described in "Certain Relationships and Related
Transactions of ARL, TCI and IOT - Related Party Transactions," ARL also
competes with entities which are affiliates of BCM having similar investment
objectives in the purchasing, selling, leasing and financing of real estate and
real estate-related investments. In resolving any potential conflicts of
interest which may arise, BCM has informed ARL that it intends to continue to
exercise its best judgment as to what is fair and reasonable under the
circumstances in accordance with applicable law.

        ARL is subject to all the risks incident to ownership and financing of
real estate and interests therein, many of which relate to the general
illiquidity of real estate investments. These risks include, but are not limited
to, changes in general or local economic conditions, changes in interest rates
and availability of permanent mortgage financing which may render the purchase,
sale or refinancing of a property difficult or unattractive and which may make
debt service burdensome, changes in real estate and zoning laws, increases in
real estate taxes, federal or local economic or rent controls, floods,
earthquakes, hurricanes and other acts of God and other factors beyond the
control of management or BCM. The illiquidity of real estate investments




                                      120



may also impair the ability of management to respond promptly to changing
circumstances. Management believes that such risks are partially mitigated by
the diversification by geographic region and property type of ARL's real estate
and mortgage notes receivable portfolios. However, to the extent that property
sales, new property investments, in particular improved and unimproved land, or
mortgage lending are concentrated in any particular region the advantages of
geographic diversification are mitigated.

        Virtually all of ARL's real estate, equity security holdings in IOT and
TCI and its trading portfolio of equity securities are held subject to secured
indebtedness. Such borrowings increase the risk of loss because they represent a
prior claim on ARL's assets and require fixed payments regardless of
profitability. In the event of default, the lender may foreclose on the assets
securing such indebtedness, and ARL could lose its investment in the pledged
assets.

        PIZZA PARLORS. The pizza parlor business is highly competitive and is
affected by changes in consumer tastes and eating habits, as well as national,
regional and local economic conditions, and demographic trends. The performance
of an individual pizza parlor can be affected by changes in traffic patterns,
demographics, and the type, number and location of competing restaurants.

        The quick-service restaurant industry is extremely competitive with
respect to price, service, location and food quality. PWSI and its franchisees
compete with a variety of other restaurants in the quick-service restaurant
industry, including those that offer dine-in, carry-out and delivery services.
These competitors include national and regional chains, franchisees of other
restaurant chains and local owner-operated restaurants. Some of these
competitors have been in existence longer and have an established market
presence in certain geographic regions, and some have substantially greater
financial, marketing and other resources than PWSI and its franchisees. PWSI
competes for qualified franchisees with many other restaurant concepts,
including national and regional restaurant chains.

        PWSI's success is largely dependent upon the efforts of its management
and other key personnel. The loss of the service of one or more members of
management could have an adverse effect on PWSI's operations. Significant
transitions in management involve important risks, including potential loss of
key personnel, difficulties in implementing changes to operational strategies
and maintaining relationships with franchisees.

        The typical PWSI franchise agreement establishes the rights and
relationship between the franchisor and franchisee, and outlines the standards,
specifications and operating procedures that franchisees are expected to follow.
The term of the franchise agreement is typically limited; however, the typical
franchise agreement provides that the agreement can be renewed at the option of
the franchisee. Assignment or transfer of a franchise agreement is generally
permitted only in limited circumstances.

        Franchisees enjoy protected territories under typical franchise
agreements, in which no other related pizza franchise can be maintained by the
franchisor. The typical franchise agreement also contains non-competition
clauses, or covenants not to compete, which prevent a franchisee or its owners
from owning or operating a similar business within a specific geographical area
of the pizza parlor. A franchisee who wishes to sell a pizza parlor, or its



                                      121



interest in a pizza parlor, must, under the typical franchise agreement, give
the franchisor the right of first refusal.

        The typical franchise agreement terminates at the sole discretion of the
franchisor if, for example, the franchisee fails to obtain an on-sale beer and
wine license for the pizza parlor, the franchisee fails to open the pizza parlor
within a specified period of time, or the franchisee fails to complete or
achieve a passing grade in the customary training course concerning operation of
a pizza parlor. The franchisor also has the right to terminate the typical
franchise agreement and the franchise, effective upon delivery of notice of
termination to the franchisee, in certain circumstances. Such circumstances
include, but are not limited to (i) making material misrepresentations or untrue
or inaccurate representations of information, (ii) the bankruptcy or insolvency
of the franchisee or any of its owners, (iii) felony conviction or other crime
or misconduct by the franchisee or any of its owners, which substantially
impairs the goodwill associated with the proprietary nature of the franchisor's
business and (iv) generally, the failure of the franchisee to comply with the
provisions of the franchise agreement.

        The typical franchise agreement provides for the payment of certain fees
and expenses by a franchisee to the franchisor, including, but not limited to
(i) an initial franchise fee for opening a new pizza parlor, payable upon the
execution of the franchise agreement, (ii) an initial advertising fee, payable
upon execution of the franchise agreement, (iii) royalty fees consisting of a
percentage of the adjusted gross sales generated monthly by the pizza parlor,
(iv) periodic advertising fees consisting of a percentage of the adjusted gross
sales generated monthly by the pizza parlor, (v) expenses incurred by the
franchisor in connection with the renewal of the franchise agreement, and (vi)
charges incurred by late payment of any fees, expenses or charges owed by the
franchisee to the franchisor.

        At December 31, 2001, PWSI owned and operated 47 and franchised 12 pizza
parlors. The results achieved by PWSI's relatively small pizza parlor base may
not be indicative of the results of a larger number of pizza parlors in a more
geographically dispersed area. Because of PWSI's relatively small pizza parlor
base, an unsuccessful pizza parlor has a more significant effect on PWSI's
results of operations than would be the case in a company owning more pizza
parlors.

        PWSI's existing pizza parlors, both owned and franchised, are located in
California or Texas. At December 31, 2001, there were 54 pizza parlors in
California and five in Texas. Accordingly, PWSI's results of operations may be
affected by economic or other conditions in those regions. Also, given PWSI's
present geographic concentration, publicity relating to PWSI's pizza parlors
could have a more pronounced effect on PWSI's overall sales than might be the
case if PWSI's pizza parlors were geographically dispersed.

        All of PWSI's owned pizza parlors are operated on premises leased from
third parties. Most of the pizza parlor leases provide for a minimum annual rent
and additional rental payments if sales volumes exceed specified amounts. There
can be no assurance that PWSI will be able to renew leases upon expiration or
that the lease terms upon renewal will be as favorable as the current lease
terms. In 2001, PWSI added three new company-owned stores and sold two
company-owned stores to franchisees. In 2002, PWSI plans to construct and open
four new company-owned stores.



                                      122



                                PROPERTIES OF ARL

        ARL's principal offices are located at 1800 Valley View Lane, Suite 300,
Dallas, Texas 75234 and are, in the opinion of management, suitable and adequate
for ARL's present operations.

        Details of ARL's real estate and mortgage notes receivable portfolios at
December 31, 2001, are set forth in Schedules III and IV, respectively, to the
ARL consolidated financial statements included elsewhere in this joint proxy
statement and prospectus. The discussions set forth below under the headings "--
Real Estate" and "-- Mortgage Loans" provide certain summary information
concerning ARL's real estate and mortgage notes receivable portfolios.

        At December 31, 2001, no single asset accounted for 10% or more of total
assets. At December 31, 2001, 78% of ARL's assets consisted of real estate, 4%
consisted of notes and interest receivable, 10% consisted of investments in
equity investees, including IOT and TCI, and 3% consisted of pizza parlor
equipment and related goodwill. The remaining 5% of ARL's assets were leasehold
interests in oil and gas properties, cash, cash equivalents, marketable equity
securities and other assets. The percentage of assets invested in any one
category is subject to change and no assurance can be given that the composition
of ARL's assets in the future will approximate the percentages listed above.

        ARL's real estate is geographically diverse. At December 31, 2001, ARL's
real estate was located in all geographic regions of the continental United
States, other than the Northeast region, as shown more specifically in the table
under "-- Real Estate" below. ARL also holds mortgage notes receivable secured
by real estate located in the Southeast, Southwest, Pacific and Midwest regions
of the continental United States. See Schedule IV to the ARL consolidated
financial statements included elsewhere in this joint proxy statement and
prospectus for a detailed description of ARL's notes receivable portfolio.

GEOGRAPHIC REGIONS

        Northeast region comprised of the states of Connecticut, Delaware,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont, and the District of Columbia. ARL has no properties in
this region.

        Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. ARL has 34
apartments, 3 commercial properties and 2 hotels in this region.

        Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. ARL has 11 apartments and 8
commercial properties in this region.

        Midwest region comprised of the states of Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, West Virginia and Wisconsin. ARL has 7 apartments, 2 commercial
properties and 1 hotel in this region.

        Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. ARL has 2 commercial properties and 1 hotel in this
region.



                                      123



        Pacific region comprised of the states of Alaska, California, Hawaii,
Oregon and Washington. ARL has 2 commercial properties and 4 hotels in this
region.

        Excluded from the above are 54 parcels of improved and unimproved land,
a hotel in Sofia, Bulgaria and a single family residence, as described below.

REAL ESTATE

        At December 31, 2001, 88% of ARL's assets were invested in real estate
and the equity securities of IOT and TCI. ARL invests in real estate located
throughout the continental United States, either on a leveraged or nonleveraged
basis. ARL's real estate portfolio consists of properties held for investment,
investments in partnerships, properties held for sale and investments in equity
securities of IOT and TCI.

        TYPES OF REAL ESTATE INVESTMENTS. ARL's real estate consists of
apartments, commercial properties (office buildings, shopping centers and a
merchandise mart), hotels and improved and unimproved land. In selecting real
estate for investment, the location, age and type of property, gross rents,
lease terms, financial and business standing of tenants, operating expenses,
fixed charges, land values and physical condition are among the factors
considered. Properties may be purchased subject to debt, or existing debt may be
assumed and properties may be mortgaged, pledged or otherwise collateralized to
obtain financing. The board of directors may alter the types of and criteria for
selecting new real estate investments and for obtaining financing without a vote
of stockholders.

        Although ARL has typically invested in developed real estate, it may
also invest in new construction or development either directly or in partnership
with nonaffiliated parties or affiliates (subject to approval by the board of
directors). To the extent that it invests in construction and development
projects, such as Four Hickory Centre described below, ARL is subject to
business risks, such as cost overruns and construction delays, associated with
such higher risk projects. Also at December 31, 2001, ARL had under construction
Oaks of Vista Ridge, a 288 unit apartment complex in Lewisville, Texas and Vista
Lago, a 206 unit apartment complex in Farmers Branch, Texas.

        In the opinion of management, the properties owned by ARL are adequately
covered by insurance.





                                      124



        The following table sets forth the percentages, by property type and
geographic region, of owned real estate (excluding 54 parcels of improved and
unimproved land, a hotel in Sofia, Bulgaria and a single family residence,
described below) at December 31, 2001.





                                             Commercial
Region                   Apartments          Properties              Hotels
------                   ----------          ----------              ------
                                                          
Midwest................      17%                 16%                    14%
Mountain...............      --                  30                     11
Pacific................      --                   8                     46
Southeast..............      53                  11                     29
Southwest..............      30                  35                     --
                         ----------          ----------             ----------
                            100%                100%                   100%
                         ----------          ----------             ----------




        The foregoing table is based solely on the number of apartment units,
amount of commercial square footage and number of hotel rooms owned and does not
reflect the value of ARL's investment in each region. See Schedule III to the
ARL consolidated financial statements included elsewhere in this joint proxy
statement and prospectus for a detailed description of owned real estate.

        Excluded from the table above are a 136 room hotel in Sofia, Bulgaria, a
single family residence in Dallas, Texas and 54 parcels of improved and
unimproved land consisting of: a 44.4 acre land parcel in Las Colinas, Texas;
six parcels of land in Dallas County, Texas, totaling 391.8 acres; four parcels
of land in Irving, Texas, totaling 278.5 acres; an 82.4 acre land parcel in
Oceanside, California; four parcels of land in Tarrant County, Texas, totaling
129.8 acres; a 130.6 acre land parcel in Harris County, Texas; four parcels of
land in Collin County, Texas, totaling 42.1 acres; 12 parcels of land in Farmers
Branch, Texas, totaling 136.4 acres; two parcels of land in Plano, Texas,
totaling 40.7 acres; a 1,070.9 acre land parcel in Austin, Texas; three parcels
of land in Palm Desert, California, totaling 775.8 acres; a 63.3 acre land
parcel in Travis County, Texas; a 171.7 acre parcel of land in Houston, Texas; a
54.2 acre land parcel in Fort Worth, Texas; a 99.1 acre land parcel in
Lewisville, Texas; a 7.6 acre land parcel in Carrollton, Texas; a 131.3 acre
land parcel in Nashville, Tennessee; three parcels of land in Riverside,
California, totaling 1,677.8 acres; a 150.8 acre parcel of land in Denton
County, Texas; and five additional land parcels totaling approximately 84.0
acres. See Schedule III to the ARL consolidated financial statements included
elsewhere in this joint proxy statement and prospectus for a detailed
description of ARL's real estate portfolio.

        A summary of the activity in the owned real estate portfolio during 2001
is as follows:




                                                                                          
          Owned properties at January 1, 2001........................................          152
          Property obtained in exchange for land.....................................            1
          Properties under construction..............................................            3
          Properties sold (excluding partial sales)..................................          (23)
                                                                                               ---
          Owned properties at December 31, 2001......................................          133
                                                                                               ===




                                      125



        PROPERTIES HELD FOR INVESTMENT. Set forth below are the properties held
for investment and the monthly rental rate for apartments and the average annual
rental rate for commercial properties and the average daily room rate and room
revenue divided by total available rooms for hotels and occupancy at December
31, 2001, 2000 and 1999 for apartments and commercial properties and average
occupancy during 2001, 2000 and 1999 for hotels:





                                                                                                RENT PER SQUARE FOOT
                                                                                                --------------------
PROPERTY                    LOCATION                   UNITS/SQUARE FOOTAGE              2001          2000          1999
--------                    --------                   --------------------              ----          ----          ----
                                                                                                 
APARTMENTS
Arlington Place             Pasadena, TX               230 Units/205,476 Sq. Ft.    $     .73     $     .68     $     .65
Bay Anchor                  Panama City, FL            12 Units/10,700 Sq. Ft.            .55           .53           .50
Bridgestone                 Friendswood, TX            76 Units/65,519 Sq. Ft.            .71           .68           .68
Chateau                     Bellevue, NE               115 Units/99,220 Sq. Ft.           .71           .68           .69
Chateau Bayou               Ocean Springs, MS          122 Units/105,536 Sq. Ft.          .67           .65           .64
Confederate Point           Jacksonville, FL           206 Units/277,860 Sq. Ft.          .61           .59           .58
Conradi House               Tallahassee, FL            98 Units/49,900 Sq. Ft.            .79           .71           .67
Daluce                      Tallahassee, FL            112 Units/95,432 Sq. Ft.           .63           .61           .59
Falcon House                Ft. Walton, FL             82 Units/71,220 Sq. Ft.            .64           .63           .62
Foxwood                     Memphis, TN                220 Units/212,000 Sq. Ft.          .58           .55           .55
Georgetown                  Panama City, FL            44 Units/36,160 Sq. Ft.            .65           .62           .60
Governor Square             Tallahassee, FL            168 Units/146,550 Sq. Ft.          .65           .63           .61
Grand Lagoon                Panama City, FL            54 Units/47,460 Sq. Ft.            .76           .74           .71
Greenbriar                  Tallahassee, FL            50 Units/36,600 Sq. Ft.            .77           .74           .71
La Mirada                   Jacksonville, FL           320 Units/341,400 Sq. Ft.          .56           .54           .54
Lake Chateau                Thomasville, GA            98 Units/65,800 Sq. Ft.            .59           .57           .55
Lake Shore Villas           Harris County, TX          312 Units/259,176 Sq. Ft.          .89           .89             *
Landings/Marina             Pensacola, FL              52 Units/34,464 Sq. Ft.            .72           .69           .68
Lee Hills                   Tallahassee, FL            16 Units/14,720 Sq. Ft.            .57           .56           .52
Mallard Lake                Greensboro, NC             336 Units/295,560 Sq. Ft.          .65           .63           .62
Mediterranean Villas        San Antonio, TX            140 Units/158,960 Sq. Ft.          .55           .50           .50
Morning Star                Tallahassee, FL            82 Units/41,000 Sq. Ft.            .85           .81           .77
Northside Villas            Tallahassee, FL            81 Units/134,000 Sq. Ft.           .63           .61           .58
Oak Hill                    Tallahassee, FL            92 Units/81,240 Sq. Ft.            .64           .62           .60
Oak Tree                    Grandview, MO              189 Units/160,591 Sq. Ft.          .65           .62           .59
Oaks of Vista Ridge         Lewisville, TX             288 Units/238,176 Sq. Ft.           **            **            **
Park Avenue                 Tallahassee, FL            121 Units/78,979 Sq. Ft.           .87           .83           .81
Pheasant Ridge              Bellevue, NE               264 Units/243,960 Sq. Ft.          .67           .61           .60
Pinecrest                   Tallahassee, FL            48 Units/46,400 Sq. Ft.            .61           .59           .57
Quail Point                 Huntsville, AL             184 Units/202,602 Sq. Ft.          .47           .46           .45
Regency                     Lincoln, NE                106 Units/111,700 Sq. Ft.          .63           .62           .64
Regency                     Tampa, FL                  78 Units/55,810 Sq. Ft.            .91           .87           .82
Rolling Hills               Tallahassee, FL            134 Units/115,730 Sq. Ft.          .66           .63           .61
Seville                     Tallahassee, FL            62 Units/63,360 Sq. Ft.            .59           .57           .56
Stonebridge                 Florissant, MO             100 Units/140,576 Sq. Ft.          .50           .47           .46
Stonegate                   Tallahassee, FL            83 Units/34,900 Sq. Ft.            .83           .80           .77
Sun Hollow                  El Paso, TX                216 Units/156,000 Sq. Ft.          .71           .65           .65
Sunset                      Odessa, TX                 240 Units/160,400 Sq. Ft.          .45           .41           .42
Valley Hi                   Tallahassee, FL            54 Units/27,800 Sq. Ft.            .82           .80           .76
Villa Del Mar               Wichita, KS                162 Units/128,004 Sq. Ft.          .62           .56           .59
Villager                    Ft. Walton, FL             33 Units/22,840 Sq. Ft.            .76           .73           .70
Villas                      Plano, TX                  208 Units/156,632 Sq. Ft.          .91           .85           .81
Vista Lago                  Farmers Branch, TX         206 Units/175,100 Sq. Ft.           **            **            **
Waters Edge III             Gulfport, MS               238 Units/212,216 Sq. Ft.          .63           .62           .61
Westwood                    Mary Ester, FL             120 Units/93,000 Sq. Ft.           .71           .63           .67
Westwood Parc               Tallahassee, FL            94 Units/55,950 Sq. Ft.            .77           .74           .70
White Pines                 Tallahassee, FL            85 Units/17,000 Sq. Ft.            .54           .53           .74
Whispering Pines            Topeka, KS                 320 Units/299,264 Sq. Ft.          .83           .79           .52
Windsor Tower               Ocala, FL                  64 Units/66,000 Sq. Ft.            .54           .50           .46
Woodhollow                  San Antonio, TX            546 Units/348,692 Sq. Ft.          .67           .65           .64
Woodlake                    Carrollton, TX             256 Units/210,208 Sq. Ft.          .84           .78           .77
Woodsong II                 Smyrna, GA                 190 Units/207,460 Sq. Ft.          .64           .60           .57

OFFICE BUILDINGS
56 Expressway               Oklahoma City, OK          54,649 Sq. Ft.                   11.47         11.23          7.92
Centura                     Farmers Branch, TX         410,901 Sq. Ft.                  24.91         25.01             *
Cooley Building             Farmers Branch, TX         27,000 Sq. Ft.                   11.69          9.25          9.00






                                                 OCCUPANCY %
                                                 -----------
PROPERTY                             2001           2000          1999
--------                             ----           ----          ----
                                                       
APARTMENTS
Arlington Place                       97             93             98
Bay Anchor                           100            100             97
Bridgestone                           93             99             91
Chateau                               94             97             96
Chateau Bayou                         97             89             99
Confederate Point                     98             96             94
Conradi House                        100             98             96
Daluce                                95             96             93
Falcon House                         100             95             92
Foxwood                               91             90             81
Georgetown                            93            100             94
Governor Square                       95             95             95
Grand Lagoon                          96             93             94
Greenbriar                            90             98            100
La Mirada                             87             88             94
Lake Chateau                          81             95             95
Lake Shore Villas                     96              *              *
Landings/Marina                       94             92             96
Lee Hills                             81             94             92
Mallard Lake                          90             97             93
Mediterranean Villas                  89             96             96
Morning Star                         100             99             95
Northside Villas                      93             97             94
Oak Hill                              98             95             96
Oak Tree                              91             89             95
Oaks of Vista Ridge                   **             **             **
Park Avenue                           94             98             97
Pheasant Ridge                        90             94             94
Pinecrest                            100            100             94
Quail Point                           89             90             90
Regency                               96             93             88
Regency                               89             97             97
Rolling Hills                         97             96             99
Seville                               95             97            100
Stonebridge                           99             97             94
Stonegate                            100             99             95
Sun Hollow                            84             97             94
Sunset                                88             85             96
Valley Hi                             98             98             92
Villa Del Mar                         91             91             85
Villager                              94             91             94
Villas                                94             94             96
Vista Lago                            **             **             **
Waters Edge III                       90             92             97
Westwood                              88             93             94
Westwood Parc                         93             99             99
White Pines                           90             93             95
Whispering Pines                      94             97             94
Windsor Tower                         94             98            100
Woodhollow                            96             89             76
Woodlake                              94             99             96
Woodsong II                           93             97             96

OFFICE BUILDINGS
56 Expressway                         66             77             23
Centura                               48             31              *
Cooley Building                       69            100            100



                                      126







                                                                                                RENT PER SQUARE FOOT
                                                                                                --------------------
PROPERTY                    LOCATION                   UNITS/SQUARE FOOTAGE              2001          2000          1999
--------                    --------                   --------------------              ----          ----          ----
                                                                                                 
Encino Executive Plaza      Encino, CA                 177,211 Sq. Ft.                  26.98         25.17         16.85
Executive Court             Memphis, TN                41,840 Sq. Ft.                   11.06         11.04         13.22
Four Hickory Centre         Farmers Branch, TX         221,000 Sq. Ft.                     **            **            **
Melrose Business Park       Oklahoma City, OK          124,200 Sq. Ft.                   3.57          3.22          2.73
One Hickory Centre          Farmers Branch, TX         102,615 Sq. Ft.                  18.95         19.90             *
Rosedale Towers             Minneapolis, MN            84,798 Sq. Ft.                   17.37         16.84         18.89
Two Hickory Centre          Farmers Branch, TX         96,127 Sq. Ft.                   20.89         21.07         18.71
University Square           Anchorage, AK              22,260 Sq. Ft.                   14.73         14.07         13.26

SHOPPING CENTERS
Collection                  Denver, CO                 267,812 Sq. Ft.                  10.43          9.83         11.19
Cross County Mall           Mattoon, IL                304,575 Sq. Ft.                   5.24          5.10          6.05
Cullman                     Cullman, AL                92,466 Sq. Ft.                    3.38          3.27          3.98
Oaktree Village             Lubbock, TX                45,623 Sq. Ft.                    9.23          6.64          9.29
Westwood                    Tallahassee, FL            149,855 Sq. Ft.                   6.87          6.74          6.68

MERCHANDISE MART
Denver Mart                 Denver, CO                 509,008 Sq. Ft.                  11.20         10.98         10.34

SINGLE FAMILY RESIDENCE
Tavel Circle                Dallas, TX                 2,271 Sq. Ft.                       --            --            --





                                                 OCCUPANCY %
                                                 -----------
PROPERTY                             2001           2000          1999
--------                             ----           ----          ----
                                                       
Encino Executive Plaza                65             78             90
Executive Court                       73            100            100
Four Hickory Centre                   **             **             **
Melrose Business Park                 78             74             86
One Hickory Centre                    99             72              *
Rosedale Towers                       95             86             92
Two Hickory Centre                    75             33             25
University Square                    100             97             97

SHOPPING CENTERS
Collection                            88             96             99
Cross County Mall                     93             94             93
Cullman                               98             98             98
Oaktree Village                       89             79             76
Westwood                              97             93            100

MERCHANDISE MART
Denver Mart                           92             90             92

SINGLE FAMILY RESIDENCE
Tavel Circle                          --             --             --







PROPERTY                    LOCATION               ROOMS                  AVERAGE ROOM RATE                  OCCUPANCY %
--------                    --------               -----                  -----------------                  -----------
HOTELS                                                              2001         2000         1999     2001      2000    1999
                                                                    ----         ----         ----     ----      ----    ----
                                                                                                
Best Western                Virginia Beach, VA     110 Rooms    $  108.20    $  103.94     $  94.15     53        60      62
Grand Hotel Sofia           Sofia, Bulgaria        136 Rooms       106.97            *            *     60         *       *
Holiday Inn                 Kansas City, MO        196 Rooms        73.58        70.67        64.09     65        72      81
Piccadilly Airport          Fresno, CA             185 Rooms        70.87        70.22        69.52     59        61      59
Piccadilly Chateau          Fresno, CA              78 Rooms        57.29        56.38        57.09     59        58      56
Piccadilly Shaw             Fresno, CA             194 Rooms        73.12        70.96        71.80     70        69      63
Piccadilly University       Fresno, CA             190 Rooms        65.18        67.11        68.90     62        55      49
Quality Inn                 Denver, CO             161 Rooms        53.75        52.83        55.01     67        69      63
Williamsburg Hospitality
House                       Williamsburg, VA       296 Rooms        99.04        93.28        88.76     52        60      58





                                        TOTAL ROOM REVENUE
                                           DIVIDED BY
PROPERTY                              TOTAL AVAILABLE ROOMS
--------                              ---------------------
HOTELS                           2001          2000        1999
                                 ----          ----        ----
                                              
Best Western                  $  57.83     $   62.29   $   57.96
Grand Hotel Sofia                60.85             *           *
Holiday Inn                      48.01         51.18       52.02
Piccadilly Airport               42.04         42.87       41.02
Piccadilly Chateau               34.07         32.64       32.17
Piccadilly Shaw                  50.84         49.07       45.36
Piccadilly University            40.38         36.83       34.02
Quality Inn                      35.75         36.30       34.45
Williamsburg Hospitality
House                            51.88         55.71       51.58


*Property was purchased or constructed in 2000 or 2001.
**Property was under construction in 2001.

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

        In 2001, ARL purchased the following property:



                                                                     NET CASH         DEBT        INTEREST
PROPERTY          LOCATION         UNITS         PURCHASE PRICE        PAID         INCURRED        RATE      MATURITY DATE
--------          --------         -----         --------------        ----         --------        ----      -------------
                                                                                          
APARTMENTS
Glenwood          Addison, TX      168 Units        $ 6,246          $ -- (1)     $ 2,549 (2)      9.25%          10/04


(1)     8.88 acres of Hollywood Casino land and 10.5 acres of Vista Ridge land
        given as consideration. Exchanged with TCI, a related party.
(2)     Assumed debt of seller. Exchanged with TCI, a related party.

In 2001, ARL sold the following properties:



                                                                                                   DEBT          GAIN/(LOSS)
PROPERTY       LOCATION          UNITS/SQ.FT./ACRES     SALES PRICE     NET CASH RECEIVED       DISCHARGED         ON SALE
--------       --------          ------------------     -----------     -----------------       ----------         -------
APARTMENTS
                                                                                            
Ashford        Tampa, FL       56 Units                $       2,145      $         593       $      1,182     $       (985)
Bent Tree      Addison, TX     292 Units                      12,050              2,480              8,867             7,081
Blackhawk      Ft. Wayne, IN   209 Units                       7,100                904              4,030             5,110



                                      127




                                                                                                         DEBT       GAIN/(LOSS)
PROPERTY              LOCATION               UNITS/SQ.FT./ACRES    SALES PRICE     NET CASH RECEIVED  DISCHARGED      ON SALE
--------              --------               ------------------    -----------     -----------------  ----------      -------
                                                                                                  
Carriage Park         Tampa, FL              46 Units                  2,005               757              1,069         663
Chalet I              Topeka, KS             162 Units                 5,650             1,288          4,109 (1)       3,952
Chalet II             Topeka, KS             72 Units                  2,100               485          1,550 (1)         434
Club Mar              Sarasota, FL           248 Units                 8,500             1,905          6,199 (1)       2,328
Covered Bridge        Gainesville, FL        176 Units                 7,900             2,463              4,339       6,042
Crossing at Church    Tampa, FL              52 Units                  1,880               750                948         623
Glenwood              Addison, TX            168 Units                 6,650             3,166              2,549       (581)
Kimberly Woods        Tucson, AZ             279 Units                 8,450             1,667          6,191 (1)       6,053
Nora Pines            Indianapolis, IN       254 Units                 9,850             2,548              5,574       6,957
Place One             Tulsa, OK              407 Units                12,935             3,310              7,539       8,623
Rockborough           Denver, CO             345 Units                16,675             3,654         12,215 (1)      13,471
Shadowood             Addison, TX            184 Units                 7,125             1,980              4,320       4,644
Timbercreek           Omaha, NE              180 Units                 7,500             1,871              4,517       5,219
Woodstock             Dallas, TX             320 Units                 9,600             3,877              4,542       5,951

SHOPPING CENTER
Regency Pointe        Jacksonville, FL       67,410 Sq.Ft.             7,350             5,126              1,500       2,232

LAND
Chase Oaks            Plano, TX              22.3 Acres                2,875               663              2,027         871
Chase Oaks            Plano, TX              4.9 Acres                 1,973             1,832                 --       1,416
Elm Fork              Denton County, TX      10.0 Acres                1,002              (30)                958         283
Elm Fork              Denton County, TX      107.0 Acres               5,600             (168)              5,316     (1,616)
Frisco Bridges        Collin County, TX      27.8 Acres                4,500             4,130                 --          25
Katrina               Palm Desert, CA        20.0 Acres                2,831             (124)                596     --  (2)
Katrina               Palm Desert, CA        20.0 Acres                2,940                78                 --         616
Katrina               Palm Desert, CA        6.1 Acres                 1,196             1,108                 --         570
Katrina               Palm Desert, CA        2.2 Acres                   800              (24)                737         514
Katrina               Palm Desert, CA        1.4 Acres                   284               (9)                253          93
Las Colinas           Las Colinas, TX        1.7 Acres                   825               233                400         539
Mason/Goodrich        Houston, TX            22.1 Acres                4,168              (34)              3,750       2,896
Nashville             Nashville, TN          2.0 Acres                    26               (1)                 24        (82)
Nashville             Nashville, TN          1.2 Acres                     8                --                  4        (59)
Nashville             Nashville, TN          4.2 Acres                   600              (53)                561         302
Plano Parkway         Plano, TX              11.3 Acres                1,445               312                950          --
Plano Parkway         Plano, TX              12.0 Acres                  740               672                 --       (991)
Rasor                 Plano, TX              6.6 Acres                   350               267                 --          34
Santa Clarita         Santa Clarita, CA      12.7 Acres                2,100             1,791                 --         952
Santa Clarita         Santa Clarita, CA      6.7 Acres                   500               608                 --       (501)
Scoggins              Tarrant County, TX     232.8 Acres               2,913               892              1,800         181
Scout                 Tarrant County, TX     408.0 Acres               5,087             1,586              3,200       2,969
Tree Farm             Dallas County, TX      10.4 Acres                2,888              (87)              2,644          75
Vista Ridge           Denton County, TX      27.4 Acres                  871              (26)                812     (1,993)
Watersedge            Gulfport, MS           .4 Acres                     80                78                 --     --  (3)
Yorktown              Harris County, TX      120.4 Acres               5,239             (160)              4,991     (1,497)


(1)     Debt assumed by purchaser.

(2)     Gain of $830 deferred until ARL-provided financing is collected.

(3)     Sold to TCI, a related party. Gain of $65 deferred until sale to
        unrelated party.

In 2001, ARL financed/refinanced or obtained second mortgage financing on the
following:



                                             UNITS/SQ.FT.                           DEBT       NET CASH   INTEREST     MATURITY
PROPERTY               LOCATION              ROOMS/ACRES      DEBT INCURRED      DISCHARGED    RECEIVED     RATE         DATE
--------               --------              -----------      -------------      ----------   ----------    ----         ----
                                                                                                  
APARTMENTS
Sun Hollow             El Paso, TX           216 Units        $    --  (1)      $     --      $      --          --           --
Waters Edge III        Gulfport, MS          238 Units             --  (1)            --             --          --           --
Woodlake               Carrollton, TX        256 Units             --  (1)            --             --          --           --

OFFICE BUILDING
Centura Tower          Farmers Branch, TX    410,910 Sq.Ft.         28,739        28,384          (526)      10.50%        07/02
Executive Court        Memphis, TN           41,840 Sq.Ft.           1,970            --          1,598       12.00    12/04 (9)
Four Hickory Centre    Farmers Branch, TX    221,000 Sq.Ft.          5,000            --          5,000    6.75 (5)        10/02
Rosedale Towers        Minneapolis, MN       84,798 Sq.Ft.       7,500 (1)            --          7,500        5.00        07/02




                                      128





                                             UNITS/SQ.FT.                         DEBT       NET CASH    INTEREST     MATURITY
PROPERTY               LOCATION              ROOMS/ACRES      DEBT INCURRED    DISCHARGED    RECEIVED      RATE         DATE
--------               --------              -----------      -------------    ----------   ----------     ----         ----
                                                                                               
SHOPPING CENTER
Cross County           Mattoon, IL           307,174 Sq.Ft.         3,200           700        2,436        15.00       06/02
Cullman                Cullman, AL           92,486 Sq.Ft.        --  (2)           129           --           --          --
Sesame Square          Anchorage, AK         27,651 Sq.Ft.            800            --          777        15.00       06/02
Westwood               Tallahassee, FL       149,244 Sq.Ft.         3,000           700        2,221        15.00       06/02

HOTEL
Williamsburg
Hospitality House      Williamsburg, VA(3)   296 Rooms             10,309            --        9,851        36.00   01/02 (6)

LAND
Chase Oaks             Plano, TX             6.9 Acres              1,633         1,000          425        13.00       03/03
Hollywood Casino       Farmers Branch, TX    51.7 Acres         2,500 (4)            --        1,916         9.00       04/03
Jeffries Ranch         Oceanside, CA         82.4 Acres         5,250 (2)           750        3,944        14.50       06/02
Katrina                Palm Desert, CA       300.5 Acres           22,000        15,584        4,417    12.50 (5)       10/02
Marine Creek           Fort Worth, TX        54.2 Acres             1,500           750          701         9.00       01/03
Mason/Goodrich         Houston, TX           235.0 Acres            6,750            --        6,302        14.00   01/02 (7)
Mercer Crossing        Carrollton, TX        31.3 Acres             2,937         1,986           16        13.00       03/03
Pioneer Crossing       Austin, TX            350.1 Acres            7,000            --        6,855        16.90       03/05
Pioneer Crossing       Austin, TX            14.5 Acres             2,500            --        2,350        14.50   01/02 (8)
Valwood                Dallas County, TX     19.4 Acres           --  (4)            --           --           --          --
Varner Road            Riverside, CA         127.8 Acres            2,450            --        2,333         9.00       10/02
Vista Ridge LI         Lewisville, TX        90.3 Acres             9,085         9,119        (101)        13.00       03/03
Vista Ridge MF         Lewisville, TX        23.0 Acres             1,345         1,000          228        13.00       03/03
Willow Springs         Riverside, CA         1,485.7 Acres        --  (2)            --           --           --          --


(4)     Single note, with all properties as collateral.

(5)     Single note, with all properties as collateral.

(6)     Also secured by 1,846,000 shares of TCI Common Stock.

(7)     Single note, with all properties as collateral.

(8)     Variable interest rate.

(9)     Paid off in September 2001.

(10)    Extended to April 2002.

(11)    Extended to April 2002.

(12)    In December 2001, TCI, a related party, purchased 100% of the
outstanding common shares of National Melrose, Inc. ("NM"), a wholly-owned
subsidiary of ARL, for $2.0 million. NM owns the Executive Court Office
Building. ARL has guaranteed that the asset will produce at least a 12% annual
return on the purchase price for a period of three years from the purchase date.
If the asset fails to produce the annual return, ARL will pay TCI any shortfall.
In addition, if the asset fails to produce a 12% return for a calendar year, TCI
may require ARL to repurchase the shares of NM for the purchase price.
Management has classified this related party transaction as a note payable to
TCI.

        PROPERTIES HELD FOR SALE. Set forth below are the properties held for
sale, consisting of improved and unimproved land:



PROPERTY                                                  LOCATION                                                       ACRES
--------                                                  --------                                                       -----
                                                                                                              
Bonneau                                                   Dallas County, TX                                               8.4
Centura Holdings                                          Farmers Branch, TX                                              6.4
Chase Oaks                                                Plano, TX                                                      11.8
Clark                                                     Farmers Branch, TX                                              3.3
Croslin                                                   Dallas County, TX                                                .8
Dalho                                                     Farmers Branch, TX                                              3.4
Desert Wells                                              Palm Desert, CA                                               420.0
Eldorado Parkway                                          Collin County, TX                                               8.5
Elm Fork                                                  Denton County, TX                                             150.8
Frisco Bridges                                            Collin County, TX                                              12.2
FRWM Cummings                                             Farmers Branch, TX                                              6.5
Hollywood Casino                                          Farmers Branch, TX                                             42.8
HSM                                                       Farmers Branch, TX                                              6.2
Jeffries Ranch                                            Oceanside, CA                                                  82.4
JHL Connell                                               Carrollton, TX                                                  7.6
Katrina                                                   Palm Desert, CA                                               283.8
Katy Road                                                 Harris County, TX                                             130.6
Keller                                                    Tarrant County, TX                                             30.9
Kelly                                                     Collin County, TX                                                .8



                                      129




PROPERTY                                                  LOCATION                                                       ACRES
--------                                                  --------                                                       -----
                                                                                                             
Lacy Longhorn                                             Farmers Branch, TX                                             17.1
Las Colinas I                                             Las Colinas, TX                                                44.4
Leone                                                     Irving, TX                                                      8.2
Marine Creek                                              Fort Worth, TX                                                 54.2
Mason/Goodrich                                            Houston, TX                                                   171.7
McKinney Corners II                                       Collin County, TX                                              20.6
Mendoza                                                   Dallas County, TX                                                .4
Messick                                                   Palm Desert, CA                                                72.0
Monterrey                                                 Riverside, CA                                                  65.0
Nashville                                                 Nashville, TN                                                 131.3
Pioneer Crossing                                          Austin, TX                                                  1,070.9
Rasor                                                     Plano, TX                                                      28.9
Scout                                                     Tarrant County, TX                                             64.5
Sladek                                                    Travis County, TX                                              63.3
Stagliano                                                 Farmers Branch, TX                                              3.2
Thompson                                                  Farmers Branch, TX                                              4.0
Thompson II                                               Dallas County, TX                                               3.5
Tomlin                                                    Farmers Branch, TX                                              9.2
Valley Ranch                                              Irving, TX                                                    245.4
Valley Ranch III                                          Irving, TX                                                     12.5
Valley Ranch IV                                           Irving, TX                                                     12.4
Valley View 34                                            Farmers Branch, TX                                             33.9
Valwood                                                   Dallas County, TX                                             246.1
Varner Road                                               Riverside, CA                                                 127.8
Vineyards                                                 Tarrant County, TX                                             15.8
Vineyards II                                              Tarrant County, TX                                             18.6
Vista Ridge                                               Lewisville, TX                                                 99.1
Walker                                                    Dallas County, TX                                             132.6
Willow Springs                                            Riverside, CA                                               1,485.0
Woolley                                                   Farmers Branch, TX                                               .4
Other (5 properties)                                      Various                                                        84.0


ARL FEDERAL TAX BASIS OF DEPRECIABLE PROPERTY AS OF DECEMBER 31, 2001

        For each ARL property upon which depreciation is taken, the table set
forth below includes (i) the Federal tax basis; (ii) rate, (iii) method and (iv)
life claimed as of December 31, 2001.



                           GROSS           ACCUMULATED
                        FEDERAL TAX            TAX           NET FEDERAL
    PROPERTY               BASIS           DEPRECIATION       TAX BASIS               RATE    METHOD(1)          LIFE
-----------------       -----------       --------------     -----------              ----    ---------      ------------
                                                                                          
APARTMENTS
Arlington Place          $5,136,331          $865,067        $4,271,264               100 %       ADS        12-40 years
Bay Anchor                  117,306            15,808           101,498               100       MACRS         27.5 years
Bridgestone               1,970,565           331,652         1,638,913               100         ADS           40 years
Chateau                   2,844,370           337,786         2,506,584               100         ADS        20-40 years
Chateau Bayou             2,364,187           229,042         2,135,145               100         ADS           40 years
Confederate Point         6,697,547         1,086,080         5,611,467               100         ADS        12-40 years
Conradi House             1,151,649           155,230           996,419               100       MACRS         27.5 years
Daluce                    2,622,734           353,506         2,269,228               100       MACRS         27.5 years
Falcon House              1,967,301           259,304         1,707,997               100       MACRS         27.5 years
Foxwood                   4,950,375           853,921         4,096,454               100         ADS        12-40 years
Georgetown                1,025,485           156,543           868,942               100       MACRS         27.5 years
Governor Square             830,752           147,295           683,457               100         ADS           40 years
Grand Lagoon                659,190            99,141           560,049               100         ADS           40 years
Greenbriar                  923,602           206,950           716,652               100         ADS           40 years
La Mirada                 8,857,528         1,576,027         7,281,501               100         ADS        12-40 years
Lake Chateau              1,379,424           200,620         1,178,804               100       MACRS         27.5 years
Lakeshore Villas         14,129,956           619,488        13,510,468               100         ADS        12-40 years
Landings/Marina           1,255,751           185,117         1,070,634               100       MACRS       7-27.5 years



                                      130




                           GROSS           ACCUMULATED
                        FEDERAL TAX            TAX           NET FEDERAL
    PROPERTY               BASIS           DEPRECIATION       TAX BASIS         RATE    METHOD(1)          LIFE
-----------------       -----------       --------------     -----------        ----    ---------      ------------
                                                                                    
Lee Hills                  236,046               31,813         204,233         100        MACRS        27.5 years
Mallard Lake            13,485,915            2,133,760      11,352,155         100          ADS       12-40 years
Med Villas               2,847,706              275,886       2,571,820         100          ADS          40 years
Morning Star             1,348,597              177,692       1,170,905         100        MACRS        27.5 years
Northside Villas         3,758,551              506,795       3,251,756         100        MACRS        27.5 years
Oak Hill                 2,107,213              283,890       1,823,323         100        MACRS        27.5 years
Oak Tree                 4,490,117              760,612       3,729,505         100          ADS       12-40 years
Oaks at Vista Ridge**            -                    -               -         100          ADS          40 years
Park Avenue                774,877              169,779         605,098         100          ADS          40 years
Pheasant Ridge           7,525,733            1,217,629       6,308,104         100          ADS       12-40 years
Pinecrest West             891,750              120,195         771,555         100        MACRS        27.5 years
Quail Point              4,304,220              819,277       3,484,943         100          ADS       12-40 years
Regency - NE             2,885,626              427,367       2,458,259         100          ADS       12-40 years
Regency - FL             1,784,436              496,641       1,287,795         100          ADS          40 years
Rolling Hills            3,057,516              493,268       2,564,248         100        MACRS      5-27.5 years
Seville                  1,686,356              277,678       1,408,678         100        MACRS      5-27.5 years
Stonebridge              3,277,158              573,381       2,703,777         100          ADS       12-40 years
Stonegate                1,663,558              241,364       1,422,194         100        MACRS        27.5 years
Sun Hollow               5,152,743              997,072       4,155,671         100          ADS          40 years
Sunset                   1,381,980              133,886       1,248,094         100          ADS          40 years
Valley Hi                  833,613              138,976         694,637         100        MACRS      5-27.5 years
Villa Del Mar            3,225,142              533,725       2,691,417         100          ADS       12-40 years
Villager                 1,106,359              160,353         946,006         100        MACRS      5-27.5 years
Villas                   6,278,546            1,036,042       5,242,504         100          ADS       12-40 years
Vista Lago**                     -                    -               -         100          ADS          40 years
Waters Edge III          1,323,967              114,470       1,209,497         100          ADS          40 years
Westwood                 1,897,454              253,362       1,644,092         100          ADS          40 years
Westwood Parc            1,483,208              195,500       1,287,708         100        MACRS        27.5 years
Whispering Pines         7,382,519            1,195,969       6,186,550         100          ADS       12-40 years
White Pines                673,341               90,723         582,618         100        MACRS        27.5 years
Windsor Tower            2,014,279              280,623       1,733,656         100        MACRS        27.5 years
Wood Hollow              8,632,523            1,999,434       6,633,089         100          ADS       12-40 years
Woodlake                 8,935,473            1,633,781       7,301,692         100          ADS       12-40 years
Woodsong II              5,553,747              781,852       4,771,895         100          ADS       12-40 years

OFFICE BUILDINGS
56 Expressway            3,560,831            1,025,583       2,535,248         100          ADS       12-40 years
Centura Tower           56,326,747            2,847,642      53,479,105         100        MACRS        5-39 years
Cooley Building          4,435,200              218,164       4,217,036         100          ADS          40 years
Encino                  31,520,000            2,320,000      29,200,000         100        MACRS        5-39 years
Executive Court*                 -                    -               -         100          ADS          40 years
Melrose Business Park    2,680,791              565,449       2,115,342         100          ADS       12-40 years
One Hickory Center      11,199,591              562,341      10,637,250         100          ADS        6-40 years
Two Hickory Center       9,041,244              216,628       8,824,616         100          ADS          40 years
Four Hickory Center**            -                    -               -         100          ADS          40 years
Rosedale Towers          5,159,244            1,673,231       3,486,013         100          ADS       10-40 years
University Square        2,733,833              785,430       1,948,403         100          ADS       12-40 years
SHOPPING CENTERS



                                      131





                                    GROSS           ACCUMULATED
                                 FEDERAL TAX            TAX           NET FEDERAL
    PROPERTY                        BASIS           DEPRECIATION       TAX BASIS        RATE    METHOD(1)          LIFE
-----------------                -----------       --------------     -----------       ----    ---------     -------------
                                                                                            
Collection                       13,724,776            1,265,832       12,458,944        100        MACRS         39 years
Cross County Mall                14,627,929            2,733,606       11,894,323        100          ADS      12-40 years
Cullman                           2,473,588              351,922        2,121,666        100          ADS      12-40 years
Oaktree Shopping Village          1,608,873              222,414        1,386,459        100          ADS         40 years
Westwood                          8,570,701            1,770,918        6,799,783        100          ADS      12-40 years

MERCHANDISE MART
Denver Mart                      22,653,797            3,823,165       18,830,632        100        MACRS       5-39 years

HOTELS
Best Western Hotel                5,233,153            4,156,553        1,076,600        100        MACRS       5-39 years
AKC Holiday Inn                   7,303,484            1,995,685        5,307,799        100        MACRS       5-39 years
Piccadilly Airport                8,324,191              979,546        7,344,645        100          ADS       6-40 years
Piccadilly Chateau                3,946,863              446,984        3,499,879        100          ADS      10-40 years
Piccadilly Shaw                  10,525,142            1,246,662        9,278,480        100          ADS      10-40 years
Piccadilly University            12,145,188            1,360,137       10,785,051        100          ADS       6-40 years
Quality Inn                         964,516              313,206          651,310        100          ADS      10-40 years
Grand Hotel, Sofia               14,566,761              500,612       14,066,149        100          ADS      10-40 years
Williamsburg Hospitality House   18,184,618            2,578,840       15,605,778        100          ADS       6-40 years

SINGLE FAMILY RESIDENCE
Tavel Circle                        213,576               30,035          183,541        100          ADS         40 years
                                ------------       --------------    ------------
         Total                  442,608,959           60,221,957      382,387,002
                                ============       ==============    ============


*Sold to TCI, treated as financing transaction for book, sale for tax.

**Property under construction, no depreciable assets in service.

(1)ADS = Alternative Depreciation System
   MACRS = Modified Accelerated Cost Recovery System

MORTGAGE LOANS

        In addition to real estate, a portion of ARL's assets are invested in
mortgage notes receivable, secured by income-producing real estate, unimproved
land and partnership interests. Management expects that the percentage of ARL's
assets invested in mortgage loans will decline, as ARL will no longer seek to
fund or acquire new mortgage loans. However, ARL may, in selected instances,
originate mortgage loans or it may provide purchase money financing in
conjunction with a property sale. Management intends to service and hold for
investment the mortgage notes currently in the portfolio. Mortgage notes
receivable consist of first mortgage loans.

        TYPES OF PROPERTIES SUBJECT TO MORTGAGES. The types of properties
securing mortgage notes receivable at December 31, 2001, consisted of
apartments, a commercial building, unimproved land and partnership interests.
The type of properties subject to mortgages in which ARL invests may be altered
without a vote of stockholders.


                                      132


        As of December 31, 2001, the obligors on $25.9 million or 79% of the
mortgage notes receivable portfolio were affiliates of ARL. Also at that date,
$10.3 million or 31% of the mortgage notes receivable portfolio was
nonperforming.

        The following table sets forth the percentages (based on the outstanding
mortgage loan balance at December 31, 2001), by geographic region, of the
commercial properties that serve as collateral for ARL's mortgage notes
receivable. Excluded are $26.1 million of mortgage notes secured by unimproved
land and other security. See Schedule IV to the ARL consolidated financial
statements included elsewhere in this joint proxy statement and prospectus for
additional details of ARL's mortgage notes receivable portfolio.



          REGION                       COMMERCIAL PROPERTIES
-----------------------------      -----------------------------
                                           
Southwest                                     100.0%
                                              ======


A summary of the activity in the mortgage notes receivable portfolio during 2001
is as follows:


                                                              
Mortgage notes receivable at January 1, 2001                      11
Loans funded                                                       5
Loans collected in full                                           (6)
Loans sold                                                        --
                                                                  --
Mortgage notes receivable at December 31, 2001                    10
                                                                  ==


During 2001, $1.8 million in interest and $5.0 million in principal were
collected on mortgage notes receivable.

        FIRST MORTGAGE LOANS. These loans generally provide for level periodic
payments of principal and interest sufficient to substantially repay the loan at
or prior to maturity, but may involve interest-only payments or moderate or
negative amortization of principal or all interest and a "balloon" principal
payment at maturity. With respect to first mortgage loans, it is ARL's general
policy to require that the borrower provide a title policy or an acceptable
legal opinion of title as to the validity and the priority of ARL's mortgage
lien over all other obligations, except liens arising from unpaid property taxes
and other exceptions normally allowed by first mortgage lenders.

        The following discussion briefly describes first mortgage loans funded
in 2001, as well as events that affected previously funded first mortgage loans
during 2001.

        In July 2000, ARL sold a 749.1 acre tract of its Keller land parcel for
$10.0 million, receiving $8.7 million in cash and providing purchase money
financing of the remaining $1.3 million of the sales price. The loan bore
interest at 12.0% per annum. A payment of $500,000 principal and interest was
collected in September 2000 and all remaining principal and interest was due
July 31, 2001. The loan was secured by 100% of the shares of DM Development,
Inc. and an assignment of land sales proceeds. In March 2001, $850,000 in
principal and interest was collected. In June 2001, the loan was collected in
full, including accrued but unpaid interest.

        In August 2000, ARL sold a 20.5 acre tract of its Mason Goodrich land
parcel for $3.6 million, receiving $2.1 million in cash and providing purchase
money financing of the remaining



                                      133


$1.5 million of the sales price. The loan bore interest at 13.5% per annum, and
matured in December 2000. All principal and interest were due at maturity. In
February 2001, the loan was collected in full, including accrued but unpaid
interest.

        In March 2001, ARL sold a 20.0 acre tract of its Katrina land parcel for
$2.8 million, receiving $700,000 in cash and providing purchase money financing
of the remaining $2.1 million of the sales price. The loan bears interest at
12.0% per annum and matured in July 2001. All principal and interest were due at
maturity. In January 2002, $274,000 in principal and $226,000 in interest was
collected. In March 2002, the note was collected in full, including accrued but
unpaid interest.

        In April 2001, ARL sold a 20.0 acre tract of its Katrina land parcel for
$2.9 million, receiving $700,000 in cash and providing purchase money financing
of the remaining $2.2 million of the sales price. The loan bore interest at
10.0% per annum and matured in June 2001. In May 2001, ARL sold an 80% senior
interest in the note to a financial institution. In June 2001, the interest rate
was increased to 12.0% and the maturity date was extended to August 2001. All
principal and accrued but unpaid interest were due at maturity. In July 2001,
the note was collected in full, including accrued but unpaid interest.

        In November 2001, ARL sold a 12.71 acre tract of its Santa Clarita
parcel for $1.9 million, receiving $1.5 million in cash and providing purchase
money financing of the remaining $437,000 of the sales price. The loan bears
interest at 8.0% per annum and matures in November 2002. All principal and
accrued but unpaid interest are due at maturity.

        Also in November 2001, ARL sold the Blackhawk Apartments for $7.1
million, receiving $1.5 million in cash after the assumption of $4.0 million of
mortgage debt and providing purchase money financing of the remaining $1.6
million of the sales price. The loan bears interest at 10.0% per annum and
matures in May 2002. Monthly principal and interest payments are required. All
remaining principal and accrued but unpaid interest are due at maturity.

        OTHER. In September 1999, in conjunction with the sale of two apartments
in Austin, Texas, $2.1 million in purchase money financing was provided, secured
by limited partnership interests in two limited partnerships owned by the buyer.
The financing bore interest at 16.0% per annum, required monthly payments of
interest only at 6.0%, beginning in February 2000 and required a $200,000
principal paydown in December 1999, which was not received, and matured in
August 2000. ARL had the option of obtaining the buyer's general and limited
partnership interests in the collateral partnerships in full satisfaction of the
financing. In March 2000, ARL agreed to forbear foreclosing on the collateral
securing the note and released one of the partnership interests, in exchange for
a payment of $250,000 and executed deeds of trusts on certain properties owned
by the buyer. In March 2000, the borrower made a $1.1 million payment, upon
receipt of which ARL returned the deeds of trust. The borrower executed a
replacement promissory note for the remaining note balance of $1.0 million,
which is unsecured, non-interest bearing and matures in April 2003. In April
2000, ARL funded a $100,000 loan to the borrower. The loan was secured by five
second lien deeds of trust, was non-interest bearing and matured in September
2001. Payment was not received at maturity, and ARL began to accrue default
interest. In December 2001, the $100,000 loan was collected in full, including
accrued but unpaid interest.


                                      134


        In December 1999, a note with a principal balance of $1.2 million,
secured by a pledge of a partnership interest in a partnership which owns real
estate in Addison, Texas, matured. The maturity date was extended to April 2000
in exchange for an increase in the interest rate to 14.0% per annum. All other
terms remained the same. In February 2001, the loan amount was increased to $1.6
million and the maturity date was extended to June 2001. In February 2002, $1.5
million in principal and $87,000 in interest were collected. ARL has demanded
payment of the remaining $84,000 in principal plus accrued but unpaid interest.

        In August 1998, a $635,000 loan was funded to La Quinta Partners, LLC.
The loan was secured by interest bearing accounts prior to their being used as
escrow deposits toward the purchase of 956 acres of land in La Quinta,
California, and the personal guarantee of the manager of the borrower. The loan
had an extended maturity date of November 1999. All principal and interest were
due at maturity. In November and December 1998, $250,000 in principal paydowns
were received. In the second quarter of 1999, the loan was modified, increasing
the interest rate to 15.0% per annum and extending the maturity to November
1999. Accrued but unpaid interest was added to the principal balance, increasing
it by $42,000 to $402,000. In the fourth quarter of 1999, an additional $2,000
was funded increasing the loan balance to $404,000. In March 2000, $25,000 in
interest was collected and the loan's maturity was extended to April 2000. The
borrower did not repay the loan at maturity. In March 2001, a settlement was
reached, whereby ARL collected $410,000 in full satisfaction of the note.

        RELATED PARTY. Periodically, ARL has made secured and unsecured loans to
parties deemed to be related parties. ARL makes these loans for investment and
high return income purposes. See the specific loans below. In March 2001, ARL
funded $13.6 million of a $15.0 million unsecured line of credit to One Realco
Corporation ("One Realco"), which owns approximately 14.8% of the outstanding
shares of ARL's common stock. The line of credit bears interest at 12.0% per
annum. All principal and interest were due at maturity in February 2002. The
line of credit is guaranteed by BCM. In June 2001, $394,000 in principal and
$416,000 in interest was collected. In December 2001, $21,000 in principal and
$804,000 in interest was collected. In February 2002, the maturity date was
extended to February 2004. All principal and interest are due at maturity.
Ronald E. Kimbrough, Executive Vice President and Chief Financial Officer of
ARL, is a 10% stockholder of One Realco. During 2001, Mr. Kimbrough did not
participate in day-to-day operations or management of One Realco.

        In October 1999, ARL funded a $4.7 million loan to Realty Advisors,
Inc., an affiliate. The loan 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 2001. In January 2000, $100,000 was
collected. In November 2001, the maturity date was extended to November 2004.
The collateral was changed to a subordinate pledge of 850,000 shares of ARL
common stock owned by BCM. The shares are also pledged to a lender on ARL's
behalf. The interest rate was changed to 2% over the prime rate, currently 6.75%
per annum, and the accrued but unpaid interest of $984,000 was added to the
principal. The new principal balance is $5.6 million. All principal and accrued
interest are due at maturity.

        In December 2000, an unsecured loan with a principal balance of $1.7
million to Warwick of Summit, Inc. ("Warwick") matured. All principal and
interest were due at maturity. At December 2001, the loan, and $451,000 of
accrued interest, remained unpaid. At March 2002,



                                      135


settlement terms are being negotiated. Richard D. Morgan, a Warwick stockholder,
served as a director of ARL until October 2001.

        In December 2000, a loan with a principal balance of $1.6 million to
Bordeaux Investments Two, L.L.C. ("Bordeaux"), matured. The loan is secured by
(1) a 100% interest in Bordeaux, which owns a shopping center in Oklahoma City,
Oklahoma; (2) 100% of the stock of Bordeaux Investments One, Inc., which owns
6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and (3) the personal
guarantees of the Bordeaux members. At December 2001, the loan, and $471,000 of
accrued interest, remained unpaid. At March 2002, settlement terms are being
negotiated. Richard D. Morgan, a Bordeaux member, served as a director of ARL
until October 2001.

        In March 2000, a loan with a principal balance of $2.5 million to
Lordstown, L.P., matured. The loan is 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. At December 2001, the loan, and $741,000 of accrued
interest, remained unpaid. At March 2002, settlement terms are being negotiated.
A corporation controlled by Richard D. Morgan is the general partner of
Lordstown, L.P. Mr. Morgan served as a director of ARL until October 2001.

INVESTMENTS IN REAL ESTATE COMPANIES AND REAL ESTATE PARTNERSHIPS

        REAL ESTATE ENTITIES. ARL's investment in real estate entities includes
the equity securities of two publicly traded real estate companies, IOT and TCI,
and interests in real estate joint venture partnerships. BCM, ARL's advisor,
also serves as advisor to IOT and TCI.

        Since acquiring its initial investments in IOT and TCI in 1989, ARL has
made additional investments in the equity securities of both entities through
private and open market purchases. The cost with respect to shares of IOT and
TCI at December 31, 2001 totaled $64.1 million. The aggregate carrying value
(cost plus or minus equity in income or losses and less distributions received)
of the equity securities of IOT and TCI was $75.3 million at December 31, 2001
and the aggregate market value was $71.9 million. The aggregate investee book
value of IOT and TCI based upon the December 31, 2001 financial statements of
each entity was $118.4 million. See "Certain Relationships and Related
Transactions of ARL, TCI and IOT - Related Party Transactions."

        The board of directors has authorized the expenditure of up to an
aggregate of $50.0 million to acquire, in open market purchases, shares of IOT
and TCI, excluding private purchase transactions which are separately
authorized. As of December 31, 2001, ARL had expended an aggregate of $8.6
million to acquire shares of IOT and TCI, in open market purchases, in
accordance with these authorizations. ARL expects to make additional investments
in the equity securities of IOT and TCI to the extent its liquidity permits.

        On October 3, 2000, ARL and IOT entered into an agreement which provided
IOT and ARL with an option to purchase 1,858,900 shares of common stock of TCI
from a third party. On October 19, 2000, IOT assigned all of its rights to
purchase such shares to ARL. The total cost to purchase the TCI shares was $30.8
million. In October 2000, ARL paid $5.6 million of



                                      136


the option price. In April 2001, the remainder of the option price was paid, and
ARL acquired the TCI shares. See "Business of ARL" for discussion of the
proposed acquisition of TCI and IOT by ARL.

        Pertinent information regarding ARL's investment in the equity
securities of the IOT and TCI at December 31, 2001, is summarized below (dollars
in thousands):



                          PERCENTAGE OF ARL'S         CARRYING VALUE OF           EQUIVALENT INVESTEE             MARKET VALUE OF
                             OWNERSHIP AT               INVESTMENT AT                BOOK VALUE AT                 INVESTMENT AT
        INVESTEE           DECEMBER 31, 2001          DECEMBER 31, 2001            DECEMBER 31, 2001             DECEMBER 31, 2001
        --------           -----------------          -----------------            -----------------             -----------------
                                                                                                     
        IOT                            27.44%                  $  6,789                    $  10,034                      $  7,379
        TCI                            49.99                     68,498                      108,369                        64,533


        IOT and TCI each own a considerable amount of real estate, much of which
they have held for many years. Because of depreciation, these entities may earn
substantial amounts in periods in which they sell real estate and will probably
incur losses in periods in which they do not. ARL's reported income or loss
attributable to these entities will differ materially from its cash flow
attributable to them.

        ARL does not have a controlling equity interest in either IOT or TCI;
therefore, it cannot, acting by itself, determine either the individual
investments or the overall investment policies of either of them. However, due
to ARL's equity investments in, and the existence of common officers with, each
of IOT and TCI and that IOT and TCI have the same advisor as ARL, ARL may be
considered to have the ability to exercise significant influence over the
operating and investing policies of IOT and TCI. ARL accounts for its investment
in IOT and TCI using the equity method. Under the equity method, ARL recognizes
its proportionate share of the income or loss from the operations of IOT and TCI
currently, rather than when realized through dividends or on sale. The carrying
value of ARL's investment in IOT and TCI, as set forth in the table above, is
the original cost of investment in each adjusted for ARL's proportionate share
of IOT's and TCI's income or loss and distributions received.

        The following summary description of IOT and TCI is based upon
information publicly reported by each entity.

        IOT. IOT is a Nevada corporation which was originally organized on
December 14, 1984, as a California business trust and commenced operations on
April 10, 1985. IOT's business is investing in real estate through direct equity
investments and partnerships. IOT holds equity investments in apartments and
commercial properties (office buildings) in the Pacific, Southeast and Southwest
regions of the continental United States with a concentration in the Southwest
region. At December 31, 2001, IOT owned 16 income producing properties located
in three states. These properties consisted of seven apartments comprising 777
units and seven office buildings with an aggregate of 459,549 sq. ft. In
addition, IOT owned two parcels of unimproved land, totaling 205 acres.

        IOT reported a net loss of $(3.5) million in 2001 as compared to net
income of $16.8 million in 2000. IOT's net income in 2000 included gains on sale
of real estate of $20.9 million. IOT's cash flow from property operations was
$6.0 million in 2001. At December 31, 2001, IOT



                                      137


had total assets of $91.8 million, which consisted of $87.3 million in real
estate held for investment, $4.5 million in investments in partnerships and
other assets and $66,000 in cash and cash equivalents.

        ARL received no dividends from IOT in 2001.

        TCI. TCI is a Nevada corporation which was originally organized on
September 6, 1983, as a California business trust, and commenced operations on
January 31, 1984. On November 30, 1999, TCI acquired, through merger,
Continental Mortgage and Equity Trust ("CMET"), both of which, at the time, were
equity investees of ARL. Pursuant to the merger agreement, TCI acquired all of
the outstanding CMET shares of beneficial interest in a tax-free exchange of
shares, issuing 1.181 shares of its common stock for each outstanding CMET
share.

        TCI has investment policies similar to those of IOT. TCI holds equity
investments in apartments, commercial properties (office buildings, industrial
warehouses and shopping centers) and hotels throughout the continental United
States with a concentration in the Southeast and Southwest regions. At December
31, 2001, TCI owned 112 income producing properties located in 19 states. These
properties consisted of 57 apartments comprising 10,714 units, 31 office
buildings with an aggregate of 4.1 million sq. ft., 13 industrial warehouses
with an aggregate of 2.0 million sq. ft., six shopping centers with an aggregate
of 622,661 sq. ft., a fitness club with 56,532 sq. ft. and four hotels with a
total of 209 rooms. In addition, TCI owned 26 parcels of unimproved land,
totaling 840 acres. TCI also holds mortgage notes receivable secured by real
estate located in the Midwest, Southeast and Southwest regions of the
continental United States.

        TCI reported net income of $19.8 million in 2001 and $29.8 million in
2000. TCI's net income in 2001 included gains from the sale of real estate of
$54.3 million, whereas its net income in 2000 included gains from the sale of
real estate of $50.6 million. TCI's cash flow from property operations was $56.0
million in 2001. At December 31, 2001, TCI had total assets of $709.2 million,
which consisted of $622.2 million in real estate held for investment, $516,000
in real estate held for sale, $14.2 million in investments in real estate
entities, $22.1 million in notes and interest receivable, $39.9 million in other
assets and $10.3 million in cash and cash equivalents. At December 31, 2001, TCI
owned 345,728 shares of IOT's common stock, approximately 24.0% of the shares
then outstanding.

        In 2001, ARL received a total of $53,000 from TCI in accumulated
dividends on shares of CMET that should have been exchanged for TCI common stock
in 1999.

        ELM FORK RANCH, L.P. In June 2000, ARL sold its partnership interests
for $2.0 million in cash, retaining an option to repurchase its interests. In
January 2001, ARL purchased 100% of the partnership interests for $9.2 million,
including financing of $9.0 million.

        ART FLORIDA PORTFOLIO II, LTD. In January 2002, Investors Choice Florida
Public Funds II, in which ART Florida Portfolio II, Ltd. owned an interest, sold
Villas Continental Apartments. ARL received $1.0 million in cash from the sale.
ARL's share of the loss incurred on the sale was $531,000, which will be
included in equity in income of investees in the Consolidated Statement of
Operations.


                                      138


DOUBLE TAXATION OF CORPORATIONS

        ARL is taxed as a regular corporation under the Code. Corporations are
subject to complex federal income tax rules that cause the corporation to be
taxed on its income and distributions, generally, to be taxable to recipients.
As a general rule, a corporation is not entitled to a deduction for dividends
paid to its shareholders. Corporations are subject to an additional tax on
certain undistributed accumulated earnings. Currently, corporations are taxed on
net capital gains at the regular corporate tax rates. Corporations are subject
to the alterative minimum tax.

        Cash distributions from a corporation to a shareholder depend upon
whether the distribution is from the corporation's "earnings and profits." If
the distribution is from the corporation's earnings and profits it is a dividend
and is includable in the distributee shareholder's gross income. Cash
distributions which are not dividends are treated as a return of the
shareholder's investment in its stock. The distributions first reduce the tax
basis of the shareholder in its stock. When the shareholder has recovered its
basis in its stock, further distributions are treated as gain from the sale or
exchange of property.

        Generally a corporate shareholder will receive a "dividends received
deduction" for dividends received. The percentage of the dividend which can be
excluded through the dividends received deductions depends upon the percentage
ownership of the distributee shareholder in the distributor corporation. A 100%
deduction is available for dividends received by a member of the same affiliated
group of corporations. If the distributee owns 20% or more of the distributor
corporation, the distributee corporation is entitled to an 80% deduction for
dividends received. A 70% dividends received deduction is available for most
other dividends.

        The above is intended only as a general summary of the "double taxation"
of corporations and the tax treatment of cash distribution. It is not intended
to be a thorough discussion of the numerous complex tax issues that affect
corporations and their shareholders including accumulated earnings tax,
alternative minimum tax, distributions of appreciated property, liquidations,
reorganizations, issues pertaining to controlled groups of corporations and
issues related to consolidated returns. Similarly, this summary should not be
considered as a discussion of material federal income tax aspects or
considerations for ARL. The above pertains only to "C" corporations under the
Code and does not address state, local, or foreign tax issues. It is not
applicable to regulated investment companies, real estate investment trusts,
banks, insurance companies and other forms of entities for which special
treatment is provided under the Code.

                                LEGAL PROCEEDINGS

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



                                      139




                         SELECTED FINANCIAL DATA OF ARL

        The following is a summary of financial data incorporated by reference
in this joint proxy statement and prospectus. You should read the following data
in conjunction with the more detailed information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations of ARL"
and the ARL consolidated financial statements and related notes appearing
elsewhere in this joint proxy statement and prospectus.



                                                                          FOR THE YEARS ENDED DECEMBER 31,
                                           -----------------------------------------------------------------------------------------
                                               2001                2000                  1999              1998              1997
                                               ----                ----                  ----              ----              ----
                                                                       (DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
                                                                                                       
EARNINGS DATA
Revenue..................................  $  166,018       $     172,750        $      193,980     $      87,086     $      57,031
Expense..................................     243,166             272,045               324,789           165,111            90,252
                                              -------             -------               -------           -------           -------

(Loss) from operations...................     (77,148)            (99,295)             (130,809)          (78,025)          (33,221)
Equity in income of investees............       8,803               5,246                11,847            37,966            10,497
Gain on sale of real estate..............      83,414              96,728               129,260            17,254            20,296
                                              -------             -------               -------           -------           -------

Income (loss) before extra-ordinary
  gain...................................      15,069               2,679                10,298           (22,805)           (2,428)
Extraordinary gain.......................         ---                 ---                   ---               ---               ---
                                              -------             -------               -------           -------           -------
Net income (loss)........................      15,069               2,679                10,298           (22,805)           (2,428)
Preferred dividend requirement...........      (2,485)             (2,327)               (2,281)           (1,177)             (206)
                                              -------             -------               -------           -------           -------
Income (loss) applicable to common
  shares.................................  $   12,584       $         352        $        8,017     $     (23,982)     $     (2,634)
                                              =======             =======               =======           =======           =======

PER SHARE DATA

(Loss) before extraordinary gain.........  $     1.07       $         .03        $          .75     $       (2.24)     $       (.22)
Extraordinary gain.......................         ---                 ---                   ---               ---               ---
                                              -------             -------               -------           -------           -------
Net income (loss) applicable to
  common shares..........................  $     1.07       $         .03        $          .75     $       (2.24)     $       (.22)
                                              =======             =======               =======           =======           =======
Dividends per common share...............  $      ---       $         ---        $          .05     $         .20      $        .20
Weighted average shares outstanding......                      10,399,890            10,759,416        10,695,388        11,710,013




                                               2001                2000                  1999              1998              1997
                                               ----                ----                  ----              ----              ----
BALANCE SHEET DATA
                                                                                                       
Real estate, net.........................  $  588,203             653,744        $      771,630     $     734,907     $     302,453
Notes and interest receivable, net.......      30,382              13,831                38,604            52,053            25,526
Total assets.............................     758,763             787,015               919,546           918,605           433,799
Notes and interest payable...............     564,298             616,331               706,196           768,272           261,986
Margin borrowings........................      28,040              13,485                33,264            35,773            53,376
Stockholders' equity.....................      85,884              73,402                46,266            38,272            63,453
Book value per share.....................  $     7.33                7.06        $         4.30     $        3.58     $        5.42


                                      140


           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                        AND RESULTS OF OPERATIONS OF ARL

INTRODUCTION

        ARL is the successor through merger to ART and NRLP. ART was organized
in 1961 to provide investors with a professionally managed, diversified
portfolio of real estate and mortgage loan investments selected to provide
opportunities for capital appreciation as well as current income. ART owns a
portfolio of real estate and mortgage loan investments. NRLP was organized in
1987, and subsequently acquired all of the assets and assumed all of the
liabilities of 35 public and private limited partnerships. NRLP owns a portfolio
of real estate and mortgage loan investments.

        Effective December 18, 1998, a wholly-owned subsidiary of ART was
elected general partner of NRLP. Prior to December 31, 1998, ART accounted for
its investment in NRLP under the equity method. As of December 31, 1998, upon
the election of its wholly-owned subsidiary as general partner of NRLP, ART
began consolidation of NRLP's accounts and has consolidated its operations
subsequent to that date.

LIQUIDITY AND CAPITAL RESOURCES

        GENERAL. Cash and cash equivalents at December 31, 2001 totaled
$709,000, compared with $4.2 million at December 31, 2000. Although ARL
anticipates that during 2002 it will generate excess cash from operations, as
discussed below, such excess cash is not sufficient to discharge all of ARL's
debt obligations as they mature. ARL will therefore again rely on externally
generated funds, including aggressive land sales, selected sales of income
producing properties, borrowings against its investments in various real estate
entities, refinancing of properties and, to the extent necessary, borrowings to
meet its debt service obligations, pay taxes, interest and other non-property
related expenses.

        Notes payable totaling $267.5 million are scheduled to mature during
2002. During the first quarter of 2002, ARL either extended, refinanced, paid
down, paid off or received commitments from lenders to extend or refinance $20.4
million of the debt scheduled to mature in 2002. In January 2002, the lender on
three of ARL's residential properties located in Florida commenced foreclosure
actions, due to ARL's failure to pay the loans at maturity on January 1, 2002.
ARL has filed counterclaims asserting the lender had abruptly withdrawn from
discussions for refinancing. The balance owed on the three loans is $7.2
million. ARL is pursuing alternative financing for the properties. See Note 2.
"Real Estate," Note 8. "Notes and Interest Payable" and Note 21. "Subsequent
Events" to the ARL consolidated financial statements included elsewhere in this
joint proxy statement and prospectus.

        ARL expects a further decline in cash from property operations in 2002.
This expected decrease results from the reduced number of apartment properties
in ARL's real estate portfolio.

        Net cash from operating activities was a deficit of $48.6 million in
2001 compared to a deficit of $54.6 million in 2000. Fluctuations in the
components of cash from operating activities are discussed in the paragraphs
that follow.


                                      141


        Net cash from pizza operations (sales less cost of sales) increased to
$6.4 million in 2001 from $5.9 million in 2000. The increase was due to a price
increase in October 2000, reduced interest costs after refinancing debt in 2001
and the closing of poor performing locations in 2000.

        Net cash from property operations (rents collected less payments for
expenses applicable to rental income) decreased to $26.8 million in 2001 from
$32.7 million in 2000. This decrease was primarily attributable to apartment
properties sold in 2001 and 2000.

        Interest collected decreased to $1.8 million in 2001 from $4.4 million
in 2000. The decrease was attributable to the reduced number of outstanding
loans for which interest is due prior to maturity.

        Interest paid decreased to $62.6 million in 2001 from $67.0 million in
2000. The decrease was due to the reduction in outstanding loan balances as
properties were sold in 2001 and 2000.

        Advisory fees paid increased to $6.7 million in 2001 from $5.1 million
in 2000. The increase was due to inclusion of NRLP's assets in ARL's gross
assets, the basis for such fee.

        Incentive fees paid to affiliate were $1.6 million in 2001. This was the
first time that the requirements for this fee were met.

        General and administrative expenses paid decreased to $12.7 million in
2001 from $18.1 million in 2000. The decrease was primarily attributable to a
decrease in reimbursements paid to ARL's advisor.

        Other cash from operating activities was $4.4 million in 2001 compared
to $4.3 million used in other operating activities in 2000. The change was
primarily due to a $6.0 million decrease in escrow deposits in 2001, compared to
a $2.5 million increase in 2000.

        Distributions from equity investees decreased to $53,000 in 2001 from
$1.8 million in 2000. The decrease was due to the elimination of dividends paid
by investees. Distributions from equity investees are expected to be minimal in
2002.

        Distributions to minority interest holders decreased to $4.1 million in
2001 from $4.9 million in 2000. These distributions represent returns paid to
limited partner unitholders of controlled consolidated partnerships. See Note 2.
"Real Estate" to the ARL consolidated financial statements included elsewhere in
this joint proxy statement and prospectus.

        Payments for oil and gas operations was $259,000 in 2001. See Note 5.
"Oil and Gas Operations" to the ARL consolidated financial statements included
elsewhere in this joint proxy statement and prospectus.

        In 2001, ARL sold a total of 1,101.6 acres of land in Houston, Las
Colinas, Plano, Collin County, Dallas County, Denton County, Harris County and
Tarrant County, Texas; Palm Desert and Santa Clarita, California; Gulfport,
Mississippi; and Nashville, Tennessee in 26 separate transactions for a total of
$51.8 million. ARL received net cash of $13.6 million, after paying off or
paying down $29.0 million in mortgage debt secured by such land parcels and
after providing purchase money financing of $4.8 million. ARL also sold 17
apartments, and a shopping center



                                      142


for a total of $135.5 million. ARL received net cash of $38.8 million, after the
payoff or assumption by the purchaser of mortgage debt totaling $81.2 million
and after providing purchase money financing of $1.6 million.

        In 2001, ARL exchanged 8.9 acres of land in Farmers Branch, Texas and
10.5 acres of land in Lewisville, Texas for a 168 unit apartment in Addison,
Texas. See Note 2. "Real Estate" to the ARL consolidated financial statements
included elsewhere in this joint proxy statement and prospectus.

        ARL expects that funds from existing cash resources, aggressive sales of
land and selected income producing property sales, refinancing of real estate,
and borrowings against its real estate will be sufficient to meet the cash
requirements associated with ARL's current and anticipated level of operations,
maturing debt obligations and existing commitments. To the extent that ARL's
liquidity permits or financing sources are available, ARL will make investments
in real estate, primarily in improved and unimproved land, will continue making
investments in real estate entities and marketable equity securities, and will
develop and construct income-producing properties.

        ARL expects that it will be necessary for it to sell $117.5 million,
$20.9 million and $300,000 of its land holdings during each of the next three
years to satisfy the debt on the land as it matures. If ARL is unable to sell at
least the minimum amount of land to satisfy the land debt obligations as they
mature, ARL, intends to extend such debt or sell other of its assets,
specifically income producing properties to pay the debt.

        LOANS PAYABLE. ARL has margin arrangements with various brokerage firms
which provide for borrowings of up to 50% of the market value of marketable
equity securities. The borrowings under the margin arrangements are secured by
the equity securities and bear interest rates ranging from 5.75% to 24.0%.
Margin borrowings totaled $28.0 million (approximately 39.2% of market value) at
December 31, 2001, compared to $13.5 million at December 31, 2000. See Note 9.
"Margin Borrowings" to the ARL consolidated financial statements included
elsewhere in this joint proxy statement and prospectus.

        EQUITY INVESTMENTS. During the fourth quarter of 1988, ARL began
purchasing shares of IOT and TCI which have the same advisor as ARL. It is
anticipated that additional equity securities of IOT and TCI may be acquired in
the future through open-market and negotiated transactions to the extent ARL's
liquidity permits. See "Business of ARL" for discussion of the proposed
acquisition of TCI and IOT by ARL.

        Equity securities of IOT and TCI held by ARL may be deemed to be
"restricted securities" under Rule 144 of the Securities Act of 1933
("Securities Act"). Accordingly, ARL may be unable to sell such equity
securities other than in a registered public offering or pursuant to an
exemption under the Securities Act for a one year period after they are
acquired. Such restrictions may reduce ARL's ability to realize the full fair
market value of such investments if ARL attempted to dispose of such securities
in a short period of time.

        ARL's cash flow from these investments is dependent on the ability of
each of IOT and TCI to make distributions. In 2001, ARL received total
distributions from TCI of $53,000 in



                                      143


accumulated dividends on shares of CMET that should have been exchanged for TCI
common stock in 1999. In December 2000, the boards of IOT and TCI suspended the
payment of quarterly dividends. ARL anticipates receiving no distributions from
IOT and TCI in 2002.

        In 2001, ARL paid dividends to its preferred stockholders totaling $2.5
million. ARL paid $5,000 in accumulated back dividends in 2001 on previously
unexchanged units of National Realty.

        Management reviews the carrying values of ARL's properties and mortgage
notes receivable at least annually and whenever events or a change in
circumstances indicate that impairment may exist. Impairment is considered to
exist if, in the case of a property, the future cash flow from the property
(undiscounted and without interest) is less than the carrying amount of the
property. For notes receivable impairment is considered to exist if it is
probable that all amounts due under the terms of the note will not be collected.
If impairment is found to exist, a provision for loss is recorded by a charge
against earnings to the extent that the investment in the note exceeds
management's estimate of the fair value of the collateral securing such note.
The mortgage note receivable review includes an evaluation of the collateral
property securing each note. The property review generally includes: (1)
selective property inspections; (2) a review of the property's current rents
compared to market rents; (3) a review of the property's expenses; (4) a review
of maintenance requirements; (5) a review of the property's cash flow; (6)
discussions with the manager of the property; and (7) a review of properties in
the surrounding area.

        COMMITMENTS. In October 1999, an agreement was reached with the Valley
Ranch, L.P. Class A unitholders to acquire their eight million Class A units for
$1.00 per unit. Through December 31, 2001, six million units had been purchased
with the remaining two million units to be purchased in May 2002.

        On October 3, 2000, ARL and IOT entered into an agreement which provided
IOT and ARL with an option to purchase 1,858,900 shares of common stock of TCI
from a third party. On October 19, 2000, IOT assigned all of its rights to
purchase such shares to ARL. The total cost to purchase the TCI shares was $30.8
million. In October 2000, ARL paid $5.6 million of the option price. In April
2001, the remainder of the option price was paid, and ARL acquired the TCI
stock.

        ARL will rely on externally generated funds, including aggressive land
sales, selected sales of income producing properties, refinancing of properties
and, to the extent necessary, borrowings to meet these commitments.

RESULTS OF OPERATIONS

        2001 COMPARED TO 2000. ARL reported net income of $13.3 million in 2001
compared to $2.7 million in 2000. ARL's net income in 2001 included gains on the
sale of real estate of $83.4 million compared to gains on the sale of real
estate of $96.7 million in 2000. The primary factors contributing to ARL's net
income are discussed in the following paragraphs.

        Rents decreased to $129.3 million in 2001 from $138.2 million in 2000.
Rent from commercial properties increased to $34.0 million in 2001 from $31.5
million in 2000, rent from



                                      144


hotels increased to $36.1 million in 2001 from $33.1 million in 2000 and rent
from apartments decreased to $58.3 million in 2001 from $69.8 million in 2000.
The increase in rent from commercial properties was primarily attributable to
completion of the Centura and Hickory Centre office buildings during 2000. The
increase in rent from hotels is attributable to the opening of the Grand Hotel
Sofia in 2001. Apartment rents decreased in 2001 as a result of the sale of nine
apartments in 2000 and 17 apartments in 2001. Rents are expected to decrease in
2002 as a result of the apartment sales in 2001 and expected apartment and
commercial property sales in 2002.

        Property operations expense decreased to $93.2 million in 2001 from
$94.1 million in 2000. Property operations expense for commercial properties of
$20.2 million in 2001 approximated the $19.8 million expense in 2000, hotel
expense increased to $28.3 million in 2001 from $24.1 million in 2000, land
expense decreased to $8.6 million in 2001 from $9.7 million expense in 2000 and
apartment expense decreased to $35.5 million in 2001 from $40.4 million in 2000.
The increase in hotel operations expense was primarily due to the opening of the
Grand Hotel Sofia in 2001. The decrease in land operations expense was primarily
due to the sale of 26 land parcels in 2000 and 34 land parcels in 2001. The
decrease in apartment property operations expense was primarily due to the sale
of nine apartments in 2000 and 17 apartments in 2001. Property operations
expense is expected to decrease in 2002 as a result of the apartment sales in
2001 and anticipated apartment and commercial property sales in 2002.

        Pizza parlor sales and cost of sales were $34.2 million and $27.9
million in 2001 and $32.6 million and $26.8 million, in 2000. Pizza parlor
operations gross margin in 2001 increased over the gross margin in 2000
primarily due to reduced interest costs after refinancing debt in 2001 and
reduced occupancy costs. Pizza parlor gross margin in 2002 is expected to
approximate 2001, unless cheese prices change significantly.

        Interest income of $2.8 million in 2001 approximated the $3.0 million
income in 2000. Interest income is expected to decrease in 2002 as a result of
the notes collected in early 2002, and as no new loans are expected to be funded
in 2002.

        Oil and gas sales in 2001 were $59,000 representing start-up production
from six wells. Oil and gas operating expenses were $269,000. Operating expenses
include lifting costs and repairs and maintenance. See Note 5. "Oil and Gas
Operations" to the ARL consolidated financial statements included elsewhere in
this joint proxy statement and prospectus.

        Equity in income of investees increased to $8.8 million in 2001 from
$5.2 million in 2000. The increase in equity income was primarily due to
increased ownership by ARL in TCI in 2001, due to purchases of TCI common stock.
Equity investees reported gains on the sale of real estate in 2001 totaling
$54.3 million of which ARL's equity share was $22.5 million. These gains were
offset by operating losses totaling $37.9 million, of which ARL's equity share
was $13.6 million. See Note 6. "Investments In Equity Investees" to the ARL
consolidated financial statements included elsewhere in this joint proxy
statement and prospectus.

        Other income improved to a loss of $369,000 in 2001 from a loss of
$926,000 in 2000. The increase was primarily due to a reduction in losses on the
sale of marketable securities.



                                      145


        Interest expense of $77.0 million in 2001 approximated the $76.7 million
expense in 2000.

        Advisory fees increased to $6.7 million in 2001 from $5.9 million in
2000. The increase was attributable to the inclusion of NRLP assets in ARL's
gross assets, the basis for such fee. Advisory fees are expected to decrease in
2002, as ARL's gross asset base is expected to decrease through property sales.

        Net income fee to affiliate in 2001 was $166,000. The income fee payable
to ARL's advisor is 10% of the net income for the year, in excess of a 10%
return on stockholders' equity. No net income fee was paid in 2000.

        Incentive fees increased to $3.8 million in 2001 from $1.6 million in
2000. The increase was attributable to 18 eligible sales in 2001 compared to
four eligible sales in 2000. This fee represents 10% of the excess of net
capital gains over net capital losses from sales of operating properties. The
amount of this fee, if any, in 2002 will be dependent on the number of operating
properties sold and net capital gains realized.

        General and administrative expenses decreased to $12.7 million in 2001
from $17.1 million in 2000. The decrease was primarily attributable to a
decrease in cost reimbursements to ARL's advisor. General and administrative
expenses in 2002 are expected to approximate 2001.

        Depreciation, depletion and amortization increased to $17.7 million in
2001 from $16.9 million in 2000. The increase was primarily attributable to the
completion of the Hickory Centre office buildings in 2000 and the Grand Hotel
Sofia in 2001. Depreciation, depletion and amortization expense should decrease
in 2002 as a result of continued property sales.

        Provision for loss increased to $2.5 million in 2001 from $2.2 million
in 2000. In 2001, the impairment of an asset was recognized. In 2000, a
litigation reserve, related to a breach of contract dispute, was established,
and the carrying value of an 11.3 acre tract of land in Plano, Texas, sold in
the first quarter of 2001, was reduced to its net realizable value.

        Minority interest decreased to $972,000 in 2001 from $30.7 million in
2000. Minority interest is the earnings attributable to limited partners, other
than ARL, of certain controlled limited partnerships. Minority interest in 2001
and 2000 was attributable, in part, to the preferred return limited partner
units of Ocean Beach Partners, L.P., Valley Ranch, L.P., Grapevine American,
L.P., Edina Park Plaza Associates, L.P. and Hawthorne Lakes Associations, L.P.,
ART Florida Portfolio III and ART Palm, L.L.C. In 2000, minority interest
includes, in addition to the preferred returns discussed above, $29.8 million of
earnings attributable to the limited partners in NRLP prior to the merger.
Minority interest in 2001 declined due to the 2000 merger of NRLP into ARL.

        Gains on sale of real estate decreased to $83.4 million in 2001 from
$96.7 million in 2000. In 2001, gains of $73.5 million were recognized on the
sale of 15 apartments: Rockborough, Carriage Park, Kimberly Woods, Place One,
Shadowood, Bent Tree, Club Mar, Covered Bridge, Crossing at Church, Chalet I,
Chalet II, Nora Pines, Timbercreek, Blackhawk, and Woodstock; $2.2 million on
the sale of Regency Pointe Shopping Center; and $16.0 million on the sale of
land: two tracts totaling 27.2 acres of Chase Oaks land, 10.0 acres of Elm Fork


                                      146


land, 27.8 acres of Frisco Bridges land, 1.7 acres of Las Colinas land, 22.1
acres of Mason Goodrich land, 4.2 acres of Nashville land, 5 tracts totaling
49.7 acres of Katrina land, 6.6 acres of Rasor land, 12.7 acres of Santa Clarita
land, 232.8 acres of Scoggins land, 408.0 acres of Scout land, 10.4 acres of
Tree Farm land, and .4 acres of Waters Edge Apartment land. In 2001, losses of
$8.3 million were recognized on the sale of Glenwood Apartments, 12.0 acres of
Plano Parkway land, 120.4 acres of Yorktown land, two tracts totaling 3.2 acres
of Nashville land, Ashford Apartments, 6.7 acres of Santa Clarita land, 107.0
acres of Elm Fork land, and 27.4 acres of Vista Ridge land.

        In 2000, gains of $45.9 million were recognized on the sale of nine
apartments: Summerwind, Windtree, The Pines, Whispering Pines, Four Seasons,
Sherwood Glen, Fair Oaks, Hidden Valley and Candlelight Square; $21.9 million on
the sale of commercial properties: Katella Plaza, Marina Playa, Harbor Plaza and
Preston Center; and $30.6 million on the sale of land: 420 acres of Duchesne
land, three tracts totaling 166.7 acres of Frisco Bridges land, 749.1 acres of
Keller land, 0.02 acres of Katy land, four tracts totaling 41.2 acres of
Mason/Goodrich land, 157.9 acres of Mastenbrook land, 82.0 acres of McKinney
Corners I, II, III, IV and V land, 20.67 acres of Monterey land, four tracts
totaling 8.69 acres of Nashville land, 182.5 acres of Pantex land, two tracts
totaling 329.4 acres of Parkfield land, three tracts totaling 89.51 acres of
Rasor land, 80.4 acres of Rowlett Creek land, 3.0 acres of Salmon River land,
126.6 acres of Vann Cattle land, 5.4 acres of Vista Business Park land, and 70.3
acres of Wakefield land. In 2000, losses of $1.6 million were recognized on the
sale of 14.6 acres of McKinney Corners II land, 377.15 acres of Pioneer Crossing
land, 4.79 acres of Plano Parkway land, 22.4 acres of Valley Ranch land, and
36.43 acres of Vista Business Park land.

        2000 COMPARED TO 1999. ARL reported net income of $2.7 million in 2000
compared to $10.3 million in 1999. ARL's net income in 2000 included gains on
the sale of real estate of $96.7 million compared to gains on the sale of real
estate of $129.3 million in 1999. The primary factors contributing to ARL's net
income are discussed in the following paragraphs.

        Rents decreased to $138.2 million in 2000 from $157.6 million in 1999.
Rent from commercial properties increased to $31.5 million in 2000 from $30.2
million in 1999, rent from hotels increased to $33.1 million in 2000 from $31.6
million in 1999 and rent from apartments decreased to $69.8 million in 2000 from
$93.9 million in 1999. The increase in rent from commercial properties was
primarily attributable to completion of the Centura and Hickory Centre office
buildings in 2000. The increase in rent from hotels is attributable to increased
occupancy rates. Apartment rents decreased in 2000 as a result of 15 apartments
being sold in 1999 and nine apartments sold in 2000.

        Property operations expense decreased to $94.1 million in 2000 from
$106.6 million in 1999. Property operations expense for commercial properties
increased to $19.8 million in 2000 from $16.5 million in 1999, for hotels such
expense of $24.1 million in 2000 approximated the $24.2 million expense in 1999,
for land the expense of $9.7 million in 2000 approximated the $9.0 million
expense in 1999 and apartments decreased to $40.4 million in 2000 from $56.4
million in 1999. The increase in commercial property operations expense was
primarily due to the completion of the Centura and Hickory Centre office
buildings in 2000. The decrease in apartment property operations expense was
primarily due to 15 apartments being sold in 1999 and nine apartment sales in
2000.



                                      147


        Pizza parlor sales and cost of sales were $32.6 million and $26.8
million in 2000 and $30.8 million and $26.3 million, in 1999. Pizza parlor
operations experienced higher profit margins in 2000 due to lower pizza
ingredient costs (primarily cheese), a price increase in October 2000, and the
closing of underperforming locations.

        Interest income decreased to $3.0 million in 2000 from $6.4 million in
1999. The decrease was attributable to the collection of $39.9 million in notes
in 2000, while originating and funding loans of $14.7 million.

        Equity in income of investees decreased to $5.2 million in 2000 from
$11.8 million in 1999. The decrease in equity income was primarily due to
reduced ownership by ARL in TCI in 2000, due to sales of ARL-owned securities by
margin debt holders. Equity investees reported gains on the sale of real estate
in 2000 totaling $71.4 million of which ARL's equity share was $18.6 million.
These gains were offset by operating losses totaling $23.8 million, of which
ARL's equity share was $5.3 million. Also, sales of stock of equity investees by
margin debt holders of ARL resulted in losses of $7.9 million. See Note 6.
"Investments in Equity Investees" to the ARL consolidated financial statements
included elsewhere in this joint proxy statement and prospectus.

        Other income was a loss of $926,000 in 2000 approximating the loss of
$846,000 in 1999.

        Interest expense decreased to $76.7 million in 2000 from $91.7 million
in 1999. This decrease is due to 36 land and nine apartment sales in 2000.

        Advisory fees increased to $5.9 million in 2000 from $5.5 million in
1999. The increase was attributable to the addition of NRLP assets to ARL's
gross assets, the basis for such fee.

        Incentive fees in 2000 were $1.6 million. This fee represents 10% of the
excess of net capital gains over net capital losses from sales of operating
properties.

        General and administrative expenses of $17.1 million in 2000
approximated the $17.1 million expense in 1999.

        Depreciation and amortization decreased to $16.9 million in 2000 from
$17.4 million in 1999. The reduction is due to the sale of nine apartments in
2000.

        In the fourth quarter of 2000, a provision for loss of $2.2 million was
recognized. Such loss relates to the reduction of the carrying value of an 11.3
acre tract of land in Plano, Texas, sold in the first quarter of 2001, to its
net realizable value and a litigation reserve related to a breach of contract
dispute. In the third and fourth quarter of 1999, provisions for loss of $2.1
million and $1.0 million were recognized, respectively. Such loss relates to the
relinquishment by ARL of its general and Class B limited partner interests in a
controlled partnership that owned two apartments in Indianapolis, Indiana.

        In December 1998, upon the election of a wholly-owned subsidiary of ARL
as general partner of NRLP, the subsidiary assumed liability for certain legal
settlement payments. Such



                                      148


obligation is included in litigation expense in the accompanying Consolidated
Statement of Operations.

        Minority interest decreased to $30.7 million in 2000 from $56.7 million
in 1999. Minority interest is the earnings attributable to limited partners,
other than ARL, of certain controlled limited partnerships. Minority interest in
2000 and 1999 was attributable, in part, to the preferred return limited partner
units of Ocean Beach Partners, L.P.; Valley Ranch, L.P.; Grapevine American,
L.P.; Edina Park Plaza Associates, L.P.; Hawthorne Lakes Associations, L.P.; ART
Florida Portfolio III and ART Palm, L.L.C. In 2000, minority interest includes,
in addition to the preferred returns discussed above, $29.8 million of earnings
attributable to the limited partners in NRLP prior to the merger, compared to
$55.7 million in 1999.

        Gains on sale of real estate decreased to $96.7 million in 2000 from
$129.3 million in 1999. In 2000, gains of $45.9 million were recognized on the
sale of nine apartments: Summerwind, Windtree, The Pines, Whispering Pines, Four
Seasons, Sherwood Glen, Fair Oaks, Hidden Valley and Candlelight Square; $21.9
million on the sale of commercial properties: Katella Plaza, Marina Playa,
Harbor Plaza and Preston Center; and $30.6 million on the sale of land: 420
acres of Duchesne land, three tracts totaling 166.7 acres of Frisco Bridges
land, 749.1 acres of Keller land, 0.02 acres of Katy land, four tracts totaling
41.2 acres of Mason/Goodrich land, 157.9 acres of Mastenbrook land, 82.0 acres
of McKinney Corners I, II, III, IV and V land, 20.67 acres of Monterey land,
four tracts totaling 8.69 acres of Nashville land, 182.5 acres of Pantex land,
two tracts totaling 329.4 acres of Parkfield land, three tracts totaling 89.51
acres of Rasor land, 80.4 acres of Rowlett Creek land, 3.0 acres of Salmon River
land, 126.6 acres of Vann Cattle land, 5.4 acres of Vista Business Park land,
and 70.3 acres of Wakefield land. In 2000, losses of $1.6 million were
recognized on the sale of 14.6 acres of McKinney Corners II land, 377.15 acres
of Pioneer Crossing land, 4.79 acres of Plano Parkway land, 22.4 acres of Valley
Ranch land, and 36.43 acres of Vista Business Park land.

        In 1999, gains of $96.5 million were recognized on the sale of 15
apartments: Olde Town, Sante Fe, Mesa Ridge, Horizon East, Lantern Ridge,
Barcelona, Country Place, Lake Nora, Fox Club, Oak Hollow, Windridge,
Tanglewood, Edgewater Garden, Bavarian Woods, and Manchester Commons; $9.2
million on the sale of the Continental Hotel and Casino; and $24.1 million on
the sale of land: seven tracts totaling 46.9 acres of Plano Parkway land, 9.9
acres of Mason/Goodrich land, four tracts totaling 302.4 acres of McKinney
Corners II, McKinney Corners IV and Dowdy land, 13.0 acres of Rasor land, three
tracts totaling 23.0 acres of Vista Ridge land, four tracts totaling 103.6 acres
of Frisco Bridges land, .13 acres of JHL Connell land, 1.4 acres of Valley Ranch
land, Sun City lots, 121.2 acres of Katrina land, five tracts totaling 187.7
acres of Keller, Scout and Scoggins land, and 205.4 acres of Yorktown land. In
1999, losses of $545,000 were recognized on the sale of Stone Meadows land and
6.2 acres of Plano Parkway land.

ENVIRONMENTAL MATTERS

        Under various federal, state and local environmental laws, ordinances
and regulations, ARL may be potentially liable for removal or remediation costs,
as well as certain other potential costs relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or


                                      149


treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery for personal injury associated with such
materials.

        Management is not aware of any environmental liability relating to the
above matters that would have a material adverse effect on ARL's business,
assets or results of operations.

INFLATION

        The effects of inflation on ARL's operations are not quantifiable.
Revenues from property operations tend to fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the rate
of inflation also affect the sales values of properties and the ultimate gains
to be realized from property sales. To the extent that inflation affects
interest rates, earnings from short-term investments and the cost of new
financings as well as the cost of variable interest rate debt will be affected.




                                      150


                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                            ABOUT MARKET RISKS OF ARL


        ARL's future operations, cash flow and fair values of financial
instruments are partially dependent upon the then existing market interest rates
and market equity prices. Market risk is the changes in the market rates and
prices and the affect of the changes on the future operations. Market risk is
managed by matching a property's anticipated net operating income to an
appropriate financing.

        The following table contains only those exposures that existed at
December 31, 2001. Anticipation of exposures of risk on positions that could
possibly arise was not considered. ARL's ultimate interest rate risk and its
effect on operations will depend on future capital market exposures, which
cannot be anticipated with a probable assurance level. Dollars in thousands.




               ASSETS
                                                       
Trading Instruments--Equity Price Risk

Marketable securities at market value...........                              $        96

Notes receivable
Variable interest rate-fair value                                             $     4,352

                                      2002          2003        2004            2005       2006     THEREAFTER     TOTAL
                                      ----          ----        ----            ----       ----     ----------     -----
                                                                                          
Instrument's maturities...........$      --     $     --     $   5,633      $      --  $      --  $        --  $     5,633
Instrument's amortization.........       --           --            --             --         --           --           --
Interest..........................      380          380           318             --         --           --        1,078
Average rate......................      6.8 %        6.8          11.3 %           --         --           --

Fixed interest rate-fair value....                                                                             $   $25,431

                                          2002        2003          2004             2005         2006       THEREAFTER       TOTAL
                                          ----        ----          ----             ----         ----       ----------       -----
                                                                                                    
Instrument's maturities..............$   11,563   $     1,017    $     13,200    $        --  $        --  $        --   $    25,780
Instrument's amortization............        --            --              --             --           --           --            --
Interest.............................     2,095         1,562             213             --           --           --         3,870
Average rate.........................      10.5 %        11.4 %           3.2 %           --           --           --
Liabilities
Notes payable
Variable interest rate-fair value....                                                                                    $   130,017

                                   2002         2003            2004            2005           2006         THEREAFTER        TOTAL
                                   ----         ----            ----            ----           ----         ----------        -----
                                                                                                    
Instrument's maturities.......$  117,654    $        --      $        --    $        --    $        --    $     1,234    $   118,888
Instrument's amortization.....     1,413          1,297             1,305         1,508            124          2,688          8,335
Interest......................     9,110            749               619           481            379          3,807         15,145
Average rate..................      13.5 %         10.0 %            10.0 %        10.0 %          9.5 %          9.0 %

Fixed interest rate-fair
value.........................                                                                                           $   439,703

                                  2002         2003           2004             2005           2006          THEREAFTER        TOTAL
                                  ----         ----           ----             ----           ----          ----------        -----
                                                                                                    
Instrument's maturities.......$  143,362    $    34,785      $     1,898    $    50,475    $    10,962    $   144,293    $   385,775
Instrument's amortization.....     5,097          4,784            4,950          5,018          4,628         23,806         48,283
Interest......................    32,504         21,473           20,105         16,877         13,729         38,027        142,715
Average rate..................       9.0 %          8.1 %            8.3 %          8.0 %         7.8% %          7.5 %



                                      151


                                MANAGEMENT OF ARL

DIRECTORS AND EXECUTIVE OFFICERS

        The following table sets forth certain information as of April 22, 2002
regarding ARL's executive officers and directors:



Name                                       Age        Position
----                                       ---        --------
                                                
Mark W. Branigan*....................       47        Executive Vice President - Residential
Louis J. Corna*......................       54        Executive Vice President - Tax
Earl D. Cecil........................       72        Director
Collene C. Currie....................       53        Director
Richard W. Humphrey..................       54        Director
Ronald E. Kimbrough*.................       49        Acting Principal Executive Officer,
                                                      Executive Vice President and Chief
                                                      Financial Officer
Joseph Mizrachi......................       56        Director
David W. Starowicz*..................       46        Executive Vice President - Commercial
                                                      Asset Management


        EARL D. CECIL: Director (Independent) (since November 2001) of ARL.
Financial and business consultant (since January 1994); Division Vice President
(February 1987 to December 1993) of James Mitchell & Company, a financial
services marketing organization; and director (since March 2002) of IOT and TCI.

        COLLENE C. CURRIE: Director (Independent) (since August 2000) of ARL.
CEO (since January 2002) of Acorn Capital Company; CEO (since January 2001) of
c3 Solutions; Associate Director (June 2000 to December 2001) of Cambridge
Technology Partners; CFO (since June 1998) of Energy Partners Alliance; Vice
President and Senior Relationship Manager (February 1996 to March 2000) of Bank
of America Private Bank, (formerly NationsBank Private Client Group of Dallas);
Director (April 1998 to August 2000) of NRLP Management Corp. ("NMC"), the
former general partner of National Realty, L.P.; Director of Marketing and
Communications (October 1993 to January 1999) of the Dallas Opera; and Director
of ART (February 1999 to August 2000).

        RICHARD W. HUMPHREY: Director (Affiliated) (since November 2001) of ARL.
Real estate broker (since December 1999) of Regis Realty, Inc. and (June 1992 to
November 1999) of Carmel Realty, Inc.

        JOSEPH MIZRACHI: Director (Independent) (since August 2000) of ARL
Registered Investment Advisor and Principal and President (since 1980) of PAZ
Securities, Inc.; Chairman of the board (since 1980) of Midwest Properties
Management, Inc.; Director (since June 2001) of Tarrant Apparel Group; and
Director of ART (June 2000 to August 2000).


----------
* See "The Advisor - BCM - Directors and Principal Officers of Advisor" for
background and business experience information.



                                      152


        The business address of each director and executive officer is 1800
Valley View Lane, Suite 300, Dallas, Texas 75234. The business telephone number
of each person is 469-522-4200. Each director and executive officer is a citizen
of the United States.

                          EXECUTIVE COMPENSATION OF ARL

        ARL has no employees, payroll or benefit plans and pays no compensation
to its executive officers. The directors and executive officers of ARL who are
also officers or employees of BCM are compensated by BCM. Such affiliated
directors and 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. See "The Advisor" for a more detailed discussion of
compensation payable to BCM by ARL.

        The only direct remuneration paid by ARL is to those directors who are
not officers or employees of BCM or its affiliated companies. Until December 31,
2000, each independent director was compensated at the rate of $20,000 per year,
plus $300 per Audit Committee meeting attended and the Chairman of the Audit
Committee received an annual fee of $500. Effective January 1, 2001, the annual
fee was increased from $20,000 to $45,000. In addition, each independent
director receives an additional fee of $1,000 per day for any special services
rendered outside of their ordinary duties as director, plus reimbursement of
expenses. During 2001, $302,318 was paid to independent directors in total
directors' fees for all services including the annual fee for service during the
period January 1, 2001 through December 31, 2001, and 2001 special service fees
as follows: Roy E. Bode, $59,873; Earl D. Cecil, $7,003; Collene C. Currie,
$79,743; Cliff Harris, $70,333; Joseph Mizrachi, $50,716; and Richard D. Morgan,
$34,650.

        In January 1999, stockholders approved the Director's Stock Option Plan
(the "Director's Plan") which provides for options to purchase up to 40,000
shares of common stock. Options granted pursuant to the Director's 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 independent director was granted an option to purchase 1,000
Common shares at an exercise price of $17.71 per share on January 11, 1999, the
date stockholders approved the plan. On January 1, 2000 and 2001, each
independent director was granted an option to purchase 1,000 common shares at an
exercise price of $18.53 and $13.625 per common share, respectively. Each
independent director will be awarded an option to purchase an additional 1,000
shares on January 1 of each year. At December 31, 2001, 2,000 options were
exercisable at $17.71 per common share, 3,000 options were exercisable at $18.53
per share and 5,000 options were exercisable at $13.625 per share.

        In January 1998, stockholders approved the 1997 Stock Option Plan (the
"Option Plan") which provides for options to purchase up to 300,000 shares of
common stock. At December 31, 2001, there were 173,750 options outstanding under
the Option Plan. No options were granted under the Option Plan in 2001.



                                      153


                    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                          OWNERS AND MANAGEMENT OF ARL

        The following table sets forth the ownership of ARL's common stock both
beneficially and of record, both individually and in the aggregate, for those
persons or entities known by ARL to be the owner of more than 5% of the shares
of ARL's common stock as of the close of business on March 15, 2002.





                                               Amount and
                                               Nature of
          Name and Address of                  Beneficial     Percent of
            Beneficial Owner                   Ownership       Class(1)
          -------------------                  ----------     ----------
                                                         
Basic Capital Management, Inc.(2)...........    6,269,344        55.1%
One Realco Corporation(3)...................    1,681,859        14.8%
Transcontinental Realty Investors, Inc.(4)..      746,972         6.6%
Ryan T. Phillips(2)(5)......................    6,296,946        55.4%



                                                                      Assuming Conversion of all Shares of Series G
                                               and Series H Redeemable Convertible Preferred Stock, if any, Received in the Mergers
                                              -------------------------------------------------------------------------------------
                                                Shares of                    Shares of                     Shares of
                                                   ARL                          ARL                           ARL
                                                 Common                        Common                       Common
                                                  Stock                        Stock                         Stock
                                               Beneficially                 Beneficially                  Beneficially
                                               Owned After                   Owned After                  Owned After
          Name and Address of                    the TCI       Percentage     the IOT       Percentage    the TCI and    Percentage
            Beneficial Owner                     Merger         of Class       Merger        of Class     IOT Merger      of Class
          -------------------                  ------------    ----------   ------------    ----------    ------------   ----------
                                                                                                        
Basic Capital Management, Inc.(2)...........   9,186,712         64.3%        6,509,649        56.0%       9,427,017       64.9%
One Realco Corporation(3)...................   1,681,859         14.8%        1,681,859        14.8%       1,681,859       14.8%
Transcontinental Realty Investors, Inc.(4)..     746,972          6.6%          746,972         6.6%         746,972        6.6%
Ryan T. Phillips(2)(5)......................   6,301,514         55.4%        6,296,946        55.4%       6,301,514       55.4%



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

(1)     Percentages are based upon 11,375,127 shares outstanding as of March 15,
        2002.

(2)     Includes 6,269,344 shares owned by BCM over which each of the directors
        of BCM, Ryan T. Phillips and Mickey Ned Phillips, may be deemed to be
        beneficial owners by virtue of their positions as directors of BCM. The
        directors of BCM disclaim beneficial ownership of such shares. Based
        upon 1,166,947 shares of Series G redeemable convertible preferred stock
        and 106,802 shares of Series H redeemable convertible preferred stock to
        be received in the mergers. The business address of BCM is 1800 Valley
        View Lane, Suite 300, Dallas, Texas 75234.

(3)     Includes 1,447,209 shares owned by One Realco Corporation ("One Realco")
        and 234,650 shares owned by New Starr Corp., which is a company owned by
        One Realco. Each of the directors of One Realco, Ronald F. Akin and F.
        Terry Shumate, may be deemed to be the beneficial owners by virtue of
        their positions as directors of One Realco. Messrs. Akin and Shumate
        disclaim beneficial ownership of such shares. The business address of
        One Realco is 555 Republic Drive, Suite 490, Plano, Texas 75074.

(4)     Each of the directors of TCI, Henry A. Butler, Earl D. Cecil, Ted P.
        Stokely and Martin L. White, may be deemed to be the beneficial owners
        by virtue of their positions as directors of TCI. The directors of TCI
        disclaim such beneficial ownership. The business address of TCI is 1800
        Valley View Lane, Suite 300, Dallas, Texas 75234.

(5)     Includes 27,602 shares owned by the Gene E. Phillips' Children's Trust.
        Ryan T. Phillips is a beneficiary of such trust. Based upon 1,827 shares
        of Series G redeemable convertible preferred stock to be received in the
        TCI merger.



                                      154


        SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
ownership of shares of ARL's common stock, both beneficially and of record, both
individually and in the aggregate, for the directors and executive officers of
ARL, as of the close of business on March 15, 2002.



                                     Amount and
                                     Nature of
                Name of              Beneficial  Percent of
            Beneficial Owner         Ownership    Class(1)
            ----------------         ---------    --------
                                           

Mark W. Branigan (3)(4)...........   7,016,316      61.7%
Earl D. Cecil(2)..................       1,000       *
Louis J. Corna(3)(4)..............   7,016,316      61.7%
Collene C. Currie(2)..............       3,000       *
Richard W. Humphrey(2)............       1,200       *
Ronald E. Kimbrough(3)(4).........   7,016,316      61.7%
Joseph Mizrachi(2)................       2,000       *
David W. Starowicz(2)(3)(4).......   7,019,316      61.7%
All Directors and Executive
    Officers as a group (8
    persons)(3)(4)................   7,026,516      61.7%

                                                                Assuming Conversion of all Shares of Series G
                                           and Series H Redeemable Convertible Preferred Stock, if any, Received in the Mergers
                                      --------------------------------------------------------------------------------------------
                                        Shares of                    Shares of                       Shares of
                                           ARL                          ARL                             ARL
                                         Common                        Common                         Common
                                          Stock                        Stock                           Stock
                                       Beneficially                 Beneficially                    Beneficially
                                       Owned After                   Owned After                    Owned After
                Name of                  the TCI       Percentage     the IOT       Percentage      the TCI and      Percentage
            Beneficial Owner             merger         of Class       merger        of Class        IOT merger       of Class
            ----------------             ------         --------       ------        --------        ----------       --------
                                                                                                   

Mark W. Branigan (3)(4)...........      9,933,684        69.5%        7,256,621         62.5%       10,173,989           70.0%
Earl D. Cecil(2)..................          1,000            *            1,000             *            1,000               *
Louis J. Corna(3)(4)..............      9,933,684        69.5%        7,256,621         62.5%       10,173,989           70.0%
Collene C. Currie(2)..............          3,000            *            3,000             *            3,000               *
Richard W. Humphrey(2)............          1,200            *            1,200             *            1,200               *
Ronald E. Kimbrough(3)(4).........      9,933,684        69.5%        7,256,621         62.5%       10,173,989           70.0%
Joseph Mizrachi(2)................          2,000            *            2,000             *            2,000               *
David W. Starowicz(2)(3)(4).......      9,936,684        69.5%        7,259,621         62.5%       10,176,989           70.0%
All Directors and Executive
    Officers as a group (8
    persons)(3)(4)................      9,943,884        69.6%        7,266,821         62.5%       10,184,189           70.0%


----------
*less than one percent

(1)     Percentage is based upon 11,375,127 shares outstanding at March 15,
        2002.

(2)     Each of Ms. Currie and Messrs. Cecil, Humphrey, Mizrachi and Starowicz
        have options to purchase shares of ARL common stock which are
        exercisable within 60 days of March 15, 2002.

(3)     Includes 746,972 shares owned by TCI of which the executive officers of
        ARL may be deemed to be the beneficial owners by virtue of their
        positions as executive officers of TCI. The executive officers of ARL
        disclaim beneficial ownership of such shares.

(4)     Includes 6,269,344 shares owned by BCM of which the executive officers
        of ARL may be deemed to beneficially own by virtue of their positions as
        executive officers of BCM. The executive officers of ARL disclaim
        beneficial ownership of such shares. Also includes 7,200 shares which
        may be acquired by the directors of ARL pursuant to the Director Stock
        Option Plan or the 1997 Stock Option Plan and 3,000 shares which may be
        acquired by an executive officer of ARL pursuant to the 1997 Stock
        Option Plan.

                   RECENT SALES OF UNREGISTERED ARL SECURITIES

        Each issuance set forth below was made in reliance upon the exemptions
from registration requirements of the Securities Act of 1933, as amended,
contained in Section 4(2) on the basis that such transactions did not involve a
public offering. When appropriate, ARL determined that the purchasers of
securities described below were sophisticated investors who had the financial
ability to assume the risk of their investment in ARL's securities and acquired
such securities for their own account and not with a view to any distribution
thereof to the public.

        In 2000, ARL issued 50,000 shares of Series E 6% cumulative preferred
stock to a private investor in exchange for a $500,000 note receivable.

        Also in 2000, ARL issued 121,332 shares of ARL Series A cumulative
convertible preferred stock to unsecured creditors of EQK Realty Investors I.
These shares were issued in ARL's acquisition of a 100% interest in EQK Realty
Investors I for $1.1 million in cash and



                                      155


$1.21 million in Series A convertible preferred stock. At the date of the
acquisition, EQK's assets consisted of $2.0 million in cash.

        In 2001, ARL issued 3,968.75 shares of Series F redeemable preferred
stock in connection with the purchase of lease hold interests in 37 oil and gas
mineral development properties. The Series F shares paid $3,968,750 of the $4.7
million purchase price.

        In 2002, ARL issued 600,000 shares of Series A cumulative convertible
preferred stock to ART Hotel Equities, Inc., a subsidiary of ARL. The shares
were pledged as security for an ARL guarantee of a loan.




                                      156


                            PERFORMANCE GRAPH OF ARL

        The following graph compares the cumulative total stockholder return on
ARL's shares (ART's shares prior to August 2000) 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, 1996 in shares of common stock and in each of the
indices and further assumes the reinvestment of all dividends. Past performance
is not necessarily an indicator of future performance.

                     [PERFORMANCE GRAPH OF ARL LINE CHART]



------------------------------------------------------------------------------------------------------------------------
                                   12/31/96      12/31/97       12/31/98        12/31/99        12/31/00        12/31/01
------------------------------------------------------------------------------------------------------------------------
                                                                                                  
American Realty Investors, Inc.         100           223            259             270             213             157
------------------------------------------------------------------------------------------------------------------------
Dow Jones US Realty Index               100           118             93              88             112             126
------------------------------------------------------------------------------------------------------------------------
Dow Jones US Total Market Index         100           132            165             202             183             161
------------------------------------------------------------------------------------------------------------------------


                     DESCRIPTION OF THE CAPITAL STOCK OF ARL

        The description of ARL's capital stock set forth below is only a summary
and is not intended to be complete. For a complete description of ARL's capital
stock, we urge you to read ARL's articles of incorporation and bylaws and as
appropriate the certificate of designation of the Series G or Series H
redeemable convertible preferred stock, which are filed as an exhibit to the
joint proxy statement and prospectus of which this document forms a part.

DESCRIPTION OF COMMON STOCK

        There are currently 100,000,000 shares of ARL common stock authorized
and 11,375,127 shares outstanding. Assuming conversion of all of the shares of
Series G and Series H redeemable convertible preferred stock issuable in
connection with the business combination, there will be 15,153,661 shares of ARL
common stock outstanding.

        VOTING RIGHTS. Holders of ARL common stock will be entitled to one vote
per share on all matters voted on by stockholders, including the election of
directors. The ARL charter does not provide for cumulative voting in the
election of directors of ARL.


                                      157


        DIVIDENDS. After giving effect to any preferential rights of any series
of preferred stock outstanding, including the ARL preferred stock to be issued
in the TCI merger, the holders of ARL common stock are entitled to participate
in dividends, if any, as may be declared from time to time by the ARL board of
directors and, upon liquidation, are entitled to receive a pro-rata share of all
the assets of ARL that are available for distribution to these holders. All of
the ARL common stock will, when issued, be fully paid and nonassessable. Holders
of ARL common stock will have no preemptive rights with respect to future
issuances of ARL capital stock.

DESCRIPTION OF PREFERRED STOCK

        The board of directors is authorized to issue up to 50,000,000 shares of
preferred stock from time to time, in one or more series, without stockholder
approval, and to fix the designation, preferences, conversion or other rights,
voting powers, restriction, limitations as to dividends, qualifications and
terms and conditions of redemption of any series that may be established by the
ARL board. As a result, without stockholder approval, the ARL board could
authorize the issuance of preferred stock with voting, conversion and other
rights that could dilute the voting power and other rights of the holders of ARL
common stock. In addition, shares issued after the business combination may have
the effect, under some circumstances, alone or in combination with other
provisions of the ARL charter of rendering more difficult or discouraging an
acquisition of ARL considered undesirable by the ARL board of directors.

        SERIES A PREFERRED STOCK. There are authorized a total of 15,000,000
shares of Series A cumulative convertible preferred stock with a par value of
$2.00 per share and an adjusted liquidation value of $10.00 per share plus
payment of accrued and unpaid dividends. The Series A cumulative convertible
preferred stock is non-voting except:

        (1)     as provided by law,

        (2)     with respect to an amendment to ARL's articles of incorporation
                or bylaws that would materially alter or change the existing
                terms of the Series A cumulative convertible preferred stock,
                and

        (3)     at any time or times for the election of two directors when all
                or any portion of the dividends on the Series A cumulative
                convertible preferred stock for any six quarterly dividends,
                whether or not consecutive, shall be in arrears and unpaid.

        In the latter event, the number of directors constituting the board of
directors of ARL shall be increased by two and the holders of Series A
cumulative convertible preferred stock, voting separately as a class, shall be
entitled to elect two directors to fill the newly created directorships with
each holder being entitled to one vote in the election for each share of Series
A cumulative convertible preferred stock held. ARL is not obligated to maintain
a sinking fund with respect to the Series A cumulative convertible preferred
stock.

        The Series A cumulative convertible preferred stock is convertible, at
the option of the holder, into shares of ARL common stock at any time and from
time to time, in whole or in part, after the earliest to occur of

        (1)     August 15, 2003;



                                      158


        (2)     the first business day, if any, occurring after a quarterly
                dividend payment date, on which an amount equal to or in excess
                of 5% of the $10.00 liquidation value (i.e., $.50 per share of
                Series A cumulative convertible preferred stock) is accrued and
                unpaid, or

        (3)     when ARL becomes obligated to mail a statement, signed by an
                officer of ARL, to the holders of record of each of the shares
                of Series A cumulative convertible preferred stock because of a
                proposal by ARL at any time before all of the shares of Series A
                cumulative convertible preferred stock have been redeemed by or
                converted into common stock, to merge or consolidate with or
                into any other corporation (unless ARL is the surviving entity
                and holders of common stock continue to hold the shares of
                common stock without modification and without receipt of any
                additional consideration), or to sell, lease, or convey all or
                substantially all its property or business, or to liquidate,
                dissolve or wind up.

        The Series A cumulative convertible preferred stock is convertible into
that number of shares of ARL common stock obtained by multiplying the number of
shares being converted by $10.00, then adding all accrued and unpaid dividends,
then dividing those sums by the conversion price, which is 90% of the simple
average of the trading price of the common stock for 20 business days ending on
the last calendar day of the week preceding the conversion date. Notwithstanding
the foregoing, ARL, at its option, may elect to redeem any shares of Series A
cumulative convertible preferred stock sought to be so converted by paying the
holder of the Series A cumulative convertible preferred stock cash in an amount
equal to the conversion price for each share of Series A cumulative convertible
preferred stock redeemed.

        The Series A cumulative convertible preferred stock bears a cumulative
compounded dividend per share equal to 10% per annum of the adjusted liquidation
value, payable on each quarterly dividend payment date. The dividend accrues
from the date of issuance to and including the date on which the redemption
price of the shares is paid, whether or not those dividends have been declared
and whether or not there are profits, surplus or other funds of ARL legally
available for the payment of those dividends. Dividends on the Series A
cumulative convertible preferred stock are in preference to and with priority
over dividends payable on the common stock. Except as provided in the following
sentence, the Series A cumulative convertible preferred stock ranks on a parity
as to dividends and upon liquidation, dissolution or winding up with all other
preferred stock issued by ARL. ARL will not issue any shares of preferred stock
of any series which are superior to the Series A cumulative convertible
preferred stock as to dividends or rights upon liquidation, dissolution or
winding up of ARL as long as any shares of Series A cumulative convertible
preferred stock are issued and outstanding, without the prior written consent of
the holders of at least 66 2/3% of the shares of the Series A cumulative
convertible preferred stock then outstanding voting separately as a class.

        In addition to ARL's redemption rights described above upon a conversion
of Series A cumulative convertible preferred stock, ARL may redeem any or all of
the Series A cumulative convertible preferred stock at any time and from time to
time, at its option, for cash upon no less than 20 days nor more than 30 days
prior notice thereof The redemption price of the Series A cumulative convertible
preferred stock shall be an amount per share equal to 103% of the adjusted
liquidation value.



                                      159


        There were 2,724,901 shares of Series A cumulative convertible preferred
stock outstanding at January 31, 2002. There are reserved 1,998,797 shares of
Series A cumulative convertible preferred stock for issuance as future
consideration in various business transactions of ARL.

        SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK. There are designated
80,000 shares of Series B redeemable convertible preferred stock with a par
value of $2.00 per share and a preference on liquidation of $100 per share plus
payment of all accrued and unpaid dividends. The Series B redeemable convertible
preferred stock is non-voting except as required by law. ARL is not required to
maintain a sinking fund for the stock.

        Each share of Series B redeemable convertible preferred stock is
convertible into that number of shares of ARL common stock obtained by
multiplying the number of shares being converted by $100, then adding all
accrued and unpaid dividends on the shares, then dividing the sum by (in most
instances) 80% of the average trading price of the ARL common stock for the 20
business days ending on the last business day of the calendar week immediately
preceding the date of conversion.

        The Series B redeemable convertible preferred stock bears a cumulative
dividend per share equal to $11.00 per annum ($2.75 per quarter). Dividends on
the Series B redeemable convertible preferred stock are in preference to and
with priority over dividends upon the ARL common shares. The Series B redeemable
convertible preferred stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of preferred stock.

        ARL may redeem any or all of the shares of Series B redeemable
convertible preferred stock from time to time upon payment of $100.00 per share
plus all accrued and unpaid dividends. There is no restriction on the repurchase
or redemption of the Series B redeemable convertible preferred stock by ARL
while there is any arrearage in payment of dividends except that at the time of
the repurchase or redemption ARL must pay all accrued and unpaid dividends on
the shares being redeemed.

        There were no shares of Series B redeemable convertible preferred stock
outstanding at January 31, 2002.

        SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK. There are designated
231,750 shares of Series C redeemable convertible preferred stock with a par
value of $2.00 per share and a preference on liquidation of $100.00 per share
plus all accrued and unpaid dividends. The Series C redeemable convertible
preferred stock is non-voting except as required by the law. ARL is not required
to maintain a sinking fund for the stock.

        Each share of Series C redeemable convertible preferred stock is
convertible at the option of the holders thereof in the following amounts at any
time on or after the respective dates:

        (1)     25,000 shares on or after December 31, 2000;

        (2)     25,000 shares on or after September 30, 2002;



                                      160


        (3)     25,000 shares on or after September 30, 2003;

        (4)     25,000 shares on or after December 31, 2005; and

        (5)     all remaining outstanding shares on or after December 31, 2006.

        These shares are convertible into that number of shares of ARL common
stock obtained by multiplying the number of shares of Series C redeemable
convertible preferred stock being converted by $100 and then dividing the sum by
(in most instances) 90% of the average of the daily closing price of the ARL
common shares for the 20 trading days ending on the last trading day of the
calendar week immediately preceding the conversion on the market where the ARL
common stock is then regularly traded. The right of conversion terminates upon
receipt of the notice of redemption from ARL and on the earlier of (1) the
commencement of any liquidation, dissolution or winding up of ARL or (2) the
adoption of any resolution authorizing the commencement thereof. ARL may elect
to redeem the shares of Series C redeemable convertible preferred stock sought
to be converted instead of issuing shares of ARL common stock.

        The Series C redeemable convertible preferred stock bears a cumulative
quarterly dividend per share in an amount equal to:

        (1)     8% per annum during the period from July 1, 1999 to September
                30, 2000;

        (2)     9% per annum during the period from July 1, 2000 to September
                30, 2001; and

        (3)     10% per annum from July 1, 2001 and thereafter.

        In each case, the dividend per share is calculated on the basis of the
adjusted liquidation value of the Series C redeemable convertible preferred
stock, payable in arrears in cash on each quarterly dividend payment date. The
dividend accrues from the date of issuance to and including the date on which
the redemption price of the shares is paid. Dividends on the Series C redeemable
convertible preferred stock are in preference to and with priority over
dividends upon the ARL common shares. The Series C redeemable convertible
preferred stock ranks on a parity as to dividends and upon liquidation,
dissolution or winding up with all other shares of ARL preferred stock.

        ARL may redeem all or a portion of the shares of the Series C redeemable
convertible preferred stock issued and outstanding at any time and from time to
time, at its option, for cash upon no less than 20 days nor more than 30 days
prior notice thereof. The redemption price of the shares of the Series C
redeemable convertible preferred stock shall be an amount per share equal to the
sum of (1):

                (1)     104% of liquidation value during the period from January
                        1, 2000 through December 31, 2000;
                (2)     103% of liquidation value during the period from January
                        1, 2001 through December 31, 2001;
                (3)     102% of liquidation value during the period from January
                        1, 2002 through December 31, 2002;


                                      161


                (4)     101% of liquidation value during the period from January
                        1, 2003 through December 31, 2003; and
                (5)     100% of liquidation value from January 1, 2004 and
                        thereafter,

and (2) all accrued and unpaid dividends on the shares through the redemption
date. The right of ARL to redeem shares of Series C redeemable convertible
preferred stock remains effective notwithstanding prior receipt by ARL of notice
by any holder of Series C redeemable convertible preferred stock of the holder's
intent to convert shares of Series C redeemable convertible preferred stock into
shares of ARL common stock. There were no shares of Series C redeemable
convertible preferred stock issued or outstanding at January 31, 2002.

        SERIES D PREFERRED STOCK. There are 91,000 shares of Series D 9.50%
cumulative preferred stock designated with a par value of $2.00 per share and a
preference on liquidation of $20.00 per share plus payment of accrued and unpaid
dividends. The Series D preferred stock is non-voting except as required by law
and is not convertible. ARL is not required to maintain a sinking fund for the
stock.

        Each share of Series D preferred stock has a cumulative dividend per
share of 9.50% per annum of the $20.00 liquidation preference, payable quarterly
in equal installments of $0.475. Dividends on the Series D preferred stock are
in preference to and with priority over dividends upon the shares of ARL common
stock. The Series D preferred stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of ARL preferred
stock.

        ARL may from time to time after June 1, 2001 redeem any or all of the
Series D preferred stock upon payment of the liquidation value of $20.00 per
share plus all accrued and unpaid dividends. There is no restriction on the
repurchase or redemption of the Series D preferred stock by ARL while there is
any arrearage in payment of dividends except that at the time of the repurchase
or redemption ARL must pay all accrued and unpaid dividends on the shares being
redeemed. As of January 31, 2002, there were no shares of Series D preferred
stock issued or outstanding.

        SERIES E PREFERRED STOCK. There are 500,000 shares of Series E
cumulative preferred stock designated with a par value of $2.00 per share and a
preference on liquidation of $10.00 per share plus payment of accrued and unpaid
dividends. The Series E preferred stock is non-voting except as required by law
and is not convertible. ARL is not required to maintain a sinking fund for the
stock.

        Each share of Series E preferred stock has a cumulative dividend per
share of 6.0% per annum of the $10.00 liquidation preference, payable quarterly.
Dividends on the Series E preferred stock are in preference to and with priority
over dividends upon the ARL common stock. The Series E preferred stock ranks on
a parity as to dividends and upon liquidation, dissolution or winding up with
all other shares of preferred stock.

        ARL may at any time and from time to time redeem any or all of the
Series E preferred stock upon payment of the liquidation value of $10.00 per
share plus all accrued and unpaid dividends. There is no restriction on the
repurchase or redemption of the Series E preferred



                                      162


stock by ARL while there is any arrearage in payment of dividends except that at
the time of the repurchase or redemption ARL must pay all accrued and unpaid
dividends on the shares being redeemed. As of January 31, 2002, there were
50,000 shares of Series E preferred stock issued and outstanding.

        SERIES F REDEEMABLE PREFERRED STOCK. There are 4,961 shares of Series F
redeemable preferred stock designated with a par value of $2.00 per share and a
preference on liquidation of $1,000.00 per share. The Series F redeemable
preferred stock is non-voting except as required by law. ARL is not required to
maintain a sinking fund for the stock.

        The holders of Series F redeemable preferred stock are not entitled to
receive any dividends or distributions. The Series F redeemable preferred stock
ranks on a parity upon a liquidation, dissolution or winding up with all other
shares of preferred stock.

        ARL may redeem at anytime, any or all of the Series F redeemable
preferred stock upon payment of the liquidation value of $1,000.00 per share by
giving the holder thereof not less than 20 days nor more than 30 days notice
thereof prior to the date on which ARL desires such shares redeemed. There is no
restriction on the repurchase or redemption of the Series F redeemable preferred
stock by ARL while there is any arrearage in payment of dividends, if any.

        From and after January 1, 2002, within 10 calendar days of the filing of
ARL's report on Form 10-Q or Form 10-K, ARL shall call for redemption that
number of shares of the Series F redeemable preferred stock having an aggregate
liquidation value equal to 20% of the net cash flow generated by the assets
acquired from MJR Oil & Gas 2001, LLC during the preceding fiscal quarter after
the payment of any current payment due under the two promissory notes which ARL
issued to MJR Oil & Gas 2001, LLC in connection with the acquisition of such
assets. Such shares of Series F redeemable preferred stock shall be redeemed at
the liquidation value of $1,000.00 per share.

        In the event that ARL engages in a transfer of more than 10% the assets
acquired from MJR Oil & Gas 2001, LLC, whether by sale, merger, consolidation or
other similar transaction, ARL shall prior to such transaction call for
redemption each outstanding shares of Series F redeemable preferred stock at a
price per share equal to the liquidation price of $1,000.00.

        As of January 31, 2002 there were 3,968.75 shares of Series F redeemable
preferred stock issued and outstanding.

        10% SERIES G CUMULATIVE CONVERTIBLE PREFERRED STOCK. There are 4,050,000
shares of the Series G redeemable convertible preferred stock designated with a
par value of $2.00 per share and a preference on liquidation of $20.00 per share
plus payment of accrued and unpaid dividends. There are currently no shares of
Series G redeemable convertible preferred stock outstanding. The Series G
redeemable convertible preferred stock is non-voting except:

        (1)     as provided by law,

        (2)     with respect to an amendment to ARL's articles of incorporation
                or bylaws that would materially alter or change the existing
                terms of the Series G redeemable convertible preferred stock,
                and



                                      163


        (3)     at any time or times for the election of two directors when all
                or any portion of the dividends on the Series G redeemable
                convertible preferred stock for any six quarterly dividends,
                whether or not consecutive, shall be in arrears and unpaid.

        In the latter event, the number of directors constituting the board of
directors of ARL shall be increased by two and the holders of Series G
redeemable convertible preferred stock, voting separately as a class, shall be
entitled to elect two directors to fill the newly created directorships with
each holder being entitled to one vote in the election for each share of Series
G redeemable convertible preferred stock held. ARL is not required to maintain a
sinking fund for the stock.

        Each share of Series G redeemable convertible preferred stock has a
cumulative dividend per share of 10.00% per annum of the $20.00 liquidation
preference, payable quarterly in equal installments of $0.5. Dividends on the
Series G redeemable convertible preferred stock are in preference to and with
priority over dividends upon the ARL common stock. The Series G redeemable
convertible preferred stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of preferred stock.

        During a 75 day period commencing on the 15th day after ARL publicly
files its first Form 10-Q with the SEC following the consummation of the TCI
merger, the Series G redeemable convertible preferred stock may be converted at
the option of the holder of Series G redeemable convertible preferred stock into
2.5 shares of ARL common stock for each share of Series G redeemable convertible
preferred stock.

        ARL may provide notice of its intention to redeem the Series G
redeemable convertible preferred stock no earlier than 45 days after ARL
publicly files its first Form 10-Q with the SEC following the consummation of
the TCI merger. After that time, ARL may redeem any or all of the Series G
redeemable convertible preferred stock upon payment of the liquidation value of
$20.00 per share plus all accrued and unpaid dividends by giving the holder
thereof not less than 45 days nor more than 60 days notice thereof prior to the
date on which ARL desires such shares redeemed.

        ARL will make an application with the NYSE to list the Series G
redeemable convertible preferred stock provided that there are an adequate
number of Series G redeemable convertible preferred stock stockholders and
shares of Series G redeemable convertible preferred stock outstanding to list
the Series G redeemable convertible preferred stock on the NYSE.




                                      164




        10% SERIES H REDEEMABLE CONVERTIBLE PREFERRED STOCK. There are 1,030,000
shares of the Series H redeemable convertible preferred stock designated with a
par value of $2.00 per share and a preference on liquidation of $21.50 per share
plus payment of accrued and unpaid dividends. There are currently no shares of
Series H redeemable convertible preferred stock outstanding. The Series H
redeemable convertible preferred stock is non-voting except:

        (1)     as provided by law,

        (2)     with respect to an amendment to ARL's articles of incorporation
                or bylaws that would materially alter or change the existing
                terms of the Series H redeemable convertible preferred stock,
                and

        (3)     at any time or times for the election of two directors when all
                or any portion of the dividends on the Series H redeemable
                convertible preferred stock for any six quarterly dividends,
                whether or not consecutive, shall be in arrears and unpaid.

        In the latter event, the number of directors constituting the board of
directors of ARL shall be increased by two and the holders of Series H
redeemable convertible preferred stock, voting separately as a class, shall be
entitled to elect two directors to fill the newly created directorships with
each holder being entitled to one vote in the election for each share of Series
H redeemable convertible preferred stock held. ARL is not required to maintain a
sinking fund for the stock.

        Each share of Series H redeemable convertible preferred stock has a
cumulative dividend per share of 10.00% per annum of the $21.50 liquidation
preference, payable quarterly in equal installments of $0.5375. Dividends on the
Series H redeemable convertible preferred stock are in preference to and with
priority over dividends upon the ARL common stock. The Series H redeemable
convertible preferred stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of preferred stock.

        During a 75 day period commencing on the 15th day after ARL publicly
files its first Form 10-Q with the SEC following the consummation of the IOT
merger, the Series H redeemable convertible preferred stock may be converted at
the option of the holder of Series H redeemable convertible preferred stock into
2.25 shares of ARL common stock for each share of Series H redeemable
convertible preferred stock.

        ARL may provide notice of its intention to redeem the Series H
redeemable convertible preferred stock no earlier than 45 days after ARL
publicly files its first Form 10-Q with the SEC following the consummation of
the IOT merger. After that time, ARL may redeem any or all of the Series H
redeemable convertible preferred stock upon payment of the liquidation value of
$21.50 per share plus all accrued and unpaid dividends by giving the holder
thereof not less than 45 days nor more than 60 days notice thereof prior to the
date on which ARL desires such shares redeemed.

        ARL will make an application with the NYSE to list the Series H
redeemable convertible preferred stock provided that there are an adequate
number of Series H redeemable convertible preferred stock stockholders and
shares of Series H redeemable convertible preferred stock outstanding to list
the Series H redeemable convertible preferred stock on the NYSE. ARL will



                                      165


also make an application with the NYSE to list the shares of ARL common stock
issuable upon conversion of the Series H redeemable convertible preferred stock.

        The description of the foregoing provisions of each series of the
preferred stock does not purport to be complete and is subject to and qualified
in its entirety by reference to the provisions of ARL's articles of
incorporation relating to the series of preferred stock.




                                      166


                            CHARTER AND BYLAWS OF ARL

        The following is a summary of the terms of ARL's articles of
incorporation and bylaws. The summary contains all material terms, but does not
set forth all the provisions of the articles of incorporation or bylaws.

AUTHORIZED STOCK

        ARL's charter authorizes it to issue 150,000,000 shares of capital
stock, consisting of 100,000,000 shares of common stock, par value $.01 per
share, and 50,000,000 shares of preferred stock, par value $2.00 per share.
Shares of preferred stock may be issued from time to time, in one or more
series, each having specific voting powers, designations, preferences and
restrictions as approved by the ARL board.

DIRECTORS

        The bylaws provide that the number of directors serving on ARL's board
will be not less than three nor more than twelve. The exact number of directors
will be fixed by the board from time to time. The bylaws provide that, unless
otherwise provided by law or the charter, a quorum consists of a majority of the
entire board. The act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board. Cumulative voting is not
authorized in the election of directors to the board. Vacancies and any
newly-created directorships resulting from an increase in the authorized number
of directors may be filled by a majority of the directors then in office, even
if less than a quorum.

STOCKHOLDER MEETINGS AND SPECIAL VOTING REQUIREMENTS

        The annual meetings of stockholders are held on a date established by
the board. Special meetings of stockholders may be called by the chairman of the
board, by the president, by a resolution adopted by a majority of the board of
directors or by the holders of 25% or more of the ARL common stock. In general,
the presence of a majority of stockholders in person or by proxy voting
constitutes a quorum at any stockholders' meeting. Amendments to the charter or
the bylaws must be approved by stockholders holding a majority of the shares
outstanding and entitled to be cast thereon.

        Directors may be removed with or without cause and by the affirmative
vote of the holders of not less than two-thirds of the outstanding stock of ARL
voting for the election of the director.

AMENDMENT OF THE CHARTER AND BYLAWS

        The charter provides that approval of 51% of the stockholders voting is
required to amend the articles. A bylaw may be amended or repealed, or a new
bylaw adopted, by the affirmative vote of 51% of the stock voting or by a
majority of the board.



                                      167


TRANSACTIONS WITH INTERESTED OFFICERS OR DIRECTORS

        The charter provides that ARL shall not, directly or indirectly,
contract or engage in any transaction with any advisor of ARL, any director,
officer or employee of ARL or any advisor or any affiliate or associate of any
director, officer or employee of ARL or any advisor, unless:

        -       the material facts as to the relationship or interest are
                disclosed or are known to the board and the board authorizes the
                contract or transaction in good faith; the contract or
                transaction is deemed fair by the board; and

        -       the board simultaneously authorizes or ratifies the transaction
                by the affirmative vote of a majority of independent directors
                voting on the matter.

ANTI-TAKEOVER EFFECT OF AUTHORIZED BUT UNDESIGNATED PREFERRED STOCK

        The board is authorized to provide for the issuance of shares of
preferred stock, in one or more series, and fix the terms and conditions of each
series. Management believes that the availability of preferred stock will
provide ARL with increased flexibility in structuring financings and
acquisitions and in meeting other corporate needs. Authorized but unissued
shares of preferred stock and common stock will be available for issuance
without further action by stockholders, unless required by applicable law or the
rules of any stock exchange or automated quotation system.

        Although the board has no present intention of doing so, it will be able
to issue a series of preferred stock that could either impede or facilitate the
completion of a merger, tender offer or other takeover attempt. For instance,
these new shares might impede a business combination by including class voting
rights which would enable the holder to block the transaction. The board will
make any determination to issue these shares based on its judgment as to the
best interests of ARL and its stockholders. The board will be able to issue
preferred stock having terms which would discourage an acquisition attempt or
other transaction that a majority of the stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock.

LIABILITY FOR MONETARY DAMAGES

        No director will be personally liable to ARL or its stockholders for
monetary damages arising out of a breach of fiduciary duty as a director. A
director's liability, however, is not limited (1) for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or (2) for
the payment of dividends in violation of Nevada law. If Nevada law is amended to
permit additional limitation or elimination of a director's personal liability,
the liability of a director will be eliminated or limited to the fullest extent
permitted by the amended Nevada law. Any repeal or modification of the existing
Nevada law provisions will not increase the personal liability of any director
for any act or occurrence taking place prior to the repeal or modification, or
otherwise adversely affect any right or protection of a director existing at the
time of the repeal or modification.



                                      168


INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

        Present and former directors and officers of ARL and persons serving as
directors, officers, employees or agents of another corporation or entity at the
request of ARL are indemnified to the fullest extent permitted by Nevada law.
The ARL charter and the bylaws specifically indemnify these persons for
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by them (1) in connection with a
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director or officer of ARL or is or was serving as a director, officer,
employee or agent of another corporation or entity at the request of ARL, or (2)
in connection with the defense or settlement of a threatened, pending or
completed action or suit by or in the right of ARL, provided that the party is
adjudged to be liable to ARL. To be indemnified a person must have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of ARL and, with respect to any criminal action or proceeding, must
have had no reasonable cause to believe his conduct was unlawful.

        Indemnification is only available if the applicable standard of conduct
has been met by the indemnified party. Indemnification is mandatory where a
director or officer is successful in the defense of an action, suit or
proceeding or any claim or matter asserted against the person. A determination
of the availability of indemnification may be made by the majority vote of a
quorum of directors not a party to the suit, action or proceeding, by a written
opinion of independent legal counsel or by the stockholders.

        In the event that a determination is made that a director or officer is
not entitled to indemnification, the director or officer may seek a judicial
determination of his right to indemnification. If successful, a director or
officer is entitled to indemnification for all expenses, including attorney's
fees, incurred in any proceeding seeking to collect an indemnity claim under the
indemnification provisions. Other than proceedings to enforce rights to
indemnification, ARL is not obligated to indemnify any person in connection with
a proceeding initiated by that person.

        ARL will pay expenses incurred by a director or officer of ARL, or a
former director or officer, in advance of the final disposition of an action,
suit or proceeding, if he undertakes to repay amounts advanced in the event it
is ultimately determined that indemnification is not available.

        The indemnification provisions and provisions for advancing expenses in
the ARL charter and bylaws are not exclusive of any other similar rights
pursuant to any agreement, vote of the stockholders or disinterested directors
or pursuant to judicial direction.

        Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrants pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.



                                      169


        Section 78.7502 of the Nevada Law permits a corporation to indemnify any
of its directors, officers, employees and agents against costs and expenses
arising from claims, suits and proceedings if such persons acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Notwithstanding the foregoing, no indemnification may be made in respect of any
claim, issue or matter, as to which such person is adjudged to be liable to the
corporation unless and only to the extent that a court of competent jurisdiction
determines that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.

                         ANTI-TAKEOVER PROVISIONS OF THE
                         ORGANIZATIONAL DOCUMENTS OF ARL

        The ARL articles of incorporation and bylaws contain a number of
provisions that may inhibit or impede the acquisition or attempted acquisition
of control of ARL by means of a tender offer, proxy contest or otherwise. These
provisions are expected to discourage coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of ARL to
negotiate first with the ARL board. These provisions may increase the likelihood
that proposals initially will be on more attractive terms than would be the case
in their absence and increase the likelihood of negotiations. This might
outweigh the potential disadvantages of discouraging these proposals because,
among other things, negotiation of the proposals might result in an improvement
of their terms. The discussion below highlights some of these anti-takeover
provisions in the ARL charter documents. Because it is a summary, it may not
contain all of the information that might be important to you. We urge you to
read the ARL articles of incorporation and bylaws, as well as the Nevada General
Corporation Law for a complete description of these anti-takeover provisions.

NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES

        After giving preference to any rights of holders of preferred shares of
ARL to elect additional directors under specified circumstances, the ARL
articles of incorporation and bylaws provide that the number of directors must
not be less than three nor more than 12. In addition, the ARL bylaws provide
that, after giving preference to rights of holders of preferred stock, any
vacancies will be filled by majority of the remaining directors, even though
less than a quorum, or by a sole director, and any vacancies created by an
increase in the total number of directors may be filled only by the ARL board.
Accordingly, the ARL board could temporarily prevent any stockholder from
enlarging the ARL board and then filling the new positions with the
stockholder's own nominees.

        The ARL articles of incorporation and bylaws also provide that, after
giving preference to any rights of holders of preferred shares, directors may be
removed only for cause, and only upon the affirmative vote of holders of eighty
percent 80% of the then outstanding shares voting in the election of directors.



                                      170


ADVANCE NOTICE PROVISIONS FOR DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS

        The ARL bylaws provide for an advance notice procedure for stockholders
to make nominations of candidates for director or to bring other business before
the annual meeting of stockholders. According to this procedure (1) only persons
who are nominated by, or at the direction of, the ARL board, or by a stockholder
who has given timely written notice containing specified information to the
secretary of ARL prior to the meeting at which directors are to be elected, will
be eligible to nominate candidates for directors of ARL, and (2) at an annual
meeting, only that business may be conducted as has been brought before the
meeting by, or at the direction of, the ARL board or by a stockholder who has
given timely written notice to the secretary of ARL of his intention to bring
the business before the meeting. In general, for notice of stockholder
nominations or proposed business to be conducted at an annual meeting to be
timely, the notice must be received by ARL not less than 60 days nor more than
90 days prior to the scheduled date of the meeting.

        The purpose of requiring stockholders to give advance notice of
nominations and other business is to afford the ARL board a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business. To the extent necessary or
considered desirable by the ARL board, the advance notice provision will allow
the ARL board to inform stockholders and make recommendations about the nominees
or business, as well as to ensure an orderly procedure for conducting meetings
of stockholders. Although the ARL bylaws do not give the ARL board power to
block stockholder nominations for the election of directors or proposals for
action, the advance notice procedure may have the effect of discouraging a
stockholder from proposing nominees or business, precluding a contest for the
election of directors or the consideration of stockholder proposals if
procedural requirements are not met. This might also deter third parties from
soliciting proxies for a non-management proposal or slate of directors, without
regard to the merits of the proposal or slate.

        Any action required or permitted to be taken by the ARL stockholders
must be taken at a properly called annual or special meeting of the ARL
stockholders and may not be taken by written consent. Special meetings of the
ARL stockholders may be called at any time, but only by the chairman of the
board, the president, or by a majority of the directors then in office.

BUSINESS COMBINATIONS UNDER NEVADA LAW

        ARL's articles expressly elect not to be governed by the Nevada
"Corporate Combinations Law" contained in Sections 78.411 to 78.444, inclusive,
of the NRS and the Nevada "Control Shares Statute" contained in the NRS Sections
78.378 to 78.3792.

                ARL POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

        The following is a discussion of the current policies of ARL with
respect to investments, financing, affiliate transactions and other activities.
These policies may be amended or waived from time to time at the discretion of
the ARL board without a vote of the ARL stockholders. No assurance can be given
that these investment objectives will be attained or that the value of ARL will
not decrease.



                                      171


        ARL intends to purchase or lease properties for long-term investment,
develop or redevelop its properties or sell these properties, in whole or in
part, when circumstances warrant. ARL may participate with other entities in
property ownership, through joint ventures or other types of co-ownership.
Equity investments may be subject to existing mortgage financing and other
indebtedness that have priority over ARL's equity interest.

        ARL may repurchase or otherwise reacquire shares of ARL common stock, or
other ARL securities and may also invest in securities of other entities
including those engaged in real estate. ARL may invest in the securities of
other issuers in connection with acquisitions of indirect interests in real
estate, consisting generally of general or limited partnership interests in
special purpose partnerships owning one or more properties. ARL may acquire all
or substantially all of the securities or assets of real estate investment
trusts, management companies or similar entities where these investments would
be consistent with its investment policies. ARL may also invest in securities of
other issuers from time to time for the purpose of exercising control. It is not
intended that ARL's investments in securities will require it to register as an
"investment company" under the Investment Company Act of 1940, as amended, and
it is intended that ARL would divest securities before any registration would be
required.

        The ARL board may devote available assets to particular investments or
types of investments, without restriction. ARL's investment objectives and
policies may be changed at any time by the ARL board without the approval of
ARL's stockholders.

        Additional capital may be raised through additional equity offerings,
debt financing or retention of cash flow, or a combination of these methods. If
the ARL board determines to raise additional equity capital, it may, without
stockholder approval, issue additional shares of common stock or preferred stock
up to the amount of its authorized capital in any mariner and on whatever terms
and for whatever consideration as it deems appropriate, including in exchange
for property. These securities may be senior to the outstanding ARL common stock
and may include additional series of preferred stock which may be convertible
into ARL common stock. Existing stockholders of ARL will have no preemptive
right to purchase ARL shares in any subsequent securities offering by ARL, and
any offering of this type could cause a dilution of a stockholder's investment
in ARL.

        To the extent that the ARL board determines to obtain additional debt
financing, ARL intends to do so generally by mortgaging its existing properties.
These mortgages may be recourse, non-recourse or cross-collateralized. Although
ARL does not have a policy limiting the number or amount of mortgages that may
be placed on any particular property, mortgage financing instruments typically
limit additional indebtedness on these properties. ARL may also borrow funds
through bank borrowings, publicly and privately placed debt instruments or
purchase money obligations, any of which indebtedness may be secured by ARL's
assets or the assets of any entity in which ARL holds an interest.


                                      172

        ARL may seek to obtain unsecured or secured lines of credit or may
determine to issue debt securities, which may be convertible into common stock
or preferred stock or be accompanied by warrants to purchase stock, or to sell
or securitize its receivables. The proceeds from any borrowings may be used for
the following purposes:

        -       to finance acquisitions

        -       to develop or redevelop properties

        -       to refinance existing indebtedness for working capital or
                capital improvements

        -       the payment of distributions

        -       to refinance existing indebtedness

        ARL may make loans to joint ventures or other entities in which it
participates. ARL does not intend to engage in (1) trading, underwriting or
agency distribution or sale of securities of other issuers or (2) the active
trade of loans and investments.

        The specific composition of ARL's real estate and mortgage notes
receivable portfolios following the merger will depend largely on the judgment
of ARL's management as to changing investment opportunities and the level of
risk associated with specific investments. ARL's management intends to maintain
real estate and mortgage notes receivable portfolios diversified by location and
type of property.




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                              INFORMATION ABOUT TCI


                                 BUSINESS OF TCI


         TCI, a Nevada corporation, is the successor by merger on March 24, 1992
of a corporation by the same name, which was the successor to a California
business trust named Transcontinental Realty Investors Trust which was formerly
named Johnstown/Consolidated Realty Trust that was organized on September 6,
1983 and commenced operations on January 31, 1984. On November 30, 1999, TCI
acquired all of the outstanding shares of beneficial interest of Continental
Mortgage and Equity Trust ("CMET"), a real estate company, in a tax-free
exchange of shares, issuing 1.181 shares of its common stock for each
outstanding CMET share.

         TCI files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document filed by TCI
at the SEC's public reference room in Washington, D.C. The public reference room
at the SEC's office in Washington, D.C. is located at 450 Fifth Street, N.W.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The company's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at "http:\\www.sec.gov." In addition, because the common stock of TCI is listed
on the NYSE, reports and other information concerning TCI (symbol: "TCI") can
also be inspected at the office of the NYSE, Inc., 20 Broad Street, New York,
New York 10005.

         Prior to January 1, 2000, TCI elected to be treated as a Real Estate
Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"). Section 856(a)(6) of the Code provides
that a corporation or other entity wishing to qualify for treatment as a REIT
must not be "closely held," as that term is defined in the REIT provisions. A
corporation or other entity will be considered closely held for this purpose if
it meets the stock ownership test for a personal holding company under Section
542(a)(2) of the Code. This test is met if more than 50% in value of the
outstanding shares or certificates of beneficial interest is held directly or
indirectly by or for five or fewer individuals at any time during the last half
of the tax year. For purposes of determining whether or not a REIT is closely
held, an individual also will be attributed ownership of stock that is owned by
a family member pursuant to Section 544(a)(2) of the Code. In addition, an
individual is deemed to own the proportionate share of the equity interests
owned by a corporation, partnership, estate, or trust in which the individual
has an interest pursuant to Section 544(a)(1) of the Code. During the third
quarter of 2000, it was determined that the top five individual holders, for
purposes of the 50% test, held an aggregate ownership interest of 51.5232%.
Accordingly, TCI deviated from the REIT requirement by 1.5232% the equivalent of
131,457 shares. Under the Code, TCI cannot re-qualify for REIT tax status for at
least five years.

         TCI's real estate at December 31, 2001, consisted of 136 properties
held for investment, three partnership properties and three properties held for
sale that were primarily obtained through foreclosure. In 2001, TCI purchased 17
properties held for investment. TCI's mortgage notes receivable portfolio at
December 31, 2001, consisted of ten mortgage loans. In addition, TCI has an
interest in a partnership that holds a wraparound mortgage note receivable.
TCI's real estate and mortgage notes receivable portfolios are more fully
discussed in "Properties of TCI."




                                      174



         On October 23, 2001, TCI, IOT and ARL jointly announced a preliminary
agreement with the plaintiff's legal counsel of the derivative action entitled
Olive et al. V. National Income Realty Trust, et al. for complete settlement of
all disputes in the lawsuit. In February 2002, the court granted final approval
of the proposed settlement. Under the proposal, ARL would acquire all of the
outstanding shares of IOT and TCI not currently owned by ARL for a cash payment
or shares of ARL Preferred Stock. ARL will pay $17.50 cash per TCI share and
$19.00 cash per IOT share for the stock held by nonaffiliated stockholders. ARL
would issue one share of Series G redeemable convertible preferred stock with a
liquidation value of $20.00 per share for each share of TCI common stock for
stockholders who elect to receive ARL preferred stock in lieu of cash. ARL would
issue one share of Series H redeemable convertible preferred stock with a
liquidation value of $21.50 per share for each share of IOT common stock for
stockholders who elect to receive ARL preferred stock in lieu of cash. Each
share of Series G redeemable convertible preferred stock will be convertible
into 2.5 shares of ARL common stock during a 75-day period that commences
fifteen days after the date of the first ARL Form 10-Q filing that occurs after
the closing of the merger transaction. Upon the acquisition of IOT and TCI
shares, TCI and IOT would become wholly-owned subsidiaries of ARL. The
transaction is subject to the negotiation of a definitive merger agreement and a
vote of the stockholders of all three entities. TCI has the same board as IOT
and the same advisor as IOT and ARL.

BUSINESS PLAN AND INVESTMENT POLICY

         TCI's business is investing in real estate through direct equity
ownership and partnerships and financing real estate and real estate related
activities through investments in mortgage loans, including first, wraparound
and junior mortgage loans. TCI's real estate is located throughout the
continental United States and one property is located in Poland. Information
regarding TCI's real estate and mortgage notes receivable portfolios is set
forth in "-- Properties of TCI", and in Schedules III and IV to the TCI
consolidated financial statements included elsewhere in this joint proxy
statement and prospectus.

         TCI's business is not seasonal. Management has determined to continue
to pursue a balanced investment policy, seeking both current income and capital
appreciation. With respect to new real estate investments, management's plan of
operation is to consider all types of real estate with an emphasis on properties
generating current cash flow. Management expects to invest in and improve these
properties to maximize both their immediate and long-term value. Management will
also consider the development of apartment properties in selected markets
primarily in Texas.

         Management also expects to consider property sales opportunities for
properties in stabilized real estate markets where TCI's properties have reached
their potential. Management also expects to be an opportunistic seller of
properties in markets that have become overheated, i.e. an abundance of buyers.

         Management's operating strategy with regard to TCI's properties is to
maximize each property's operating income by aggressive property management
through closely monitoring expenses while at the same time making property
renovations and/or improvements where appropriate. While such expenditures
increase the amount of revenue required to cover operating





                                      175




expenses, management believes that such expenditures are necessary to maintain
or enhance the value of the properties.

         Management does not expect that TCI will seek to fund or acquire new
mortgage loans in 2002. However, TCI may originate mortgage loans in conjunction
with providing purchase money financing of a property sale. Management intends
to service and hold for investment the mortgage notes in TCI's portfolio.
However, TCI may borrow against its mortgage notes, using the proceeds from such
borrowings for property acquisitions or for general working capital needs.
Management also intends to pursue TCI's rights vigorously with respect to
mortgage notes that are in default. TCI's Articles of Incorporation impose no
limitations on its investment policy with respect to mortgage loans and does not
prohibit it from investing more than a specified percentage of its assets in any
one mortgage loan.

MANAGEMENT OF THE COMPANY

         Although the board of directors is directly responsible for managing
the affairs of TCI and for setting the policies which guide it, its day-to-day
operations are performed by BCM, a contractual advisor 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 in connection with TCI's business plan
and investment decisions made by the Board.

         BCM is a company 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, has substantial contact with the
management of BCM and input with respect to its performance of advisory services
to TCI. BCM is more fully described in "The Advisor -- BCM."

         BCM has been providing advisory services to TCI since March 28, 1989.
BCM also serves as advisor to IOT and ARL. The directors of TCI are also
directors of IOT. The officers of TCI also serve as officers of ARL, IOT, and
BCM. As of March 15, 2002, TCI owned approximately 24.0% of IOT's outstanding
shares of common stock and ARL owned approximately 50.0% and BCM owned
approximately 14.5% of the outstanding shares of TCI's common stock.

         Since February 1, 1990, affiliates of BCM have provided property
management services to TCI. Currently, Triad Realty Services, Ltd. ("Triad")
provides such property management services. Triad subcontracts with other
entities for the provision of property-level management services to TCI. The
general partner of Triad is BCM. The limited partner of Triad is GS Realty
Services, Inc. ("GS Realty"), a related party. Triad subcontracts the
property-level management and leasing of 51 of TCI's commercial properties and
the two commercial properties owned by real estate partnerships in which TCI and
IOT are partners to Regis Realty, Inc. ("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. Regis also is
entitled to receive real estate





                                      176



brokerage commissions in accordance with the terms of a non-exclusive brokerage
agreement. Regis Hotel Corporation, a related party, manages TCI's five hotels.
See "The Advisor."

         TCI has no employees. Employees of BCM render services to TCI.

COMPETITION

         The real estate business is highly competitive and TCI competes with
numerous entities engaged in real estate activities (including certain entities
described in "Certain Relationships and Related Transactions of ARL, TCI and
IOT--Related Party Transactions"), some of which have greater financial
resources than those of TCI. Management believes that success against such
competition is dependent upon the geographic location of the property, the
performance of property-level managers in areas such as marketing, collections
and control of operating expenses, the amount of new construction in the area
and the maintenance and appearance of the property. Additional competitive
factors with respect to commercial properties are the ease of access to the
property, the adequacy of related facilities, such as parking, and sensitivity
to market conditions in setting rent levels. With respect to apartments,
competition is also based upon the design and mix of units and the ability to
provide a community atmosphere for the tenants. Management believes that beyond
general economic circumstances and trends, the rate at which properties are
renovated or the rate new properties are developed in the vicinity of each of
TCI's properties also are competitive factors.


         To the extent that TCI seeks to sell any of its properties, the sales
prices for such properties may be affected by competition from other real estate
entities and financial institutions also attempting to sell their properties
located in areas in which TCI's properties are located, as well as by aggressive
buyers attempting to penetrate or dominate a particular market.


         As described above and in "Certain Relationships and Related
Transactions of ARL, TCI and IOT -- Related Party Transactions," the officers
and directors of TCI also serve as officers or directors of certain other
entities, also advised by BCM, and which have business objectives similar to
those of TCI. TCI's directors, officers and advisor owe fiduciary duties to such
other entities as well as to TCI under applicable law. In determining to which
entity a particular investment opportunity will be allocated, the officers,
directors and advisor consider the respective investment objectives of each such
entity and the appropriateness of a particular investment in light of each such
entity's existing real estate portfolio. To the extent that any particular
investment opportunity is appropriate to more than one of the entities, the
investment opportunity will be allocated to the entity which has had funds
available for investment for the longest period of time or, if appropriate, the
investment may be shared among all or some of the entities.

         In addition, as also described in "Certain Relationships and Related
Transactions of ARL, TCI and IOT -- Certain Business Relationships," TCI also
competes with other entities which are affiliates of BCM and which have
investment objectives similar to TCI's and that may compete with it in
purchasing, selling, leasing and financing of real estate and real estate
related investments. In resolving any potential conflicts of interest which may
arise, BCM has informed management that it intends to continue to exercise its
best judgment as to what is fair and reasonable under the circumstances in
accordance with applicable law.




                                      177



CERTAIN FACTORS ASSOCIATED WITH REAL ESTATE AND RELATED INVESTMENTS

         TCI is subject to all the risks incident to ownership and financing of
real estate and interests therein, many of which relate to the general
illiquidity of real estate investments. These risks include, but are not limited
to, changes in general or local economic conditions, changes in interest rates
and the availability of permanent mortgage financing which may render the
purchase, sale or refinancing of a property difficult or unattractive and which
may make debt service burdensome, changes in real estate and zoning laws,
increases in real estate taxes, federal or local economic or rent controls,
floods, earthquakes, hurricanes and other acts of God and other factors beyond
the control of management or BCM. The illiquidity of real estate investments may
also impair the ability of management to respond promptly to changing
circumstances. Management believes that such risks are partially mitigated by
the diversification by geographic region and property type of TCI's real estate
and mortgage notes receivable portfolios. However, to the extent new property
investments or mortgage lending is concentrated in any particular region or
property type, the advantages of diversification may be mitigated.


                                PROPERTIES OF TCI


         TCI's principal offices are located at 1800 Valley View Lane, Suite
300, Dallas, Texas 75234 and are, in the opinion of management, suitable and
adequate for TCI's present operations.

         Details of TCI's real estate and mortgage notes receivable portfolios
at December 31, 2001, are set forth in Schedules III and IV to the TCI
consolidated financial statements included elsewhere in this joint proxy
statement and prospectus. The discussions set forth below under the headings
"Real Estate" and "Mortgage Loans" provide certain summary information
concerning TCI's real estate and mortgage notes receivable portfolios.

         TCI's real estate portfolio consists of properties held for investment,
properties held for sale, which were primarily obtained through foreclosure of
the collateral securing mortgage notes receivable, and investments in
partnerships. The discussion set forth below under the heading "Real Estate"
provides certain summary information concerning TCI's real estate and further
summary information with respect to its properties held for investment,
properties held for sale and its investment in partnerships.

         At December 31, 2001, none of TCI's properties, mortgage notes
receivable or investment in partnerships exceeded 10% of total assets. At
December 31, 2001, 88% of TCI's assets consisted of properties held for
investment, less than 1% consisted of properties held for sale, 3% consisted of
mortgage notes and interest receivable and 2% consisted of investments in
partnerships. The remaining 7% of TCI's assets were invested in cash, cash
equivalents and other assets. The percentage of TCI's assets invested in any one
category is subject to change and no assurance can be given that the composition
of TCI's assets in the future will approximate the percentages listed above.

         TCI's real estate is geographically diverse. At December 31, 2001, TCI
held investments in apartments and commercial properties in each of the
geographic regions of the continental United States, although its apartments and
commercial properties were concentrated in the




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Southeast and Southwest regions, as shown more specifically in the table under
"Real Estate" below. At December 31, 2001, TCI held mortgage notes receivable
secured by apartments and commercial properties in the Southwest and Midwest
regions of the continental United States, as shown more specifically in the
table under "Mortgage Loans" below.


GEOGRAPHIC REGIONS


         TCI has divided the continental United States into the following
geographic regions.


         Northeast region comprised of the states of Connecticut, Delaware,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont, and the District of Columbia. TCI owns a commercial
property in this region.


         Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. TCI owns 8
apartments and 19 commercial properties in this region.


         Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. TCI owns 45 apartments and 22
commercial properties in this region.


         Midwest region comprised of the states of Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, West Virginia and Wisconsin. TCI owns 2 apartments, 4 commercial
properties and 3 hotels in this region.

         Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. TCI owns 3 commercial properties in this region.

         Pacific region comprised of the states of California, Oregon and
Washington. TCI owns 2 apartments, a hotel and 2 commercial properties in this
region.

         Excluded from the above are 26 parcels of unimproved land and one hotel
in Wroclaw, Poland, as described below.


REAL ESTATE


         At December 31, 2001, approximately 93% of TCI's assets were invested
in real estate. TCI invests primarily in real estate located throughout the
continental United States, either on a leveraged or nonleveraged basis. TCI's
real estate portfolio consists of properties held for investment, investments in
partnerships and properties held for sale (which were primarily obtained through
foreclosure of the collateral securing mortgage notes receivable).

         Excluded from the above are 26 parcels of unimproved land and one hotel
in Wroclaw, Poland, as described below.


         TYPES OF REAL ESTATE INVESTMENTS. TCI's real estate consists of
commercial properties (office buildings, industrial warehouses and shopping
centers), hotels and apartments having established income-producing
capabilities. In selecting real estate for investment, the location, age and
type of property, gross rents, lease terms, financial and business standing of
tenants,


                                      179



operating expenses, fixed charges, land values and physical condition are among
the factors considered. TCI may acquire properties subject to or assume existing
debt and may mortgage, pledge or otherwise obtain financing for its properties.
The board of directors may alter the types of and criteria for selecting new
real estate investments and for obtaining financing without a vote of
stockholders.


         TCI typically invests in developed real estate. However, TCI has
recently invested in apartment development and construction. To the extent that
TCI continues to invest in development and construction projects, it will be
subject to business risks, such as cost overruns and construction delays,
associated with such higher risk projects.

         At December 31, 2001, TCI had the following properties under
construction:





                                                                             ADDITIONAL
                                                                  AMOUNT      AMOUNT         CONSTRUCTION
PROPERTY                    LOCATION             UNITS/ROOMS     EXPENDED    TO EXPEND       LOAN FUNDING
--------                    --------             -----------     --------    ---------       ------------
                                                                             
APARTMENTS
Falcon Lakes               Arlington, TX         284 Units      $  1,688     $  14,057       $  13,469
Limestone Ranch            Lewisville, TX        252 Units         8,225         6,396          13,000
River Oaks                 Wiley, TX             180 Units         2,228         9,763          10,023
Sendero Ridge              San Antonio, TX       384 Units         6,561        22,100          24,420
Tivoli                     Dallas, TX            190 Units         4,299         9,135          11,000
Verandas at City View      Fort Worth, TX        314 Units         2,570        20,380          19,000
Waters Edge IV             Gulfport, MS          80 Units          1,979         2,104              --

HOTEL
Akademia                   Wroclaw, Poland       165 Rooms        11,761         6,974          14,240




         In the opinion of management, the properties owned by TCI are
adequately covered by insurance.

         The following table sets forth the percentages, by property type and
geographic region, of TCI's real estate (other than four hotels in the Pacific
and Midwest regions, one hotel in Poland and 26 parcels of unimproved land, as
described below) at December 31, 2001.





                 REGION                             APARTMENTS      COMMERCIAL PROPERTIES
                 ------                             ----------      ---------------------
                                                                   
                 Pacific                                   2%               1%
                 Midwest                                   2               11
                 Northeast                                --                1
                 Southwest                                83               51
                 Southeast                                13               31
                 Mountain                                 --                5
                                                    -----------     -------------
                                                         100%             100%
                                                         ===              ===




         The foregoing table is based solely on the number of apartment units
and amount of commercial square footage and does not reflect the value of TCI's
investment in each region. TCI owns 26 parcels of unimproved land, 1 parcel of
4.66 acres in the Southeast region and 25 parcels of .67 acres, .68 acres, 14.39
acres, 2.89 acres, 2.14 acres, 4.7 acres, 6.8 acres, 18.99 acres, 34.58 acres,
36.38 acres, 97.97 acres, 55.8 acres, 160.38 acres, 97.0 acres, 101.94 acres,
16.16 acres, 18 acres, 17.07 acres, 9.96 acres, 108.9 acres, 6.07 acres, 10.5
acres, 5.36 acres, 7.11


                                      180




acres, and 18,000 sq. ft. in the Southwest region. See Schedule III to the TCI
consolidated financial statements to the ARL consolidated financial statements
included elsewhere in this joint proxy statement and prospectus for a detailed
description of TCI's real estate portfolio.

         A summary of activity in TCI's owned real estate portfolio during 2001
is as follows:





                                                                             
                                    Owned properties at January 1, 2001           144
                                    Properties purchased                          17
                                    Properties sold                               (22)
                                                                                  ---
                                    Owned properties at December 31, 2001         139
                                                                                  ===





                                      181





         PROPERTIES HELD FOR INVESTMENT. Set forth below are TCI's properties
held for investment and the monthly rental rate for apartments, the average
annual rental rate for commercial properties and the average daily room rate and
room revenue divided by total available rooms for hotels and occupancy at
December 31, 2001, 2000 and 1999, for apartments and commercial properties and
average occupancy during 2001, 2000 and 1999 for hotels:





                                                 UNITS/                             RENT PER SQUARE FOOT        OCCUPANCY %
                                                                                    --------------------        -----------
PROPERTY                    LOCATION             SQUARE FOOTAGE                      2001    2000      1999   2001  2000   1999
--------                    --------             --------------                      ----    ----      ----   ----  ----   ----
                                                                                                  
APARTMENTS
4242 Cedar Springs          Dallas, TX           76 Units/60,600 Sq. Ft.             $  .89  $  .87  $  .84   90      92   99
4400                        Midland, TX          92 Units/94,472 Sq. Ft.                .49     .49     .49   95      91   85
Apple Lane                  Lawrence, KS         75 Units/30,000 Sq. Ft.               1.04    1.00    *      99      97    *
Arbor Point                 Odessa, TX           195 Units/178,920 Sq. Ft.              .41     .39     .37   91      95   95
Ashton Way                  Midland, TX          178 Units/138,964 Sq. Ft.              .43     .41     .41   89      95   78
Autumn Chase                Midland, TX          64 Units/58,652 Sq. Ft.                .53     .52    *      94      97    *
Bay Walk                    Galveston, TX        192 Units/153,120 Sq. Ft.              .74    *       *      92       *    *
By the Sea                  Corpus Christi, TX   153 Units/123,945 Sq. Ft.              .83    *       *      93       *    *
Camelot                     Largo, FL            120 Units/141,024 Sq. Ft.              .56     .54     .53   92      99   92
Cliffs of Eldorado          McKinney, TX         208 Units/182,288 Sq. Ft.              .84     .84     .84   94      95   91
Country Crossing            Tampa, FL            227 Units/199,952 Sq. Ft.              .61     .58     .56   93      94   95
Courtyard                   Midland, TX          133 Units/111,576 Sq. Ft.              .43    *       *      89       *    *
Coventry                    Midland, TX          120 Units/105,608 Sq. Ft.              .43     .42     .42   77      98   78
El Chapparal                San Antonio, TX      190 Units/174,220 Sq. Ft.              .72     .69     .67   92      93   99
Fairway View Estates        El Paso, TX          264 Units/204,000 Sq. Ft.              .62     .61     .57   86      83   76
Fairways                    Longview, TX         152 Units/134,176 Sq. Ft.              .54     .53     .53   93      95   78
Falcon Lakes                Arlington, TX        284 Units/207,960 Sq. Ft.            **       *       *      **       *    *
Fountain Lake               Texas City, TX       166 Units/161,220 Sq. Ft.              .59     .56     .55   96      86   85
Fountains of Waterford      Midland, TX          172 Units/129,200 Sq. Ft.              .53     .53     .53   94      88   52
Gladstell Forest            Conroe, TX           168 Units/121,536 Sq. Ft.              .72     .72     .72   95      90   90
Grove Park                  Plano, TX            188 Units/143,556 Sq. Ft.              .86     .81     .77   94      95   95
Harper's Ferry              Lafayette, LA        122 Units/112,500 Sq. Ft.              .58     .58     .57   91      94   75
Heritage on the River       Jacksonville, FL     301 Units/289,490 Sq. Ft.              .65     .63     .63   97      98   92
Hunters Glen                Midland, TX          212 Units/174,180 Sq. Ft.              .38     .37     .37   91      91   86
In the Pines                Gainesville, FL      242 Units/294,860 Sq. Ft.              .54     .54     .52   96      97   98
Island Bay                  Galveston, TX        458 Units/374,784 Sq. Ft.              .81    *       *      87       *    *
Limestone Canyon            Austin, TX           260 Units/216,000 Sq. Ft.             1.06    1.00     .97   91      96   83
Limestone Ranch             Lewisville, TX       252 Units/219,600 Sq. Ft.            **       *       *      **       *    *
Marina Landing              Galveston, TX        256 Units/205,504 Sq. Ft.              .87    *       *      90       *    *
Mountain Plaza              El Paso, TX          188 Units/220,710 Sq. Ft.              .49     .49     .48   95      94   94
Oak Park IV                 Clute, TX            108 Units/78,708 Sq. Ft.               .54     .52     .51   94      88   84
Paramount Terrace           Amarillo, TX         181 Units/123,840 Sq. Ft.              .57     .55    *      94      94    *
Plantation                  Tulsa, OK            138 Units/103,500 Sq. Ft.              .59     .56     .54   93      95   91
Primrose                    Bakersfield, CA      162 Units/144,836 Sq. Ft.              .59     .56    *      97      93    *
Quail Creek                 Lawrence, KS         95 Units/113,416 Sq. Ft.               .57     .55    *      98      97    *
Quail Oaks                  Balch Springs, TX    131 Units/72,848 Sq. Ft.               .81     .77     .73   93      97   96
River Oaks                  Wiley, TX            180 Units/164,604 Sq. Ft.            **       *       *      **       *    *
Sandstone                   Mesa, AZ             238 Units/146,320 Sq. Ft.              .90     .90     .88   88      91   93
Sendero Ridge               San Antonio, TX      384 Units/340,880 Sq. Ft.            **       *       *      **       *    *
Somerset                    Texas City, TX       200 Units/163,368 Sq. Ft.              .66     .64     .63   91      91   85
Southgate                   Odessa, TX           180 Units/151,656 Sq. Ft.              .42     .41     .41   95      96   86
Southgreen                  Bakersfield, CA      80 Units/66,000 Sq. Ft.                .80     .77     .70   96      95   92
Stone Oak                   San Antonio, TX      252 Units/187,686 Sq. Ft.              .68     .65     .63   91      94   85
Summerfield                 Orlando, FL          224 Units/204,116 Sq. Ft.              .75     .70     .67   93      95   86
Sunchase                    Odessa, TX           300 Units/223,048 Sq. Ft.              .44     .43     .43   96      95   87




                                      182





                                                 UNITS/                             RENT PER SQUARE FOOT        OCCUPANCY %
                                                                                    --------------------        -----------
PROPERTY                    LOCATION             SQUARE FOOTAGE                      2001    2000      1999   2001  2000   1999
--------                    --------             --------------                      ----    ----      ----   ----  ----   ----
                                                                                                  
Terrace Hills               El Paso, TX          310 Units/233,192 Sq. Ft.         $    .67  $  .66  $  .63   91      93   94
Tivoli                      Dallas, TX           190 Units/168,862 Sq. Ft.            **       *       *      **       *    *
Timbers                     Tyler, TX            180 Units/101,666 Sq. Ft.              .57     .55     .54   92      98   93
Trails at Windfern          Houston, TX          240 Units/173,376 Sq. Ft.              .73     .71     .68   96      97   96
Treehouse                   Irving, TX           160 Units/153,072 Sq. Ft.              .78     .75     .71   94      94   93
Verandas at City View       Fort Worth, TX       314 Units/295,170 Sq. Ft.            **       *       *      **       *    *
Waters Edge IV              Gulfport, MS         80 Units/76,400 Sq. Ft.              **       *       *      **       *    *
Westwood                    Odessa, TX           79 Units/49,001 Sq. Ft.                .48     .43     .41   92     100   91
Willow Creek                El Paso, TX          112 Units/103,140 Sq. Ft.              .54     .50     .49   94      97   77
Willo-Wick Gardens          Pensacola, FL        152 Units/153,360 Sq. Ft.              .54     .56     .53   91      89   80
Willow Wick                 North Augusta, SC    104 Units/94,128 Sq. Ft.               .56     .56     .55   97      91   96
Woodview                    Odessa, TX           232 Units/165,840 Sq. Ft.              .48     .46     .45   95      96   91
                                                                                                              **
OFFICE BUILDINGS
1010 Common                 New Orleans, LA      494,579 Sq. Ft.                      11.28   10.83   10.45   36      32   21
225 Baronne                 New Orleans, LA      416,834 Sq. Ft.                       9.77    9.61    9.32   75      76   77
4135 Beltline Road          Addison, TX          90,000 Sq. Ft.                       10.33   10.17   10.00    -      33    *
9033 Wilshire               Los Angeles, CA      44,253 Sq. Ft.                       27.67   26.08    *      88      90    *
Ambulatory Surgery Center   Sterling, VA         33,832 Sq. Ft.                       20.37   34.26    *     100     100    *
Amoco                       New Orleans, LA      378,244 Sq. Ft.                      12.07   11.54   11.23   79      80   78
Atrium                      Palm Beach, FL       74,603 Sq. Ft.                       12.69   11.55   11.31   82      84   96
Bay Plaza                   Tampa, FL            75,780 Sq. Ft.                       15.96   15.60   15.14   99      95   85
Bay Plaza II                Tampa, FL            78,882 Sq. Ft.                       13.03   12.80    *      91      93    *
Bonita Plaza                Bonita, CA           47,777 Sq. Ft.                       19.50   18.66   18.78   93      92   88
Brandeis                    Omaha, NE            319,234 Sq. Ft.                      10.88   15.87    *      89     100    *
Corporate Pointe            Chantilly, VA        65,918 Sq. Ft.                       19.72   18.31   16.85  100     100  100
Countryside Retail Center   Sterling, VA         133,422 Sq. Ft.                      16.02   18.02    *      89      89    0
Durham Center               Durham, NC           207,171 Sq. Ft.                      17.65   17.79   17.93   94      95   78
Eton Square                 Tulsa, OK            222,654 Sq. Ft.                      11.27   10.52    9.78   63      60   86
Forum                       Richmond, VA         79,791 Sq. Ft.                       15.99   15.65   15.34   70      84   88
Harmon                      Sterling, VA         72,062 Sq. Ft.                       19.72   19.50    *      70      85    *
Hartford                    Dallas, TX           174,513 Sq. Ft.                      11.08   10.78   10.68   47      50   57
Institute Place             Chicago, IL          144,915 Sq. Ft.                      16.23   14.99   14.47   95     100   95
Jefferson                   Washington, DC       71,877 Sq. Ft.                       31.65   31.94   30.94   91      89  100
Lexington Center            Colorado Springs, CO 74,603 Sq. Ft.                       12.88   12.26   11.71   83      54   97
Mimado                      Sterling, VA         35,127 Sq. Ft.                       19.97   19.55    *      73      89    *
NASA                        Clear Lake, TX       78,159 Sq. Ft.                       11.86   11.74   11.44   68      66   66
One Steeplechase            Sterling, VA         103,376 Sq. Ft.                      17.19   16.64   16.26  100     100  100
Parkway North               Dallas, TX           71,041 Sq. Ft.                       17.00   14.77    7.82   73      76   85
Plaza Towers                St. Petersburg, FL   186,281 Sq. Ft.                      15.54   14.54   14.03   97      95   95
Remington Tower             Tulsa, OK            90,009 Sq. Ft.                       11.61   11.34   10.89   88      86   76
Savings of America          Houston, TX          68,634 Sq. Ft.                       12.63   11.68   11.28   85      79   71
Venture Center              Atlanta, GA          38,272 Sq. Ft.                       17.85   17.16   16.62  100     100  100
Westgrove Air Plaza         Addison, TX          78,326 Sq. Ft.                       13.54   12.91   12.69   81      90   89
Windsor Plaza               Windcrest, TX        80,522 Sq. Ft.                       13.72   13.70   13.43   66      63   62

INDUSTRIAL WAREHOUSES
5360 Tulane                 Atlanta, GA          30,000 Sq. Ft.                        2.75    2.60    2.55  100     100  100
5700 Tulane                 Atlanta, GA          67,850 Sq. Ft.                        2.93    2.83    2.63    7      77    9
Addison Hanger              Addison, TX          23,650 Sq. Ft.                       10.07   11.08   11.29   86      51   50
Addison Hanger II           Addison, TX          29,000 Sq. Ft.                        7.21    *       *      12       *    *
Central Storage             Dallas, TX           216,035 Sq. Ft.                       2.40    1.48    1.48  100     100  100




                                      183





                                                 UNITS/                             RENT PER SQUARE FOOT        OCCUPANCY %
                                                                                    --------------------        -----------
PROPERTY                    LOCATION             SQUARE FOOTAGE                      2001    2000      1999   2001  2000   1999
--------                    --------             --------------                      ----    ----      ----   ----  ----   ----
                                                                                                  
Encon                       Fort Worth, TX       256,410 Sq. Ft.                     $ 3.08  $ 2.00  $ 2.00  100     100  100
Kelly                       Dallas, TX           294,899 Sq. Ft.                       3.61    3.85    3.74   94     100   98
McLeod                      Orlando, FL          110,914 Sq. Ft.                       8.01    7.86    7.62   92      88   91
Ogden Industrial            Ogden, UT            107,112 Sq. Ft.                       2.94    3.32    3.79  100      86  100
Space Center                San Antonio, TX      101,500 Sq. Ft.                       3.18    3.09    2.97   89     100   83
Texstar                     Arlington, TX        97,846 Sq. Ft.                        2.11    2.11    2.11  100     100  100
Tricon                      Atlanta, GA          570,877 Sq. Ft.                       3.87    3.75    3.21   93      91   96

SHOPPING CENTERS
Dunes Plaza                 Michigan City, IN    223,869 Sq. Ft.                       5.81    5.61    5.54   62      63   64
K-Mart                      Cary, NC             92,033 Sq. Ft.                        3.28    3.28    3.28  100     100  100
Parkway Center              Dallas, TX           28,374 Sq. Ft.                       15.08   14.67   13.60   86     100  100
Plaza on Bachman Creek      Dallas, TX           80,278 Sq. Ft.                       12.11   11.13   11.70   88      79   65
Promenade                   Highland Ranch, CO   133,558 Sq. Ft.                      13.06   10.57   10.34   75      73   93
Sadler Square               Amelia Island, FL    70,295 Sq. Ft.                        7.21    7.15    6.99   93      95   96
Sheboygan                   Sheboygan, WI        74,532 Sq. Ft.                        2.36    1.99    1.99  100     100  100

OTHER
Signature Athletic Club     Dallas, TX           56,532 Sq. Ft.






                                                                                                        TOTAL ROOM REVENUES
                                                                                                          DIVIDED BY TOTAL
                                                            AVERAGE ROOM RATE         OCCUPANCY %         AVAILABLE ROOMS
                                                            -----------------         -----------         ---------------
PROPERTY              LOCATION            ROOMS             2001      2000     1999 2001   2000  1999    2001     2000     1999
--------              --------            -----             ----      ----     ---- ----   ----  ----    ----     ----     ----
                                                                                       
HOTELS
Willows               Chicago, IL             52 Rooms   $130.37   $131.78  $115.12   53     52    60   69.65   $69.10   $79.24
City Suites           Chicago, IL             45 Rooms    131.16    125.32   111.45   61     74    71   81.13    92.40    69.23
Majestic Inn          San Francisco, CA       57 Rooms    174.85    170.08   162.58   41     79    79   79.10   133.65   128.76
The Majestic          Chicago, IL             55 Rooms    129.63    120.67   105.27   55     65    63   71.52    77.89    66.62
Akademia              Wroclaw, Poland        165 Rooms        **         *        *   ***      *           **        *        *






                                                              SQUARE
                                                              ------
PROPERTY                       LOCATION                     FOOTAGE/ACRES
--------                       --------                     -------------
                                                      
LAND
1013 Common                    New Orleans, LA              18,000 Sq. Ft.
Alamo Springs                  Dallas, TX                   .678 Acres
Dominion                       Dallas, TX                   14.39 Acres
Eagle Crest                    Farmers Branch, TX           18.99 Acres
Folsom                         Dallas, TX                   36.38 Acres
Lamar/Parmer                   Austin, TX                   17.07 Acres
Las Colinas                    Las Colinas, TX              4.7 Acres
Lemmon Carlisle                Dallas, TX                   2.14 Acres
Limestone Canyon II            Austin, TX                   9.96 Acres
Manhattan                      Farmers Branch, TX           108.9 Acres
McKinney 36                    Collin County, TX            34.58 Acres
Mira Lago                      Farmers Branch, TX           8.88 Acres
Pac Trust                      Farmers Branch, TX           7.11 Acres
Red Cross                      Dallas, TX                   2.89 Acres
Sandison                       Collin County, TX            97.97 Acres




                                      184





                                                              SQUARE
                                                              ------
PROPERTY                       LOCATION                     FOOTAGE/ACRES
--------                       --------                     -------------
                                                      
Seminary West                  Fort Worth, TX               5.36 Acres
Solco - Allen                  Collin County, TX            55.8 Acres
Solco - Valley Ranch           Dallas, TX                   6.07 Acres
Stacy Road                     Allen, TX                    160.38 Acres
State Highway 121              Collin County, TX            101.94 Acres
Watters Road                   Collin County, TX            97.00 Acres
West End                       Dallas, TX                   6.8 Acres
Whisenant                      Collin County, TX            16.16 Acres




*        Property was either purchased or under construction in 2000 or 2001.

**       Property was under construction in 2001.

         Occupancy presented here and throughout this Section is without
reference to whether leases in effect are at, below or above market rates.

In 2001, TCI purchased the following properties:





                                                  UNITS/         PURCHASE   NET CASH     DEBT    INTEREST MATURITY
PROPERTY                     LOCATION             ROOMS/ACRES      PRICE       PAID    INCURRED    RATE     DATE
--------                     --------             -----------      -----       ----    --------    ----     ----
                                                                                        
APARTMENTS
Baywalk                      Galveston, TX        192 Units          $6,590      $390     $5,856   7.45%      02/11
By the Sea                   Corpus Christi, TX   153 Units           6,175       862      5,538    7.07      05/09
Courtyard                    Midland, TX          133 Units           1,425       425      1,051    9.25      04/06
Falcon Lakes(1)              Arlington, TX        284 Units           1,435     1,437         --      --         --
Island Bay                   Galveston, TX        458 Units          20,360     3,225     16,232    7.40      07/11
Limestone Ranch(1)           Lewisville, TX       252 Units             505        --         --      --     -- (2)
Marina Landing               Galveston, TX        256 Units          12,050       518     10,912    5.30      01/02
River Oaks(1)                Wiley, TX            180 Units             531       578         --      --         --
Sendero Ridge(1)             San Antonio, TX      384 Units           1,850     2,635         --      --         --
Tivoli(1)                    Dallas, TX           190 Units           3,000     2,475      1,000   12.00      12/02
Verandas at City View(1)     Fort Worth, TX       314 Units          $2,544      $276     $2,197   4.75%      03/02
Waters Edge IV(1)            Gulfport, MS         80 Units              441       441         --      --         --

HOTEL
Akademia(3)                  Wroclaw, Poland      165 Rooms           2,184     2,669         --      --         --

LAND
Mira Lago                    Farmers Branch, TX   8.88 Acres            541        --         --      --         --  (2)
Pac Trust                    Farmers Branch, TX   7.11 Acres          1,175     1,231         --      --         --
Seminary West                Fort Worth, TX       5.36 Acres            222       232         --      --         --
Solco-Valley Ranch           Dallas, TX           6.07 Acres          1,454     1,525         --      --         --




(1)      Land purchased for apartment construction.

(2)      Land was received from ARL, a related party, in exchange for the
         Glenwood Apartments.

(3)      Land purchased for hotel construction.




                                      185





In 2001, TCI sold the following properties:





                                                  UNITS/SQ.FT./    SALES     NET CASH       DEBT         GAIN/(LOSS)
PROPERTY                   LOCATION               ACRES            PRICE    RECEIVED   DISCHARGED          ON SALE
--------                   --------               -----            -----    --------   ----------          -------
                                                                                      
APARTMENTS
Bent Tree Gardens          Addison, TX            204 Units          $9,000    $2,669    $6,065 (1)            $601
Carseka                    Los Angeles, CA        54 Units            4,000     2,138         1,466           1,352
Fontenelle Hills           Bellevue, NE           338 Units          16,500     3,680    12,454 (1)           4,565
Forest Ridge               Denton, TX             56 Units            2,000       682         1,151           1,014
Glenwood                   Addison, TX            168 Units           3,659        --     2,537 (1)         --  (2)
Heritage                   Tulsa, OK              136 Units           2,286       206         1,948           1,575
Madison at Bear Creek      Houston, TX            180 Units           5,400       828     3,442 (1)       1,162 (4)
McCallum Glen              Dallas, TX             275 Units           8,450     2,633     5,004 (1)       1,375 (3)
McCallum Crossing          Dallas, TX             322 Units          11,500     1,841     8,101 (1)           4,486
Oak Run                    Pasadena, TX           160 Units           5,800     1,203         4,364           2,227
Park Lane                  Dallas, TX             97 Units            2,750     1,526         1,103           1,827
Park at Colonade           San Antonio, TX        211 Units           5,800       927         4,066           1,592
South Cochran              Los Angeles, CA        64 Units            4,650     1,897         1,873           1,660
Summerstone                Houston, TX            242 Units           7,225     1,780     5,180 (1)           1,884
Sunset Lakes               Waukegan, IL           414 Units          15,000     6,089         7,243           7,316

OFFICE BUILDINGS
Chesapeake Center          San Diego, CA          57,493 Sq.Ft.       6,575     3,111         2,844             204
Daley                      San Diego, CA          64,425 Sq.Ft.       6,211     2,412         3,346             836
Valley Rim                 San Diego, CA          54,194 Sq.Ft.       5,500     1,367         3,516           <138>
Viewridge                  San Diego, CA          25,062 Sq.Ft.       2,010       701         1,272               4
Waterstreet                Boulder, CO            106,257 Sq.Ft.     22,250     7,126        12,949           9,154

INDUSTRIAL WAREHOUSE
Technology Trading         Sterling, VA           197,659 Sq.Ft.     10,775     4,120         6,214           4,163
Zodiac                     Dallas, TX             35,435 Sq.Ft.         762       183           564             167

LAND
Eagle Crest                Farmers Branch, TX     4.41 Acres            300       291            --           <215>
McKinney 36                McKinney, TX           1.822 Acres           476       476            --             355
Moss Creek                 Greensboro, NC         4.79 Acres             15        13            --            <71>
Round Mountain             Austin, TX             110.0 Acres         2,560     2,455            --           1,047




(1)      Debt assumed by purchaser.

(2)      The Glenwood Apartments were exchanged with ARL, a related party, for
         two parcels of land; the 10.5 acre Limestone Ranch and the 8.88 acre
         Mira Lago.

(3)      Excludes $1.5 million deferred gain from seller financing. See Note 4.
         "Notes and Interest Receivable."

(4)      Excludes $608,000 deferred gain from seller financing. See Note 4.
         "Notes and Interest Receivable."

In 2001, TCI financed/refinanced the following property:





                                                      DEBT            DEBT      NET CASH   INTEREST   MATURITY
PROPERTY             LOCATION       ACRES           INCURRED        DISCHARGED  RECEIVED      RATE      DATE
--------             --------       -----           --------        ----------  --------      ----      ----
                                                           (DOLLARS IN THOUSANDS)
                                                                                   
LAND
Red Cross            Dallas, TX     2.89 Acres      $ 4,500         $ --         $ 4,328     12.5%      10/02




                                      186


         PROPERTIES HELD FOR SALE. Set forth below are TCI's properties held for
sale, primarily obtained through foreclosure.




               PROPERTY                          LOCATION                              ACRES
                                                                              
               LAND
               Fiesta                            San Angelo, TX                       .6657 Acres
               Fruitland                         Fruitland Park, FL                    4.66 Acres
               Round Mountain                    Austin, TX                              18 Acres




         PARTNERSHIP PROPERTIES. TCI accounts for partnership properties using
the equity method. Set forth below are the properties owned by partnerships, the
monthly rental rate for apartments, the average annual rental rate for
commercial properties, and occupancy rates at December 31, 2001, 2000 and 1999:





                                                                     RENT PER SQUARE FOOT         OCCUPANCY %
                                                                     --------------------         -----------
PROPERTY             LOCATION               UNITS/SQUARE FOOTAGE      2001    2000    1999     2001  2000    1999
--------             --------               --------------------      ----    ----    ----     ----  ----    ----
                                                                                    
APARTMENT
Lincoln Court        Dallas, TX             55 Units/40,063 Sq. Ft.    $ 1.20 $ 1.16 $ 1.14      98    94      92

OFFICE BUILDING
Prospect Park #29    Rancho Cordova, CA     40,807 Sq. Ft.              19.52  20.42  16.56      72   100     100

SHOPPING CENTER
Chelsea Square       Houston, TX            70,275 Sq. Ft.               9.63   9.31   8.95      79    77      85



         TCI owns a noncontrolling combined 55% limited and general partnership
interest in Jor-Trans Investors Limited Partnership ("Jor-Trans") which owns the
Lincoln Court Apartments.


         TCI is a 30% general partner in Sacramento Nine ("SAC 9"), which owns
the Prospect Park #29 Office Building. In 2001, TCI received no operating
distributions from SAC 9.

         TCI is a 63.7% limited partner and IOT is a 36.3% general partner in
the Tri-City Limited Partnership ("Tri-City") which owns the Chelsea Square
Shopping Center. In 2001, TCI received $32,000 in operating distributions from
Tri-City. In February 2000, the Chelsea Square Shopping Center was financed in
the amount of $2.1 million. Tri-City received net cash of $2.0 million after the
payment of various closing costs. The mortgage bore interest at a fixed rate of
10.24% per annum until February 2001, and a variable rate thereafter, currently
10% per annum, requires monthly payments of principal and interest of $20,601
and matures in February 2005. TCI received a distribution of $1.3 million of the
net financing proceeds. See "Certain Relationships and Related Transactions of
ARL, TCI and IOT--Related Party Transactions."





                                      187





TCI FEDERAL TAX BASIS OF DEPRECIABLE PROPERTY AS OF DECEMBER 31, 2001


         For each TCI property upon which depreciation is taken, the table set
forth below includes (i) the Federal tax basis; (ii) rate, (iii) method and (iv)
life claimed as of December 31, 2001.





                                                         ACCUMULATED
                                      GROSS FEDERAL          TAX         NET FEDERAL
            PROPERTY                    TAX BASIS       DEPRECIATION      TAX BASIS      RATE    METHOD(1)       LIFE
----------------------------------   ----------------  ---------------- ---------------  -----   ----------- -------------
                                                                                           
APARTMENTS

4242 Cedar Springs                       $ 1,168,040         $ 272,570       $ 895,470    100 %     ADS      20-40 years

4400 Apartments                            1,396,277           126,545       1,269,732    100       ADS      20-40 years

Apple Lane Apts.                           1,510,302            73,944       1,436,358    100       ADS        40 years

Arbor Pointe                               1,811,108           242,725       1,568,383    100       ADS      20-40 years

Ashton Way                                 1,587,686           143,109       1,444,577    100       ADS        40 years

Autumn Chase Apts                          1,265,253            54,039       1,211,214    100       ADS        40 years

Baywalk                                    6,106,000            64,761       6,041,239    100      MACRS      27.5 years

By The Sea                                 5,797,000            79,050       5,717,950    100      MACRS      27.5 years

Camelot                                    3,106,206           628,012       2,478,194    100       ADS      20-40 years

Cliffs Of Eldorado                        10,588,583           849,310       9,739,273    100       ADS        40 years

Country Crossing                           2,642,414           564,034       2,078,380    100       ADS      20-40 years

Courtyard                                  1,359,231            21,245       1,337,986    100       ADS        40 years

Coventry Pointe                              553,563            75,692         477,871    100       ADS      20-40 years

El Chapparal                               5,504,184         1,994,711       3,509,473    100       ADS      10-40 years

Fairway                                    1,651,674           359,685       1,291,989    100       ADS      20-40 years

Fairway View Estates                       5,195,432           359,800       4,835,632    100       ADS        40 years

Falcon Lakes**                                     -                 -               -    100       ADS        40 years

Fountain Lake                              2,604,472           511,118       2,093,354    100       ADS      20-40 years

Ftns Of Waterford(Em Terr)                 2,781,248           222,778       2,558,470    100       ADS        40 years

Gladstell Apts                             2,205,407           350,118       1,855,289    100       ADS      20-40 years

Grove Park                                 3,820,977           526,619       3,294,358    100       ADS        40 years

Harpers Ferry                              1,476,759           345,984       1,130,775    100       ADS      20-40 years

Heritage On The River                      6,540,795           974,873       5,565,922    100       ADS      20-40 years

Hunters Glen (Junction)                    2,396,095           232,543       2,163,552    100       ADS        40 years

In The Pines                               5,588,935           968,001       4,620,934    100       ADS      20-40 years

Island Bay                                18,852,000           199,945      18,652,055    100      MACRS      27.5 years

Limestone Canyon                          14,142,354           921,355      13,220,999    100       ADS        40 years

Limestone Ranch                            6,604,934            89,431       6,515,503    100       ADS        40 years

Marina Landing                            11,161,000           118,374      11,042,626    100      MACRS      27.5 years

Mountain Plaza                             3,462,395           339,733       3,122,662    100       ADS        40 years

Oak Park Iv                                  700,442           131,411         569,031    100       ADS      20-40 years

Paramount Terrace                          3,061,449           124,387       2,937,062    100       ADS        40 years

Plantation Apartments                      3,095,890           158,014       2,937,876    100       ADS        40 years

Primrose Apts                              3,851,850           164,513       3,687,337    100       ADS        40 years

Quail Creek Apts.                          3,090,274           151,300       2,938,974    100       ADS        40 years

Quail Oaks                                 3,852,818         1,438,590       2,414,228    100       ADS      10-40 years

Sandstone                                  6,719,582           705,072       6,014,510    100       ADS        40 years

Sendero Ridge**                                    -                 -               -    100       ADS        40 years

Somerset Place                             2,968,407           582,912       2,385,495    100       ADS      20-40 years

Southgate Apartments                       1,656,485           222,474       1,434,011    100       ADS      20-40 years

Southgreen                                 3,020,439           229,674       2,790,765    100       ADS        40 years

Stone Oak Place                            2,859,845           867,331       1,992,514    100       ADS      10-40 years

Summerfield Apts                           4,866,452           863,037   4,003,415        100       ADS      20-40 years

Sunchase                                   3,414,060           354,237       3,059,823    100       ADS        40 years

Terrace Hills                              5,287,372           633,346       4,654,026    100       ADS        40 years

Timbers Apartments                         1,992,030           254,861       1,737,169    100       ADS        40 years

Tivoli**                                           -                 -               -    100       ADS        40 years

Trails At Windfern                         3,542,832           409,524       3,133,308    100       ADS        40 years

Treehouse Apartments                       3,124,523           363,439       2,761,084    100       ADS        40 years

Verandas At City View**                            -                 -               -    100       ADS        40 years

Waters Edge Iv                             1,536,402             4,809       1,531,593    100       ADS        40 years

Westwood Square                              448,708            61,131         387,577    100       ADS      20-40 years

Wiley Cascades**                                   -                 -               -    100       ADS        40 years

Willocreek                                 1,907,582           356,268       1,551,314    100       ADS      20-40 years

WILLOW WICK Sc                             1,342,139           204,096       1,138,043    100       ADS      20-40 years

WILL-O-WICK  Florida                       3,163,742           514,715       2,649,027    100       ADS      20-40 years

Woodview                                   2,966,298           268,148       2,698,150    100       ADS        40 years





                                      188





                                                         ACCUMULATED
                                      GROSS FEDERAL          TAX         NET FEDERAL
            PROPERTY                    TAX BASIS       DEPRECIATION      TAX BASIS      RATE    METHOD(1)       LIFE
----------------------------------   ----------------  ---------------- ---------------  -----   ----------- -------------
                                                                                           
OFFICE BUILDINGS

1010 Common St                           $30,773,646       $ 1,711,139     $29,062,507    100%      ADS       6-40 years

225 Baronne St                            16,643,612         1,275,283      15,368,329    100       ADS       6-40 years

4135 Beltline Rd O B                       4,280,248           271,967       4,008,281    100       ADS        40 years

9033 Wilshire Blvd                         8,751,868           369,607       8,382,261    100       ADS        40 years

Amoco Building                             9,542,988         1,091,243       8,451,745    100       ADS       6-40 years

Atrium O B                                 4,755,800           416,478       4,339,322    100       ADS       6-40 years

Bay Plaza Office Center                    4,028,570           424,397       3,604,173    100       ADS        40 years

Bay Plaza Office Center Ii                 4,639,254           176,570       4,462,684    100       ADS        40 years

Bonita Plaza                               5,559,059           565,212       4,993,847    100       ADS        40 years

Brandeis                                  13,174,868           368,880      12,805,988    100       ADS        40 years

Corporate Point                            3,831,854           665,507       3,166,347    100       ADS      20-40 years

Countryside Retail                        18,800,998           606,930      18,194,068    100       ADS        40 years

Durham Centre                             18,427,807         1,969,344      16,458,463    100       ADS        40 years

Eton Square                               13,636,733           767,592      12,869,141    100       ADS        40 years

Executive Court O/B*                       1,772,683             1,844       1,770,839    100       ADS        40 years

Forum O B                                  6,439,382         1,384,412       5,054,970    100       ADS      20-40 years

Harmon                                     9,506,890           306,604       9,200,286    100       ADS        40 years

Hartford O B                               3,380,275           534,004       2,846,271    100       ADS       6-40 years

Institute Place                            3,615,315           738,650       2,876,665    100       ADS      20-40 years

Jefferson                                 12,192,152         1,436,524      10,755,628    100       ADS        40 years

Lexington Center                           2,916,370           349,780       2,566,590    100       ADS      10-40 years

Mimado                                     5,294,166           169,863       5,124,303    100       ADS        40 years

Nasa Office Building                       6,060,256         2,023,899       4,036,357    100       ADS      10-40 years

One Steeplechase O B                       8,398,913         1,859,007       6,539,906    100       ADS      20-40 years

Parkway North                              5,586,783           494,713       5,092,070    100       ADS        40 years

Plaza                                     19,643,316        12,464,715       7,178,601    100       ADS      10-40 years

Remington Tower                            4,565,655           255,132       4,310,523    100       ADS        40 years

Savings Of America                         1,414,953           140,713       1,274,240    100       ADS        40 years

Signature Athletic Club                    3,811,004           418,417       3,392,587    100       ADS        40 years

Surgery Center                             8,170,414           263,823       7,906,591    100       ADS        40 years

Venture Center                             3,848,791         1,129,098       2,719,693    100       ADS      20-40 years

Westgrove Air Plaza                        5,153,891           134,216       5,019,675    100       ADS        40 years

Windsor Executive Plaza                    6,090,651         1,939,151       4,151,500    100       ADS      10-40 years

INDUSTRIAL WAREHOUSES

5360 Tulane                                  761,529           317,675         443,854    100      MACRS      7-39 years

5700 Tulane                                  663,795            59,592         604,203    100      MACRS       39 years

Addison Hangar                               827,261            43,418         783,843    100       ADS       6-40 years

Addison Hangar Ii                          1,378,823            47,410       1,331,413    100       ADS        40 years

Central Freight Whse                       2,294,105           309,469       1,984,636    100       ADS      20-40 years

Encon Warehouse                            4,001,033           414,877       3,586,156    100       ADS        40 years

Kelly Warehouses (5)                       4,594,743           751,562       3,843,181    100       ADS      20-40 years

Mcleod Commerce Center                     3,219,771           537,276       2,682,495    100       ADS      20-40 years

Ogden Industrial                           1,853,095           662,886       1,190,209    100       ADS      10-40 years

Space Center                               1,342,882           643,168         699,714    100      MACRS      7-39 years

Texstar Building                           1,547,017           292,576       1,254,441    100       ADS        40 years

Tricon Warehouses (8)                      8,244,347         1,566,120       6,678,227    100       ADS      20-40 years

SHOPPING CENTERS

Dunes Plaza                                7,031,829         1,493,277       5,538,552    100       ADS      20-40 years

Kmart Cary                                 1,319,278           111,321       1,207,957    100       ADS        40 years

Parkway Center                             2,112,085           501,769       1,610,316    100       ADS      20-40 years

Plaza On Bachman Creek                     4,106,090           331,690       3,774,400    100       ADS        40 years

Promenade S C                              7,400,300           992,889       6,407,411    100       ADS      20-40 years

Sadler Square                              2,849,497           564,607       2,284,890    100       ADS        40 years

Sheboygan S C                              1,415,949           331,584       1,084,365    100       ADS      20-40 years

HOTELS

Brompton Hotel                             3,836,832           300,828       3,536,004    100       ADS      10-40 years

City Suites Hotel                          4,939,235           477,054       4,462,181    100       ADS      10-40 years

Majestic Inn                               6,038,695         1,556,605       4,482,090    100       ADS      10-40 years

Surf Hotel                                 5,244,496           498,774       4,745,722    100       ADS      10-40 years

Akademia**                                         -                 -               -    100       ADS        40 years
                                     ----------------  ---------------- ---------------
     TOTAL                               553,081,797        70,304,534     482,777,263
                                     ================  ================ ===============




                                      189





                                                         ACCUMULATED
                                      GROSS FEDERAL          TAX         NET FEDERAL
            PROPERTY                    TAX BASIS       DEPRECIATION      TAX BASIS      RATE    METHOD(1)       LIFE
----------------------------------   ----------------  ---------------- ---------------  -----   ----------- -------------
                                                                                           
*Purchased from ARL, treated as
financing transaction for book,
sale for tax.
**Property under construction,
no depreciable assets in service.




 (1)ADS = Alternative Depreciation System
    MACRS = Modified Accelerated Cost Recovery System


MORTGAGE LOANS


         In addition to investments in real estate, a portion of TCI's assets
are invested in mortgage notes receivable, principally secured by real estate.
TCI may originate mortgage loans in conjunction with providing purchase money
financing of property sales. Management intends to service and hold for
investment the mortgage notes in TCI's portfolio. TCI's mortgage notes
receivable consist of first, wraparound and junior mortgage loans.

         TYPES OF MORTGAGE ACTIVITY. TCI has originated its own mortgage loans,
as well as acquired existing mortgage notes either directly from builders,
developers or property owners, or through mortgage banking firms, commercial
banks or other qualified brokers. BCM, in its capacity as a mortgage servicer,
services TCI's mortgage notes. TCI's investment policy is described in "Business
of TCI--Business Plan and Investment Policy."

         TYPES OF PROPERTIES SECURING MORTGAGE NOTES. The properties securing
TCI's mortgage notes receivable portfolio at December 31, 2001, consisted of
three apartments, five office buildings, a shopping center, and a mobile home
park and unimproved land. The board of directors may alter the types of
properties securing or collateralizing mortgage loans in which TCI invests
without a vote of stockholders. TCI's Articles of Incorporation impose certain
restrictions on transactions with related parties, as discussed in "Certain
Relationships and Related Transactions of ARL, TCI and IOT-Related Party
Transactions."

         At December 31, 2001, TCI's mortgage notes receivable portfolio
included nine mortgage loans with an aggregate principal balance of $17.4
million secured by income-producing real estate located in the Midwest,
Southeast and Southwest regions of the continental United States, and two
non-performing loans with an aggregate principal balance of $5.2 million secured
by unimproved land. At December 31, 2001, 3% of TCI's assets were invested in
notes and interest receivable.





                                      190





         The following table sets forth the percentages (based on the mortgage
note principal balance) by property type and geographic region, of the income
producing properties that serve as collateral for TCI's mortgage notes
receivable at December 31, 2001. See Schedule IV to the TCI consolidated
financial statements included elsewhere in this joint proxy statement and
prospectus for further details of TCI's mortgage notes receivable portfolio.






                                                               COMMERCIAL
                          REGION             APARTMENTS        PROPERTIES           TOTAL
                          ------             ----------        ----------           -----
                                                                            
                 Southwest                         19.9  %             45.0%           64.9%
                 Southeast                           --                11.3            11.3
                 Midwest                             --                23.8            23.8
                                                     --                ----            ----
                                                   19.9  %             80.1%          100.0%
                                                   ====                ====           =====




A summary of the activity in TCI's mortgage notes receivable portfolio during
2001 is as follows:




                                                             
           Mortgage notes receivable at January 1, 2001             6
           Loans paid off                                           (2)
           Loans funded                                             8
                                                                    -
           Mortgage notes receivable at December 31, 2001           12
                                                                    ==




         During 2001, $3.7 million was collected in full payment of two mortgage
notes and $2.3 million in principal payments were received on other mortgage
notes. At December 31, 2001, less than 1% of TCI's assets were invested in
mortgage notes secured by non-income producing real estate, comprised of a first
lien mortgage note secured by 44.6 acres of unimproved land in Fort Worth,
Texas, and a second lien mortgage note secured by 1,714.6 acres of unimproved
land in Tarrant County, Texas.

         FIRST MORTGAGE LOANS. TCI invests in first mortgage notes with short,
medium or long-term maturities. First mortgage loans generally provide for level
periodic payments of principal and interest sufficient to substantially repay
the loan prior to maturity, but may involve interest-only payments or moderate
amortization of principal and a "balloon" principal payment at maturity. With
respect to first mortgage loans, the borrower is required to provide a
mortgagee's title policy or an acceptable legal title opinion as to the validity
and the priority of the mortgage lien over all other obligations, except liens
arising from unpaid property taxes and other exceptions normally allowed by
first mortgage lenders in the relevant area. TCI may grant participations in
first mortgage loans that it originates to other lenders.

         In July 2001, TCI funded a $1.7 million mortgage loan secured by a
first lien on 44.6 acres of unimproved land in Fort Worth, Texas, and a 100%
interest in a partnership. The note receivable bears interest at 16.0% per
annum, requires monthly interest only payments and matures in June 2002.

         The following discussion briefly describes events that affected
previously funded first mortgage loans during 2001.

         In December 1999, TCI provided $1.2 million of purchase money financing
in conjunction with the sale of the Town and Country Office Building in Houston,
Texas. The note



                                      191



receivable bore interest at 8.5% per annum, required monthly payments of
interest only, matured in 2001 and was secured by a first lien on the property
sold. In December 2001, the note was paid in full and a previously deferred gain
on the sale of $819,000 was recognized.

         JUNIOR MORTGAGE LOANS. TCI may invest in junior mortgage loans, which
are secured by mortgages that are subordinate to one or more prior liens either
on the fee or a leasehold interest in real estate. Recourse on such loans
ordinarily includes the real estate on which the loan is made, other collateral
and personal guarantees by the borrower. The board of directors restricts
investment in junior mortgage loans, excluding wraparound mortgage loans, to not
more than 10% of TCI's assets. At December 31, 2001, 3% of TCI's assets were
invested in junior and wraparound mortgage loans.

         The following discussion briefly describes the junior mortgage loans
that TCI originated as well as events that affected previously funded junior
mortgage loans during 2001.

         In March 2001, TCI funded a $3.5 million mortgage loan secured by a
second lien on a retail center in Montgomery County, Texas. In June 2001, an
additional $1.5 million was funded. The note receivable bears interest at 16.0%
per annum, requires monthly interest only payments of $67,000 and matured in
September 2001. In October 2001, TCI extended the loan until February 2002,
receiving $100,000 as an extension fee. In December 2001, TCI received a $1.5
million principal payment. In February 2002, TCI sold a $2.0 million senior
participation interest in the loan to IOT, a related party. TCI and IOT will
receive 43% and 57%, respectively, of the remaining principal and interest
payments. Also in February 2002, TCI extended the loan until April 2002,
receiving $23,000 as an extension fee.

         In June 2001, in conjunction with the sale of 275 unit McCallum Glen
Apartments in Dallas, Texas, TCI funded a $1.5 million mortgage loan secured by
a second lien on the apartments. The note receivable bears interest at 10% per
annum, requires monthly interest only payments and matures in June 2003.

         In July 2001, TCI agreed to fund a $4.4 million line of credit secured
by a second lien on 1,714.16 acres of unimproved land in Tarrant County, Texas.
The note receivable bears interest at 15% per annum, requires monthly interest
only payments beginning in September 2001 and matures in July 2003. As of March
2002, TCI has funded $3.8 million of the line of credit.

         In August 2001, TCI agreed to fund up to $5.6 million secured by an
office building in Dallas, Texas. The note receivable bears interest at a
variable rate, currently 9.0% per annum, requires monthly interest only payments
and matures in January 2003. As of March 2002, TCI has funded a total of $2.3
million.

         In December 2001, TCI purchased 100% of the outstanding common shares
of National Melrose, Inc. ("NM"), a wholly-owned subsidiary of ARL, a related
party, for $2.0 million cash. NM owns the 41,840 sq. ft. Executive Court Office
Building in Memphis, Tennessee. ARL has guaranteed that the asset shall produce
at least a 12% return annually of the purchase price for a period of three years
from the purchase date. If the asset fails to produce the 12% return, ARL shall
pay TCI any shortfall. In addition, if the asset fails to produce 12% return for
a calendar






                                      192




year, TCI may require ARL to repurchase the shares of NM for the purchase price.
Management has classified this related party transaction as a note receivable
from ARL.

         In December 2000, TCI funded a $2.5 million mortgage loan secured by a
second lien on unimproved land: 442 acres in Tarrant County, Texas, 1,130 acres
in Denton County, Texas, and 26 acres in Collin County, Texas. The note
receivable bore interest at 18.0% per annum, required monthly interest only
payments of $37,500 and matured in June 2001. In June 2001, the loan and all
accrued but unpaid interest was paid off.

         Also in December 2000, TCI funded a $3.0 million mortgage loan secured
by a second lien on four office buildings in San Antonio, Texas. The note
receivable bore interest at 16.0% per annum, required monthly interest only
payments of $40,000 and matured in June 2001. The note was extended until
November 2001 with a $750,000 loan principal paydown. With this paydown, the
note was renegotiated to replace the existing collateral with new collateral
consisting of a 120,000 sq. ft. office building and industrial warehouse in
Carrollton, Texas. The note bears interest at 16.0% per annum, requires monthly
payments of interest only and matures in May 2002.

         In October 2001, TCI funded a $4.0 million loan secured by a 375,152
sq.ft. office building in St. Louis, Missouri. The note receivable bears
interest at 9.0% per annum, requires monthly interest only payments of $30,000
and matured in February 2002. In February 2002, TCI extended the loan maturity
to February 2003.

         PARTNERSHIP MORTGAGE LOANS. TCI owns a 60% general partner interest and
IOT owns a 40% general partner interest in Nakash Income Associates ("NIA"),
which owns a wraparound mortgage note receivable secured by a building occupied
by a Wal-Mart in Maulden, Missouri. TCI advanced $33,000 to the partnership.

DOUBLE TAXATION OF CORPORATIONS

         TCI is taxed as a regular corporation under the Code. Corporations are
subject to complex federal income tax rules that cause the corporation to be
taxed on its income and distributions, generally, to be taxable to recipients.
As a general rule, a corporation is not entitled to a deduction for dividends
paid to its shareholders. Corporations are subject to an additional tax on
certain undistributed accumulated earnings. Currently, corporations are taxed on
net capital gains at the regular corporate tax rates. Corporations are subject
to the alterative minimum tax.

         Cash distributions from a corporation to a shareholder depend upon
whether the distribution is from the corporation's "earnings and profits." If
the distribution is from the corporation's earnings and profits it is a dividend
and is includable in the distributee shareholder's gross income. Cash
distributions which are not dividends are treated as a return of the
shareholder's investment in its stock. The distributions first reduce the tax
basis of the shareholder in its stock. When the shareholder has recovered its
basis in its stock, further distributions are treated as gain from the sale or
exchange of property.

         Generally a corporate shareholder will receive a "dividends received
deduction" for dividends received. The percentage of the dividend which can be
excluded through the



                                      193




dividends received deductions depends upon the percentage ownership of the
distributee shareholder in the distributor corporation. A 100% deduction is
available for dividends received by a member of the same affiliated group of
corporations. If the distributee owns 20% or more of the distributor
corporation, the distributee corporation is entitled to an 80% deduction for
dividends received. A 70% dividends received deduction is available for most
other dividends.

         The above is intended only as a general summary of the "double
taxation" of corporations and the tax treatment of cash distribution. It is not
intended to be a thorough discussion of the numerous complex tax issues that
affect corporations and their shareholders including accumulated earnings tax,
alternative minimum tax, distributions of appreciated property, liquidations,
reorganizations, issues pertaining to controlled groups of corporations and
issues related to consolidated returns. Similarly, this summary should not be
considered as a discussion of material federal income tax aspects or
considerations for TCI. The above pertains only to "C" corporations under the
Code and does not address state, local, or foreign tax issues. It is not
applicable to regulated investment companies, real estate investment trusts,
banks, insurance companies and other forms of entities for which special
treatment is provided under the Code.

                                LEGAL PROCEEDINGS

OLIVE LITIGATION

         In February 1990, TCI, together with National Income Realty Trust, CMET
and IOT three real estate entities which, at the time, had the same officers,
directors or trustees and advisor as TCI, entered into the Olive 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 TCI'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 TCI, CMET and
IOT, including, but not limited to, the fairness to TCI, CMET and IOT 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. The 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 this second
consultant. Although several status



                                      194




conferences on this matter were held, there has been no court order resolving
whether there was any breach of the Olive Amendment.

         In June 2000, plaintiffs' counsel asserted that loans made by TCI to
BCM and American Realty Trust, Inc. breached the provision of the Modification.
The board believes that the provisions of the Settlement, Modification and the
Olive Amendment terminated on April 28, 1999. However, the Court has ruled that
certain provisions continue to be effective after the termination date. This
ruling was appealed by TCI and IOT.

         On October 23, 2001, TCI, IOT and ARL jointly announced a preliminary
agreement with the plaintiffs' counsel for complete settlement of all disputes
in the lawsuit. In February 2002, the court granted final approval of the
proposed settlement. Under the proposal, the appeal has been dismissed and ARL
will acquire all of the outstanding shares of IOT and TCI not currently owned by
ARL for a cash payment or shares of ARL Preferred Stock. ARL will pay $17.50
cash per TCI share and $19.00 cash per IOT share for the stock held by
nonaffiliated stockholders. ARL would issue one share of Series G redeemable
convertible preferred stock with a liquidation value of $20.00 per share for
each share of TCI common stock for stockholders who elect to receive ARL
preferred stock in lieu of cash. ARL would issue one share of Series H
redeemable convertible preferred stock with a liquidation value of $21.50 per
share for each share of IOT common stock for stockholders who elect to receive
ARL preferred stock in lieu of cash. Each share of Series G redeemable
convertible preferred stock will be convertible into 2.5 shares of ARL common
stock during a 75-day period that commences fifteen days after the date of the
first ARL Form 10-Q filing that occurs after the closing of the merger
transaction. Upon the acquisition of IOT and TCI shares, TCI and IOT would
become wholly-owned subsidiaries of ARL. The transaction is subject to the
execution of a definitive merger agreement and a vote of the stockholders of all
three entities. TCI has the same board as IOT and the same advisor as IOT and
ARL.





                                      195




                         SELECTED FINANCIAL DATA OF TCI


         The following is a summary of financial data incorporated by reference
in this joint proxy statement and prospectus. You should read the following data
in conjunction with the more detailed information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations of TCI"
and the TCI consolidated financial statements and related notes appearing
elsewhere in this joint proxy statement and prospectus.





                                                                FOR THE YEARS ENDED DECEMBER 31,
                                           ----------------------------------------------------------------------
                                                2001           2000          1999          1998          1997
                                                ----           ----          ----          ----          ----
                                                                                   
EARNINGS DATA

Rents...............................       $  134,911  $     139,357  $     82,039  $      69,829  $      54,462
Property expense....................           80,562         78,061        44,497         38,282         32,424
                                           -----------    -----------    ----------    -----------    -----------
Operating income....................           54,349         61,296        37,542         31,547         22,038
Other income........................          (3,002)          1,814           555            739          2,311
Other expense.......................           85,806         83,878        48,395         38,320         33,154
Gain on sale of real estate.........           54,270         50,550        40,517         12,940         21,404
                                           -----------    -----------    ----------    -----------    -----------
Net income (loss)...................           19,811         29,782        30,219          6,906         12,599
Preferred dividend requirement......            (172)           (22)          (30)            (1)            ---
                                           -----------    -----------    ----------    -----------    -----------
Net income (loss) applicable to common
    shares..........................       $   19,639  $      29,760  $     30,189  $       6,905  $      12,599
                                           ===========    ===========    ==========    ===========    ===========
Basic and diluted earnings per share
    net income (loss) applicable to
    common shares...................      $     2.32   $        3.45  $       7.05  $        1.78  $        3.22
                                           ===========    ===========    ==========    ===========    ===========

Dividends per common share..........              ---  $         .54  $        .60  $         .60  $        .28*
Weighted average common shares
    outstanding.....................        8,478,377      8,631,621     4,283,574      3,876,797      3,907,221

                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                    --------------------------------
                                             2001          2000         1999          1998             1997
                                             ----          ----         ----          ----             ----
BALANCE SHEET DATA

Real estate held for investment, net       $ 622,171  $   639,040  $   599,746   $     347,389  $        269,845
Real estate held for sale, net......
     Foreclosed.....................             516        1,824        1,790           1,356             1,356
     Other..........................             ---          ---          ---             ---             3,630
Notes and interest receivable, net..          22,049        8,172       11,530           1,493             3,947
Total assets........................         709,152      731,885      714,195         382,203           319,135
Notes and interest payable..........         461,037      501,734      503,406         282,688           222,029
Stockholders' equity................         216,768      200,560      179,112          91,132            86,133
Book value per share................       $   26.95  $     23.22  $     20.76   $       23.35  $          22.15




                                      196




           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                        AND RESULTS OF OPERATIONS OF TCI

INTRODUCTION

         TCI invests in real estate through acquisitions, leases and
partnerships and in mortgage loans on real estate, including first, wraparound
and junior mortgage loans. TCI is the successor to a California business trust
organized on September 6, 1983, which commenced operations on January 31, 1984.
On November 30, 1999, TCI acquired all of the outstanding shares of beneficial
interest of CMET, a real estate company, in a tax-free exchange of shares,
issuing 1.181 shares of its common stock for each outstanding CMET share. TCI
accounted for the merger as a purchase.


         Prior to January 1, 2000, TCI elected to be treated as a REIT under
Sections 856 through 860 of the Code. During the third quarter of 2000, TCI no
longer met the requirement for tax treatment as a REIT due to a concentration of
ownership.


LIQUIDITY AND CAPITAL RESOURCES


         Cash and cash equivalents at December 31, 2001, totaled $10.3 million
compared with $22.3 million at December 31, 2000. The principal reasons for the
decrease in cash are discussed in the paragraphs below.

         TCI's principal sources of cash have been and will continue to be from
property operations, proceeds from property sales, the collection of mortgage
notes receivable, borrowings and to a lesser extent, distributions from
partnerships. Management anticipates that TCI's cash at December 31, 2001, and
cash that will be generated in 2002 from property operations, will not be
sufficient to meet all of TCI's cash requirements. Management intends to
selectively sell income producing real estate, refinance or extend real estate
debt and seek additional borrowings against real estate to meet its cash
requirements. Management is uncertain that it can refinance its real estate debt
or rely on additional borrowings. However, management has been successful at
extending its current maturity obligations.

         2001 COMPARED TO 2000. Net cash used in operations was $895,000 in 2001
compared to $1.1 million in 2000. The primary factors contributing to TCI's use
of cash in its operations are discussed in the following paragraphs.

         Cash flow from property operations (rents collected less payments for
property operating expenses) decreased to $56.0 million in 2001 from $56.6
million in 2000. Decreases in cash flow of $8.6 million were due to the sale of
29 apartments in 2001 and 2000, and $2.7 million was due to the sale of eight
commercial properties and one industrial warehouse in the Kelly portfolio in
2001 and 2000. These decreases were offset by increases in cash flow from
property operations of which $900,000 and $2.7 million were from the purchase of
10 existing apartments and seven commercial properties in 2001 and 2000, and
$2.5 million and $4.5 million were due to increases in rents at TCI's apartments
and commercial properties, respectively. Management believes that this trend of
decreased cash flow from property operations will continue as a result of TCI's
selling of income producing properties to meet its cash requirements.



                                      197



         Interest collected increased to $1.6 million in 2001 from $1.0 million
in 2000. This increase was due to loans funded in 2001. Interest collected is
expected to decrease in 2002 due to six loans maturing in 2002.

         Interest paid decreased to $39.5 million in 2001 from $45.1 million in
2000. A decrease of $6.8 million was due to the sale of 40 properties subject to
debt in 2001 and 2000, $1.3 million was due to lower variable interest rates,
and $1.5 million was due to principal paydowns. These decreases were offset by
increases of $3.8 million due to the purchase of 18 properties subject to debt
in 2001 and 2000 and $200,000 was due to the refinancing of 14 properties in
2001 and 2000. Interest paid will continue to decrease as TCI sells properties
subject to debt.

         Advisory and net income fees paid to affiliate decreased to $7.9
million in 2001 from $10.5 million in 2000. The decrease is due to a decrease in
net income. Advisory fees are expected to decrease as additional properties are
sold.

         TCI paid incentive fees of $2.9 million to an affiliate in 2001. No
such fee was paid in 2000. See "The Advisor -- BCM". Incentive fees are expected
to increase in 2002 as TCI selectively sells income producing properties.

         General and administrative expenses paid increased to $10.9 million in
2001 from $7.9 million in 2000. Increases of $1.8 million, $615,000, $249,000,
and $219,000 were due to increases in consulting fees, legal fees, taxes, and
insurance, respectively.

         Distributions were received from equity investees operating cash flow
of $646,000 in 2001 and $172,000 in 2000. See Note 7. "Investment in Equity
Method Real Estate Entities" to the TCI consolidated financial statements
included elsewhere in this joint proxy statement and prospectus.

         Management expects that funds from existing cash resources, selective
sales of income producing properties, refinancing of real estate, and additional
borrowings against real estate will be sufficient to meet TCI's cash
requirements associated with its current and anticipated level of operations,
maturing debt obligations and existing commitments. To the extent that TCI's
liquidity permits or financing sources are available, management intends to make
new real estate investments.

         In 2001, TCI received cash of $3.7 million from the collection of two
mortgage notes receivable, $2.3 million in mortgage receivable principal
payments, net cash of $29.1 million from new mortgage borrowings and
refinancings and an additional $100.8 million from property sales. In 2001,
$19.7 million in cash was expended on property purchases, $24.5 million in cash
was expended on construction projects, $9.1 million was expended on capital
improvements, and a total of $66.1 million in principal payments were made on
mortgage debt.

         In 2001, TCI repurchased 593,200 shares of common stock in a private
block purchase for a total cost of $9.5 million.

         Scheduled principal payments on notes payable of $152.8 million are due
in 2002. For those mortgages that mature in 2002, management intends to either
seek to extend the due dates one or more years, or refinance the debt on a
long-term basis. Management also intends to sell



                                      198




income producing properties to retire mortgage debt as it becomes due.
Management believes it will continue to be successful in obtaining loan
extensions or refinancings.

         TCI paid dividends to its common stockholders totaling $4.7 million or
$.54 per share in 2000.

         2000 COMPARED TO 1999. Cash and cash equivalents at December 31, 2000,
totaled $22.3 million compared with $41.3 million at December 31, 1999. The
principal reasons for the decrease in cash are discussed in the paragraphs
below.

         Net cash used in operations was $1.1 million in 2000 compared to $4.1
million provided by operations in 1999. The primary factors contributing to
TCI's use of cash in its operations are discussed in the following paragraphs.

         Cash flow from property operations (rents collected less payments for
property operating expenses) increased to $56.7 million in 2000 from $37.2
million in 1999. An increase of $4.3 million was due to the purchase of 15
income producing properties in 2000 and seven income producing properties in
1999, an increase of $24.5 million was due to the properties obtained in the
acquisition of CMET and an increase of $1.9 million was due to increased
apartment and commercial property occupancy and rental rates, and control of
operating expenses. These increases were partially offset by a decrease of $6.8
million due to the sale of 18 income producing properties in 2000 and 1999 and a
decrease of $4.3 million from the hotel operations.

         Interest collected increased to $1.0 million in 2000 from $449,000 in
1999. This increase was due to loans funded in 2000.

         Interest paid increased to $45.1 million in 2000 from $25.5 million in
1999. An increase of $5.4 million was due to 37 properties being purchased on a
leveraged basis in 2000 and 1999 and refinancings and financings of unencumbered
properties during 2000 and 1999. An additional increase of $17.5 million was due
to the acquisition of CMET. These increases were partially offset by a decrease
of $3.3 million due to properties sold in 2000 and 1999.

         Advisory and net income fees paid to affiliate increased to $10.5
million in 2000 from $4.0 million in 1999. The increase is due to the increase
in assets from the merger with CMET and accrued net income fees in 1999 and paid
in 2000.

         General and administrative expenses paid increased to $7.9 million in
2000 from $3.5 million in 1999. This increase was due to increased legal fees,
insurance and taxes.

         Distributions were received from equity investees operating cash flow
of $172,000 in 2000 and $331,000 in 1999. See Note 7. "Investment in Equity
Method Real Estate Entities" to the TCI consolidated financial statements
included elsewhere in this joint proxy statement and prospectus.

         In 2000, TCI received cash of $20.4 million from the collection of four
mortgage notes receivable, $131,000 in mortgage receivable principal payments,
net cash of $63.0 million from new mortgage borrowings and refinancings and an
additional $80.0 million from property sales.




                                      199




In 2000, $32.5 million in cash was expended on property purchases and a total of
$107.5 million in principal payments on mortgage debt.

         TCI paid dividends to its common stockholders totaling $4.7 million or
$.54 per share in 2000 and $3.0 million or $.60 per share in 1999.

         Management reviews the carrying values of TCI's properties and mortgage
notes receivable at least annually and whenever events or a change in
circumstances indicate that impairment may exist. Impairment is considered to
exist if, in the case of a property, the future cash flow from the property
(undiscounted and without interest) is less than the carrying amount of the
property. For notes receivable impairment is considered to exist if it is
probable that all amounts due under the terms of the note will not be collected.
If impairment is found to exist, a provision for loss is recorded by a charge
against earnings. The note receivable review includes an evaluation of the
collateral property securing such note. The property review generally includes:
(1) selective property inspections; (2) a review of the property's current rents
compared to market rents; (3) a review of the property's expenses; (4) a review
of maintenance requirements; (5) a review of the property's cash flow; (6)
discussions with the manager of the property; and (7) a review of properties in
the surrounding area.





RESULTS OF OPERATIONS


         2001 COMPARED TO 2000. TCI had net income of $19.8 million in 2001,
including gains on sale of real estate totaling $54.3 million, as compared to
$29.8 million in 2000, including gains on sale of real estate totaling $50.6
million. Fluctuations in the components of revenues and expense between 2001 and
2000 are discussed below.

         Rents decreased to $134.9 million in 2001 from $139.7 million in 2000.
Of this decrease, $20.6 million was due to the sale of 29 apartments in 2001 and
2000 and $3.2 million was due to the sale of eight commercial properties and one
industrial warehouse in the Kelly portfolio in 2001 and 2000. These decreases
were offset by increases of $3.0 million due to the purchase of 10 operating
apartments in 2001 and 2000 and $8.2 million was due to the purchase of eight
commercial properties in 2001 and 2000. Decreases in rents of $91,000 also was
due to decreased parking revenues for TCI's land properties. Rental rates
increased by $1.5 million for TCI's apartments and by $2.1 million for TCI's
commercial properties. In 2000, TCI leased its four U.S. hotels to Regis Hotel
Corporation, an affiliate of BCM, at an annual base rent totaling $503,477 per
year plus 30% of the hotel's gross revenues. Beginning January 1, 2001, TCI no
longer leased the hotels and recognized revenues based on the operations of the
hotels. From this change, rents increased at TCI's hotels by $4.4 million. Rents
are expected to decrease in 2002 as TCI selectively sells income producing
properties in 2002.

         Property operations expenses increased to $80.6 million in 2001 from
$78.2 million in 2000. Of this increase, $1.9 million was due to the purchase of
10 operating apartments, $4.4 million was due to the purchase of eight
commercial properties and $400,000 was due to the purchase of eight land
properties in 2001 and 2000. An increase of $3.0 million was due to increased
leasing, utility and maintenance costs at TCI's commercial properties. Hotel
operating expenses increased by $4.3 million and increases of $300,000 were due
to increases in maintenance and taxes for TCI's land parcels. These increases
were offset by decreases of $10.9




                                      200




million due to the sale of 29 apartments in 2001 and 2000 and $1.1 million due
to the sale of eight commercial properties and one industrial warehouse in the
Kelly portfolio in 2001 and 2000. Property operating expenses are expected to
decrease as TCI selectively sells properties in 2002.

         Interest and other income increased to $2.9 million in 2001, compared
to $2.4 million in 2000. The increase was primarily due to TCI funding two loans
in the fourth quarter of 2000 and eight loans in 2001. Interest income in 2002
is expected to decrease due to six of TCI's twelve loans maturing in 2002.

         Prior to the first quarter of 2001, TCI accounted for its investment in
ARL, an affiliate, as an available for sale marketable security. In the first
quarter of 2001, TCI began accounting for its investment in ARL using the equity
method. Equity losses of investees increased to $6.0 million in 2001, from
$556,000 in 2000. The losses from equity investees are primarily attributed to
increased operating losses for IOT and TCI's accounting for its investment in
ARL. Equity losses are expected to increase with decreases in operating income
from ARL and IOT as ARL and IOT continue to sell income producing properties.

         In 2001, gains on sale of real estate totaling $54.3 million were
recognized. The gains included $1.6 million on the sale of the Heritage
Apartments, $167,000 on the sale of Zodiac Warehouse, $355,000 on the sale of a
tract of the McKinney 36 land parcel, $1.0 million on the sale of Forest Ridge
Apartments, $1.6 million on the sale of Park at Colonade Apartments, $1.0
million on the sale of a tract of the Round Mountain land parcel, $4.6 million
on the sale of Fontenelle Apartments, $601,000 on the sale of Bent Tree Gardens
Apartments, $9.1 million on the sale of Waterstreet Office Building, $4.2
million on the sale of Technology Trading Center, $1.4 million on the sale of
McCallum Glen Apartments, $836,000 on the sale of Daley Office Plaza, $204,000
on the sale of Chesapeake Office Center, $4.5 million on the sale of McCallum
Crossing Apartments, $1.3 million on the sale of Carseka Apartments, $7.3
million on the sale of Sunset Lake Apartments, $2.2 million on the sale of Oak
Run Manor Apartments, $1.8 million on the sale of Park Lane Apartments, $4,000
on the sale of Viewridge Office Building, $1.7 million on the sale of South
Cochran Apartments, $1.2 million on the sale of Madison at Bear Creek
Apartments, $1.9 million on the sale of Summerstone Apartments, a $819,000
previously deferred gain on the sale of the Town and Country Shopping Center,
and $5.3 million in gains on sale of real estate from ARL, an equity investee.
These gains were partially offset by a loss of $71,000 on the Moss Creek land
parcel, a loss of $138,000 on the sale of the Valley Rim Office Building, and a
loss of $215,000 on the sale of a tract of the Eagle Crest land parcel.

         In 2000, gains on sale of real estate totaling $50.6 million were
realized; $572,000 on the sale of Hunters Bend Apartments, a $4.8 million
previously deferred gain on the sale of McKinney land, TCI's share of gains
recognized by an equity affiliate of $4.6 million, $3.6 million on the sale of
Westgate of Laurel Apartments, $3.2 million on the sale of Apple Creek
Apartments, $1.2 million on the sale of Villas at Fair Park Apartments, $633,000
on the sale of Chateau Charles Hotel, $1.5 million on the sale of Brookfield
Warehouses, $1.5 million on the sale of Villas at Countryside Apartments,
$706,000 on the sale of Ashley Crest Apartments, $206,000 on the sale of Shady
Trail Warehouse, $1.0 million on the sale of Eagle Rock Apartments, $184,000 on
the sale of a portion of the Allen land parcel, $3.8 million on the sale of
Woodbridge Apartments, $2.1 million on the sale of the McKinney land, $3.1
million on the



                                      201




sale of a portion of the Watters Road/Highway 121 land parcel, $5.4 million on
the sale of Shadow Run Apartments, $3.0 million on the sale of Parkwood Knoll
Apartments, $2.6 million on the sale of Villa Piedra Apartments, $1.1 million on
the sale of Country Bend Apartments, $5.1 million on the sale of Fountain
Village Apartments, and $793,000 on the sale of Crescent Place Apartments. See
Note 3. "Real Estate" to the TCI consolidated financial statements included
elsewhere in this joint proxy statement and prospectus.

         Interest expense decreased to $41.0 million in 2001 from $48.1 million
in 2000. Of this decrease, $6.0 million was due to the sale of 29 apartments in
2001 and 2000, $1.3 million was due to the sale of eight commercial properties
and one industrial warehouse in the Kelly portfolio in 2001 and 2000, and
$316,000 was due to the sale of two land parcels subject to debt in 2000. A
decrease of $252,000 was due to the refinancing of six commercial properties in
2000, and an increase of $18,000 was due to the refinancing of three apartment
properties in 2000, and decreases of $1.1 million were due to land loan payoffs
and principal paydowns in 2001 and 2000. Of the remaining decrease, $248,000 was
due to lower variable interest rates at TCI's apartments, $1.6 million was due
to lower variable interest rates at TCI's commercial properties and $278,000 was
due to lower variable interest rates at TCI's hotels. These decreases were
offset by increases of $817,000 due to the purchase of 10 operating apartments
in 2001 and 2000, and $3.2 million due to the purchase of eight commercial
properties in 2001 and 2000. Interest expense is expected to decrease as TCI
sells properties.

         Depreciation expense of $19.7 million in 2001, approximated the $19.7
million in 2000.

         Advisory fee expense of $5.3 million in 2001, approximated the $5.3
million in 2000. Advisory fees are expected to decrease as TCI sells properties.

         Net income fee to affiliate was $1.9 million in 2001, as compared to
$2.4 million in 2000. The net income fee is payable to TCI's advisor based on
7.5% of TCI's net income.

         Incentive fee to affiliate was $3.2 million in 2001. The incentive fee
is payable to TCI's advisor based on 10% of aggregate sales consideration less
TCI's cost of all properties sold during the year.

         Incentive fees are expected to increase as TCI selectively sells
properties. No incentive fee was paid in 2000.

         General and administrative expenses increased to $11.4 million in 2001,
from $8.5 million in 2000. Increases of $1.8 million, $615,000, $249,000, and
$219,000 were due to increases in consulting fees, legal fees, taxes, and
insurance, respectively. General and administrative expenses are expected to
remain constant or decrease from decreased litigation and consulting fees.

         Realized losses on investments of $3.1 million were recognized in 2001.
TCI recognized a previously unrealized loss on ARL's marketable equity
securities of $3.1 million in 2001.


         2000 COMPARED TO 1999. TCI had net income of $29.8 million in 2000, as
compared to $30.2 million in 1999. Net income for 2000 included gains on the
sale of real estate of $50.6 million. Net income for 1999 included gains on the
sale of real estate of $40.5 million.



                                      202



Fluctuations in the components of revenue and expense between 2000 and 1999 are
discussed below.


         Rents increased to $139.7 million in 2000 from $82.1 million in 1999.
Of the increase, $2.5 million was due to the completion of the Limestone Canyon
Apartments in December 1999; $8.5 million was due to properties purchased or
obtained through foreclosure in 2000 and 1999; $57.4 million was due to the
properties obtained in the acquisition of CMET and the remaining $2.1 million
was primarily due to increased apartment and commercial property occupancy and
rental rates. These increases were partially offset by a decrease of $10.6
million due to properties sold in 2000 and 1999, and a decrease of $2.5 million
from the four hotels.

         Property operating expenses increased to $78.2 million in 2000 from
$44.5 million in 1999. Of the increase, $4.3 million was due to properties
purchased in 2000 and 1999 and $32.8 million was due to the properties obtained
in the acquisition of CMET. These increases were partially offset by a decrease
of $3.8 million due to properties sold in 2000 and 1999.

         Interest and other income increased to $2.4 million in 2000 from
$453,000 in 1999. The increase in interest income was due to the funding of
notes receivable in 2000. See Note 4. "Notes and Interest Receivable" to the TCI
consolidated financial statements included elsewhere in this joint proxy
statement and prospectus.

         Interest expense increased to $48.1 million in 2000 from $27.7 million
in 1999. Of this increase, $4.5 million was due to properties purchased in 2000
and 1999, $17.5 million was due to the properties obtained in the acquisition of
CMET and $843,000 was due to property financings and refinancings during 2000
and 1999. These increases were partially offset by a decrease of $3.3 million
due to properties sold and mortgages paid off in 2000 and 1999.

         Depreciation expense increased to $19.7 million in 2000 from $11.7
million in 1999. Of the increase, $1.6 million was due to properties purchased
in 2000 and 1999, $7.4 million was due to properties obtained in the acquisition
of CMET and the remainder from property additions and tenant improvements. These
increases were partially offset by a decrease of $1.7 million due to properties
sold in 2000 and 1999.

         Advisory and net income fees increased to $7.7 million in 2000 from
$5.7 million in 1999. The increase was due to an increase in the advisory fee
from an increase in gross assets, the basis for the fee. The increase in gross
assets was due in part to the assets obtained in the acquisition of CMET. Net
income fees of $2.4 million in 2000 approximated $2.5 million in 1999. See Note
13. "Advisory Agreement" to the TCI consolidated financial statements included
elsewhere in this joint proxy statement and prospectus.


         General and administrative expenses increased to $8.5 million in 2000
from $3.3 million in 1999. The increase was primarily due to legal fees incurred
on litigation related matters, taxes and an increase in advisor cost
reimbursements.


         Equity losses from investees were $556,000 in 2000 compared to income
of $102,000 in 1999. The decrease was primarily due to increased operating
expenses of IOT, an equity investee. See Note 7. "Investment in Equity Method
Real Estate Entities" to the TCI



                                      203




consolidated financial statements included elsewhere in this joint proxy
statement and prospectus.

         In 2000, gains on sale of real estate totaling $50.6 million were
realized; $572,000 on the sale of Hunters Bend Apartments, a $4.8 million
previously deferred gain on the sale of McKinney land, TCI's share of gains
recognized by an equity affiliate of $4.6 million, $3.6 million on the sale of
Westgate of Laurel Apartments, $3.2 million on the sale of Apple Creek
Apartments, $1.2 million on the sale of Villas at Fair Park Apartments, $633,000
on the sale of Chateau Charles Hotel, $1.5 million on the sale of Brookfield
Warehouses, $1.5 million on the sale of Villas at Countryside Apartments,
$706,000 on the sale of Ashley Crest Apartments, $206,000 on the sale of Shady
Trail Warehouse, $1.0 million on the sale of Eagle Rock Apartments, $184,000 on
the sale of a portion of the Allen land parcel, $3.8 million on the sale of
Woodbridge Apartments, $2.1 million on the sale of the McKinney land, $3.1
million on the sale of a portion of the Watters Road/Highway 121 land parcel,
$5.4 million on the sale of Shadow Run Apartments, $3.0 million on the sale of
Parkwood Knoll Apartments, $2.6 million on the sale of Villa Piedra Apartments,
$1.1 million on the sale of Country Bend Apartments, $5.1 million on the sale of
Fountain Village Apartments, and $793,000 on the sale of Crescent Place
Apartments. See Note 3. "Real Estate" to the TCI consolidated financial
statements included elsewhere in this joint proxy statement and prospectus.

         In 1999, gains on sale of real estate totaling $40.5 million were
realized; $1.9 million on the sale of Mariner's Pointe Apartments, $8.3 million
on the sale of 74 New Montgomery Office Building, $675,000 on the sale of
Republic land, $5.2 million on the sale of Parke Long Industrial Warehouse,
$153,000 on the sale of a portion of the Moss Creek land parcel, $5.3 million on
the sale of Corporate Center Industrial Warehouse, $747,000 on the sale of Laws
land, $4.4 million on the sale of Sullyfield Industrial Warehouse, $5.6 million
on the sale of Spa Cove Apartments, $4.7 million on the sale of Woods Edge
Apartments and $3.6 million, TCI's share of the gains realized by three equity
investees on the sale of two shopping centers and two office buildings. See Note
3. "Real Estate" and Note 7. "Investment in Equity Method Real Estate Entities"
to the TCI consolidated financial statements included elsewhere in this joint
proxy statement and prospectus.





ENVIRONMENTAL MATTERS

         Under various federal, state and local environmental laws, ordinances
and regulations, TCI may be potentially liable for removal or remediation costs,
as well as certain other potential costs, relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery for personal injury associated with such
materials.


         Management is not aware of any environmental liability relating to the
above matters that would have a material adverse effect on TCI's business,
assets or results of operations.



                                      204


INFLATION

         The effects of inflation on TCI's operations are not quantifiable.
Revenues from property operations tend to fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the rate
of inflation also affect sales values of properties and the ultimate gain to be
realized from property sales. To the extent that inflation affects interest
rates, TCI's earnings from short-term investments, the cost of new financings as
well as the cost of variable interest rate debt will be affected.

TAX MATTERS


         For the year 1999, TCI elected and in the opinion of management,
qualified to be taxed as a REIT as defined under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended. During the third quarter of 2000, due
to a concentration in ownership, TCI no longer met the requirements for tax
treatment as a REIT under the Code. Under the Code, TCI is prohibited from
re-qualifying for REIT tax status for at least five years.





                                      205




               QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING
                               MARKET RISK OF TCI

         TCI's future operations, cash flow and fair values of financial
instruments are partially dependent upon the then existing market interest rates
and market equity prices. Market risk is the changes in the market rates and
prices, and the effect of the changes on future operations. Market risk is
managed by matching a property's anticipated net operating income to an
appropriate financing.


         The following table contains only those exposures that existed at
December 31, 2001. Anticipation of exposures or risk on positions that could
possibly arise was not considered. TCI's ultimate interest rate risk and its
effect on operations will depend on future capital market exposures, which
cannot be anticipated with a probable assurance level. Dollars in thousands.




Assets
Notes receivable
Variable interest rate-fair value............................................................             $2,932
                                           2002     2003     2004      2005      2006    THEREAFTER    TOTAL
                                           ----     ----     ----      ----      ----    ----------    -----
                                                                                   
Instrument's maturities........................$--   $1,738   $1,369       $--       $--         $--      $3,107
Instrument's amortization.......................--       --       --        --        --          --          --
Interest.......................................213       90       39        --        --          --         342
Average rate..................................7.0%     6.0%     5.8%        --        --          --

Fixed interest rate-fair value                                                                           $20,378
                                           2002     2003     2004      2005      2006    THEREAFTER    TOTAL
                                           ----     ----     ----      ----      ----    ----------    -----
Instrument's maturities....................$12,206   $5,047   $1,970       $--       $--         $--     $19,223
Instrument's amortization.......................48       45       49        56        62          99         359
Interest.....................................1,493      684      262        20        14           8       2,481
Average rate.................................13.9%    13.2%    11.8%     10.4%     10.4%       10.4%
Liabilities
Non-trading Instruments-Equity Price
Risk
Notes payable
Variable interest rate-fair value................                                                      $ 142,097
                                           2002     2003     2004      2005      2006    THEREAFTER    TOTAL
                                           ----     ----     ----      ----      ----    ----------    -----
Instrument's maturities....................$71,956 $ 18,739 $ 24,194    $9,510    $1,636      $9,877   $ 135,912
Instrument's amortization....................1,453    1,014      905       680       409       6,081      10,542
Interest.....................................6,168    3,487    2,650     1,541     1,032       9,159      24,037
Average rate..................................6.3%     6.2%     5.6%      5.9%      6.3%        6.3%
Fixed interest rate-fair value                                                                         $ 319,778
                                           2002     2003     2004      2005      2006    THEREAFTER    TOTAL
                                           ----     ----     ----      ----      ----    ----------    -----
Instrument's maturities....................$75,187 $ 17,818 $ 48,826   $15,864  $ 14,530     $97,937   $ 270,162
Instrument's amortization....................4,159    3,526    3,565     3,130     3,106      23,930      41,416
Interest....................................23,125   18,651   17,296    13,733    12,445      55,671     140,921
Average rate..................................8.5%     8.3%     8.0%      7.8%      7.8%        7.8%





                                      206




                                MANAGEMENT OF TCI

                     DIRECTORS AND EXECUTIVE OFFICERS OF TCI


         The following table sets forth certain information as of April 22, 2002
regarding TCI's executive officers and directors:





Name                                                       Age      Position
----                                                       ---      --------
                                                              
Mark W. Branigan*....................................       47      Executive Vice President - Residential
Henry A. Butler......................................       51      Director
Earl D. Cecil**......................................       72      Director
Louis J. Corna*......................................       54      Executive Vice President - Tax
                                                                    Executive Vice President and Chief Financial
Ronald E. Kimbrough*.................................       49      Officer
                                                                    Executive Vice President - Commercial Asset
David W. Starowicz*..................................       46      Management
Ted P. Stokely.......................................       68      Director and Chairman of the Board
Martin L. White......................................       62      Director




         HENRY BUTLER: Director (Affiliated) (since December 2001) of TCI.
Broker - Land Sales (since 1992) of Basic Capital Management, Inc. ("BCM");
Owner/Operator (1989 to 1991) of Butler Interests, Inc.; and Director (since
December 2001) of IOT.

         TED P. STOKELY: Director (Independent) (since April 1990) and Chairman
of the board (since January 1995) of TCI. 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) and paid
consultant (April 1992 to December 1992) of Eldercare Housing Foundation
("Eldercare"), a nonprofit corporation; and Director (since April 1990) and
Chairman of the board (since January 1995) of IOT.

         MARTIN L. WHITE: Director (Independent) (since January 1995) of TCI.
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 IOT.


         In addition to the foregoing officers, TCI has several vice presidents
and assistant secretaries who are not listed herein. The business address of
each director and executive officer is 1800 Valley View Lane, Suite 300, Dallas,
Texas 75234. The business telephone number of each person is 469-522-4200. Each
director and executive officer is a citizen of the United States.

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

* See "The Advisor - BCM - Directors and Principal Officers of Advisor" for
background and business experience information.

** See "Management of ARL - Directors and Executive Officers of ARL" for
background and business experience information.



                                      207





         Although the TCI board of directors is directly responsible for
managing the affairs of TCI and for setting the policies which guide it, its
day-to-day operations are performed by BCM, a contractual advisor 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 in connection with TCI's business plan
and investment decisions made by the TCI board.


         BCM has been providing advisory services to TCI since March 28, 1989.
BCM also serves as advisor to IOT and ARL. The directors of TCI are also
directors of IOT. The officers of TCI also serve as officers of ARL, IOT, and
BCM. As of March 15, 2002, TCI owned approximately 24% of IOT's outstanding
shares of common stock and ARL indirectly owned approximately 49.7% and BCM
directly and indirectly owned approximately 14.8% of the outstanding shares of
TCI's common stock.

         Since February 1, 1990, affiliates of BCM have provided property
management services to TCI. Currently, Triad provides such property management
services. Triad subcontracts with other entities for the provision of
property-level management services to TCI. The general partner of Triad is BCM.
The limited partner of Triad is GS Realty, a related party. Triad subcontracts
the property-level management and leasing of 52 of TCI's commercial properties
and the two commercial properties owned by real estate partnerships in which TCI
and IOT 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. Regis also is entitled to receive real estate
brokerage commissions in accordance with the terms of a non-exclusive brokerage
agreement. Regis Hotel Corporation, a related party, manages TCI's four hotels.


         TCI has no employees. Employees of BCM render services to TCI.

                          EXECUTIVE COMPENSATION OF TCI

         TCI has no employees, payroll or benefit plans and pays no compensation
to its executive officers. The executive officers of TCI, who are also officers
or employees of BCM, TCI'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. See "Directors, Executive Officers and Advisor of ARL" for a more
detailed discussion of the compensation payable to BCM.

         The only remuneration paid by TCI 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 TCI to determine that it is in the
best interest of stockholders, (2) review the advisory contract, (3) supervise
the performance of the 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 TCI and (5)
select, when necessary, a qualified independent real estate appraiser to
appraise properties acquired.



                                      208


         Each independent director receives compensation in the amount of
$30,000 per year, plus reimbursement for expenses. The chairman of the board
receives an additional fee of $3,000 per year. In addition, each independent
director receives an additional fee of $1,000 per day for any special services
rendered by him to TCI outside of his ordinary duties as director, plus
reimbursement of expenses.


         During 2001, $302,318 was paid to Independent Directors in total
Directors' fees for all services including the annual fee for service during the
period January 1, 2001 through December 31, 2001, and 2001 special service fees
as follows: Roy E. Bode, $59,873; Earl D. Cecil, $7,003; Collene C. Currie,
$79,743; Cliff Harris, $70,333; Joseph Mizrachi, $50,716; and Richard D. Morgan,
$34,650.


DIRECTOR STOCK OPTION PLAN

         TCI has established the TCI Director Plan for the purpose of attracting
and retaining directors who are not officers or employees of TCI or BCM. The TCI
Director Plan provides for the grant of options that are exercisable at fair
market value of TCI's common stock on the date of grant. The TCI Director Plan
was approved by stockholders at their annual meeting on October 10, 2000,
following which each then-serving independent director was granted options to
purchase 5,000 shares of TCI common stock. On January 1 of each year, each
independent director will receive options to purchase 5,000 shares of common
stock. The options 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 10
years from the date of grant.


         As of March 15, 2002, TCI had 140,000 shares of common stock reserved
for issuance under the TCI Director Plan of which options for 30,000 shares were
outstanding.






                                      209




                    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                          OWNERS AND MANAGEMENT OF TCI


         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table
sets forth the ownership of TCI's common stock, both beneficially and of record,
both individually and in the aggregate, for those persons or entities known to
be beneficial owners of more than 5% of the outstanding shares of common stock
as of the close of business on March 15, 2002.





                                                                                     Shares of
                                                                                     Series G
                                                                                    Redeemable        Percentage
                                                  Amount and                        Convertible       of Class if
                                                  Nature of                          Preferred            the
                                                  Beneficial                           Stock         Non-Affiliates
                                                  Ownership       Percent          Beneficially        Elect to
                                                   of TCI           of              Owned After         Receive
   Name of Beneficial Owner                      Common Stock     Class(1)        the TCI Merger        Cash(2)
   ------------------------                      ------------     --------        --------------        -------
                                                                                          
EQK Holdings, Inc.(4)(5)(6).................       3,994,300       49.7%                ---                ---
Basic Capital Management,
Inc.(5).....................................       1,166,947       14.5%           1,166,947              99.8%







                                                   Percentage
                                                    of Class          Shares of
                                                     if the           Series H
                                                  Non-Affiliates     Redeemable                           Percentage of
                                                     Elect to        Convertible       Percentage        Class if the
                                                     Receive          Preferred         of Class         Non-Affiliates
                                                     Series G           Stock            if the         Elect to Receive
                                                    Redeemable      Beneficially     Non-Affiliates        Series H
                                                   Convertible       Owned After        Elect to           Redeemable
                                                    Preferred          the IOT           Receive          Convertible
   Name of Beneficial Owner                           Stock            Merger            Cash(3)         Preferred Stock
   ------------------------                           -----            ------            -------         ---------------
                                                                                                
EQK Holdings, Inc.(4)(5)(6).................           ---               ---                 ---               ---
Basic Capital Management,
Inc.(5).....................................         29.0%           106,802                100%             15.6%






                                                      Shares of ARL
                                                      Common Stock
                                                    Beneficially Owned
                                                    After the TCI and
                                                       IOT Mergers
                                                         Assuming
                                                    Conversion of all
                                                       Series G and
                                                         Series H
                                                        Redeemable
                                                       Convertible           Percentage
   Name of Beneficial Owner                          Preferred Stock          of Class
   ------------------------                          ---------------          --------
                                                                       
EQK Holdings, Inc.(4)(5)(6).................                  ---                ---
Basic Capital Management,
Inc.(5).....................................            9,427,017              64.9%



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


(1)  Percentage is based upon 8,042,629 shares of TCI common stock outstanding
     at March 15, 2002.

(2)  Percentage is based upon 1,168,774 shares of Series G redeemable
     convertible preferred stock outstanding after the TCI merger if all
     persons not affiliated with ARL elect to receive cash and 4,021,854
     shares of Series G redeemable convertible preferred stock outstanding
     after the TCI merger if all persons not affiliated with ARL elect to
     receive Series G redeemable convertible preferred stock.

(3)  Percentage is based upon 106,802 shares of Series H redeemable
     convertible preferred stock outstanding after the IOT merger if all
     persons not affiliated with ARL elect to receive cash and 683,282 shares
     of Series H redeemable convertible preferred stock outstanding after the
     TCI merger if all persons not affiliated with ARL elect to receive Series
     H redeemable convertible preferred stock.

(4)  Includes 3,994,300 shares of TCI common stock of which ARL may be deemed
     to beneficially own.  EQK Holdings, Inc. is a wholly-owned subsidiary of
     American Realty Trust, which is a wholly-owned subsidiary of ARL.

(5)  The business address of EQK Holdings and BCM is 1800 Valley View Lane,
     Suite 300, Dallas, Texas  75234.

(6)  The shares of TCI common stock owned by EQK Holdings will be cancelled as
     part of the TCI merger.

(7)  Includes 26,475 shares of TCI common stock owned by Syntek Asset
     Management L.P., a subsidiary of ARL, that may be deemed to be indirectly
     beneficially owned by BCM.  Syntek Asset Management, Inc., a wholly owned
     subsidiary of BCM, is the general partner of Syntek Asset Management L.P.
     The shares of TCI common stock held by Syntek Asset Management L.P.  will
     be cancelled as part of the TCI merger.  The business address of Syntek
     Asset Management L.P. is 1800 Valley View Lane, Suite 300, Dallas, Texas
     75234





                                      210






         SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
ownership of TCI's common stock, both beneficially and of record, both
individually and in the aggregate, for the directors and executive officers of
TCI as of the close of business on March 15, 2002.








                                                                  Shares of                          Percentage of
                                       Amount                      Series G                          Class if the
                                        and                       Redeemable                        Non-Affiliates
                                       Nature                    Convertible       Percentage          Elect to
                                         of                       Preferred        of Class if          Receive
                                     Beneficial                     Stock              the             Series G
                                     Ownership                   Beneficially    Non-Affiliates       Redeemable
                                       of TCI       Percent      Owned After        Elect to          Convertible
                                       Common         of           the TCI           Receive           Preferred
   Name of Beneficial Owner            Stock       Class(1)         Merger           Cash(2)             Stock
   ------------------------            -----       --------         ------           -------             -----
                                                                                          
Mark W. Branigan(5).............     5,187,722         64.5%       1,166,947             99.8%              29.0%
Henry A. Butler.................           ---           ---             ---               ---                ---
Earl D. Cecil...................           ---           ---             ---               ---                ---
Louis J. Corna..................     5,187,722         64.5%       1,166,947             99.8%              29.0%
Ronald E. Kimbrough(5)..........     5,187,722         64.5%       1,166,947             99.8%              29.0%
David W. Starowicz(5)...........     5,187,722         64.5%       1,166,947             99.8%              29.0%
Ted P. Stokely(4)...............        15,000             *          15,000                 *                  *
Martin L. White(4)........              15,000             *          15,000                 *                  *
All Directors and Executive
   Officers as a group (8
   individuals)(5)........           5,217,722         64.6%       1,196,947              100%              29.8%






                                                                                              Shares of ARL
                                                                                               Common Stock
                                                                                            Beneficially Owned
                                       Shares of                                            After the TCI and
                                       Series H                           Percentage of        IOT mergers
                                      Redeemable         Percentage       Class if the           Assuming
                                      Convertible       of Class if      Non-Affiliates     Conversion of all
                                       Preferred            the             Elect to           Series G and
                                         Stock         Non-Affiliates    Receive Series          Series H
                                     Beneficially         Elect to        H Redeemable          Redeemable
                                      Owned After         Receive          Convertible         Convertible        Percent of
   Name of Beneficial Owner         the IOT Merger        Cash(3)        Preferred Stock     Preferred Stock         Class
   ------------------------         --------------        -------        ---------------     ---------------         -----
                                                                                                    
Mark W. Branigan(5).............           106,802           100%                 15.6%         10,173,989            70.0%
Henry A. Butler.................               ---           ---                    ---                ---           ---
Earl D. Cecil...................               ---           ---                    ---              1,000             *
Louis J. Corna..................           106,802           100%                 15.6%         10,173,989            70.0%
Ronald E. Kimbrough(5)..........           106,802           100%                 15.6%         10,173,989            70.0%
David W. Starowicz(5)...........           106,802           100%                 15.6%         10,176,989            70.0%
Ted P. Stokely(4)...............               ---            ---                   ---             37,500             *
Martin L. White(4)........                     ---            ---                   ---             37,500             *
All Directors and Executive
   Officers as a group (8
   individuals)(5)........                 106,802           100%                  15.6%        10,252,989            70.2%



-------------------------------
* Less than 1%



(1)  Percentage is based upon 8,042,594 shares of common stock outstanding at
     March 15, 2002.

(2)  Percentage is based upon 1,168,774 shares of Series G redeemable
     convertible preferred stock outstanding after the TCI merger if all
     persons not affiliated with ARL elect to receive cash and 4,021,854
     shares of Series G redeemable convertible preferred stock outstanding
     after the TCI merger if all persons not affiliated with ARL elect to
     receive Series G redeemable convertible preferred stock.

(3)  Percentage is based upon 106,802 shares of Series H redeemable
     convertible preferred stock outstanding after the IOT merger if all
     persons not affiliated with ARL elect to receive cash and 683,282 shares
     of Series H redeemable convertible preferred stock outstanding after the
     TCI merger if all persons not affiliated with ARL elect to receive Series
     H redeemable convertible preferred stock.

(4)  Each of Messrs. Stokely and White have options to purchase 15,000 shares
     of common stock of TCI which are exercisable within 60 days of March 15,
     2002.

(5)  Includes 26,475 shares owned by Syntek Asset Management, L.P., 1,166,947
     shares owned by BCM and 3,994,300 shares owned by EQK. The executive
     officers of TCI disclaim beneficial ownership of such shares. Each of the
     directors of BCM may be deemed to be beneficial owners by virtue of their
     positions as directors of BCM. The directors of ARL and BCM disclaim such
     beneficial ownership. Also includes 30,000 shares which may be acquired
     by the directors of TCI pursuant to the Director Stock Option Plan. The
     business address of each beneficial owner is 1800 Valley View Lane, Suite
     300, Dallas, Texas 75234.




                                      211






                            PERFORMANCE GRAPH OF TCI


         The following performance graph compares the cumulative total
stockholder return on TCI's shares of common stock with the DJ Equity Index and
the DJ Real Estate Index. The comparison assumes that $100 was invested on
December 31, 1996 in TCI'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 OF TCI]


----------------------------------------------------------------------------------------------------------------------------
                                             12/31/96       12/31/97      12/31/98    12/31/99      12/31/00       12/31/01
----------------------------------------------------------------------------------------------------------------------------
                                                                                                   
Transcontinental Realty Investors, Inc.           100           159           132         136           101            182
----------------------------------------------------------------------------------------------------------------------------
Dow Jones US Realty Index                         100           118            93          88           112            126
----------------------------------------------------------------------------------------------------------------------------
Dow Jones US Total Market Index                   100           132           165         202           183            161
----------------------------------------------------------------------------------------------------------------------------




                                      212





                              INFORMATION ABOUT IOT


                                 BUSINESS OF IOT


         IOT, a Nevada corporation, is the successor to a California business
trust named Income Opportunity Realty Trust organized on December 14, 1984,
which commenced operations on April 15, 1985. IOT has elected to be treated as a
REIT under Sections 856 through 860 of the Code. IOT has, in the opinion of
management, qualified for federal taxation as a REIT for all periods since May
1, 1985.

         IOT files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document filed by IOT
at the SEC's public reference room in Washington, D.C. The public reference room
at the SEC's office in Washington, D.C. is located at 450 Fifth Street, N.W.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The company's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at "http:\\www.sec.gov." Because IOT's common stock is listed on the AMEX
(symbol: "IOT"), reports and other information concerning IOT can also be
inspected at the office of the AMEX, 86 Trinity Place, New York, New York 10006.

         At December 31, 2001, IOT's real estate consisted of 16 properties held
for investment. In addition, IOT owns interests in two partnerships, each of
which owns a property and a third partnership which holds a wraparound mortgage
note receivable. IOT's real estate portfolio is more fully discussed in "--
Properties of IOT."


BUSINESS PLAN


         IOT's business is investing in equity interests in real estate through
direct equity investments and partnerships, and financing real estate and real
estate related activities through investments in mortgage loans. IOT's real
estate is located in the Pacific, Southeast and Southwest regions of the
continental United States. Information regarding IOT's real estate portfolio is
set forth in "-- Properties of IOT," and in Schedule III to the IOT consolidated
financial statements included elsewhere in this joint proxy statement and
prospectus.

         IOT's business is not seasonal. Management has determined to continue
to pursue a balanced investment strategy, seeking both current income and
capital appreciation. With respect to new investments, management's plan of
operation is to acquire higher class apartment and commercial properties in
keeping with the current class of properties in IOT's real estate portfolio. In
2002, management intends to focus on income producing property acquisitions to
maintain a balance between income producing and non-income producing properties.
Management does not expect that IOT will seek to fund or acquire additional
mortgage loans. IOT may, however, originate mortgage loans in conjunction with
providing purchase money financing of a property sale. Management also intends
to continue its strategy of maximizing each property's operating income by
aggressive property management through closely monitoring expenses while at the
same time making property renovations and/or improvements where appropriate.
While renovation and/or improvement expenditures increase the amount of




                                      213




revenue required to cover operating expenses, management believes that such
expenditures are necessary to maintain or enhance the value of IOT's properties.


         The board of directors currently intends to continue its policy of
prohibiting IOT from incurring aggregate secured and unsecured indebtedness in
excess of 300% of IOT's net asset value (defined as the book value of all assets
of IOT minus all of its liabilities); however, the board may alter such policy
at any time.


MANAGEMENT OF THE COMPANY

         Although the board of directors is directly responsible for managing
the affairs of IOT and for setting the policies which guide it, the day-to-day
operations of IOT are performed by BCM, a contractual advisor under the
supervision of the Board. BCM's duties 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 in connection with IOT's business plan
and investment decisions made by the Board.

         BCM is a company 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 has substantial contact with the
management of BCM and input with respect to its performance of advisory services
to IOT. BCM is more fully described in "The Advisor -- BCM."

         BCM has been providing advisory services to IOT since March 28, 1989.
BCM also serves as advisor to TCI and directors of IOT are also directors of
TCI. BCM also serves as Advisor to ART. The officers of IOT also serve as
officers of ART, TCI and BCM. As of March 15, 2002, ART and TCI owned
approximately 28.5% and 24.0%, respectively, of IOT's outstanding shares of
common stock and BCM owned approximately 7.4% of IOT's outstanding shares of
common stock.

         Since February 1, 1990, affiliates of BCM have provided property
management services to IOT. Currently Triad Realty Services, Ltd. ("Triad")
provides such property management services. Triad subcontracts with other
entities for the provision of property-level management services to IOT. The
general partner of Triad is BCM. The limited partner of Triad is GS Realty
Services, Inc. ("GS Realty"), a related party. Triad subcontracts the
property-level management and leasing of IOT's seven office buildings and the
two commercial properties owned by real estate partnerships in which IOT and TCI
are partners to Regis Realty, Inc. ("Regis"), a related party, which is a
company also 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.

         Regis also is entitled to receive real estate brokerage commissions in
accordance with the terms of a nonexclusive brokerage agreement as discussed in
"The Advisor."

         IOT has no employees. Employees of BCM render services to IOT.



                                      214



COMPETITION

         The real estate business is highly competitive and IOT competes with
numerous entities engaged in real estate activities (including certain entities
described in "Certain Relationships and Related Transactions of ARL, TCI and
IOT--Related Party Transactions"), some of which have greater financial
resources than those of IOT. Management believes that success against such
competition is dependent upon the geographic location of the property, the
performance of the property-level managers in areas such as marketing,
collection and control of operating expenses, the amount of new construction in
the area and the maintenance and appearance of the property. Additional
competitive factors with respect to commercial properties are the ease of access
to the property, the adequacy of related facilities, such as parking, and
sensitivity to market conditions in setting rent levels. With respect to
apartments, competition is also based upon the design and mix of units and IOT's
ability to provide a community atmosphere for the tenants. Management believes
that beyond general economic circumstances and trends, the rate at which
properties are renovated or the rate new properties are developed in the
vicinity of each of IOT's properties also are competitive factors.


         To the extent that IOT seeks to sell any of its properties, the sales
prices for such properties may be affected by competition from other real estate
entities and financial institutions also attempting to sell their properties
located in the same areas as well as aggressive buyers attempting to penetrate
or dominate a particular market.


         As described above and in "Certain Relationships and Related
Transactions of ARL, TCI and IOT--Related Party Transactions," the officers and
directors of IOT also serve as officers or directors of certain other entities,
also advised by BCM, and which have business objectives similar to those of IOT.
IOT's directors, officers and advisor owe fiduciary duties to such other
entities as well as to IOT under applicable law. In determining to which entity
a particular investment opportunity will be allocated, the officers, directors
and advisor consider the respective investment objectives of each entity and the
appropriateness of a particular investment in light of each entity's existing
real estate and mortgage notes receivable portfolios. To the extent that any
particular investment opportunity is appropriate to more than one of the
entities, the investment opportunity will be allocated to the entity which has
funds available for investment for the longest period of time, or, if
appropriate, the investment may be shared among all or some of such entities.

         In addition, as described in "Certain Relationships and Related
Transactions of ARL, TCI and IOT--Related Party Transactions," IOT also competes
with other entities which are affiliates of BCM, which may have investment
objectives similar to IOT's and that may compete with it in the acquisition,
sale, leasing and financing of real estate. In resolving any potential conflicts
of interest which may arise, BCM has informed management that it intends to
continue to exercise its best judgment as to what is fair and reasonable under
the circumstances in accordance with applicable law.

CERTAIN FACTORS ASSOCIATED WITH REAL ESTATE AND RELATED INVESTMENTS

         IOT is subject to all the risks incident to ownership and financing of
real estate and interests therein, many of which relate to the general
illiquidity of real estate investments. These




                                      215




risks include, but are not limited to, changes in general or local economic
conditions, changes in interest rates and the availability of permanent mortgage
financing which may render the acquisition, sale or refinancing of a property
difficult or unattractive and which may make debt service burdensome, changes in
real estate and zoning laws, increases in real estate taxes, federal or local
economic or rent controls, floods, earthquakes, hurricanes and other acts of God
and other factors beyond the control of management or BCM. The illiquidity of
real estate investments also may impair the ability of management to respond
promptly to changing circumstances. Management believes that such risks are
partially mitigated by the diversification by geographic region and property
type of IOT's real estate portfolio. However, to the extent property
acquisitions are concentrated in any particular geographic region or property
type, the advantages of diversification may be mitigated.


                                PROPERTIES OF IOT


PROPERTIES

         IOT's principal offices are located at 1800 Valley View Lane, Suite
300, Dallas, Texas 75234 and are, in the opinion of management, suitable and
adequate for IOT's present operations.

         IOT's real estate portfolio at December 31, 2001, is set forth in
Schedule III to the IOT consolidated financial statements included elsewhere in
this joint proxy statement and prospectus. The discussions set forth below under
the headings "Real Estate" provide certain summary information concerning IOT's
real estate portfolio.

         IOT's real estate portfolio consists of 16 owned properties and an
investment in two partnerships each of which owns a commercial property. IOT
holds a fee simple title to the owned properties. IOT holds one mortgage note
receivable, and a partnership in which it is a 40% general partner that holds a
wraparound mortgage note. The discussion set forth below under the heading "Real
Estate" provides certain summary information concerning IOT's real estate and
further summary information with respect to its owned properties and its
partnership investments.

         IOT's real estate is geographically diverse. At December 31, 2001, IOT
held equity investments in apartments and office buildings in the Pacific,
Southwest and Southeast regions of the continental United States, as shown more
specifically in the table under "Real Estate" below. The majority of IOT's
properties are, however, located in California and Texas. At December 31, 2001,
IOT held a mortgage note secured by a second lien on 165 acres of unimproved
land in The Colony, Texas, as described more specifically under "Mortgage
Loans," below.

         At December 31, 2001, one of IOT's properties, the Travelers land
parcel, exceeded 10% of IOT's total assets. At December 31, 2001, 95% of IOT's
assets consisted of owned properties and less than 1% consisted of investments
in partnerships. The remaining 5% of IOT's assets were cash, cash equivalents
and other assets. The percentage of IOT's assets invested in any one category is
subject to change and no assurance can be given that the composition of IOT's
assets in the future will approximate the percentages listed above. See
"Business of IOT--Business Plan."




                                      216


         To continue to qualify for federal taxation as a REIT under the Code,
IOT is required, among other things, to hold at least 75% of the value of its
total assets in real estate assets, government securities, cash and cash
equivalents at the close of each quarter of each taxable year.

GEOGRAPHIC REGIONS


         IOT has divided the continental United States into the following
geographic regions.


         Northeast region comprised of the states of Connecticut, Delaware,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont, and the District of Columbia. IOT has no properties in
this region.

         Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. IOT has 1
commercial property in this region.

         Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. IOT has 7 apartments and 2 commercial
properties in this region.

         Midwest region comprised of the states of Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, West Virginia and Wisconsin. IOT has no properties in this region.

         Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. IOT has no properties in this region.


         Pacific region comprised of the states of California, Oregon and
Washington. IOT has 4 commercial properties in this region.


         Excluded from above are two parcels of unimproved land in the Southwest
Region, as described below.

REAL ESTATE


         At December 31, 2001, 95% of IOT's assets were invested in real estate,
on a leveraged basis, in the Pacific, Southeast and Southwest regions of the
continental United States. IOT's real estate portfolio consists of 16 owned
properties and an investment in two partnerships, each of which owns a
commercial property.


         TYPES OF REAL ESTATE INVESTMENTS. IOT's real estate consists of
apartments and commercial properties (office buildings) having established
income-producing capabilities. In selecting real estate for investment, the
location, age and type of property; gross rents; lease terms; financial and
business standing of tenants; operating expenses; fixed charges; land values and
physical condition are considered. IOT may acquire properties subject to, or
assume, existing debt and may mortgage, pledge or otherwise obtain financing for
its properties. The IOT board may alter the types of and criteria for selecting
new real estate investments and for obtaining financing without a vote of
stockholders.


                                      217



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

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

         The following table sets forth the percentages, by property type and
geographic region, (other than two parcels of unimproved land, as described
below) of IOT's owned real estate at December 31, 2001.





                     REGION        APARTMENTS        COMMERCIAL PROPERTIES
                     ------        ----------        ---------------------
                                                    
                Pacific........        --        %            69               %
                Southwest......       100                     18
                Southeast......       .--                     13
                                       --                     --
                                      100        %            100              %
                                      ===                     ===




         The foregoing table is based solely on the number of apartment units
and commercial square footage owned and does not reflect the value of IOT's
investment in each region. IOT owns two parcels of unimproved land, 1.01 acres
and 204 acres, both in the Southwest region. See Schedule III to the IOT
consolidated financial statements included elsewhere in this joint proxy
statement and prospectus for a detailed description of IOT's real estate.

         A summary of the activity in IOT's owned real estate portfolio during
2001 is as follows:




                                                                            
                Owned properties at January 1, 2001...........................    16
                Properties purchased..........................................    --
                Properties sold...............................................    ==
                Owned properties at December 31, 2001.........................    16
                                                                                  ==




         PROPERTIES HELD FOR INVESTMENT. Set forth below are IOT's owned
properties at December 31, 2001, all of which were held for investment and the
monthly rental rate for apartments and the average annual rental rate for office
buildings and occupancy thereof at December 31, 2001, 2000 and 1999:





                                              UNITS/                     RENT PER SQUARE       OCCUPANCY %
                                              ------                     ---------------       -----------
                                                                               FOOT
                                                                               ----
PROPERTY                 LOCATION             SQUARE FOOTAGE/ACRES      2001   2000  1999   2001  2000  1999
--------                 --------             --------------------      ----   ----  ----   ----  ----  ----
                                                                                 
APARTMENTS
Brighton Court           Midland, TX          60 Units/90,672 Sq.Ft.      $.54  $.53     $*    93    93      *
Del Mar                  Midland, TX          92 Units/105,348 Sq.Ft.      .50   .50      *    98    98      *
Enclave                  Midland, TX          68 Units/89,734 Sq.Ft.       .57   .56      *    93    93      *
Meridian                 Midland, TX          280 Units/264,000 Sq.Ft.     .45   .41    .46    95    95     69
Signature Place          Midland, TX          57 Units/72,480 Sq.Ft.       .57   .56      *    86    86      *
Sinclair Place           Midland, TX          114 Units/91,529 Sq.Ft.      .50   .49      *    96    96      *
Treehouse                San Antonio, TX      106 Units/88,957 Sq.Ft.      .84   .83    .80    95    95     96

OFFICE BUILDINGS




                                      218




                                                                                 
2010 Valley View         Farmers Branch, TX   39,568 Sq. Ft.             17.98 17.40  16.26    87    86     64
5600 Mowry               Newark, CA           56,120 Sq. Ft.             26.70 24.64  22.94    72   100    100
Akard Plaza              Dallas, TX           42,895 Sq. Ft.             16.95 15.46  15.34    90    91     92
Chuck Yeager             Chantilly, VA        60,060 Sq. Ft.             13.02 11.21  14.70   100    41     41
Daley Plaza              San Diego, CA        122,795 Sq. Ft.            18.42 15.32  14.68    98    88     79
La Mesa Village          La Mesa, CA          92,611 Sq. Ft.             19.45 16.87  17.29    68    77     88
Westlake Village         Westlake Village, CA 45,500 Sq. Ft.             18.72 18.10  16.96    60    52     70

LAND
Frankel                  Midland County, TX   1.01 Acres
Travelers                Farmers Branch, TX   204 Acres




*Property was purchased in 2000.

         PARTNERSHIP PROPERTIES. Set forth below is the commercial property
owned by each of the two partnerships in which IOT is an equity investor and the
average annual rental rate and occupancy thereof at December 31, 2001, 2000 and
1999:





                                                           RENT PER SQUARE FOOT            OCCUPANCY %
                                                           --------------------            -----------
PROPERTY              LOCATION       SQUARE FOOTAGE       2001       2000      1999      2001     2000    1999
--------              --------       --------------       ----       ----      ----      ----     ----    ----
                                                                                 
SHOPPING CENTER
Chelsea Square        Houston, TX    70,275 Sq. Ft.       $9.63      $9.31     $8.78       77      77      100

OFFICE BUILDING
Eton Square           Tulsa, OK      222,654 Sq. Ft.      11.27      10.52      9.77       85      59       87




         IOT owns a 36.3% general partner interest and TCI owns a 63.7% limited
partner interest in Tri-City Limited Partnership ("Tri-City") which in turn owns
Chelsea Square Shopping Center. In February 2000, Tri-City obtained mortgage
financing of $2.1 million secured by the previously unencumbered shopping
center. Tri-City received net cash of $2.0 million after the funding of required
escrows and the payment of various closing costs. The mortgage bore interest at
a fixed rate of 10.24% per annum until February 2001 and a variable rate
thereafter, currently 9.44% per annum, requires monthly payments of principal
and interest of $20,601 and matures in February 2005. IOT received a
distribution of $739,000 of the net financing proceeds.


         IOT owns a 10% limited partner interest and TCI owns a 90% general
partner interest in TCI Eton Square, L.P., which owns the Eton Square Building
in Tulsa, Oklahoma.


IOT FEDERAL TAX BASIS OF DEPRECIABLE PROPERTY AS OF DECEMBER 31, 2001

         For each IOT property upon which depreciation is taken, the table set
forth below includes (i) the Federal tax basis; (ii) rate, (iii) method and (iv)
life claimed as of December 31, 2001.





                                       Accumulated
                     Gross Federal         Tax         Net Federal Tax
     Property          Tax Basis       Depreciation         Basis           Rate      Method(1)     Life
-------------------- ---------------   -------------   -----------------  ---------   ---------- ------------
                                                                              
    Apartments
Brighton Court           $3,051,349       $ 117,599         $ 2,933,750        100 %     ADS      40 years
Del Mar                   2,918,682         112,486           2,806,196        100       ADS      40 years
Enclave                   2,918,682         112,486           2,806,196        100       ADS      40 years



                                      219





                                       Accumulated
                     Gross Federal         Tax         Net Federal Tax
     Property          Tax Basis       Depreciation         Basis           Rate      Method(1)     Life
-------------------- ---------------   -------------   -----------------  ---------   ---------- ------------
                                                                              
Meridian                  4,552,319         232,350           4,319,969        100       ADS      40 years
Signature Place           2,388,012          92,034           2,295,978        100       ADS      40 years
Sinclair Place            1,990,010          76,695           1,913,315        100       ADS      40 years
Treehouse                 2,325,236         697,207           1,628,029        100       ADS     20-40 years

Office Buildings
2010 Valley View          3,316,937         279,017           3,037,920        100       ADS     10-40 years
5600 Mowry                5,512,892         543,438           4,969,454        100       ADS      40 years
Akard Plaza               3,230,346         314,863           2,915,483        100       ADS      40 years
Chuck Yeager              5,707,935         601,989           5,105,946        100       ADS      40 years
Daley Plaza               7,206,703         879,607           6,327,096        100       ADS     20-40 years
La Mesa Village           7,515,139         823,201           6,691,938        100       ADS      40 years
Westlake Village          3,561,378         355,504           3,205,874        100       ADS      40 years
                     ---------------   -------------   -----------------
   TOTAL                 56,195,620       5,238,476          50,957,144
                     ===============   =============   =================




 (1)ADS = Alternative Depreciation System
    MACRS = Modified Accelerated Cost Recovery System


MORTGAGE LOANS


         Prior to 1991, a substantial portion of IOT's assets had been invested
in mortgage notes secured by income-producing real estate. IOT's mortgage notes
had included first, wraparound and junior mortgage loans. Prior to the third
quarter of 2000, management had not been seeking to fund or acquire new mortgage
loans, other than those which may have originated in conjunction with IOT's
providing purchase money financing of a property sale. See "Business of IOT."
BCM, in its capacity as a mortgage servicer, services the mortgage notes.


         JUNIOR MORTGAGE LOANS. Junior mortgage loans are loans secured by
mortgages that are subordinate to one or more prior liens either on the fee or a
leasehold interest in real estate. Recourse on the loans ordinarily includes the
real estate which secures the loan, other collateral and personal guarantees of
the borrower.

         The following discussion briefly describes the junior mortgage loan
funded in 2000.


         In September 2000, IOT funded a $1.5 million loan, secured by a second
lien on 165 acres of unimproved land in The Colony, Texas. In May 2001, IOT
received $1.0 million as a partial principal paydown. The loan bears interest at
18.0% per annum, requires monthly payments of interest only and matured in
January 2002. In January 2002, the loan was extended to April 2002.

         PARTNERSHIP MORTGAGE LOANS. IOT owns a 40% general partner interest and
TCI owns a 60% general partner interest in Nakash Income Associates ("NIA"),
which holds a wraparound mortgage note receivable secured by a building occupied
by a Wal-Mart in Maulden, Missouri. IOT advanced the partnership $24,000 in
2001.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

         IOT is treated as a REIT for federal income tax purposes. As a result
of the merger, IOT will lose its status as a REIT. Neither ARL nor TCI is a
REIT.


                                      220



         The following is a summary of certain U. S. federal income tax
consequences relating to the taxation of a REIT. Because the following is a
summary, it does not address all tax considerations pertaining to a REIT or its
stockholders. Special rules not discussed below may apply to tax exempt
organizations, broker-dealers, non U.S. persons, trusts, estates, regulated
investment companies, financial institutions, insurance companies and other
forms of entities subject to special tax treatment under the Code. The following
summary does not address, state, local or non U.S. tax considerations. This
summary is not intended to be and should not be construed as tax advice and you
are urged to consult with your own tax advisor.

         REQUIREMENTS FOR REIT STATUS. To qualify as a REIT an entity must:

         -        be organized as a corporation, trust or association;

         -        be managed by one or more trustees or directors;

         -        have transferable shares or certificates;

         -        be taxable as a domestic corporation but for the operation of
                  Sections 856 - 859 of the Code;

         -        not be a financial institution or insurance company;

         -        be owned by 100 or more persons;

         -        not be closely held; and

         -        elect to be taxed as a REIT.

         In addition to the above requirements, a REIT must meet other tests
contained in the Code, including the asset and income tests described below.

         ASSET AND INCOME TESTS. At the close of each calendar quarter of its
taxable year, a REIT must satisfy the following six asset tests:

         -        75% of the value of the REIT's total assets must consist of
                  real estate assets, cash and cash items and government
                  securities;

         -        not more the 25% of the value of the REIT's total assets may
                  consist of securities other than those includable under the
                  75% test;

         -        not more than 20% of the value of the REIT's total assets is
                  represented by securities of one or more taxable REIT
                  subsidiaries;

         -        not more than 5% of the value of a REIT's total assets may
                  consist of securities of any one issuer, other than those of a
                  taxable REIT subsidiary and securities includable in the 75%
                  test;

         -        the REIT does not hold securities possessing more than 10% of
                  the total voting power of the outstanding securities of any
                  one issuer, other than those of a taxable REIT subsidiary and
                  securities includable under the 75% test; and

         -        the REIT does not hold securities having a value of more than
                  10% of the total value of the outstanding securities of any
                  one issuer, other than those of a taxable REIT subsidiary and
                  securities includable under the 75% asset test.

         In addition to the asset tests, a REIT must satisfy the following two
income tests each year:




                                      221



         -        75% of a REIT's gross income (excluding gross income from
                  prohibited transactions) must consist of rents from real
                  property, interest on obligations secured by mortgages, gain
                  from the sale of real property that was not held primarily for
                  sale, dividends from other REITs and gain from the sale of
                  REIT shares, refunds and abatements of real property taxes,
                  income and gain from foreclosure property, commitment and
                  certain other fees, qualified temporary investment income, and
                  gain from the sale of certain other property; and

         -        95% of the REIT's gross income (excluding gross income from
                  prohibited transactions) must consist of items that would
                  satisfy the 75% income test and dividends, interest and gain
                  from the sale or other disposition of stocks or securities.

         TAXATION OF A REIT. A REIT generally is not subject to federal income
tax on the income that it distributes to stockholders if it meets certain
distribution and other requirements described in the Code. In general, a REIT
calculates its taxable income similar to other corporations except a REIT is
entitled to a deduction for dividends paid. A REIT is required to distribute to
its stockholders each year at least 90% of its taxable income (excluding net
capital gain).

         A REIT will be taxed at regular corporate rates on its undistributed
"REIT taxable income." REIT taxable income is the taxable income of the REIT
subject to specified adjustments, including a deduction for dividends paid. If a
REIT has net capital gain, the REIT's tax is the lower of the tax imposed on the
REIT taxable income at regular corporate rates or the sum of (x) the tax at
corporate rates on REIT taxable income computed without regard to net capital
gain and the deduction for capital gain dividends, and (y) a tax on
undistributed net capital gain at the rate provided in Code Section 1201(a). A
REIT generally is subject to the alternative minimum tax. If a REIT has "net
income from foreclosure property" it is subject to tax on the income at the
highest corporate rate. A REIT's net income from a "prohibited transaction" is
subject to a 100% tax. If a REIT fails to satisfy the 75% or 95% income tests
discussed above, but has maintained its qualification as a REIT because other
requirements are met, it is subject to 100% tax on the taxable income
attributable to the gross income which has caused it to fail the income test. A
REIT is subject to a 4% excise tax if it fails to make certain minimum
distributions during a calendar year.

         DISTRIBUTIONS TO REIT STOCKHOLDERS. In general, distributions to REIT
stockholders that are made out of current accumulated earnings and profits that
are not designated as capital gain dividends, will be taxable as ordinary income
and will not be eligible for the dividends received deduction generally
available for corporations. REIT distributions in excess of the REIT's earnings
and profits will be considered a return of capital and will not be taxable to
the extent that the distributions do not exceed the adjusted tax basis of the
stockholder in its stock. However, such distributions will reduce the adjusted
basis of such stock. Distributions that exceed a stockholder's adjusted basis in
its stock will be taxable as capital gain if the stock is held as a capital
asset.

         A REIT may elect to designate distributions of its net capital gain as
a capital gain dividend. A distribution designated by a REIT as a capital gain
dividend is treated as a long-term capital gain to the stockholder.



                                      222



                            LEGAL PROCEEDINGS OF IOT

OLIVE LITIGATION

         In February 1990, IOT, together with National Income Realty Trust,
Continental Mortgage and Equity Trust ("CMET") and TCI, three real estate
entities with, at the time, the same officers, directors or trustees and advisor
as IOT, 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 IOT'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 IOT, CMET and
TCI, including, but not limited to, the fairness to IOT, 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 on this matter have been held,
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 IOT and ARL, an
affiliate of IOT, in October 2000 with an investment fund, breached a provision
of the Modification. As a result of this assertion, IOT assigned all of its
rights to purchase the TCI shares under this stock option agreement to ARL.

         The board believes that the 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 was appealed to the United
States Court of Appeals for the Ninth Circuit by IOT and TCI.

         On October 23, 2001, IOT, TCI and ARL jointly announced a preliminary
agreement with the plaintiffs' counsel for complete settlement of all disputes
in the lawsuit. In February 2002, the court granted final approval for the
proposed settlement. Under the proposal, the appeal has been dismissed and ARL
will acquire all of the outstanding shares of IOT and TCI



                                      223



not currently owned by ARL for a cash payment or shares of ARL preferred stock.
ARL will pay $19.00 cash per IOT share and $17.50 cash per TCI share for the
stock held by nonaffiliated stockholders. ARL would issue one share of Series H
redeemable convertible preferred stock with a liquidation value of $21.50 per
share for each share of IOT common stock for stockholders who elect to receive
ARL preferred stock in lieu of cash. ARL would issue one share of Series G
redeemable convertible preferred stock with a liquidation value of $20.00 per
share for each share of TCI common stock for stockholders who elect to receive
ARL preferred stock in lieu of cash. Each share of Series H redeemable
convertible preferred stock will be convertible into 2.25 shares of ARL common
stock during a 75-day period that commences fifteen days after the date of the
first ARL Form 10-Q filing that occurs after the closing of the merger
transaction. Upon the acquisition of the IOT and TCI shares, IOT and TCI would
become wholly-owned subsidiaries of ARL. The transaction is subject to the
negotiation of a definitive merger agreement and a vote of the stockholders of
all three entities. IOT has the same board as TCI and the same advisor as TCI
and ARL.




                                      224




                         SELECTED FINANCIAL DATA OF IOT


         The following is a summary of financial data incorporated by reference
in this joint proxy statement and prospectus. You should read the following data
in conjunction with the more detailed information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations of IOT"
and the IOT consolidated financial statements and related notes appearing
elsewhere in this joint proxy statement and prospectus.





                                                               FOR THE YEARS ENDED DECEMBER 31,
                                           -------------------------------------------------------------------------
                                                     2001                2000       1999        1998        1997
                                                     ----                ----       ----        ----        ----
                                                                                       
EARNINGS DATA
Rents...............................       $      13,001  $      13,731  $     15,968  $      14,326  $      12,221
Property expense....................               6,591          6,969         6,768          6,462          5,900
                                              -----------    -----------    ----------    -----------    -----------
Operating income....................               6,410          6,762         9,200          7,864          6,321

Interest income.....................                 194            319            29            172            266
Income (loss) from equity
partnerships........................                  (9)           (61)           148            113             52
                                              -----------    -----------    ----------    -----------    -----------
Gain on sale of real estate.........                 ---         20,878         1,525            180          3,953
                                              -----------    -----------    ----------    -----------    -----------
                                                     185         21,136         1,702            465          4,271

Other expense.......................              10,057         11,104         9,580          9,008          7,275
                                              -----------    -----------    ----------    -----------    -----------
Net income (loss)...................       $     (3,462)  $      16,794  $      1,322  $       (679)  $       3,317
                                              ===========    ===========    ==========    ===========    ===========

PER SHARE DATA
Net income (loss)...................       $      (2.32)  $       11.03  $        .87  $       (.44)  $        2.18
                                              ===========    ===========    ==========    ===========    ===========
Dividends per share.................       $         ---  $         .45  $        .60  $         .60  $         .40
Weighted average common shares
outstanding.........................           1,493,675      1,522,510     1,527,386      1,521,832      1,519,888


                                                 2001           2000          1999           1998           1997
                                                 ----           ----          ----           ----           ----
BALANCE SHEET DATA
                                                                                       
Real estate held for investment, net.....  $      87,315  $      86,277  $     86,542  $      83,691  $      81,914
Real estate held for sale, net ..........                           ---           ---            ---            ---
Notes and interest receivable, net.......            505          1,500           ---            ---          2,010
Total assets.............................         91,833         96,519        91,185         88,695         90,309
Notes and interest payable...............         54,426         54,206        62,852         60,786         61,323
Stockholders' equity.....................         35,222         39,998        23,991         23,560         25,131
Book value per share.....................  $       24.48  $       26.42  $      15.69  $       15.44  $       16.53





                                      225




           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                        AND RESULTS OF OPERATIONS OF IOT

INTRODUCTION

         IOT invests in equity interests in real estate through acquisitions,
leases, partnerships and in mortgage loans. IOT is the successor to a California
business trust organized on December 14, 1984, which commenced operations on
April 10, 1985.


LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents at December 31, 2001, totaled $66,000
compared to $2.1 million at December 31, 2000. IOT's principal sources of cash
have been and will continue to be property operations, proceeds from property
sales and refinancings and partnership distributions. Although management
anticipates that IOT will generate excess cash from operations in 2002 due to
increased rental rates and occupancy at its properties, such excess, however,
will not be sufficient to discharge all of IOT's debt obligations as they
mature. Management intends to selectively sell income producing real estate,
refinance real estate and incur additional borrowings against real estate to
meet its cash requirements.

         Net cash used in operating activities was $2.0 million in 2001 as
compared to $1.9 million in 2000. The primary factors affecting cash flow from
operating activities are discussed in the following paragraphs.

         Cash flow from property operations (rents collected less payments for
property operating expenses) decreased to $6.0 million in 2001 from $6.6 million
in 2000. A decrease of $2.0 million was due to the sale of three apartments and
two office buildings in 2000. The decrease was offset in part by an increase of
$721,000 from the purchase of five apartments in 2000 and an increase of
$700,000 due to increased rental rates and occupancies at IOT's apartment and
commercial properties.

         Interest collected decreased to $148,000 in 2001 from $310,000 in 2000.
This decrease was due to a decrease in short-term investment income and the
partial paydown of one mortgage note receivable in 2001.

         Interest paid on notes payable increased to $5.5 million in 2001 from
$5.0 million in 2000. Of this increase, $427,000 was due to the purchase of five
apartments in 2000 and $1.6 million was due to the purchase of one parcel of
unimproved land in 2000. The increase also was due to a $188,000 increase from a
loan refinancing for a commercial property in 2001. This increase was offset by
a decrease of $883,000 from the sale of three apartments in 2000, $496,000 from
the sale of two commercial properties in 2000, and $135,000 from the sale of two
unimproved land parcels in 2000. A decrease of $200,000 was due to variable
interest rates decreasing during 2001 for several of IOT's variable rate notes.

         Advisory and net income fee paid to affiliate decreased to $1.1 million
in 2001 from $2.6 million in 2000. A decrease of $1.4 million was due to a
decrease in the net income fee paid which is due to a decrease in IOT's net
income, the basis for such fee. The remaining decrease was due to a decrease in
gross assets. See Note 8. "Advisory Agreement" to the IOT



                                      226



consolidated financial statements included elsewhere in this joint proxy
statement and prospectus.

         General and administrative expenses paid increased to $1.6 million in
2001 from $1.2 million in 2000. This increase was due to increases in taxes
accrued in 2000 and paid in 2001.

         In 2001, IOT made improvements to its properties totaling $3.5 million
compared to the $1.9 million in 2000. The increase was primarily due to
improvements made to IOT's unimproved land.

         In 2001, IOT received cash of $1.0 million from mortgage receivable
principal payments, and net cash of $14.1 million from refinancings. In 2001,
$14.8 million was expended in principal payments on mortgage debt.

         Scheduled principal payments on notes payable of $12.0 million are due
in 2002. For those mortgages that come due in 2002, it is management's intent to
either seek an extension of the due dates by one or more years, or refinance the
debt on a long-term basis, or pay off the debt at maturity, or selectively sell
income producing real estate. Management believes it will continue to be
successful in obtaining loan extensions and/or refinancings.

         Management expects that funds from existing cash resources, selective
sales of income producing properties, refinancing of real estate, and additional
borrowings against real estate will be sufficient to meet IOT's cash
requirements associated with its current and anticipated level of operations,
maturing debt obligations and existing commitments. To the extent that IOT's
liquidity permits or financing sources are available, management intends to make
new real estate investments.

         IOT owns a 36.3% general partner interest in the Tri-City partnership.
In 2001, IOT received a distribution of $18,000 from Tri-City's operating cash
flow, and advanced $4,000 to the partnership. IOT owns a 40% general partner
interest in the NIA partnership. In 2001, IOT received no distributions from NIA
and made a $24,000 contribution to the partnership. IOT owns a 10% limited
partnership interest in the TCI Eton Square partnership. IOT received no
distributions and made no contributions to the partnership in 2001. See Note 4
"Investment in Equity Method Partnerships" to the IOT consolidated financial
statements included elsewhere in this joint proxy statement and prospectus

         IOT paid no dividends in 2001. In December 2000, the board of directors
determined not to pay a fourth quarter dividend to holders of IOT's common
stock. The non-payment decision was based on the board determining that IOT
needed to retain cash for acquisitions that were anticipated in 2001 and that
IOT had no REIT taxable income that required a distribution.

         In 2001, IOT repurchased 75,100 shares of common stock in a private
block purchase for a total of $1.3 million.

         Management reviews the carrying values of IOT's properties at least
annually and whenever events or a change in circumstances indicate that
impairment may exist. Impairment is considered to exist if the future cash flow
from a property (undiscounted and without interest) is less than the carrying
amount of the property. If impairment is found to exist, a provision for loss



                                      227



is recorded by a charge against earnings. The property review generally includes
selective property inspections, discussions with the manager of the property and
visits to selected properties in the area and a review of (1) the property's
current rents compared to market rents, (2) the property's expenses, (3) the
property's maintenance requirements and (4) the property's cash flows.





RESULTS OF OPERATIONS





         2001 COMPARED TO 2000. IOT reported a net loss of $3.5 million in 2001,
as compared to net income of $16.8 million in 2000, which included gains on real
estate totaling $20.9 million. Fluctuations in these and the other components of
revenue and expense are discussed in the following paragraphs.

         Rents decreased to $13.0 million in 2001 from $13.7 million in 2000. Of
this decrease, $1.6 million was due to the sale of two commercial properties in
2000 and $2.0 million was due to the sale of three apartments in 2000. This
decrease was offset by increases of $1.4 million due to the purchase of five
apartment properties in 2000 and $1.3 million and $151,000 was due to increased
rental rates at IOT's commercial and apartment properties, respectively. Rents
in 2002 are expected to decrease as IOT selectively sells properties.

         Property operations expense decreased to $6.6 million in 2001 from $7.0
million in 2000. Of this decrease, $1.1 million was due to the sale of three
apartments and $570,000 due to the sale of two commercial properties in 2000.
This decrease was offset by an increase of $673,000 due to the purchase of five
apartments in 2000, $320,000 was due to increased utility, cleaning, repairs,
and insurance expenses at IOT's commercial properties, and $250,000 was due to
an increase in property taxes for IOT's land. Properties operations expense is
expected to decrease in 2002 as IOT selectively sells properties.

         Interest income decreased to $194,000 in 2001 from $319,000 in 2000.
This decrease was due to a decrease in short-term investments, and from a $1.0
million principal paydown received in May 2001 on IOT's only note receivable.
Interest income is expected to decrease as IOT's mortgage loan is paid in full
in 2002.

         Interest expense increased to $6.1 million in 2001 from $5.1 million in
2000. Of this increase, $345,000 and $2.0 million was due to the purchase of
five apartments and one unimproved land parcel in 2000, respectively, and
$174,000 was due to one loan refinanced in 2001. These increases were offset by
decreases of $441,000 due to the sale of two commercial properties; $755,000 due
to the sale of three apartments; and $134,000 due to the sale of two unimproved
land parcels in 2000. The remaining decrease of $203,000 was due to lower
variable interest rates at IOT's apartment and commercial properties. Interest
expense in 2002 is expected to decrease from 2001 due to a decrease in
outstanding debt.

         Depreciation expense decreased to $2.4 million in 2001 from $2.5
million in 2000. A decrease of $427,000 was from the sale of five properties in
2000, offset by an increase of $138,000 from the purchase of five properties in
2000 and an increase of $200,000 was from tenant improvements. Depreciation
expense in 2002 is expected to approximate 2001.



                                      228



         Advisory fee to affiliate increased to $817,000 in 2001 from $664,000
in 2000. The increase was attributable to an increase in gross assets, the basis
of such fee. The advisory fee in 2002 is expected to approximate 2001. See Note
8. "Advisory Agreement" to the IOT consolidated financial statements included
elsewhere in this joint proxy statement and prospectus.

         IOT paid no net income fee in 2001 compared to the $1.4 million in
2000. The net income fee is based on 7.5% of IOT's net income.

         General and administrative expense decreased to $739,000 in 2001 from
$1.5 million in 2000. This decrease was primarily due to a decrease in taxes.

         Equity losses of partnerships was $9,000 in 2001 compared to $61,000 in
2000. The decrease was primarily due to a decrease in operating expenses at Eton
Square Office Building.

         In 2001, IOT realized no gains on the sale of real estate.

         In 2000, gains on sale of real estate totaling $20.9 million were
realized: $903,000 on the sale of La Monte Park Apartments, $1.2 million on the
sale of Renaissance Parc Apartments, $1.9 million on the sale of Olympic Office
Building, $13.1 million on the sale of Saratoga Office Building, $2.2 million on
the sale of Eastpoint Apartments, $388,000 on the sale of Etheredge and
Fambrough land and a $1.3 million recognition of a deferred gain.


         2000 COMPARED TO 1999. IOT reported net income of $16.8 million in
2000, as compared to net income of $1.3 million in 1999. Net income included
gains on sale of real estate of $20.9 million in 2000 and gains on sale of real
estate of $1.5 million in 1999. Fluctuations in these and the other components
of revenue and expense are discussed in the following paragraphs.


         Rents decreased to $13.7 million in 2000 from $16.0 million in 1999. A
decrease of $4.9 million was due to the sale of six income producing properties
in 2000 and 1999. The decrease was offset in part by an increase of $1.4 million
from the acquisition of six income producing properties in 2000 and fourth
quarter of 1999 and an additional $1.2 million was from an increase in occupancy
and rental rates at IOT's apartments and office buildings.


         Interest income increased to $319,000 in 2000 from the $29,000 in 1999.
This increase was due to an increase in short-term investments, and from the
funding of a note receivable in 2000.


         Property operations expense increased to $ 7.0 million in 2000 from
$6.8 million in 1999. An increase in property operations expense of $1.7 million
was due to six income producing properties being purchased in 2000 and the
fourth quarter of 1999, offset by a decrease of $1.6 million from the sale of
six income producing properties in 2000 and 1999.


         Interest expense decreased to $5.1 million in 2000 from $5.7 million in
1999. A decrease of $1.6 million was from the sale of eight properties subject
to debt in 2000 and 1999 and offset by $1.0 million from the purchase of nine
properties in 2000 and 1999.





                                      229




        Depreciation expense decreased to $2.5 million in 2000 from $2.7 million
in 1999. A decrease of $775,000 is from the sale of six properties in 2000 and
1999, offset by an increase of $297,000 from the purchase of five properties in
2000 and 1999 and an increase of $205,000 is from tenant improvements.

        Advisory fee to affiliate increased to $664,000 in 2000 from $371,000 in
1999. The increase was attributable to a decrease in the operating expense
limitation refund. See Note 8. "Advisory Agreement" to the IOT consolidated
financial statements included elsewhere in this joint proxy statement and
prospectus.

        The net income fee to affiliate increased to $1.4 million in 2000, from
$81,000 in 1999. The increase was attributable to the increase in IOT's net
income. The net income fee is based on 7.5% of IOT's net income.


        General and administrative expense increased to $1.5 million in 2000
from $747,000 in 1999. This increase was primarily due to an increase in legal
fees, consultant fees, taxes and advisor cost reimbursements.

        Equity in income of partnerships was a loss of $61,000 in 2000 compared
to income of $148,000. The decrease was due to the sale of two commercial
properties by the Tri-City partnership in 1999.


        In 2000, gains on sale of real estate totaling $20.9 million were
realized: $903,000 on the sale of La Monte Park Apartments, $1.2 million on the
sale of Renaissance Parc Apartments, $1.9 million on the sale of Olympic Office
Building, $13.1 million on the sale of Saratoga Office Building, $2.2 million on
the sale of Eastpoint Apartments, $388,000 on the sale of Etheredge and
Fambrough land and a $1.3 million recognition of a deferred gain. In 1999, IOT
recognized gains on sale of real estate totaling $1.5 million, $1.0 million
being IOT's equity share of the gain recognized by Tri-City on the sale of two
commercial properties, and $490,000 on IOT's sale of Town Center Plaza Shopping
Center. See Note 2. Real Estate" and Note 4. "Investment in Equity Method
Partnerships" to the IOT consolidated financial statements included elsewhere in
this joint proxy statement and prospectus.





ENVIRONMENTAL MATTERS

        Under various federal, state and local environmental laws, ordinances
and regulations, IOT may be potentially liable for removal or remediation costs,
as well as certain other potential costs, relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery for personal injury associated with such
materials.


        Management is not aware of any environmental liability relating to the
above matters that would have a material adverse effect on IOT's business,
assets or results of operations.



                                      230


INFLATION


        The effects of inflation on IOT's operations are not quantifiable.
Revenues from property operations tend to fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the rate
of inflation also affect the sales values of properties and the ultimate gain to
be realized from property sales. To the extent that inflation affects interest
rates, earnings from short-term investments and the cost of new financings as
well as the cost of variable interest rate debt will be affected.


TAXES


        For the years 1999, 2000 and 2001, IOT elected and in the opinion of
management qualified to be taxed as a REIT as defined under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended. To continue to qualify for
federal taxation as a REIT, IOT is required to hold at least 75% of the value of
its total assets in real estate assets, government securities, cash and cash
equivalents at the close of each quarter of each taxable year. As a REIT, IOT is
also required to distribute at least 90% (95% in 2000 and 1999) of its REIT
taxable income plus 90% (95% in 2000 and 1999) of its net income from
foreclosure property on an annual basis to stockholders.



                                      231


               QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING
                               MARKET RISK OF IOT


        IOT's future operations, cash flow and fair values of financial
instruments are partially dependent upon the then existing market interest rates
and market equity prices. Market risk is the changes in the market rates and
prices and the affect of the changes on future operations. Market risk is
managed by matching the property's anticipated net operating income to an
appropriate financing.

        The following table contains only those exposures that existed at
December 31, 2001. Anticipation of exposures or risk on positions that could
possibly arise was not considered. IOT's ultimate interest rate risk and its
affect on operations will depend on future capital market exposures, which
cannot be anticipated with a probable assurance level. (Dollars in thousands.)


LIABILITIES



                                                                                                                  
Notes payable
Variable interest rate-fair value                                                                                    $ 4,773






                                         2002         2003         2004         2005         2006      THEREAFTER     TOTAL
                                       -------      -------      -------      -------      -------     ----------    -------
                                                                                                
Instrument's maturities ..........     $11,289      $20,270      $ 7,442      $    --      $    --      $    --      $39,001
Instrument's amortization ........         503          280          122           27           30        1,690        2,652
Interest .........................       3,422        1,729          433          180          177        2,063        8,004
Average rate .....................        9.04%        9.06%        9.50%       10.39%       10.39%       10.39%

Fixed interest rate-fair value                                                                                       $12,393



                                         2002         2003         2004         2005         2006      THEREAFTER     TOTAL
                                       -------      -------      -------      -------      -------     ----------    -------
                                                                                                
Instrument's maturities ..........     $    --      $    --      $    --      $    --      $ 6,214      $ 4,998      $11,212
Instrument's amortization ........         204          223          243          266          184           63        1,183
Interest .........................       1,102        1,083        1,063        1,040          838          412        5,538
Average rate .....................        9.00%        9.00%        9.01%        9.01%        9.28%        9.28%




                                      232


                                MANAGEMENT OF IOT

                        DIRECTORS AND EXECUTIVE OFFICERS


        The following table sets forth certain information as of April 22, 2002
regarding IOT's executive officers and directors:





Name                              Age     Position
----                              ---     --------
                                    
Mark W. Branigan*..............    47     Executive Vice President - Residential
Henry A. Butler**..............    51     Director
Earl D. Cecil***...............    72     Director
Louis J. Corna*................    54     Executive Vice President - Tax
Ronald E. Kimbrough*...........    49     Executive Vice President and Chief Financial Officer
David W. Starowicz*............    46     Executive Vice President - Commercial Asset Management
Ted P. Stokely**...............    68     Director and Chairman of the Board
Martin L. White**..............    62     Director



        The business address of each director and executive officer is 1800
Valley View Lane, Suite 300, Dallas, Texas 75234. The business telephone number
of each person is 469-522-4200. Each director and executive officer is a citizen
of the United States.

        Although the board of directors is directly responsible for managing the
affairs of IOT and for setting the policies which guide it, the day-to-day
operations of IOT are performed by BCM, a contractual advisor 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 in connection with IOT's business plan
and investment decisions made by the board.


        BCM has been providing advisory services to IOT since March 28, 1989.
BCM also serves as advisor to TCI and directors of IOT are also directors of
TCI. BCM also serves as advisor to ARL. The officers of IOT also serve as
officers of ARL, TCI and BCM. As of March 15, 2002, ARL and TCI owned
approximately 28.5% and 24%, respectively, of IOT's outstanding shares of common
stock and BCM owned approximately 7.4% of IOT's outstanding shares of common
stock.

        Since February 1, 1990, affiliates of BCM have provided property
management services to IOT. Currently Triad provides such property management
services. Triad subcontracts with other entities for the provision of
property-level management services to IOT. The general



-----------------------
* See "The Advisor - BCM - Directors and Principal Officers of Advisor" for
background and business experience information.

** See "Management of TCI - Directors and Executive Officers of TCI" for
background and business experience information.

*** See "Management of ARL - Directors and Executive Officers of ARL" for
background and business experience information.



                                      233



partner of Triad is BCM. The limited partner of Triad is GS Realty, a related
party. Triad subcontracts the property-level management and leasing of IOT's
seven office buildings and the two commercial properties owned by real estate
partnerships in which IOT and TCI are partners to Regis, a related party, which
is a company also 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.


        Regis also is entitled to receive real estate brokerage commissions in
accordance with the terms of a nonexclusive brokerage agreement.

        IOT has no employees. Employees of BCM render services to IOT.

                             EXECUTIVE COMPENSATION


        IOT has no employees, payroll or benefit plans and pays no compensation
to its executive officers. The executive officers of IOT, who are also officers
or employees of BCM, IOT'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. See "The Advisor - BCM" for a more detailed discussion of the
compensation payable to BCM.

        The only remuneration paid by IOT 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 IOT to determine that it is in the
best interest of the stockholders, (2) review the advisory contract, (3)
supervise the performance of IOT's advisor and review the reasonableness of the
compensation paid to the advisor in terms of the nature and quality of services
performed, (4) reviews the reasonableness of the total fees and expenses of IOT
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. The Chairman of the board receives an
additional fee of $1,500 per year. 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 IOT outside of his ordinary duties as director, plus
reimbursement of expenses.

        During 2001, $76,250 was paid to the independent directors in total
directors' fees for all services including the annual fee for service during the
period January 1, 2001, through December 31, 2001, and 2001 special service fees
as follows: R. Douglas Leonhard, $18,250; Murray Shaw, $7,500; Ted P. Stokely,
$18,000; Martin L. White, $17,000; and Edward G. Zampa, $15,500.



                                      234


                 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                              AND MANAGEMENT OF IOT


        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table
sets forth the ownership of IOT's shares of common stock, both beneficially and
of record, both individually and in the aggregate for those persons or entities
known by IOT to be beneficial owners of more than 5% of its shares of common
stock as of the close of business on March 15, 2002.





                                                                                                Percentage of        Shares of
                                                        Shares of Series                        Class if the         Series H
                         Amount and                       G Redeemable                         Non-Affiliates       Redeemable
                         Nature of                        Convertible       Percentage of     Elect to Receive     Convertible
                         Beneficial                     Preferred Stock      Class if the         Series G       Preferred Stock
                        Ownership of                      Beneficially      Non-Affiliates       Redeemable        Beneficially
    Name of              IOT Common      Percent of     Owned After the        Elect to         Convertible      Owned After the
Beneficial Owner           Stock          Class(1)         IOT Merger      Receive Cash(2)    Preferred Stock       IOT Merger
----------------        ------------     ----------     ----------------   ---------------    ---------------    ---------------
                                                                                               
EQK Holdings, Inc.(4)...   409,935         28.5%                  ---              ---                 ---               ---
Transcontinental Realty
Investors, Inc.(4)......   345,728         24.0%                  ---              ---                 ---               ---
Basic Capital
Management, Inc.(4).....   106,802          7.4%            1,166,947            99.8%               29.0%           106,802



                                             Percentage of     Shares of ARL Common
                                              Class if the      Stock Beneficially
                           Percentage of     Non-Affiliates   Owned After the TCI and
                            Class if the    Elect to Receive   IOT mergers Assuming
                           Non-Affiliates       Series H        Conversion of all
                              Elect to         Redeemable      Series G and Series H
    Name of                   Receive         Convertible      Redeemable Convertible   Percentage of
Beneficial Owner              Cash(3)       Preferred Stock      Preferred Stock           Class
----------------           --------------   ---------------    ----------------------   -------------
                                                                            
EQK Holdings, Inc.(4)...         ---               ---                     ---               ---
Transcontinental Realty
Investors, Inc.(4)......         ---               ---                     ---               ---
Basic Capital
Management, Inc.(4).....        100%             15.6%               9,427,017             64.9%



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


(34)    Percentages are based upon 1,438,945 shares of IOT common stock
        outstanding at March 15, 2002.

(35)    Percentage is based upon 1,168,774 shares of Series G redeemable
        convertible preferred stock outstanding after the TCI merger if all
        persons not affiliated with ARL elect to receive cash and 4,021,854
        shares of Series G redeemable convertible preferred stock outstanding
        after the TCI merger if all persons not affiliated with ARL elect to
        receive Series G redeemable convertible preferred stock.

(36)    Percentage is based upon 106,802 shares of Series H redeemable
        convertible preferred stock outstanding after the IOT merger if all
        persons not affiliated with ARL elect to receive cash and 683,282 shares
        of Series H redeemable convertible preferred stock outstanding after the
        TCI merger if all persons not affiliated with ARL elect to receive
        Series H redeemable convertible preferred stock.

(37)    EQK Holdings, Inc. is a wholly-owned subsidiary of American Realty
        Trust, which is a wholly-owned subsidiary of ARL. The business address
        of each of EQK Holdings, Inc., ARL, TCI and BCM is 1800 Valley View
        Lane, Suite 300, Dallas, Texas 75234.



                                      235



        SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
ownership of IOT's shares of common stock, both beneficially and of record, both
individually and in the aggregate, for the directors and executive officers of
IOT as of the close of business on March 15, 2002.






                                                                                                           Percentage of
                                                                      Shares of Series                      Class if the
                                            Amount and                  G Redeemable                       Non-Affiliates
                                            Nature of                   Convertible      Percentage of    Elect to Receive
                                            Beneficial                Preferred Stock     Class if the        Series G
                                           Ownership of                 Beneficially     Non-Affiliates      Redeemable
                                            IOT Common   Percent of   Owned After the       Elect to        Convertible
        Name of Beneficial Owner              Stock       Class(1)       TCI Merger     Receive Cash(2)   Preferred Stock
        ------------------------           ------------  ----------   ---------------   ---------------   ----------------
                                                                                           
Mark W. Branigan(4).......................   862,465        59.9%        1,166,947           99.8%              29.0%
Henry A. Butler...........................   345,728        24.0%              ---             ---                ---
Earl D. Cecil(4)..........................   755,663        52.5%              ---             ---                ---
Louis J. Corna(4).........................   862,465        59.9%        1,166,947           99.8%              29.0%
Ronald E. Kimbrough(4)....................   862,465        59.9%        1,166,947           99.8%              29.0%
David W. Starowicz(4).....................   862,465        59.9%        1,166,947           99.8%              29.0%
Ted P. Stokely(4).........................   345,728        24.0%           15,000               *                  *
Martin L. White(4)........................   345,728        24.0%           15,000               *                  *
All Directors and Executive Officers as
     a group (8 individuals)(4)...........   862,465        59.9%        1,193,422           99.8%              29.5%



                                                                                                 Shares of ARL Common
                                              Shares of                        Percentage of      Stock Beneficially
                                               Series H                         Class if the     Owned After the TCI
                                              Redeemable     Percentage of     Non-Affiliates      and IOT mergers
                                             Convertible      Class if the    Elect to Receive   Assuming Conversion
                                           Preferred Stock   Non-Affiliates       Series H       of all Series G and
                                             Beneficially       Elect to         redeemable      Series H Redeemable
                                           Owned After the      Receive         convertible     Convertible Preferred  Percentage of
        Name of Beneficial Owner              IOT Merger        Cash(3)       preferred stock          Stock               Class
        ------------------------           ---------------   --------------   ----------------  ---------------------  -------------
                                                                                                        
Mark W. Branigan(4).......................    106,802            100%              15.6%             10,173,989             70.0%
Henry A. Butler...........................        ---             ---                ---                    ---               ---
Earl D. Cecil(4)..........................        ---             ---                ---                  1,000                 *
Louis J. Corna(4).........................    106,802            100%              15.6%             10,173,989             70.0%
Ronald E. Kimbrough(4)....................    106,802            100%              15.6%             10,173,989             70.0%
David W. Starowicz(4).....................    106,802            100%              15.6%             10,176,989             70.0%
Ted P. Stokely(4).........................        ---             ---                ---                 37,500                 *
Martin L. White(4)........................        ---             ---                ---                 37,500                 *
All Directors and Executive Officers as
     a group (8 individuals)(4)...........    106,802            100%              15.6%             10,252,989             70.2%



-----------------------------------------
* Less than 1%.


(38)    Percentage is based upon 1,438,945 shares of IOT common stock
        outstanding at March 15, 2002.

(39)    Percentage is based upon 1,168,774 shares of Series G redeemable
        convertible preferred stock outstanding after the TCI merger if all
        persons not affiliated with ARL elect to receive cash and 4,021,854
        shares of Series G redeemable convertible preferred stock outstanding
        after the TCI merger if all persons not affiliated with ARL elect to
        receive Series G redeemable convertible preferred stock.

(40)    Percentage is based upon 106,802 shares of Series H redeemable
        convertible preferred stock outstanding after the IOT merger if all
        persons not affiliated with ARL elect to receive cash and 683,282 shares
        of Series H redeemable convertible preferred stock outstanding after the
        TCI merger if all persons not affiliated with ARL elect to receive
        Series H redeemable convertible preferred stock.

(41)    Includes 345,728 shares owned by TCI of which the directors of IOT may
        be deemed to be beneficial owners by virtue of their positions as
        directors of TCI and 409,935 shares owned by EQK, of which Messrs.
        Branigan, Cecil, Corna, Kimbrough or Starowicz may be deemed to
        beneficially own, and 106,802 shares owned by BCM, of which Messrs.
        Branigan, Corna, Kimbrough or Starowicz may be deemed to be beneficial
        owners by virtue of their positions as executive officers of ART and
        BCM. The directors and executive officers disclaim beneficial ownership
        of such shares. Each of the directors of ART may be deemed to be
        beneficial owners of the shares indirectly owned by ART through its sole
        ownership of EQK 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.



                                      236



                            PERFORMANCE GRAPH OF IOT


        The following performance graph compares the cumulative total
stockholder return on IOT's shares of common stock with the DJ Equity Index and
the DJ Real Estate Index. The comparison assumes that $100 was invested on
December 31, 1996, in IOT'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.

                                  [LINE GRAPH]




                                             12/31/96   12/31/97   12/31/98   12/31/99   12/31/00   12/31/01
                                             --------   --------   --------   --------   --------   --------
                                                                                  
Income Opportunity Realty Investors, Inc.       100       108         63         60         96        213
                                             --------   --------   --------   --------   --------   --------
Dow Jones US Realty Index                       100       118         93         88        112        126
                                             --------   --------   --------   --------   --------   --------
Dow Jones US Total Market Index                 100       132        165        202        183        161
                                             --------   --------   --------   --------   --------   --------



                                      237


                            SECURITYHOLDER PROPOSALS

        Stockholders may submit proposals on matters appropriate for stockholder
action at the special meetings consistent with Rule 14a-8 promulgated under the
Exchange Act. Any proposal which a stockholder intends to present at the 2002
annual meeting must be received at the principal executive offices of ARL by
April 1, 2002; of TCI by April 1, 2002; and of IOT by April 1, 2002 in order to
be included in the proxy material for the meeting. If the one or both mergers
are approved and completed, TCI and IOT, as the case may be, will not have a
2002 annual meeting.

                                  LEGAL MATTERS

        The validity of ARL preferred stock to be issued in connection with the
business combination will be passed upon by Jackson Walker L.L.P.

                                     EXPERTS

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


                       WHERE YOU CAN FIND MORE INFORMATION


        ARL, TCI and IOT file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document filed by ARL, TCI or IOT at the SEC's public reference room in
Washington, D.C. The public reference room at the SEC's office in Washington,
D.C. is located at 450 Fifth Street, N.W. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. The companies' SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http:\\www.sec.gov." In
addition, because the common stock of ARL and TCI are each listed on the NYSE,
reports and other information concerning ARL (symbol: "ARL") and TCI (symbol:
"TCI") can also be inspected at the office of the NYSE, Inc., 20 Broad Street,
New York, New York 10005. Because IOT's common stock is listed on the AMEX
(symbol: "IOT"), reports and other information concerning IOT can also be
inspected at the office of the AMEX, 86 Trinity Place, New York, New York 10006.


        ARL has filed a registration statement on Form S-4 to register with the
SEC the Series G and Series H redeemable convertible preferred stock to be
delivered to the TCI and IOT stockholders in the business combination. This
joint proxy statement and prospectus is a part of that registration statement
and constitutes a prospectus of ARL in addition to being a proxy statement of
ARL, TCI and IOT for the special meetings. As allowed by SEC rules, this joint
proxy statement and prospectus does not contain all the information you can find
in the registration statement or the exhibits to the registration statement.


        You should rely only on the information contained or incorporated by
reference in this joint proxy statement and prospectus to vote on the approval
of the business combination.


                                      238


Neither ARL, TCI nor IOT has authorized anyone to provide you with information
that is different from what is contained in this joint proxy statement and
prospectus. This joint proxy statement and prospectus is dated _______________,
2002. You should not assume that the information contained in the joint proxy
statement and prospectus is accurate as of any date other than that date, and
neither the mailing of this joint proxy statement and prospectus to stockholders
nor the delivery of ARL preferred stock in the business combinations shall
create any implication to the contrary.

        WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT EITHER OF THE PROPOSED MERGERS OR THE COMPANIES THAT
DIFFERS FROM OR ADDS TO THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE
DOCUMENTS ARL, TCI AND IOT HAVE PUBLICLY FILED WITH THE SEC. THEREFORE, IF
ANYONE SHOULD GIVE YOU ANY DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT
RELY ON IT.

        IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE
OR SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR TO ASK FOR PROXIES, OR, IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT THESE ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT
EXTEND TO YOU.


                                      239


                                GLOSSARY OF TERMS

 "10-Q Issuance Date" means the fifteenth day after the public issuance of ARL's
form 10-Q.
 "ADA" means the Americans with Disabilities Act.
 "Affiliated Entities" means Mr. Phillips, BCM, ARL and ART.
 "AMEX" means the American Stock Exchange.
 "ARL" means American Realty Investors, Inc.
 "ARL Option Plan" means the 1997 ARL Stock Option Plan.
 "ART" means American Realty Trust, Inc., a wholly-owned subsidiary of ARL.
 "BCM" means Basic Capital Management, Inc.
 "Bordeaux" means Bordeaux Investments Two, LLC.
 "CMET" means Continental Mortgage and Equity Trust.
 "Code" means the Internal Revenue Code of 1986 as amended.
 "DJ Equity Index" means Dow Jones Equity Market Index.
 "DJ Real Estate Index" means Dow Jones Real Estate Investment Index.
 "Engagement Letters" means the engagement letters of TCI and IOT retaining
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. dated October 4, 2001.
 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
 "EQK" means EQK Realty Investors, I.
 "EQK Holdings" means EQK Holdings, Inc.
 "FASB" means Financial Accounting Standards Board.
 "GCLP" means Garden Capital L.P.


 "Green Street" means Green Street Advisors, Inc.
 "Houlihan Lokey" means Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
 "Income Producing Properties" means the income producing properties held by the
Subject Companies.
 "IOT" means Income Opportunity Realty Investors, Inc.
 "Jor-Trans" means Jor-Trans Investors Limited Partnership.
 "JNC" means JNC Enterprises, Inc.
 "LTM Capitalization Rate Approach" means the adjusted net operating income for
the twelve months ended September 30, 2001.
 "Mr. Phillips" means Gene E. Phillips, a representative of a trust for the
benefit of his children that directly owns BCM.
 "NFY Capitalization Rate Approach" means the projected adjusted net operating
income.
 "NIA" means Nakash Income Associates.
 "NM" means National Melrose, Inc.
 "NMC" means NRLP Management Corp.
 "NOLP" means National Operating, L.P.
 "NRLP" means National Realty, L.P.
 "NRS" means the Nevada Revised Statutes.
 "NYSE" means the New York Stock Exchange.

 "Olive Litigation" means the case styled Jack Olive, et. al. v. National Income
Realty Trust, et. al., Case No. C89-4331-MHP pending in the United States
District Court for the Northern District of California.

 "One Realco" means One Realco Corporation.
 "PWSI" means Pizza World Supreme, Inc.
 "REIT" means Real Estate Investment Trust.
 "Regis" means Regis Realty, Inc.
 "Rosedale" means Rosedale Corporation
 "SAC 9" means Sacramento Nine.
 "SEC" means the Securities and Exchange Commission.
 "Series F redeemable preferred stock" means the Series F redeemable preferred
stock.

 "Series G Redeemable Convertible Preferred Stock" means the 10% Series G
cumulative convertible preferred stock.
 "Series H Redeemable Convertible Preferred Stock" means the 10% Series H
cumulative convertible preferred stock.

 "Settlement Agreement" means the Second Amendment to the Modification of
Stipulation of Settlement dated October 17, 2001 in the Olive Litigation.


                                      240


 "Subject Companies" means TCI, IOT or ARL.
 "TCI" means Transcontinental Realty Investors, Inc.
 "TCI Director Plan" means the TCI director stock option plan.
 "Two Hickory" means ART Two Hickory Corporation
 "Triad" means Triad Realty Services, Ltd.
 "Tri-City" means Tri-City Limited Partnership.
 "Warwick" means Warwick of Summit, Inc.




                                      241



             UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

        The unaudited pro forma combined financial statements have been prepared
assuming that the nonaffiliated IOT and TCI stockholders will elect to receive
cash, rather than preferred stock, in exchange for their shares. As reflected in
the unaudited pro forma combined financial statements, should all such
stockholders elect to receive cash, ARL does not currently have the capability
to effect the transaction due to insufficient proceeds. ARL is currently
exploring ways in which it can raise the necessary funds, including but not
limited to, selling selected properties and arranging for financing. ARL does
not currently have a commitment to sell any properties or to obtain any
financing. Accordingly, no assurances can be given that ARL will be able to
complete the proposed transactions with either IOT or TCI.

        The accompanying unaudited pro forma consolidated financial statements
of ARL as of December 31, 2001 give effect to the payment of the maximum amount
of cash and the issuance of shares of ARL preferred stock only to the affiliates
in exchange for the TCI common stock and the IOT common stock as described in
this joint proxy statement and prospectus.

        The unaudited pro forma combined financial information is presented
under three separate scenarios: (i) the acquisition by ARL of TCI and IOT; (ii)
the acquisition by ARL of TCI only; and (iii) the acquisition by ARL by IOT
only. The acquisitions of TCI and IOT are not dependent upon each other. Under
each of these three scenarios the following three assumptions were made: (i) all
nonaffiliated TCI and IOT stockholders receive cash for their TCI or IOT common
stock, respectively; (ii) all nonaffiliated TCI and IOT stockholders receive
Series G or Series H redeemable convertible preferred stock for their shares of
TCI or IOT common stock, respectively; and (iii) 50% of the nonaffiliated TCI
and IOT stockholders receive cash and 50% of the unaffiliated stockholders
receive Series G and Series H redeemable convertible preferred stock for their
shares of TCI and IOT common stock, respectively. Under each of the scenarios,
the Unaudited Pro Forma Combined Financial Information is prepared using the
purchase method of accounting, with ARL treated as the acquirer and as if the
transactions had been completed as of January 1, 2002 for statement of
operations purposes and on December 31, 2001, for balance sheet purposes. Under
the purchase method of accounting, the aggregate purchase price is allocated to
assets acquired and liabilities assumed based on their estimated fair values.
Under the two different scenarios that all TCI and IOT stockholders and 50% of
the TCI and IOT stockholders will take cash for their shares of TCI and IOT
common stock, ARL has determined to finance the purchase price with additional
borrowings. Under the scenario that all TCI and IOT stockholders will accept
cash for their shares, the pro forma adjustments assume an additional
$60,882,000 in debt at 11% interest per annum. The pro forma adjustments include
$6,697,000 in additional interest expense from this debt. Under the scenario
that 50% of the TCI and IOT stockholders will take cash for their shares of TCI
and IOT stock, the pro forma adjustments assume an additional $30,441,000 in
debt at 11% interest per annum. The pro forma adjustments include $3,349,000 in
additional interest expense from this debt.

        The historical financial data for ARL, TCI and IOT for the year ended
December 31, 2001 has been derived from the audited financial statements and
notes included in each of those entity's annual reports on Form 10-K for the
year ended December 31, 2001.



                                      242



        The pro forma adjustments described in the accompanying notes are based
upon available information and assumptions that management believes are
reasonable. In the opinion of management, all adjustments necessary to present
the pro forma information have been made. The unaudited pro forma consolidated
financial statements are provided for informational purposes only and do not
necessarily indicate the financial results that would have occurred had the
merger actually occurred on the dates specified, nor do they indicate ARL's
future results. The unaudited pro forma consolidated financial information
should be read together with the consolidated financial statements and notes of
ARL, TCI and IOT contained in their annual reports on Form 10-K for the year
ended December 31, 2001.



                                      243



                                    INDEX TO
             UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION


SCENARIO I

THE FOLLOWING FINANCIAL INFORMATION ASSUMES (i) THAT ALL NONAFFILIATED TCI OR
IOT STOCKHOLDERS, AS APPLICABLE, RECEIVE CASH AND (ii) THAT ONE OF THE FOLLOWING
ALSO OCCURS:




                                                                                               
UNAUDITED PRO FORMA CONSOLIDATED INFORMATION PRESENTED AS OF DECEMBER 31, 2001
          ARL'S ACQUISITION OF TCI AND IOT
                 Balance Sheet as of December 31, 2001.............................................246
                 Notes to Balance Sheet as of December 31, 2001....................................249
                 Statement of Operations as of December 31, 2001...................................250
                 Notes to Statement of Operations as of December 31, 2001..........................252
          ARL'S ACQUISITION OF IOT ONLY
                 Balance Sheet as of December 31, 2001.............................................253
                 Notes to Balance Sheet as of December 31, 2001....................................255
                 Statement of Operations as of December 31, 2001...................................256
                 Notes to Statement of Operations as of December 31, 2001..........................257
          ARL'S ACQUISITION OF TCI ONLY
                 Balance Sheet as of December 31, 2001.............................................258
                 Notes to Balance Sheet as of December 31, 2001....................................260
                 Statement of Operations as of December 31, 2001...................................261
                 Notes to Statement of Operations as of December 31, 2001..........................263

UNAUDITED PRO FORMA CONSOLIDATED INFORMATION PRESENTED AS OF DECEMBER 31, 2000
          ARL'S ACQUISITION OF TCI AND IOT
                 Statement of Operations as of December 31, 2000...................................264
                 Notes to Statement of Operations as of December 31, 2000..........................265
          ARL'S ACQUISITION OF IOT ONLY
                 Statement of Operations as of December 31, 2000...................................266
                 Notes to Statement of Operations as of December 31, 2000..........................267
          ARL'S ACQUISITION OF TCI ONLY
                 Statement of Operations as of December 31, 2000...................................268
                 Notes to Statement of Operations as of December 31, 2000..........................269




SCENARIO II

THE FOLLOWING FINANCIAL INFORMATION ASSUMES (i) THAT ALL NONAFFILIATED TCI OR
IOT STOCKHOLDERS, AS APPLICABLE, ELECT TO RECEIVE SERIES G OR SERIES H
REDEEMABLE CONVERTIBLE PREFERRED STOCK, RESPECTIVELY, AND (ii) THAT ONE OF THE
FOLLOWING ALSO OCCURS:




                                                                                               
UNAUDITED PRO FORMA CONSOLIDATED INFORMATION PRESENTED AS OF DECEMBER 31, 2001
          ARL'S ACQUISITION OF TCI AND IOT
                 Balance Sheet as of December 31, 2001.............................................270
                 Notes to Balance Sheet as of December 31, 2001....................................273
                 Statement of Operations as of December 31, 2001...................................274
                 Notes to Statement of Operations as of December 31, 2001..........................276
          ARL'S ACQUISITION OF IOT ONLY
                 Balance Sheet as of December 31, 2001.............................................277
                 Notes to Balance Sheet as of December 31, 2001....................................279
                 Statement of Operations as of December 31, 2001...................................280
                 Notes to Statement of Operations as of December 31, 2001..........................282
          ARL'S ACQUISITION OF TCI ONLY
                 Balance Sheet as of December 31, 2001.............................................283
                 Notes to Balance Sheet as of December 31, 2001....................................286
                 Statement of Operations as of December 31, 2001...................................287
                 Notes to Statement of Operations as of December 31, 2001..........................289




                                      244




                                                                                                
UNAUDITED PRO FORMA CONSOLIDATED INFORMATION PRESENTED AS OF DECEMBER 31, 2000
          ARL'S ACQUISITION OF TCI AND IOT
                 Statement of Operations as of December 31, 2000...................................290
                 Notes to Statement of Operations as of December 31, 2000..........................291
          ARL'S ACQUISITION OF IOT ONLY
                 Statement of Operations as of December 31, 2000...................................292
                 Notes to Statement of Operations as of December 31, 2000..........................293
          ARL'S ACQUISITION OF TCI ONLY
                 Statement of Operations as of December 31, 2000...................................294
                 Notes to Statement of Operations as of December 31, 2000..........................295




SCENARIO III

THE FOLLOWING FINANCIAL INFORMATION ASSUMES (i) THAT 50% OF THE NONAFFILIATED
TCI OR IOT STOCKHOLDERS RECEIVE CASH, AS APPLICABLE, (ii) THAT 50% OF THE
NONAFFILIATED TCI OR IOT STOCKHOLDERS ELECT TO RECEIVE SERIES G OR SERIES H
REDEEMABLE CONVERTIBLE PREFERRED STOCK, RESPECTIVELY, AS APPLICABLE, AND (iii)
THAT ONE OF THE FOLLOWING ALSO OCCURS:




                                                                                                
UNAUDITED PRO FORMA CONSOLIDATED INFORMATION PRESENTED AS OF DECEMBER 31, 2001
          ARL'S ACQUISITION OF TCI AND IOT
                 Balance Sheet as of December 31, 2001.............................................296
                 Notes to Balance Sheet as of December 31, 2001....................................299
                 Statement of Operations as of December 31, 2001...................................300
                 Notes to Statement of Operations as of December 31, 2001..........................302
          ARL'S ACQUISITION OF IOT ONLY
                 Balance Sheet as of December 31, 2001.............................................303
                 Notes to Balance Sheet as of December 31, 2001....................................305
                 Statement of Operations as of December 31, 2001...................................306
                 Notes to Statement of Operations as of December 31, 2001..........................308
          ARL'S ACQUISITION OF TCI ONLY
                 Balance Sheet as of December 31, 2001.............................................309
                 Notes to Balance Sheet as of December 31, 2001....................................312
                 Statement of Operations as of December 31, 2001...................................313
                 Notes to Statement of Operations as of December 31, 2001..........................315

UNAUDITED PRO FORMA CONSOLIDATED INFORMATION PRESENTED AS OF DECEMBER 31, 2000
          ARL'S ACQUISITION OF TCI AND IOT
                 Statement of Operations as of December 31, 2000...................................316
                 Notes to Statement of Operations as of December 31, 2000..........................317
          ARL'S ACQUISITION OF IOT ONLY
                 Statement of Operations as of December 31, 2000...................................318
                 Notes to Statement of Operations as of December 31, 2000..........................319
          ARL'S ACQUISITION OF TCI ONLY
                 Statement of Operations as of December 31, 2000...................................320
                 Notes to Statement of Operations as of December 31, 2000..........................321




                                      245



                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                         ARL ACQUISITION OF TCI AND IOT
      (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash for
                    Their Shares of TCI and IOT Common Stock)
                                December 31, 2001





                                                                           Historical                     Proforma Adjustments
                                                            ---------------------------------------   ----------------------------
                                                                ARL           TCI           IOT           TCI             IOT
                                                            -----------   -----------   -----------   ------------     -----------
Assets
------
                                                                                                        
Real estate held for investment, .........................  $   373,660   $   622,171   $    87,315   $    (55,729){A} $ (15,184){B}
    net of accumulated depreciation ......................                                                     879 {C}       121 {C}
                                                            -----------   -----------   -----------   ------------     ---------
                                                                373,660       622,171        87,315        (54,850)      (15,063)

Real estate held for sale ................................      214,543           516            --             --           --

Notes and interest receivable ............................       32,959        22,867           505         (1,970){D}       --
Less-allowance for estimated losses ......................       (2,577)         (818)           --             --           --
                                                            -----------   -----------   -----------   ------------     ---------
                                                                 30,382        22,049           505         (1,970)          --

Pizza parlor equipment, net of accumulated depreciation ..        6,707            --            --             --           --
Leasehold interest - oil and gas properties, net of
    accumulated depreciation .............................        4,718            --            --             --           --
Oilfield equipment, net of accumulated depreciation ......          490            --            --             --           --
Marketable equity securities, at market value ............           96            --            --             --           --
Cash and cash equivalents ................................          709        10,346            66             --           --
Investment in equity investees ...........................       77,933        14,230           142        (82,181){E}    (6,789){F}
Intangibles, net of accumulated amortization .............       15,594            --            --             --           --
Other assets .............................................       33,931        39,840         3,805             --           --
                                                            -----------   -----------   -----------   ------------     ---------
                                                            $   758,763   $   709,152   $    91,833   $   (139,001)    $ (21,852)
                                                            ===========   ===========   ===========   ============     =========




                                                             Proforma
                                                             Combined
                                                            -----------
Assets
------
                                                         
Real estate held for investment, .........................  $ 1,013,233
    net of accumulated depreciation ......................
                                                            -----------
                                                              1,013,233

Real estate held for sale ................................      215,059

Notes and interest receivable ............................       54,361
Less-allowance for estimated losses ......................       (3,395)
                                                            -----------
                                                                 50,966

Pizza parlor equipment, net of accumulated depreciation ..        6,707
Leasehold interest - oil and gas properties, net of
    accumulated depreciation .............................        4,718
Oilfield equipment, net of accumulated depreciation ......          490
Marketable equity securities, at market value ............           96
Cash and cash equivalents ................................       11,121
Investment in equity investees ...........................        3,335
Intangibles, net of accumulated amortization .............       15,594
Other assets .............................................       77,576
                                                            -----------
                                                            $ 1,398,895
                                                            ===========




                                      246



                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                         ARL ACQUISITION OF TCI AND IOT
      (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash for
                    Their Shares of TCI and IOT Common Stock)
                                December 31, 2001





                                                                       Historical                    Proforma Adjustments
                                                         --------------------------------------   ---------------------------
                                                            ARL          TCI           IOT            TCI            IOT
                                                         ----------   ----------   ------------   ------------   ------------
                                                                                                  
Liabilities and Equity
----------------------

Liabilities

Notes and interest payable ...........................   $  564,298   $  461,037   $     54,426    $(1,970){D}     $     -
                                                                                                     49,929{G}      10,953{H}
Margin borrowings ....................................       28,040           --             --          --             --
Other liabilities ....................................       48,960       25,966          2,185         879{C}         121{C}
                                                         ----------   ----------   ------------   ------------   ------------
                                                            641,298      487,003         56,611      48,838         11,074
Commitments and contingencies

Minority Interest ....................................       27,612        5,381             --             --          --
Series F redeemable preferred stock; $2.00 par
    value; authorized, 30,000 shares; issued and
    outstanding 3,968.75 shares (liquidation
    preference $3,969) ...............................        3,969           --             --             --          --

Stockholders' Equity
--------------------

ARL
Preferred Stock, $2.00 par value, authorized
    50,000,000 shares, issued and
    outstanding ......................................
Series A, 2,724,910 shares, (liquidation
    preference $27,249) ..............................        4,850           --             --             --          --
Series E, 50,000 shares, (liquidation preference
    $500) ............................................          100           --             --             --          --
Series G, convertible 1,168,774 shares,
    (liquidation preference $23,375, $20.00 per
    share) ...........................................           --                                   2,338{I}          --
Series H, convertible 106,802 shares,
    (liquidation preference $2,296, $21.50 per
    share) ...........................................           --                                                    214{J}
Series A, $.01 par value; authorized, 6,000
    shares; issued and outstanding 5,829 shares
    (liquidation preference $583) ....................           --           --             --             --          --
Series C, $.01 par value; authorized, issued and
    outstanding 30,000 shares (liquidation
    preference $3,000) ...............................           --           --             --             --          --
Common Stock, $.01 par value; authorized
    100,000,000 shares, issued 11,375,127 shares .....          114           --             --         (7){G}          --
Paid-in capital ......................................      112,184           --             --      21,045{I}       2,082{J}
                                                                                                      3,583{K}




                                                          Proforma
                                                          Combined
                                                         ----------
                                                      
Liabilities and Equity
----------------------

Liabilities

Notes and interest payable ...........................   $1,138,673

Margin borrowings ....................................       28,040
Other liabilities ....................................       78,111
                                                         ----------
                                                          1,244,824
Commitments and contingencies

Minority Interest ....................................       32,993
Series F redeemable preferred stock; $2.00 par
    value; authorized, 30,000 shares; issued and
    outstanding 3,968.75 shares (liquidation
    preference $3,969) ...............................        3,969

Stockholders' Equity
--------------------

ARL
Preferred Stock, $2.00 par value, authorized
    50,000,000 shares, issued and
    outstanding
Series A, 2,724,910 shares, (liquidation
    preference $27,249) ..............................        4,850
Series E, 50,000 shares, (liquidation preference
    $500) ............................................          100
Series G, convertible 1,168,774 shares,
    (liquidation preference $23,375, $20.00 per
    share) ...........................................        2,338
Series H, convertible 106,802 shares,
    (liquidation preference $2,296, $21.50 per
    share) ...........................................          214
Series A, $.01 par value; authorized, 6,000
    shares; issued and outstanding 5,829 shares
    (liquidation preference $583) ....................           --
Series C, $.01 par value; authorized, issued and
    outstanding 30,000 shares (liquidation
    preference $3,000) ...............................           --
Common Stock, $.01 par value; authorized
    100,000,000 shares, issued 11,375,127 shares .....          107
Paid-in capital ......................................      138,894





                                      247



                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                         ARL ACQUISITION OF TCI AND IOT
      (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash for
                   Their Shares of TCI and IOT Common Stock)
                                December 31, 2001





                                                                     Historical                        Proforma Adjustments
                                                     -----------------------------------------    ------------------------------
                                                         ARL            TCI            IOT             TCI              IOT
                                                     -----------    -----------    -----------    -------------    -------------
                                                                                                    
Accumulated distributions in excess of
    accumulated earnings .........................       (31,364)            --             --         1,970 {D}
Treasury Stock at par, 1,637,000 shares ..........
TCI
Preferred Stock, $.01 par value, authorized
    36,000 shares, issued and outstanding ........
Series A, 5,829 shares (liquidation preference
    $583) ........................................            --             --             --               --             --
Series C, 30,000 shares (liquidation preference
    $3,000) ......................................            --             --             --               --             --
Common Stock, $.01 par value; authorized,
    10,000,000 shares issued and outstanding
    8,042,629 shares .............................            --             80             --           (80){A}            --
Paid-in capital ..................................            --        271,761             --      (271,761){A}            --
Accumulated distributions in excess of
    accumulated earnings .........................            --        (55,073)            --       55,073  {A}            --
IOT
Common Stock, $.01 par value; authorized,
    10,000,000 shares; issued and outstanding
    1,438,945 shares .............................            --             --             14            --               (14){B}
Paid-in capital ..................................            --             --         63,459            --           (63,459){B}
Accumulated distributions in excess of
    accumulated earnings .........................            --             --        (28,251)           --            28,251 {B}
                                                     -----------    -----------    -----------    ----------       -----------
                                                          85,884        216,768         35,222      (187,839)          (32,926)

                                                     $   758,763    $   709,152    $    91,833    $ (139,001)      $   (21,852)
                                                     ===========    ===========    ===========    ==========       ===========




                                                        Proforma
                                                        Combined
                                                      -----------
                                                   
Accumulated distributions in excess of
    accumulated earnings .........................        (29,394)
Treasury Stock at par, 1,637,000 shares ..........             --
TCI
Preferred Stock, $.01 par value, authorized
    36,000 shares, issued and outstanding ........
Series A, 5,829 shares (liquidation preference
    $583) ........................................             --
Series C, 30,000 shares (liquidation preference
    $3,000) ......................................             --
Common Stock, $.01 par value; authorized,
    10,000,000 shares issued and outstanding
    8,042,629 shares .............................             --
Paid-in capital ..................................             --
Accumulated distributions in excess of
    accumulated earnings .........................             --
IOT
Common Stock, $.01 par value; authorized,
    10,000,000 shares; issued and outstanding
    1,438,945 shares .............................             --
Paid-in capital ..................................             --
Accumulated distributions in excess of
    accumulated earnings .........................             --
                                                      -----------
                                                          117,109

                                                      $ 1,398,895
                                                      ===========




                                      248



                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                         ARL ACQUISITION OF TCI AND IOT
      (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash for
                   Their Shares of TCI and IOT Common Stock)
                                December 31, 2001

The notes to these financial statements assumes that 100% of the nonaffiliated
stockholders will accept cash for their shares of TCI and IOT common stock.




                                                                                               
Note A. To record allocation of purchase price to TCI's assets and liabilities as follows:
Real Estate held for investment ...............................................................    566,442
Real Estate held for sale .....................................................................        516
Notes and interest receivable .................................................................     20,079
Cash and cash equivalents .....................................................................     10,346
Investment in equity investees ................................................................        547
Other assets ..................................................................................     39,840
Notes and interest payable ....................................................................   (461,037)
Other liabilities .............................................................................    (25,966)
Minority Interest .............................................................................     (5,381)
Series A preferred stock ......................................................................       (583)
Series C preferred stock ......................................................................     (3,000)
                                                                                                  --------
                                                                                                   141,803
Note B. To record allocation of purchase price to IOT's assets and liabilities as follows:
Real Estate held for investment ...............................................................     72,131
Notes and interest receivable .................................................................        505
Cash and cash equivalents .....................................................................         66
Investment in equity investees ................................................................        142
Other assets ..................................................................................      3,805
Notes and interest payable ....................................................................    (54,426)
Other liabilities .............................................................................     (2,185)
                                                                                                  --------
                                                                                                    20,038




        Note C. To record estimate of additional closing costs.
        Note D. To record forgiveness of debt ARL owes TCI.
        Note E. To record the elimination TCI's investment in ARL and retire
        746,972 shares of ARL and to record the elimination of ARL's investment
        in TCI.
        Note F. To record the elimination ARL's investment in IOT.
        Note G. To record debt required to purchase TCI
        Note H. To record debt required to purchase IOT.
        Note I. To record the issuance of the Series G redeemable convertible
        preferred stock to purchase TCI.
        Note J. To record the issuance of the Series H redeemable convertible
        preferred stock to purchase IOT.
        Note K. To record TCI's Series A and Series C preferred stock that will
        continue to be outstanding.


                                      249



            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                         ARL ACQUISITION OF TCI AND IOT
      (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash for
                   Their Shares of TCI and IOT Common Stock)
                                December 31, 2001





                                                        Historical                       Proforma Adjustments
                                            -----------------------------------      ----------------------------        Proforma
                                               ARL        TCI             IOT          TCI                 IOT           Combined
                                            --------    --------       --------      -------            ---------        --------
                                                                                                       
Property Revenue
  Rents...................................  $129,300    $134,911       $ 13,001           $-                   $-        $277,212
  Property operations.....................    93,185      80,562          6,591            -                    -         180,338
                                            --------    --------       --------      -------            ---------        --------
      Operating income....................    36,115      54,349          6,410            -                    -          96,874
Land Operations
  Sales...................................    45,290           -                           -                               45,290
  Cost of Sales...........................    36,083           -                           -                               36,083
                                            --------    --------       --------      -------            ---------        --------
      Gain on land sales..................     9,207           -              -            -                    -           9,207
Pizza Parlor operations
  Sales...................................    34,211           -                           -                               34,211
  Cost of Sales...........................    27,934           -                           -                               27,934
                                            --------    --------       --------      -------            ---------        --------
     Gross margin.........................     6,277           -              -            -                    -           6,277
Oil and gas operations
  Sales                                           59           -                           -                                   59
  Operating expenses......................       269           -                           -                                  269
                                            --------    --------       --------      -------            ---------        --------
     Gross margin.........................     (210)           -              -            -                    -           (210)
Other Income
  Interest  and other.....................     2,448       2,948            194            -                    -           5,590
  Equity income (loss) in equity
investees.................................   (13,739)    (5,950)            (9)       18,832  {A}             950  {B}         84
  Gain on sale of real estate.............    96,749      54,270              -     (27,852)  {C}               -         123,167
                                            --------    --------       --------      -------            ---------        --------
                                              85,458      51,268            185      (9,020)                  950         128,841
Other expense
  Interest................................    77,048      41,058          6,074        5,492  {D}           1,205  {D}    130,877
  Depreciation............................    17,707      19,705          2,427      (1,371)  {E}           (377)  {E}     38,091
  Advisory fees to affiliate..............     6,715       5,346            817      (1,043)  {F}           (164)  {F}     11,672
  Net income fee to affiliate.............       166       1,850              -      (2,016)  {G}               -               -
  Incentive fees to affiliate.............     3,827       3,167              -          493  {H}               -           7,487
  General and administrative..............    12,743      11,412            739            -                    -          24,894
  Realized loss on investments............         -       3,059              -            -                    -           3,059
  Litigation settlement...................       100                                                                          100
  Provision for loss......................     2,500         281              -            -                    -           2,781
  Minority Interest.......................       972        (72)              -            -                    -             900
                                            --------    --------       --------      -------            ---------        --------
                                             121,778      85,806         10,057        1,555                  664         219,861




                                      250



            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                         ARL ACQUISITION OF TCI AND IOT
     (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash for
                   Their Shares of TCI and IOT Common Stock)
                                December 31, 2001





                                                           Historical                  Proforma Adjustments
                                              ------------------------------------  ---------------------------       Proforma
                                                  ARL          TCI         IOT          TCI            IOT            Combined
                                              -----------  ----------  -----------  -----------      ----------      -----------
                                                                                                   
Net income (loss)...........................       15,069      19,811      (3,462)     (10,575)             286           21,129
Preferred dividend requirement..............      (2,485)       (172)            -      (2,338) {I}       (230) {J}      (5,225)
                                              -----------  ----------  -----------  -----------      ----------      -----------
Net income (loss)...........................      $12,584     $19,639     $(3,462)    $(12,913)             $56          $15,904

Earnings per share
Net income applicable to common Shares
Basic.......................................        $1.07                                                                  $1.45
Diluted.....................................        $1.07                                                                  $1.12

Average common Shares used in computing
 earnings per share
Basic.......................................   11,714,374                                                             10,967,402
Diluted.....................................   11,714,374                                                             14,158,414




                                      251



            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                         ARL ACQUISITION OF IOT AND TCI
      (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash for
                   Their Shares of TCI and IOT Common Stock)
                                December 31, 2001

The notes to these financial statements assume that 100% of the nonaffiliated
stockholders will accept cash for their shares of TCI and IOT common stock.

Note A. To record the elimination of ARL's equity losses from TCI and TCI's
        equity losses from ARL and IOT.
Note B. To record the elimination of ARL's equity losses from IOT.
Note C. To record the elimination of TCI's share of gains on sales of real
        estate from ARL and ARL's share of gains on real estate from TCI.
Note D. To record interest expense on $60,882,000 of debt at 11% to acquire TCI
        and IOT.
Note E. To record the depreciation adjustment for new real estate basis.
Note F. To record the advisor fee adjustment for new gross asset basis. The
        Advisory Agreement provides for BCM to receive an advisory fee comprised
        of a gross asset fee of .75% per annum of the average gross asset value.
        TCI's and ARL's combined gross assets would be reduced by $139,001,000
        if the transaction had taken place on January 1, 2001. IOT's and ARL's
        combined gross assets would be reduced by $21,852,000 if the transaction
        had taken place on January 1, 2001.
Note G. To record the net income fee adjustment for new net income. ARL's
        Advisory Agreement provides for BCM to receive a net income fee equal to
        10% of net income for the year in excess of a 10% return on
        stockholders' equity. The combined net income of TCI, IOT, and ARL does
        not meet the 10% return on stockholders' equity.
Note H. To record the incentive fee adjustment for TCI on ARL basis. ARL's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the excess of net capital gains over net capital losses. TCI's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the amount, if any, by which the aggregate sales consideration
        for all real estate sold by TCI during the year exceeds the sum of: (1)
        the cost of each such property, (2) capital improvements made to such
        property, and (3) all closing costs incurred in the sale of such real
        estate. TCI's incentive fee would increase by $493,000 based on ARL's
        Advisory Agreement.
Note I. To record preferred stock dividends of $2.00 per share on Series G
        redeemable convertible preferred stock.
Note J. To record preferred stock dividends of $2.15 per share on Series H
        redeemable convertible preferred stock.



                                      252



                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                             ARL ACQUISITION OF IOT
          (Assuming All Nonaffiliated IOT Stockholders Receive Cash for
                       Their Shares of IOT Common Stock)
                                December 31, 2001





                                                                        Historical
                                                                 ------------------------      Proforma            Proforma
                                                                    ARL            IOT        Adjustments          Combined
                                                                 --------        --------     -----------          ---------
ASSETS
------
                                                                                                       
Real estate held for investment,............................     $373,660        $ 87,315       $(15,184)  {A}     $ 445,912
      net of accumulated depreciation.......................                                          121  {B}
                                                                 --------        --------       ---------          ---------
                                                                  373,660          87,315        (15,063)            445,912
Real estate held for sale...................................      214,543               -               -            214,543
Notes and interest receivable...............................       32,959             505               -             33,464
Less-allowance for estimated losses.........................      (2,577)               -               -            (2,577)
                                                                 --------        --------       ---------          ---------
                                                                   30,382             505               -             30,887
Pizza parlor equipment, net of accumulated depreciation.....        6,707               -               -              6,707
Leasehold interest - oil and gas properties,................        4,718               -               -              4,718
        net of accumulated depreciation.....................                            -               -                  -
Oilfield equipment, net of accumulated depreciation                   490                                                490
Marketable equity securities, at market value...............           96               -               -                 96
Cash and cash equivalents...................................          709              66               -                775
Investment in equity investees..............................       77,933             142         (6,789)  {C}        71,286
Intangibles, net of accumulated amortization................       15,594               -               -             15,594
Other assets................................................       33,931           3,805               -             37,736
                                                                 --------        --------       ---------          ---------
                                                                 $758,763        $ 91,833       $(21,852)          $ 828,744
                                                                 ========        ========       =========          =========




                                      253



                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                             ARL ACQUISITION OF IOT
          (Assuming All Unaffiliated IOT Stockholders Receive Cash for
                       Their Shares of IOT Common Stock)
                                December 31, 2001





                                                                         Historical
                                                                 -----------------------      Proforma         Proforma
                                                                    ARL           IOT        Adjustments       Combined
                                                                 --------       --------     -----------       ---------
                                                                                                   
Liabilities and Equity
Liabilities
Notes and interest payable..................................     $564,298        $54,426        $10,953 {D}    $ 629,677
Margin borrowings...........................................       28,040              -              -           28,040
Other liabilities...........................................       48,960          2,185            121 {B}       51,266
                                                                 --------       --------      ---------        ---------
                                                                  641,298         56,611         11,074          708,983
Commitments and contingencies
Minority Interest...........................................       27,612              -              -           27,612
Series F Redeemable Preferred Stock; $2.00 par value;               3,969                                          3,969
      authorized, 30,000 shares; issued and outstanding                                -              -                -
      3,968.75 shares (liquidation preference $3,969).......
Stockholders' Equity
ARL
Preferred Stock, $2.00 par value, authorized shares,
    issued and outstanding Series A, 2,724,910 shares,
    (liquidation preference $27,249)........................        4,850              -              -            4,850
Series E, 50,000 shares, (liquidation preference $500)                100              -              -              100
Convertible Series H, 106,802 shares, (liquidation
    preference $2,296)......................................                                        214 {E}          214
Common Stock, $.01 par value; authorized 100,000,000 shares,
    issued 11,375,127 shares................................          114                             -              114
Paid-in capital.............................................      112,184                         2,082 {E}      114,266
Accumulated distributions in excess of accumulated earnings.     (31,364)                                       (31,364)
Treasury Stock at par, 1,637,000 shares.....................                           -              -                -
IOT
Common Stock, $.01 par value; authorized, 10,000,000 shares;
    issued and outstanding 1,438,945 shares.................                          14           (14) {A}            -
Paid-in capital.............................................                      63,459       (63,459) {A}            -
Accumulated distributions in excess of accumulated earnings.                    (28,251)         28,251 {A}            -
                                                                 --------       --------      ---------        ---------
                                                                   85,884         35,222       (32,926)           88,180

                                                                 $758,763       $ 91,833      $(21,852)        $ 828,744
                                                                 ========       ========      =========        =========




                                      254



                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                             ARL ACQUISITION OF IOT
          (Assuming All Unaffiliated IOT Stockholders Receive Cash for
                       Their Shares of IOT Common Stock)
                                December 31, 2001

The notes to these financial statements assumes that 100% of the nonaffiliated
stockholders will accept cash.




                                                                                                                        
  Note A. To record allocation of purchase price to IOT's assets and liabilities as follows:
  Current amount of equity method investment on ARL's....................................................................     6,789
  Debt required to purchase 576,480 nonaffiliated Common shares of IOT at $19.00 per share...............................    10,953
  Issuance of 106,802 Series H convertible preferred stock, liquidation value $2,296, $21.50 per share...................     2,296
                                                                                                                           --------
  Total Consideration....................................................................................................    20,038

  Real Estate held for investment........................................................................................    72,131
  Notes and interest receivable..........................................................................................       505
  Cash and cash equivalents..............................................................................................        66
  Investment in equity investees.........................................................................................       142
  Other assets...........................................................................................................     3,805
  Notes and interest payable.............................................................................................  (54,426)
  Other liabilities......................................................................................................   (2,185)
                                                                                                                           --------
                                                                                                                             20,038
  Note B. To record estimate of additional closing costs.
  Note C. To record the elimination ARL's investment in IOT.
  Note D. To record debt required to purchase IOT.
  Note E. To record the issuance of the Series H convertible preferred stock to affiliated parties to purchase IOT.




                                      255



            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             ARL ACQUISITION OF IOT
          (Assuming All Nonaffiliated IOT Stockholders Receive Cash for
                       Their Shares of IOT Common Stock)
                                December 31, 2001





                                                                     Historical
                                                             ----------------------------        Proforma             Proforma
                                                                 ARL               IOT          Adjustments           Combined
                                                             -----------        ---------       -----------         -------------
                                                                                                        
Property Revenue
  Rents...............................................          $129,300          $13,001              $ -              $ 42,301
  Property operations.................................            93,185            6,591                -                99,776
                                                             -----------        ---------          --------         -------------
      Operating income................................            36,115            6,410                -                42,525
Land Operations.......................................
  Sales...............................................            45,290                                                  45,290
  Cost of Sales.......................................            36,083                                                  36,083
                                                             -----------        ---------          --------         -------------
      Gain on land sales..............................             9,207                -                -                 9,207
Pizza Parlor operations
  Sales...............................................            34,211                                                  34,211
  Cost of Sales.......................................            27,934                                                  27,934
                                                             -----------        ---------          --------         -------------
     Gross margin.....................................             6,277                -                -                 6,277
Oil and gas operations
  Sales...............................................                59                                                      59
  Operating expenses..................................               269                                                     269
                                                             -----------        ---------          --------         -------------
     Gross margin.....................................             (210)                -                -                 (210)
Other Income
  Interest  and other.................................             2,448              194                -                 2,642
  Equity (loss) in equity investees...................          (13,739)              (9)              950  {A}         (12,798)
  Gain on sale of real estate.........................            96,749                -                -                96,749
                                                             -----------        ---------          --------         -------------
                                                                  85,458              185              950                86,593
Other expense
  Interest............................................            77,048            6,074            1,205  {B}           84,327
  Depreciation........................................            17,707            2,427            (377)  {C}           19,757
  Advisory fee to affiliate...........................             6,715              817            (247)  {D}            7,285
  Net income fee to affiliate.........................               166                -                -                   166
  Incentive fees to affiliate.........................             3,827                -                -                 3,827
  General and administrative..........................            12,743              739                -                13,482
  Litigation settlement...............................               100                -                -                   100
  Provision for loss..................................             2,500                -                -                 2,500
  Minority Interest...................................               972                -                -                   972
                                                             -----------        ---------          --------         -------------
                                                                 121,778           10,057              581               132,416

Net income (loss).....................................            15,069          (3,462)              369                11,976
Preferred dividend requirement........................           (2,485)                -            (230)  {E}          (2,715)
                                                             -----------        ---------          --------         -------------
Net income (loss).....................................           $12,584        $ (3,462)             $139               $ 9,261
Earnings per share
Net income applicable to Common shares
Basic.................................................            $ 1.07                                                  $ 0.79
Diluted...............................................            $ 1.07                                                  $ 0.79
Average common shares used in computing earnings per share
   Basic                                                      11,714,374                                              11,714,374
   Diluted                                                    11,714,374                                              11,905,301





* See "The Advisor - BCM - Directors and Principal Officers of Advisor" for
background and business experience information.

** See "Management of TCI - Directors and Executive Officers of TCI" for
background and business experience information.

*** See "Management of ARL - Directors and Executive Officers of ARL" for
background and business experience information.


                                      256



            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             ARL ACQUISITION OF IOT
            (Assuming All Nonaffiliated IOT Stockholders Receive Cash
                      for Their Shares of IOT Common Stock)

                                December 31, 2001

The notes to these financial statements assume that 100% of the nonaffiliated
stockholders will accept cash for their shares of IOT common stock.

Note A. To record the elimination of ARL's equity losses from IOT.
Note B. To record interest expense on $10,953,000 of debt at 11% to acquire IOT.
Note C. To record the depreciation adjustment for new real estate basis.
Note D. To record the advisor fee adjustment for new gross asset basis. The
        Advisory Agreement provides for BCM to receive an advisory fee comprised
        of a gross asset fee of .75% per annum of the average gross asset value.
        IOT's and ARL's combined gross assets would be reduced by $21,852,000 if
        the transaction had taken place on January 1, 2001.
Note E. To record preferred stock dividends of $2.15 per share on Series H
        redeemable convertible preferred stock.



                                      257




                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                             ARL ACQUISITION OF TCI
            (Assuming all Nonaffiliated TCI Stockholders Receive Cash
                      for Their Shares of TCI Common Stock)
                                December 31, 2001





                                                               Historical
                                                       ----------------------------       Proforma           Proforma
                                                           ARL              TCI          Adjustments         Combined
                                                       -----------      -----------      -----------       -----------
                                                                                               
Assets
Real estate held for investment, .................     $   373,660      $   622,171      $   (59,230) {A}  $   937,480
      net of accumulated depreciation ............                                               879  {B}
                                                       -----------      -----------      -----------       -----------
                                                           373,660          622,171          (58,351)          937,480

Real estate held for sale ........................         214,543              516               --           215,059

Notes and interest receivable ....................          32,959           22,867           (1,970) {C}       53,856
Less-allowance for estimated losses ..............          (2,577)            (818)              --            (3,395)
                                                       -----------      -----------      -----------       -----------
                                                            30,382           22,049           (1,970)           50,461

Pizza parlor equipment, net of accumulated
depreciation .....................................           6,707               --               --             6,707
Leasehold interest - oil and gas properties,
net of accumulated depreciation ..................           4,718               --               --             4,718
Oilfield equipment, net of accumulated
depreciation .....................................             490               --               --               490
Marketable equity securities, at market value ....              96               --               --                96
Cash and cash equivalents ........................             709           10,346               --            11,055
Investment in equity investees ...................          77,933           14,230          (10,182) {D}       13,483
                                                                --               --          (68,498) {E}
Intangibles, net of accumulated amortization .....          15,594               --               --            15,594
Other assets .....................................          33,931           39,840               --            73,771
                                                       -----------      -----------      -----------       -----------
                                                       $   758,763      $   709,152      $  (139,001)      $ 1,328,914
                                                       ===========      ===========      ===========       ===========




                                      258




                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                             ARL ACQUISITION OF TCI
            (Assuming All Nonaffiliated TCI Stockholders Receive Cash
                      for Their Shares of TCI Common Stock)
                                December 31, 2001






                                                               Historical
                                                       ----------------------------       Proforma           Proforma
                                                           ARL              TCI          Adjustments         Combined
                                                       -----------      -----------      -----------       -----------
                                                                                               
Liabilities and Equity

Liabilities

Notes and interest payable .......................     $    64,298      $   461,037      $    (1,970) {C}  $ 1,073,294
                                                                                              49,929  {F}
Margin borrowings ................................          28,040               --               --            28,040

Other liabilities ................................          48,960           25,966              879  {B}       75,805
                                                       -----------      -----------      -----------       -----------
                                                           641,298          487,003           48,838         1,177,139
Commitments and contingencies

Minority Interest ................................          27,612            5,381               --            32,993
Series F Redeemable Preferred Stock; $2.00
   par value; authorized, 30,000 shares;
   issued and outstanding 3,968.75 shares
   (liquidation preference $3,969) ...............           3,969               --               --             3,969

Stockholders' Equity

ARL
Preferred Stock, $2.00 par value, authorized
   50,000,000 shares, issued and outstanding
Series A, 2,724,910 shares, (liquidation
   preference $27,249) ...........................           4,850               --               --             4,850
Series E, 50,000 shares, (liquidation
preference $500) .................................             100               --               --               100
Convertible Series G, 1,168,774 shares,
   (liquidation preference $23,376) ..............                                             2,338  {G}        2,338
Series A, $.01 par value; authorized, 6,000
   shares; issued and outstanding 5,829
   shares (liquidation preference $583) ..........              --               --               --                --
Series C, $.01 par value; authorized, issued
   and outstanding 30,000 shares;
   (liquidation preference $3,000) ...............              --               --               --                --
Common Stock, $.01 par value; authorized
   100,000,000 shares, issued 11,375,127
   shares ........................................             114                                (7) {E}          107
Paid-in capital ..................................         112,184                            21,045  {G}      136,812
                                                                                               3,583  (H)
Accumulated distributions in excess of
   accumulated earnings ..........................         (31,364)                            1,970  {C}      (29,394)
Treasury Stock at par, 1,637,000 shares ..........              --                                --                --

TCI
Preferred Stock, $.01 par value, authorized
   36,000 shares, issued and outstanding .........

Series A, 5,829 shares (liquidation
preference $583) .................................                               --               --                --

Series C, 30,000 shares (liquidation
preference $3,000) ...............................                               --               --                --
Common Stock, $.01 par value; authorized,
   10,000,000 shares; issued and outstanding
   8,042,629 shares ..............................                               80              (80) {A}           --

Paid-in capital ..................................                          271,761         (271,761) {A}           --
Accumulated distributions in excess of
   accumulated earnings ..........................                          (55,073)          55,073  {A}           --
                                                       -----------      -----------      -----------       -----------
Treasury Stock at par ............................                               --                                 --
Unrealized Gain ..................................                               --               --  {A}           --
                                                       -----------      -----------      -----------       -----------
                                                            85,884          216,768         (187,839)          114,813
                                                       $   758,763      $   709,152      $  (139,001)      $ 1,328,914
                                                       ===========      ===========      ===========       ===========




                                      259




                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                             ARL ACQUISITION OF TCI
            (Assuming All Nonaffiliated TCI Stockholders Receive Cash
                      for Their Shares of TCI Common Stock)
                                December 31, 2001

The notes to these financial statements assume that 100% of the nonaffiliated
stockholders will accept cash For their shares of TCI common stock.


Note A. To record allocation of purchase price to TCI's assets and liabilities
as follows:




                                                                                                 
     Current amount of equity method investment on ARL's balance sheet at December 31, 2001.......      68,498
     Debt required to purchase 2,853,080 nonaffiliated common shares of TCI at $17.50 per share...      49,929
     Issuance of 1,168,774 Series G convertible Preferred Stock, liquidation value $23,376,
        $20.00 per share..........................................................................      23,376
                                                                                                    ----------
     Total Consideration..........................................................................     141,803

     Real Estate held for investment..............................................................     562,941
     Real Estate held for sale....................................................................         516
     Notes and interest receivable................................................................      20,079
     Cash and cash equivalents....................................................................      10,346
     Investment in equity investees...............................................................       4,048
     Other assets.................................................................................      39,840
     Notes and interest payable...................................................................    (461,037)
     Other liabilities............................................................................     (25,966)
     Minority Interest............................................................................      (5,381)
     Series A Preferred Stock.....................................................................        (583)
     Series C Preferred Stock.....................................................................      (3,000)
                                                                                                    ----------
                                                                                                       141,803




Note B. To record estimate of additional closing costs.
Note C. To record forgiveness of debt ARL owes TCI.
Note D. To record the elimination TCI's investment in ARL and retire 746,972
        shares of ARL.
Note E. To record the elimination of ARL's investment in TCI.
Note F. To record debt required to purchase TCI
Note G. To record the issuance of the Series G redeemable convertible preferred
        stock to affiliated parties to purchase TCI and record Series A and
        Series C preferred stock.
Note H. To record TCI's Series A and Series C preferred stock that will continue
        to be outstanding.



                                      260




            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
            (Assuming All Nonaffiliated TCI Stockholders Receive Cash
                      for Their Shares of TCI Common Stock)
                             ARL ACQUISITION OF TCI
                                December 31, 2001





                                                      Historical
                                              ----------------------------       Proforma           Proforma
                                                  ARL              TCI          Adjustments         Combined
                                              -----------      -----------      -----------       -----------
                                                                                      
Property Revenue
  Rents .................................     $   129,300      $   134,911      $        --       $   264,211
  Property operations ...................          93,185           80,562               --           173,747
                                              -----------      -----------      -----------       -----------
      Operating income ..................          36,115           54,349               --            90,464
Land Operations
  Sales .................................          45,290               --               --            45,290
  Cost of Sales .........................          36,083               --               --            36,083
                                              -----------      -----------      -----------       -----------
      Gain on land sales ................           9,207               --               --             9,207
Pizza Parlor operations
  Sales .................................          34,211               --               --            34,211
  Cost of Sales .........................          27,934               --               --            27,934
                                              -----------      -----------      -----------       -----------
     Gross margin .......................           6,277               --               --             6,277
Oil and gas operations
  Sales .................................              59               --               --                59
  Operating expenses ....................             269               --               --               269
                                              -----------      -----------      -----------       -----------
     Gross margin .......................            (210)              --               --              (210)
Other Income
  Interest  and other ...................           2,448            2,948               --             5,396
  Equity (loss) in equity investees .....         (13,739)          (5,950)          12,696  {A}       (1,688)
                                                                                      5,305  {B}
  Gain on sale of real estate ...........          96,749           54,270          (27,852) {C}      123,167
                                              -----------      -----------      -----------       -----------
                                                   85,458           51,268           (9,851)          126,875
Other expense
  Interest ..............................          77,048           41,058            5,492  {D}      123,598
  Depreciation ..........................          17,707           19,705           (1,371) {E}       36,041
  Advisory fee to affiliate .............           6,715            5,346           (1,043) {F}       11,018
  Net income fee to affiliate ...........             166            1,850           (2,016) {G}           --
  Incentive fees to affiliate ...........           3,827            3,167              493  {H}        7,487
  General and administrative ............          12,743           11,412               --            24,155
  Litigation settlement .................             100               --               --               100
  Provision for loss ....................           2,500              281               --             2,781
  Impairment loss .......................              --            3,059               --             3,059
  Minority Interest .....................             972              (72)              --               900
                                              -----------      -----------      -----------       -----------
                                                  121,778           85,806            1,555           209,139
Net income (loss) .......................          15,069           19,811          (11,406)           23,474
Preferred dividend requirement ..........          (2,485)            (172)          (2,338) {I}       (4,995)
                                              -----------      -----------      -----------       -----------
Net income (loss) .......................     $    12,584      $    19,639      $   (13,744)      $    18,478
Earnings per share
Net income applicable to common shares
Basic ...................................     $      1.07                                         $      1.68
Diluted .................................     $      1.07                                         $      1.32




                                      261



            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
            (Assuming All Nonaffiliated TCI Stockholders Receive Cash
                      for Their Shares of TCI Common Stock)
                             ARL ACQUISITION OF TCI
                                December 31, 2001






                                                      Historical
                                              ----------------------------       Proforma           Proforma
                                                  ARL              TCI          Adjustments         Combined
                                              -----------      -----------      -----------       -----------
                                                                                      
Average common shares used in computing
 earnings per share
Basic....................................      11,714,374                                          10,967,402
Diluted..................................      11,714,374                                          13,967,487




                                      262




            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             ARL ACQUISITION OF TCI
            (Assuming All Nonaffiliated TCI Stockholders Receive Cash
                      for their Shares of TCI Common Stock)
                                December 31, 2001

The notes to these financial statements assume that 100% of the nonaffiliated
stockholders will accept cash for their shares of TCI common stock.

Note A. To record the elimination of ARL's equity losses from TCI.
Note B. To record the elimination of TCI's equity losses from ARL.
Note C. To record the elimination of TCI's share of gains on sales of real
        estate from ARL and ARL's share of gain on sales of real estate from
        TCI.
Note D. To record interest expense on $49,929,000 of debt at 11% to acquire TCI.
Note E. To record the depreciation adjustment for new real estate basis.
Note F. To record the advisor fee adjustment for new gross asset basis. The
        Advisory Agreement provides for BCM to receive an advisory fee comprised
        of a gross asset fee of .75% per annum of the average gross asset value.
        TCI's and ARL's combined gross assets would be reduced by $139,001,000
        if the transaction had taken place on January 1, 2001.
Note G. To record the net income fee adjustment for new net income. ARL's
        Advisory Agreement provides for BCM to receive a net income fee equal
        to 10% of net income for the year in excess of a 10% return on
        stockholders' equity. The combined net income of TCI and ARL does not
        meet the 10% return on stockholders' equity.
Note H. To record the incentive fee adjustment for TCI on ARL basis. ARL's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the excess of net capital gains over net capital losses. TCI's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the amount, if any, by which the aggregate sales consideration
        for all real estate sold by TCI during the year exceeds the sum of: (1)
        the cost of each such property, (2) capital improvements made to such
        property, and (3) all closing costs incurred in the sale of such real
        estate. TCI's incentive fee would increase by $493,000 based on ARL's
        Advisory Agreement.
Note I. To record preferred stock dividends of $2.00 per share on Series G
        redeemable convertible preferred stock.



                                      263




            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                         ARL ACQUISITION OF TCI AND IOT
        (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash
                  for Their Shares of TCI and IOT Common Stock)
                                December 31, 2000





                                                      Historical                        Proforma Adjustments
                                     -------------------------------------------    ----------------------------       Proforma
                                         ARL            TCI              IOT            TCI              IOT            Combined
                                     -----------    -----------      -----------    -----------      -----------      -----------
                                                                                                       
Property Revenue
  Rents ...........................  $   138,160    $   139,357      $    13,731             --      $        --      $   291,248
  Property operations .............        4,081         78,061            6,969             --               --          179,111
                                     -----------    -----------      -----------    -----------      -----------      -----------
      Operating income ............       44,079         61,296            6,762             --               --          112,137
Land Operations
  Sales ...........................      119,384             --               --                                          119,384
  Cost of Sales ...................       90,383             --               --                              --           90,383
                                     -----------    -----------      -----------    -----------      -----------      -----------
      Gain on land sales ..........       29,001             --               --             --               --           29,001
Pizza Parlor operations
  Sales ...........................       32,551             --               --                              --           32,551
  Cost of Sales ...................       26,767             --               --                              --           26,767
                                     -----------    -----------      -----------    -----------      -----------      -----------
     Gross margin .................        5,784             --               --             --               --            5,784
Other Income
  Interest  and other .............        2,039          2,370              319           (358) {A}          --            4,370
  Equity (loss) in equity
    investees .....................      (13,325)          (556)             (61)         6,103  {B}       1,042  {C}      (6,797)
  Gain on sale of real estate .....       86,298         50,550           20,878        (17,230) {D}      (5,913) {E}     134,583
                                     -----------    -----------      -----------    -----------      -----------      -----------
                                          75,012         52,364           21,136        (11,485)          (4,871)         132,156
Other expense
  Interest ........................       76,702         47,997            5,079           (358) {A}          --          136,117
                                                                                          5,492  {F}       1,205  {F}
  Depreciation ....................       16,879         19,702            2,450           (605) {G}        (522) {G}      37,904
  Advisory fee to affiliate .......        5,049          5,258              664           (934) {H}        (200) {H}       9,837
  Net income fee to affiliate .....           --          2,415            1,362         (2,415) {I}      (1,362) {I}          --
  Incentive fee to affiliate ......        1,646             --               --          2,556  {I}       1,848  {J}       6,050
  General and administrative ......       17,973          8,506            1,549             --               --           28,028
  Provision for loss ..............        2,248             --               --                                            2,248
  Minority Interest ...............       30,700             --               --             --               --           30,700
                                     -----------    -----------      -----------    -----------      -----------      -----------
                                         151,197         83,878           11,104          3,736              969          250,884

Net income (loss) .................        2,679         29,782           16,794        (15,221)          (5,840)          28,194
Preferred dividend requirement ....       (2,327)           (22)              --         (2,338) {K}        (230) {L}      (4,917)
                                     -----------    -----------      -----------    -----------      -----------      -----------
Net income (loss) .................  $       352    $    29,760      $    16,794    $   (17,559)     $    (6,070)     $    23,277
Earnings per share
Net income applicable to
 common shares
Basic .............................  $      0.04                                                                      $      2.41
Diluted ...........................  $      0.04                                                                      $      1.90
Average common shares used in
 computing earnings per share
Basic .............................   10,399,890                                                                        9,652,918
Diluted ...........................   10,399,890                                                                       12,253,261




                                      264




            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                         ARL ACQUISITION OF IOT AND TCI

        (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Cash
                 For Their Shares of TCI and IOT Common Stock)
                                December 31, 2000

The notes to these financial statements assume that 100% of the nonaffiliated
stockholders will accept cash for their shares of TCI and IOT common stock.

Note A. To record the elimination of interest income and expense from TCI's loan
        to ARL during 2000.
Note B. To record the elimination of ARL's equity losses from TCI and TCI's
        equity losses from IOT.
Note C. To record the elimination of ARL's equity losses from IOT.
Note D. To record the elimination of TCI's share of gains on sales of real
        estate from IOT and ARL's share of gains on sales of real estate from
        TCI.
Note E. To record the elimination of TCI's share of gains on sales of real
        estate from IOT.
Note F. To record interest expense on $60,882,000 of debt at 11% to acquire TCI
        and IOT.
Note G. To record the depreciation adjustment for new real estate basis.
Note H. To record the advisor fee adjustment for new gross asset basis. The
        Advisory Agreement provides for BCM to receive an advisory fee comprised
        of a gross asset fee of .75% per annum of the average gross asset value.
        TCI's and ARL's combined gross assets would be reduced by $124,554,000
        if the transaction had taken place on January 1, 2000. IOT's and ARL's
        combined gross assets would be reduced by $26,628,000 if the transaction
        had taken place on January 1, 2000.
Note I. To record the net income fee adjustment for new net income. ARL's
        Advisory Agreement provides for BCM to receive a net income fee equal to
        10% of net income for the year in excess of a 10% return on
        stockholders' equity. The combined net income of TCI, IOT, and ARL does
        not meet the 10% return on stockholders' equity.
Note J. To record the incentive fee adjustment for TCI on ARL basis. ARL's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the excess of net capital gains over net capital losses. TCI's
        and IOT's Advisory Agreement provides for BCM to receive an incentive
        fee equal to 10% of the amount, if any, by which the aggregate sales
        consideration for all real estate sold by TCI and IOT during the year
        exceeds the sum of: (1) the cost of each such property, (2) capital
        improvements made to such property, and (3) all closing costs incurred
        in the sale of such real estate. TCI's and IOT's incentive fee would
        increase by $2,556,000 and $1,848,000, respectively based on ARL's
        Advisory Agreement.
Note K. To record preferred stock dividends of $2.00 per share on Series G
        redeemable convertible preferred stock.
Note L. To record preferred stock dividends of $2.15 per share on Series H
        redeemable convertible preferred stock.



                                      265




            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             ARL ACQUISITION OF IOT
            (Assuming All Nonaffiliated IOT Stockholders Receive Cash
                      for Their Shares of IOT Common Stock)
                                December 31, 2000






                                                          Historical
                                                ----------------------------       Proforma          Proforma
                                                    ARL              IOT          Adjustments        Combined
                                                -----------      -----------      -----------       -----------
                                                                                        
Property Revenue
  Rents ...................................     $   138,160           13,731      $        --       $   151,891
  Property operations .....................          94,081            6,969               --           101,050
                                                -----------      -----------      -----------       -----------
      Operating income ....................          44,079            6,762               --            50,841
Land Operations
  Sales ...................................         119,384               --               --           119,384
  Cost of Sales ...........................          90,383               --               --            90,383
                                                -----------      -----------      -----------       -----------
      Gain on land sales ..................          29,001               --               --            29,001
Pizza Parlor operations
  Sales ...................................          32,551               --               --            32,551
  Cost of Sales ...........................          26,767               --               --            26,767
                                                -----------      -----------      -----------       -----------
     Gross margin .........................           5,784               --               --             5,784
Other Income
  Interest  and other .....................           2,039              319               --             2,358
  Equity (loss) in equity investees .......         (13,325)             (61)           1,042  {A}      (12,344)
  Gain on sale of real estate .............          86,298           20,878           (5,913) (B)      101,263
                                                -----------      -----------      -----------       -----------
                                                     75,012           21,136           (4,871)           91,277
Other expense
  Interest ................................          76,702            5,079            1,205  {C}       82,986
  Depreciation ............................          16,879            2,450             (522) {D}       18,807
  Advisory fee to affiliate ...............           5,049              664             (200) {E}        5,513
  Net income fee to affiliate .............              --            1,362           (1,362) {F}           --
  Incentive fee to affiliate ..............           1,646               --            1,848  {G}        3,494
  General and administrative ..............          17,973            1,549               --            19,522
  Provision for loss ......................           2,248               --                              2,248
  Minority Interest .......................          30,700               --               --            30,700
                                                -----------      -----------      -----------       -----------
                                                    151,197           11,104              969           163,270

Net income (loss) .........................           2,679           16,794           (5,840)           13,633
Preferred dividend requirement ............          (2,327)              --             (230) {H}       (2,557)
                                                -----------      -----------      -----------       -----------
Net income (loss) .........................     $       352      $    16,794      $    (6,070)      $    11,076
Earnings per share
Net income applicable to common shares
   Basic ..................................     $      0.03                                         $      1.06
   Diluted ................................     $      0.03                                         $      1.05
Average common shares used in computing
 earnings per share
   Basic ..................................      10,399,890                                          10,399,890
   Diluted ................................      10,399,890                                          10,520,042




                                      266




            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             ARL ACQUISITION OF IOT
            (Assuming All Nonaffiliated IOT Stockholders Receive Cash
                     for Their Shares of IOT Common Stock)
                                December 31, 2000

The notes to these financial statements assume that 100% of the nonaffiliated
stockholders will accept cash for their shares of IOT common stock.

Note A. To record the elimination of ARL's equity gains from IOT.
Note B. To record the elimination of ARL's share of gains on sales of real
        estate from IOT.
Note C. To record interest expense on $10,953,000 of debt at 11% to acquire IOT.
Note D. To record the depreciation adjustment for new real estate basis.
Note E. To record the advisor fee adjustment for new gross asset basis. The
        Advisory Agreement provides for BCM to receive an advisory fee comprised
        of a gross asset fee of .75% per annum of the average gross asset value.
        IOT's and ARL's combined gross assets would be reduced by $26,628,000 if
        the transaction had taken place on January 1, 2000.
Note F. To record the net income fee adjustment for new net income. ARL's
        Advisory Agreement provides for BCM to receive a net income fee equal to
        10% of net income for the year in excess of a 10% return on
        stockholders' equity. The combined net income of IOT and ARL does not
        meet the 10% return on stockholders' equity.
Note G. To record the incentive fee adjustment for IOT on ARL basis. ARL's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the excess of net capital gains over net capital losses. IOT's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the amount, if any, by which the aggregate sales consideration
        for all real estate sold by IOT during the year exceeds the sum of: (1)
        the cost of each such property, (2) capital improvements made to such
        property, and (3) all closing costs incurred in the sale of such real
        estate. IOT's incentive fee would increase by $1,848,000 based on ARL's
        Advisory Agreement.
Note H. To record preferred stock dividends of $2.15 per share on Series H
        redeemable convertible preferred stock.



                                      267




            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             ARL ACQUISITION OF TCI
            (Assuming All Nonaffiliated TCI Stockholders Receive Cash
                      for Their Shares of TCI Common Stock)
                                December 31, 2000





                                                        Historical
                                               ----------------------------       Proforma          Proforma
                                                   ARL             TCI           Adjustments        Combined
                                               -----------      -----------      -----------       -----------
                                                                                       
Property Revenue
  Rents ..................................     $   138,160      $   139,357      $        --       $   277,517
  Property operations ....................          94,081           78,061               --           172,142
                                               -----------      -----------      -----------       -----------
      Operating income ...................          44,079           61,296               --           105,375
Land Operations
  Sales ..................................         119,384               --               --           119,384
  Cost of Sales ..........................          90,383               --               --            90,383
                                               -----------      -----------      -----------       -----------
      Gain on land sales .................          29,001               --               --            29,001
Pizza Parlor operations
  Sales ..................................          32,551               --               --            32,551
  Cost of Sales ..........................          26,767               --               --            26,767
                                               -----------      -----------      -----------       -----------
     Gross margin ........................           5,784               --               --             5,784
Other Income
  Interest and other .....................           2,039            2,370             (358) {A}        4,051
  Equity (loss) in equity investees ......         (13,325)            (556)           5,415  {B}       (8,466)
  Gain on sale of real estate ............          86,298           50,550          (12,658) (C)      124,190
                                               -----------      -----------      -----------       -----------
                                                    75,012           52,364           (7,601)          119,775
Other expense
  Interest ...............................          76,702           47,997             (358) {A}      129,833
                                                                                       5,492  {D}
  Depreciation ...........................          16,879           19,702             (605) {E}       35,976
  Advisory fee to affiliate ..............           5,049            5,258             (943) {F}        9,364
  Net income fee to affiliate ............              --            2,415           (2,415) {G}           --
  Incentive fee to affiliate .............           1,646               --            2,556  {H}        4,202
  General and administrative .............          17,973            8,506               --            26,479
  Provision for loss .....................           2,248               --               --             2,248
  Minority Interest ......................          30,700               --               --            30,700
                                               -----------      -----------      -----------       -----------
                                                   151,197           83,878            3,727           238,802

Net income (loss) ........................           2,679           29,782          (11,328)           21,133
Preferred dividend requirement ...........          (2,327)             (22)          (2,338) {I}       (4,687)
                                               -----------      -----------      -----------       -----------
Net income (loss) ........................     $       352      $    29,760      $   (13,666)      $    16,446
Earnings per share
Net income applicable to Common shares
   Basic .................................     $      0.03                                         $      1.70
   Diluted ...............................     $      0.03                                         $      1.48
Average Common shares used in computing
 earnings per share
   Basic .................................      10,399,890                                           9,652,918
   Diluted ...............................      10,399,890                                          11,113,886




                                      268




            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             ARL ACQUISITION OF TCI
            (Assuming All Nonaffiliated TCI Stockholders Receive Cash
                      for Their Shares of TCI Common Stock)
                                December 31, 2000

The notes to these financial statements assume that 100% of the nonaffiliated
stockholders will accept cash for their shares of TCI common stock.

Note A. To record the elimination of interest income and expense from TCI's loan
        to ARL during 2000.
Note B. To record the elimination of ARL's equity losses from TCI.
Note C. To record the elimination of ARL's share of gains on sales of real
        estate from TCI.
Note D. To record interest expense on $49,929,000 of debt at 11% to acquire TCI.
Note E. To record the depreciation adjustment for new real estate basis.
Note F. To record the advisor fee adjustment for new gross asset basis. The
        Advisory Agreement provides for BCM to receive an advisory fee comprised
        of a gross asset fee of .75% per annum of the average gross asset value.
        TCI's and ARL's combined gross assets would be reduced by $125,793,000
        if the transaction had taken place on January 1, 2000.
Note G. To record the net income fee adjustment for new net income. ARL's
        Advisory Agreement provides for BCM to receive a net income fee equal to
        10% of net income for the year in excess of a 10% return on
        stockholders' equity. The combined net income of TCI and ARL does not
        meet the 10% return on stockholders' equity.
Note H. To record the incentive fee adjustment for TCI on ARL basis. ARL's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the excess of net capital gains over net capital losses. TCI's
        Advisory Agreement provides for BCM to receive an incentive fee equal to
        10% of the amount, if any, by which the aggregate sales consideration
        for all real estate sold by TCI during the year exceeds the sum of: (1)
        the cost of each such property, (2) capital improvements made to such
        property, and (3) all closing costs incurred in the sale of such real
        estate. TCI's incentive fee would increase by $2,556,000 based on ARL's
        Advisory Agreement.
Note I. To record preferred stock dividends of $2.00 per share on Series G
        redeemable convertible preferred stock.



                                      269




                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                         ARL ACQUISITION OF TCI AND IOT
     (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Series G
                  and Series H Redeemable Convertible Preferred
        Stock for Their Shares of TCI and IOT Common Stock, Respectively)
                                December 31, 2001





                                             Historical             Proforma Adjustments
                                     --------------------------   -------------------------        Proforma
                                         ARL            TCI           IOT           TCI              IOT             Combined
                                     -----------    -----------   -----------   -----------       -----------       -----------
                                                                                                  
Assets
Real estate held for investment, ..  $   373,660    $   622,171   $    87,315   $   (48,597) {A}  $   (13,742) {B} $ 1,021,807
 net of accumulated depreciation ..                                                     879  {C}          121 {C}
                                     -----------    -----------   -----------   -----------       -----------      -----------
                                         373,660        622,171        87,315       (47,718)          (13,621)       1,021,807
Real estate held for sale .........      214,543            516            --            --                --          215,059
Notes and interest receivable .....       32,959         22,867           505        (1,970) {D}           --           54,361
Less-allowance for estimated
 losses ...........................       (2,577)          (818)           --            --                --           (3,395)
                                     -----------    -----------   -----------   -----------       -----------      -----------
                                          30,382         22,049           505        (1,970)               --           50,966
Pizza parlor equipment, net of
 accumulated depreciation .........        6,707             --            --            --                --            6,707
Leasehold interest - oil and gas
 properties, net of accumulated
 depreciation .....................        4,718             --            --            --                --              718
Oilfield equipment, net of
 accumulated depreciation .........          490             --            --            --                --              490
Marketable equity securities, at
 market value .....................           96             --            --            --                --               96
Cash and cash equivalents .........          709         10,346            66            --                --           11,121
Investment in equity investees ....       77,933         14,230           142       (82,181) {E}       (6,789) {F}       3,335
Intangibles, net of accumulated
 amortization .....................       15,594             --            --            --                --           15,594
Other assets ......................       33,931         39,840         3,805            --                --           77,576
                                     -----------    -----------   -----------   -----------       -----------      -----------
                                     $   758,763    $   709,152   $    91,833   $  (131,869)      $   (20,410)     $ 1,407,469
                                     ===========    ===========   ===========   ===========       ===========      ===========




                                      270




                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                         ARL ACQUISITION OF TCI AND IOT
     (Assuming All Nonaffiliated TCI and IOT Stockholders Receive Series G
                  and Series H Redeemable Convertible Preferred
        Stock for Their Shares of TCI and IOT Common Stock, Respectively)
                                December 31, 2001





                                                      Historical                       Proforma Adjustments
                                         --------------------------------------   -----------------------------       Proforma
                                             ARL          TCI           IOT           TCI               IOT           Combined
                                         -----------  -----------   -----------   -----------       -----------      -----------
                                                                                                   
Liabilities and Equity

Liabilities

Notes and interest payable ..........    $   564,298  $   461,037   $    54,426   $    (1,970) {D}  $        --      $ 1,077,791

Margin borrowings ...................         28,040           --            --            --                --           28,040

Other liabilities ...................         48,960       25,966         2,185           879  {C}          121 {C}       78,111
                                         -----------  -----------   -----------   -----------       -----------      -----------
                                             641,298      487,003        56,611        (1,091)