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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



FOR THE QUARTER ENDED MARCH 31, 2004



Commission File Number 1-9240



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TRANSCONTINENTAL REALTY INVESTORS, INC.

(Exact Name of Registrant as
Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 94-6565852                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|1800 Valley View Lane, Suite 300, Dallas, Texas                |  | 75234                               
|(Address of Principal Executive Office)                        |  | (Zip Code)                          



(469) 522-4200

(Registrants Telephone Number, Including Area Code)



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Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes ̈.    No  x.



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x.    No ̈.



APPLICABLE ONLY TO CORPORATE ISSUERS:



Indicate the number of shares outstanding of each of the issuers classes of Common Stock, as of the latest practicable
date.



|                             |  |                              
|---------------------------- |  | -----------------------------
|Common Stock, $.01 par value |  | 8,113,669                    
|(Class)                      |  | (Outstanding at May 14, 2004)



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PART I. FINANCIAL INFORMATION



|ITEM 1. |  | FINANCIAL STATEMENTS
|------- |  | --------------------



The accompanying Consolidated Financial Statements as of and for the three months ended March 31, 2004, have not been audited by independent certified public accountants,
but in the opinion of the management of Transcontinental Realty Investors, Inc. (TCI), all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of TCIs consolidated financial position,
consolidated results of operations and consolidated cash flows at the dates and for the periods indicated, have been included.



TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                               |  |                                          |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                               |  | March 31, 2004                           |         |   | December 31, 2003 |  
|                                                                                               |  | (dollars in thousands, except per share) |        
|Assets                                                                                         |  |                                          |         |   |                   |   |         |  
|Real estate held for investment                                                                |  | $                                        | 857,278 |   |                   | $ | 807,371 |  
|Lessaccumulated depreciation                                                                  |  |                                          | (91,547 | ) |                   |   | (88,295 | )
|                                                                                               |  |                                          |         |   |                   |   |         |  
|                                                                                               |  |                                          | 765,731 |   |                   |   | 719,076 |  
|                                                                                               |  |                                         
|Real estate held for sale                                                                      |  |                                          | 22,841  |   |                   |   | 61,457  |  
|                                                                                               |  |                                         
|Notes and interest receivable                                                                  |  |                                          |         |   |                   |   |         |  
|Performing (including $20,925 in 2004 and $18,793 in 2003 from affiliates and related parties) |  |                                          | 38,181  |   |                   |   | 27,894  |  
|Nonperforming, nonaccruing                                                                     |  |                                          | 4,303   |   |                   |   | 4,303   |  
|                                                                                               |  |                                          |         |   |                   |   |         |  
|                                                                                               |  |                                          | 42,484  |   |                   |   | 32,197  |  
|Lessallowance for estimated losses                                                            |  |                                          | (1,456  | ) |                   |   | (1,456  | )
|                                                                                               |  |                                          |         |   |                   |   |         |  
|                                                                                               |  |                                          | 41,028  |   |                   |   | 30,741  |  
|                                                                                               |  |                                         
|Investment in real estate entities                                                             |  |                                          | 14,732  |   |                   |   | 14,271  |  
|Marketable equity securities, at market value                                                  |  |                                          | 5,397   |   |                   |   | 5,000   |  
|Cash and cash equivalents                                                                      |  |                                          | 7,331   |   |                   |   | 6,434   |  
|Other assets (including $1,706 in 2004 and $4,819 in 2003 from affiliates and related parties) |  |                                          | 36,989  |   |                   |   | 44,011  |  
|                                                                                               |  |                                          |         |   |                   |   |         |  
|                                                                                               |  | $                                        | 894,049 |   |                   | $ | 880,990 |  
|                                                                                               |  |                                          |         |   |                   |   |         |  



The accompanying notes are an integral
part of these Consolidated Financial Statements.



2



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETSContinued



|                                                                                                                                   |  |                                          |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                   |  | March  31,2004                           |         |   | December 31,2003 |  
|                                                                                                                                   |  | (dollars in thousands, except per share) |        
|Liabilities and Stockholders Equity                                                                                               |  |                                          |         |   |                  |   |         |  
|Liabilities                                                                                                                        |  |                                          |         |   |                  |   |         |  
|Notes and interest payable                                                                                                         |  | $                                        | 599,173 |   |                  | $ | 608,240 |  
|Liabilities related to assets held for sale                                                                                        |  |                                          | 15,810  |   |                  |   | 18,225  |  
|Other liabilities (including $10,509 in 2004 and $607 in 2003 to related parties)                                                  |  |                                          | 56,646  |   |                  |   | 34,688  |  
|                                                                                                                                   |  |                                          |         |   |                  |   |         |  
|                                                                                                                                   |  |                                          | 671,629 |   |                  |   | 661,153 |  
|Commitments and contingencies                                                                                                      |  |                                          |         |   |                  |   |         |  
|                                                                                                                                   |  |                                         
|Minority interest                                                                                                                  |  |                                          | 490     |   |                  |   | (126    | )
|                                                                                                                                   |  |                                         
|Stockholders equity                                                                                                               |  |                                          |         |   |                  |   |         |  
|Preferred Stock                                                                                                                    |  |                                          |         |   |                  |   |         |  
|Series C; $.01 par value; authorized, issued and outstanding 30,000 shares (liquidation preference $3,000)                         |  |                                          |        |   |                  |   |        |  
|Common stock, $.01 par value; authorized, 10,000,000 shares; issued and outstanding 8,113,669 shares in 2004 and 8,072,594 in
2003 |  |                                          | 81      |   |                  |   | 81      |  
|Paid-in capital                                                                                                                    |  |                                          | 256,861 |   |                  |   | 256,914 |  
|Accumulated deficit                                                                                                                |  |                                          | (34,890 | ) |                  |   | (36,416 | )
|Accumulated other comprehensive loss                                                                                               |  |                                          | (122    | ) |                  |   | (616    | )
|                                                                                                                                   |  |                                          |         |   |                  |   |         |  
|                                                                                                                                   |  |                                          | 221,930 |   |                  |   | 219,963 |  
|                                                                                                                                   |  |                                          |         |   |                  |   |         |  
|                                                                                                                                   |  | $                                        | 894,049 |   |                  | $ | 880,990 |  
|                                                                                                                                   |  |                                          |         |   |                  |   |         |  



The accompanying notes are an integral
part of these Consolidated Financial Statements.



3



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                                                         |  |                                         |         |   |      |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---- | - | ------ | -
|                                                                                                                                         |  | For the Three Months Ended March 31,    |        
|                                                                                                                                         |  | 2004                                    |         |   | 2003 |  
|                                                                                                                                         |  | (dollars in thousands,except per share) |        
|Property revenue                                                                                                                         |  |                                         |         |   |      |   |        |  
|Rents                                                                                                                                    |  | $                                       | 29,546  |   |      | $ | 24,461 |  
|Property expense                                                                                                                         |  |                                         |         |   |      |   |        |  
|Property operations (including $803 for three months of 2004 and $807 for three months of 2003 to affiliates and related
parties)        |  |                                         | 18,139  |   |      |   | 16,606 |  
|                                                                                                                                         |  |                                         |         |   |      |   |        |  
|Operating income                                                                                                                         |  |                                         | 11,407  |   |      |   | 7,855  |  
|                                                                                                                                         |  |                                        
|Other income (loss)                                                                                                                      |  |                                         |         |   |      |   |        |  
|Interest and other (including $201 for three months of 2004 and $152 for three months of 2003 from affiliates and related
parties)       |  |                                         | 398     |   |      |   | 848    |  
|Equity in loss of equity investees                                                                                                       |  |                                         | (570    | ) |      |   | (1,296 | )
|                                                                                                                                         |  |                                         |         |   |      |   |        |  
|                                                                                                                                         |  |                                         | (172    | ) |      |   | (448   | )
|Other expense                                                                                                                            |  |                                         |         |   |      |   |        |  
|Interest                                                                                                                                 |  |                                         | 10,545  |   |      |   | 8,477  |  
|Depreciation                                                                                                                             |  |                                         | 5,741   |   |      |   | 4,404  |  
|Advisory fee to affiliates                                                                                                               |  |                                         | 1,640   |   |      |   | 1,656  |  
|Net income fee to affiliate                                                                                                              |  |                                         | 79      |   |      |   |       |  
|General and administrative (including $478 for three months of 2004 and $559 for three months of 2003 to affiliates and related
parties) |  |                                         | 2,957   |   |      |   | 1,697  |  
|Loss on foreign currency transaction                                                                                                     |  |                                         |        |   |      |   | 3      |  
|Discount on sale of note receivable                                                                                                      |  |                                         |        |   |      |   | 104    |  
|Minority interest                                                                                                                        |  |                                         | 324     |   |      |   | (61    | )
|                                                                                                                                         |  |                                         |         |   |      |   |        |  
|                                                                                                                                         |  |                                         | 21,286  |   |      |   | 16,280 |  
|                                                                                                                                         |  |                                         |         |   |      |   |        |  
|Net loss from continuing operations                                                                                                      |  |                                         | (10,051 | ) |      |   | (8,873 | )
|                                                                                                                                         |  |                                        
|Discontinued operations:                                                                                                                 |  |                                         |         |   |      |   |        |  
|Income (loss) from operations                                                                                                            |  |                                         | (329    | ) |      |   | (40    | )
|Gain on sale of operations                                                                                                               |  |                                         | 10,878  |   |      |   |       |  
|Equity in investees gain on sale of real estate                                                                                          |  |                                         | 1,028   |   |      |   | 1,509  |  
|                                                                                                                                         |  |                                         |         |   |      |   |        |  
|                                                                                                                                         |  |                                         | 11,577  |   |      |   | 1,469  |  
|                                                                                                                                         |  |                                         |         |   |      |   |        |  
|Net income (loss)                                                                                                                        |  |                                         | 1,526   |   |      |   | (7,404 | )
|Preferred dividend requirement                                                                                                           |  |                                         | (53     | ) |      |   | (45    | )
|                                                                                                                                         |  |                                         |         |   |      |   |        |  
|Net income (loss) applicable to common shares                                                                                            |  | $                                       | 1,473   |   |      | $ | (7,449 | )
|                                                                                                                                         |  |                                         |         |   |      |   |        |  



The
accompanying notes are an integral part of these Consolidated Financial Statements.



4



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                    |  |                                      |           |   |      |   |           |  
|------------------------------------------------------------------- |  | ------------------------------------ | --------- | - | ---- | - | --------- | -
|                                                                    |  | For the Three Months Ended March 31, |          
|                                                                    |  | 2004                                 |           |   | 2003 |  
|Basic earnings per share                                            |  |                                      |           |   |      |   |           |  
|Net loss from continuing operations                                 |  | $                                    | (1.25     | ) |      | $ | (1.10     | )
|Discontinued operations                                             |  |                                      | 1.43      |   |      |   | .18       |  
|                                                                    |  |                                      |           |   |      |   |           |  
|Net income (loss) applicable to common shares                       |  | $                                    | .18       |   |      | $ | (.92      | )
|                                                                    |  |                                      |           |   |      |   |           |  
|Diluted earnings per share                                          |  |                                      |           |   |      |   |           |  
|Net loss from continuing operations                                 |  | $                                    | (1.25     | ) |      | $ | (1.10     | )
|Discontinued operations                                             |  |                                      | 1.43      |   |      |   | .18       |  
|                                                                    |  |                                      |           |   |      |   |           |  
|Net income (loss) applicable to common shares                       |  | $                                    | .18       |   |      | $ | (.92      | )
|                                                                    |  |                                      |           |   |      |   |           |  
|Weighted average common shares used in computing earnings per share |  |                                      |           |   |      |   |           |  
|Basic                                                               |  |                                      | 8,113,669 |   |      |   | 8,072,594 |  
|Diluted                                                             |  |                                      | 8,113,669 |   |      |   | 8,072,594 |  



Convertible Series C Preferred stock
(226,881 shares) and options to purchase 30,000 shares of TCIs common stock were excluded from the computation of diluted earnings per share for the three months ended March 31, 2004, because the effect of their inclusion would be
antidilutive.



The accompanying notes are an integral part of these
Consolidated Financial Statements.



5



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY



|                                                         |  |                                          |  |                |    |  |                     |         |   |                                               |   |         |                      |  |   |      |   |  |   |         |  
|-------------------------------------------------------- |  | ---------------------------------------- |  | -------------- | -- |  | ------------------- | ------- | - | --------------------------------------------- | - | ------- | -------------------- |  | - | ---- | - |  | - | ------- | -
|                                                         |  | Common Stock                             |  | Paid-inCapital |    |  | Accumulated Deficit |         |   | Accumulated Other Comprehensive Income/(Loss) |   |         | Stockholders Equity | 
|                                                         |  | Shares                                   |  | Amount         |    |  |                     |        
|                                                         |  | (dollars in thousands, except per share) | 
|Balance, January 1, 2004                                 |  | 8,113,669                                |  | $              | 81 |  | $                   | 256,914 |   |                                               | $ | (36,416 | )                    |  | $ | (616 | ) |  | $ | 219,963 |  
|                                                         |  |                                          |  |                |    | 
|Comprehensive income                                     |  |                                          |  |                |    |  |                     |         |   |                                               |   |         |                      |  |   |      |   |  |   |         |  
|Unrealized gain on foreign currency translation          |  |                                         |  |                |   |  |                     |        |   |                                               |   |        |                      |  |   | 97   |   |  |   | 97      |  
|                                                         |  |                                          |  |                |    | 
|Unrealized gain on marketable securities                 |  |                                         |  |                |   |  |                     |        |   |                                               |   |        |                      |  |   | 397  |   |  |   | 397     |  
|                                                         |  |                                          |  |                |    | 
|Net income                                               |  |                                         |  |                |   |  |                     |        |   |                                               |   | 1,526   |                      |  |   |     |   |  |   | 1,526   |  
|                                                         |  |                                          |  |                |    |  |                     |         |   |                                               |   |         |                      |  |   |      |   |  |   |         |  
|                                                         |  |                                          |  |                |    |  |                     |         |   |                                               |   |         |                      |  |   |      |   |  |   | 2,020   |  
|                                                         |  |                                          |  |                |    | 
|Series C Preferred Stock cash dividend ($7.00 per share) |  |                                         |  |                |   |  |                     | (53     | ) |                                               |   |        |                      |  |   |     |   |  |   | (53     | )
|                                                         |  |                                          |  |                |    |  |                     |         |   |                                               |   |         |                      |  |   |      |   |  |   |         |  
|                                                         |  |                                          |  |                |    | 
|Balance, March 31, 2004                                  |  | 8,113,669                                |  | $              | 81 |  | $                   | 256,861 |   |                                               | $ | (34,890 | )                    |  | $ | (122 | ) |  | $ | 221,930 |  
|                                                         |  |                                          |  |                |    |  |                     |         |   |                                               |   |         |                      |  |   |      |   |  |   |         |  



The accompanying notes are an integral
part of these Consolidated Financial Statements.



6



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                  |  |                                      |          |   |      |   |         |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------ | -------- | - | ---- | - | ------- | -
|                                                                                                  |  | For the Three Months Ended March 31, |         
|                                                                                                  |  | 2004                                 |          |   | 2003 |  
|                                                                                                  |  | (dollars in thousands)               |         
|Cash Flows from Operating Activities                                                              |  |                                      |          |   |      |   |         |  
|Reconciliation of net income (loss) to net cash provided by (used in) operating activities        |  |                                      |          |   |      |   |         |  
|Net income(loss)                                                                                  |  | $                                    | 1,526    |   |      | $ | (7,404  | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                                      |          |   |      |   |         |  
|Depreciation and amortization                                                                     |  |                                      | 6,046    |   |      |   | 5,102   |  
|Amortization of deferred borrowing costs                                                          |  |                                      | 599      |   |      |   | 491     |  
|Gain on sale of real estate                                                                       |  |                                      | (11,906  | ) |      |   | (1,509  | )
|Equity in loss of equity investees                                                                |  |                                      | 570      |   |      |   | 1,296   |  
|Loss on foreign currency transaction                                                              |  |                                      |         |   |      |   | 3       |  
|Loss (income) allocated to minority interest                                                      |  |                                      | 324      |   |      |   | (61     | )
|Increase in interest receivable                                                                   |  |                                      | (345     | ) |      |   | (99     | )
|Decrease (increase) in other assets                                                               |  |                                      | 47       |   |      |   | (418    | )
|Decrease in interest payable                                                                      |  |                                      | (1,290   | ) |      |   | (120    | )
|Increase in other liabilities                                                                     |  |                                      | 15,995   |   |      |   | 1,618   |  
|                                                                                                  |  |                                      |          |   |      |   |         |  
|Net cash provided by (used in) operating activities                                               |  |                                      | 11,566   |   |      |   | (1,101  | )
|                                                                                                  |  |                                     
|Cash Flows from Investing Activities                                                              |  |                                      |          |   |      |   |         |  
|Collections on notes receivable                                                                   |  |                                      | 39       |   |      |   | 157     |  
|Funding of notes receivable                                                                       |  |                                      | (55      | ) |      |   | (461    | )
|Acquisition of real estate (including $690 in 2003 to affiliates and related parties)             |  |                                      | (14,700  | ) |      |   | (1,476  | )
|Real estate improvements                                                                          |  |                                      | (1,785   | ) |      |   | (17,612 | )
|Payments made under interest rate swap agreement                                                  |  |                                      |         |   |      |   | (56     | )
|Real estate construction                                                                          |  |                                      | (53,279  | ) |      |   |        |  
|Proceeds from sale of real estate                                                                 |  |                                      | 51,844   |   |      |   |        |  
|Distributions from equity investees, net                                                          |  |                                      | 4        |   |      |   | 600     |  
|Payments from (to) advisor                                                                        |  |                                      | 1,070    |   |      |   | (1,250  | )
|Deposits on pending purchases and financings                                                      |  |                                      | (2,594   | ) |      |   | (1,105  | )
|Purchase of marketable equity securities                                                          |  |                                      |         |   |      |   | (5,000  | )
|                                                                                                  |  |                                      |          |   |      |   |         |  
|Net cash used in investing activities                                                             |  |                                      | (19,456  | ) |      |   | (26,203 | )
|                                                                                                  |  |                                     
|Cash Flows from Financing Activities                                                              |  |                                      |          |   |      |   |         |  
|Payments on notes payable                                                                         |  |                                      | (106,861 | ) |      |   | (24,731 | )
|Proceeds from notes payable                                                                       |  |                                      | 117,137  |   |      |   | 45,367  |  
|Deferred financing costs (including $54 in 2003 to affiliates and related parties)                |  |                                      | (1,489   | ) |      |   | (400    | )
|                                                                                                  |  |                                      |          |   |      |   |         |  
|Net cash provided by financing activities                                                         |  |                                      | 8,787    |   |      |   | 20,236  |  
|                                                                                                  |  |                                     
|Net increase (decrease) in cash and cash equivalents                                              |  |                                      | 897      |   |      |   | (7,068  | )
|Cash and cash equivalents, beginning of period                                                    |  |                                      | 6,434    |   |      |   | 10,558  |  
|                                                                                                  |  |                                      |          |   |      |   |         |  
|Cash and cash equivalents, end of period                                                          |  | $                                    | 7,331    |   |      | $ | 3,490   |  
|                                                                                                  |  |                                      |          |   |      |   |         |  



The accompanying notes are an integral
part of these Consolidated Financial Statements.



7



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWSContinued



|                                                                    |  |                                      |        |      |   |       
|------------------------------------------------------------------- |  | ------------------------------------ | ------ | ---- | - | ------
|                                                                    |  | For the Three Months Ended March 31,
|                                                                    |  | 2004                                 |        | 2003
|                                                                    |  | (dollars in thousands)              
|Supplemental Disclosures of Cash Flow Information:                  |  |                                      |        |      |   |       
|                                                                    |  |                                     
|Cash paid for interest                                              |  | $                                    | 10,202 |      | $ | 10,358
|                                                                    |  |                                     
|Schedule of noncash investing and financing activities:             |  |                                      |        |      |   |       
|Notes payable assumed on purchase of real estate                    |  |                                      |       |      |   | 2,650 
|Notes payable assumed by buyer on sale of real estate               |  |                                      | 2,825  |      |   |      
|Funds collected by affiliate on sale of note receivable             |  |                                      |       |      |   | 2,700 
|Notes receivable provided on sale of real estate                    |  |                                      | 9,925  |      |   |      
|Note payable proceeds used by affiliate for purchase of real estate |  |                                      | 1,000  |      |   |      
|Real estate received from related party as payment of debt          |  |                                      |       |      |   | 10,700
|Real estate purchased from affiliate increasing affiliate payable   |  |                                      | 2,585  |      |   |      
|Note payable paid by affiliate                                      |  |                                      | 10,823 |      |   |      



The accompanying notes are an integral
part of these Consolidated Financial Statements.



8



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TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. BASIS OF PRESENTATION



Transcontinental Realty Investor, Inc. (TCI) is a Nevada corporation and
successor to a California business trust which was organized on September 6, 1983. TCI invests in real estate through direct ownership, leases and partnerships. TCI also invests in mortgage loans on real estate.



The accompanying Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete financial statements. Dollar amounts in tables are in thousands, except per share amounts. Certain balances for 2003 have been reclassified to conform
to the 2004 presentation.



Operating results for the three month period ended
March 31, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the Consolidated Financial Statements and notes included in TCIs Annual Report on Form
10-K for the year ended December 31, 2003 (the 2003 Form 10-K).



Effective March 31, 2003, TCI financial results have been consolidated in the American Realty Investors, Inc. (ARI) Form 10-Q and related consolidated financial statements. As of March 31, 2004, ARI owned 80.0% of the
outstanding TCI common shares.



TCI provides stock options to certain
directors. TCI accounts for these stock options using the intrinsic method pursuant to the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. In
December 2002, the Financial Accounting Standards Board issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure (SFAS 148), which amended SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). The new standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, the statement amends
the disclosure requirements of SFAS 123 to require prominent disclosures in the annual and interim financial statements for fiscal years ending after December 15, 2002. In compliance with SFAS No. 148, TCI has elected to continue to follow the
intrinsic value method in accounting for its stock-based employee compensation arrangement as defined by APB 25. If TCI had elected to recognize compensation cost for the issuance of options to directors of TCI based on the fair value at the grant
dates for awards consistent with the fair value method prescribed by SFAS No. 123, net income (loss) and income (loss) per share would have been impacted as follows:



|                                          |  |                                      |       |      |   |        |  
|----------------------------------------- |  | ------------------------------------ | ----- | ---- | - | ------ | -
|                                          |  | For the Three Months Ended March 31, |      
|                                          |  | 2004                                 |       | 2003 |  
|Net income (loss)                         |  |                                      |       |      |   |        |  
|As reported                               |  | $                                    | 1,526 |      | $ | (7,404 | )
|Proforma compensation expense, net of tax |  |                                      | 137   |      |   | 268    |  
|                                          |  |                                      |       |      |   |        |  
|Proforma                                  |  | $                                    | 1,389 |      | $ | (7,672 | )
|                                          |  |                                      |       |      |   |        |  
|Basic earnings (loss) per share:          |  |                                      |       |      |   |        |  
|As reported                               |  | $                                    | .18   |      | $ | (.92   | )
|Proforma                                  |  | $                                    | .17   |      | $ | (.95   | )
|Diluted earnings (loss) per share:        |  |                                      |       |      |   |        |  
|As reported                               |  | $                                    | .18   |      | $ | (.92   | )
|Proforma                                  |  | $                                    | .17   |      | $ | (.95   | )



9



---

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued



NOTE 2. REAL ESTATE



In 2004, TCI purchased the following properties:



|                           |  |                 |  |              |  |                |       |                         |   |      |              |  |               |       |  |               |   |  |      
|-------------------------- |  | --------------- |  | ------------ |  | -------------- | ----- | ----------------------- | - | ---- | ------------ |  | ------------- | ----- |  | ------------- | - |  | -----
|Property                   |  | Location        |  | Units/Acres  |  | Purchase Price |       | Net CashPaid/(Received) |   |      | DebtIncurred |  | Interest Rate |       |  | Maturity Date
|First Quarter              |  |                 |  |              |  |                |       |                         |   |      |              |  |               |       |  |               |   |  |      
|Apartments                 |  |                 |  |              |  |                |       |                         |   |      |              |  |               |       |  |               |   |  |      
|288 City Park(1)           |  | Houston, TX     |  | 240 Units    |  | $              | 3,056 |                         | $ | 612  |              |  | $             | 2,444 |  | 5.95          | % |  | 04/45
|Blue Lake Villas II(1)     |  | Waxahachie, TX  |  | 70 Units     |  |                | 729   |                         |   | (164 | )            |  |               | 729   |  | 5.80          |   |  | 04/45
|Bridges on Kinsey(1)       |  | Tyler, TX       |  | 232 Units    |  |                | 2,291 |                         |   | 596  |              |  |               | 1,687 |  | 5.74          |   |  | 08/45
|Dakota Arms(1)             |  | Lubbock, TX     |  | 208 Units    |  |                | 2,472 |                         |   | 681  |              |  |               | 1,791 |  | 5.85          |   |  | 06/45
|Lake Forest(1)             |  | Houston, TX     |  | 240 Units    |  |                | 2,316 |                         |   | (470 | )            |  |               | 2,316 |  | 5.60          |   |  | 03/45
|Vistas of Vance Jackson(1) |  | San Antonio, TX |  | 240 Units    |  |                | 3,550 |                         |   | 771  |              |  |               | 2,779 |  | 5.78          |   |  | 06/45
|                           |  |                 |  |              |  |                |      
|Land                       |  |                 |  |              |  |                |       |                         |   |      |              |  |               |       |  |               |   |  |      
|Lubbock land               |  | Lubbock, TX     |  | 2.866 Acres  |  |                | 224   |                         |   | 224  |              |  |               |      |  |              |   |  |     
|Railroad land              |  | Dallas, TX      |  | .293 Acres   |  |                | 708   |                         |   | 704  |              |  |               |      |  |              |   |  |     
|Vista Ridge land(2)        |  | Lewisville, TX  |  | 14.216 Acres |  |                | 2,585 |                         |   |     |              |  |               |      |  |              |   |  |     
|                           |  |                 |  |              |  |                |      
|Second Quarter             |  |                 |  |              |  |                |       |                         |   |      |              |  |               |       |  |               |   |  |      
|Apartments                 |  |                 |  |              |  |                |       |                         |   |      |              |  |               |       |  |               |   |  |      
|Wildflower Villas(1)       |  | Temple, TX      |  | 220 Units    |  |                | 2,045 |                         |   | 79   |              |  |               | 1,966 |  |              |   |  |     
|                           |  |                 |  |              |  |                |      
|Land                       |  |                 |  |              |  |                |       |                         |   |      |              |  |               |       |  |               |   |  |      
|Rogers land(1)             |  | Rogers, AR      |  | 20.08 Acres  |  |                | 1,390 |                         |   | 506  |              |  |               | 1,130 |  | 10.5          |   |  | 04/05

---

|(1) | Land purchased for apartment construction.
|--- | ------------------------------------------

|(2) | Property received from a related party as an increase to TCIs affiliate payable.
|--- | ---------------------------------------------------------------------------------



In 2003, TCI purchased the following properties:



|                    |  |                 |  |                    |  |                |       |              |   |              |  |   |               |     |  |               |   |  |       |    
|------------------- |  | --------------- |  | ------------------ |  | -------------- | ----- | ------------ | - | ------------ |  | - | ------------- | --- |  | ------------- | - |  | ----- | ---
|Property            |  | Location        |  | Units/Sq.Ft./Acres |  | Purchase Price |       | Net CashPaid |   | DebtIncurred |  |   | Interest Rate |     |  | Maturity Date |  
|First Quarter       |  |                 |  |                    |  |                |       |              |   |              |  |   |               |     |  |               |   |  |       |    
|Apartments          |  |                 |  |                    |  |                |       |              |   |              |  |   |               |     |  |               |   |  |       |    
|Heather Creek(1)    |  | Mesquite, TX    |  | 200 Units          |  | $              | 2,523 |              | $ | 449          |  | $ | 2,074         |     |  | 6.15          | % |  | 06/44 |    
|Capitol Hill(1)     |  | Little Rock, AR |  | 156 Units          |  |                | 1,904 |              |   | 615          |  |   | 1,289         |     |  | 5.50          |   |  | 10/44 |    
|Kingsland Ranch(1)  |  | Houston, TX     |  | 398 Units          |  |                | 3,300 |              |   |             |  |   | 3,300         |     |  | 6.12          |   |  | 03/45 |    
|                    |  |                 |  |                    |  |                |      
|Shopping Center     |  |                 |  |                    |  |                |       |              |   |              |  |   |               |     |  |               |   |  |       |    
|Bridgeview Plaza(2) |  | LaCrosse, WI    |  | 116,008 Sq.Ft.     |  |                | 8,700 |              |   |             |  |   |              |     |  |              |   |  |      |    
|Cullman(2) (5)      |  | Cullman, AL     |  | 92,433 Sq.Ft.      |  |                | 2,000 |              |   |             |  |   | 2,650         | (4) |  | 16.75         |   |  | 03/03 | (3)
|                    |  |                 |  |                    |  |                |      
|Land                |  |                 |  |                    |  |                |       |              |   |              |  |   |               |     |  |               |   |  |       |    
|Maumelle            |  | Maumelle, AR    |  | 10.8 Acres         |  |                | 1,100 |              |   | 412          |  |   | 640           |     |  | 5.75          |   |  | 07/04 |    

---

|(1) | Land purchased for apartment construction.
|--- | ------------------------------------------

|(2) | Property received from a related party for forgiveness of debt.
|--- | ---------------------------------------------------------------

|(3) | Debt was paid off in April 2003 refinance.
|--- | ------------------------------------------

|(4) | Assumed debt.
|--- | -------------

|(5) | TCI assumed $2.65 million of debt along with receiving property valued at $2.0 million and a note receivable valued at $650,000.
|--- | --------------------------------------------------------------------------------------------------------------------------------



10



---

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued



In 2004, TCI sold the following properties:



|                     |  |                   |  |                 |  |             |        |                   |   |                   |  |   |              |        |  |   |       |    
|-------------------- |  | ----------------- |  | --------------- |  | ----------- | ------ | ----------------- | - | ----------------- |  | - | ------------ | ------ |  | - | ----- | ---
|Property             |  | Location          |  | Acres/Sq.Ft.    |  | Sales Price |        | Net Cash Received |   | Debt Extinguished |  |   | Gain on Sale |       
|First Quarter        |  |                   |  |                 |  |             |        |                   |   |                   |  |   |              |        |  |   |       |    
|Office Building      |  |                   |  |                 |  |             |        |                   |   |                   |  |   |              |        |  |   |       |    
|Countryside Harmon   |  | Sterling, VA      |  | 72,062 Sq. Ft.  |  | $           | 2,650  |                   | $ | 216               |  | $ | 2,200        |        |  | $ | 1,861 |    
|Countryside Retail   |  | Sterling, VA      |  | 133,422 Sq. Ft. |  |             | 27,100 |                   |   | 3,408             |  |   | 22,800       |        |  |   | 5,475 |    
|                     |  |                   |  |                 |  |            
|Industrial Warehouse |  |                   |  |                 |  |             |        |                   |   |                   |  |   |              |        |  |   |       |    
|Kelly (Pinewood)     |  | Dallas, TX        |  | 100,000 Sq. Ft. |  |             | 1,650  |                   |   | 65                |  |   | 1,376        |        |  |   | 153   |    
|Ogden Industrial     |  | Ogden, UT         |  | 107,112 Sq. Ft. |  |             | 2,600  |                   |   | 668               |  |   | 1,775        |        |  |   | 1,374 |    
|Texstar Warehouse(2) |  | Arlington, TX     |  | 97,846 Sq. Ft.  |  |             | 2,400  |                   |   |                  |  |   | 1,148        | (1)(6) |  |   |      | (4)
|                     |  |                   |  |                 |  |            
|Shopping Center      |  |                   |  |                 |  |             |        |                   |   |                   |  |   |              |        |  |   |       |    
|K-Mart(3)            |  | Cary, NC          |  | 92,033 Sq. Ft.  |  |             | 3,200  |                   |   |                  |  |   | 1,677        | (1)(6) |  |   |      | (5)
|                     |  |                   |  |                 |  |            
|Land                 |  |                   |  |                 |  |             |        |                   |   |                   |  |   |              |        |  |   |       |    
|Allen                |  | Collin County, TX |  | 492.531 Acres   |  |             | 19,962 |                   |   | 7,956             |  |   | 4,088        |        |  |   | 2,106 | (7)
|Red Cross            |  | Dallas, TX        |  | 2.89 Acres      |  |             | 8,500  |                   |   | 2,842             |  |   | 4,450        |        |  |   |      |    
|                     |  |                   |  |                 |  |            
|Second Quarter       |  |                   |  |                 |  |             |        |                   |   |                   |  |   |              |        |  |   |       |    
|Office Building      |  |                   |  |                 |  |             |        |                   |   |                   |  |   |              |        |  |   |       |    
|Atrium               |  | Palm Beach, FL    |  | 74,603 Sq. Ft.  |  |             | 5,775  |                   |   | 1,667             |  |   | 3,750        |        |  |   | 357   |    

---

|(1) | Assumed debt.
|--- | -------------

|(2) | Property sold to Basic Capital Management (BCM), a related party, for assumption of debt and a note receivable. See Note 3. NOTES AND INTEREST RECEIVABLE.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Property sold to BCM, a related party, for assumption of debt and a note receivable. See Note 3. NOTES AND INTEREST RECEIVABLE.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(4) | Excludes a $1.0 million deferred gain from a related party sale.
|--- | ----------------------------------------------------------------

|(5) | Excludes $355,000 deferred gain from a related party sale.
|--- | ----------------------------------------------------------

|(6) | Failure to notify and receive approval from the lender for this transaction may constitute an even of default under the terms of the debt.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Excludes a $5.0 million deferred gain due to a portion of the land sold on a contingent basis for a note receivable of $7.2 million. See Note 3. NOTES AND INTEREST
RECEIVABLE.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



TCI did not sell any properties in the first
quarter of 2003.



At March 31, 2004, TCI had the following properties under
construction:



|                        |  |                 |  |           |  |                 |        |                            |   |                          |  |   |       
|----------------------- |  | --------------- |  | --------- |  | --------------- | ------ | -------------------------- | - | ------------------------ |  | - | ------
|Property                |  | Location        |  | Units     |  | Amount Expended |        | AdditionalAmount to Expend |   | ConstructionLoan Funding
|Apartments              |  |                 |  |           |  |                 |        |                            |   |                          |  |   |       
|288 City Park           |  | Houston, TX     |  | 240 Units |  | $               | 4,748  |                            | $ | 11,939                   |  | $ | 15,005
|Blue Lake Villas II     |  | Waxahachie, TX  |  | 70 Units  |  |                 | 407    |                            |   | 4,264                    |  |   | 4,234 
|Bluffs at Vista Ridge   |  | Lewisville, TX  |  | 272 Units |  |                 | 8,423  |                            |   | 12,162                   |  |   | 15,500
|Breakwater Bay          |  | Beaumont, TX    |  | 176 Units |  |                 | 7,701  |                            |   | 2,765                    |  |   | 9,545 
|Bridges on Kinsey       |  | Tyler, TX       |  | 232 Untis |  |                 | 1,643  |                            |   | 14,437                   |  |   | 14,477
|Capitol Hill            |  | Little Rock, AR |  | 156 Units |  |                 | 9,029  |                            |   | 1,550                    |  |   | 9,500 
|Dakota Arms             |  | Lubbock, TX     |  | 208 Units |  |                 | 1,930  |                            |   | 12,007                   |  |   | 12,549
|Kingsland Ranch         |  | Houston, TX     |  | 398 Units |  |                 | 21,925 |                            |   | 3,729                    |  |   | 23,000
|Lake Forest             |  | Houston, TX     |  | 240 Units |  |                 | 3,230  |                            |   | 11,207                   |  |   | 12,815
|Vistas at Pinnacle Park |  | Dallas, TX      |  | 322 Units |  |                 | 17,529 |                            |   | 3,652                    |  |   | 19,149
|Vistas of Vance Jackson |  | San Antonio, TX |  | 240 Units |  |                 | 3,044  |                            |   | 15,058                   |  |   | 16,056



11



---

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued



For the three months ended March 31, 2004, TCI completed the 248 unit DeSoto Ranch Apartments in DeSoto, Texas, the
314 unit Verandas at Cityview Apartments in Fort Worth, Texas and the 216 unit Mariposa Villas (Echo Valley) in Dallas, Texas.



NOTE 3. NOTES AND INTEREST RECEIVABLE



In March 2004, TCI sold 492.531 acres in Collin County, Texas to a third party for $19.9 million. TCI provided $7.2 million of the purchase
price as seller financing for a portion of the land on a contingent basis. The note bears interest at 7% and matures in September 2004. The buyer has the option to convey the contingent land back to TCI for cancellation of the note. The purchaser
also has the option to extend the note to December 2004 with a $1.1 million extension payment prior to the maturity date.



In June 2003, TCI sold the 104 unit Willow Wick Apartments in North Augusta, South Carolina, for $2.7 million and provided $42,000 of the purchasers closing costs
as seller financing. The note bears interest at a fixed rate of 5% and requires all interest and principal payments be paid at maturity on December 2003. This loan was extended until February 2004 and $10,000 was received in March 2004. Current
negotiations are ongoing to extend the loan or collect payment.



In July 2003,
an unsecured loan of $22,000 was made to an individual. The note bears interest at a fixed rate of 12% and requires all interest and principal payments be paid at maturity in January 2004. This note, including accrued and unpaid interest, was paid
in full in March 2004.



In August 2001, TCI agreed to fund up to $5.6 million
secured by a second lien on 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 matured in January 2003. As of September 2003, TCI has
funded a total of $4.3 million and the note is classified as nonperforming. The collateral used to secure TCIs second lien was seized by the first lien holder. On March 11, 2004, TCI agreed to accept an assignment of claims in litigation as
security for the note. TCI is also working on securing additional collateral for this note and restructuring the terms of the note but a new agreement has not been reached. The current agreement requires interest to accrue at the default rate of
18%.



In March 2002, TCI sold the 174,513 sq.ft. Hartford Office Building in
Dallas, Texas, for $4.0 million and provided the $4.0 million purchase price as seller financing and an additional $1.4 million line of credit for leasehold improvements in the form of a first lien mortgage note. The note bears interest at a
variable interest rate, currently 6.0% per annum, requires monthly interest only payments of $14,667 and matures in March 2007. As of March 2004, TCI funded $354,000 of the additional line of credit.



In July 2002, TCI entered into an agreement to fund up to $300,000 under a revolving line of
credit secured by 100% interest in a partnership of the borrower. The line of credit bears interest at 12.0% per annum and requires monthly interest only payments, and matures in June 2005. As of March 2004, TCI has funded $300,000 of the line of
credit.



In September 2002, TCI sold a 36 acre tract of the Palm Desert land
parcel for $3.6 million and provided $2.7 million as seller financing in the form of a first lien mortgage note. The note bears interest at 8.0% per annum, requires quarterly interest only payments of $54,000 and matures in September 2004. In March
2003, the note was sold to a financial institution for $2.6 million.



Related Party.In March 2004, TCI sold a K-Mart in Cary, North Carolina to BCM for $3.2 million, including the assumption of debt. TCI also provided $1.5 million of the purchase price as seller financing. The note bears interest at
the prime rate plus 2%, which is currently 6.0%, and matures in April 2005.



In
March 2004, TCI sold the Texstar Warehouse in Arlington, Texas to BCM for $2.4 million, including the assumption of debt. TCI also provided $1.3 million of the purchase price as seller financing. The note bears interest at the prime rate plus 2%,
which is currently 6.0%, and matures in April 2005.



NOTE 4. INVESTMENT IN REAL ESTATE ENTITIES



Real
estate entities. TCIs investment in real estate entities at March 31, 2004 included equity securities of two publicly traded real estate entities, Income Opportunity Realty Investors, Inc. (IORI) and ARI, related parties, and
interests in real estate joint venture partnerships. Basic Capital Management, Inc. (BCM), TCIs advisor until July 1, 2003, also served as advisor to IORI and ARI until July 1, 2003. Effective July 1, 2003, BCM was replaced as
contractual advisor to TCI by Prime Asset Management, Inc., (PAMI). Effective August 18, 2003, PAMI changed its name to Prime Income Asset Management, Inc., (PIAMI). On October 1, 2003, Prime Income Asset Management, LLC,
(Prime) replaced PIAMI as the advisor to TCI. ARI is a related party that owns 80% of TCIs common stock and consolidates TCIs financial accounts and operations.



12



---

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued



TCI accounts for its investment in IORI and ARI and the joint venture partnerships using the equity method.



TCIs investment in real estate entities, accounted for using the equity
method, at March 31, 2004, was as follows:



|         |  |                                               |   |  |                                              |        |                                              |   |       
|-------- |  | --------------------------------------------- | - |  | -------------------------------------------- | ------ | -------------------------------------------- | - | ------
|Investee |  | Percentage of TCIsOwnership atMarch 31, 2004 |   |  | Carrying Value ofInvestment atMarch 31, 2004 |        | Market Value of Investment at March 31, 2004
|IORI     |  | 24.0                                          | % |  | $                                            | 5,062  |                                              | $ | 5,376 
|ARI      |  | 6.5                                           | % |  |                                              | 9,473  |                                              |   | 7,178 
|         |  |                                               |   |  |                                              |        |                                              |   |       
|         |  |                                               |   |  |                                              | 14,535 |                                              | $ | 12,554
|         |  |                                               |   |  |                                              |        |                                              |   |       
|Other    |  |                                               |   |  |                                              | 197    |                                              |   |       
|         |  |                                               |   |  |                                              |        |                                              |   |       
|         |  |                                               |   |  | $                                            | 14,732 |                                              |   |       
|         |  |                                               |   |  |                                              |        |                                              |   |       



Management continues to believe that
the market value of each of IORI and ARI undervalues their assets and, therefore, TCI may continue to increase its ownership in these entities.



Set forth below is summarized results of operations of equity investees for the first three months of 2004 and 2003.



|                                         |  |      |         |   |      |   |         |  
|---------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                         |  | 2004 |         |   | 2003 |  
|Revenues                                 |  | $    | 32,264  |   |      | $ | 35,904  |  
|Equity in loss of partnerships           |  |      | (1      | ) |      |   | (4,354  | )
|Property operating expenses              |  |      | (26,299 | ) |      |   | (24,066 | )
|Depreciation                             |  |      | (2,633  | ) |      |   | (2,952  | )
|Interest expense                         |  |      | (10,403 | ) |      |   | (12,737 | )
|Loss before gains on sale of real estate |  |      | (7,072  | ) |      |   | (8,205  | )
|Gain on sale of real estate              |  |      | 6,987   |   |      |   | 22,984  |  
|                                         |  |      |         |   |      |   |         |  
|Net income (loss)                        |  | $    | (85     | ) |      | $ | 14,779  |  
|                                         |  |      |         |   |      |   |         |  



NOTE 5. MARKETABLE EQUITY SECURITIES



In March 2003,
TCI obtained a loan in the amount of $5.0 million to acquire equity securities of Realty Korea CR-REIT Co., Ltd. No. 1 representing approximately a 9.2% ownership interest. As of May 2003, the loan was paid in full. This investment is considered an
available-for-sale security. TCI recognized an unrealized gain of $396,000 for the period ending March 31, 2004 due to an increase in market price.



NOTE 6. RELATED PARTIES



On September 19, 2002, TCIs Board of Directors authorized the Chief Financial Officer of TCI to advance funds either to or from TCI, through BCM, in an amount up to
$15.0 million on the condition that such advances shall be repaid in cash or transfers of assets within 90 days. These advances are unsecured and bear no interest and generally have not had specific repayment terms and have been reflected in
TCIs financial statements as other assets and other liabilities.



In
March 2004, a related party purchased the loans on TCIs three Chicago hotels for $10.8 million. This amount increased the affiliate payable balance by $10.8 million.



In February 2004, TCI received a loan for $1.0 million used for the purchase of land by ARI, decreasing the affiliate payable balance by
$1.0 million.



In January 2004, TCI purchased 14.216 acres of land from an
affiliate with a net purchase price of $2.6 million, increasing the affiliate payable balance by $2.6 million.



In March 2003, TCI purchased two properties from an affiliate with a net purchase price of $10.7 million, reducing the affiliate receivable balance by $8.1 million after the assumption of debt of $2.65 million.



13



---

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued



The following table reconciles the beginning and ending Affiliates receivable (payable) balances as of March 31,
2004.



|                                           |  |       |         |   |     |   |      |      |  |   |      |  
|------------------------------------------ |  | ----- | ------- | - | --- | - | ---- | ---- |  | - | ---- | -
|                                           |  | PRIME |         |   | ARI |   |      | IORI | 
|Balance, December 31, 2003                 |  | $     | 4,391   |   |     | $ | (347 | )    |  | $ | (260 | )
|Cash transfers                             |  |       | 15,371  |   |     |   |     |      |  |   |     |  
|Cash repayments                            |  |       | (16,498 | ) |     |   |     |      |  |   |     |  
|Repayments through property transfers      |  |       | (2,585  | ) |     |   |     |      |  |   |     |  
|Repayment through affiliate refinance      |  |       | (10,823 | ) |     |   |     |      |  |   |     |  
|Advance through receipt of loan obligation |  |       | 1,000   |   |     |   |     |      |  |   |     |  
|Other additions                            |  |       | 12,623  |   |     |   |     |      |  |   |     |  
|Other repayments                           |  |       | (12,565 | ) |     |   |     |      |  |   |     |  
|                                           |  |       |         |   |     |   |      |      |  |   |      |  
|Balance, March 31, 2004                    |  | $     | (9,086  | ) |     | $ | (347 | )    |  | $ | (260 | )
|                                           |  |       |         |   |     |   |      |      |  |   |      |  



NOTE 7. NOTES AND INTEREST PAYABLE



In March 2004, a
related party to TCI purchased the loans on TCIs three Chicago hotels, the City Suites hotel, the Willows hotel and The Majestic hotel. The loans, including accrued but unpaid interest, were purchased for $10.8 million dollars. The purchased
loans were applied as an affiliate payable to the Prime affiliate balance.



In
February 2004, the Brandeis office building was returned to the lender via a Deed in Lieu of Foreclosure process. The outstanding debt and accrued interest was $8.8 million. TCI recorded a net impairment of $4.4 million in the fourth quarter of 2003
for this transaction.



In February 2004, TCI received a loan for $1.0 million
that is cross defaulted and cross collateralized with ARIs purchase of land in Portage County, Ohio. The loan bears interest at the prime rate plus .5%, which is currently 4.5%, requires monthly principal and interest payments, and matures in
February 2005.



In 2004, TCI refinanced or financed the following properties:



|                                   |  |                    |  |                 |  |               |        |                 |   |                          |  |   |               |   |  |               |      |  |      
|---------------------------------- |  | ------------------ |  | --------------- |  | ------------- | ------ | --------------- | - | ------------------------ |  | - | ------------- | - |  | ------------- | ---- |  | -----
|Property                           |  | Location           |  | Sq.Ft./Acres    |  | Debt Incurred |        | Debt Discharged |   | Net Cash Received/(Paid) |  |   | Interest Rate |   |  | Maturity Date
|First Quarter                      |  |                    |  |                 |  |               |        |                 |   |                          |  |   |               |   |  |               |      |  |      
|Office Building                    |  |                    |  |                 |  |               |        |                 |   |                          |  |   |               |   |  |               |      |  |      
|Centura Tower                      |  | Farmers Branch, TX |  | 410,901 Sq. Ft. |  | $             | 34,000 |                 | $ | 36,889                   |  | $ | (4,588        | ) |  | 5.50          | %(1) |  | 04/06
|                                   |  |                    |  |                 |  |               |       
|Land                               |  |                    |  |                 |  |               |        |                 |   |                          |  |   |               |   |  |               |      |  |      
|Centura Land                       |  | Farmers Branch, TX |  | 8.753 Acres     |  |               | 4,485  |                 |   | 4,400                    |  |   | (183          | ) |  | 7.00          | (1)  |  | 11/04
|Hollywood, Dominion & Mira Lago(2) |  | Farmers Branch, TX |  | 66.085 Acres    |  |               | 6,985  |                 |   | 6,222                    |  |   | (67           | ) |  | 7.00          | (1)  |  | 02/05
|Marine Creek(3)                    |  | Ft. Worth, TX      |  | 54 Acres        |  |               | 1,286  |                 |   | 991                      |  |   | 192           |   |  | 5.75          |      |  | 06/05

---

|(1) | Variable rate.
|--- | --------------

|(2) | The Hollywood Casino, Dominion and Mira Lago tracts are cross collateralized.
|--- | -----------------------------------------------------------------------------

|(3) | Construction loan for apartment construction.
|--- | ---------------------------------------------



14



---

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued



In 2003, TCI refinanced or financed the following properties:



|                |  |                 |  |               |  |               |       |                 |   |                          |  |   |               |   |  |               |      |  |       |    
|--------------- |  | --------------- |  | ------------- |  | ------------- | ----- | --------------- | - | ------------------------ |  | - | ------------- | - |  | ------------- | ---- |  | ----- | ---
|Property        |  | Location        |  | Sq.Ft./Units  |  | Debt Incurred |       | Debt Discharged |   | Net Cash Received/(Paid) |  |   | Interest Rate |   |  | Maturity Date |     
|First Quarter   |  |                 |  |               |  |               |       |                 |   |                          |  |   |               |   |  |               |      |  |       |    
|Apartments      |  |                 |  |               |  |               |       |                 |   |                          |  |   |               |   |  |               |      |  |       |    
|Mountain Plaza  |  | El Paso, TX     |  | 188 Units     |  | $             | 4,350 |                 | $ | 4,034                    |  | $ | (29           | ) |  | 6.63          | %(1) |  | 03/06 |    
|Stone Oak       |  | San Antonio, TX |  | 252 Units     |  |               | 2,500 |                 |   |                         |  |   | 2,500         |   |  | 5.00          |      |  | 04/03 | (2)
|                |  |                 |  |               |  |               |      
|Office Building |  |                 |  |               |  |               |       |                 |   |                          |  |   |               |   |  |               |      |  |       |    
|Bonita Plaza    |  | Bonita, CA      |  | 47,777 Sq.Ft. |  |               | 6,000 |                 |   | 4,824                    |  |   | 1,134         |   |  | 5.25          | (1)  |  | 01/10 |    

---

|(1) | Variable rate.
|--- | --------------

|(2) | Loan paid in full during July 2003.
|--- | -----------------------------------



|NOTE | 8. OPERATING SEGMENTS
|---- | ---------------------



Significant differences among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation
and allocation of administrative expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their operating income and cash flow. Items of income that are not reflected in the segments
are interest, equity in loss of equity investees and equity in investees gains on sales of real estate which totaled $856,000 and $1.1 million for the three months ended March 31, 2004 and 2003, respectively. Expenses that are not reflected in the
segments are general and administrative expenses, discount on sale of note receivable, loss on foreign currency transaction, minority interest, advisory and net income fees which totaled $5.0 million and $3.4 million for the three months ended March
31, 2004 and 2003, respectively. Also excluded from segment assets are assets of $105.5 million at March 31, 2004, and $96.7 million at March 31, 2003, which are not identifiable with an operating segment. There are no intersegment revenues and
expenses.



Presented below is the operating income of each operating segment
for the three months ended March 31, 2004 and 2003, and each segments assets at March 31.



|                                  |  |      |        |   |                       |   |            |  |        |         |       |   |        |  |   |        
|--------------------------------- |  | ---- | ------ | - | --------------------- | - | ---------- |  | ------ | ------- | ----- | - | ------ |  | - | -------
|Three Months Ended March 31,
2004 |  | Land |        |   | Commercial Properties |   | Apartments |  | Hotels |         | Total
|Rents                             |  | $    | 141    |   |                       | $ | 12,245     |  | $      | 15,681  |       | $ | 1,479  |  | $ | 29,546 
|Property operating expenses       |  |      | 378    |   |                       |   | 6,947      |  |        | 9,406   |       |   | 1,408  |  |   | 18,139 
|                                  |  |      |        |   |                       |   |            |  |        |         |       |   |        |  |   |        
|Operating income (loss)           |  | $    | (237   | ) |                       | $ | 5,298      |  | $      | 6,275   |       | $ | 71     |  | $ | 11,407 
|                                  |  |      |        |   |                       |   |            |  |        |         |       |   |        |  |   |        
|Interest                          |  | $    | 578    |   |                       | $ | 3,743      |  | $      | 5,670   |       | $ | 554    |  | $ | 10,545 
|Depreciation                      |  |      | 11     |   |                       |   | 2,615      |  |        | 2,778   |       |   | 337    |  |   | 5,741  
|Real estate improvements          |  |      | 100    |   |                       |   | 1,445      |  |        | 222     |       |   | 18     |  |   | 1,785  
|Real estate construction          |  |      |       |   |                       |   |           |  |        | 53,279  |       |   |       |  |   | 53,279 
|Assets                            |  |      | 84,861 |   |                       |   | 244,281    |  |        | 426,208 |       |   | 33,222 |  |   | 788,572



|                      |  |      |        |                       |   |        |  |   |       
|--------------------- |  | ---- | ------ | --------------------- | - | ------ |  | - | ------
|Property Sales:       |  | Land |        | Commercial Properties |   | Total 
|Sales price           |  | $    | 28,462 |                       | $ | 39,600 |  | $ | 68,062
|Cost of sales         |  |      | 21,374 |                       |   | 29,434 |  |   | 50,808
|Deferred current gain |  |      | 4,982  |                       |   | 1,394  |  |   | 6,376 
|                      |  |      |        |                       |   |        |  |   |       
|Gain on sale          |  | $    | 2,106  |                       | $ | 8,772  |  | $ | 10,878
|                      |  |      |        |                       |   |        |  |   |       



15



---

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued



|                                  |  |      |         |   |                       |   |            |  |        |         |  |       |        |   |  |   |        
|--------------------------------- |  | ---- | ------- | - | --------------------- | - | ---------- |  | ------ | ------- |  | ----- | ------ | - |  | - | -------
|Three Months Ended March 31,
2003 |  | Land |         |   | Commercial Properties |   | Apartments |  | Hotels |         |  | Total
|Rents                             |  | $    | 131     |   |                       | $ | 12,895     |  | $      | 10,365  |  | $     | 1,070  |   |  | $ | 24,461 
|Property operating expenses       |  |      | 436     |   |                       |   | 7,495      |  |        | 7,525   |  |       | 1,150  |   |  |   | 16,606 
|                                  |  |      |         |   |                       |   |            |  |        |         |  |       |        |   |  |   |        
|Operating income (loss)           |  | $    | (305    | ) |                       | $ | 5,400      |  | $      | 2,840   |  | $     | (80    | ) |  | $ | 7,855  
|                                  |  |      |         |   |                       |   |            |  |        |         |  |       |        |   |  |   |        
|Interest                          |  | $    | 717     |   |                       | $ | 4,630      |  | $      | 2,662   |  | $     | 468    |   |  | $ | 8,477  
|Depreciation                      |  |      |        |   |                       |   | 2,997      |  |        | 1,038   |  |       | 369    |   |  |   | 4,404  
|Real estate improvements          |  |      | 17      |   |                       |   | 1,566      |  |        | 327     |  |       | 49     |   |  |   | 1,959  
|Real estate construction          |  |      |        |   |                       |   |           |  |        | 8,468   |  |       |       |   |  |   | 8,468  
|Assets                            |  |      | 106,161 |   |                       |   | 319,225    |  |        | 325,400 |  |       | 29,747 |   |  |   | 780,533



NOTE 9. DISCONTINUED OPERATIONS



For the three months
ended March 31, 2004 and 2003, income from discontinued operations relates to 9 properties that TCI sold during 2004 and 17 properties that TCI sold during 2003. The following table summarizes revenue and expense information for these properties
sold and held-for-sale.



|                                                                          |  |                                      |        |   |      |   |       |  
|------------------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ----- | -
|                                                                          |  | For the Three Months Ended March 31, |       
|                                                                          |  | 2004                                 |        |   | 2003 |  
|Revenue                                                                   |  |                                      |        |   |      |   |       |  
|Rental                                                                    |  | $                                    | 1,343  |   |      | $ | 5,011 |  
|Property operations                                                       |  |                                      | 615    |   |      |   | 2,348 |  
|                                                                          |  |                                      |        |   |      |   |       |  
|                                                                          |  |                                      | 728    |   |      |   | 2,663 |  
|                                                                          |  |                                     
|Expenses                                                                  |  |                                      |        |   |      |   |       |  
|Interest                                                                  |  |                                      | 752    |   |      |   | 2,006 |  
|Depreciation                                                              |  |                                      | 305    |   |      |   | 697   |  
|                                                                          |  |                                      |        |   |      |   |       |  
|                                                                          |  |                                      | 1,057  |   |      |   | 2,703 |  
|                                                                          |  |                                      |        |   |      |   |       |  
|Net loss from discontinued operations before gains on sale of real estate |  |                                      | (329   | ) |      |   | (40   | )
|Gain on sale of operations                                                |  |                                      | 10,878 |   |      |   |      |  
|Equity in investees gain on sale of real estate                           |  |                                      | 1,028  |   |      |   | 1,509 |  
|                                                                          |  |                                      |        |   |      |   |       |  
|Net income from discontinued operations                                   |  | $                                    | 11,577 |   |      | $ | 1,469 |  
|                                                                          |  |                                      |        |   |      |   |       |  



Discontinued operations have not been
segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective consolidated statements of operations.



NOTE 10. COMMITMENTS AND CONTINGENCIES



Liquidity. Management anticipates that TCI will generate excess cash from operations
in 2004 due to increased rental rates and occupancy at its properties, however, such excess will not be sufficient to discharge all of TCI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.



Litigation. TCI is involved in various lawsuits arising in the ordinary course of business. Management is of the opinion that the outcome of these lawsuits will have no material impact on TCIs financial
condition, results of operations or liquidity.



16



---

|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



Introduction



TCI invests in real estate through acquisitions, leases and partnerships. TCI also invests in mortgage loans. TCI is the successor to a
business trust organized on September 6, 1983, and commenced operations on January 31, 1984.



Liquidity and Capital Resources



TCI reported net income of $1.5 million for the three months ended March 31, 2004, which included the following non-cash charges: depreciation and amortization of $6.0
million, equity loss of equity investees of $570,000, equity investees gain on sale of real estate of $1.0 million and gain on sale of operations of $10.9 million. For the three months ended March 31, 2003, TCI reported a net loss of $7.4 million,
which included the following non-cash charges: depreciation and amortization of $5.1 million, equity loss of equity investees of $1.3 million and equity investees gain on sale of real estate of $1.5 million.



For the three months ended March 31, 2004, net cash provided by operating activities amounted
to $11.6 million, interest receivable increased by $345,000 due to additional notes receivable fundings, other assets decreased by $47,000, interest payable decreased by $1.3 million due to notes paid or assumed on property sales and other
liabilities increased by $16.0 million primarily due to an increase in affiliated payables and deferred gains on property sales.



Also for the three months ended March 31, 2004, net cash used in investing activities was $19.5 million primarily due to real estate construction and improvements of
$55.1 million, payments for real estate acquisitions of $14.7 million, deposits on pending purchases of $2.6 million and additional fundings on notes receivable of $55,000. These outflows for investing activities were offset by the collection of
$38,700 on notes receivable, payments received from the advisor of $1.1 million and proceeds from sale of real estate of $51.8 million.



Net cash provided by financing activities of $8.8 million was due to proceeds received from the funding or refinancing of notes payable of $117.1 million; offset by cash
payments of $106.9 million to paydown existing notes payable and $1.5 million for financing costs.



In the first three months of 2004, TCI sold one shopping center, three industrial warehouses, two land parcels and two office buildings for a total of $68.1 million, receiving $15.2 million in cash and extinguishing
debt of $39.5 million after the payment of various closing costs.



Also in the
first three months of 2004, TCI financed or refinanced one office building and three parcels of land for a total of $46.8 million and paying $4.6 million in cash.



Further in the first three months of 2004, TCI purchased two parcels of unimproved land and seven parcels of unimproved land for apartment
construction for $17.9 million. TCI paid $3.0 million in cash, including various closing costs and incurred $11.7 million in debt for the new construction properties. TCI also incurred $53.3 million on property construction, of which $51.1 million
was funded by debt. For the remainder of 2004 and the first half of 2005, TCI expects to spend an additional $92.8 million on property construction projects, of which $80.3 million will be funded by debt.



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 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.



17



---

|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)
|------- |  | ------------------------------------------------------------------------------------------------



Results of Operations



TCI had net income of $1.5 million in the period ended March 31, 2004, including gains on
the sale of real estate totaling $10.9 million, a loss from discontinued operations of $329,000 and $1.0 million gain on the sale of real estate by equity investees, compared to a net loss of $7.4 million in the corresponding period in 2003,
including a loss from discontinued operations of $40,000 and $1.5 million gain on sale of real estate by equity investees. Fluctuations in this and other components of revenues and expense between the 2004 and 2003 periods are discussed below.



Rents in the period ended March 31, 2004, increased to $29.5 million compared
to $24.5 million in 2003. This increase is mainly due to new rental income from the completion of ten apartments in 2004 and 2003.



Property operations expense increased to $18.1 million in the period ended March 31, 2004, compared to $16.6 million in 2003. This increase is mainly due to the
completion of ten apartments in 2004 and 2003. Property operations expenses for the remaining quarters of 2004 are expected to increase as TCI continues to upgrade the quality of apartments and commercial properties.



Interest income decreased to $398,000 in the period ended March 31, 2004, compared to
$848,000 in 2003. The decrease was primarily due to the collection of four loans in 2003. Although TCI added $9.9 million in new notes receivable in the first quarter of 2004, only one month of interest was recognized due to all being added in March
2004. Interest income for the remaining quarters of 2004 is expected to decrease due to loans maturing in 2004.



Equity in losses of investees was $570,000 in the period ended March 31, 2004 compared to $1.3 million in 2003. ARI and IORI both had smaller losses in the first quarter
of 2004 as compared to the first quarter of 2003.



Interest expense increased
to $10.5 million in the period ended March 31, 2004, from $8.5 million in 2003. This increase is due to the completion of ten apartments in 2003 and 2004, which was offset by lower commercial interest due to sales in 2003 and 2004.



Depreciation expense increased to $5.7 million in the period ended March 31, 2004 from $4.4
million in 2003. This increase is due to depreciation from the ten completed apartments in 2003 and 2004, which was offset by lower commercial depreciation due to sales in 2003 and 2004. Depreciation expense for the remaining quarters of 2004 may
continue to increase as TCI completes its apartment construction projects.



Net
income fee due to affiliate in the period ended March 31, 2004 was $79,000. The net income fee is payable to TCIs advisor based on 7.5% of TCIs net income. TCI had a net loss for the three months ended March 31, 2003 and no such fee was
recorded.



General and administrative expenses increased to $3.0 million in the
period ended March 31, 2004, from $1.7 million in 2003. These increases were mainly due to higher legal fees, state income taxes and cost reimbursements to Prime.



In the three months of 2004, gains on sale of real estate totaling $10.9 million were recognized, including $5.5 million on the sale of
Countryside Retail center, $1.9 million on the sale of Countryside Harmon, $1.4 million on the sale of Ogden Industrial Warehouse, $153,000 on the sale of the Pinewood Kelly Warehouse and $2.1 million on the sale of the 492.531 acres of Allen land.



Tax Matters



Financial statement income varies from taxable income principally due to the accounting for
income and losses of investees, gains and losses from asset sales, depreciation on owned properties, amortization of discounts on notes receivable and payable and the difference in the allowance for estimated losses. TCI had a loss for federal
income tax purposes after the use of net operating loss carryforwards in the first three months of 2004 and a loss for federal income tax purposes in the first three months of 2003; therefore, it recorded no provision for income taxes.



At March 31, 2004, TCI had a net deferred tax asset of $7.0 million due to tax deductions
available to it in future years. However, as management cannot determine that it is more likely than not that TCI will realize the benefit of the deferred tax assets, a 100% valuation allowance has been established.



18



---

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 and the cost of new financings as well as the cost of variable interest rate debt, will be affected.



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.



|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|------- |  | -----------------------------------------------------------



At March 31, 2004, TCIs exposure to a change in interest rates on its debt is as follows:



|                                          |  |         |         |                                |      |   |                                    |   |      
|----------------------------------------- |  | ------- | ------- | ------------------------------ | ---- | - | ---------------------------------- | - | -----
|                                          |  | Balance |         | Weighted Average Interest Rate |      |   | Effect of 1%Increase In Base Rates
|Notes payable:                            |  |         |         |                                |      |   |                                    |   |      
|Variable rate                             |  | $       | 178,455 |                                | 5.63 | % |                                    | $ | 1,785
|                                          |  |         |         |                                |      |   |                                    |   |      
|Total decrease in TCIs annual net income |  |         |         |                                |      |   |                                    | $ | 1,785
|                                          |  |         |         |                                |      |   |                                    |   |      
|Per share                                 |  |         |         |                                |      |   |                                    | $ | .22  
|                                          |  |         |         |                                |      |   |                                    |   |      



|ITEM 4. |  | CONTROLS AND PROCEDURES
|------- |  | -----------------------



As of the end of the period covered by this report, TCI carried out an evaluation, under the supervision and with the participation of TCIs Acting Principal
Executive Officer and principal accounting officer, of TCIs disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, TCIs Acting Principal Executive Officer and principal accounting
officer concluded that TCIs disclosure controls and procedures are effective.



There have been no significant changes in TCIs internal controls over financial reporting during the quarter ending March 31, 2004, that have materially affected, or are reasonably likely to materially affect, TCIs internal
control over financial reporting.



19



---

PART II. OTHER INFORMATION



|ITEM 2. |  | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- |  | --------------------------------------------------------------------------------



|                    |  |                                 |  |                              |   |                                                                      |   |                                                                        |        
|------------------- |  | ------------------------------- |  | ---------------------------- | - | -------------------------------------------------------------------- | - | ---------------------------------------------------------------------- | -------
|Period              |  | Total Number ofShares Purchased |  | Average Price Paid per Share |   | Total Number ofShares Purchased asPart of PublicalyAnnounced Program |   | Maximum Number ofShares that May Yet be Purchased Under the Program(a)
|January 1-31, 2004  |  |                                |  | $                            |  |                                                                      |  |                                                                        |       
|February 1-29, 2004 |  |                                |  |                              |  |                                                                      |  |                                                                        |       
|March 1-31, 2004    |  |                                |  |                              |  |                                                                      |  |                                                                        |       
|                    |  |                                 |  |                              |   |                                                                      |   |                                                                        |        
|Total               |  |                                |  | $                            |  |                                                                      |  |                                                                        | 977,110
|                    |  |                                 |  |                              |   |                                                                      |   |                                                                        |        



|(a) | On June 23, 2000, the TCI Board of Directors approved a share repurchase program for up to 1,387,000 shares of our common stock. This repurchase program has no termination date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K
|------- |  | --------------------------------



|(a) | Exhibits:
|--- | ---------



|              |  |                                                                                                                                                                                         
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                             
|              | 
|31.1          |  | Certification Pursuant to Rules 13a-14(a) and 15d-14(a) Under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|              | 
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                 



|(b) | Reports on Form 8-K as follows:
|--- | -------------------------------



Current Report on Form 8-K for event occurring on February 19, 2004 (dated March 11, 2004) reporting under Item 5 Other Events and Regulation FD
Disclosure.



20



---

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



|                   |  |     |  |                                                                                    
|------------------ |  | --- |  | -----------------------------------------------------------------------------------
|                   |  |     |  | TRANSCONTINENTAL REALTY INVESTORS, INC.                                            
|                   |  |    
|Date: May 14, 2004 |  | By: |  | /s/ Ronald E. Kimbrough                                                            
|                   |  |     |  | Ronald E. Kimbrough                                                                
|                   |  |     |  | Executive Vice President and Chief Financial Officer                               
|                   |  |     |  | (Principal Financial and Accounting Officer and Acting Principal Executive Officer)



21



---

TRANSCONTINENTAL REALTY INVESTORS, INC.



EXHIBITS TO



QUARTERLY REPORT ON FORM 10-Q



For the Quarter ended March 31, 2004



|              |  |                                                                                                                                                                                   |  |           
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------
|ExhibitNumber |  | Description                                                                                                                                                                       |  | PageNumber
|              |  |                                                                                                                                                                                  
|31.1          |  | Certification Required by Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |           
|              |  |                                                                                                                                                                                  
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                           |  |           



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