<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1998
                                                            -------------

                          Commission File Number 1-9240



                     TRANSCONTINENTAL REALTY INVESTORS, INC.
             ------------------------------------------------------

             (Exact Name of Registrant as Specified in Its Charter)


               Nevada                                           94-6565852
 --------------------------------                           -----------------
 
 (State or Other Jurisdiction of                            (I.R.S. Employer
  Incorporation or Organization)                           Identification No.)



     10670 North Central Expressway, Suite 300, Dallas, Texas     75231
     ---------------------------------------------------------------------
     (Address of Principal Executive Office)                    (Zip Code)



                                 (214) 692-4700
                         -------------------------------
                         (Registrant's Telephone Number,
                              Including Area Code)


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                               3,872,505
----------------------------                     ------------------------------
          (Class)                                (Outstanding at July 31, 1998)


                                       1
<PAGE>   2
                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of Transcontinental Realty Investors, Inc. (the "Company"), all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the Company's consolidated financial position, consolidated results of
operations and consolidated cash flows at the dates and for the periods
indicated, have been included.

<TABLE>
                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                           CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                 June 30,      December 31,
                                                                   1998            1997
                        Assets                                  -----------    -----------
                        ------                                   (dollars in thousands)
                                                                  
                         
<S>                                                            <C>             <C>
Notes and interest receivable
 Performing ................................................    $     4,370    $      4,388
 Nonperforming, nonaccruing ................................            416             450
                                                               ------------    ------------
                                                                      4,786           4,838
Less - allowance for estimated losses ......................           (891)           (891)
                                                               ------------    ------------
                                                                      3,895           3,947
Foreclosed real estate held for sale .......................          1,356           1,356

Real estate held for sale, net of accumulated depreciation
 ($4,790 in 1998 and $1,350 in 1997) .......................         21,571           3,630
                                                               ------------    ------------
                                                                     22,927           4,986
Real estate held for investment, net of accumulated
 depreciation ($55,770 in 1998 and $55,487 in 1997) ........        301,404         270,245
Investment in real estate entities .........................          4,011           4,333
Cash and cash equivalents ..................................          7,093          24,733
Other assets (including $438 in 1998 and $497 in 1997 from
 affiliates) ...............................................         15,058          11,291
                                                               ------------    ------------
                                                               $    354,388    $    319,535
                                                               ============    ============
       Liabilities and Stockholders' Equity
       ------------------------------------

Liabilities
Notes and interest payable .................................   $    261,440    $    222,029
Other liabilities (including $115 in 1998 and $1,157
 in 1997 to affiliates) ....................................          7,199          10,973
                                                               ------------    ------------
                                                                    268,639         233,002
Stockholders' equity
Common stock, $.01 par value, authorized, 10,000,000 shares;
 issued and outstanding, 3,872,505 shares in 1998 and
 3,889,200 shares in 1997 ..................................             39              39
Paid-in capital ............................................        217,431         217,688
Accumulated distributions in excess of accumulated
 earnings ..................................................       (131,721)       (131,194)
                                                               ------------    ------------
                                                                     85,749          86,533
                                                               ------------    ------------
                                                               $    354,388    $    319,535
                                                               ============    ============
</TABLE>

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


                                       2
<PAGE>   3

                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                          For the Three Months             For the Six Months
                                                             Ended June 30,                  Ended June 30,
                                                      ---------------------------     ---------------------------
                                                          1998            1997            1998            1997
                                                      -----------     -----------     -----------     -----------
                                                                  (dollars in thousands, except per share)
<S>                                                   <C>             <C>             <C>             <C>
Income
    Rents ........................................    $    17,339     $    13,310     $    33,393     $    25,424
    Interest .....................................            175             364             393             773
                                                      -----------     -----------     -----------     -----------
                                                           17,514          13,674          33,786          26,197
Expenses
    Property operations ..........................          8,874           7,749          17,283          15,025
    Interest .....................................          5,609           3,938          10,944           7,762
    Depreciation .................................          2,606           2,350           5,129           4,605
    Advisory and net income fee to affiliate .....            689             491           1,303             956
    General and administrative ...................            486             647           1,065           1,264
                                                      -----------     -----------     -----------     -----------
                                                           18,264          15,175          35,724          29,612
                                                      -----------     -----------     -----------     -----------
(Loss) from operations ...........................           (750)         (1,501)         (1,938)         (3,415)

Equity in income of investees ....................            450             429             432             777
Gain on sale of real estate ......................          2,132              55           2,132           1,455
                                                      -----------     -----------     -----------     -----------
Net income (loss) ................................    $     1,832     $    (1,017)    $       626     $    (1,183)
                                                      ===========     ===========     ===========     ===========

Earnings Per Share

Net income (loss) ................................    $       .47     $      (.26)    $       .16     $      (.30)
                                                      ===========     ===========     ===========     ===========


Weighted average Common shares used in computing
  earnings per share .............................      3,871,436       3,907,344       3,879,080       3,916,838
                                                      ===========     ===========     ===========     ===========
</TABLE>


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


                                       3
<PAGE>   4

                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     For the Six Months Ended June 30, 1998


<TABLE>
<CAPTION>
                                                                                                 Accumulated
                                                                                                Distributions
                                                      Common Stock                               in Excess of
                                             -----------------------------        Paid-in        Accumulated      Stockholders'
                                                Shares           Amount           Capital          Earnings           Equity
                                             ------------     ------------      ------------     ------------      ------------
                                                                    (dollars in thousands, except per share)
<S>                                          <C>              <C>               <C>              <C>               <C>
Balance, January 1, 1998 ...............        3,889,200     $         39      $    217,688     $   (131,194)     $     86,533
                                                                                                                   


Repurchase of Common Stock .............          (21,950)            --                (336)            --                (336)


Sale of Common Stock under dividend
 reinvestment plan .....................            5,255             --                  79             --                  79


Dividends ($.30 per share)  ............             --               --                --             (1,153)           (1,153)


Net income .............................             --               --                --                626               626
                                             ------------     ------------      ------------     ------------      ------------


Balance, June 30, 1998 .................        3,872,505     $         39      $    217,431     $   (131,721)     $     85,749
                                             ============     ============      ============     ============      ============
</TABLE>


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


                                       4
<PAGE>   5

                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              For the Six Months
                                                                                Ended June 30,
                                                                         ----------------------------
                                                                             1998             1997
                                                                         ------------    ------------
                                                                             (dollars in thousands)
<S>                                                                      <C>             <C>
Cash Flows from Operating Activities
    Rents collected ..................................................   $     32,948    $     27,936
    Interest collected ...............................................            397             653
    Interest paid ....................................................         (9,984)         (7,391)
    Payments for property operations .................................        (17,970)        (20,351)
    Advisory fee paid to affiliate ...................................         (2,094)           (904)
    General and administrative expenses paid .........................         (1,245)         (1,313)
    Distributions from operating cash flow of equity investees .......             60              74
    Insurance settlement .............................................           --             9,529
    Other ............................................................           (861)            507
                                                                         ------------    ------------
        Net cash provided by operating activities ....................          1,251           8,740

Cash Flows from Investing Activities
    Acquisition of real estate .......................................        (51,452)        (15,617)
    Real estate improvements .........................................         (3,237)         (2,991)
    Proceeds from sale of real estate ................................          3,596           3,800
    Deposits on pending purchases ....................................           (505)           (410)
    Collections on notes receivable ..................................          2,180           2,134
    Distributions of equity investees' investing cash flow ...........            701            --
    Contributions to equity investees ................................             (7)           (389)
                                                                         ------------    ------------
        Net cash (used in) investing activities ......................        (48,724)        (13,473)

Cash Flows from Financing Activities
    Payments on notes payable ........................................        (13,678)        (24,563)
    Proceeds from notes payable ......................................         49,654          35,880
    Deferred borrowing costs .........................................           (876)         (1,222)
    Reimbursements to advisor ........................................            (61)           (501)
    Repurchase of Common Stock .......................................           (336)           (302)
    Sale of Common Stock under dividend reinvestment plan ............             79            --
    Dividends to stockholders ........................................         (4,949)           (546)
                                                                         ------------    ------------
        Net cash provided by financing activities ....................         29,833           8,746

Net increase (decrease) in cash and cash equivalents .................        (17,640)          4,013
Cash and cash equivalents, beginning of period .......................         24,733             960
                                                                         ------------    ------------
Cash and cash equivalents, end of period .............................   $      7,093    $      4,973
                                                                         ============    ============
</TABLE>


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


                                       5
<PAGE>   6


                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued


<TABLE>
<CAPTION>
                                                                              For the Six Months
                                                                               Ended June 30,
                                                                         ----------------------------
                                                                             1998             1997
                                                                         ------------    ------------
                                                                             (dollars in thousands)
<S>                                                                      <C>             <C>
Reconciliation of net income (loss) to net cash provided by operating
 activities
Net income (loss) ....................................................   $        626    $     (1,183)
  Adjustments to reconcile net income (loss) to net cash provided by
    operating activities
  Depreciation and amortization ......................................          5,525           4,755
  Gain on sale of real estate ........................................         (2,132)         (1,455)
  Equity in (income) of investees ....................................           (432)           (777)
  Distributions from operating cash flow of equity investees .........             60              74
  (Increase) decrease in interest receivable .........................              4              (2)
  (Increase) decrease in other assets ................................         (2,262)          2,912
  Increase in interest payable .......................................            564             104
  Increase (decrease) in other liabilities ...........................           (702)          4,312
                                                                         ------------    ------------
      Net cash provided by operating activities ......................   $      1,251    $      8,740
                                                                         ============    ============



Schedule of noncash investing and financing activities

Notes payable from purchase of real estate ...........................   $      2,970    $      5,169
</TABLE>


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


                                       6
<PAGE>   7

                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. BASIS OF PRESENTATION

The Company, a Nevada corporation, is successor to a California business trust
which was organized on September 6, 1983. The Company invests in real estate
through direct equity ownership, leases and partnerships and also invests in
mortgage loans on real estate, including first, wraparound and junior mortgage
loans.

The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial
statements. Operating results for the six month period ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the Consolidated
Financial Statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K").

NOTE 2. REAL ESTATE

In January 1998, the Company purchased the Mountain Plaza Apartments, a 188 unit
apartment complex in El Paso, Texas, for $4.0 million. The Company paid $1.0
million in cash and obtained new mortgage financing of $3.0 million. The
mortgage bears interest at 8.2% per annum, requires monthly payments of interest
only and matures in January 2000. The Company paid a real estate brokerage
commission of $139,000 to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of
Basic Capital Management, Inc. ("BCM"), the Company's advisor, and a real estate
acquisition fee of $39,000 to BCM based on the $4.0 million purchase price of
the property.

Also in January 1998, the Company purchased the Hunters Glen Apartments, a 212
unit apartment complex in Midland, Texas, for $2.5 million. The Company paid
$600,000 in cash and obtained seller financing of the remaining $1.9 million of
the purchase price. The financing bears interest at a variable rate, currently
8.0% per annum, requires monthly payments of interest only for the first
twenty-four months and thereafter requires monthly payments of principal and
interest of $14,302 and matures in January 2003. The Company paid a real estate
brokerage commission of $94,000 to Carmel Realty and a real estate acquisition
fee of $25,000 to BCM based on the $2.5 million purchase price of the property.

Further in January 1998, the Company purchased the Laws Street land, a 1.41 acre
parcel of land in Dallas, Texas, for $1.9 million in cash. The Company paid a
real estate brokerage commission of $39,000 to Carmel Realty and a real estate
acquisition fee of $19,000 to BCM based on the $1.9 million purchase price of
the property.


                                       7
<PAGE>   8

                     TRANSCONTINENTAL REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 2. REAL ESTATE (Continued)

In January 1998, the Company purchased the Bent Tree Garden Apartments, a 204
unit apartment complex in Addison, Texas, for $8.1 million. The Company paid
$1.7 million in cash and obtained new mortgage financing of $6.4 million. The
mortgage bears interest at 7.2% per annum, requires monthly payments of
principal and interest of $46,054 and matures in February 2008. The Company paid
a real estate brokerage commission of $232,000 to Carmel Realty and a real
estate acquisition fee of $81,000 to BCM based on the $8.1 million purchase
price of the property.

In February 1998, the Company purchased Parkway North, a 71,041 square foot
office building in Dallas, Texas, for $5.4 million. The Company paid $1.5
million in cash and obtained new mortgage financing of $3.9 million. The
mortgage bears interest at a variable rate, currently 8.75% per annum, requires
monthly payments of interest only and matures in March 2000. The Company paid a
real estate brokerage commission of $179,000 to Carmel Realty and a real estate
acquisition fee of $54,000 to BCM based on the $5.4 million purchase price of
the property.

Also in February 1998, the Company purchased the Lemmon Carlisle land, a 2.14
acre parcel of land in Dallas, Texas, for $3.4 million in cash. The Company paid
a real estate brokerage commission of $54,000 to Carmel Realty and a real estate
acquisition fee of $34,000 to BCM based on the $3.4 million purchase price of
the property.

In December 1997, the Company entered into a contract to sell Shaws Plaza, a
103,482 square foot shopping center in Sharon, Massachusetts, for $3.8 million.
The agreed sales price was $1.4 million less than the property's carrying value.
Accordingly, at December 31, 1997, the Company recognized a provision for loss
of $1.4 million to reduce the property's carrying value to its sales price less
estimated costs of sale. In March 1998, the Company completed the sale receiving
net cash of $1.2 million after the payoff of $2.6 million in existing mortgage
debt and the payment of various closing costs associated with the sale. The
Company paid a real estate brokerage commission of $134,000 to Carmel Realty
based on the $3.8 million sales price of the property. The Company incurred no
gain or loss on the sale beyond the reserve previously established.

In March 1998, the Company purchased the Plaza on Bachman Creek, a 80,278 square
foot retail/office complex in Dallas, Texas, for $3.5 million. The Company paid
$1.1 million in cash and obtained new mortgage financing of $2.4 million. The
mortgage bears interest at a variable rate, currently 9% per annum, requires
monthly payments of principal and interest of $21,593 and matures in March 2018.
The Company paid a real estate brokerage commission of $124,000 to Carmel Realty
and a real estate acquisition fee of $35,000 to BCM based on the $3.5 million
purchase price of the property.

In April 1998, the Company purchased in a single transaction Ashton Way, a 178
unit apartment complex in Midland, Texas, and the 4400 Apartments,


                                       8
<PAGE>   9
                     TRANSCONTINENTAL REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 2. REAL ESTATE (Continued)

a 92 unit apartment complex also in Midland, Texas, and in May 1998, the Company
purchased the Woodview Apartments, a 232 unit apartment complex in Odessa,
Texas, for a total of $6.8 million. The Company paid a total of $1.5 million in
cash and obtained new mortgage financing secured by all three properties
totaling $5.3 million. The first mortgage of $4.5 million bears interest at 7.2%
per annum and the second mortgage of $845,000 bears interest at a variable rate,
currently 8.2% per annum. The mortgages require monthly payments of principal
and interest totaling $38,003 and mature in October 1999 and May 2008,
respectively. The Company paid a real estate brokerage commission of $244,000 to
Carmel Realty and a real estate acquisition fee of $68,000 to BCM based on the
$6.8 million purchase price of the properties.

Also in May 1998, the Company purchased the Eagle Crest land, a 22.99 acre
parcel of land in Farmers Branch, Texas, for $2.5 million in cash. The Company
paid a real estate brokerage commission of $95,000 to Carmel Realty and a real
estate acquisition fee of $25,000 to BCM based on the $2.5 million purchase
price of the property.

Further in May 1998, the Company purchased the Emerald Terrace Apartments, a 172
unit apartment complex in Midland, Texas, for $1.5 million. The Company paid
$425,000 in cash, assumed the existing mortgage of $584,000 and obtained seller
financing of the remaining $491,000 of the purchase price. The mortgages bear
interest at variable rates, currently 7.5% and 9.5% per annum, respectively,
require monthly payments of principal and interest totaling $10,643 and mature
in November 1999 and June 2008. The Company paid a real estate brokerage
commission of $59,000 to Carmel Realty and a real estate acquisition fee of
$15,000 to BCM based on the $1.5 million purchase price of the property.

In May 1998, the Company purchased in a single transaction, Daley Plaza, a
62,425 square foot office building in San Diego, California and the View Ridge
building, a 25,062 square foot office building, also in San Diego, California,
for a total of $6.5 million. The Company paid $1.7 million in cash and obtained
new mortgage financing totaling $4.8 million. The mortgages bear interest at a
variable rate, currently 9.5% per annum, require monthly payments of principal
and interest totaling $42,416 and mature in May 2005. The Company paid a real
estate brokerage commission of $200,000 to Carmel Realty and a real estate
acquisition fee of $65,000 to BCM based on the $6.5 million purchase price of
the properties.

In 1997, Montgomery Ward ("Ward"), a tenant at the Northtown Mall, a shopping
center in Dallas, Texas, filed for bankruptcy protection. In an attempt to keep
the Ward's lease from being sold, Northtown Mall was placed in administrative
bankruptcy. The Northtown Mall lease, as well as other Ward leases, were sold
for the benefit of the Ward bankruptcy


                                       9
<PAGE>   10


                     TRANSCONTINENTAL REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 2. REAL ESTATE (Continued)

estate. The Company has agreed to buy back the lease in conjunction with the
pending sale of the Northtown Mall. Such sale is scheduled to close in August
1998.

In June 1998, the Company purchased the Atrium building, a 74,603 square foot
office building in Palm Beach, Florida, for $5.4 million. The Company paid $1.3
million in cash and obtained new mortgage financing of $4.1 million. The
mortgage bears interest at a variable rate, currently 7.93% per annum, requires
monthly payments of principal and interest of $31,455 and matures in July 2001.
The Company paid a real estate brokerage commission of $179,000 to Carmel Realty
and a real estate acquisition fee of $54,000 to BCM based on the $5.4 million
purchase price of the property.

At June 30, 1998, the Company reclassified from real estate held for investment
to real estate held for sale (i) Northtown Mall, a 354,174 square foot shopping
center in Dallas, Texas; (ii) Denton Drive Warehouse, 123,800 square foot
industrial warehouse in Dallas, Texas, and (iii) Chesapeake Ridge, a 100,484
square foot office building in San Diego, California. All three properties were
under contract for sale at June 30, 1998.

NOTE 3. NOTES AND INTEREST RECEIVABLE

In February 1994, the Company provided $6.7 million of purchase money financing
in conjunction with the sale of 1,406 acres of land in sixteen developed
residential and commercial subdivisions located in Maumelle, Arkansas, secured
by a first mortgage on the properties sold. The borrower did not make the
scheduled February 1995 principal and interest payments. In September 1995, the
Company reached a settlement with the borrower that provided for, among other
things the payment by the borrower of $2.5 million in cash, and the Company's
acceptance of a new $1.4 million note secured by 36.3 acres of commercial land.
Such note matured in January 1996. In April 1998, the Company received $2.1
million in full settlement of its note and accrued but unpaid interest. The
original sale had been recorded under the cost recovery method with gain being
deferred until the note was collected. Accordingly, the Company recognized the
previously deferred gain of $2.1 million on collection of its note receivable.

At June 30, 1998, the Company held a wraparound mortgage note secured by a
K-Mart in Wake County, North Carolina, with a principal balance of $2.5 million.
In February 1998, the Company was informed that the first lien mortgage in the
amount of $2.0 million was in default. In order to protect its interest, the
Company has instituted foreclosure proceedings. The Company does not expect to
incur a loss on foreclosure as the estimated fair value of the property exceeds
the carrying value of its note receivable. Foreclosure is expected to be
completed in August 1998.


                                       10
<PAGE>   11
                     TRANSCONTINENTAL REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 4. INVESTMENTS IN EQUITY METHOD REAL ESTATE ENTITIES

Set forth below are summarized results of operations of the real estate entities
the Company accounts for using the equity method for the six months ended June
30, 1998 (dollars in thousands):

<TABLE>
      <S>                                                       <C>
      Rents and interest income.............................    $  9,132
      Depreciation..........................................       1,301
      Property operations...................................       4,490
      Interest expense......................................       3,118
      Gain on sale of real estate...........................         496
                                                                --------
      Net income............................................    $    719
                                                                ========
</TABLE>

The Company owns a combined 63.7% general and limited partner interest in
Tri-City Limited Partnership ("Tri-City"), which owned five properties in Texas.
In May 1998, Tri-City sold two of its apartment complexes for $3.3 million in
cash. Tri-City received net cash of $1.4 million after paying off $1.9 million
in existing mortgage debt and the payment of various closing costs associated
with the sale. The Company received a distribution of $701,000 of such net cash.
Tri-City recognized a gain of $496,000 on the sale of which the Company's equity
share was $316,000. Tri-City paid a real estate brokerage commission of $119,000
to Carmel Realty, based on the $3.3 million sales price of the properties.

NOTE 5.     NOTES AND INTEREST PAYABLE

In December 1997, the Company extended the loan which was scheduled to mature
December 31, 1997 and secured by the Northtown Mall Shopping Center in Dallas,
Texas, by making a $100,000 principal paydown to extend the loan to March 31,
1998. The Company did not payoff the loan at maturity. Negotiations with the
lender to again extend the loan's maturity date or the payoff of the loan are on
hold pending the resolution of Northtown Malls' bankruptcy filing. See NOTE 2.
"REAL ESTATE." The loan had a principal balance of $2.5 million at June 30,
1998.

In March 1998, the Company refinanced the mortgage debt secured by the Tricon
Warehouses in Atlanta, Georgia in the amount of $10.2 million. The Company
received net cash of $5.4 million after paying off $4.8 million in existing
mortgage debt, funding of required escrows and the payment of various closing
costs associated with the financing. The new mortgage bears interest at a
variable rate, currently 7.53% per annum, requires monthly payments of principal
and interest of $75,576 and matures in April 2008. The Company paid a mortgage
brokerage and equity refinancing fee of $102,000 to BCM based on the new $10.2
million mortgage.

In May 1998, the Company obtained mortgage financing of $2.2 million secured by
the previously unencumbered Lemmon Carlisle land in Dallas, Texas. The Company
received net cash of $2.1 million after the payment


                                       11
<PAGE>   12


                     TRANSCONTINENTAL REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 5. NOTES AND INTEREST PAYABLE (Continued)

of various closing costs associated with the financing. The mortgage bears
interest at 9.25% per annum, requires monthly payment of interest only and
matures in May 2000. The Company paid a mortgage brokerage and equity
refinancing fee of $22,000 to BCM based on the $2.2 million financing.

Also in May 1998, the Company refinanced the mortgage debt secured by the Plaza
Office Building in St. Petersburg, Florida in the amount of $7.4 million. The
Company received net cash of $2.6 million after paying off $4.8 million in
existing mortgage debt, funding of required escrows and the payment of various
closing costs associated with the refinancing. The new mortgage bears interest
at a variable rate, currently 7.57% per annum, requires monthly payments of
principal and interest of $55,023 and matures in June 2008. The Company paid a
mortgage brokerage and equity refinancing fee of $74,000 to BCM based on the
$7.4 million refinancing.

NOTE 6. COMMITMENTS AND CONTINGENCIES

The Company is involved in various lawsuits arising in the ordinary course of
business. The Company's management is of the opinion that the outcome of these
lawsuits will have no material impact on the Company's financial condition.

NOTE 7. SUBSEQUENT EVENTS

In July 1998, the Company purchased the Valley Rim building, a 54,194 square
foot office building in San Diego, California, for $5.1 million. The Company
paid $1.4 million in cash and obtained new mortgage financing of $3.7 million.
The mortgage bears interest at a variable rate, currently 9.5% per annum,
requires monthly payments of principal and interest of $32,576 and matures in
June 2005. The Company paid a real estate brokerage commission of $172,000 to
Carmel Realty and an acquisition fee of $51,000 to BCM based on the $5.1 million
purchase price of the property.

Also in July 1998, the Company purchased the Limestone Canyon land, a 27 acre
parcel of land in Austin, Texas, for $1.8 million in cash. In conjunction with
the purchase, the Company obtained a mortgage financing commitment of $13.0
million for the construction of a 260 unit apartment complex on the site. The
mortgage bears interest at a variable rate, currently 7.75% per annum, requires
monthly payments of interest only and matures in July 2000. The Company paid a
real estate brokerage commission of $70,000 to Carmel Realty and an acquisition
fee of $18,000 to BCM based on the $1.8 million purchase price of the property.

Further in July 1998, the Company refinanced the matured mortgage debt secured
by Villas at Countryside Apartments in Sterling, Virginia in the amount of $5.4
million. The Company received net cash of $400,000 after paying off $5.0 million
in existing mortgage debt, funding of


                                       12
<PAGE>   13

                     TRANSCONTINENTAL REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 7. SUBSEQUENT EVENTS (Continued)

required escrows and the payment of various closing costs associated with the
refinancing. The new mortgage bears interest at 6.85% per annum, requires
monthly payments of principal and interest of $35,692 and matures in August
2005. The Company paid a mortgage brokerage and equity refinancing fee of
$54,000 to BCM based on the $5.4 million refinancing.

In July 1998, the Company collected a mortgage note receivable which had been
written off in a prior year as uncollectible. The Company will recognize a gain
of $671,000 on the collection of such note receivable.

                                   ----------

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

Introduction

Transcontinental Realty Investors, Inc. (the "Company") invests in real estate
through direct ownership, leases and partnerships and invests in mortgage loans,
including first, wraparound and junior mortgage loans. The Company is the
successor to a business trust which was organized on September 6, 1983 and
commenced operations on January 31, 1984.

Liquidity and Capital Resources

Cash and cash equivalents aggregated $7.1 million at June 30, 1998 compared with
$24.7 million at December 31, 1997. The Company's principal sources of cash have
been and will continue to be from property operations, proceeds from property
sales, the collection of mortgage notes receivable and borrowings. The Company
anticipates that its cash on hand, as well as cash generated from the collection
of mortgage notes receivable, sales of properties, borrowings against certain of
the Company's unencumbered properties and refinancing or extensions of certain
of its mortgage debt will be sufficient to meet all of the Company's cash
requirements including debt service obligations and expenditures for property
maintenance and improvements.

The Company's cash flow from property operations (rents collected less payments
for property operating expenses) increased from $7.6 million for the six months
ended June 30, 1997 to $15.0 million for the six months ended June 30, 1998.
This increase is primarily due to the Company having acquired twenty-six income
producing properties in 1997 and 1998. The Company's management believes that
this trend will continue for the remainder of 1998 as the Company continues to
benefit from the acquired properties and increased rental rates and occupancy
rates at both the Company's apartments and commercial properties.


                                       13
<PAGE>   14


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


Liquidity and Capital Resources (Continued)

In the first six months of 1998, the Company paid dividends of $.30 per share,
or a total of $1.2 million. In January 1998, the Company also paid a special
dividend of $1.00 per share which was declared in December 1997.

The Company's Board of Directors has approved the Company's repurchase of a
total of 687,000 shares of its Common Stock. Through July 31, 1998, the Company
had purchased a total of 398,315 shares, for an aggregate purchase price of $3.3
million. The Company repurchased 21,950 shares at a total cost of $336,000 in
the first six months of 1998.

In the first six months of 1998, the Company sold 5,255 shares of its Common
Stock, through its dividend reinvestment program for a total of $79,000.

In January 1998, the Company purchased (i) the Mountain Plaza Apartments in El
Paso, Texas, for $4.0 million, consisting of $1.0 million in cash and mortgage
financing $3.0 million, (ii) the Hunters Glen Apartments in Midland, Texas, for
$2.5 million, consisting of $600,000 in cash and seller financing of $1.9
million, (iii) a 1.41 acre parcel of land in Dallas, Texas, for $1.9 million in
cash, and (iv) the Bent Tree Garden Apartments in Addison, Texas, for $8.1
million, consisting of $1.7 million in cash and mortgage financing of $6.4
million.

In February 1998, the Company purchased (i) the Parkway North Office Building in
Dallas, Texas, for $5.4 million, consisting of $1.5 million in cash and mortgage
financing of $3.9 million, and (ii) a 2.14 acre parcel of land in Dallas, Texas,
for $3.4 million in cash.

In March 1998, the Company refinanced the mortgage debt secured by Tricon
Warehouses in Atlanta, Georgia. The Company received net cash of $5.4 million
after paying off $4.8 million in mortgage debt.

Also in March 1998, the Company completed the sale of the Shaws Plaza Shopping
Center in Sharon, Massachusetts. The Company received net cash of $1.2 million
after paying off $2.6 million in mortgage debt.

Further in March 1998, the Company purchased the Plaza on Bachman Creek, a
retail/office complex in Dallas, Texas, for $3.5 million, consisting of $1.1
million in cash and mortgage financing of $2.4 million.

In April 1998, the Company purchased in a single transaction, the Ashton Way and
4400 Apartments in Midland, Texas, for $3.4 million, consisting of $700,000 in
cash and mortgage financing of $2.7 million.

Also in April 1998, the Company received $2.1 million in cash in settlement of a
mortgage note receivable which had been in default.


                                       14
<PAGE>   15

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

Liquidity and Capital Resources (Continued)

In May 1998, the Company purchased (i) the Woodview Apartments in Odessa, Texas,
for $3.4 million, consisting of $800,000 in cash and mortgage financing of $2.6
million, (ii) Eagle Crest land, a 22.99 acre parcel of land in Farmers Branch,
Texas, for $2.5 million in cash, (iii) Emerald Terrace Apartments in Midland,
Texas, for $1.5 million, consisting of $425,000 in cash and mortgage financing
of $1.1 million, (iv) Daley Plaza in San Diego, California, for $4.6 million,
consisting of $1.1 million in cash and $3.5 million in mortgage financing, and
(v) View Ridge Building in San Diego, California, for $1.9 million, consisting
of $600,000 in cash and $1.3 million in mortgage financing.

Also in May 1998, the Company obtained mortgage financing in the amount of $2.2
million secured by the previously unencumbered Lemmon Carlisle land. The Company
received net cash of $2.1 million.

Further in May 1998, the Company refinanced the mortgage debt secured by the
Plaza Office Building in St. Petersburg, Florida. The Company received net cash
of $2.6 million after paying off $4.8 million in mortgage debt.

In June 1998, the Company purchased the Atrium Office Building in Palm Beach,
Florida, for $5.4 million, consisting of $1.3 million in cash and mortgage
financing of $4.1 million.

In July 1998, the Company purchased the Valley Rim building in San Diego,
California, for $5.1 million, consisting of $1.4 million in cash and mortgage
financing of $3.7 million.

Also in July 1998, the Company purchased the Limestone Canyon land in Austin,
Texas, for $1.8 million in cash.

Further in July 1998, the Company refinanced the matured mortgage debt secured
by the Villas at Countryside Apartments in Sterling, Virginia. The Company
received net cash of $400,000 after paying off $5.0 million in mortgage debt.

In July 1998, the Company received $671,000 in settlement of a mortgage note
receivable which had been written off in a prior year.

The Company's management reviews the carrying values of the Company'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.
In those instances where impairment is found to exist, a provision for loss is
recorded by a charge against earnings. The Company's mortgage note receivable
review includes an evaluation of the collateral property securing such


                                       15
<PAGE>   16

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

Liquidity and Capital Resources (Continued)

note. The property review generally includes selective property inspections, a
review of the property's current rents compared to market rents, a review of the
property's expenses, a review of maintenance requirements, a review of the
property's cash flow, discussions with the manager of the property and a review
of properties in the surrounding area.

Results of Operations

The Company's net income for the three and six months ended June 30, 1998 was
$1.8 million and $626,000 as compared to a net loss of $1.0 million and $1.2
million in the corresponding periods in 1997. The net income for the three and
six months ended June 30, 1998 includes $2.1 million of gains on the sale of
real estate. The net loss for the three and six months ended June 30, 1997
includes gains on sale of real estate of $55,000 and $1.5 million, respectively.
Fluctuations in this and other components of the Company's revenues and expenses
between the 1997 and 1998 periods are discussed below.

Rents in the three and six months ended June 30, 1998 were $17.3 million and
$33.4 million compared to $13.3 million and $25.4 million in the corresponding
periods in 1997. Of the increase, $268,000 and $845,000 relates to an increase
in rental rates and common area maintenance income at the Company's commercial
properties and $3.8 million and $7.6 million is due to the acquisition of thirty
properties in 1997 and 1998. These increases were partially offset by decreases
of $376,000 and $703,000 due to the sale of six properties during 1997 and 1998.
Rents are expected to continue to increase due to properties acquired in 1997
and 1998.

Interest income decreased to $175,000 and $393,000 in the three and six months
ended June 30, 1998 compared to $364,000 and $773,000 in the corresponding
periods in 1997. This decrease is due to four mortgage notes receivable being
paid in full in 1997. Interest income for the remainder of 1998 is expected to
approximate that of the first and second quarters of 1998.

Property operations expense in the three and six months ended June 30, 1998 was
$8.9 million and $17.3 million compared to $7.7 million and $15.0 million in the
corresponding periods in 1997. Of the increases, $2.1 million and $4.2 million
for the three and six months ended June 30, 1998 is due to the acquisition of
thirty properties in 1997 and 1998. This increase is partially offset by
decreases of $919,000 and $1.7 million for the three and six months ended June
30, 1998 due to the sale of six properties during 1997 and 1998 and $57,000 and
$219,000 for the three and six months ended June 30, 1998 due to a decrease in
property replacement and personnel expenses at the Company's commercial
properties. Property operating expenses are expected to continue to increase due
to properties acquired in 1997 and 1998.


                                       16
<PAGE>   17


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

Results of Operations (Continued)

Interest expense increased to $5.6 million and $10.9 million in the three and
six months ended June 30, 1998 compared to $3.9 million and $7.8 million in the
corresponding periods in 1997. Of the increase, $1.5 million and $2.9 million
for the three and six months ended June 30, 1998 is due to the debt incurred or
assumed on twenty-eight of thirty properties acquired in 1997 and 1998 and
$300,000 and $482,000 is due to refinancings and financing obtained on
unencumbered properties. These increases are partially offset by decreases of
$84,000 and $126,000 for the three and six months ended June 30, 1998 due to
properties sold in 1997 and 1998. Interest expense for the remainder of 1998 is
expected to be comparable to that of the first and second quarters of 1998.

Depreciation expense increased to $2.6 million and $5.1 million for the three
and six months ended June 30, 1998 compared to $2.4 million and $4.6 million in
the corresponding periods in 1997. Of this increase, $438,000 and $862,000 for
the three and six months ended June 30, 1998 is due to the acquisition of thirty
properties in 1997 and 1998 with fifteen of the properties being acquired in the
first six months of 1998 and $145,000 and $271,000 is due to capital
improvements. These increases are partially offset by a decrease of $327,000 and
$609,000 for the three and six months ended June 30, 1998 due to six properties
being sold during 1997 and 1998. Depreciation is expected to continue to
increase during the remainder of 1998 as a result of depreciation on the
properties acquired in 1997 and in 1998.

Advisory and net income fee increased to $689,000 and $1.3 million for the three
and six months ended June 30, 1998 compared to $491,000 and $956,000 in the
corresponding periods in 1997. Advisory fees are expected to continue to
increase with increases in the Company's gross assets, the basis for such fee.

General and administrative expenses decreased to $486,000 and $1.1 million for
the three and six months ended June 30, 1998 compared to $647,000 and $1.3
million in the corresponding periods in 1997. The decrease for the three and six
months ended June 30, 1998 is mainly due to a decrease in legal fees relating to
Republic Towers and Olive litigation.

Equity in earnings of investees was income of $414,000 and $432,000 for the
three and six months ended June 30, 1998 compared to income of $429,000 and
$777,000 for the corresponding periods in 1997. Included in equity earnings of
investees for the six months ended June 30, 1998 is a gain on the sale of real
estate of $316,000 which is the Company's equity share of the gain recognized by
Tri-City Limited Partnership ("Tri-City") on the sale of its two apartment
complexes. Included in equity earnings of investees for the six months ended
June 30, 1997 is a gain on sale of real estate of $416,000, which is the
Company's equity share of the gain recognized by Income Opportunity Realty
Investors,


                                       17
<PAGE>   18

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

Results of Operations (Continued)

Inc. on the sale of one of its apartment complexes. At July 31, 1998, the
Company owned approximately 22.8% of IORI's outstanding shares of common stock.

In the three and six months ended June 30, 1998, the Company recognized a gain
on sale of real estate of $2.1 million. Such gain had been deferred on a prior
years sale of one of the Company's properties until the financing provided by
the Company was collected. Such note was collected in April 1998. See NOTE 3.
"NOTES AND INTEREST RECEIVABLE." In the six months ended June 30, 1997, the
Company recognized gains totaling $1.5 million on the sale of (i) the Fiesta
Mart, a shopping center, (ii) a parcel of land in the Dallas central business
district, and (iii) a foreclosed single family residence.

Tax Matters

As more fully discussed in the Company's 1997 Form 10-K, the Company has elected
and, in the opinion of the Company's management, qualified to be taxed as a Real
Estate Investment Trust ("REIT"), as defined under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended, (the "Code"). To continue to
qualify for federal taxation as a REIT under the Code, the Company is required
to hold at least 75% of the value of its total assets in real estate assets,
government securities, cash and cash equivalents at the close of each quarter of
each taxable year. The Code also requires a REIT to distribute at least 95% of
its REIT taxable income, plus 95% of its net income from foreclosure property,
all as defined in Section 857 of the Code, on an annual basis to stockholders.

Inflation

The effects of inflation on the Company's operations are not quantifiable.
Revenues from property operations generally fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the rate
of inflation also affect the sales values of properties, and correspondingly,
the ultimate gains to be realized by the Company from property sales. To the
effect that inflation affects interest rates, the Company's earnings from
short-term investments and the cost of new financings as well as the cost of its
variable note financing will be affected.

Environmental Matters

Under various federal, state and local environmental laws, ordinances and
regulations, the Company 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


                                       18
<PAGE>   19


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

Environmental Matters (Continued)

asbestos-containing materials into the air, and third parties may seek recovery
from the Company for personal injury associated with such materials.

The Company's management is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the Company's
business, assets or results of operations.

YEAR 2000

The Company's advisor has advised the Company that its current computer software
has been certified by the Information Technology Association of America ("ITAA")
as year 2000 compliant. The Company's advisor has also advised the Company that
it has recently received and plans to install in the third quarter of 1998 the
ITAA certified year 2000 compliant operating system for its computer hardware.

                                   ----------

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Olive Litigation. In February 1990, the Company, together with Continental
Mortgage and Equity Trust ("CMET"), Income Opportunity Realty Investors, Inc.
("IORI") and National Income Realty Trust, three real estate entities with, at
the time, the same officers, directors or trustees and advisor as the Company,
entered into a settlement of a class and derivative action entitled Olive et al.
v. National Income Realty Trust et al. pending before the United States District
Court for the Northern District of California and relating to the operation and
management of each of the entities (the "Olive Litigation"). On April 23, 1990,
the Court granted final approval of the terms of a Stipulation of Settlement.

On May 4, 1994, the parties entered into a Modification of Stipulation of
Settlement dated April 27, 1994 (the "Olive Modification") that settled
subsequent claims of breaches of the settlement that were asserted by the
plaintiffs and that modified certain provisions of the April 1990 settlement.
The Olive Modification was preliminarily approved by the Court on July 1, 1994,
and final Court approval was entered on December 12, 1994. The effective date of
the Olive Modification was January 11, 1995.

The Court retained jurisdiction to enforce the Olive Modification, and during
August and September 1996, the Court held evidentiary hearings to assess
compliance with the terms of the Olive Modification by various parties. The
Court issued no ruling or order with respect to the matters addressed at the
hearings.


                                       19
<PAGE>   20

ITEM 1. LEGAL PROCEEDINGS (Continued)


Separately in 1996, legal counsel for the plaintiffs notified the Company's
Board of Directors that he intended to assert that certain actions taken by the
Board of Directors breached the terms of the Olive Modification. On January 27,
1997, the parties entered into an Amendment to the Olive Modification effective
January 9, 1997 (the "Olive Amendment"), which was submitted to the Court for
approval on January 29, 1997. The Olive Amendment provides for the settlement of
all matters raised at the evidentiary hearings and by plaintiffs' counsel in his
notices to the Company's Board of Directors. On May 2, 1997, a hearing was held
for the Court to consider approval of the Olive Amendment. As a result of the
hearing, the parties entered into a revised Amendment. The Court issued an order
approving the Olive Amendment on July 3, 1997.

The Olive Amendment provides for the addition of four new unaffiliated members
to the Company's Board of Directors and sets forth new requirements for the
approval of any transactions with certain affiliates until April 28, 1999. In
addition, the Company, CMET, IORI and their shareholders released the defendants
from any claims relating to the plaintiffs' allegations and matters which were
the subject of the evidentiary hearings. The plaintiffs' allegations of any
breaches of the Olive Modification shall be settled by mutual agreement of the
parties or, lacking such agreement, by an arbitration proceeding.

Under the Olive Amendment, all shares of the Company owned by Gene E. Phillips
or any of his affiliates shall be voted at all stockholder meetings of the
Company held until April 28, 1999 in favor of all new Board members added under
the Olive Amendment. The Olive Amendment also requires that, until April 28,
1999, all shares of the Company owned by Gene E. Phillips or his affiliates in
excess of forty percent (40%) of the Company's outstanding shares shall be voted
in proportion to the votes cast by all non-affiliated shareholders of the
Company.

In accordance with the Olive Amendment, Richard W. Douglas, Larry E. Harley and
R. Douglas Leonhard were added to the Company's Board of Directors in January
1998 and Murray Shaw was added to the Company's Board of Directors in February
1998.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


(a)  Exhibits:


<TABLE>
<CAPTION>
Exhibit
Number                     Description
-------                    -----------

<S>                  <C>
 27.0                Financial Data Schedule
</TABLE>


                                       20
<PAGE>   21

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)


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

       A Current Report on Form 8-K, dated December 22, 1997, was filed January
       9, 1998, with respect to Item 2. "Acquisition or Disposition of Assets,"
       and Item 7. "Financial Statements and Exhibits," which reports the
       acquisition of the Fairpark Apartments, Villa Piedra Apartments, Timbers
       Apartments and Lexington Center, and as amended on Form 8-K/A, filed June
       29, 1998.

       A Current Report on Form 8-K, dated May 29, 1998, was filed July 2, 1998,
       with respect to Item 2. "Acquisition or Disposition of Assets," and Item
       7. "Financial Statements and Exhibits," which reports the acquisition of
       the Mountain Plaza Apartments, Hunters Glen Apartments, Bent Tree Garden
       Apartments, Parkway North, Plaza on Bachman Creek, Ashton Way Apartments,
       4400 Apartments, Woodview Apartments, Emerald Terrace Apartments, Daley
       Office Building and Viewridge Office Building.

       A Current Report on Form 8-K, dated June 26, 1998, was filed July 21,
       1998, with respect to Item 2. "Acquisition or Disposition of Assets," and
       Item 7. "Financial Statements and Exhibits," which reports the
       acquisition of the Atrium Office Building and Valley Rim Office Building.



                                       21
<PAGE>   22

                                   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:    August 11, 1998              By:  /s/ Randall M. Paulson
     ------------------------             ------------------------------
                                          Randall M. Paulson
                                          President



Date:    August 11, 1998              By:  /s/ Thomas A. Holland
     ------------------------             ------------------------------
                                          Thomas A. Holland
                                          Executive Vice President and
                                          Chief Financial Officer
                                          (Principal Financial and
                                           Accounting Officer)


                                       22
<PAGE>   23

                     TRANSCONTINENTAL REALTY INVESTORS, INC.

                                   EXHIBITS TO

                          QUARTERLY REPORT ON FORM 10-Q

                     For the Six Months ended June 30, 1998

<TABLE>
<CAPTION>
Exhibit                                                               Page
Number                             Description                       Number
-------             ---------------------------------------         ------
<S>                 <C>                                              <C>
 27.0               Financial Data Schedule                            24
</TABLE>



                                       23