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

                                  FORM 10-K/A
                                AMENDMENT NO. 1

           [X]  ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1997

                         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 Offices)                    (Zip Code)

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

          Securities Registered Pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                Name of each exchange on
     Title of each class                            which registered      
------------------------------                  ----------------------------
<S>                                             <C>
Common Stock, $.01 par value                    New York Stock Exchange
</TABLE>

          Securities Registered Pursuant to Section 12(g) of the Act:

                                      NONE

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 at least the past 90 days.  Yes X   No
                                                       ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  [X]

As of March 6, 1998, the Registrant had 3,889,200 shares of Common Stock
outstanding.  Of the total shares outstanding 2,128,945 were held by other than
those who may be deemed to be affiliates, for an aggregate value of $33,531,000
based on the last trade as reported on the New York Stock Exchange on March 6,
1998.  The basis of this calculation does not constitute a determination by the
Registrant that all of such persons or entities are affiliates of the
Registrant as defined in Rule 405 of the Securities Act of 1933, as amended.

                      Documents Incorporated by Reference:
 Consolidated Financial Statements of Income Opportunity Realty Investors, Inc.
                           Commission File No. 1-9525





                                       1
<PAGE>   2



This Form 10-K/A Amendment No. 1 amends the Registrant's annual report on Form
10-K for the year ended December 31, 1997 as follows:



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - RESULTS OF OPERATIONS - page 34.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - CONSOLIDATED BALANCE
SHEETS - page 38; CONSOLIDATED STATEMENT OF OPERATIONS - page 39; CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY - page 40; CONSOLIDATED STATEMENTS OF CASH
FLOWS - page 41 and 42. NOTE 14. EXTRAORDINARY GAIN - page 60; SCHEDULE III -
REAL ESTATE AND ACCUMULATED DEPRECIATION - pages 65 and 66.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K - 
EXHIBIT 27.0 - page 91.
<PAGE>   3
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS (Continued)

On December 5, 1989, the Company's Board of Directors approved a share
repurchase program.  The Company's Board of Directors authorized the Company to
repurchase a total of 687,000 shares of the Company's Common Stock pursuant to
such program.  Through December 31, 1997, the Company had repurchased 387,815
shares of its Common Stock pursuant to such program at a cost to the Company of
$3.0 million.  In 1997, the Company repurchased 37,227 shares at a cost of
$445,000.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                         For the Years Ended December 31,              
                                  -------------------------------------------------------------------------------
                                     1997               1996            1995            1994               1993  
                                  -----------      -----------      -----------      -----------      -----------
EARNINGS DATA                              (dollars in thousands, except per share)
<S>                               <C>              <C>              <C>              <C>              <C>        
Revenues ....................     $    55,961      $    46,878      $    48,272      $    37,983      $    32,242
Expenses ....................          65,578           56,499           58,174           47,154           42,168
                                  -----------      -----------      -----------      -----------      -----------

(Loss) from operations ......          (9,617)          (9,621)          (9,902)          (9,171)          (9,926)
Equity in income (loss)
 of investees ...............             812              (20)          (1,083)             (90)            (262)
Gain on sale of partner-
 ship interests .............              --               --               --            2,514               --
Gain on sale of
 real estate ................          21,404            1,579            5,822            2,153               24
Extraordinary gain ..........              --              256            1,437            1,189            1,594
                                  -----------      -----------      -----------      -----------      -----------
Net income (loss) ...........     $    12,599      $    (7,806)     $    (3,726)     $    (3,405)     $    (8,570)
                                  ===========      ===========      ===========      ===========      ===========

PER SHARE DATA
Income (loss) before
 extraordinary gain .........     $      3.22      $     (2.02)     $     (1.29)     $     (1.15)     $     (2.52)
Extraordinary gain ..........              --               --              .32              .30              .40
                                  -----------      -----------      -----------      -----------      -----------
Net income (loss) ...........     $      3.22      $     (2.02)     $      (.97)     $      (.85)     $     (2.12)
                                  ===========      ===========      ===========      ===========      ===========

Dividends per share .........     $       .28      $       .28      $       .07      $        --      $        --

Weighted average Common
 shares outstanding .........       3,907,221        3,994,687        4,012,275        4,012,275        4,033,332
</TABLE>

<TABLE>
<CAPTION>
                                                                   December 31,                       
                                  -----------------------------------------------------------------------------
                                     1997             1996             1995             1994              1993  
                                  --------         --------         --------          --------         --------
BALANCE SHEET DATA                                   (dollars in thousands, except per share)
<S>                               <C>              <C>              <C>              <C>              <C>     
Notes and interest
 receivable, net ............     $  3,947         $  8,606         $ 10,017         $ 11,201         $ 12,447
Real estate held for
 sale, net
 Foreclosed .................        1,356              910            2,460            8,032           11,277
 Other ......................        3,630            2,089            3,415              341              596
Real estate held for
 investment, net ............      269,845          217,010          220,105          213,445          178,857
Total assets ................      319,535          244,971          260,036          247,964          221,095
Notes and interest
 payable ....................      222,029          158,692          159,889          145,514          116,024
Stockholders' equity ........       86,133           78,959           89,040           93,177           96,582

Book value per share ........     $  22.15         $  20.10         $  22.19         $  23.22         $  23.95
</TABLE>





                                       27
<PAGE>   4
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)


Results of Operations (Continued)

first lien mortgage also by NIA.  The Company's equity share of the loss on the
note modification was $127,000 and its equity share of the note writedown was
$901,000.  See NOTE 5. "INVESTMENT IN EQUITY METHOD REAL ESTATE ENTITIES."

In 1995, the Company recognized extraordinary gains totaling $1.3 million on the
payoff of the mortgage debt secured by the Fountain Village Apartments. The
Company had no such gains in 1996.

In 1996, the Company recognized gains of $218,000, $1.4 million and $56,000
from the sales of Cheyenne Mountain land, Park Forest Apartments and Moss Creek
land.  In September 1996, the Company recognized a loss of $63,000 from the
sale of Byron land.  In 1995, the Company recognized a gain of $1.6 million on
the collection of the note receivable secured by the Maumelle land and a gain
of $4.1 million on the sale of the Summerchase Apartments.  See NOTE 3. "REAL
ESTATE AND DEPRECIATION."


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 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.


Inflation

The effects of inflation on the Company's operations are not quantifiable.
Revenues from property operations fluctuate proportionately with inflationary
increases and decreases in housing costs.  Fluctuations in  the rate of
inflation also affect sale values of properties, and correspondingly, the
ultimate realizable value of the Company's real estate and notes receivable
portfolios.  Inflation also has an effect on the Company's earnings from
short-term investments.





                                       34
<PAGE>   5
                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                    December 31,
                                                             ---------------------------
                                                                1997             1996
                                                             ---------         ---------
                                                               (dollars in thousands)
<S>                                                         <C>               <C>      
                       Assets

Notes and interest receivable
  Performing .......................................        $   4,388         $   9,075
  Nonperforming, nonaccruing .......................              450               457
                                                            ---------         ---------
                                                                4,838             9,532

Less - allowance for estimated losses ..............             (891)             (926)
                                                            ---------         ---------
                                                                3,947             8,606

Foreclosed real estate held for sale ...............            1,356               910

Real estate held for sale, net of accumulated
  depreciation ($1,350 in 1997 and $76 in 1996) ....            3,630             2,089
                                                            ---------         ---------
                                                                4,986             2,999

Real estate held for investment, net of
  accumulated depreciation ($55,487 in 1997 and
  $50,310 in 1996) .................................          269,845           217,010
Investment in real estate entities .................            4,333             4,578
Cash and cash equivalents ..........................           24,733               960
Other assets (including $497 in 1997 and $960 in
  1996 from affiliates) ............................           11,291            10,818
                                                            ---------         ---------
                                                            $ 319,135         $ 244,971
                                                            =========         =========

        Liabilities and Stockholders' Equity

Liabilities
Notes and interest payable .........................        $ 222,029         $ 158,692
Other liabilities (including $1,157 in 1997 and $535
  in 1996 to affiliates) ...........................           10,973             7,320
                                                            ---------         ---------
                                                              233,002           166,012

Commitments and contingencies

Stockholders' equity
Common Stock, $.01 par value; authorized, 10,000,000
  shares; issued and outstanding 3,889,200 shares
  in 1997 and 3,926,445 shares in 1996 .............               39                39
Paid-in capital ....................................          217,688           218,133
Accumulated distributions in excess of accumulated
  earnings .........................................         (131,594)         (139,213)
                                                            ---------         ---------
                                                               86,133            78,959
                                                            ---------         ---------
                                                            $ 319,135         $ 244,971
                                                            =========         =========
</TABLE>



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




                                       38
<PAGE>   6

                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS




<TABLE>
<CAPTION>
                                                       For the Years Ended December 31,
                                             ---------------------------------------------------
                                                  1997                1996                1995
                                             -----------         -----------         -----------
                                                  (dollars in thousands, except per share)

<S>                                          <C>                 <C>                 <C>        
Revenues
Rents ...............................        $    54,462         $    45,405         $    46,770
Interest ............................              1,499               1,473               1,502
                                             -----------         -----------         -----------
                                                  55,961              46,878              48,272

Expenses
  Property operations (including
    $2,262 in 1997, $1,879 in 1996
    and $2,928 in 1995 to affiliates)             32,424              28,491              30,211
  Interest ..........................             16,765              14,999              16,114
  Depreciation ......................              9,578               8,461               8,619
  Advisory fee to affiliate .........              1,807               1,784               1,770
  Net income fee to affiliate .......              1,022                --                  --
  General and administrative
    (including $1,187 in 1997, $1,047
    in 1996 and $877 in 1995 to
    affiliates) .....................              2,645               2,685               1,960
  Litigation settlement .............               --                (1,500)               (500)
  Provision for losses ..............              1,337               1,579                --
                                             -----------         -----------         -----------
                                                  65,578              56,499              58,174
                                             -----------         -----------         -----------

(Loss) from operations ..............             (9,617)             (9,621)             (9,902)
Equity in income (loss) of investees                 812                 (20)             (1,083)
Gain on sale of real estate .........             21,404               1,579               5,822
                                             -----------         -----------         -----------

Income (loss) before extraordinary
  gain ..............................             12,599              (8,062)             (5,163)
Extraordinary gain ..................               --                    --               1,293
                                             -----------         -----------         -----------
Net income (loss) ...................        $    12,599         $    (8,062)        $    (3,870)
                                             ===========         ===========         ===========

Earnings per share
Income (loss) before extraordinary
  gain ..............................        $      3.22         $     (2.02)        $     (1.29)
Extraordinary gain ..................               --                    --                 .32
                                             -----------         -----------         -----------
Net income (loss) ...................        $      3.22         $     (2.02)        $      (.97)
                                             ===========         ===========         ===========


Weighted average Common shares used
in computing earnings per share .....          3,907,221           3,994,687           4,012,275
                                             ===========         ===========         ===========
</TABLE>


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




                                       39
<PAGE>   7

                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                                                 Distributions
                                          Common Stock                           in Excess of
                                    ------------------------        Paid-in       Accumulated     Stockholders'
                                     Shares         Amount          Capital         Earnings         Equity
                                    ---------    ------------    ------------    -------------   --------------
                                                                  (dollars in thousands)

<S>                                 <C>          <C>             <C>             <C>             <C>         
Balance, January 1, 1995 .....      4,012,275    $         40    $    219,036    $   (125,899)   $     93,177


Dividends ($.07 per
  share) .....................           --              --              --              (267)           (267)

Net (loss) ...................           --              --              --            (3,870)         (3,870)
                                    ---------    ------------    ------------    ------------    ------------


Balance, December 31, 1995 ...      4,012,275              40         219,036        (130,036)         89,040


Repurchase of Common
  Stock ......................        (85,830)             (1)           (903)           --              (904)

Dividends ($.28 per
  share) .....................           --              --              --            (1,115)         (1,115)

Net (loss) ...................           --              --              --            (8,062)         (8,062)
                                    ---------    ------------    ------------    ------------    ------------


Balance, December 31, 1996 ...      3,926,445              39         218,133        (139,213)         78,959


Fractional shares ............            (18)           --              --              --              --

Repurchase of Common Stock ...        (37,227)           --              (445)           --              (445)

Dividends ($.28 per
  share) .....................           --              --              --            (1,090)         (1,090)

Special dividend ($1.00
  per share) declared ........           --              --              --            (3,890)         (3,890)

Net income ...................           --              --              --            12,599          12,599
                                    ---------    ------------    ------------    ------------    ------------


Balance, December 31, 1997 ...      3,889,200    $         39    $    217,688    $   (131,594)   $     86,133
                                    =========    ============    ============    ============    ============
</TABLE>








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


                                       40
<PAGE>   8
                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                           For the Years Ended December 31,
                                                     --------------------------------------------
                                                         1997           1996              1995
                                                     ------------    ------------    ------------
                                                               (dollars in thousands)

<S>                                                  <C>             <C>             <C>         
Cash Flows from Operating Activities
   Rents collected ...............................   $     57,144    $     43,401    $     46,511
   Interest collected ............................          1,098           1,232           1,256
   Interest paid .................................        (16,016)        (14,167)        (14,676)
   Payments for property operations
     (including $2,262 in 1997, $1,879 in
     1996 and $2,928 in 1995 to affiliates) ......        (40,984)        (30,738)        (31,171)
   Advisory and net income fee paid to
     affiliate ...................................         (1,807)         (1,784)         (1,770)
   General and administrative expenses paid
     (including $1,187 in 1997, $1,047 in
     1996 and $877 in 1995 to affiliates) ........         (2,457)         (2,785)         (1,216)
   Distributions from operating cash flow of
     equity investees ............................            687             649             666
   Insurance/Litigation settlement ...............          9,633           1,500             500
   Other .........................................          1,119            (498)          1,266
                                                     ------------    ------------    ------------

     Net cash provided by (used in) operating
        activities ...............................          8,417          (3,190)          1,366


Cash Flows from Investing Activities
   Collections on notes receivable ...............          5,048             952           2,851
   Real estate improvements ......................         (5,767)         (3,406)         (8,024)
   Proceeds from sale of real estate .............         29,081           8,922          24,445
   Acquisitions of real estate (including
     $2,966 in 1997, $339 in 1996 and $56 in
     1995 to affiliates) .........................        (46,433)         (7,689)         (1,339)
   Acquisition of partnership interests ..........           --              --               (50)
   Contributions to equity investees .............           (731)           (161)           (443)
                                                     ------------    ------------    ------------

Net cash provided by (used in) investing
   activities ....................................        (18,802)         (1,382)         17,440
</TABLE>






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


                                       41
<PAGE>   9
                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)



<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                                                         1997            1996            1995
                                                     ------------    ------------    ------------
                                                                 (dollars in thousands)
<S>                                                  <C>             <C>             <C>         
Cash Flows from Financing Activities
 Distributions from financing cash flow of
  equity investees ...............................   $      1,101    $       --      $        853
 Payments on notes payable .......................        (37,095)        (14,545)        (35,205)
 Proceeds from notes payable .....................         73,817          13,550          26,072
 Dividends paid ..................................         (1,090)         (1,115)           (267)
 Shares of Common Stock repurchased ..............           (445)           (904)           --
 Deferred financing costs ........................         (2,130)           (818)         (1,058)
                                                     ------------    ------------    ------------

    Net cash provided by (used in)
      financing activities .......................         34,158          (3,832)         (9,605)
                                                     ------------    ------------    ------------


Net increase (decrease) in cash and cash
  equivalents ....................................         23,773          (8,660)          9,057

Cash and cash equivalents, beginning of year .....            960           9,620             563
                                                     ------------    ------------    ------------

Cash and cash equivalents, end of year ...........   $     24,773    $        960    $      9,620
                                                     ============    ============    ============


Reconciliation of net income (loss) to net
  cash provided by (used in) operating
  activities
   Net income (loss) .............................   $     12,599    $     (7,806)   $     (3,726)
   Adjustments to reconcile net income (loss)
     to net cash provided by (used in)
     operating activities
        Depreciation and amortization ............         10,005           8,857           9,180
        Provision for losses .....................          1,337           1,579            --
        Extraordinary gain .......................           --              --            (1,293)
        Equity in (income) loss of equity
          investees ..............................           (812)             20           1,083
        Gain on sale of real estate ..............        (21,404)         (1,579)         (5,822)
        Distributions from operating cash flow
          of equity investees ....................            687             649             666
        (Increase) in interest receivable ........           (244)             (5)             (4)
        Decrease in other assets .................          3,740           1,759           1,098
        Increase in interest payable .............            165             200             635
        (Decrease) in other liabilities ..........          2,344          (6,864)           (451)
                                                     ------------    ------------    ------------

Net cash provided by (used in) operating
  activities .....................................   $      8,417    $     (3,190)   $      1,366
                                                     ============    ============    ============
</TABLE>



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




                                       42
<PAGE>   10

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


NOTE 13. INCOME TAXES (Continued)

As a result of the Company's election to be treated as a REIT for income tax
purposes and of its intention to distribute its taxable income, if any, in
future years, no deferred tax asset, liability or valuation allowance was
recorded.

NOTE 14. EXTRAORDINARY GAIN

In 1995, the Company recognized extraordinary gains totaling $1.4 million on the
payoff of the mortgage debt secured by the Fountain Village Apartments.

NOTE 15. COMMITMENTS AND CONTINGENCIES

Olive Litigation. In February 1990, the Company, together with CMET, 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., relating to the operation and management of each of
such entities. On April 23, 1990, the Court granted final approval of the terms
of the 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 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 the various parties. The
Court issued no ruling or order with respect to the matters addressed at the
hearings.

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




                                       60
<PAGE>   11

                       TRANSCONTINENTAL REALTY INVESTORS, INC.     SCHEDULE III
                      REAL ESTATE AND ACCUMULATED DEPRECIATION      (Continued)
                                DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                        Cost                                                 
                                                                Capitalized Subsequent         Gross Amounts of Which Carried
                                              Initial Cost         to Acquisition                       at End of Year       
                                           --------------------- -------------------           ------------------------------
                                                    Buildings &                                        Buildings &      (1)  
 Property/Location          Encumbrances   Land     Improvements Improvements  Other            Land   Improvements    Total 
--------------------        ------------   -----    ------------ ------------  -----           ------- ------------  --------
INVESTMENT PROPERTIES - CONTINUED                           (dollars in thousands)
<S>                           <C>         <C>         <C>         <C>         <C>             <C>         <C>         <C>    
APARTMENTS - CONTINUED
Woods Edge ..............     $ 6,158     $ 1,015     $ 7,812     $   143     $    --         $ 1,466     $ 7,504     $ 8,970
   Rockville, MD

OFFICE BUILDINGS
74 New Montgomery .......       6,256       2,277       9,105       3,829        (336)(2)       2,210      12,665      14,875
   San Francisco, CA
Bonita Plaza ............       3,995       1,168       4,670          --          --           1,168       4,670       5,838
   Bonita, CA
Chesapeake Ridge ........       5,348       3,663       4,098       1,571          --           3,681       5,651       9,332
   San Diego, CA
Corporate Pointe ........       4,020         830       3,321         351          --             830       3,672       4,502
   Chantilly, VA
Forum ...................       5,525       1,360       5,439         589          --           1,360       6,028       7,388
   Richmond, VA
Hartford ................       2,236         630       2,520         400          --             630       2,920       3,550
   Dallas, TX
Institute Place Lofts ...       6,058         665       7,057         155          --             665       7,212       7,877
   Chicago, IL
Lexington Center ........       4,000       1,103       4,413          --          --           1,103       4,413       5,516
   Colorado Springs, CO
One Steeplechase ........       8,213       1,380       5,520       2,807          72 (4)       1,391       8,388       9,779
   Sterling, VA
Plaza Towers ............       4,774       1,760      12,617       6,573      (4,379)(2)       1,246      15,325      16,571
   St. Petersburg, FL
Savings of America ......       1,285         338       1,353         169          --             338       1,522       1,860
   Houston, TX
Town & Country ..........        --           108         432         470          --             108         902       1,010
   Houston, TX
Venture Center ..........       1,132         411       2,746         182          --             411       2,928       3,339
   Atlanta, GA
Waterstreet .............       8,114       2,605      10,420         927          --           2,605      11,347      13,952
   Boulder, CO

INDUSTRIAL WAREHOUSES
Corporate Center ........       7,000       1,259       5,038       1,096          --           1,264       6,129       7,393
   Ashburn, VA
Denton Drive ............         341         414         527          --          --             414         527         941
   Dallas, TX ...........                                                                                                    
Encon ...................       3,500         984       3,935          --          --             984       3,935       4,919
   Fort Worth, TX
Parke Long ..............       7,759       1,838       7,361         748          --           1,838       8,109       9,947
   Chantilly, VA
Technology Trading ......       4,158       1,199       4,796          96          --           1,222       4,869       6,091
   Sterling, VA
Texstar .................       1,150         333       1,331         141          --             333       1,472       1,805
   Arlington, TX
Tricon ..................       4,848       2,761       6,442         796          --           2,774       7,225       9,999
   Atlanta, GA ..........                                                                                                    

SHOPPING CENTERS
Dunes Plaza .............       3,856       1,230       5,430       1,172        (482)(5)       1,529       5,821       7,350
   Michigan City, IN
Northtown ...............       2,500       1,786       7,143       1,484          --           2,103       8,310      10,413
   Dallas, TX




                                                                  Life on Which
                                             Date                  Depreciation
                                             of                      in Latest
                                             Con-                    Statement
                             Accumulated   struc-    Date          of Operation
 Property/Location           Depreciation    tion    Acquired       is Computed
--------------------         ------------  ------   --------       -----------
INVESTMENT PROPERTIES - CONTINUED            (dollars in thousands)
<S>                           <C>          <C>      <C>          <C>      
APARTMENTS - CONTINUED
Woods Edge ..............     $ 3,296      1965     01/01/95     5 - 40 years
   Rockville, MD

OFFICE BUILDINGS
74 New Montgomery .......       3,982      1914     09/21/90     4 - 40 years
   San Francisco, CA
Bonita Plaza ............          39      1991     09/16/97         40 years
   Bonita, CA
Chesapeake Ridge ........       3,041      1985     06/30/85     5 - 40 years
   San Diego, CA
Corporate Pointe ........         450      1992     10/28/94     5 - 40 years
   Chantilly, VA
Forum ...................       1,041      1987     10/30/92     3 - 40 years
   Richmond, VA
Hartford ................         286      1980     11/10/94     4 - 40 years
   Dallas, TX
Institute Place Lofts ...       3,350      1910     01/01/93     2 - 40 years
   Chicago, IL
Lexington Center ........           9      1986     12/30/97         40 years
   Colorado Springs, CO
One Steeplechase ........       1,924      1987     12/22/92     5 - 40 years
   Sterling, VA
Plaza Towers ............       8,310      1979     11/14/85     3 - 40 years
   St. Petersburg, FL
Savings of America ......          37      1979     03/31/97     5 - 40 years
   Houston, TX
Town & Country ..........         395      1982     05/01/92     3 - 40 years
   Houston, TX
Venture Center ..........         676      1981     07/04/89     3 - 40 years
   Atlanta, GA
Waterstreet .............       2,341      1988     09/30/91     3 - 40 years
   Boulder, CO

INDUSTRIAL WAREHOUSES
Corporate Center ........         811      1989     04/28/94     3 - 40 years
   Ashburn, VA
Denton Drive ............          61      1948-    05/13/93         40 years
   Dallas, TX ...........                  1952
Encon ...................          25      1958     10/01/97         40 years
   Fort Worth, TX
Parke Long ..............         863      1989     06/16/94     3 - 40 years
   Chantilly, VA
Technology Trading ......         530      1987     12/21/93     3 - 40 years
   Sterling, VA
Texstar .................         138      1967     12/16/93     5 - 40 years
   Arlington, TX
Tricon ..................       1,268      1971-    02/11/93     3 - 40 years
   Atlanta, GA ..........                  1975

SHOPPING CENTERS
Dunes Plaza .............       1,147      1978     03/17/92     5 - 40 years
   Michigan City, IN
Northtown ...............       1,402      1967     02/25/92     5 - 40 years
   Dallas, TX
</TABLE>




                                       65
<PAGE>   12

                     TRANSCONTINENTAL REALTY INVESTORS, INC.       SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION        (Continued)
                                DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                     Cost             
                                                                           Capitalized Subsequent     
                                                     Initial Cost             to Acquisition          
                                               ------------------------  -------------------------    
                                                           Buildings &                                
 Property/Location             Encumbrances      Land      Improvements  Improvements      Other      
--------------------           ------------    -------     ------------  -----------     ---------    
INVESTMENT PROPERTIES - CONTINUED                           (dollars in thousands)
<S>                             <C>           <C>           <C>           <C>            <C>          
SHOPPING CENTERS - CONTINUED
Parkway Center ............     $   1,796     $     273     $   1,876     $     405      $      --    
   Dallas, TX
Sadler Square .............         2,415           679         2,715            65             --    
   Amelia Island, FL
Sheboygan .................           864           242         1,371            17             --    
   Sheboygan, WI

HOTEL
Majestic Inn ..............         5,700         1,139         4,555           808             --    
   San Francisco, CA

LAND
Las Colinas ...............            --           995            --             5             --    
   Las Colinas, TX
West End ..................         8,784        11,405            --            --             --
   Dallas, TX
                                ---------     ---------     ---------     ---------      --------- 

INVESTMENT PROPERTIES .....       215,680        67,050       231,489        33,911         (7,118)   
                                ---------     ---------     ---------     ---------      --------- 

PROPERTIES HELD FOR SALE

SHOPPING CENTERS
Shaw Plaza ................         2,579         1,066         4,262         1,098         (1,446)(6)
   Sharon, MA

LAND
Fiesta ....................            --            44            --            --             --    
   San Angelo, TX
Fruitland .................            --           253            --            --           (100)(7)
   Fruitland Park, FL
Moss Creek ................            --            85            --            --             --    
   Greensboro, NC
Republic Tower ............            --         1,074            --            --             --    
   Dallas, TX
                                ---------     ---------     ---------     ---------      --------- 

PROPERTIES HELD FOR
   SALE ...................         2,579         2,522         4,262         1,098         (1,546)   
                                ---------     ---------     ---------     ---------      --------- 

                                $ 218,259     $  69,572     $ 235,751     $  35,009      $  (8,664)
                                =========     =========     =========     =========      ========= 



                                                                                                                     Life on Which
                                 Gross Amounts of Which Carried                              Date                    Depreciation
                                        at End of Year                                        of                       in Latest
                                   ------------------------                                   Con-                     Statement
                                               Buildings &       (1)      Accumulated        struc-         Date      of Operation
 Property/Location                  Land       Improvements     Total     Depreciation        tion        Acquired    is Computed
--------------------               -------     ------------    --------   ------------       ------       --------    ------------
INVESTMENT PROPERTIES - CONTINUED                           (dollars in thousands)
<S>                              <C>           <C>           <C>            <C>               <C>         <C>        <C>      
SHOPPING CENTERS - CONTINUED
Parkway Center ............      $     273     $   2,281     $   2,554      $     701         1979        11/01/91   1 - 40 years
   Dallas, TX
Sadler Square .............            679         2,780         3,459            347         1987        11/22/93   3 - 40 years
   Amelia Island, FL
Sheboygan .................            259         1,371         1,630            191         1977        05/21/92       40 years
   Sheboygan, WI

HOTEL
Majestic Inn ..............          1,139         5,363         6,502          1,026          1902        12/31/90  2 - 40 years
   San Francisco, CA

LAND
Las Colinas ...............          1,000            --         1,000             --           --         01/25/96      --
   Las Colinas, TX
West End ..................         11,405            --        11,405             --           --         08/05/97      --
   Dallas, TX
                                 ---------     ---------     ---------      ---------

INVESTMENT PROPERTIES .....         68,608       256,724       325,332         55,487
                                 ---------     ---------     ---------      ---------

PROPERTIES HELD FOR SALE

SHOPPING CENTERS
Shaw Plaza ................            813         4,167         4,980          1,350         1978     12/13/91      5 - 40 years
   Sharon, MA

LAND
Fiesta ....................             44            --            44             --           --     12/31/91       --
   San Angelo, TX
Fruitland .................            153            --           153             --           --     05/01/92       --
   Fruitland Park, FL
Moss Creek ................             85            --            85             --           --     12/31/96       --
   Greensboro, NC
Republic Tower ............          1,074            --         1,074             --           --     11/27/92       --
   Dallas, TX
                                 ---------     ---------     ---------      ---------

PROPERTIES HELD FOR
   SALE ...................          2,169         4,167         6,336          1,350
                                 ---------     ---------     ---------      ---------

                                 $  70,777     $ 260,891     $ 331,668      $  56,837
                                 =========     =========     =========      =========
</TABLE>

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

(1)  The aggregate cost for federal income tax purposes is $338.0 million.

(2)  Writedown of property to estimated net realizable value.

(3)  Escrow deposits deducted from the basis of the property.

(4)  Construction period interest and taxes.

(5)  Cash received deducted from the basis of the property, offset by land
     acquired in 1992 and debt forgiveness in 1995 and 1996.

(6)  Adjustment to purchase price and 1997 writedown of property to estimated
     net realizable value.

(7)  Cash received for easement deducted from the basis of the property.



                                       66
<PAGE>   13

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) 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.


Dated:  February 16, 1999                By:    /s/ Randall M. Paulson
      ---------------------                  ----------------------------------
                                             Randall M. Paulson
                                             President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.



                                         By:     /s/ Ted P. Stokely
                                             ----------------------------------
                                             Ted P. Stokely
                                             Chairman of the Board
                                             and Director



By:     /s/ Richard W. Douglas           By:    /s/ Murray Shaw
    ---------------------------              -------------------------
    Richard W. Douglas                       Murray Shaw
    Director                                 Director




By:     /s/ Larry E. Harley              By:    /s/ Martin L. White
    ---------------------------              -------------------------
    Larry E. Harley                          Martin L. White
    Director                                 Director




By:     /s/ R. Douglas Leonhard          By:    /s/ Edward G. Zampa
    ---------------------------              -------------------------
    R. Douglas Leonhard                      Edward G. Zampa
    Director                                 Director




Dated:   February 16, 1999               By:    /s/ Thomas A. Holland
       ------------------------              -------------------------
                                             Thomas A. Holland
                                             Executive Vice President and
                                             Chief Financial Officer
                                             (Principal Financial and
                                             Accounting Officer)




                                       89
<PAGE>   14

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                   DESCRIPTION
-------                  -----------
<S>                 <C>
 27                 Financial Data Schedule
</TABLE>