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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549

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Form 10-K

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(Mark One)


|  |  |                                                                                          
|- |  | -----------------------------------------------------------------------------------------
|x |  | ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  |  |                                                                                          
|  |  | For
 the fiscal year ended December 31, 2009                                             
|  |  |                                                                                          
|o |  | TRANSITION
 REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number 000-52619

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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD.

(Name of Registrant
as specified in its charter)

|                                          |  |                     |  |  |  | 
|----------------------------------------- |  | ------------------- |  |  |  | 
|Texas                                     |  | 20-2964630          | 
|(State or other
 jurisdiction of          |  | (I.R.S. Employer   
|incorporation or
 organization)           |  | Identification No.)
|                                         
|8 Greenway Plaza, Suite 1000              |  |                    
|Houston, TX                               |  | 77046               | 
|(address of principle
 executive offices) |  | (Zip Code)         

Registrants telephone number, including area
code: (713) 850-1400

Securities registered pursuant to Section
12(b) of the Act: None

Securities registered pursuant to Section
12(g) of the Act:

Limited Partnership Interests

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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.


Yes o Nox


Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act.


Yes o Nox


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 o


Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).


Yes o No o


Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
229.405 of this chapter) is not contained herein, and will not be contained, to
the best of the 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

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Act. (Check one):


|                                                                    |                            
|------------------------------------------------------------------- | ---------------------------
|Large accelerated filer o                                           | Accelerated filer o        
|Non-accelerated filer o (Do not check if smaller reporting company) | Smaller reporting company x

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). YesoNox

The aggregate market value of
the voting and non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was last sold, or the average
bid and asked price of such common equity, as of the last business day of the
registrants most recently completed second fiscal quarter: $70,800,000.





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TABLE OF CONTENTS

|                                                      |             |                                                                                                               |   
|----------------------------------------------------- | ----------- | ------------------------------------------------------------------------------------------------------------- | --
|CAUTIONARY NOTE REGARDING FORWARD LOOKING
 STATEMENTS | 1          
|PART I                                                |             |                                                                                                               | 1 
|                                                      | ITEM 1.     | BUSINESS                                                                                                      | 1 
|                                                      | ITEM 1A.    | RISK FACTORS                                                                                                  | 14
|                                                      | ITEM 1B.    | UNRESOLVED STAFF COMMENTS                                                                                     | 14
|                                                      | ITEM 2.     | PROPERTIES                                                                                                    | 14
|                                                      | ITEM 3.     | LEGAL PROCEEDINGS                                                                                             | 19
|                                                      | ITEM 4.     | RESERVED                                                                                                      | 20
|PART II                                               |             |                                                                                                               | 20
|                                                      | ITEM 5.     | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
 STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 20
|                                                      | ITEM 6.     | SELECTED FINANCIAL DATA                                                                                       | 21
|                                                      | ITEM 7.     | MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        | 21
|                                                      | ITEM 8.     | FINANCIAL STATEMENTS AND SUPLEMENTARY DATA                                                                    | 30
|                                                      | ITEM 9.     | CHANGES IN OR DISAGREEMENTS WITH
 ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                          | 30
|                                                      | ITEM 9A(T). | CONTROLS AND PROCEDURES                                                                                       | 30
|                                                      | ITEM 9B.    | OTHER INFORMATION                                                                                             | 31
|PART III                                              |             |                                                                                                               | 32
|                                                      | ITEM 10.    | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
 GOVERNANCE                                                       | 32
|                                                      | ITEM 11.    | EXECUTIVE COMPENSATION                                                                                        | 33
|                                                      | ITEM 12.    | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
 OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               | 33
|                                                      | ITEM 13.    | CERTAIN RELATIONSHIPS AND RELATED
 TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    | 33
|                                                      | ITEM 14.    | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                        | 37
|PART IV                                               |             |                                                                                                               | 37
|                                                      | ITEM 15.    | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                    | 37
|                                                      |             | SIGNATURES                                                                                                    | 41

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CAUTIONARY NOTE
REGARDING FORWARD LOOKING STATEMENTS

In
this Annual Report on Form 10-K (Annual Report), all references to we, our, and us refer
collectively to AmREIT Monthly Income & Growth Fund III, LTD and its
subsidiaries, including joint ventures.

Certain
statements contained herein constitute forward-looking statements as such term
is defined in Section 27A of the Securities Act of 1933, as amended
(Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended (Exchange Act). Such statements include, in particular, statements
about our plans, strategies and prospects and are subject to certain risks and
uncertainties, as well as known and unknown risks, which could cause actual
results to differ materially from those projected or anticipated. Therefore,
such statements are not intended to be a guarantee of our performance in future
periods. Such forward-looking statements can generally be identified by our use
of forward-looking terminology such as may, will, would, could,
should, expect, intend, plan, anticipate, estimate, predict,
believe, potential, continue or other similar words. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date this Registration Statement is filed with the
Securities and Exchange Commission, which we refer to as the SEC. We make no
representation or warranty, express or implied, about the accuracy of any such
forward-looking statements contained in this Registration Statement, and we do
not intend to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

For
these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. You are cautioned not to place undue reliance on our
forward-looking statements, which speak only as of the date of this Annual
Report or the date of any document incorporated by reference. All
subsequent written and oral forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. We do not
undertake any obligation to release publicly any revisions to our
forward-looking statements to reflect events or circumstances occurring after
the date of this Annual Report.

PART
I

|        |         
|------- | --------
|ITEM 1. | BUSINESS

Background

We
are a Texas limited partnership formed in April 2005 to acquire, develop and
operate, directly or indirectly through joint venture arrangements, commercial
real estate consisting primarily of single-tenant and multi-tenant retail
properties. Our investment strategy is to retain approximately 50% of our
properties as income-producing assets during our projected six-year operating
period, and opportunistically sell the remaining properties under attractive
market conditions and reinvest the net sales proceeds into additional property
investments. Our principal office is located at 8 Greenway Plaza, Suite 1000,
Houston, Texas 77046. Our telephone number is (713) 850-1400.

We
commenced our principal operations on June 30, 2005, when we raised the minimum
offering of $2.0 million pursuant to the terms of a private placement
memorandum dated April 19, 2005, which we refer to as the Offering Memorandum
or Offering, and issued our initial 80 limited partnership units, or Units. As
of October 31, 2006, we had received approximately $71.1 million for the sale
of 2,844 Units and closed the Offering. We refer to the holders of our Units as
Limited Partners.

On
April 30, 2007 we filed a Form 10-SB with the United States Securities and
Exchange Commission, or SEC, to register our Units pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended, or the Exchange Act. We are
subject to the registration requirements of Section 12(g) of the Exchange Act
because the aggregate value of our assets exceeds applicable thresholds and the
Units of record are held by 500 or more persons. As a result of our obligations
to register our securities with the SEC under the Exchange Act, we are subject
to the requirements of the Exchange Act rules, including the filing of this
Annual Report.

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Our
general partner is AmREIT Monthly Income & Growth III Corporation, a Texas
corporation and subsidiary of AmREIT, Inc. (AmREIT), an SEC reporting,
non-traded Maryland corporation that has elected to be taxed as a real estate
investment trust. We refer to AmREIT Monthly Income & Growth III
Corporation as the General Partner. AmREIT and its predecessors have sponsored
and advised 18 partnerships formed for the purpose of investing in properties
during their 26-year history. Our General Partner has the exclusive right to
manage our business and affairs on a day-to-day basis pursuant to our limited
partnership agreement, which we refer to as the Partnership Agreement. The
Limited Partners have the right to remove and replace our General Partner, with
or without cause, by a vote of the Limited Partners owning a majority of the
outstanding Units. Our General Partner is responsible for all of our investment
decisions, including decisions relating to the properties to be developed, the
method and timing of financing or refinancing the properties, the selection of
tenants, the terms of the leases, the method and timing of the sale of the
properties and the reinvestment of net sales proceeds. Our General Partner
utilizes the services of AmREIT and its affiliates in performing its duties
under the Partnership Agreement. Our General Partner has invested $1,000 in us
for its general partner interest and has invested $800,000 in us for Limited
Partner Units. We refer to our General Partner and our Limited Partners
collectively as the Partners.

Our
Units were sold pursuant to exemptions from registration under the Securities
Act of 1933, as amended (Securities Act), and are not currently listed on a
national exchange. These Units will be transferable only if we register them
under applicable securities laws (such registration is not expected) or pursuant
to an exemption under the Securities Act, and applicable state securities laws.
We do not anticipate that any public market for the Units will develop.

As
of December 31, 2009, our investments included three wholly-owned properties
comprising approximately 225,000 square feet of gross leasable area, one
property in which we own a controlling interest through a joint venture
comprising approximately 102,000 square feet of gross leasable area and seven
properties in which we own a non-controlling interest through joint ventures
comprising approximately 1,142,000 square feet of gross leasable area. A
majority of our properties are located in highly populated, suburban
communities in Texas. As of December 31, 2009, these properties were 78% leased.
We acquired all of these properties subsequent to our formation.

The
following is a summary of the eleven properties in which we owned an interest
as of December 31, 2009.

|                           |  |              |  |               |  |               |  |   |                                 | 
|-------------------------- |  | ------------ |  | ------------- |  | ------------- |  | - | ------------------------------- | 
|Property                   |  | Location     |  | SquareFootage |  | Percent
Owned |  |   | Annualized Gross Base
 Rent (1) | 
|                           |  |              |  |               |  |               |  |   |                                 | 
|Market at Lake Houston (3) |  | Houston      |  | 101,799       |  | 60.0          |  | $ | 1,497,000                       | 
|Lantern Lane               |  | Houston      |  | 79,462        |  | 100.0         |  |   | 1,445,000                       | 
|Olmos Creek                |  | San
 Antonio |  | 102,178       |  | 100.0         |  |   | 958,000                         | 
|Westside Plaza             |  | Houston      |  | 43,021        |  | 100.0         |  |   | 1,075,000                       | 
|Berkeley Square (4)        |  | Dallas       |  | 125,333       |  | 20.0          |  |   | 1,820,000                       | 
|Casa Linda Plaza (4)       |  | Dallas       |  | 324,569       |  | 50.0          |  |   | 3,268,000                       | 
|Preston Park Gold (4)      |  | Dallas       |  | 101,096       |  | 20.0          |  |   | 604,000                         | 
|Preston Towne Crossing (4) |  | Dallas       |  | 169,844       |  | 20.0          |  |   | 2,779,000                       | 
|Woodlake Pointe (2)(4)     |  | Houston      |  | 82,120        |  | 30.0          |  |   | 834,000                         | 
|Woodlake Square (2)(4)     |  | Houston      |  | 205,522       |  | 30.0          |  |   | 1,759,000                       | 
|5433 Westheimer (4)        |  | Houston      |  | 133,881       |  | 57.5          |  |   | 1,375,000                       | 
|Totals                     |  |              |  | 1,468,825     |  |               |  | $ | 17,414,000                      | 

| |     |                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Annualized
 gross base rent represents base rents in place on leases with rent having
 commenced as of December 31, 2009 and does not reflect straight-line rent or
 other adjustments required under generally accepted accounting principles.
| |     |                                                                                                                                                                                                                                                
| | (2) | Property is
 planned for redevelopment.                                                                                                                                                                                                        

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| |     |                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------
| | (3) | Property is
 60% owned through a joint venture and is consolidated in our financial
 statements. 
| |     |                                                                                                  
| | (4) | Property is
 owned through a joint venture that is not consolidated in our financial
 statements.

See Item 2. Properties for a more detailed description of our
 investments in properties.

Investment Objectives

Our investment
objectives are:

| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to preserve
 and protect our Limited Partners capital contributions;                                                                                        
| |   |                                                                                                                                                              
| |  | to provide
 cash distributions to our Partners through the operation of our properties;
 and                                                                 
| |   |                                                                                                                                                              
| |  | to add value
 to our properties in which we have invested during our operating period and
 to realize appreciation upon the ultimate sale of such properties.

Investment Strategy

We
were formed to acquire, develop and operate a portfolio of commercial real
estate consisting primarily of multi-tenant shopping centers and mixed-use
developments. We will seek to maximize our income and capital growth during our
operating period by (1) selling approximately 50% of our properties when
appropriate and reinvesting the net sales proceeds into additional properties
(we refer to this process as Active Management), and (2) owning the remaining
properties as income-producing assets during our entire operating period. Our
operating period will continue until October 31, 2012. The operating period may
be extended to October 31, 2014 only with the consent of the majority of Units
held by our Limited Partners. At the end of our operating period, the General
Partner will begin an orderly liquidation of our properties and will distribute
the net proceeds from liquidation to our Partners. If our General Partner does
not diligently pursue the liquidation of our properties at the end of our
operating period, it will forfeit its $800,000 investment in Units.

Equity Allocation

As
of December 31, 2009, we had invested substantially all of the net proceeds of
the Offering in real properties. We have invested approximately 55% of our
capital in existing commercial shopping centers, primarily multi-tenant
properties and mixed-use properties. Approximately 45% of our capital is
invested in the development and redevelopment of commercial shopping centers,
consisting primarily of multi-tenant and mixed-use developments and, to a
lesser degree, single-tenant developments. However, if our General Partner
determines that the risk/return dynamic of the development investment
activities or the acquisition of existing retail centers dramatically improves
or declines, our capital will be reallocated accordingly.

Investments in
Properties with Operating Histories

We
have invested approximately 55% of our capital in existing shopping centers
leased to high quality tenants, consisting primarily of multi-tenant centers
and mixed-use properties. These investments are primarily shopping centers that
are grocery-anchored, strip center, mixed-use or lifestyle properties whose
tenants consist of national, regional and local retailers. Our grocery-anchored
shopping centers are anchored by an established grocery store operator in the
region. Our other shopping centers are typically leased to national and
regional tenants, as well as a mix of local and value retailers. Our lifestyle
centers are typically anchored by a combination of national and regional
tenants that provide customer traffic and tenant draw for specialty and
restaurant tenants that support the local consumer. We also own shopping
centers that are leased to national drug stores, national restaurant chains,
national value-oriented retail stores and other regional and local retailers.

The
majority of our properties have leases that are either leased directly to or
guaranteed by the lessees parent company, not just the operator of the
individual location, and are in areas of substantial retail shopping traffic.

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Our strategy
is to acquire properties that attract tenants that provide basic staples and
convenience items to local customers. We believe that sales of these items are
less sensitive to business cycle fluctuations than higher priced retail items.

Development and
Redevelopment Properties

We
have invested approximately 45% of our capital in development and redevelopment
properties, either directly or indirectly through joint ventures. Of the eleven
properties in which we currently own an interest, we have initiated plans to
redevelop Woodlake Square and Woodlake Pointe. During 2009, we completed the
redevelopment of Casa Linda Plaza. The
amount of equity committed to development and redevelopment projects is
generally between 25% and 100% of the total cost of the project, with the
remaining costs being funded through lines of credit, construction financing or
other property level mortgage financing. We work closely with local development
partners in these transactions throughout the development process.

During
2009, we completed redevelopment of our 5433 Westheimer into a mixed-use
property. The new development has a retail, office and hospitality component.
We may acquire additional properties that have mixed-use characteristics or we
may redevelop some of our exiting properties to introduce mixed-use
characteristics. We anticipate that our future investments in mixed-use
developments will have a retail component and may also include office, residential,
entertainment and hospitality components. Our General Partner will analyze the
market surrounding each mixed-use development to determine the optimal mix of
retail to non-retail components. We will develop in locations that provide
limited competition, quality location and strong market fundamentals. We intend
to commence the leasing process before construction.

AmREIT
Construction Company, an affiliate of our General Partner, has historically
provided construction and construction management services for our
redevelopment projects. During 2008, AmREIT Construction Company ceased
providing these and completed all of its work in progress during 2009. We may
engage in the future AmREIT Realty Investment Corporation (ARIC), also an
affiliate of our General Partner, for construction management services. In
these cases, such services are provided on terms and conditions no less
favorable to us than can be obtained from independent third parties for
comparable services in the same location.

Each
of our development and redevelopment projects has and will have a project
manager assigned to ensure all necessary functions are performed. The project
manager is responsible for coordinating all phases of the project, including
the feasibility study of each project prior to the commencement of development
and much of the pre-development work. Each development also has a construction
manager who is responsible for coordinating all the outsourced trades including
architectural, engineering, environmental and construction contractors. The
construction manager will be an employee of ARIC in the event that ARIC is
providing construction management services to a development project. The
project and construction managers are jointly responsible for the preparation
and adherence to the development budgets. Capital inflows and outflows are
carefully tracked and compared against budgets. Actual cost versus budget
reports are prepared on a monthly basis for review by various parties including
the development team, management team and lenders. The project and construction
managers work in unison to ensure each project is built within budget and on a
timely basis.

We
may place our capital in certain, at-risk situations to secure land our General
Partner deems suitable for development. We will utilize methods such as
purchase agreements and/or options to tie up development properties. Such
commitments may not necessarily result in the eventual acquisition of a land
site as we may elect to forfeit funds after completing our due diligence.

Location of
Properties

We
seek investments in properties located throughout the United States, with a
primary focus on markets with increasing population growth and urban density.
As a result of our General Partners experience in developing, acquiring and
managing retail real estate in Texas metropolitan markets, each of the eleven
properties in which we currently own an interest is located in Texas. The
economies of the Texas metropolitan markets where we own investments will have
a significant impact on our cash flow and the value of our properties. Although
a downturn in

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the economies
of these metropolitan areas could adversely affect our business, general retail
and grocery anchored shopping centers that provide necessity-type items tend to
be less sensitive to macroeconomic downturns.

Although
we intend to invest only in properties in the United States, we are not
prohibited from making investments in foreign countries that meet our
investment criteria.

Investment Decisions

Our
General Partner uses commercially reasonable efforts to present to us suitable
investments consistent with our investment objectives and policies. In pursuing
our investment objectives and making investment decisions for us, our General
Partner considers relevant real estate property and financial factors,
including the location of the property, its suitability for any development
contemplated or in progress, its income-producing capacity, prospects for
long-range appreciation, liquidity and tax considerations. Moreover, to the
extent feasible, our General Partner strives to select a diversified portfolio
of properties in terms of type of property and industry of the tenants,
although the number and mix of properties acquired will largely depend upon
real estate and market conditions and other circumstances existing at the time
properties are acquired.

Prior
to acquiring a property, our General Partner undertakes an extensive site
review. Our General Partner typically undertakes a long-term viability and
market value analysis, including an inspection of the property and surrounding
area by an acquisition specialist and an assessment of market area
demographics, consumer demand, traffic patterns, surrounding land use,
accessibility, visibility, competition and parking. Our General Partner may
also take additional actions to evaluate the property, including without
limitation, the following:

| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | obtaining an
 independent appraisal of the property;                                                            
| |   |                                                                                                                 
| |  | obtaining an
 independent engineering report of the propertys mechanical, electrical and
 structural integrity;
| |   |                                                                                                                 
| |  | conducting
 an investigation of title;                                                                          
| |   |                                                                                                                 
| |  | evaluating
 both the current and potential alternative uses of the property; and                                
| |   |                                                                                                                 
| |  | obtaining an
 independent Phase I environmental site assessment.                                                

Our
General Partner is not required to obtain an appraisal in connection with an
acquisition, although it is anticipated that, if third-party financing is being
provided by a commercial lender, such lender will obtain an independent
appraisal.

Real
Estate Fundamentals

Our
General Partner believes that sound real estate fundamentals will allow us to
attract the best tenants and produce the best results for our real estate
portfolio. Our General Partner believes that factors such as corner locations,
high automobile traffic counts, high populations, high household incomes and
limited opportunities for competition produce favorable conditions for the
success of the tenant and the retail property. Corner locations traditionally
offer favorable access because these locations can access traffic in all
directions. High traffic passing a retail property provides maximum exposure
for retail tenants. A high population base surrounding a retail property
provides a large consumer base for a tenants business. Areas that have high
household income have more disposable income that is less affected by economic
cycles. Locations that have few opportunities for new retail properties offer a
limited supply of space and thus have the best likelihood of growing rental
rates. Although a shopping center seldom offers all of these factors, our
General Partner will use these criteria to measure the quality and relative value
of opportunities relative to others in evaluating each proposed real estate
investment.

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Our
General Partner also believes that its ability to obtain locations near
national commercial tenants such as Wal-Mart, Home Depot and Target, which are
major traffic generators for other commercial tenants, should enable us to
attract brand name, high quality tenants.

Tenant Quality and Monitoring

We
seek to attract high quality tenants for our properties. A tenant will be
considered high quality if, at the time of acquisition or leasing, the tenant
has a regional or national presence, operating history of 10 or more years and
a net worth in excess of $50 million. When available, our General Partner will
rely on national credit rating agencies such as Standard & Poors to assist
in such determination. If public data is not available, our General Partner
will rely on its experience, its own credit analysis and resources provided by
its lenders to qualify a prospective tenant.

If
a tenant has a public debt rating, we will seek tenants that have (i) a debt
rating by Moodys of Baa3 or better or a credit rating by Standard & Poors
of BBB- or better or (ii) a guaranty for its payments under the lease by a guarantor
with a debt rating by Moodys of Baa3 or a credit rating by Standard & Poors of BBB- or better.

Moodys
ratings are opinions of future relative creditworthiness incorporating an
evaluation of franchise value, financial statement analysis and management quality.
The rating given to a debt obligation describes the level of risk associated
with receiving full and timely payment of principal and interest on that
specific debt obligation and how that risk compares with that of all other debt
obligations. The rating therefore measures the ability of a company to generate
cash in the future. Standard & Poors assigns a credit rating both to
companies as a whole and to each issuance or class of a companys debt. A
Standard & Poors credit rating of BBB-, which is the lowest investment
grade rating given by Standard & Poors, is assigned to companies or
issuances that exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the company to meet its financial commitments.

Net Leases

We
typically enter into net leases with our tenants. Net leases are leases that
typically require that tenants pay all or a majority of the operating expenses,
including real estate taxes, special assessments and sales and use taxes,
utilities, insurance and building repairs related to the property, in addition
to the lease payments. There are various forms of net leases, typically
classified as triple net, double net and bondable. Triple net and bondable
leases typically require the tenant to pay all costs associated with a property
in addition to the base rent and percentage rent, if any. Double net leases
typically require the landlord to be responsible for the roof and structure of the
building while the tenant is responsible for all remaining expenses associated
with the real estate. Since each lease is an individually negotiated contract
between two or more parties, each contract will have different obligations for
both the landlord and tenant. Many large national tenants have standard lease
forms that generally do not vary from property to property, and we will have
limited ability to revise the terms of leases for those tenants.

Our
leases have terms that vary. We have acquired and may in the future acquire
properties under which the lease terms have partially run. We evaluate the
lease term risk based on criteria such as whether the property is in an
attractive location, difficult to replace or has other significant favorable
real estate attributes. Our leases generally require our tenants to pay a
predetermined annual base rent. Some of our leases contain provisions that
increase the amount of base rent payable at points during the lease term and/or
provide for percentage rent that can be calculated by a number of factors. In
addition, our leases generally require that each tenant pay the cost of the
liability insurance covering the property or provide such coverage. The
third-party liability coverage will insure, among others, us, our General
Partner, and any entity formed by us to hold the property. Our leases generally
require that each tenant obtain, at its own expense, property insurance naming
the above parties as an insured party for fire and other casualty losses in an
amount that generally equals the full replacement value of such property. Our
tenants are generally required to obtain our General Partners approval of all
such insurance.

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Ownership Structure

For
our investments where we are the sole owner, we generally acquire, directly or
indirectly, fee simple interests in the property. We may also acquire leasehold
interests in real property subject to long-term ground leases. Our General
Partner and its affiliates may purchase future investments in their own names
or in entities that they control, assume loans in connection with the purchase
of properties and temporarily hold title to properties for the purpose of
facilitating the acquisition of properties by us.

For
our future investments in development properties, we may enter into
arrangements with the seller or developer, provided that the property is
pre-leased to a high quality tenant. In these cases, we will be obligated to
purchase the property at the completion of construction, provided that the
construction conforms to definitive plans, specifications and costs approved in
advance by our General Partner. We will receive a certificate of an architect,
engineer or other appropriate party, stating that the property complies with
all plans and specifications. If renovation or remodeling is required prior to
the purchase of a property, our General Partner expects to pay a negotiated
maximum amount upon completion.

We
may enter into sale and leaseback transactions under which we will purchase a
property and lease the property back to the seller.

Joint Ventures

We
currently own interests in eight properties through joint ventures with
affiliates of our General Partner and non-affiliates. The joint ventures are structured
as limited partnerships or limited liability companies in which we own
interests. Each of these limited partnerships or limited liability companies
directly owns one or more of the eight underlying properties. Each general
partner or managing member is responsible for establishing policies and
operating procedures with respect to the business and affairs of the underlying
property. However, we and each of our joint venture partners must approve all
significant decisions involving the properties.

We
may invest in additional properties through joint ventures with third-party
developers and real estate investors, including our General Partner, its
affiliates and entities owned or managed by its affiliates. Such joint ventures
may include investments in limited liability companies or other co-ownership
arrangements whose purpose is the acquisition or improvement of the properties.
Our General Partner and its affiliates may provide services to the joint
venture, including, but not limited to, acquisition, development, management,
leasing and/or real estate disposition services. Our current joint venture
investments contain, and we will not enter into future joint venture
investments unless they contain, the following features:

| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our right
 either to approve significant decisions of the joint venture or to control
 operations of the joint venture, subject to the right of the joint venture
 partner to approve sales or refinancing;                                                                
| |   |                                                                                                                                                                                                                                                                            
| |  | the total
 compensation paid by us and the joint venture to our General Partner and its
 affiliates in connection with a joint venture will not exceed the
 compensation which would be permissible under the Partnership Agreement if we
 owned 100% of the joint venture;
| |   |                                                                                                                                                                                                                                                                            
| |  | no
 duplication of joint venture costs and expenses and our costs and expenses
 relating to the joint venture business, including organization and
 syndication expenses, acquisition and development costs; and                                                           
| |   |                                                                                                                                                                                                                                                                            
| |  | any
 purchase, sale or financing transactions between the joint venture partner
 and our General Partner or its affiliates must be on terms which are
 commercially reasonable and comparable to those relating to transactions
 between unrelated parties.                

Our
investments in Casa Linda Plaza, The Market at Lake Houston, Woodlake Square
and Woodlake Pointe were made through joint ventures with affiliates of our
General Partner. For any future investment with our General Partner, its
affiliate, or an entity owned or managed by an affiliate, our General Partner
or the managing

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member,
largest shareholder, general partner or other controlling or majority owner of
the affiliate or such other entity may contribute capital to the joint venture
on the same terms and conditions as us. Allocable profits in a joint venture
will be calculated based on the sum of net sale proceeds from the sale of a
property (after repayment of debt) plus reserves less capital contributions of
each joint venture partner plus actual origination and carrying costs of the
additional financing incurred in connection with such property. Distributions
will be pro rata to the joint venture partners based on their aggregate capital
contributions.

Our
General Partner or its affiliate may form another partnership or other
investment vehicle with essentially the same investment objectives as us and
such entity may acquire properties through a joint venture. Such other entities
may have as investors controlling persons or other former and current investors
in programs sponsored by affiliates. The terms and conditions upon which
persons become investors in such other entities may differ from our terms and
conditions.

Disposition Policies

Operating
Period

During
our operating period, our General Partner intends to hold our properties until
such time as sale or other disposition appears to be advantageous to achieve
our investment objectives or until it appears that such objectives will not be
met. We have not yet sold any of our properties. We anticipate that we will
hold 50% of our properties as income-producing assets during our entire
operating period. We intend to sell the other 50% of our properties during
favorable market conditions, and we will then reinvest the net proceeds in
additional properties. When deciding whether to sell properties during our
operating period, our General Partner will consider factors such as potential
capital appreciation, cash flow, the availability of other attractive
investment opportunities and federal income tax considerations.

If
we sell properties during our operating period, our General Partner anticipates
reinvesting the net sales proceeds generated from the sales. In making the
determination of whether to reinvest the net proceeds from a particular sale,
our General Partner will determine whether we have adequate cash flow and
reserves to pay our Limited Partners regular distributions and the special
year-end tax distribution.

Liquidation
Period

Our
General Partner will in good faith actively market for sale all of our
properties other than those in the development or redevelopment stage and
commence an orderly Partnership liquidation on or before October 31, 2012.
Properties in the development or redevelopment stage at the end of the
operating period will be marketed for sale upon completion. The operating
period may be extended to October 31, 2014 only with the consent of Limited
Partners owning a majority of the outstanding Units. If our General Partner
does not take all commercially reasonable efforts to diligently pursue the
portfolio sale and liquidation on our behalf as described above, it shall
forfeit its $800,000 investment in our Units.

Once
our General Partner has marketed for sale all of our properties, it may take
months or years for our General Partner to sell all of our properties and wind
up our operations. In connection with the sale of a property, we may take
purchase money obligations secured by a mortgage on the property as partial
payment, thereby delaying any distribution of sale proceeds to our Limited
Partners over the term to maturity of such obligations. The terms of payment to
be accorded by us will be affected by custom in the area in which the property
is located and the then-prevailing economic conditions.

AmREITs
Purchase Rights

We
have granted AmREIT a limited right of first refusal to purchase our
wholly-owned properties that our General Partner determines are in our best
interests to sell. For properties we own through a joint venture, we will grant
AmREIT this right of first refusal, subject to the approval of our joint
venture partners. If our General Partner determines that it is in our best
interests to sell one of our properties, our General Partner will notify AmREIT
of our desire to sell such property. AmREIT will then have 30 days to determine
whether to pay the market value to

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acquire the
property for itself. To determine the market value of a property, both AmREIT
and we, at our own cost and expense, shall appoint a real estate appraiser with
at least five years full-time commercial appraisal experience and who is a
member of the Appraisal Institute (MAI designation). If either of us fails to
appoint an appraiser, the single appraiser appointed shall be the sole
appraiser and shall determine market value. Each appraiser shall conduct an
independent appraisal of the property within 30 days after the two appraisers
are appointed. If the appraised values are within five percent of each other,
the market value of the property shall be the mean of the two appraisals. If
the two appraisals are more than five percent apart, a third appraiser meeting
the qualifications stated above and independent from each party shall be
appointed by the existing appraisers. Each of the parties shall bear one-half
of the cost of the third appraiser. Within 30 days after its selection, the
third appraiser shall complete its appraisal of the property. Upon completion
of the third appraisal, if the low appraisal and/or the high appraisal are/is
more than five percent lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be disregarded. If only one appraisal
is disregarded, the remaining two appraisals shall be added together and their
total divided by two, with the resulting quotient being the market value. If
both the low appraisal and the high appraisal are disregarded as stated above,
the middle appraisal shall be the market value. AmREIT will have 10 business
days after the final determination of market value to elect to purchase the
property.

If
AmREIT agrees to pay the market value for a property, as determined above, we
will sell the property to AmREIT. If AmREIT declines to acquire a property or
fails to notify us of its intent to acquire a property within the requisite
time periods, then we will market the property to third parties.

Marketing

Our
General Partner believes that relationships and networking are the two primary
components of marketing properties for sale. Our General Partner will use its
in-house staff along with its relationships with key commercial brokers across
the country to sell our properties.

Leverage

We
have leveraged and intend to leverage our investments in properties with
operating histories using traditional, commercial real estate lending sources,
as underwritten by our General Partner and the lender. We have not leveraged
and do not intend to leverage equity contributed to joint venture developments,
anticipating that local developers will employ construction financing
consistent with that of traditional real estate projects and underwritten by
the development partner, our General Partner and the lender.

We
generally finance the acquisition of properties pursuant to new financing or
assumption of existing indebtedness. We may refinance one of our properties
after it has increased in value or when more favorable terms are available,
thereby allowing us to retain such property and, at the same time, generate
distributions to our Partners, enable us to engage in renovation or remodeling
activities, or make further acquisitions. We may incur debt for expenditures
related to our properties, including expenses to facilitate the sale or pay of
capital expenditures. We may not incur indebtedness (or any refinancing
thereof) to acquire or improve properties in an amount greater than 75% of our
cash and cash equivalents plus the market value of our portfolio based on a cap
rate approach applied to the net operating income of the property, with a
target of 60% of the value of our assets.

We
may borrow money from AmREIT or its affiliates if our General Partner, in the
exercise of its fiduciary duties, determines that the transaction is on terms
that are fair and reasonable and no less favorable to us than comparable loans
between unaffiliated parties.

Other
Investments

We
currently own interests in eight properties through joint ventures. We may
invest in other ownership interests in entities that own real estate, including
in connection with joint ventures. We make these investments when our General
Partner considers it more efficient to acquire an entity owning such real
property rather than to acquire the properties directly.

Our
General Partner invests our reserves and other available funds not committed to
investments in properties in

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United States
government securities, securities issued and fully guaranteed by United States
government agencies, securities issued and fully guaranteed by states or
municipalities, certificates of deposit and time or demand deposits in
commercial banks, bankers acceptances, savings and loan association deposits
or deposits in members of the Federal Home Loan Bank System, or money market
instrument funds.

Conflicts
of Interest

Our
General Partner is subject to various conflicts of interest arising out of its
relationship with us, the Limited Partners and AmREIT. Our General Partner and
its affiliates have and will continue to try to balance our interests with
their duties to other AmREIT-sponsored programs. However, to the extent that
our General Partner or its affiliates take actions that are more favorable to
other entities than to us, these actions could have a negative impact on our
financial performance and, consequently, on distributions to our Limited
Partners. Some of these conflicts are described below.

Limited
Financial Resources

Our
General Partner has no assets other than its general partner interest in us and
its investment in our Units. In the event we have substantial capital needs,
our General Partner will not have sufficient financial resources to satisfy
these needs. In addition, AmREIT, the parent of our General Partner, has
substantial financial obligations related to its properties and its interest in
other programs and may not be able to provide us financial assistance in the
event we have capital needs.

Interests
in Other Real Estate Programs

AmREIT
sponsors and manages real estate programs and ventures. The existing entities
that our General Partners management also manages and which have similar
investment objectives and may compete with us are AmREIT Income & Growth
Fund, Ltd., AmREIT Monthly Income & Growth Fund, Ltd., AmREIT Monthly
Income and Growth Fund II, Ltd., AmREIT Monthly Income and Growth Fund IV, L.P.
and AmREIT. In addition to identifying, originating and effecting property
acquisitions and development projects for us, our General Partners management
and its affiliates will continue to acquire and develop real estate for the
account of other affiliated and unaffiliated investors. Conflicts of interest
with our General Partners management may arise in its allocating opportunities
between us and other programs, particularly where our General Partners profit
or loss interest in such other investment is different than our General
Partners interest in the Partnership.

Conflicts
of interest may also arise in connection with our General Partners
responsibilities to us and the responsibilities of its affiliates to other
entities. For example, conflicts of interest could arise in managements
allocation of its time and access to resources, such as financing, goods,
material or labor, or in connection with its access to the leasing or resale
markets, particularly during times these resources are scarce or in short
supply. Conflicts could also result in the selection and marketing of projects
if shortages of properties, materials or labor are insufficient causing market
demands to require our General Partners management to allocate project
opportunities between us and its affiliates.

Because
the management of our General Partner manages other investment funds and
entities with similar investment strategies, including AmREIT, competition for
properties will create a conflict of interest. Management expects to manage
this conflict by providing a pipeline of real estate projects and opportunities
to support all of its activities. All potential development and acquisition
opportunities will initially be presented to AmREIT. If AmREIT elects not to
make the investment, our General Partners management will determine which of
the entities that it advises, including us would be most appropriate to make
the proposed investment. To determine which entity should make the investment,
management will first evaluate the investment objectives of each investment
fund and determine if the opportunity is suitable for each fund. If the
proposed investment is appropriate for more than one fund, management will then
evaluate the portfolio of each fund, both in terms of geographic diversity and
tenant concentration, to determine if the investment is most suitable to one
fund. If the geographic diversity and tenant concentration analysis is not
determinative, management will allocate the property to the fund with
uncommitted funds available for the longest period of time. Our General
Partners management may also allow multiple investment funds to enter into
joint ventures for the purchase or acquisition of a property.

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Competition
for Management Services

Our
General Partners management is engaged in substantial activities apart from
our business, including their duties to AmREIT and other real estate programs
sponsored by AmREIT. As such, they will devote only so much of their entire
time to our affairs as is reasonably required in their judgment and they could
have conflicts of interest in allocating their time between us and other
entities. Our General Partner believes that it has sufficient staff to fully
discharge its responsibilities to us.

Leasing
Agents

Our
General Partner retains the services of affiliated leasing agents to lease the
properties in which we have invested. Because these leasing agents provide
similar services to affiliates of our General Partner, including AmREIT, they
face conflicts of interest if they are seeking to lease our properties and
similar properties of its affiliates at the same time. In such an event, the
affiliated leasing agent will seek to mitigate any potential conflict by
presenting a potential tenant with all of the available properties so that the
potential tenant can select the property with the size, rent, location and
other characteristics most suitable to its needs.

Properties

We
rely on our General Partner and its affiliates in the selection, management and
sale of the properties and do not have independent representation in this
regard. Conflicts of interest could arise in connection with any interests
affiliates of our General Partner may have in a particular property, including
interests it may have as an affiliate of AmREIT in connection with any sale of
a property to AmREIT, and those of the Limited Partners in operating the
Partnership.

Sale
of Properties

Our
General Partner actively manages our Actively Managed properties during the
operating period. During the operating period, our General Partner will sell
our properties from time to time to third-party real estate investors. Our
General Partner may receive compensation in the form of a brokerage commission
for the work performed in the sale of the properties. Because there is
potential for our General Partner to earn a brokerage commission on each
property sale, there is a conflict of interest in that our General Partner may
sell a property simply to earn a brokerage commission, even if it is not in our
best interests or the best interests of the Limited Partners.

No
Arms-Length Agreements

The
compensation payable to our General Partner and its affiliates has not been
determined by arms-length negotiations. Also, a significant portion of this
compensation is payable irrespective of the quality of the services provided or
our success or profitability. There is no assurance that the amounts or terms
of such compensation will not exceed that which would be paid to unrelated
persons under similar circumstances in arms-length transactions.

AmREITs
Interests in Other Programs

AmREIT,
our General Partners parent, engages for the account of others in other
business ventures involving real estate development and investment. Moreover,
AmREIT or its affiliates, including our General Partner, may in the future
serve as management for the general partner of other companies or ventures, and
acquire, develop and operate real estate related activities in the same areas
as ours for their own account. Neither we nor any Limited Partner will be
entitled to any interest in such other ventures.

Transactions
with Affiliates

We
may, from time to time, sell some of our properties to AmREIT. As a result of
the inherent conflict in such a sale, we will only sell a property to AmREIT if
they agree to pay the market value or the amount of a bona fide final
third-party offer for that property. See Item 1. Business  Disposition
Policies  AmREITs Purchase

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Rights for a
more detailed description of AmREITs rights. In addition, we may borrow money
from AmREIT or its affiliates. Although our General Partner will only approve
an affiliated borrowing transaction if, in the exercise of its fiduciary
duties, it determines that the terms are fair and reasonable and no less
favorable to us than comparable loans between unaffiliated third parties, our
General Partner could face conflicts of interest in connection with such a
transaction that may not be resolved in the best interests of our Limited
Partners.

In
the event our General Partner or its affiliates receive compensation from us
for any additional services performed on our behalf, such services will only be
provided on terms and conditions no less favorable to us than can be obtained
from independent third parties for comparable services in the same location.
Such services may include, but are not limited to, leasing coordination fees,
construction and construction management fees, including in connection with
renovation and remodeling, and tax appeal fees. The fees for such services, if
provided by affiliates, will be separately itemized and retained in our
records.

Affiliated
Property Manager and Construction Manager

ARIC,
an affiliate of our General Partner, performs property management services for
all of the properties in which we have an interest and may provide property
management services for properties in which we acquire an interest in the
future. ARIC is a wholly-owned subsidiary of AmREIT and the officers of our
General Partner are also officers of ARIC. As a result, we might not always
have the benefit of independent property management to the same extent as if
our General Partner and the property manager were unaffiliated. In addition,
given that ARIC is an affiliate of our General Partner, any agreements with
ARIC are not negotiated at arms-length as they would between unrelated
parties.

AmREIT
Construction Company, an affiliate of our General Partner, has historically
provided construction and construction management services for certain of our
development and redevelopment projects. AmREIT Construction Company completed
our Westside Plaza and Casa Linda redevelopment project in 2007 and 2009,
respectively. During 2008, AmREIT Construction Company ceased providing these
general contracting services. We may engage ARIC in the future for construction
management services. As a result of us using AmREIT Construction Company for
these services, we have not had the benefit of independent construction
management to the same extent as if AmREIT Construction Company was
unaffiliated. Since ARIC is an affiliate of our General Partner, we do not have
the benefit of arms-length negotiation of any contracts we enter into with
ARIC that would apply between unrelated parties.

Lack
of Separate Representation

Our
legal counsel acts and may in the future act as counsel to us, our General
Partner, AmREIT and certain of our respective affiliates. There is a
possibility that in the future, the interests of the various parties may become
adverse, and under the Code of Professional Responsibility of the legal
profession, our counsel may be precluded from representing any one or all of
such parties. In the event that a dispute were to arise between us, our General
Partner, AmREIT or any of our respective affiliates, separate counsel for such
matters will be retained as and when appropriate.

Tax
Matters Partner

In
the event of an audit of our federal income tax returns by the Internal Revenue
Service (IRS), it is possible that the interests of our General Partner in
such an audit could become inconsistent with or adverse to the interests of the
Limited Partners. Our expenses in contesting any such audit may reduce the
amount of cash available for distribution. Further, our General Partner, who is
primarily responsible for contesting federal income tax adjustments proposed by
the IRS, may be subject to various conflicts of interest in connection with the
negotiation and settlement of issues raised by the IRS in a federal income tax
audit.

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Employees

We
have no employees. Our affairs are managed by our General Partner and our
General Partner and its affiliates provide services to us related to
acquisitions, property management, accounting, investor relations and other
administrative services. We are dependent upon our General Partner and its
affiliates for these services.

See
Item 13. Certain Relationships and Related Transactions, and Director
Independence for discussion of our compensation arrangements.

Insurance

We
believe that our properties are adequately insured.

Competition

As
we purchase properties for our portfolio, we are in competition with other
potential buyers, including our affiliates, for the same properties. As a
result, we may either have to pay more to purchase the property than we would
if there were no other potential acquirers or locate another property that
meets our investment criteria. Although our retail properties have an average
occupancy of 78%, and we have acquired, and intend to continue to acquire,
properties subject to existing leases, the leasing of real estate is highly
competitive, and we may experience competition for tenants from owners and
managers of competing projects. As a result, we may have to provide free rent,
incur charges for tenant improvements, or offer other inducements, or we might
not be able to timely lease the space, all of which may have an adverse impact
on our results of operations. At the time we elect to dispose of our properties,
we will also be in competition with sellers of similar properties to locate
suitable purchasers for their properties.

Concentration of Credit Risk

We
have geographic concentration in our property holdings. In particular, as of
December 31, 2009, all of our properties were located in Texas. We have tenant
concentration in our properties. Rental income generated from H-E-B Grocery and
Designer Shoe Warehouse represented 29% and 11% of our 2009 rental income,
respectively.

Compliance with Governmental Regulations

Under
various federal and state environmental laws and regulations, as an owner or
operator of real estate, we may be required to investigate and clean up certain
hazardous or toxic substances, asbestos-containing materials, or petroleum
product releases at our properties. We may also be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by those parties in connection with
the contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The presence of contamination or the failure
to remediate contaminations at any of our properties may adversely affect our
ability to sell or lease the properties or to borrow using the properties as
collateral. We could also be liable under common law to third parties for
damages and injuries resulting from environmental contamination coming from our
properties.

All
of our properties are acquired subject to satisfactory Phase I environmental
assessments, which generally involve the inspection of site conditions without
invasive testing such as sampling or analysis of soil, groundwater or other
media or conditions; or satisfactory Phase II environmental assessments, which
generally involve the testing of soil, groundwater or other media and
conditions. Our General Partner may determine that we will acquire a property
in which a Phase I or Phase II environmental assessment indicates that a
problem exists and has not been resolved at the time the property is acquired,
provided that (A) the seller has (1) agreed in writing to indemnify us and/or
(2) established an escrow account with predetermined funds greater than the
estimated costs to remediate the problem; or (B) we have negotiated other
comparable arrangements, including, without limitation, a reduction in the
purchase price. We cannot be sure, however, that any seller will be able to pay
under an indemnity we obtain or that the amount in escrow will be sufficient to
pay all remediation costs. Further, we cannot be sure that

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all
environmental liabilities have been identified or that no prior owner, operator
or current occupant has created an environmental condition not known to us.
Moreover, we cannot be sure that (1) future laws, ordinances or regulations
will not impose any material environmental liability or (2) the current
environmental condition of our properties will not be affected by tenants and
occupants of the properties, by the condition of land or operations in the
vicinity of the properties (such as the presence of underground storage tanks),
or by third parties unrelated to us.

|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS

Not applicable.

|         |                          
|-------- | -------------------------
|ITEM 1B. | UNRESOLVED STAFF COMMENTS

Not applicable.

|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

Overview

During
the period from April 19, 2005 (inception) to December 31, 2009, we acquired
interests in eleven properties. We directly own three properties and have
investments in eight properties through joint venture arrangements. We have
included a description of the types of real estate in which we have invested
and will invest, and a summary of our investment policies and limitations on
investment and the competitive conditions in which we operate under Item 1.
Business above. We believe our properties are suitable for their intended use
and are adequately insured.

As
of December 31, 2009, we owned interests in the following properties, all of
which are located in Texas:

|                           |  |              |  |  |                 |  |  |                |  |                                 |            |  |                                                      |       | 
|-------------------------- |  | ------------ |  |  | --------------- |  |  | -------------- |  | ------------------------------- | ---------- |  | ---------------------------------------------------- | ----- | 
|Property                   |  | Location     |  |  | Square
 Footage |  |  | Percent
 Owned |  | Annualized Gross
 Base Rent (1) |            |  | Percentage of Total
 Annualized Gross Base
 Rent (1) |      
|                           |  |              |  |  |                 |  |  |                |  |                                 |            |  |                                                      |       | 
|Market at Lake Houston (2) |  | Houston      |  |  | 101,799         |  |  | 60.0           |  | $                               | 1,497,000  |  |                                                      | 8.6   | 
|Lantern Lane               |  | Houston      |  |  | 79,462          |  |  | 100.0          |  |                                 | 1,445,000  |  |                                                      | 8.3   | 
|Olmos Creek                |  | San
 Antonio |  |  | 102,178         |  |  | 100.0          |  |                                 | 958,000    |  |                                                      | 5.5   | 
|Westside Plaza             |  | Houston      |  |  | 43,021          |  |  | 100.0          |  |                                 | 1,075,000  |  |                                                      | 6.2   | 
|Berkeley Square (3)        |  | Dallas       |  |  | 125,333         |  |  | 20.0           |  |                                 | 1,820,000  |  |                                                      | 10.4  | 
|Casa Linda Plaza (3)       |  | Dallas       |  |  | 324,569         |  |  | 50.0           |  |                                 | 3,268,000  |  |                                                      | 18.8  | 
|Preston Park Gold (3)      |  | Dallas       |  |  | 101,096         |  |  | 20.0           |  |                                 | 604,000    |  |                                                      | 3.5   | 
|Preston Towne Crossing (3) |  | Dallas       |  |  | 169,844         |  |  | 20.0           |  |                                 | 2,779,000  |  |                                                      | 15.9  | 
|Woodlake Pointe (3)        |  | Houston      |  |  | 82,120          |  |  | 30.0           |  |                                 | 834,000    |  |                                                      | 4.8   | 
|Woodlake Square (3)        |  | Houston      |  |  | 205,522         |  |  | 30.0           |  |                                 | 1,759,000  |  |                                                      | 10.1  | 
|5433 Westheimer (3)        |  | Houston      |  |  | 133,881         |  |  | 57.5           |  |                                 | 1,375,000  |  |                                                      | 7.9   | 
|Totals                     |  |              |  |  | 1,468,825       |  |  |                |  | $                               | 17,414,000 |  |                                                      | 100.0 | 

| |     |                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Annualized
 gross base rent represents base rents in place on leases with rent having
 commenced as of December 31, 2009 and does not reflect straight-line rent or
 other adjustments under generally accepted accounting principles.
| |     |                                                                                                                                                                                                                                       
| | (2) | Property is
 60% owned through a joint venture which is consolidated in our financial
 statements.                                                                                                                                    
| |     |                                                                                                                                                                                                                                       
| | (3) | Property is
 owned through a joint venture that is not consolidated in our financial
 statements.                                                                                                                                     

Description of Our Real Estate Investments

Westside
Plaza

On
September 30, 2005, we purchased a 100% interest in the Westside Plaza
property, a 43,021 square foot retail shopping center located in Houston,
Texas. The property was purchased from an unaffiliated third-party. We used
proceeds from the Offering and assumed two 20-year mortgage loans to fund the
acquisition of the Westside Plaza property. The first loan in the amount of
$10.2 million bears an annual interest rate of 5.62% and had an outstanding
principal balance of $9.6 million as of December 31, 2009. The second loan in
the amount of $640,000

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bears an
annual interest rate of 12.75% and had an outstanding principal balance of
$636,000 as of December 31, 2009.

The
Westside Plaza property was 100% leased at December 31, 2009 and is anchored by
Designer Shoe Warehouse which occupies 24,500 square feet and has a lease
scheduled to expire in July 2010. Fadis restaurant is another major tenant and
occupies 5,125 square feet with a lease scheduled to expire in January 2012. We
completed the redevelopment of the property by adding aesthetic enhancements
during 2007.

The
Market at Lake Houston

On
December 12, 2005, through a joint venture arrangement with an affiliate of our
General Partner, AmREIT Monthly Income & Growth Fund, Ltd., we acquired a
60% interest in The Market at Lake Houston property, a 101,799 square foot retail
shopping center located in Houston, Texas. Our joint venture partner owns the
other 40% interest in the joint venture. The property was purchased from an
unaffiliated third-party. We used proceeds from the Offering and obtained a
30-year mortgage loan to fund the acquisition of The Market at Lake Houston
property. The loan was in the amount of $15.7 million, bears an annual interest
rate of 5.75% and is interest-only until January 1, 2016.

This
property was 97% leased as of December 31, 2009. H-E-B Grocery is the largest
tenant occupying 80,641 square feet with a lease scheduled to expire February
2017. We acquired this property with the expectation that it would provide a
stable stream of rental income. We have no plans to renovate or redevelop The
Market at Lake Houston property.

5433
Westheimer

On
March 31, 2006, through a special purpose entity, 5433 Westheimer, LP, we
purchased a 50% interest in the 5433 Westheimer property, a 133,881 square
foot, 11 story office building located in Houston, Texas. Our joint venture
partner, Songy Partners, purchased the other 50% interest in the joint venture.
The property was purchased from an unaffiliated third-party. We acquired our
interest in the 5433 Westheimer property with proceeds from the Offering. In
January 2008, we mortgaged our interest in this property with a $32.9 million,
three-year variable-rate loan with a third-party lender. We have the option to
extend the maturity date of the loan an additional year. The loan bears
interest at LIBOR plus a spread of 1.70%. The office building was 55% leased as
of December 31, 2009. Prosperity Bank is the largest tenant occupying 17,185
square feet with a lease scheduled to expire in May 2011. We acquired this
property with the intent to redevelop the site into a mixed use complex with
retail shopping, office, and hospitality components. We extended a loan in the
amount of approximately $7.0 million to 5433 Westheimer, LP in March 2006 in
connection with our plans for redeveloping the site. This loan had a variable
interest rate of LIBOR plus 2%. During 2008, the property was refinanced with a
third-party lender. In conjunction with that refinancing, the lender required
an additional equity contribution of $7.0 million. This requirement was
satisfied through conversion of our $7.0 million loan to an equity interest in
the property. We established a note receivable with our joint venture partner
for its portion of the additional equity contribution ($3.5 million). In
November 2008, we converted $800,000 of that note into an additional 7.5%
equity interest in the property. The balance of the note was paid in full during 2009, however, the property is not
consolidated into our financial statements as it does not meet all conditions for consolidation outlined in Accounting
Standards Codification (ASC) 805 Business Combinations. We completed redevelopment of the office building and construction
of a 152-room hotel in October 2009 at a total cost of approximately $31.7
million. The majority of these costs were incurred during 2009.

Olmos
Creek

On
June, 30, 2006, through our wholly-owned special purpose entity, AmREIT Olmos
Creek, LP, we purchased a 100% interest in the Olmos Creek property, a 102,178
square foot retail shopping center located in San Antonio, Texas. The property
was purchased from an unaffiliated third-party. We used proceeds from the
Offering to fund the acquisition of Olmos Creek. Subsequent to the acquisition,
we obtained a 10-year interest-only mortgage loan in the amount of $11.2
million that bears an annual interest rate of 6.02%. As of December 31, 2009,
the property was 92% leased. Major tenants include H-E-B Grocery as the largest
tenant occupying 55,513 square feet, Blockbuster, Subway, UPS Store and Edward
Jones. Additionally, we have ground leases with Compass Bank through May 2017
and McDonalds through June 2017. We acquired this property with the
expectation that it would provide a stable stream of rental income. We
currently do not have plans to renovate or redevelop the Olmos Creek

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property.

During
2006, we sold a parcel of the Olmos Creek property to an unaffiliated
third-party for $775,000. We paid our General Partner $25,000 in real estate
brokerage commissions on the sale.

Lantern
Lane

On
September 29, 2006, through our wholly-owned special purpose entity, AmREIT
Lantern Lane, LP, we purchased a 100% interest in the Lantern Lane property, a
79,462 square foot retail shopping center located in Houston, Texas. The
property was purchased from an unaffiliated third-party. We used proceeds from
the Offering and obtained a 5-year interest-only mortgage loan in the amount of
$13.4 million that bears an annual interest rate of 6.0% to fund the
acquisition of the Lantern Lane property.

The
property was 96% leased at December 31, 2009. Rice Food Market, Inc. is the
largest tenant occupying 21,450 square feet with a lease scheduled to expire in
January 2013. We acquired this property with the expectation that it would
provide a stable stream of rental income and have no plans to redevelop the
property.

Properties
in Plano, Texas Owned Through a Joint Venture with an Affiliate of JPMorgan

Through
our investment in PTC/BSQ Holding Company LLC (PTC/BSQ), we purchased a 20%
interest in Preston Towne Crossing, Berkeley Square and Preston Park Gold. The
joint venture, 80% owned by JPMorgan Asset Management, acquired each of these
shopping centers from unrelated third parties. These retail centers, further
described below, are adjacent to one another in Plano, Texas, and total 396,273
square feet. Preston Park Gold was acquired by PTC/BSQ on November 15, 2006
while Preston Towne Crossing and Berkeley Square were both acquired on December
7, 2006.

Preston
Park Gold. The 101,096-square-foot Preston Park Gold, which is the former Target/Vineyard
Antique Mall building, is located between Preston Towne Crossing and Berkeley
Square and was retrofitted in 2007.

Major
tenants of the Preston Gold property include Golds Gym which occupies 49,427
square feet and Chair King which occupies 27,438 square feet. Leases for these
tenants are scheduled to expire in October 2024 and June 2017, respectively.
The property was redeveloped in order to increase value and construction was
completed in July 2007. The property is unencumbered and was 83% occupied as of
December 31, 2009.

Preston
Towne Crossing and Berkeley Square.The
169,844-square-foot Preston Towne Crossing and the 125,333-square-foot Berkeley
Square were 84% and 87% occupied, respectively at December 31, 2009 and are
located on 35 acres at the northeast corner of Preston Road and West Park
Boulevard in Plano. PTC/BSQ assumed mortgage loans in the amount of $22.4 million
and $18.1 million encumbering Preston Towne Crossing and Berkeley Square,
respectively. Each of the loans matures in January 2012. The Preston Towne
Crossing loan bears interest at 5.83% and had a balance of $21.1 million as of
December 31, 2009. The Berkeley Square loan bears interest at 5.87% and had a
balance of $17.1 million as of December 31, 2009.

Major
tenants of the Preston Towne Crossing property include REI which occupies
27,000 square feet and Park Plaza Salon which occupies 20,000 square feet.
Leases for these tenants are scheduled to expire in April 2015 and January
2012, respectively. Movie Grill Concepts, Ltd. is the largest tenant of
Berkeley Square occupying 30,977 square feet with a lease scheduled to expire
in February 2015.

Developed
during 1986 and 1987, the shopping centers underwent renovations during 2007
and 2008 to enhance the facades, complete store pop-ups, upgrade landscaping
and add new signage. These enhancements were completed during 2008. The properties
also include undeveloped land behind Berkeley Square that we believe can be
sold to an office or residential developer.

Casa
Linda Plaza

On
December 8, 2006, through a joint venture arrangement with an affiliate of our
General Partner,

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AmREIT
Monthly Income & Growth Fund IV, L.P. (MIG IV), we acquired a 50%
interest in the Casa Linda Plaza property, a 324,569 square foot retail
shopping center located in Dallas, Texas. Our joint venture partner owns the
remaining 50% interest in the joint venture. The property was purchased from an
unaffiliated third-party. We used proceeds from the Offering and obtained a
7-year mortgage loan to fund the acquisition of the Casa Linda Plaza property.
The loan was in the amount of $38.0 million, bears an annual interest rate of
5.48% and is interest-only until maturity.

The
property was 76% leased at December 31, 2009. Albertsons is the largest tenant
occupying 59,561 square feet with a lease scheduled to expire in July 2016.
Additional tenants are Petco, Starbucks, Wachovia, Chilis, Blockbuster,
Washington Mutual, Supercuts and Guarantee Federal Bank. The property was
originally built between 1946 and 1949. During 2009, the Casa Linda Plaza
property completed a substantial renovation that has allowed the property to
maintain its historical character and prominence in the community, while
updating the propertys features. The renovation was completed in April 2009 at
a cost of $7.1 million.

Woodlake
Square

On
August 31, 2007, through a joint venture arrangement with affiliates of our
General Partner, MIG IV and ARIC, we acquired a 30% interest in the Woodlake
Square property, a 205,522 square foot retail shopping center located in
Houston, Texas. Our joint venture partners own the other 70% interest in the
joint venture. The property was purchased from an unaffiliated third-party. We
used proceeds from the Offering and obtained a 3-year mortgage loan from Frost
Bank to fund the acquisition of the Woodlake Square property. The loan was in
the amount of $24.0 million and is interest-only until maturity. The interest
related to this debt is at a variable interest rate of LIBOR plus 1.35%. In
December, 2007, the property entered into an interest rate swap to hedge its position
on the mortgage. As a result, the interest rate will remain fixed at 5.465% for
the life of the loan.

The
property was 67% leased at December 31, 2009. Randalls, the largest tenant
occupying 56,430 square feet, has a lease that expires in 2035. Additional
tenants are Walgreens, Jos. A. Bank Clothiers, Ragin Cajun, and Woodlake
Childrens Center. We have initiated plans to redevelop Woodlake Square in an
effort to make it more functional from a retail standpoint and aesthetically
appealing to potential tenants. Estimated redevelopment costs for Woodlake
Square are $7.3 million, and we expect the redevelopment to be completed by April 2012.

Woodlake
Pointe

On
November 21, 2007, through a joint venture arrangement with affiliates of our
General Partner, MIG IV and ARIC, we acquired a 30% interest in AmREIT
Westheimer Gessner, L.P. which owns the Woodlake Pointe property, a 82,120
square foot retail shopping center located in Houston, Texas. Our joint venture
partners own the other 70% interest in the joint venture. The property was
purchased from an unaffiliated third-party. We used proceeds from the Offering
and paid cash for the acquisition.

Borders
was the only tenant occupying 41,060 square feet with a lease which expired in
January 2010. Borders has vacated the space, and we are currently considering
our redevelopment options on this property as we entertain several potential
tenants.

On
May 29, 2008, through the same joint venture arrangement with affiliates of our
General Partner, MIG IV and ARIC, we acquired a 30% interest in a tract of land
adjacent to Woodlake Pointe. Our joint venture partners own the other 70%
interest in the property. The acquisition is accounted for as part of AmREIT
Westheimer Gessner, L.P. We used proceeds from the Offering and paid cash for
the acquisition.

Portfolio
Information

The
following table shows our five highest tenant industry concentrations for all
properties in which we own an interest as of December 31, 2009.

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|                 |  |  |                          |  |                             |           |                                                  |  |      |  | 
|---------------- |  |  | ------------------------ |  | --------------------------- | --------- | ------------------------------------------------ |  | ---- |  | 
|Industry         |  |  | Total Number of
 Tenants |  | Annualized Gross
 Base Rent |           | Percentage of Total
 Annualized Gross
 Base Rent | 
|                 |  |  |                          |  |                             |           |                                                  | 
|Dining           |  |  | 47                       |  | $                           | 3,531,000 |                                                  |  | 20.3 | 
|Specialty Retail |  |  | 42                       |  |                             | 2,967,000 |                                                  |  | 17.0 | 
|Grocery          |  |  | 7                        |  |                             | 2,583,000 |                                                  |  | 14.8 | 
|Services         |  |  | 42                       |  |                             | 1,346,000 |                                                  |  | 7.7  | 
|Banking          |  |  | 14                       |  |                             | 1,171,000 |                                                  |  | 6.7  | 
|                 |  |  |                          |  |                             |           |                                                  |  |      | 

The
following table shows our tenants which occupy 10% or more of the rentable
square feet for each property in which we own an interest and the lease
expirations of such tenants as of December 31, 2009, assuming no exercise of
renewal option or termination rights.

|                               |  |                   |  |                |  |                                  |  |               | 
|------------------------------ |  | ----------------- |  | -------------- |  | -------------------------------- |  | ------------- | 
|Property                       |  |                   |  |                |  | Percentage of
 Property Rentable |  | Year of Lease | 
|Tenant                         |  | Industry          |  | Square Footage |  | Square
 Footage                  |  | Expiration    | 
|Market at Lake Houston         |  |                   |  |                |  |                                  |  |               | 
|H-E-B Grocery                  |  | Grocery           |  | 80,641         |  | 79.2                             |  | 2017          | 
|Lantern Lane                   |  |                   |  |                |  |                                  |  |               | 
|Rice Food Markets, Inc.        |  | Grocery           |  | 21,450         |  | 27.0                             |  | 2013          | 
|Fidelity Investments           |  | Banking           |  | 9,578          |  | 12.1                             |  | 2010          | 
|Olmos Creek                    |  |                   |  |                |  |                                  |  |               | 
|H-E-B Grocery                  |  | Grocery           |  | 65,681         |  | 64.3                             |  | 2020          | 
|Westside Plaza                 |  |                   |  |                |  |                                  |  |               | 
|Designer Shoe Warehouse        |  | Shoe
 Retail      |  | 24,500         |  | 56.9                             |  | 2010          | 
|Fadis Mediterranean Delight   |  | Dining            |  | 5,125          |  | 11.9                             |  | 2012          | 
|Berkeley Square                |  |                   |  |                |  |                                  |  |               | 
|Movie Grill Concepts, Ltd. (1) |  | Entertainment     |  | 30,977         |  | 24.7                             |  | 2010          | 
|Casa Linda Plaza               |  |                   |  |                |  |                                  |  |               | 
|Albertsons                    |  | Grocery           |  | 59,561         |  | 18.4                             |  | 2016          | 
|Preston Park Gold              |  |                   |  |                |  |                                  |  |               | 
|Golds Gym                     |  | Gym               |  | 49,427         |  | 48.9                             |  | 2025          | 
|Chair King                     |  | Specialty
 Retail |  | 27,438         |  | 27.1                             |  | 2017          | 
|Preston Towne Crossing         |  |                   |  |                |  |                                  |  |               | 
|Recreational Equipment, Inc.   |  | Sporting
 Goods   |  | 27,000         |  | 15.9                             |  | 2015          | 
|Plaza Park Salon               |  | Salon             |  | 20,000         |  | 11.8                             |  | 2012          | 
|Woodlake Pointe                |  |                   |  |                |  |                                  |  |               | 
|Borders (2)                    |  | Specialty
 Retail |  | 41,060         |  | 50.0                             |  | 2010          | 
|Woodlake Square                |  |                   |  |                |  |                                  |  |               | 
|Randalls                      |  | Grocery           |  | 56,430         |  | 27.5                             |  | 2013          | 
|5433 Westheimer                |  |                   |  |                |  |                                  |  |               | 
|Prosperity Bank                |  | Banking           |  | 17,185         |  | 12.8                             |  | 2011          | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Movie
 Grill Concepts lease that was in place at December 31, 2009 expired on
 February 28, 2010. Prior to that expiration, the tenant exercised a 5-year
 renewal option to extend the lease until February 2015.                                                                                                                                                                                                              
|(2) | Borders
 lease expired in January 2010, and they have vacated their space. We expected
 this impending lease expiration when we acquired the property and believe
 that we will be able to recover its carrying value based on our property
 redevelopment plan. We are actively identifying potential lessees to occupy
 the premises as part of this plan. The closing of any new leases would be
 subject to the negotiation and

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| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | execution of
 definitive lease agreements and the fulfillment of customary conditions. No
 assurance can be given that a new lease will be procured on the same terms as
 the Borders lease, or at all.

The
following table shows lease expirations for our four consolidated properties as
of December 31, 2009, during each of the next ten years and thereafter,
assuming no exercise of renewal options or termination rights.

|                          |  |                         |  |                       |         |                             |           |                                                  |           |  |  |       | 
|------------------------- |  | ----------------------- |  | --------------------- | ------- | --------------------------- | --------- | ------------------------------------------------ | --------- |  |  | ----- | 
|Year of
 Lease Expiration |  | Total Number of
 Leases |  | Rentable
 Square Feet |         | Annualized Gross
 Base Rent |           | Percentage of Total
 Annualized Gross Base
 Rent |          
|                          |  |                         |  |                       |         |                             |           |                                                  |           | 
|2010                      |  | 11                      |  | 76,631                |         | $                           | 1,402,000 |                                                  | 28.2      | 
|2011                      |  | 5                       |  | 6,484                 |         |                             | 206,000   |                                                  | 4.1       | 
|2012                      |  | 12                      |  | 34,793                |         |                             | 721,000   |                                                  | 14.5      | 
|2013                      |  | 6                       |  | 35,714                |         |                             | 648,000   |                                                  | 13.0      | 
|2014                      |  | 6                       |  | 11,118                |         |                             | 172,000   |                                                  | 3.5       | 
|2015                      |  | 1                       |  | 1,400                 |         |                             | 29,000    |                                                  | 0.6       | 
|2016                      |  | -                       |  | -                     |         |                             | -         |                                                  | -         | 
|2017                      |  | 4                       |  | 83,625                |         |                             | 1,324,000 |                                                  | 26.6      | 
|2018                      |  | 2                       |  | 7,000                 |         |                             | 157,000   |                                                  | 3.2       | 
|2019                      |  | -                       |  | -                     |         |                             | -         |                                                  | -         | 
|Thereafter                |  | 3                       |  |                       | 68,644  |                             |           |                                                  | 316,000   |  |  | 6.3   | 
|Totals                    |  | 50                      |  |                       | 325,409 |                             |           | $                                                | 4,975,000 |  |  | 100.0 | 

The
following table shows lease expirations for our seven non-consolidated
properties as of December 31, 2009, during each of the next ten years and
thereafter, assuming no exercise of renewal options or termination rights.

|                          |  |                         |  |                       |         |                             |           |                                                  |            |  |  |       | 
|------------------------- |  | ----------------------- |  | --------------------- | ------- | --------------------------- | --------- | ------------------------------------------------ | ---------- |  |  | ----- | 
|Year of
 Lease Expiration |  | Total Number of
 Leases |  | Rentable
 Square Feet |         | Annualized Gross
 Base Rent |           | Percentage of Total
 Annualized Gross Base
 Rent |           
|                          |  |                         |  |                       |         |                             |           |                                                  |            | 
|2010                      |  | 51                      |  | 242,291               |         | $                           | 3,962,000 |                                                  | 31.8       | 
|2011                      |  | 41                      |  | 100,942               |         |                             | 2,111,000 |                                                  | 17.0       | 
|2012                      |  | 35                      |  | 99,660                |         |                             | 1,732,000 |                                                  | 13.9       | 
|2013                      |  | 24                      |  | 121,814               |         |                             | 1,553,000 |                                                  | 12.5       | 
|2014                      |  | 18                      |  | 51,130                |         |                             | 828,000   |                                                  | 6.7        | 
|2015                      |  | 9                       |  | 51,071                |         |                             | 290,000   |                                                  | 2.3        | 
|2016                      |  | 4                       |  | 78,288                |         |                             | 454,000   |                                                  | 3.6        | 
|2017                      |  | 1                       |  | 27,438                |         |                             | 270,000   |                                                  | 2.2        | 
|2018                      |  | 1                       |  | 7,644                 |         |                             | 168,000   |                                                  | 1.4        | 
|2019                      |  | 4                       |  | 9,594                 |         |                             | 155,000   |                                                  | 1.2        | 
|Thereafter                |  | 6                       |  |                       | 79,783  |                             |           |                                                  | 916,000    |  |  | 7.4   | 
|Totals                    |  | 194                     |  |                       | 869,655 |                             |           | $                                                | 12,439,000 |  |  | 100.0 | 
|                          |  |                         |  |                       |         |                             |           |                                                  |            | 

As
of December 31, 2009, we have invested substantially all of the net proceeds of
the Offering in real properties. Our dispositions have been limited to the sale
of a parcel of land on our Olmos Creek property in San Antonio, Texas in 2006.
This sale generated $775,000 in proceeds.

|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS

In
the ordinary course of business, we may become subject to litigation or claims.
Neither we nor our properties are the subject of any non-routine pending legal
proceeding, nor are we aware of any proceeding that a governmental authority is
contemplating against us.

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|        |         
|------- | --------
|ITEM 4. | RESERVED

PART II

|        |                                                                                                              
|------- | -------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY,
 RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On
April 19, 2005, we commenced the Offering. We closed the Offering on October
31, 2006 after having raised aggregate gross proceeds of $71,090,290 through
the sale of 2,844 Units to 1,160 Limited Partners. As of March 5, 2010, we
have 2,833 units outstanding held by 1,147 limited partners.

There
is no established public trading market for our Units. The Units, which are
restricted securities as defined in Rule 144 promulgated by the SEC under the
Securities Act, must be held indefinitely unless they are subsequently
registered under the Securities Act and any applicable state securities laws or
unless, upon the advice of counsel satisfactory to us, the Units are sold in a
transaction that is exempt from the registration requirements of such laws. As
of December 31, 2009, no Units were eligible for sale under Rule 144 or that we
have agreed to register under the Securities Act for sale by Limited Partners
and there were no Units that are being, or have been publicly proposed to be,
publicly offered by us. No Units have been sold since we closed the Offering on
October 31, 2006.

The
following table shows the distributions to our Limited Partners we have
declared (including the total amount paid and the amount paid on a per Unit
basis) from the last two fiscal years ended December 31, 2008 and December 31,
2009:

|                 |  |                                     |         |                        |   |        | 
|---------------- |  | ----------------------------------- | ------- | ---------------------- | - | ------ | 
|Period
 Paid (1) |  | Total Amount of
 Distributions Paid |         | Distribution Per
 Unit |  
|                 |  |                                     |         |                        |   |        | 
|January, 2008    |  | $                                   | 444,158 |                        | $ | 156.25 | 
|February, 2008   |  |                                     | 444,158 |                        |   | 156.25 | 
|March, 2008      |  |                                     | 444,158 |                        |   | 156.25 | 
|April, 2008      |  |                                     | 444,158 |                        |   | 156.25 | 
|May, 2008        |  |                                     | 444,158 |                        |   | 156.25 | 
|June, 2008       |  |                                     | 444,158 |                        |   | 156.25 | 
|July, 2008       |  |                                     | 444,158 |                        |   | 156.25 | 
|August, 2008     |  |                                     | 444,158 |                        |   | 156.25 | 
|September, 2008  |  |                                     | 444,002 |                        |   | 156.25 | 
|October, 2008    |  |                                     | 444,002 |                        |   | 156.25 | 
|November, 2008   |  |                                     | 444,002 |                        |   | 156.25 | 
|December, 2008   |  |                                     | 443,377 |                        |   | 156.25 | 
|January, 2009    |  |                                     | 177,101 |                        |   | 62.50  | 
|February, 2009   |  |                                     | 177,026 |                        |   | 62.50  | 
|March, 2009      |  |                                     | 177,026 |                        |   | 62.50  | 
|April, 2009      |  |                                     | 177,026 |                        |   | 62.50  | 
|May, 2009        |  |                                     | 177,026 |                        |   | 62.50  | 
|June, 2009       |  |                                     | 177,026 |                        |   | 62.50  | 
|July, 2009       |  |                                     | 177,026 |                        |   | 62.50  | 
|August, 2009     |  |                                     | -       |                        |   | -      | 
|September, 2009  |  |                                     | -       |                        |   | -      | 
|October, 2009    |  |                                     | -       |                        |   | -      | 
|November, 2009   |  |                                     | -       |                        |   | -      | 
|December, 2009   |  |                                     | -       |                        |   | -      | 

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| |     |                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Distributions
 are paid 15 days in arrears. Distributions above, paid between January 2008
 and July 2009 were declared between December 2007 and June 2009.

We
made monthly distributions to our Limited Partners at a rate of 7.5% per annum
from January 2006 through November 2008. From December 1, 2008, through June
30, 2009, distributions were made at a rate of 3.0% per annum. We suspended all
distribution payments in July 2009, and do not anticipate reinstating
distributions until improvements in the real estate and liquidity markets
warrant such reinstatement. We have reported a cumulative net loss for GAAP and tax purposes, primarily due to the non-cash charges associated with depreciation of our real estate assets.
Accordingly, all of the distributions we have paid through
December 31, 2009 constitute a return of capital to our Limited Partners for
tax purposes. The source of such distributions has been cash flows from operations as well as from our capital-raising activities. One of our primary goals is to pay regular (monthly)
distributions to our Limited Partners. The funds we receive from operations
that are available for distribution may be affected by a number of factors,
including the following:

| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | our
 operating and interest expenses;                                                              
| |   |                                                                                                    
| |  | the ability
 of tenants to meet their obligations under the leases associated with our
 properties;
| |   |                                                                                                    
| |  | our ability
 to keep our properties occupied;                                                      
| |   |                                                                                                    
| |  | our ability
 to maintain or increase rental rates when renewing or replacing current
 leases;      
| |   |                                                                                                    
| |  | capital
 expenditures and reserves for such expenditures;                                          
| |   |                                                                                                    
| |  | the issuance
 of additional shares; and                                                            
| |   |                                                                                                    
| |  | financings
 and refinancings.                                                                      

We
qualified as a partnership for federal income tax purposes commencing with our
taxable year ended December 31, 2005. For income tax purposes, distributions to
our Limited Partners are characterized as ordinary income, capital gains, or as
a return of a Limited Partners invested capital.

In order to provide limited partners with the possibility of liquidity,
limited partners who have held their units for at least three years may receive the benefit of interim liquidity by presenting all of those units to the
Partnership for redemption. At that time, we may, at our sole election and subject to the conditions and limitations described below, redeem the Units presented
for cash to the extent that we have sufficient funds available to us to fund such redemption. The redemption price to be paid will be 92% of the limited partners
unreturned invested capital. At no time during a 12-month period, however, may the number of Units redeemed by us exceed 2% of the number of Units outstanding at
the beginning of that 12-month period. During the year ended December 31, 2009, we received five redemption requests from the holders of 11.4 Units.
We granted one request to the holder of 1.2 units for $28,000.  During the year ended December 31, 2008, we received and granted three redemption requests to
the holders of nine Units for $207,000.  During the year ended December 31, 2007, we received and granted one redemption request to the holder of one Unit for $23,000.
All redemptions were paid using cash flows from operations.  We suspended the optional redemption program during the second quarter of 2009 due to macroeconomic
conditions and the need to preserve cash.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 6. | SELECTED FINANCIAL DATA                                                               
|        |                                                                                       
|        | Not
 applicable.                                                                      
|        |                                                                                       
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS

The
following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes thereto. See also
Cautionary Note Regarding Forward Looking Statements preceding Part I of this
Annual Report.

Overview

We
are a Texas limited partnership formed on April 19, 2005 to acquire, develop
and operate, directly or indirectly through joint venture or other
arrangements, commercial retail real estate consisting of single-tenant and
multi-tenant properties throughout the United States net leased to investment
grade and other creditworthy tenants. We focus on properties characterized by
high automobile traffic counts, high populations, high household incomes and
limited opportunities for competition.

We
have no employees and are managed by AmREIT Monthly Income and Growth III
Corporation, our General Partner, pursuant to the Partnership Agreement. Our
General Partner is a subsidiary of AmREIT, Inc., Maryland corporation that has
elected to be taxed as a real estate investment trust. In addition to owning
its general partner interest in us for which it contributed $1,000, our General
Partner contributed $800,000 to us in exchange for limited partnership units,
or Units, which represent approximately 1% of the outstanding Units. The
remaining Units are held by other Limited Partners. We qualify as a partnership
for federal income tax purposes.

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We
derive a substantial portion of our revenue from rental income from our
properties, primarily from net leasing arrangements where most of the operating
expenses of the properties are absorbed by our tenants. As a result, our
operating results and cash flows are primarily influenced by rental income from
our properties and interest expense on our property acquisition indebtedness.
Rental income accounted for 100% of our total revenue during the years ended
December 31, 2009, 2008, and 2007. As of December 31, 2009, our properties had
an average occupancy of 78%, and the average debt leverage ratio of the
properties in which we have an investment was approximately 59%, with 70% of
such debt carrying a fixed rate of interest.

We
commenced our principal operations on June 30, 2005, when we raised the minimum
offering of $2.0 million pursuant to the terms the Offering Memorandum and
issued the initial 80 Units. AmREIT Securities Company served as the dealer
manager for our Offering. As of October 31, 2006, we had received approximately
$71.1 million for the sale of 2,844 Units and closed the Offering. Our Units
were sold in reliance on an exemption from the registration requirements of the
Securities Act of 1933, as amended, or the Securities Act, and are not
currently listed on a national exchange. No established public trading market
currently exists for the Units.

On
April 30, 2007 we filed a Form 10-SB to register our Units pursuant to Section
12(g) of the Exchange Act. We are subject to the registration requirements of
Section 12(g) of the Exchange Act because the aggregate value of our assets
exceeds applicable thresholds and the Units of record are held by 500 or more
persons.

From
the start of the Offering through December 31, 2009, we have incurred
approximately $8.1 million in organization and offering costs in connection
with the Offering. Approximately $7.7 million of those costs represent offering
costs such as sales commissions and dealer manager fees paid for the placement
of the Units. Approximately $418,000 of those costs represent organizational
costs such as legal and accounting fees, printing costs, filing fees and
distribution costs. Substantially all of these organizational costs were direct
or indirect payments to our General Partner and its affiliates. The remaining
expenses were direct or indirect payments to others. Our net offering proceeds
from the Offering totaled $63.0 million. From the start of the Offering through
December 31, 2009, we invested substantially all of the net proceeds of the
Offering in real properties. See Item 2. Properties for more information
regarding real estate purchases. Additionally, see Note 9 to our consolidated
financial statements for a discussion of payments made to affiliated entities
for capital-raising and real estate services.

As
of December 31, 2009, our investments included three wholly-owned properties
comprising approximately 225,000 square feet of gross leasable area, one
property in which we own a controlling interest through a joint venture
comprising approximately 102,000 square feet of gross leasable area and seven
properties in which we own a non-controlling interest through joint ventures
comprising approximately 1,142,000 square feet of gross leasable area. As of
December 31, 2009, we have invested substantially all of the net proceeds of
the Offering in real properties. All of our properties are located in highly
populated, suburban communities in Texas.

Selecting
properties with high quality tenants and mitigating risk through diversifying
our tenant base is at the forefront of our acquisition and leasing strategy. We
believe our strategy of purchasing premier retail properties in high-traffic,
highly-populated areas will produce stable earnings and growth opportunities in
future years.

We
continually monitor the sales trends and creditworthiness of our tenants. We do
not expect store closings or bankruptcy reorganizations to have a material
impact on our consolidated financial statements. The tenants with which we have
concerns represent less than 10% of our current total portfolio annualized
rental income.

Given
the current economic environment we decided to cease distributions beginning
July 1, 2009. We will continue to monitor the real estate market to determine
if it is in our Partners best interest to reinstate dividends at any point in
the future. We believe the real estate market will improve prior to our
expected liquidation commencement date of October 31, 2012; however, we will
seek to postpone liquidation if we feel it is not in the best interests of the
Partners at the time.

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Our
Units were sold pursuant to exemptions from registration under the Securities
Act of 1933, as amended (Securities Act), and are not currently listed on a
national exchange. These Units will be transferable only if we register them
under applicable securities laws (such registration is not expected) or
pursuant to an exemption under the Securities Act and applicable state
securities laws. We do not anticipate that any public market for the Units will
develop.

Summary of Critical Accounting Policies

Our
results of operations and financial condition, as reflected in the accompanying
consolidated financial statements and related footnotes, are subject to
managements evaluation and interpretation of business conditions, retailer
performance, changing capital market conditions and other factors, which could
affect the ongoing viability of our tenants. Management believes the most
critical accounting policies in this regard are revenue recognition, regular
evaluation of whether the value of a real estate asset has been impaired,
allowance for uncollectible accounts and accounting for real estate
acquisitions. We evaluate our assumptions and estimates on an on-going basis.
We base our estimates on historical experience as well as various other
assumptions that we believe to be reasonable under the circumstances. Actual
results could vary from those estimates, perhaps in material adverse ways, and
those estimates could be different under different assumptions or conditions.

Revenue Recognition

We
lease space to tenants under agreements with varying terms. The majority of the
leases are accounted for as operating leases and although certain leases of the
properties provide for tenant occupancy during periods for which no rent is due
and/or increases or decreases in the minimum lease payments over the terms of
the leases, revenue is recognized on a straight-line basis over the terms of
the individual leases. In most cases, revenue recognition under a lease begins
when the lessee takes possession of or controls the physical use of the leased
asset. Generally, this occurs on the lease commencement date. In all cases, we
have determined that we are the owner of the tenant improvements. In cases
where tenant improvements are made prior to lease commencement, the leased
asset is considered to be the finished space, and revenue recognition therefore
begins when the improvements are substantially complete.

Accrued
rents are included in tenant receivables. Revenue from tenant reimbursements of
taxes, maintenance expenses and insurance is recognized in the period the
related expense is recorded. Additionally, certain of the lease agreements
contain provisions that grant additional rents based on tenants sales volumes
(contingent or percentage rent). We defer the recognition of contingent or
percentage rental income until the specific targets as defined in lease
agreements that trigger the contingent or percentage rental income are
achieved. Cost recoveries from tenants are included in rental income in the
period the related costs are incurred.

Valuation
of Real Estate Assets

We
continually monitor events and changes in circumstances that could indicate
that the carrying amounts of our real estate assets, including accrued rental
income, may not be recoverable through operations. When indicators of potential
impairment are present that indicate that the carrying amounts of real estate
and related intangible assets may not be recoverable, we assess the
recoverability of the assets by determining whether the carrying value of the
assets will be recovered through the undiscounted future operating cash flows
expected from the use of the assets and their eventual disposition. If
impairment is indicated, a loss will be recorded for the amount by which the
carrying value of the asset exceeds its estimated fair value. Both the
estimated undiscounted cash flow analysis and fair value determination are
based upon various factors which require complex and subjective judgments to be
made by management. Such assumptions include projecting lease-up periods,
holding periods, cap rates, rental rates, operating expenses, lease terms,
tenant creditworthiness, tenant improvement allowances, terminal sales value
and certain macroeconomic factors among other assumptions to be made for each
property. We have not recorded any impairment losses for the years ended
December 31, 2009, 2008 or 2007.

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Investment
in Real Estate Assets

Land,
buildings and improvements are recorded at cost. Expenditures related to the
development of real estate are carried at cost which includes capitalized
carrying charges, acquisition costs and development costs. Carrying charges,
primarily interest and loan acquisition costs, and direct and indirect
development costs related to buildings under construction are capitalized as
part of construction in progress. The capitalization of such costs ceases at
the earlier of one year from the date of completion of major construction or
when the property, or any completed portion, becomes available for occupancy.

We
expense  acquisition  costs associated with operating  properties as incurred in
accordance with ASC 805 Business
Combinations.  Prior to adoption  of ASC 805,  such costs were  capitalized  and
expensed if and when the acquisition became no longer probable.

We
are required to make subjective assessments as to the useful lives of our
depreciable assets. We consider the period of future benefit of the asset to
determine the appropriate useful lives. These assessments, which are based on
estimates, have a direct impact on net income. Depreciation is computed using
the straight-line method over an estimated useful life of up to 39 years for
buildings and site improvements and over the term of lease for tenant
improvements and intangible lease costs.

Investment in Non-consolidated
Entities

As
of December 31, 2009, we had ownership interests in eleven real estate
properties, four of which are consolidated into our financial statements.
Although we exercise significant influence over the activities of the remaining
seven properties, we do not have a controlling financial interest in them.
Accordingly, all of our real estate investments in these properties are
reported under the equity method of accounting pursuant to U.S. generally
accepted accounting principles. Our joint ventures recognize revenues from
rents and tenant reimbursements in the same manner as discussed in the Revenue
Recognition section above and account for real estate acquisitions in accordance
with ASC 805, Business Combinations, as discussed in the Real Estate
Acquisitions section below.

We
review our properties for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through operations. We determine whether an impairment in value
occurred by comparing the estimated future cash flows (undiscounted and without
interest charges), including the residual value of the property, with the
carrying value of the individual property. If impairment is indicated, a loss
will be recorded for the amount by which the carrying value of the asset
exceeds its fair value. No impairment charges were recognized during the years
ended December 31, 2009, 2008 and 2007.

Valuation
of Receivables

We
determine an appropriate allowance for the uncollectible portion of tenant
receivables and accounts receivable based upon an analysis of balances
outstanding, historical payment history, tenant credit worthiness, additional
guarantees and other economic trends. Balances outstanding include base rents,
tenant reimbursements and receivables attributed to the accrual of straight
line rents. Additionally, we consider estimates of the expected recovery of
pre-petition and post-petition claims with respect to tenants in bankruptcy in
our assessment of the likelihood of collecting the related receivables.

Real
Estate Acquisitions

We
account for real estate acquisitions pursuant to ASC 805. Accordingly, we
allocate the purchase price of the acquired properties to land, building and
improvements, identifiable intangible assets and to the acquired liabilities
based on their respective fair values. Identifiable intangibles include amounts
allocated to acquired above and below-market leases, the value of in-place
leases and customer relationships, if any. We determine fair value based on
estimated cash flow projections that utilize appropriate discount and
capitalization rates and available market information. Estimates of future cash
flows are based on a number of factors including the historical operating
results, known trends and specific market and economic conditions that may
affect the property. Factors considered by management in our analysis of determining
the as-if-vacant property

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value include
an estimate of carrying costs during the expected lease-up periods considering
market conditions, and costs to execute similar leases. In estimating carrying
costs, management includes real estate taxes, insurance and estimates of lost
rentals at market rates during the expected lease-up periods, tenant demand and
other economic conditions. Management also estimates costs to execute similar
leases including leasing commissions, tenant improvements, legal and other
related expenses. Intangibles related to above and in-place lease value are
recorded as acquired lease intangibles and are amortized as an adjustment to
rental revenue or amortization expense, as appropriate, over the remaining
terms of the underlying leases. Below market lease amortization includes
fixed-rate renewal periods. Premiums or discounts on acquired out-of-market
debt are amortized to interest expense over the remaining term of such debt.

Depreciation
is computed using the straight-line method over an estimated useful life of up
to 39 years for buildings and site improvements and over the term of lease for
tenant improvements. Depreciation is computed using the straight-line method
over an estimated useful life of up to 50 years for buildings, up to 20 years
for site improvements and over the life of lease for tenant improvements and
intangible lease costs. Leasehold estate properties, in which the Company owns
the building and improvements but not the related ground, are amortized over
the life of the lease. The determination of useful lives requires judgment and
includes significant estimates.

Recently Issued Accounting Pronouncements

In
June 2009, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 167, Amendments to FASB
Interpretation No. 46(R) (SFAS No. 167), which amends the consolidation
guidance applicable to variable interest entities. The amendments will
significantly affect the overall consolidation analysis under FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entitiesan
interpretation of ARB No. 51 and changes the way entities account for
securitizations and special purpose entities as a result of the elimination of
the Qualified Special Purpose Entity (QSPE) concept in SFAS No.166. SFAS No.
167 is effective as of the beginning of the first fiscal year that begins after
November 15, 2009 and early adoption is prohibited. Management is currently
evaluating the impact on our consolidated financial statements of adopting SFAS
No. 167.

In
June 2009, the FASB issued ASC 105, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles, which became the
single source of authoritative nongovernmental U.S. generally accepted
accounting principles (GAAP), superseding existing FASB, American Institute
of Certified Public Accountants, Emerging Issues Task Force, and related
accounting literature. ASC 105 reorganizes the thousands of GAAP pronouncements
into roughly 90 accounting topics and displays them using a consistent
structure. Also included is relevant SEC guidance organized using the same
topical structure in separate sections. ASC 105 is effective for all quarterly
and annual reporting periods ending after September 15, 2009. We adopted the
provisions of ASC 105 in the third quarter of 2009. Such adoption only changed
the way we refer to GAAP to reflect the updated referencing convention and did
not have an impact on our financial statements.

Factors Which May Influence Results of
Operations

Rental
Income

The
amount of rental income generated by our properties depends principally on our
ability to maintain the occupancy rates of currently leased space and to lease
currently available space and space available from unscheduled lease
terminations at levels not less than the existing rental rates. Negative trends
in one or more of these factors could adversely affect our rental income in
future periods.

Scheduled
Lease Expirations

During
2010, 23.5% of the total square footage of our consolidated properties expires,
and 21.2% of the total square footage of our non-consolidated properties
expires. Our leasing strategy for 2010 focuses on negotiating

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renewals for
leases scheduled to expire during the year and identifying new tenants or
existing tenants seeking additional space to occupy the square footage for
which we are unable to negotiate such renewals.

Results of Operations

We
commenced our principal operations on June 30, 2005, when we raised the minimum
offering of $2.0 million pursuant to the terms of our Offering Memorandum and
issued the initial 80 Units to investors. During 2005, we acquired one interest
in a property through a consolidated joint venture on September 30, 2005 and
acquired a direct interest in another property on December 12, 2005. During
2006, we acquired direct interests in two additional properties, one on June
30, 2006 and the other on September 29, 2006. In 2006, we also made investments
in three joint ventures through which we obtained an ownership interest in five
other properties. During 2007, we made investments in two other joint ventures
through which we obtained an ownership interest in two additional properties.
During 2008, we made an investment in one additional property through an
existing joint venture and acquired an additional equity interest in another
existing joint venture. We made no additional acquisitions of properties during
2009. Our direct property acquisitions were accounted for as purchases and the
results of their operations are included in our consolidated financial
statements from their respective dates of acquisition. With the exception of
our investment in AmREIT Lake Houston GP, Inc., which we consolidate into our
financial statements, we report our investments in joint ventures under the
equity method of accounting given our ability to exercise significant influence
over them.

Comparison of the year ended December 31,
2009 to the year ended December 31, 2008

Revenue. Revenue decreased approximately
$413,000 to approximately $6.8 million during the year ended December 31, 2009
compared to approximately $7.3 million for the year ended December 31, 2008.
This decrease was due to tenant vacancies at Lake Houston and Olmos creek as
well as a decrease in property taxes at Lantern Lane and Westside Plaza which
led to a reduction in tenant recoveries at both properties.

General and Administrative. General and
administrative fees decreased approximately $67,000 to approximately $97,000
during the year ended December 31, 2009 compared to approximately $164,000 for
the year ended December 31, 2008. This decrease was primarily due to a decrease
in marketing and conference expenses as well as cost savings initiatives
implemented by our General Partner and its affiliates.

General and Administrative  Related
Party. General and administrative  related party expenses paid to our
affiliate increased approximately $157,000 to approximately $459,000 during the
year ended December 31, 2009 compared to approximately $302,000 during the year
ended December 31, 2008. This increase was due to an increase in the
compensation pool and to an increase in the allocation of those costs during
the period to better reflect the level of effort expended by our affiliates
financial personnel in providing accounting and financial reporting services to
us.

Property Management Fees  Related Party.
Property management fees increased approximately $47,000 to approximately
$297,000 during the year ended December 31, 2009 compared to approximately
$250,000 for the year ended December 31, 2008. Property management fees are
calculated based on tenant billings. This increase is primarily due to common area maintenance (CAM) true-up recoveries that were billed to tenants during
the first quarter of 2009.

Legal and Professional Fees. Legal and
professional fees decreased approximately $124,000 to approximately $239,000
during the year ended December 31, 2009 compared to approximately $363,000 for
the year ended December 31, 2008. This decrease was due to a reduction in
forfeited costs associated with potential property acquisitions. We incurred no
such costs during 2009 as we were not actively seeking acquisition
opportunities.

Interest and Other Income. Interest and
other income decreased approximately $352,000 to approximately $37,000 during
the year ended December 31, 2009 compared to approximately $389,000 for the
year ended December 31, 2008. This decrease resulted from a lower outstanding balance
on the note receivable from our joint

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venture
partner on our investment in 5433 Westheimer, L.P. (see Note 2 to the
accompanying consolidated financial statements). The note was repaid in full
during 2009.

Equity in Losses from Non-consolidated Entities.
Equity in losses from non-consolidated entities decreased approximately
$266,000 to approximately $1.6 million for the year ended December 31, 2009
compared to approximately $1.8 million for the year ended December 31, 2008.
This loss represents our ownership portion of our joint ventures net income or
loss for the period, such loss being driven primarily by depreciation and
amortization charges. The decrease in losses is being driven primarily by our
Woodlake Square and 5433 Westheimer properties. The interest rate swap entered
into by AmREIT Woodlake Square, L.P. was not considered a hedge for accounting
purposes until the fourth quarter of 2008 (see Note 4 to the consolidated
financial statements). Prior to then, our share of changes in the fair value of
the swap were included in income. During 2009, changes in the fair value were
included in other comprehensive loss on our consolidated statements of
partners capital. We also completed construction of a hotel at our 5433 Westheimer
property, which has improved the performance of the property.

Net Loss Attributable to Non-controlling Interest.
Non-controlling interest in loss of consolidated subsidiaries increased
approximately $35,000 to $94,000 during the year ended December 31, 2009
compared to $59,000 for the year ended December 31, 2008. Non-controlling
interest in loss of consolidated subsidiaries represents the 40% ownership
interest that one of our affiliated investment funds has in a real estate
partnership that we consolidate as a result of our controlling financial
interest in such partnership. The partnership investment was made in December
2005 concurrent with the acquisition of The Market at Lake Houston. This
increase was primarily due to an increase in amortization of in-place leases
related to a tenant vacancy as well as increased property expenses.

Comparison of the year ended December 31,
2008 to the year ended December 31, 2007

Revenue. Revenue increased approximately
$506,000 to approximately $7.3 million during the year ended December 31, 2008
compared to approximately $6.7 million for the year ended December 31, 2007.
This increase resulted from an increase in rental income due to rent increases
at Lantern Lane and new tenants at Westside Plaza as well as an increase in
common area maintenance recoveries at Lantern Lane.

General and Administrative. General and
administrative fees increased approximately $37,000 to approximately $164,000
during the year ended December 31, 2008 compared to approximately $127,000 for
the year ended December 31, 2007. This increase is primarily due to an increase
in marketing and conference expenses.

General and Administrative  Related
Party. General and administrative  related party represents reimbursements
made to our General Partner for its costs incurred in providing various
services to us, including accounting, financial reporting and investor service
costs. These costs increased approximately $74,000 to approximately $302,000
during the year ended December 31, 2008 compared to approximately $228,000
during the year ended December 31, 2007. This increase is due to administrative
cost reimbursements such as personnel and technology costs incurred by AmREIT
and its affiliates (collectively, our Advisor) on behalf of the Partnership.
The prior year reflected only a portion of such costs as the Partnership was in
its early stages.

Property Expenses. Property operating
expenses increased approximately $307,000 to approximately $1.9 million during
the year ended December 31, 2008 compared to approximately $1.6 million for the
year ended December 31, 2007. This increase was primarily due to an increase in
property taxes and related consulting fees at Lake Houston and Lantern Lane as
well as an increase in bad debt expense at Lantern Lane and Olmos Creek.

Legal and Professional Fees. Legal and
professional fees decreased approximately $177,000 to approximately $363,000
during the year ended December 31, 2008 compared to approximately $540,000 for
the year ended December 31, 2007. This decrease was primarily due to lower
rates on our audit and tax fees as well as a reduced level of legal services
provided in our second year of complying with SEC rules and regulations.

Depreciation and Amortization Expense.
Depreciation and amortization expense decreased approximately $267,000 to
approximately $2.6 million during the year ended December 31, 2008 compared to
approximately $2.9

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million for
the year ended December 31, 2007. This decrease was primarily due to a decrease
in amortization of in-place leases as a substantial portion of those costs were
fully amortized in the latter part of 2007 or early 2008.

Interest Income  Related Party. Interest
income  related party decreased approximately $492,000 to approximately
$29,000 during the year ended December 31, 2008 compared to approximately
$521,000 for the year ended December 31, 2007. This decrease was the result of
our conversion of the note receivable due from 5433 Westheimer L.P., of which
we own a 57.5% interest, into an increased equity investment in January 2008.

Interest and Other Income. Interest and
other income decreased approximately $478,000 to approximately $389,000 during
the year ended December 31, 2008 compared to approximately $867,000 for the
year ended December 31, 2007. This decrease resulted from a combination of
lower interest rates during 2008 and a reduced balance of invested funds. We
invested approximately $4.1 million in AmREIT Westheimer Gessner, LP in
November 2007 and then made an additional $1.3 million investment in that same
entity in May 2008.

Equity in Losses from Non-consolidated Entities.
Loss from non-consolidated entities decreased approximately $171,000 to
approximately $1.8 million for the year ended December 31, 2008 compared to
approximately $2.0 million for the year ended December 31, 2007. This loss
represents our ownership portion of our joint ventures net income or loss for
the period, such loss being driven primarily by depreciation and amortization
charges. Our 5433 Westheimer property and our Casa Linda property were both
undergoing redevelopment during 2008. Specifically as it relates to 5433
Westheimer, we were not seeking new leases or renewals of existing leases in
order to facilitate the redevelopment process on the office building, which
resulted in increased vacancies. Additionally, our Woodlake Square and Woodlake
Pointe properties were in the planning stages of their respective
redevelopments. We believe these property enhancements will allow us to drive
occupancy and improve the operating results of the property once the
redevelopment is complete.

Net Loss Attributable to Non-controlling Interest.
Non-controlling interest in loss of consolidated subsidiaries decreased by
$29,000 to $59,000 during the year ended December 31, 2008 compared to $88,000
for the year ended December 31, 2007. Non-controlling interest in loss of
consolidated subsidiaries represents the 40% ownership interest that one of our
affiliated investment funds has in a real estate partnership that we
consolidate as a result of our controlling financial interest in such
partnership. The partnership investment was made in December 2005 concurrent with
the acquisition of The Market at Lake Houston. This decrease was primarily due
to a decrease in amortization of in-place leases for The Market at Lake Houston
as certain of such balances became fully amortized during the latter part of
2007 or early part of 2008.

Liquidity and Capital Resources

We
expect to meet our liquidity requirements through cash on-hand, net cash
provided by distributions from joint ventures, proceeds from secured or
unsecured financings from banks and other lenders, the selective and strategic
sale of properties and net cash flows from operations. We expect that our
primary uses of capital will be for investment in real estate properties and
related improvements, the payment of operating expenses, including interest expense
on any outstanding indebtedness, and the payment of distributions to our
Partners. As we sell properties during our operating period, we plan to
strategically reinvest the proceeds from such sales rather than distributing
the proceeds to our Partners.

At
December 31, 2009 and 2008, our cash and cash equivalents totaled approximately
$3.3 million and approximately $918,000, respectively. Cash flows provided by
(used in) operating activities, investing activities and financing activities
for the years ended December 31, 2009 and 2008 are as follows (in thousands):

|                     |  |      |       |      |   |        |  
|-------------------- |  | ---- | ----- | ---- | - | ------ | -
|                     |  | 2009 |       | 2008 |  
|                     |  |      |       |      |  
|Operating activities |  | $    | 2,338 |      | $ | 971    |  
|Investing activities |  |      | (806  | )    |   | 894    |  
|Financing activities |  |      | 847   |      |   | (6,192 | )

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Net
cash provided by operating activities increased approximately $1.4 million to
approximately $2.3 million for the year ended December 31, 2009 compared to
approximately $971,000 for the year ended December 31, 2008. The increase in
cash flows provided by operating activities was primarily due to an increase in
working capital cash flows of approximately $2.0 million which was partially
offset by an increase in our net loss of $534,000. The increase in working
capital cash flows was driven by an increase in cash received from tenants,
payments received on accounts receivable  related party and a decrease in cash
paid for escrow deposits and related party and third-party payables.

Net
cash provided by investing activities decreased approximately $1.7 million from
inflows of approximately $894,000 for the year ended December 31, 2008 to
outflows of approximately $806,000 for the year ended December 31, 2009. This
decrease in inflows was primarily due to a reduction in payments received on
notes receivable from our joint venture partner on our investment in 5433
Westheimer of approximately $2.0 million (see note 2 to the consolidated
financial statements) and distributions received from our non-consolidated
investments of approximately $932,000. Such reductions in inflows were offset
by a reduction in cash investments in our non-consolidated joint ventures of
approximately $1.6 million. During 2008, we invested $1.3 million in a property
adjacent to Woodlake Pointe, and $1.5 million in additional capital
contributions to our joint ventures for capital improvements. During 2009, our cash investments were
limited to $1.2 million in capital contributions to our joint ventures for capital improvements.

Net
cash provided by financing activities increased approximately $7.0 million to
inflows of approximately $847,000 for the year ended December 31, 2009 compared
to outflows of approximately $6.2 million for the year ended December 31, 2008.
This decrease was primarily attributable to a decrease in distributions of
approximately $4.1 million coupled with an increase in proceeds from notes
payable  related party of $2.5 million (see note 6 to the consolidated
financial statements).

During
the past two years, the United States has experienced an unprecedented
business downturn, coupled with a substantial curtailment of available debt
financing. While we expect to generate sufficient cash flow from
operations in 2010 to meet our contractual obligations, a significant
additional deterioration in the national economy or the bankruptcy or
insolvency of one or more of our large tenants could cause our 2010 cash
resources to be insufficient to meet our obligations. If necessary, we have the
ability to defer capital improvements and to defer payment of certain operating
costs, including property taxes, until cash resources are available. Effective
July 15, 2009, we suspended all distributions in an effort to conserve cash and
to protect investors invested capital. As we have numerous projects that are
mid-stream in redevelopment, we are conserving cash from operations to improve
our ability to fund capital improvements, tenant improvements and leasing
commissions, and to meet our obligations, including debt service. We expect that the economy and real
estate market will recover prior to our anticipated liquidation commencement date of October 31, 2012.
However, if the economy remains in a protracted recession, we will seek to postpone liquidation if we believe such
a liquidation is not in the best interest of the Partners at that time.

Projected
cash sources and uses for the Partnerships 2010 fiscal year indicate certain
periods of cash shortfalls within the twelve month period; however, we believe
that we will be able to generate sufficient liquidity to satisfy any cash
shortfalls through (1) managing the timing of forecasted capital expenditures
related to the lease-up of properties, (2) potential joint venture equity
investments in existing non-consolidated entities (3) financings of
unencumbered properties and (4) sales of certain of our investments in
non-consolidated entities. However, no assurance can be given that we will be
able to generate such liquidity. In the event that we are unable to generate
sufficient liquidity, we may be forced to sell one or more properties at a time
when it is disadvantageous to do so, potentially resulting in losses on
disposition of those properties.

Contractual
Obligations

As
of December 31, 2009, we had the following contractual debt obligations (see
also Note 6 of the Consolidated Financial Statements for further discussion
regarding the specific terms of our debt) (in thousands):

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|                            |  |           |       |  |                 |   |        |          |  |   |                |  |  |   |        | 
|--------------------------- |  | --------- | ----- |  | --------------- | - | ------ | -------- |  | - | -------------- |  |  | - | ------ | 
|Scheduled
 payments by year |  | Principal |       |  | Loan maturities |   |        | Interest |  |   | Total payments | 
|                            |  |           |       |  |                 |   |        |          |  |   |                | 
|2010                        |  | $         | 165   |  |                 | $ | -      |          |  | $ | 3,018          |  |  | $ | 3,183  | 
|2011                        |  |           | 175   |  |                 |   | 24,615 |          |  |   | 2,818          |  |  |   | 27,608 | 
|2012                        |  |           | 183   |  |                 |   | -      |          |  |   | 1,524          |  |  |   | 1,707  | 
|2013                        |  |           | 196   |  |                 |   | -      |          |  |   | 1,508          |  |  |   | 1,704  | 
|2014                        |  |           | 207   |  |                 |   | -      |          |  |   | 1,497          |  |  |   | 1,704  | 
|Thereafter                  |  |           | 92    |  |                 |   | 24,904 |          |  |   | 1,278          |  |  |   | 26,274 | 
|Total                       |  | $         | 1,018 |  |                 | $ | 49,519 |          |  | $ | 11,643         |  |  | $ | 62,180 | 

We
invest any excess cash in short-term investments. This investment strategy
allows us to offset a portion of the interest costs from our fixed-rate
mortgage loans and provides us with the liquidity to acquire properties at such
time as those suitable for acquisition are located.

Indemnification of General Partner

The
Partnership Agreement provides for indemnification of our General Partner for
liabilities incurred by or claims made against our General Partner or its
employees or agents in connection with business on our behalf, provided that
our General Partner determined in good faith that the conduct which gave rise
to the liabilities or claims was within the scope of our General Partners
authority and was taken to promote our best interests. Amounts to be
indemnified include judgments, fines, settlements, litigation expenses and
reasonable attorneys fees, which may be paid as incurred. Only assets of the
Partnership may be reached to indemnify our General Partner, its employees or
agents. To the extent that this indemnification applies to liabilities under
the Securities Act, such indemnification is contrary to public policy and
therefore unenforceable.

Conflicts of Interest

Our
General Partner is subsidiary of AmREIT, Inc., a non-traded Maryland
corporation that has elected to be taxed as a real estate investment trust.
Affiliates of AmREIT act as sponsor, general partner or advisor to various
private real estate programs. As such, there are conflicts of interest where
AmREIT or its affiliates, while serving in the capacity as sponsor, general
partner or advisor for another AmREIT-sponsored program, may be in competition
with us in connection with property acquisitions, property dispositions and
property management. The compensation arrangements between affiliates of AmREIT
and these other AmREIT real estate programs could influence our General
Partners management of us. See Item 1. Business  Conflicts of
Interest above.

Off Balance Sheet Arrangements

We
had no off balance sheet arrangements as of December 31, 2009.

|        |                                           
|------- | ------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPLEMENTARY DATA

Our
consolidated financial statements, including notes thereto, and the report of
independent auditors are included in this Annual Report on Form 10-K beginning
at page F-1 and are incorporated herein by reference.

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH
 ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

|            |                        
|----------- | -----------------------
|ITEM 9A(T). | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures.

Under
the supervision and with the participation of our General Partners Chief
Executive Officer (CEO)

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and Chief
Financial Officer (CFO), our General Partners management has evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities
Exchange Act of 1934) as of December 31, 2009. Based on that evaluation, our
General Partners CEO and CFO concluded that, as of December 31, 2009, our
disclosure controls and procedures were effective in causing material
information relating to us to be recorded, processed, summarized, and reported
by management on a timely basis and to ensure the quality and timeliness of our
public disclosures in accordance with SEC disclosure obligations.

Managements Report on Internal Control over
Financial Reporting

Our General
Partner and its affiliates maintain a system of internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,
which is a process designed under the supervision of the AmREIT principal
executive officer and principal financial officer and effected by AmREITs
board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles.

Our internal
control over financial reporting includes those policies and procedures that:

- Pertain to
the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets; 
- Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of AmREIT
Monthly Income and Growth Fund III, L.T.D. and its subsidiaries are being made
only in accordance with authorizations of management and trust managers of our
General Partner; and 
- Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.

Our General
Partner is responsible for establishing and maintaining adequate internal
control over financial reporting, and, with the participation of AmREITs CEO
and CFO, conducted an evaluation of the effectiveness of AmREITs internal
control over financial reporting as of December 31, 2009 based on the framework
in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, we believe
that our internal control over financial reporting is effective as of December
31, 2009.

This Annual
Report does not include an attestation report of the companys registered
public accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by the companys registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only managements report in this annual report.

Changes in Internal Controls

There
has been no change to our internal control over financial reporting during the
year ended December 31, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION

None.

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PART
III

|         |                                                        
|-------- | -------------------------------------------------------
|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
 GOVERNANCE

We
have no directors or executive officers. We are managed by our General Partner,
AmREIT Monthly Income & Growth III Corporation. Our General Partner does
not have any employees and relies upon the personnel of AmREIT and its
affiliates to perform services for us. Our Partnership Agreement provides that
the Partnership will continue until December 31, 2025, unless sooner
terminated.

The
following table sets forth certain information regarding the officers and
director of our General Partner, all of whom are officers of AmREIT and are
expected to make a significant contribution to us.

|                    |  |     |  |                                                                            
|------------------- |  | --- |  | ---------------------------------------------------------------------------
|Name                |  | Age |  | Position                                                                   
|H. Kerr
 Taylor     |  | 59  |  | President,
 Chief Executive Officer and Director                           
|Chad C.
 Braun      |  | 37  |  | Executive
 Vice President, Chief Financial Officer, Treasurer and Secretary
|Brett P.
 Treadwell |  | 40  |  | Managing
 Vice President  Finance                                         

H.
Kerr Taylorserves as our General Partners President,
Chief Executive Officer and Director. He has served as the sole director of our
General Partner since its formation. He is the founder of AmREIT and serves as
its Chairman of the Board, Chief Executive Officer and President. Mr. Taylor
has guided the growth of AmREIT and its predecessors for over 26 years. His
primary responsibilities include overseeing strategic initiatives as well as
building, mentoring and leading AmREITs team of professionals. Mr. Taylor has
over 30 years of experience within the real estate industry. He received a
Bachelor of Arts degree from Trinity University, a Masters Degree in Business
Administration from Southern Methodist University and his law degree from South
Texas College of Law. Mr. Taylor is chairman of the board of Pathways for Little
Feet and serves as a board member of Life House, Inc., Uptown District and as
an Elder of First Presbyterian Church. Mr. Taylor is a lifetime member of the
International Council of Shopping Centers and Urban Land Institute and is a
member of the Texas Bar Association.

Chad
C. Braunserves as our General Partners Executive
Vice President, Chief Financial Officer, Treasurer and Secretary. He also
serves in this same position for AmREIT. Mr. Braun is responsible for corporate
finance, equity capital markets, debt structuring and placement, investor
relations, accounting and SEC reporting, and he oversees investment sponsorship
and product creation. Mr. Braun has over 15 years of accounting, financial and
real estate experience. Prior to joining AmREIT in 1999, he served as a manager
in the real estate advisory services group at Ernst & Young LLP. He has
provided extensive consulting and audit services to a number of REITs and
private real estate companies, including financial statement audits, portfolio
acquisition and disposition, portfolio management, merger integration and
process improvement, financial analysis and capital markets and restructuring
transactions. Mr. Braun received a Bachelor of Business Administration degree
in Accounting and Finance from Hardin Simmons University and subsequently
earned the CPA designation and his Series 63, 7, 24 and 27 securities licenses.
He is a member of the National Association of Real Estate Investment Trusts and
the Texas Society of Certified Public Accountants.

Brett
P. Treadwellserves as our General Partners Managing
Vice President  Finance and he also serves in this position for AmREIT. Within
AmREIT he is responsible for its financial reporting function as well as for
assisting in the establishment and execution of AmREITs strategic financial
initiatives. Mr. Treadwells responsibilities also include overall risk
management and treasury management functions and SEC reporting as well as
periodic internal reporting to management. Mr. Treadwell has over 18 years of
accounting, financial and SEC reporting experience, and, prior to joining
AmREIT in August 2004, served as a senior manager with Arthur Andersen LLP and
then with PricewaterhouseCoopers LLP. Mr. Treadwell received a Bachelor of Business
Administration degree from Baylor University and is a Certified Public
Accountant.

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Section 16(a) Beneficial Ownership Reporting
Compliance

Based
on a review of Forms 3, 4 and 5 furnished to us under Rule 16a-3(e) of the
Exchange Act during the fiscal year ended December 31, 2009, we know of no
reporting person that has failed to file on a timely basis, as disclosed in the
above forms, report required by Section 16(a) of the Exchange Act during the
fiscal year ended December 31, 2009.

Code of Ethics

We
are managed by our General Partner, and we have no officers or employees to
whom a Code of Ethics would apply.

|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION

We
are managed by our General Partner, and we have no directors or executive
officers to whom we pay compensation.

See
Item 13. Certain Relationships and Related Transactions, and Director
Independence below for the fees and expenses we pay to our General Partner and
its affiliates.

|         |                                                                                                
|-------- | -----------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
 OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance Under
Equity Compensation Plans

We
do not have any compensation plans under which we are authorized to issue
equity securities.

Security Ownership of Certain Beneficial
Owners and Management

We
know of no person (including a group as that term is used in Section 13(d)(3)
of the Exchange Act) who is the beneficial owner of more than five percent of
our Units.

We
have no officers or directors. Our General Partner owns our sole general
partner interest and also owns limited partner Units in us. No person who is an
officer of our General Partner as of the date of this filing owns any direct
interest in us. None of the officers of our General Partner own any of our
Units. AmREIT, the sole shareholder of our General Partner, has assigned the
economic interest in 28.5% of our General Partner to certain of its management
team. The address of the officers of our General Partner is 8 Greenway Plaza,
Suite 1000, Houston, Texas 77046.

As
of March 5, 2010, there were 2,833 Units owned by 1,147 investors.

|         |                                                                           
|-------- | --------------------------------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
 TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Compensation
Arrangements

Our
General Partner and its affiliates received the payments and fees from us
described below. These payments and fees were not negotiated and may be higher
than payments and fees that would have resulted from an arms-length
transaction with an unrelated entity.

In
addition to the fees noted below, the non-consolidated entities in which we own an investment paid property
management, leasing, development, and construction management fees of $1.2 million to one of our affiliated
entities during the year ended December 31, 2009. Our Casa Linda property paid a total of $6.2 million
in construction fees to an affiliated entity during 2008 and 2009.

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Type and Recipient
     
     Determination of Amount
     
     For the fiscal year
endedDecember 31, 2009
     
     For the fiscal year
endedDecember 31, 2008Organization StageOrganizational and Offering Cost Reimbursements
     
     Reimbursement of the Partnerships organizational and offering costs, including legal and accounting fees, printing costs, filing fees and distribution costs.
     
     No amount to report
     
     No amount to reportOperating StageAsset Management Fee  General Partner
     
     A monthly fee of one-twelfth of 1.0% of net invested capital under management for accounting related services, investor relations, facilitating the deployment of capital, and other services provided by our General Partner to us.
     
     $617,753
     
     $617,753Development and Acquisition Fees  General Partner
     
     Between 4.0% and 6.0% of project costs depending on the size and the scope of the development.
     
     No amount to report
     
     No amount to reportProperty Management and Leasing Fees  ARIC
     
     Property management fees not to exceed 4.0% of the gross rentals for providing management, operating, maintenance and other services. Leasing fees not to exceed 2.0% of base rent on a lease renewal and 6.0% of base rent on an initial lease for procuring tenants and negotiating the terms of the tenant leases.
     
     $368,995
     
     $359,436Reimbursement of Operating Expenses  General Partner
     
     We reimburse the actual expenses incurred by our General Partner in connection with its provision of administrative services, including related personnel costs.
     
     $459,408
     
     $301,822Financing Fees  General Partner
     
     1.0% of the loan proceeds for procuring debt financing for us.
     
     No amount to report
     
     No amount to reportDistributions During Operating 
Stage  General Partner
     
     Our General Partner is entitled to monthly distributions during our operating period, in an amount equal to 1.0% of the each distribution made to the Partners.
     
     $13,000
     
     $54,000Real Estate Brokerage Commissions  General Partner or its affiliate(1)
     
     Up to 6.0% of the sales price on co-brokered transactions and not to exceed 4.0% of the sales price on individually brokered transactions. Additionally, our General Partner and its affiliates will not be paid real estate brokerage commissions on the sale of a property if the property being sold has not generated an annual return of at least 10.0% per annum on the equity contributed to such property and if, in the aggregate, all of our properties that we have sold have not generated a property level return of at least 10.0% per annum on the equity contributed. No brokerage commission will be payable on sales of properties to AmREIT or its affiliates.
     
     No amount to report
     
     No amount to report


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Type and Recipient
     
     Determination of Amount
     
     For the fiscal year
endedDecember 31, 2009
     
     For the fiscal year
endedDecember 31, 2008Liquidating StageDistributions of Net Cash Flow – General Partner
     
     Our General Partner is entitled to distributions after our operating period. Distributions of net cash after our operating period will be distributed 1% to our General Partner and 99% to our Limited Partners until our Limited Partners have received cumulative distributions equal to 100% of their invested capital plus an amount equal to 10% per annum uncompounded on their adjusted capital. At such time, our General Partner will receive 100% of distributions made until our General Partner has received cumulative distributions in an amount equal to 40% of net cash flow paid to date of our Limited Partners in excess of their invested capital. Thereafter, our General Partner will receive 40% of distributions and our Limited Partners will receive 60% of distributions.
     
     No amount to report
     
     No amount to report


| |     |                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    
| |     |                                                                                                                                                                    
| | (1) | Although we
 are most likely to pay real estate brokerage commissions in the event of our
 liquidation, these fees may also be earned during our operational stage.

Joint Ventures with Affiliates

As
of December 31, 2009, we had entered into five joint ventures with our
affiliates.

In
December 2005, we acquired a 60% interest in AmREIT Lake Houston, LP, which
owns the multi-tenant retail property The Market at Lake Houston. The remaining
40% is owned by AmREIT Monthly Income & Growth Fund, Ltd., our affiliate.

In
December 2006, we acquired a 50% interest in AmREIT Casa Linda, LP, which owns
Casa Linda Plaza, the multi-tenant retail property in Dallas, Texas. The
remaining 50% is owned by AmREIT Monthly Income & Growth Fund IV, L.P., our
affiliate.

In
August 2007, we acquired a 30% interest in AmREIT Woodlake, LP, which owns
Woodlake Square, the multi-tenant retail property in Houston, Texas. The
remaining 70% is 40% owned by AmREIT Monthly Income & Growth Fund IV, L.P.,
our affiliate, and 30% owned by AmREIT Realty Investment Corporation, our
affiliate.

In
November 2007, we acquired a 30% interest in AmREIT Westheimer Gessner, LP,
which owns Woodlake Pointe, a multi-tenant retail property occupied by Borders
in Houston, Texas. The remaining 70% is 40% owned by AmREIT Monthly Income
& Growth Fund IV, L.P., our affiliate, and 30% owned by AmREIT Realty
Investment Corporation, our affiliate.

In
May 2008, we acquired a 30% interest in a tract of land adjacent to Woodlake
Pointe. The remaining 70% is owned by AmREIT Monthly Income & Growth Fund
IV, L.P. (40%) and by AmREIT Realty Investment Corporation (30%). The
acquisition is accounted for as part of Westheimer Gessner, L.P.

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Directors

We
have no directors and are managed by our General Partner. H. Kerr Taylor is the
sole director of our General Partner.

Loan to an Affiliate

During
2007, we loaned $7.0 million to 5433 Westheimer, L.P., a joint venture entity
in which we own a 57.5% interest. During 2008, the property was refinanced with
a third-party lender in connection with the planned redevelopment. In
conjunction with that refinancing, the $7.0 million note payable due to us was
converted to equity in order to meet the lenders equity contribution
requirement of approximately $10.0 million. We established a note receivable
with our joint venture partner for its portion of the additional equity
contribution ($3.5 million). $800,000 of that note was converted into an additional
7.5% equity interest in the joint venture in 2008. The balance of the note was
paid in full in 2009.

Loans from Affiliates

During
2009, we borrowed $2.5 million from affiliates of our General Partner in order
to meet a guaranty agreement that required us, as guarantor of the mortgage of
one of our affiliates, to maintain $3.0 million in liquid assets. Upon
evidencing such liquidity and attaining substantial completion of the hotel,
the lender decreased the requirement to $1.5 million. As of March 10, 2010, we
have repaid $600,000 of the $2.5 million and used $400,000 to fund operating
costs and additional capital contributions to one of our joint venture
properties.

AmREIT Realty Investment Corporation

ARIC
is a fully integrated real estate development and operating business which is
wholly owned by AmREIT, the parent of our General Partner. ARIC employs a full
complement of brokers and real estate professionals that provide development,
acquisition, brokerage, leasing, construction management, asset and property
management services to AmREIT affiliated entities and to third parties. ARIC
serves as one of our property managers, and is responsible for managing and
leasing some of our properties. We pay ARIC property management and leasing
fees as described above under Item 1. Business. ARIC hires, directs and
establishes policies for employees who will have direct responsibility for the
operations of each property it manages, which may include but is not limited to
on-site managers and building and maintenance personnel. Certain employees of
the property manager may be employed on a part-time basis and may also be
employed by our General Partner or its affiliates. ARIC also directs the
purchase of equipment and supplies and supervises all maintenance activity. The
management fee paid to ARIC covers all of
its general overhead costs.

We
have historically engaged AmREIT Construction Company, a wholly-owned
subsidiary of ARIC, to provide construction and construction management
services for our development and redevelopment projects. During 2008, AmREIT
Construction Company ceased providing these services although it will see
through to completion all work currently in process. We may engage ARIC in the
future for construction management services. In these cases, such services are
provided on terms and conditions no less favorable to us than can be obtained
from independent third parties for comparable services in the same location.

AmREIT Securities Company

AmREIT
Securities Company is a member firm of the Financial Industry Regulatory Authority, Inc. and a wholly-owned subsidiary
of AmREIT. AmREIT Securities Company was organized in 1999 for the purpose of
participating in and facilitating the distribution of securities of AmREIT
affiliated entities. As the dealer manager for our Offering of Units, AmREIT
Securities Company provided certain sales, promotional and marketing services
to us in connection with the distribution of the Units. We paid selling
commission and marketing reimbursements to AmREIT Securities Company in
connection with our offering, a portion of which was reallowed to participating
broker-dealers. Chad C. Braun is the President, Secretary and Treasurer of
AmREIT Securities Company and H. Kerr Taylor serves as its Chairman and as the
sole member of its board of directors. As of October 2008, AmREIT Securities
Company is no longer operating as a broker-dealer. As AmREIT Securities Company
has not provided capital-raising services to us

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since the
closing of our offering in 2006, we expect that the closing of the
broker-dealer operation will have no impact on the Partnership.

|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG,
LLP, independent registered public accounting firm and certified public
accountants, served as our independent accountants for the fiscal year ended
December 31, 2009. The following is an explanation of the fees billed to us by
Accountants for professional services rendered for the fiscal years ended
December 31, 2009, 2008 and 2007.

Audit Fees

The
aggregate fees billed to us for professional services related to the audit of
our annual financial statements, review of financial statements included in our
Forms 10-QSB, or other services normally provided by KPMG, LLP in connection
with statutory and regulatory filings or engagements for the fiscal years ended
December 31, 2009, 2008 and 2007 totaled $133,000, $114,000 and $286,500
respectively. Included in these amounts are $23,000, $0, and $0 related to
Sarbanes-Oxley testing fees for the years ended December 31, 2009, 2008 and
2007, respectively.

Audit-Related Fees, Tax Fees and All Other
Fees

The
services that have been performed by KPMG have been limited to audit related
services. Accordingly, we have paid no non-audit related fees, tax fees or
other fees to KPMG for the fiscal years ended December 31, 2009, 2008 and 2007.

Audit Committees Pre-Approval Policies and
Procedures

The
Company does not have an independent audit committee. Our General Partner must
approve any services to be performed by our independent auditors.

PART
IV

|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

|   |                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------
|1. | Financial Statements. The list of our
 financial statements filed as part of this Annual Report on Form 10-K is set
 forth on page F-1.     
|   |                                                                                                                                             
|2. | Financial Statement Schedules. The list of
 our financial statement schedules filed as part of this Annual Report is set
 forth on page F-1.
|   |                                                                                                                                             
|3. | Exhibits.                                                                                                                                   

It
is inappropriate for readers to assume the accuracy of, or rely upon any
covenants, representations or warranties that may be contained in agreements or
other documents filed as Exhibits to, or incorporated by reference in, this
report. Any such covenants, representations or warranties may have been
qualified or superseded by disclosures contained in separate schedules or
exhibits not filed with or incorporated by reference in this report, may
reflect the parties negotiated risk allocation in the particular transaction,
may be qualified by materiality standards that differ from those applicable for
securities law purposes, and may not be true as of the date of this report or
any other date and may be subject to waivers by any or all of the parties.
Where exhibits and schedules to agreements filed or incorporated by reference
as Exhibits hereto are not included in these exhibits, such exhibits and
schedules to agreements are not included or incorporated by reference herein.

The
following exhibits are filed as part of or incorporated by reference in this
Annual Report on Form 10-K:

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| |                 |  |                                                                                                                                                                                                                                                              |  |                           |  |              |  |         |  |              |  |                
| | --------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | ------------ |  | ------- |  | ------------ |  | ---------------
| |                 |  |                                                                                                                                                                                                                                                              |  | Incorporated by Reference |  |             
| | Exhibit
 Number |  | Description                                                                                                                                                                                                                                                  |  | Form                      |  | File
 Number |  | Exhibit |  | Filing
 Date |  | Filed
 Herewith
| | 3.1             |  | Certificate of Limited
 Partnership of AmREIT Monthly Income & Growth Fund III, Ltd., dated April
 19, 2005.                                                                                                                                                 |  | 10-SB                     |  | 000-52619    |  | 3.1     |  | 4/30/2007    |  |                
| | 3.2             |  | Agreement of Limited
 Partnership of AmREIT Monthly & Income Growth Fund III, Ltd., dated April
 19, 2005, between AmREIT Income & Growth III Corporation and the limited
 partners thereto.                                                                 |  | 10-SB                     |  | 000-52619    |  | 3.1     |  | 4/30/2007    |  |                
| | 10.1            |  | Fixed Rate Note (A Loan),
 dated May 2, 2005, between Shafer Plaza I, Ltd and JPMorgan Chase Bank, N.A.                                                                                                                                                      |  | 10-SB                     |  | 000-52619    |  | 10.1    |  | 4/30/2007    |  |                
| | 10.2            |  | Fixed Rate Note (B Loan),
 dated May 2, 2005, between Shafer Plaza I, Ltd and JPMorgan Chase Bank, N.A.                                                                                                                                                      |  | 10-SB                     |  | 000-52619    |  | 10.2    |  | 4/30/2007    |  |                
| | 10.3            |  | Loan and Assumption
 Agreement, dated September 30, 2005, among AmREIT Westside Plaza, LP, AmREIT
 Monthly Income & Growth Fund III, Ltd., AmREIT, Shafer Plaza I, Ltd.,
 Steven G. Shafer, Wells Fargo Bank, N.A., and CBA-Mezzanine Capital Finance,
 LLC. |  | 10-SB                     |  | 000-52619    |  | 10.3    |  | 4/30/2007    |  |                
| | 10.4            |  | Second Amended and
 Restated Property Management and Leasing Agreement, dated December 28, 2005,
 between AmREIT Westside Plaza, LP and AmREIT Realty Investment Corporation.                                                                                |  | 10-SB                     |  | 000-52619    |  | 10.4    |  | 4/30/2007    |  |                
| | 10.5            |  | Management and Leasing
 Agreement, dated November 22, 2005, between AmREIT Lake Houston, LP and
 AmREIT Realty Investment Corporation.                                                                                                                       |  | 10-SB                     |  | 000-52619    |  | 10.5    |  | 4/30/2007    |  |                
| | 10.6            |  | Promissory Note, dated
 December 12, 2005, between AmREIT Lake Houston, LP and Morgan Stanley
 Mortgage Capital, Inc.                                                                                                                                        |  | 10-SB                     |  | 000-52619    |  | 10.6    |  | 4/30/2007    |  |                
| | 10.7            |  | Commercial Property
 Management and Leasing Agreement, dated March 30, 2006, between 5433
 Westheimer, LP and Songy Partners Limited.                                                                                                                        |  | 10-SB                     |  | 000-52619    |  | 10.7    |  | 4/30/2007    |  |                

-
38 -

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Table of Contents

| |       |  |                                                                                                                                                                                                                                          |  |       |  |           |  |       |  |           |  | 
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | --------- |  | ----- |  | --------- |  | 
| | 10.8  |  | Promissory Note, dated
 September 28, 2006, between AmREIT Lantern Lane, LP and Differential
 Development  1994, Ltd.                                                                                                                   |  | 10-SB |  | 000-52619 |  | 10.8  |  | 4/30/2007 |  | 
| | 10.9  |  | Management and Leasing
 Agreement, dated September 28, 2006, between AmREIT Lantern Lane, LP and
 AmREIT Realty Investment Corporation.                                                                                                  |  | 10-SB |  | 000-52619 |  | 10.9  |  | 4/30/2007 |  | 
| | 10.10 |  | Promissory Note, dated
 December 8, 2006, between AmREIT Casa Linda, LP and Morgan Stanley Mortgage
 Capital, Inc.                                                                                                                       |  | 10-SB |  | 000-52619 |  | 10.10 |  | 4/30/2007 |  | 
| | 10.11 |  | Secured Promissory Note,
 dated September 29, 2006, between AmREIT Olmos Creek, LP and NLI Commercial
 Mortgage Fund, LLC.                                                                                                               |  | 10-SB |  | 000-52619 |  | 10.11 |  | 4/30/2007 |  | 
| | 10.12 |  | Management and Leasing
 Agreement, dated January 26, 2007, between AmREIT Olmos Creek, LP and AmREIT
 Realty Investment Corporation.                                                                                                     |  | 10-SB |  | 000-52619 |  | 10.12 |  | 4/30/2007 |  | 
| | 10.13 |  | Management and Leasing
 Agreement, dated December 7, 2006, between AmREIT SSPF Preston Towne
 Crossing, LP and AmREIT Realty Investment Corporation.                                                                                     |  | 10-SB |  | 000-52619 |  | 10.13 |  | 4/30/2007 |  | 
| | 10.14 |  | Management and Leasing
 Agreement, dated December 7, 2006, between AmREIT SSPF Berkeley, LP and
 AmREIT Realty Investment Corporation.                                                                                                   |  | 10-SB |  | 000-52619 |  | 10.14 |  | 4/30/2007 |  | 
| | 10.15 |  | Loan Assumption Agreement,
 dated December 7, 2006, among Berkeley Center, Ltd., William Hutchinson,
 AmREIT SSPF Berkeley, LP, AmREIT Monthly Income & Growth Fund III, Ltd.
 and LaSalle Bank National Association.                    |  | 10-SB |  | 000-52619 |  | 10.15 |  | 4/30/2007 |  | 
| | 10.16 |  | Loan Assumption Agreement,
 dated December 7, 2006, among PTC Dunhill Holdings, Ltd., William Hutchinson,
 AmREIT SSPF Preston Towne Crossing, LP, AmREIT Monthly Income & Growth
 Fund III, Ltd. and LaSalle Bank National Association. |  | 10-SB |  | 000-52619 |  | 10.16 |  | 4/30/2007 |  | 

-
39 -

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Table of Contents

| |      |  |                                                                                             |  |  |  |  |  |  |  |  |  |  
| | ---- |  | ------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  |  |  | -
| | 31.1 |  | Certification of H. Kerr
 Taylor pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  |  |  |  |  |  |  |  | X
| | 31.2 |  | Certification of Chad C.
 Braun pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  |  |  |  |  |  |  |  |  |  | X
| | 32.1 |  | Certification of H. Kerr
 Taylor pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |  |  |  |  |  |  |  |  | X
| | 32.2 |  | Certification of Chad C.
 Braun pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  |  |  |  |  |  |  |  |  |  | X

- 40 -

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Table of Contents

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                     |                                                              |                   
|-------------------- | ------------------------------------------------------------ | ------------------
|                     | AmREIT Monthly Income
 & Growth Fund III, Ltd.              
|                     |                                                              |                   
|                     | By: AmREIT Monthly Income
 & Growth III                     
|                     | Corporation, its General Partner                            
|Date: March 10, 2010 |                                                              |                   
|                    
|                     | By:                                                          | /s/ H. Kerr Taylor
|                     | H. Kerr Taylor                                              
|                     | President, Chief Executive Officer, and Director            
|                     |                                                              |                   
|                     | By:                                                          | /s/ Chad C. Braun 
|                     | Chad C. Braun                                               
|                     | Executive Vice President, Chief Financial Officer, Treasurer
|                     | and Secretary                                               

- 41 -

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Table of Contents

PART F/S

AmREIT MONTHLY INCOME AND GROWTH FUND III,
LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

|                                                                                                                   |  |     
|------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                   |  | Page
|FINANCIAL STATEMENTS:                                                                                              |  |     
|Report of Independent
 Registered Public Accounting Firm                                                           |  | F-2 
|Consolidated Balance
 Sheets as of December 31, 2009 and 2008                                                      |  | F-3 
|Consolidated
 Statements of Operations for the years ended December 31, 2009, 2008 and 2007                        |  | F-4 
|Consolidated
 Statements of Partners Capital for the years ended December 31, 2009, 2008
 and 2007                |  | F-5 
|Consolidated
 Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007                        |  | F-6 
|Notes to Consolidated
 Financial Statements                                                                        |  | F-7 
|FINANCIAL STATEMENT SCHEDULES:                                                                                     |  |     
|Schedule III 
 Consolidated Real Estate Owned and Accumulated 
 Depreciation for the year ended December 31, 2009 |  | S-1 
|Report of Independent
 Registered Public Accounting Firm                                                           |  | S-2 
|Schedule IV 
Financial Statements and Notes for AmREIT Casa Linda, LP                                             |  | S-3 

All other financial statement schedules are omitted as the required
information is either inapplicable or is included in the financial statements
or related notes.

F-1

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Table of Contents

Report of Independent
Registered Public Accounting Firm

The Partners 
AmREIT Monthly Income and Growth Fund III, Ltd.:

We have audited
the accompanying consolidated balance sheets of AmREIT Monthly Income and
Growth Fund III, Ltd. and subsidiaries (the Partnership) as of December 31,
2009 and 2008, and the related consolidated statements of operations, partners
capital and cash flows for each of the years in the three-year period ended December 31, 2009. In
connection with our audit of the consolidated financial statements, we have
also audited the related financial statement schedule. These consolidated
financial statements and the financial statement schedule are the
responsibility of the Partnerships management. Our responsibility is to
express an opinion on these consolidated financial statements and related
schedule based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmREIT Monthly
Income and Growth Fund III, Ltd. and subsidiaries as of December 31, 2009 and
2008, and the results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2009, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

|                |             
|--------------- | ------------
|                | /s/ KPMG LLP
|                |             
|Houston,
 Texas |             
|March 10,
 2010 |             

F-2

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Table of Contents

PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS(in
thousands, except for unit data)

|                                                                                                              |  |                    |        |                    |   |        |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------------ | - | ------ | -
|                                                                                                              |  | December 31,
 2009 |        | December 31,
 2008 |  
|ASSETS                                                                                                        |  |                    |        |                    |   |        |  
|Real estate investments at cost:                                                                              |  |                    |        |                    |   |        |  
|Land                                                                                                          |  | $                  | 18,446 |                    | $ | 18,446 |  
|Buildings                                                                                                     |  |                    | 47,295 |                    |   | 47,265 |  
|Tenant improvements                                                                                           |  |                    | 983    |                    |   | 1,020  |  
|                                                                                                              |  |                    | 66,724 |                    |   | 66,731 |  
|Less accumulated depreciation and amortization                                                                |  |                    | (6,691 | )                  |   | (4,917 | )
|                                                                                                              |  |                    | 60,033 |                    |   | 61,814 |  
|                                                                                                              |  |                    |        |                    |   |        |  
|Investment in non-consolidated entities                                                                       |  |                    | 26,212 |                    |   | 26,495 |  
|Acquired lease intangibles, net                                                                               |  |                    | 1,804  |                    |   | 2,488  |  
|Net real estate investments                                                                                   |  |                    | 88,049 |                    |   | 90,797 |  
|                                                                                                              |  |                    |        |                    |   |        |  
|Cash and cash equivalents                                                                                     |  |                    | 3,297  |                    |   | 918    |  
|Tenant receivables, net                                                                                       |  |                    | 367    |                    |   | 892    |  
|Accounts receivable                                                                                           |  |                    | 6      |                    |   | 8      |  
|Accounts receivable - related party                                                                           |  |                    | 132    |                    |   | 1,368  |  
|Notes receivable                                                                                              |  |                    | -      |                    |   | 334    |  
|Deferred costs, net                                                                                           |  |                    | 522    |                    |   | 591    |  
|Other assets                                                                                                  |  |                    | 700    |                    |   | 830    |  
|TOTAL ASSETS                                                                                                  |  | $                  | 93,073 |                    | $ | 95,738 |  
|                                                                                                              |  |                    |        |                    |   |        |  
|LIABILITIES AND CAPITAL                                                                                       |  |                    |        |                    |   |        |  
|Liabilities:                                                                                                  |  |                    |        |                    |   |        |  
|Notes payable                                                                                                 |  | $                  | 50,537 |                    | $ | 50,693 |  
|Notes payable - related party                                                                                 |  |                    | 2,907  |                    |   | -      |  
|Accounts payable and other liabilities                                                                        |  |                    | 1,292  |                    |   | 1,055  |  
|Accounts payable - related party                                                                              |  |                    | 10     |                    |   | 106    |  
|Acquired below-market lease intangibles, net                                                                  |  |                    | 324    |                    |   | 517    |  
|Security deposits                                                                                             |  |                    | 125    |                    |   | 133    |  
|TOTAL LIABILITIES                                                                                             |  |                    | 55,195 |                    |   | 52,504 |  
|Capital:                                                                                                      |  |                    |        |                    |   |        |  
|Partners capital:                                                                                            |  |                    |        |                    |   |        |  
|General partner                                                                                               |  |                    | -      |                    |   | -      |  
|Limited partners, 2,833 and 2,834 units outstanding at December 31,
 2009 and December 31, 2008, respectively |  |                    | 36,638 |                    |   | 41,857 |  
|Accumulated other comprehensive loss                                                                          |  |                    | (79    | )                  |   | (253   | )
|TOTAL PARTNERS CAPITAL                                                                                       |  |                    | 36,559 |                    |   | 41,604 |  
|                                                                                                              |  |                    |        |                    |   |        |  
|Non-controlling interest                                                                                      |  |                    | 1,319  |                    |   | 1,630  |  
|TOTAL CAPITAL                                                                                                 |  |                    | 37,878 |                    |   | 43,234 |  
|                                                                                                             
|TOTAL LIABILITIES AND CAPITAL                                                                                 |  | $                  | 93,073 |                    | $ | 95,738 |  

See Notes to Consolidated
Financial Statements.

F-3

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Table of Contents

AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSFor the years ended December 31, 2009, 2008 and 2007(in thousands, except for per unit data)

|                                                  |  |      |           |      |   |           |   |   |           |  
|------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | - | - | --------- | -
|                                                  |  | 2009 |           | 2008 |   | 2007      |  
|                                                  |  |      |           |      |   |           |  
|Revenues:                                         |  |      |           |      |   |           |   |   |           |  
|Rental income from operating leases               |  | $    | 6,839     |      | $ | 7,252     |   | $ | 6,746     |  
|Total revenues                                    |  |      | 6,839     |      |   | 7,252     |   |   | 6,746     |  
|                                                  |  |      |           |      |   |           |   |   |           |  
|Expenses:                                         |  |      |           |      |   |           |   |   |           |  
|General and administrative                        |  |      | 97        |      |   | 164       |   |   | 127       |  
|General and administrative - related party        |  |      | 459       |      |   | 302       |   |   | 228       |  
|Asset management fees - related party             |  |      | 618       |      |   | 618       |   |   | 618       |  
|Property expense                                  |  |      | 1,879     |      |   | 1,946     |   |   | 1,639     |  
|Property management fees - related party          |  |      | 297       |      |   | 250       |   |   | 245       |  
|Legal and professional                            |  |      | 239       |      |   | 363       |   |   | 540       |  
|Depreciation and amortization                     |  |      | 2,578     |      |   | 2,598     |   |   | 2,865     |  
|Total operating expenses                          |  |      | 6,167     |      |   | 6,241     |   |   | 6,262     |  
|                                                  |  |      |           |      |   |           |   |   |           |  
|Operating income                                  |  |      | 672       |      |   | 1,011     |   |   | 484       |  
|                                                  |  |      |           |      |   |           |   |   |           |  
|Other income (expense):                           |  |      |           |      |   |           |   |   |           |  
|Interest income - related party                   |  |      | -         |      |   | 29        |   |   | 521       |  
|Interest and other income                         |  |      | 37        |      |   | 389       |   |   | 867       |  
|Interest expense                                  |  |      | (3,146    | )    |   | (3,114    | ) |   | (3,187    | )
|Equity in losses from non-consolidated entities   |  |      | (1,570    | )    |   | (1,836    | ) |   | (1,997    | )
|Margin tax expense                                |  |      | (26       | )    |   | (52       | ) |   | (59       | )
|Total other income (expense)                      |  |      | (4,705    | )    |   | (4,584    | ) |   | (3,855    | )
|                                                  |  |      |           |      |   |           |   |   |           |  
|Net loss, including non-controlling interest      |  |      | (4,033    | )    |   | (3,573    | ) |   | (3,371    | )
|                                                  |  |      |           |      |   |           |   |   |           |  
|Net loss attributable to non-controlling interest |  |      | 94        |      |   | 59        |   |   | 88        |  
|Net loss attributable to partners                 |  | $    | (3,939    | )    | $ | (3,514    | ) | $ | (3,283    | )
|                                                  |  |      |           |      |   |           |   |   |           |  
|Weighted average units outstanding                |  |      | 2,833     |      |   | 2,842     |   |   | 2,843     |  
|Net loss per unit                                 |  | $    | (1,390.40 | )    | $ | (1,236.45 | ) | $ | (1,154.77 | )

See Notes to Consolidated
Financial Statements.

F-4

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Table of Contents

AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALFor the years ended December 31, 2009, 2008 and 2007
(in thousands)

|                                     |  |                   |   |                   |   |                                               |  |                           |        |       |  |  |   |      |   |  |  |   |       |   |  |  |   |        |   | 
|------------------------------------ |  | ----------------- | - | ----------------- | - | --------------------------------------------- |  | ------------------------- | ------ | ----- |  |  | - | ---- | - |  |  | - | ----- | - |  |  | - | ------ | - | 
|                                     |  | Partners Capital |   |                   |   |                                               | 
|                                     |  | General
 Partner  |   | Limited
 Partners |   | Accumulated other
 comprehensive gain
 (loss) |  | Non-controlling
 interest |        | Total | 
|                                     |  |                   |   |                   |   |                                               |  |                           |        |       |  |  |   |      |   |  |  |   |       |   |  |  |   |        |   | 
|Balance at
 December 31, 2006        |  |                   | $ | -                 |   |                                               |  | $                         | 59,742 |       |  |  | $ | -    |   |  |  | $ | 2,234 |   |  |  | $ | 61,976 |   | 
|                                    
|Contributions, net of offering costs |  |                   |   | -                 |   |                                               |  |                           | (97    | )     |  |  |   | -    |   |  |  |   | -     |   |  |  |   | (97    | ) | 
|Net loss (1)                         |  |                   |   | 53                |   |                                               |  |                           | (3,336 | )     |  |  |   | -    |   |  |  |   | (88   | ) |  |  |   | (3,371 | ) | 
|Distributions                        |  |                   |   | (53               | ) |                                               |  |                           | (5,348 | )     |  |  |   | -    |   |  |  |   | -     |   |  |  |   | (5,401 | ) | 
|                                     |  |                   |   |                   |   |                                               |  |                           |        |       |  |  |   |      |   |  |  |   |       |   |  |  |   |        |   | 
|Balance at
 December 31, 2007        |  |                   | $ | -                 |   |                                               |  | $                         | 50,961 |       |  |  | $ | -    |   |  |  | $ | 2,146 |   |  |  | $ | 53,107 |   | 
|                                    
|Redemptions                          |  |                   |   | -                 |   |                                               |  |                           | (207   | )     |  |  |   | -    |   |  |  |   | -     |   |  |  |   | (207   | ) | 
|Offering costs                       |  |                   |   | -                 |   |                                               |  |                           | (1     | )     |  |  |   | -    |   |  |  |   | -     |   |  |  |   | (1     | ) | 
|Net loss (1)                         |  |                   |   | 54                |   |                                               |  |                           | (3,568 | )     |  |  |   | -    |   |  |  |   | (59   | ) |  |  |   | (3,573 | ) | 
|Distributions                        |  |                   |   | (54               | ) |                                               |  |                           | (5,328 | )     |  |  |   | -    |   |  |  |   | (457  | ) |  |  |   | (5,839 | ) | 
|Decrease in fair value of derivative |  |                   |   | -                 |   |                                               |  |                           | -      |       |  |  |   | (253 | ) |  |  |   | -     |   |  |  |   | (253   | ) | 
|                                     |  |                   |   |                   |   |                                               |  |                           |        |       |  |  |   |      |   |  |  |   |       |   |  |  |   |        |   | 
|Balance at
 December 31, 2008        |  |                   | $ | -                 |   |                                               |  | $                         | 41,857 |       |  |  | $ | (253 | ) |  |  | $ | 1,630 |   |  |  | $ | 43,234 |   | 
|                                    
|Redemptions                          |  |                   |   | -                 |   |                                               |  |                           | (28    | )     |  |  |   | -    |   |  |  |   | -     |   |  |  |   | (28    | ) | 
|Net loss (1)                         |  |                   |   | 13                |   |                                               |  |                           | (3,952 | )     |  |  |   | -    |   |  |  |   | (94   | ) |  |  |   | (4,033 | ) | 
|Distributions                        |  |                   |   | (13               | ) |                                               |  |                           | (1,239 | )     |  |  |   | -    |   |  |  |   | (217  | ) |  |  |   | (1,469 | ) | 
|Increase in fair value of derivative |  |                   |   | -                 |   |                                               |  |                           | -      |       |  |  |   | 174  |   |  |  |   | -     |   |  |  |   | 174    |   | 
|                                     |  |                   |   |                   |   |                                               |  |                           |        |       |  |  |   |      |   |  |  |   |       |   |  |  |   |        |   | 
|Balance at
 December 31, 2009        |  |                   | $ | -                 |   |                                               |  | $                         | 36,638 |       |  |  | $ | (79  | ) |  |  | $ | 1,319 |   |  |  | $ | 37,878 |   | 

| |     |                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The allocation of net loss
 includes a curative allocation to increase the General Partner capital
 account by $52 for the year ended December 31, 2009. The cumulative curative
 allocation since inception of the Partnership is $259. The Partnership
 Agreement provides that no Partner shall be required to fund a deficit
 balance in their capital account.

See Notes to Consolidated
Financial Statements.

F-5

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Table of Contents

AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSFor
the years ended December 31, 2009, 2008 and 2007(in
thousands)

|                                                                                 |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|-------------------------------------------------------------------------------- |  | ---- | - | ------ | - | ---- |  | - | ------ | - |  |  | - | ------- | - | 
|                                                                                 |  | 2009 |   | 2008   |   | 2007 | 
|Cash flows from operating activities:                                            |  |      |   |        |   |      |  |   |        |  
|Net loss, including non-controlling interest                                     |  |      | $ | (4,033 | ) |      |  | $ | (3,573 | ) |  |  | $ | (3,371  | ) | 
|Adjustments to reconcile net loss to net cash provided by operating
 activities: |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|Equity
 in losses from non-consolidated entities                                 |  |      |   | 1,570  |   |      |  |   | 1,836  |   |  |  |   | 1,997   |   | 
|Depreciation
 and amortization                                                   |  |      |   | 2,578  |   |      |  |   | 2,598  |   |  |  |   | 2,865   |   | 
|Amortization
 of above and below-market leases, net                              |  |      |   | (139   | ) |      |  |   | (120   | ) |  |  |   | (91     | ) | 
|Amortization
 of loan acquisition costs                                          |  |      |   | 76     |   |      |  |   | 76     |   |  |  |   | 76      |   | 
|Bad
 debt expense                                                                |  |      |   | 155    |   |      |  |   | 25     |   |  |  |   | 25      |   | 
|Decrease
 (increase) in tenant receivables                                       |  |      |   | 370    |   |      |  |   | (287   | ) |  |  |   | (130    | ) | 
|Decrease
 (increase) in accounts receivable                                      |  |      |   | 2      |   |      |  |   | 7      |   |  |  |   | (1      | ) | 
|Decrease
 (increase) in accounts receivable - related party                      |  |      |   | 1,161  |   |      |  |   | 1,025  |   |  |  |   | (665    | ) | 
|Increase
 in deferred costs                                                      |  |      |   | (72    | ) |      |  |   | (128   | ) |  |  |   | (136    | ) | 
|Decrease
 (increase) in other assets                                             |  |      |   | 130    |   |      |  |   | (209   | ) |  |  |   | 265     |   | 
|Increase
 (decrease) in accounts payable and other liabilities                   |  |      |   | 237    |   |      |  |   | (223   | ) |  |  |   | (369    | ) | 
|Increase
 (decrease) in accounts payable - related party                         |  |      |   | 311    |   |      |  |   | (66    | ) |  |  |   | (83     | ) | 
|Increase
 (decrease) in security deposits                                        |  |      |   | (8     | ) |      |  |   | 10     |   |  |  |   | 5       |   | 
|Net cash provided by operating activities                                        |  |      |   | 2,338  |   |      |  |   | 971    |   |  |  |   | 387     |   | 
|                                                                                 |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|Cash flows from investing activities:                                            |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|Improvements to real estate                                                      |  |      |   | (102   | ) |      |  |   | (348   | ) |  |  |   | (753    | ) | 
|Payments received on notes receivable                                            |  |      |   | 334    |   |      |  |   | 2,375  |   |  |  |   | -       |   | 
|Payments received on notes receivable - related party                            |  |      |   | -      |   |      |  |   | 537    |   |  |  |   | -       |   | 
|Advances for notes receivable - related party                                    |  |      |   | -      |   |      |  |   | -      |   |  |  |   | (1,675  | ) | 
|Investments in non-consolidated entities                                         |  |      |   | (1,211 | ) |      |  |   | (2,775 | ) |  |  |   | (9,164  | ) | 
|Distributions from non-consolidated entities                                     |  |      |   | 173    |   |      |  |   | 1,105  |   |  |  |   | 199     |   | 
|Net cash provided by (used in) investing activities                              |  |      |   | (806   | ) |      |  |   | 894    |   |  |  |   | (11,393 | ) | 
|                                                                                 |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|Cash flows from financing activities:                                            |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|Payments on notes payable                                                        |  |      |   | (156   | ) |      |  |   | (145   | ) |  |  |   | (139    | ) | 
|Proceeds from notes payable - related party                                      |  |      |   | 2,500  |   |      |  |   | -      |   |  |  |   | -       |   | 
|Payments on notes payable - related party                                        |  |      |   | -      |   |      |  |   | -      |   |  |  |   | (1,144  | ) | 
|Optional redemptions                                                             |  |      |   | (28    | ) |      |  |   | (207   | ) |  |  |   | (23     | ) | 
|Issuance costs                                                                   |  |      |   | -      |   |      |  |   | (1     | ) |  |  |   | (97     | ) | 
|Loan acquisition costs                                                           |  |      |   | -      |   |      |  |   | -      |   |  |  |   | (96     | ) | 
|Distributions                                                                    |  |      |   | (1,252 | ) |      |  |   | (5,382 | ) |  |  |   | (5,378  | ) | 
|Distributions to non-controlling interest                                        |  |      |   | (217   | ) |      |  |   | (457   | ) |  |  |   | -       |   | 
|Net cash provided by (used in) financing activities                              |  |      |   | 847    |   |      |  |   | (6,192 | ) |  |  |   | (6,877  | ) | 
|                                                                                 |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|Net increase (decrease) in cash and cash equivalents                             |  |      |   | 2,379  |   |      |  |   | (4,327 | ) |  |  |   | (17,883 | ) | 
|Cash and cash equivalents, beginning of period                                   |  |      |   | 918    |   |      |  |   | 5,245  |   |  |  |   | 23,128  |   | 
|Cash and cash equivalents, end of period                                         |  |      | $ | 3,297  |   |      |  | $ | 918    |   |  |  | $ | 5,245   |   | 
|                                                                                 |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|Supplemental schedule of cash flow information:                                  |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|                                                                                 |  |      |   |        |   |      |  |   |        |   |  |  |   |         |   | 
|Cash paid during the period for interest                                         |  |      | $ | 3,095  |   |      |  | $ | 3,041  |   |  |  | $ | 3,179   |   | 
|Cash paid during the period for taxes                                            |  |      | $ | 23     |   |      |  | $ | 65     |   |  |  | $ | -       |   | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Supplemental schedule of noncash investing and
 financing activities:                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|During
 the year ended December 31, 2009, $75,000 of accounts receivable from one of
 our non-consolidated entities was reclassified to investment in
 non-consolidated entities.                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|During
 the year ended December 31, 2009, $363,000 of accounts payable-related party was reclassified to notes payable-related party.                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|During
 the year ended December 31, 2009, $44,000 in accrued interest on notes
 payable - related party was added to the note balances.                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|During
 2008, the $7.0 million note receivable from our 5433 Westheimer property was
 converted to equity. In conjunction with the equity conversion, we obtained a
 $3.5 million note receivable from our joint venture partner in the 5433
 Westheimer property. Also during 2008, an additional $800,000 of the note
 from our joint venture partner was converted to equity. See receivables and
 allowance for uncollectible accounts section of Note 2.

See Notes to Consolidated Financial Statements.

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AmREIT MONTHLY INCOME & GROWTH FUND III,
LTD. AND SUBSIDIARIES

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007

|   |                                                 
|-- | ------------------------------------------------
|1. | DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

AmREIT
Monthly Income & Growth Fund III, Ltd., a Texas limited partnership (the
Partnership), was formed on April 19, 2005 to directly or indirectly acquire,
develop and hold for lease primarily commercial retail real estate net leased
to high quality tenants. The General Partner of the Partnership is AmREIT
Monthly Income & Growth III Corporation, a Texas Corporation (the General
Partner), which is a subsidiary of AmREIT, Inc., an SEC reporting, non-traded,
Maryland corporation that has elected to be taxed as a real estate investment
trust (AmREIT). The General Partner maintains its principal place of business
in Houston, Texas.

We
commenced our principal operations on June 30, 2005 when we raised the minimum
offering of $2.0 million pursuant to the terms of our Offering Memorandum dated
April 19, 2005 (the Offering Memorandum) and issued the initial 80 Units. As
of October 31, 2006, we had received $71.1 million for the sale of 2,844 Units
and closed the Offering. As of September 30, 2009, our investments include
three wholly-owned properties comprising approximately 225,000 square feet of
gross leasable area, one property in which we own a controlling interest
comprising approximately 102,000 square feet of gross leasable area and seven
properties in which we own a non-controlling interest through joint ventures
comprising approximately 1,142,000 square feet of gross leasable area.

Our
Units were sold pursuant to exemptions from registration under the Securities
Act of 1933, as amended (Securities Act), and are not currently listed on a
national exchange. These Units will be transferable only if we register them
under applicable securities laws (such registration is not expected) or
pursuant to an exemption under the Securities Act, and applicable state
securities laws. We do not anticipate that any public market for the Units will
develop.

We
expect to meet our liquidity requirements through cash on-hand, net cash
provided by distributions from joint ventures, proceeds from secured or
unsecured financings from banks and other lenders, the selective and strategic
sale of properties and net cash flows from operations. We expect that our
primary uses of capital will be for investment in real estate properties and
related improvements, the payment of operating expenses, including interest
expense on any outstanding indebtedness, and the payment of distributions to
our Partners. As we sell properties during our operating period, we plan to
strategically reinvest the proceeds from such sales rather than distributing
the proceeds to our Partners.

During
the past two years, the United States has experienced an unprecedented
business downturn, coupled with a substantial curtailment of available debt
financing. While we expect to generate sufficient cash flow from
operations in 2010 to meet our contractual obligations, a significant
additional deterioration in the national economy or the bankruptcy or
insolvency of one or more of our large tenants could cause our 2010 cash
resources to be insufficient to meet our obligations. If necessary, we have the
ability to defer capital improvements and to defer payment of certain operating
costs, including property taxes, until cash resources are available. Effective
July 15, 2009, we suspended all distributions in an effort to conserve cash and
to protect investors invested capital. As we have numerous projects that are
mid-stream in redevelopment, we are conserving cash from operations to improve
our ability to fund capital improvements, tenant improvements and leasing
commissions, and to meet our obligations, including debt service. We expect that the economy and
real estate market will recover prior to our anticipated liquidation commencement date of October 31, 2012.
However, if the economy remains in a protracted recession, we will seek to postpone liquidation if
we believe such a liquidation is not in the best interest of the Partners at that time.

Projected
cash sources and uses for the Partnerships 2010 fiscal year indicate certain
periods of cash shortfalls within the twelve month period; however, we believe
that we will be able to generate sufficient liquidity to satisfy any cash
shortfalls through (1) managing the timing of forecasted capital expenditures
related to the lease-up of properties, (2) potential joint venture equity
investments in existing non-consolidated entities (3) financings of
unencumbered properties and (4) sales of certain of our investments in
non-consolidated entities. However, no assurance can be given that we will be
able to generate such liquidity. In the event that we are

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unable to
generate sufficient liquidity, we may be forced to sell one or more properties
at a time when it is disadvantageous to do so, potentially resulting in losses
on disposition of those properties.

|   |                                           
|-- | ------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|   |                                           
|   | BASIS OF PRESENTATION                     

Our
financial records are maintained on the accrual basis of accounting whereby
revenues are recognized when earned and expenses are recorded when incurred.
The consolidated financial statements include our accounts as well as the
accounts of any wholly- or majority-owned subsidiaries in which we have a
controlling financial interest (see Note 10). Investments in joint ventures and
partnerships where we have the ability to exercise significant influence but do
not exercise financial and operating control are accounted for using the equity
method (see Note 4). The significant accounting policies of our
non-consolidated entities are consistent with those of our subsidiaries in
which we have a controlling financial interest. As applicable, we consolidate
certain joint ventures and partnerships in which we own less than a 100% equity
interest if the entity is a variable interest entity and we are the primary beneficiary
(as defined in Accounting Standards Codification (ASC) 810, Consolidation). All significant
inter-company accounts and transactions have been eliminated in consolidation.

Effective
July 1, 2009, the Financial Accounting Standards Board (FASB) established the
ASC as the primary source of authoritative Generally Accepted Accounting
Principles (GAAP) recognized by the FASB to be applied to nongovernmental
entities. Although the establishment of the ASC did not change current GAAP, it
did change the way we refer to GAAP throughout this document to reflect the
updated referencing convention.

REVENUE RECOGNITION

We
lease space to tenants under agreements with varying terms. The majority of the
leases are accounted for as operating leases, and although certain leases of
the properties provide for tenant occupancy during periods for which no rent is
due and/or increases or decreases in the minimum lease payments over the terms
of the leases, revenue is recognized on a straight-line basis over the terms of
the individual leases. In most cases, revenue recognition under a lease begins
when the lessee takes possession of or controls the physical use of the leased
asset. Generally, this occurs on the lease commencement date. In all cases, we
have determined that we are the owner of the tenant improvements that we fund
pursuant to the lease terms. In cases where tenant improvements are made prior
to lease commencement, the leased asset is considered to be the finished space,
and revenue recognition therefore begins when the improvements are
substantially complete.

Accrued
rents are included in tenant receivables. Revenue from tenant reimbursements of
taxes, maintenance expenses and insurance is recognized in the period the
related expense is recorded. Additionally, certain of the lease agreements
contain provisions that grant additional rents based on tenants sales volumes
(contingent or percentage rent). Percentage rents are recognized when the
tenants achieve the specified targets as defined in their lease agreements.
During the years ended December 31, 2009, 2008 and 2007, there were no
percentage rents recognized. We recognize lease termination fees in the period
that the lease is terminated and collection of the fees is reasonably assured.
Upon early lease termination we provide for losses related to unrecovered
intangibles and other assets. During the years ended December 31, 2009, 2008
and 2007, we recognized no lease termination fees.

REAL ESTATE INVESTMENTS

Development
Properties -Land, buildings and improvements are
recorded at cost. Expenditures related to the development of real estate are
carried at cost which includes capitalized carrying charges, acquisition costs
and development costs. Carrying charges, primarily interest, real estate taxes,
loan acquisition costs, and direct and indirect development costs related to
buildings under construction, are capitalized as part of construction in
progress. The capitalization of such costs ceases at the earlier of one year
from the date of completion of major construction or when the property, or any
completed portion, becomes available for occupancy. We capitalize acquisition
costs as incurred. Such costs are expensed if and when the acquisition becomes
no longer probable. During the years ended December 31, 2009, 2008 and 2007, we
did not capitalize any interest or taxes on properties under development.

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Acquired
Properties and Acquired Lease Intangibles - We
account for real estate acquisitions pursuant to ASC 805 Business Combinations. Accordingly, we
allocate the purchase price of the acquired properties to land, building and
improvements, identifiable intangible assets and to the acquired liabilities
based on their respective fair values. Identifiable intangibles include amounts
allocated to acquired above and below-market leases, the value of in-place
leases and customer relationship value, if any. We determine fair value based
on estimated cash flow projections that utilize appropriate discount and
capitalization rates and available market information. Estimates of future cash
flows are based on a number of factors including the historical operating
results, known trends and specific market and economic conditions that may affect
the property. Factors considered by management in our analysis of determining
the as-if-vacant property value include an estimate of carrying costs during
the expected lease-up periods considering market conditions, and costs to
execute similar leases. In estimating carrying costs, management includes real
estate taxes, insurance and estimates of lost rentals at market rates during
the expected lease-up periods, tenant demand and other economic conditions.
Management also estimates costs to execute similar leases including leasing
commissions, tenant improvements, legal and other related expenses. Intangibles
related to above-market and in-place leases are recorded as acquired lease
intangibles, and intangibles related to below-market leases are recorded as
below-market leases. Amortization of above and below-market leases and in-place
leases recorded as an adjustment to rental revenue or amortization expense, as
appropriate, over the remaining terms of the underlying leases. Premiums or
discounts on acquired above and below market debt are amortized to interest
expense over the remaining term of such debt.

We
expense acquisition costs associated with operating properties as incurred in
accordance with ASC 805. Prior to adoption of ASC 805, such costs were
capitalized and expensed if and when the acquisition became no longer probable.
During the years ended December 31, 2009, 2008 and 2007, we expensed
acquisition costs of $6,000, $134,000 and $35,000, respectively. We did not
capitalize any interest or taxes during the same periods.

Depreciation
-Depreciation is computed using the straight-line
method over an estimated useful life of up to 39 years for buildings and site
improvements and over the term of lease for tenant improvements.

Properties
Held for Sale -Properties are classified as held
for sale if we have decided to market the property for immediate sale in its
present condition with the belief that the sale will be completed within one
year. Operating properties held for sale are carried at the lower of cost or
fair value less cost to sell. Depreciation and amortization are suspended
during the held for sale period. At December 31, 2009 and 2008, we had no
properties held for sale.

Our
properties generally have operations and cash flows that can be clearly
distinguished from the rest of the Partnership. The operations and gains on
sales reported in discontinued operations include those properties that have
been sold or are held for sale and for which operations and cash flows have
been clearly distinguished. The operations of these properties have been
eliminated from ongoing operations, and we will not have continuing involvement
after disposition. Prior period operating activity related to such properties
has been reclassified as discontinued operations in the accompanying statements
of operations.

Impairment
- We review our properties for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets, including
accrued rental income, may not be recoverable through operations. We determine
whether an impairment in value occurred by comparing the estimated future cash
flows (undiscounted and without interest charges), including the residual value
of the property, with the carrying value of the individual property. If
impairment is indicated, a loss will be recorded for the amount by which the
carrying value of the asset exceeds its fair value. No impairment charges were
recognized during the years ended December 31, 2009, 2008 and 2007.

INVESTMENTS IN NON-CONSOLIDATED ENTITIES

As
of December 31, 2009, we have ownership interests in 8 real estate properties
through ownership interests in joint ventures. Although we exercise significant
influence over the activities of these properties, we do not have a controlling
financial interest in 7 of the 8 joint ventures. Accordingly, our joint venture
interests in these 7 properties are reported under the equity method of
accounting pursuant to GAAP. Our joint ventures recognize revenues from

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rents and
tenant reimbursements and account for real estate acquisitions in the same
manner as discussed in the Revenue Recognition section above.

ENVIRONMENTAL EXPOSURES

We
are subject to numerous environmental laws and regulations as they apply to
real estate pertaining to chemicals used by the dry cleaning industry, the
existence of asbestos in older shopping centers, and underground petroleum
storage tanks. We believe that the tenants who currently operate dry cleaning
plants or gas stations do so in accordance with current laws and regulations.
We believe that the ultimate disposition of currently known environmental
matters will not have a material affect on our financial position, liquidity,
or operations (See Note 11). However, we can give no assurance that existing
environmental studies with respect to the shopping centers have revealed all
potential environmental liabilities; that any previous owner, occupant or
tenant did not create any material environmental condition not known to it;
that the current environmental condition of the shopping centers will not be
affected by tenants and occupants, by the condition of nearby properties, or by
unrelated third parties; or that changes in applicable environmental laws and
regulations or their interpretation will not result in additional environmental
liability to the Partnership.

RECEIVABLES AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

Tenant
Receivables -Included in tenant receivables are
base rents, tenant reimbursements and adjustments related to recording rents on
a straight-line basis. An allowance for the uncollectible portion of accrued
rents and accounts receivable is determined based upon customer credit-worthiness
(including expected recovery of our claim with respect to any tenants in
bankruptcy), historical bad debt levels, and current economic trends. Bad debt
expenses and any related recoveries are included in general and administrative
expense. As of December 31, 2009 and 2008, our allowance for uncollectible
accounts related to our tenant receivables was $255,000 and $98,000,
respectively.

Accounts
Receivable  Related Party- included in accounts
receivable related party are short-term cash advances provided to certain of
our affiliated investment entities primarily for their development needs. These
cash advances are due upon demand.

Notes
Receivable- included in notes receivable at
December 31, 2008 is a $334,000 note made to our joint venture partner in our
investment in 5433 Westheimer, L.P. The note was made in 2008 and had an
original balance of $3.5 million. During 2008, $2.4 million was repaid, and we
converted $800,000 into an additional equity interest in the joint venture. The
note was repaid in full in 2009.

DEFERRED COSTS

Deferred
costs include deferred leasing costs and loan acquisition costs, net of
amortization. Loan acquisition costs are incurred in obtaining financing and
are amortized to interest expense on a straight-line basis over the term of the
debt agreements. Deferred leasing costs consist of external commissions
associated with leasing our properties and are amortized to expense on a
straight-line basis over the lease term. Accumulated amortization related to
loan acquisition costs as of December 31, 2009 and 2008 totaled $272,000 and
$197,000, respectively. During 2008, we reduced accumulated amortization by
$90,000 related to deferred loan acquisition costs that were fully amortized as
of December 31, 2007. Accumulated amortization related to leasing costs as of
December 31, 2009 and 2008, totaled $101,000 and $55,000, respectively.

INCOME TAXES

Federal
- No provision for U.S. federal income taxes is
included in the accompanying consolidated financial statements. As a
partnership, we are not subject to federal income tax, and the federal tax
effect of our activities is passed through to our partners.

State- In May 2006, the State of Texas adopted House Bill
3, which modified the states franchise tax structure, replacing the previous
tax based on capital or earned surplus with one based on margin (often referred
to as the Texas Margin Tax effective with franchise tax reports filed on or
after January 1, 2008. The Texas Margin Tax is

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computed by
applying the applicable tax rate (1% for the Partnership) to the profit margin,
which, generally, will be determined for us as total revenue less a 30%
standard deduction. Although House Bill 3 states that the Texas Margin Tax is
not an income tax, the Partnership believes that ASC 740 Income Taxes, applies to the Texas Margin
Tax. The Texas Margin Tax accrued as of December 31, 2009 and 2008 totaled
$48,000 and $46,000, respectively.

USE OF ESTIMATES

The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

FAIR VALUE MEASUREMENTS

We
account for assets and liabilities measured at fair value in accordance with
ASC 820, Fair Value Measurements and
Disclosures. ASC 820 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, a fair value
measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability. As a basis for
considering market participant assumptions in fair value measurements, ASC 820
establishes a fair value hierarchy that distinguishes between market
participant assumptions based on market data obtained from sources independent
of the reporting entity (observable inputs that are classified within Levels 1
and 2 of the hierarchy) and the reporting entitys own assumptions about market
participant assumptions (unobservable inputs classified within Level 3 of the
hierarchy). The three levels of inputs used to measure fair value are as
follows:

| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1
 Inputs  Quoted prices (unadjusted) in active markets for identical assets or
 liabilities that the Company has the ability to access.                                     
| |   |                                                                                                                                                                                     
| |  | Level 2
 Inputs  Inputs other than quoted prices included in Level 1 that are
 observable for the asset or liability, either directly or indirectly.                               
| |   |                                                                                                                                                                                     
| |  | Level 3
 Inputs  Unobservable inputs for the asset or liability, which are typically
 based on the Companys own assumptions, as there is little, if any, related
 market activity.

Derivative
Financial Instruments  We record our portion of
the change in fair value of an interest rate swap entered into by one of our
non-consolidated joint venture entities (see note 4). In determining the fair
value of its derivative instrument, our joint venture considers whether credit
valuation adjustments are necessary to appropriately reflect both its own
nonperformance risk and the respective counterpartys nonperformance risk in
the fair value measurements. Although we have determined that the majority of
the inputs used to value the derivatives fall within Level 2 of the fair value
hierarchy, the credit valuation assumptions associated with its derivatives
utilize Level 3 inputs, such as estimates of current credit spreads to evaluate
the likelihood of default by our joint venture and its counterparties. However,
as of December 31, 2009, we have assessed the significance of the impact of the
credit valuation adjustments on the overall valuation of the derivative
positions and have determined that the credit valuation adjustments are not
significant to the overall valuation of our joint ventures derivatives. As a
result, we have determined that our portion of the derivative valuations in
their entirety is classified in Level 2 of the fair value hierarchy.

The
following table presents our accumulated other comprehensive gain (loss) and
related valuation inputs within the fair value hierarchy utilized to measure
fair value as of December 31, 2009 (in thousands):

|                                             |  |         |   |         |   |         |   |   |   | 
|-------------------------------------------- |  | ------- | - | ------- | - | ------- | - | - | - | 
|                                             |  | Level 1 |   | Level 2 |   | Level 3 |  
|                                             |  |         |   |         |   |         |  
|Accumulated other
 comprehensive gain (loss) |  | $       | - |         | $ | (79     | ) | $ | - | 

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Notes
Payable  In determining the fair value of our debt
instruments, we determine the appropriate Treasury Bill Rate based on the
remaining time to maturity for each of the debt instruments. We then add the
appropriate yield spread to the Treasury Bill Rate. The yield spread is a risk
premium estimated by investors to account for credit risk involved in debt
financing. The spread is typically estimated based on the property type and
loan-to-value ratio of the debt instrument. The result is an estimate of the
market interest rate a typical investor would expect to receive given the
underlying subject asset (property type) and remaining time to maturity. Based
on these estimates, the fair value of notes payable was $48.8 million and $52.8
million at December 31, 2009 and 2008, respectively.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In
December 2003, the FASB reissued ASC 810 Consolidation.
ASC 810 addresses how a business enterprise should evaluate whether it has a
controlling financial interest in an entity through means other than voting
rights. ASC 810 requires a variable interest entity to be consolidated by a
company that is subject to a majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of the entitys residual
returns or both. Disclosures are also required about variable interest entities
in which a company has a significant variable interest but that it is not
required to consolidate. As of December 31, 2009 and 2008, we had no
investments in any entities that qualify as variable interest entities pursuant
to ASC 810.

NEWACCOUNTING STANDARDS

In
June 2009, the FASB issued SFAS No. 167, Amendments
to FASB Interpretation No. 46(R) (SFAS No. 167), which amends the
consolidation guidance applicable to variable interest entities. The amendments
will significantly affect the overall consolidation analysis under FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entitiesan
interpretation of ARB No. 51 and changes the way entities account for
securitizations and special purpose entities as a result of the elimination of
the Qualified Special Purpose Entity (QSPE) concept in SFAS No.166. SFAS No.
167 is effective as of the beginning of the first fiscal year that begins after
November 15, 2009 and early adoption is prohibited. Management is currently
evaluating the impact on our consolidated financial statements of adopting SFAS
No. 167.

In
June 2009, the FASB issued ASC 105, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, which became the single source of
authoritative nongovernmental U.S. generally accepted accounting principles,
superseding existing FASB, American Institute of Certified Public Accountants,
EITF, and related accounting literature. ASC 105 reorganizes the thousands of
GAAP pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included is relevant SEC guidance organized using
the same topical structure in separate sections. ASC 105 is effective for all
quarterly and annual reporting periods ending after September 15, 2009. We
adopted the provisions of ASC 105 in the third quarter of 2009. Such adoption
only changed the way we refer to GAAP to reflect the updated referencing
convention and did not have an impact on our financial statements.

CASH AND CASH EQUIVALENTS

For
purposes of the consolidated statements of cash flows, we consider all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds.

INTEREST

Interest
is charged to interest expense as it accrues. No interest was capitalized
during the years ended December 31, 2009, 2008 or 2007.

SEGMENT REPORTING

ASC
280 Segment Reportingestablishes
standards for reporting financial and descriptive information about an
enterprises reportable segments. We determined that we have one reportable
segment, with activities related to

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investing in
real estate. Our investments in real estate generate rental revenue and other
income through the leasing of multi-tenant retail properties, which comprised
100% of our total consolidated revenues for the years ended December 31, 2009,
2008 and 2007. We evaluate operating performance on an individual property
level. However, as each of our properties have similar economic
characteristics, tenants and products and services, our properties have been
aggregated into one reportable segment.

RECLASSIFICATIONS

Certain
prior period amounts in the consolidated financial statements have been
reclassified to conform to the presentation used in the current period
consolidated financial statements.

|   |                 
|-- | ----------------
|3. | OPERATING LEASES

Our
operating leases generally range from two to twenty-five years and generally include
one or more five year renewal options. A summary of minimum future base rentals
to be received, exclusive of any renewals, under non-cancelable operating
leases in existence at December 31, 2009 is as follows:

|           |  |                   |            | 
|---------- |  | ----------------- | ---------- | 
|Year       |  | Minimum BaseRents |           
|           |  |                   |            | 
|2010       |  | $                 | 4,709,000  | 
|2011       |  |                   | 3,731,000  | 
|2012       |  |                   | 3,131,000  | 
|2013       |  |                   | 2,502,000  | 
|2014       |  |                   | 2,244,000  | 
|Thereafter |  |                   | 6,011,000  | 
|Total      |  | $                 | 22,328,000 | 

Future
minimum rental revenue excludes amounts that may be received from tenants for reimbursements
of operating costs, real estate taxes and insurance. Expense reimbursements
recognized as revenue totaled $1.7 million, $1.7 million and $1.7 million
during the years ended December 31, 2009, 2008 and 2007, respectively.

|   |                                         
|-- | ----------------------------------------
|4. | INVESTMENTS IN NON-CONSOLIDATED ENTITIES

During
2006, we made the following investments in three entities through which we own
an interest in five properties:

| |   |                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In March
 2006, we acquired a 50% interest in 5433 Westheimer, LP which owns an office
 building in Houston, Texas with a gross leasable area of 134,000 square feet.
 As noted below, we have since acquired an additional 7.5% interest. The
 remaining 42.5% is owned by a third party.                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                 
| |  | In December
 2006, we acquired a 20% interest in PTC/BSQ Holding Company, LLC which owns
 three multi-tenant retail properties located in Plano, Texas with a combined
 gross leasable area of 395,000 square feet. The remaining 80% is owned by a
 third party.                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                 
| |  | Also in
 December 2006, we acquired a 50% interest in AmREIT Casa Linda, LP which owns
 a multi-tenant retail property located in Dallas, Texas with a combined gross
 leasable area of 325,000 square feet. The remaining 50% is owned by AmREIT
 Monthly Income and Growth Fund IV, Ltd. (MIG IV), an affiliated merchant
 development fund.

F-13

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Table of Contents

During
2007, we made the following investments in two entities through which we own an
interest in two properties:

| |   |                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In August
 2007, we acquired a 30% interest in AmREIT Woodlake Square, LP which owns a
 multi-tenant retail property located in Houston, Texas with a combined gross
 leasable area of 206,000 square feet. The remaining 70% is owned by
 affiliated AmREIT entites, MIG IV and AmREIT Realty Investment Company
 (ARIC).
| |   |                                                                                                                                                                                                                                                                                                                             
| |  | In November
 2007, we acquired a 30% interest in AmREIT Westheimer Gessner, LP which owns
 Woodlake Pointe, a multi-tenant retail property located in Houston, Texas
 with a combined gross leasable area of 82,120 square feet. The remaining 70%
 is owned by affiliated AmREIT entites, MIG IV and ARIC.                 

During
2008, we made the following investments through which we own an interest in one
additional property:

| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In May 2008,
 we acquired a 30% interest in a land tract adjacent to Woodlake Pointe for
 $1.3 million. The acquisition is reported as a part of AmREIT Westheimer
 Gessner, LP (which owns Woodlake Pointe). The remaining 70% is owned by
 affiliated AmREIT entities, MIG IV and ARIC.                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | In November
 2008, we acquired an additional 7.5% interest in 5433 Westheimer, LP from our
 third party, joint-venture partner for $800,000. The remaining 42.5% is owned
 by that same party. The property is not consolidated into our financial
 statements as it does not meet all conditions for consolidation outlined in
 ASC 805 Business Combinations.

We
did not make any investments in additional properties during 2009.

We
report our investments in these entities using the equity method of accounting
due to our ability to exercise significant influence over them. Combined
condensed financial information for our non-consolidated entities (at 100%) is
summarized as of and for the years ended December 31, 2009 and 2008 as follows:

|                                        |  |                          |         |  |                          |   |         | 
|--------------------------------------- |  | ------------------------ | ------- |  | ------------------------ | - | ------- | 
|Combined
 balance sheets (in thousands) |  | As of
 December 31, 2009 |         |  | As of
 December 31, 2008 |  
|                                        |  |                          |         |  |                          |   |         | 
|Assets                                  |  |                          |         |  |                          |   |         | 
|Property, net                           |  | $                        | 212,882 |  |                          | $ | 185,336 | 
|Cash                                    |  |                          | 2,869   |  |                          |   | 2,478   | 
|Other assets                            |  |                          | 19,311  |  |                          |   | 31,488  | 
|Total assets                            |  | $                        | 235,062 |  |                          | $ | 219,302 | 
|                                        |  |                          |         |  |                          |   |         | 
|Liabilities and partners
 capital      |  |                          |         |  |                          |   |         | 
|Notes payable                           |  | $                        | 131,697 |  |                          | $ | 112,105 | 
|Other liabilities                       |  |                          | 18,387  |  |                          |   | 21,018  | 
|Partners capital                       |  |                          | 84,978  |  |                          |   | 86,179  | 
|Total liabilities and partners capital |  | $                        | 235,062 |  |                          | $ | 219,302 | 
|                                        |  |                          |         |  |                          |   |         | 
|MIG III share of net assets             |  | $                        | 26,212  |  |                          | $ | 26,495  | 

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Table of Contents

|                                                  |  |                               |        |                               |   |        |  
|------------------------------------------------- |  | ----------------------------- | ------ | ----------------------------- | - | ------ | -
|Combined statements of operations
 (in thousands) |  | Year ended
 December 31, 2009 |        | Year ended
 December 31, 2008 |  
|                                                  |  |                               |        |                               |   |        |  
|Revenues                                          |  |                               |        |                               |   |        |  
|Total revenues                                    |  | $                             | 19,563 |                               | $ | 19,164 |  
|Expenses                                          |  |                               |        |                               |   |        |  
|Depreciation and amortization                     |  |                               | 8,925  |                               |   | 9,817  |  
|Interest                                          |  |                               | 6,023  |                               |   | 5,910  |  
|Other                                             |  |                               | 8,289  |                               |   | 7,897  |  
|Total expenses                                    |  |                               | 23,237 |                               |   | 23,624 |  
|                                                  |  |                               |        |                               |   |        |  
|Net Loss                                          |  | $                             | (3,674 | )                             | $ | (4,460 | )
|                                                  |  |                               |        |                               |   |        |  
|MIG III share of net loss                         |  | $                             | (1,570 | )                             | $ | (1,836 | )

DERIVATIVE
FINANCIAL INSTRUMENTS

In
December 2007, one of our investment properties entered into an interest rate
swap with a notional amount of $23.8 million and a fixed rate of 5.465% in
order to manage the volatility inherent in its variable-rate mortgage. On
October 1, 2008, that interest rate swap was designated a hedge for financial
reporting purposes. In accordance with ASC 820 Fair
Value Measurements and Disclosures, changes in fair value of
derivatives that qualify as cash flow hedges are recognized in other
comprehensive income. Prior to October 1, 2008, such changes in fair value were
recorded as a loss on derivative on the propertys statement of operations. For
the nine months ended September 30, 2008, our portion of the loss totaled
$125,000 and is included in loss from non-consolidated entities in our
consolidated statements of operations. For the year ended December 31, 2009,
our portion of the increase in fair value totaled $174,000. For the period
October 1, 2008 through December 31, 2008, our portion of the decrease in fair
value totaled $253,000. Both amounts are included in accumulated other
comprehensive loss on our consolidated statements of partners capital.

|   |                            
|-- | ---------------------------
|5. | ACQUIRED
 LEASE INTANGIBLES

In
accordance with ASC 805, Business
Combinations, we have identified and recorded the value of acquired
lease intangibles at the property acquisition date. Such intangibles include
the value of in-place leases and above and below-market leases. Acquired lease
intangible assets (in-place leases and above-market leases) and acquired lease
intangible liabilities (below-market leases) are amortized over the leases
remaining terms, which range from 1 year to 26 years. The amortization of above
(and below) market leases is recorded as a reduction of (increase in) rental
income, and the amortization of in-place leases is included in depreciation and
amortization expense. The amortization expense related to in-place leases was
approximately $630,000, $686,000 and $911,000 for the years ended December 31,
2009, 2008 and 2007, respectively. The amortization of above-market leases,
which was recorded as a reduction of rental income, was approximately $55,000,
$71,000 and $68,000 during the years ended December 31, 2009, 2008 and 2007, respectively.
Accretion of below market leases was approximately $193,000, $189,000 and
$243,000 during the years ended December 31, 2009, 2008 and 2007, respectively.

F-15

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Table of Contents

Acquired
in-place lease and above and below-market lease amounts and their respective
accumulated amortization are as follows (in thousands):

|                                                |  |                          |        |                          |   |        |  
|----------------------------------------------- |  | ------------------------ | ------ | ------------------------ | - | ------ | -
|                                                |  | As of
 December 31, 2009 |        | As of
 December 31, 2008 |  
|                                                |  |                          |        |                          |   |        |  
|Acquired
 lease intangible assets:              |  |                          |        |                          |   |        |  
|In-place leases                                 |  | $                        | 4,462  |                          | $ | 4,585  |  
|In-place leases - accumulated amortization      |  |                          | (2,738 | )                        |   | (2,232 | )
|Above-market leases                             |  |                          | 269    |                          |   | 278    |  
|Above-market leases - accumulated
 amortization |  |                          | (189   | )                        |   | (143   | )
|Acquired lease intangibles, net                 |  | $                        | 1,804  |                          | $ | 2,488  |  
|                                                |  |                          |        |                          |   |        |  
|Acquired
 lease intangible liabilities:         |  |                          |        |                          |   |        |  
|Below-market leases                             |  | $                        | 1,127  |                          | $ | 1,161  |  
|Below-market leases - accumulated accretion     |  |                          | (803   | )                        |   | (644   | )
|Acquired below-market lease intangibles,
 net   |  | $                        | 324    |                          | $ | 517    |  

The
estimated aggregate amortization amounts from acquired lease intangibles for
each of the next five years are as follows (in thousands):

|                         |  |                                         |       |                                                 |   |     | 
|------------------------ |  | --------------------------------------- | ----- | ----------------------------------------------- | - | --- | 
|Year ending December 31, |  | Amortization expense
 (in-place leases) |       | Rental income (above
 and below-market
 leases) |  
|                         |  |                                         |       |                                                 |   |     | 
|2010                     |  | $                                       | 439   |                                                 | $ | 87  | 
|2011                     |  |                                         | 314   |                                                 |   | 62  | 
|2012                     |  |                                         | 269   |                                                 |   | 52  | 
|2013                     |  |                                         | 174   |                                                 |   | 10  | 
|2014                     |  |                                         | 149   |                                                 |   | 10  | 
|Totals                   |  | $                                       | 1,345 |                                                 | $ | 221 | 

|   |               
|-- | --------------
|6. | NOTES
 PAYABLE

Our
outstanding debt at December 31, 2009 and 2008 consisted entirely of fixed-rate
mortgage loans of approximately $50.5 million and $50.7 million, respectively.
Our mortgage loans are secured by our real estate properties and may be
prepaid, but could be subject to a yield-maintenance premium or prepayment
penalty. Mortgage loans are generally due in monthly installments of interest
and principal and our mortgages mature over various terms ranging from
September 2011 through January 2036.

As
of December 31, 2009, the weighted-average interest rate on our fixed-rate debt
is 5.9%, and the weighted average remaining life of such debt is 10.1 years. As
of December 31, 2009, scheduled principal repayments on notes payable were as
follows (in thousands):

|                           |  |           |       |                 |   |                |  |   |        | 
|-------------------------- |  | --------- | ----- | --------------- | - | -------------- |  | - | ------ | 
|Scheduled payments by year |  | Principal |       | Loan maturities |   | Total payments | 
|                           |  |           |       |                 |   |                |  |   |        | 
|2010                       |  | $         | 165   |                 | $ | -              |  | $ | 165    | 
|2011                       |  |           | 175   |                 |   | 24,615         |  |   | 24,790 | 
|2012                       |  |           | 183   |                 |   | -              |  |   | 183    | 
|2013                       |  |           | 196   |                 |   | -              |  |   | 196    | 
|2014                       |  |           | 207   |                 |   | -              |  |   | 207    | 
|Thereafter                 |  |           | 92    |                 |   | 24,904         |  |   | 24,996 | 
|Total                      |  | $         | 1,018 |                 | $ | 49,519         |  | $ | 50,537 | 

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Table of Contents

We
serve as guarantor on debt in the amount of $44.0 million that is the primary
obligation of our joint ventures. The mortgage for one of those joint ventures
in the amount of $23.8 million matures in the fourth quarter of 2010. Should
that entity be unable to pay or refinance the mortgage, we would be liable for
25% of the balance. The remaining debt matures in 2014.

Notes
Payable  Related Party-In September 2009, we borrowed $2.5 million from affiliates of our
General Partner. Of this amount, $1.5 million accrues interest monthly at LIBOR
plus a spread of 4.0% with a floor of 7.0%, and the remaining 1.0 million
accrues interest monthly at LIBOR plus a spread of 3.875% with a floor of
5.375%. The note is secured by our investment interest in the Woodlake Pointe
and Woodlake Square properties.

|   |               
|-- | --------------
|7. | CONCENTRATIONS

As
of December 31, 2009, each of our four consolidated properties individually
comprises greater than 10% of our consolidated total assets. Consistent with
our strategy of investing in areas that we know well, three of our four
properties are located in the Houston metropolitan area. These Houston
properties represent 82% of our rental income for the year ended December 31,
2009. Houston is Texas largest city and the fourth largest city in the United
States.

Following
are the base rents generated by our top five tenants during the years ended
December 31, 2009, 2008 and 2007 ($ in thousands):

|                         |  |                         |       |      |   |       |  |   |       | 
|------------------------ |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|                         |  | Year ended December 31, |      
|                         |  |                         |       |      |   |       | 
|Tenant                   |  | 2009                    |       | 2008 |   | 2007  | 
|                         |  |                         |       |      |   |       |  |   |       | 
|H-E-B
 Grocery           |  | $                       | 1,425 |      | $ | 1,425 |  | $ | 1,425 | 
|Designer
 Shoe Warehouse |  |                         | 550   |      |   | 550   |  |   | 550   | 
|Rice Food
 Markets, Inc. |  |                         | 292   |      |   | 292   |  |   | 292   | 
|Blockbuster
 Video       |  |                         | 224   |      |   | 224   |  |   | 223   | 
|Fidelity
 Investments    |  |                         | 211   |      |   | 211   |  |   | 211   | 
|Totals                   |  | $                       | 2,702 |      | $ | 2,702 |  | $ | 2,701 | 

|   |                                         
|-- | ----------------------------------------
|8. | PARTNERS
 CAPITAL AND MINORITY INTEREST

The
General Partner invested $800,000 as a limited partner and $1,000 as a general
partner. We began raising capital in June 2005 and had raised approximately
$71.1 million at the time of the Offerings closing in October 2006. The
General Partners $800,000 investment represents a 1.1% limited partner
interest in the Partnership.

Limited
Optional Redemption Our Units were sold pursuant to exemptions
from registration under the Securities Act of 1933 and are not currently listed
on a national exchange or otherwise traded in an organized securities market.
These Units may be transferred only with consent of the General Partner after
delivery of required documents, and in any event, only if we register the offer
and sale of the Units under applicable securities laws or if an exemption from
such registration is available. We do not expect to register the offer and sale
of the Units. Moreover, we do not anticipate that any public market for the
Units will develop. In order to provide limited partners with the possibility
of liquidity, limited partners who have held their units for at least three
years may receive the benefit of interim liquidity by presenting all of those
units to the Partnership for redemption. At that time, we may, at our sole
election and subject to the conditions and limitations described below, redeem
the Units presented for cash to the extent that we have sufficient funds available
to us to fund such redemption. The redemption price to be paid will be 92% of
the limited partners unreturned invested capital. At no time during a 12-month
period, however, may the number of Units redeemed by us exceed 2% of the number
of Units outstanding at the beginning of that 12-month period. During the year
ended December 31, 2009, we received five redemption requests from the holders
of 11.4 Units. We granted one request to the holder of 1.2 units for $28,000.
During the year ended December 31, 2008, we received and granted three
redemption requests to the holders of nine Units for $207,000. During the year
ended December 31, 2007, we received and granted one redemption

F-17

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Table of Contents

request to the
holder of one Unit for $23,000. All redemptions were paid using cash flows from
operations. We suspended the optional redemption program during the second
quarter of 2009 due to macroeconomic conditions and the need to preserve cash.

Distributions - During the operating stage of the Partnership, net
cash flow, as defined, will be distributed 99% to the limited partners and 1%
to the General Partner. We made monthly distributions to our Limited Partners
at a rate of 7.5% per annum from January 2006 through November 2008. From
December 1, 2008, through June 30, 2009, distributions were made at a rate of
3.0% per annum. We suspended all distribution payments in July 2009, and do not
anticipate reinstating distributions until improvements in the real estate and
liquidity markets warrant such reinstatement. During the liquidation stage of
the Partnership (commencing in October 2012) net cash flow, as defined, will be
distributed among the limited partners and the General Partner in the following
manner:

| |   |                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | First - 99%
 to the limited partners and 1% to the General Partner until such time as the
 limited partners have received cumulative distributions from all sources
 (including monthly cash distributions during the operating stage of the
 Partnership) equal to 100% of their unreturned invested capital plus an
 amount equal to 10% per annum uncompounded on their invested capital.
| |   |                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Second -
 100% to the General Partner until it has received cumulative distributions
 from all sources (other than with respect to its limited partner units it
 purchased) in an amount equal to 40% of the net cash flow paid to date to the
 limited partners in excess of their adjusted capital.                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Thereafter -
 60% to the limited partners and 40% to the General Partner.                                                                                                                                                                                                                                                                                                                   

Non-controlling
Interest -Non-controlling interest represents a
40% ownership interest that one of our affiliate investment funds has in a real
estate partnership that we consolidate as a result of our 60% controlling
financial interest in such partnership.

|   |                           
|-- | --------------------------
|9. | RELATED PARTY TRANSACTIONS

Certain
of our affiliates received fees and compensation during the organizational
stage of the Partnership, including securities commissions and due diligence
reimbursements, marketing reimbursements and reimbursement of organizational
and offering expenses. In the event that these companies are unable to provide
us with the respective services, we would be required to find alternative
providers of these services. The following table summarizes the amount of such
compensation paid to our affiliates during the years ended December 31, 2009,
2008 and 2007:

|                                                                       |  |                                                                                                                                                                                                                 |  |      |    |      |   |      |  |   |        | 
|---------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | ---- | - | ---- |  | - | ------ | 
|Type of
 Service                                                       |  | Service Description & Compensation                                                                                                                                                                              |  | 2009 |    | 2008 |   | 2007 | 
|Securities
 Commissions, Due
 Diligence and
 Marketing
 Reimbursements |  | Sales commissions (7.25%) and dealer
 manager fees (2.5%) paid for placement of the limited partnership units
 through unaffiliated broker/dealers and reimbursement of bona fide due
 diligence efforts (0.5%) |  | $    | -- |      | $ | --   |  | $ | --     | 
|Organizational and
 Offering Cost
 Reimbursements                      |  | Reimbursement
 of the Partnerships organizational and offering costs, including legal and
 accounting fees, printing costs, filing fees and distribution costs.                                                |  |      | -- |      |   | --   |  |   | 97,460 | 
|                                                                       |  | Total                                                                                                                                                                                                           |  | $    | -- |      | $ | --   |  | $ | 97,460 | 

We have no
employees or offices. Additionally, certain of our affiliates receive fees and
compensation during the operating stage of the Partnership, including
compensation for providing services to us in the areas of asset management,
development and acquisitions, property management and leasing, financing,
brokerage and administration. We reimburse our General Partner for an
allocation of salary and other overhead costs. The following table summarizes
the amount of such compensation paid to our affiliates during the 2008, 2007
and 2006 periods:

F-18

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Table of Contents

|                                     |  |                                                                                                                                                                                                                                                                                                                                                                           |  |      |           |      |   |           |  |   |           | 
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | 
|Type of
 Service                     |  | Service Description & Compensation                                                                                                                                                                                                                                                                                                                                        |  | 2009 |           | 2008 |   | 2007      | 
|Asset Management                     |  | 1% of the
 net invested capital under management for accounting-related services,
 investor relations, facilitating the deployment of capital and other services
 provided by the General Partner in operating the Partnership                                                                                                                                            |  | $    | 617,753   |      | $ | 617,753   |  | $ | 617,753   | 
|Development and
 Acquisitions        |  | Between 3%
 and 6% of project costs for services provided by the affiliate in identifying,
 evaluating, procuring and, if applicable, developing properties (capitalized
 as part of real estate assets)                                                                                                                                                                  |  |      | --        |      |   | --        |  |   | 90,000    | 
|Property Management
 and Leasing     |  | Property
 management fees are not to exceed 4% of gross rentals for providing property
 management, operating, maintenance and other services required to maintain a
 quality property. Leasing fees are not to exceed 2% of base rent on a lease
 renewal and 6% of based rent on an initial lease or procuring tenants and
 negotiating the terms of the tenant leases. |  |      | 368,995   |      |   | 359,436   |  |   | 381,076   | 
|Additional Services                  |  | Financing
 coordination fee equal to 1% of the loan proceeds for procuring debt
 financing for Partnership                                                                                                                                                                                                                                                                |  |      | --        |      |   | --        |  |   | --        | 
|Brokerage                            |  | Brokerage
 fees are not to exceed 6% of the sales price for the sale of the property to
 an unaffiliated thirty party                                                                                                                                                                                                                                                     |  |      | --        |      |   | --        |  |   | --        | 
|Administration Costs
 Reimbursements |  | These costs
 represent actual expenses incurred by the General Partner in connection with
 its provision of administrative services, including personnel costs                                                                                                                                                                                                            |  |      | 459,408   |      |   | 301,822   |  |   | 227,674   | 
|                                     |  |                                                                                                                                                                                                                                                                                                                                                                           |  |      |           |      |   |           |  |  
|                                     |  |                                                                                                                                                                                                                                                                                                                                                                           |  |      |           |      |   |           |  |  
|                                     |  | Total                                                                                                                                                                                                                                                                                                                                                                     |  | $    | 1,446,156 |      | $ | 1,279,011 |  | $ | 1,316,503 | 

In
addition to the above fees paid by us, the non-consolidated entities in which we own an investment paid property management,
 leasing, development, and construction management fees of $1.2 million, $981,000, and $676,000 to one of our affiliated entities
 during the years ended December 31, 2009, 2008 and 2007, respectively.  Our Casa Linda property paid a total of $6.2 million in
 construction fees to an affiliated entity during 2008 and 2009.

|    |                                          
|--- | -----------------------------------------
|10. | REAL ESTATE ACQUISITIONS AND DISPOSITIONS

We had no
acquisitions or dispositions of properties in which we have a controlling
financial interest during the years ended December 31, 2009, 2008 and 2007. See
Note 4 for a discussion of our investment activity with respect to our
non-consolidated subsidiaries during the same periods.

|    |                              
|--- | -----------------------------
|11. | COMMITMENTS AND CONTINGENCIES

Litigation
- In the ordinary course of business, we may become subject to litigation or
claims. There are no material pending legal proceedings known to be
contemplated against us.

Environmental
matters - In connection with the ownership and
operation of real estate, we may be potentially liable for costs and damages
related to environmental matters. We have not been notified by any governmental
authority of any non-compliance, liability or other claim.

In
conjunction with our acquisition of the Lantern Lane shopping center in
September 2006, we identified an environmental exposure caused by a dry
cleaning business that operated on the property prior to our ownership. Our
agreement with the seller provides that, if the seller cannot provide
satisfactory evidence that they have performed appropriate remediation, we can
reduce our note payable to them by the lesser of the actual costs to remediate
or $1.0 million. We believe that the remediation costs will not exceed $1.0
million based on our environmental investigation. We have not recorded a
separate liability for this exposure as we believe that we are

F-19

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fully
indemnified by the seller pursuant to this arrangement. To the extent that we
are required to fund a portion of the remediation, such amount will be financed
through the reduction of the note payable to the seller. We believe that this
matter will not have an adverse effect on our consolidated financial position
or results of operations, and we are aware of no other environmental exposures.

|    |                  
|--- | -----------------
|12. | SUBSEQUENT EVENTS

In
May 2009, the FASB issued ASC 855, Subsequent Events, which we adopted in the second quarter of 2009.
 We have evaluated all events or transactions through March 10, 2010. During this period, we did not have any material
 subsequent events that impacted our consolidated financial statements.

F-20

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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND
SUBSIDIARIES
SCHEDULE III - Consolidated Real Estate Owned and
Accumulated Depreciation
For the year ended December 31, 2009

|                     |  |  |                            |            |  |  |      |            |  |                                                       |   |           |                            |  |   |            |      |  |   |            |       |  |   |                           |  |  |                |            |   |              |  |            |  |  |   |            | 
|-------------------- |  |  | -------------------------- | ---------- |  |  | ---- | ---------- |  | ----------------------------------------------------- | - | --------- | -------------------------- |  | - | ---------- | ---- |  | - | ---------- | ----- |  | - | ------------------------- |  |  | -------------- | ---------- | - | ------------ |  | ---------- |  |  | - | ---------- | 
|                     |  |  | Initial Cost               |            |  |  |      |            |  | Total Cost                                            |   |           |                            |  |   |            |      |  |   |            |       |  |  
|Property Description |  |  | Building and
 Improvements |            |  |  | Land |            |  | Cost Capitalized
 Subsequent to
 Acquisition (Note A) |   |           | Building and
 Improvements |  |   |            | Land |  |   |            | Total |  |   | Accumulated
 Depreciation |  |  | Date
 Acquired |            |   | Encumbrances | 
|                     |  |  |                            |            |  |  |      |            |  |                                                       |   |           |                            |  |   |            |      |  |   |            |       |  |   |                           |  |  |                |            |   |              |  |            |  |  |   |            | 
|Westside
 Plaza      |  |  |                            | 8,631,610  |  |  |      | 4,750,000  |  |                                                       |   | 1,276,699 |                            |  |   | 9,898,706  |      |  |   | 4,759,603  |       |  |   | 14,658,309                |  |  |                | (1,253,981 | ) |              |  | 9/30/2005  |  |  |   | 10,246,878 | 
|Olmos Creek          |  |  |                            | 9,829,663  |  |  |      | 4,261,553  |  |                                                       |   | (569,228  | )                          |  |   | 9,973,394  |      |  |   | 3,548,594  |       |  |   | 13,521,988                |  |  |                | (1,369,897 | ) |              |  | 6/30/2006  |  |  |   | 11,175,000 | 
|Lantern
 Lane        |  |  |                            | 11,386,338 |  |  |      | 6,308,354  |  |                                                       |   | 817,334   |                            |  |   | 12,182,680 |      |  |   | 6,329,346  |       |  |   | 18,512,026                |  |  |                | (1,955,448 | ) |              |  | 9/29/2006  |  |  |   | 13,440,000 | 
|Lake
 Houston        |  |  |                            | 15,968,495 |  |  |      | 3,800,000  |  |                                                       |   | 263,419   |                            |  |   | 16,223,401 |      |  |   | 3,808,513  |       |  |   | 20,031,914                |  |  |                | (2,112,039 | ) |              |  | 12/12/2005 |  |  |   | 15,675,000 | 
|                     |  |  |                            |            |  |  |      |            |  |                                                       |   |           |                            |  |   |            |      |  |   |            |       |  |   |                           |  |  |                |            |   |              |  |            |  |  |   |            | 
|                     |  |  |                            |            |  |  |      |            |  |                                                       |   |           |                            |  |   |            |      |  |   |            |       |  |   |                           |  |  |                |            |   |              |  |            |  |  |   |            | 
|Total                |  |  | $                          | 45,816,106 |  |  | $    | 19,119,907 |  |                                                       | $ | 1,788,224 |                            |  | $ | 48,278,181 |      |  | $ | 18,446,056 |       |  | $ | 66,724,237                |  |  | $              | (6,691,365 | ) |              |  |            |  |  | $ | 50,536,878 | 

Note A - The negative balance
for costs capitalized subsequent to acquisition could be the result of
out-parcels sold or disposals due to tenant vacancies.

Activity within real estate
and accumulated depreciation during the three years in the period ended
December 31, 2009 is as follows:

|                             |  |      |            |                          |   |           |  
|---------------------------- |  | ---- | ---------- | ------------------------ | - | --------- | -
|                             |  | Cost |            | Accumulated
Depreciation |  
|Balance at December 31, 2006 |  | $    | 65,682,482 |                          | $ | 1,183,554 |  
|Acquisitions / additions     |  |      | 1,035,377  |                          |   | -         |  
|Disposals                    |  |      | (282,520   | )                        |   | (9,844    | )
|Depreciation expense         |  |      | -          |                          |   | 1,941,330 |  
|Balance at December 31, 2007 |  | $    | 66,435,339 |                          | $ | 3,115,040 |  
|Acquisitions / additions     |  |      | 347,962    |                          |   | -         |  
|Disposals                    |  |      | (52,079    | )                        |   | (14,576   | )
|Depreciation expense         |  |      | -          |                          |   | 1,817,217 |  
|Balance at December 31, 2008 |  | $    | 66,731,222 |                          | $ | 4,917,681 |  
|Acquisitions / additions     |  |      | 101,624    |                          |   | -         |  
|Disposals                    |  |      | (108,609   | )                        |   | (42,812   | )
|Depreciation expense         |  |      | -          |                          |   | 1,816,496 |  
|Balance at December 31, 2009 |  | $    | 66,724,237 |                          | $ | 6,691,365 |  

S-1

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Report of Independent Registered Public Accounting Firm  The Partners of AmREIT Casa Linda, L.P.:  We have audited the accompanying balance sheets of AmREIT Casa Linda, L.P. (the “Partnership”) as of December 31, 2009 and 2008, and the related statements of operations, partners’ capital and cash flows for each of the years in the three-year period ended December 31, 2009. These financialstatements are the responsibility of the Partnership’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company’s internal control over financial reporting. As such, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the financial statements referred to above present fairly, in all materialrespects, the financial position of AmREIT Casa Linda, L.P. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.  KPMG LLP  Houston, TexasMarch 10, 2010 S-2


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SCHEDULE IV ― FINANCIAL STATEMENTS AND NOTES FOR AmREIT CASA LINDA, L.P.  AmREIT CASA LINDA, L.P. BALANCE SHEETS December 31, 2009 and December 31, 2008 (in thousands)  December 31,
2009
     
     December 31,
2008ASSETSReal estate investments at cost:Land
     
     $
     11,420
     
     $
     11,420Buildings
     
     
     36,784
     
     
     34,546Tenant improvements
     
     
     1,330
     
     
     75249,534
     
     
     46,718Less accumulated depreciation and amortization
     
     
     (4,314
     )
     
     (2,849
     )45,220
     
     
     43,869Intangible lease cost, net
     
     
     1,670
     
     
     2,286Net real estate investments
     
     
     46,890
     
     
     46,155Cash and cash equivalents
     
     
     109
     
     
     338Tenant receivables
     
     
     339
     
     
     384Deferred costs, net
     
     
     620
     
     
     467Other assets
     
     
     2,137
     
     
     2,212TOTAL ASSETS
     
     $
     50,095
     
     $
     49,556LIABILITIES AND PARTNERS' CAPITALLiabilities:Notes payable
     
     $
     37,950
     
     $
     37,950Notes payable - related party
     
     
     307
     
     
     -Accounts payable and accrued liabilities
     
     
     1,314
     
     
     1,378Accounts payable - related party
     
     
     1
     
     
     177Asset retirement obligations
     
     
     800
     
     
     800Below market leases, net
     
     
     115
     
     
     418Security deposits
     
     
     104
     
     
     127TOTAL LIABILITIES
     
     
     40,591
     
     
     40,850Partners' capital:General partner
     
     
     -
     
     
     -Limited partners
     
     
     9,504
     
     
     8,706TOTAL PARTNERS' CAPITAL
     
     
     9,504
     
     
     8,706TOTAL LIABILITIES AND PARTNERS' CAPITAL
     
     $
     50,095
     
     $
     49,556
  See Notes to Financial Statements.   S-3


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AmREIT CASA LINDA, L.P. STATEMENTS OF OPERATIONS For the years ended December 31, 2009, 2008 and 2007 (in thousands)  2009
     
     2008
     
     2007Revenues:Rental income from operating leases
     
     $
     4,340
     
     $
     4,737
     
     $
     5,004Total revenues
     
     
     4,340
     
     
     4,737
     
     
     5,004Expenses:General and administrative
     
     
     30
     
     
     25
     
     
     54Property expense
     
     
     1,557
     
     
     1,350
     
     
     1,670Property management fees - related party
     
     
     164
     
     
     174
     
     
     163Legal and professional
     
     
     69
     
     
     82
     
     
     113Depreciation and amortization
     
     
     2,017
     
     
     2,146
     
     
     2,497Total expenses
     
     
     3,837
     
     
     3,777
     
     
     4,497Operating income
     
     
     503
     
     
     960
     
     
     507Other income (expense):Interest and other income
     
     
     37
     
     
     41
     
     
     42Interest expense
     
     
     (2,170
     )
     
     (2,176
     )
     
     (2,172
     )Interest expense - related party
     
     
     (6
     )
     
     -
     
     
     -Margin tax expense
     
     
     (16
     )
     
     (28
     )
     
     (36
     )Total other income (expense)
     
     
     (2,155
     )
     
     (2,163
     )
     
     (2,166
     )Net loss
     
     $
     (1,652
     )
     $
     (1,203
     )
     $
     (1,659
     )
  See Notes to Financial Statements.  S-4


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AmREIT CASA LINDA, L.P. STATEMENTS OF PARTNERS' CAPITAL For the years ended December 31, 2009, 2008 and 2007 (in thousands)  General Partner
     
     Limited Partners
     
     TotalBalance at December 31, 2006
     
     $
     -
     
     $
     10,432
     
     $
     10,432Net loss (1)
     
     
     -
     
     
     (1,659
     )
     
     (1,659
     )Balance at December 31, 2007
     
     $
     -
     
     $
     8,773
     
     $
     8,773Contributions
     
     
     -
     
     
     1,136
     
     
     1,136Net loss (1)
     
     
     -
     
     
     (1,203
     )
     
     (1,203
     )Balance at December 31, 2008
     
     $
     -
     
     $
     8,706
     
     $
     8,706Contributions
     
     
     -
     
     
     2,450
     
     
     2,450Net loss (1)
     
     
     -
     
     
     (1,652
     )
     
     (1,652
     )Balance at December 31, 2009
     
     $
     -
     
     $
     9,504
     
     $
     9,504
  (1)   The allocation of net loss includes a curative allocation to increase the GP capital account by $17, $12 and $17 for the years ended December 31, 2009, 2008 and 2007, respectively, as the partnership agreement provides that no partner shall be required to fund a deficit balance in their capital account.  The cumulative curative allocation since inception of the Partnership is $47.  See Notes to Financial Statements.  S-5


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AmREIT CASA LINDA, L.P. STATEMENTS OF CASH FLOWS For the years ended December 31, 2009, 2008 and 2007 (in thousands)  2009
     
     2008
     
     2007Cash flows from operating activities:Net loss
     
     $
     (1,652
     )
     $
     (1,203
     )
     $
     (1,659
     )Adjustments to reconcile net loss to net cashprovided by (used in) operating activities:Bad debt expense
     
     
     45
     
     
     25
     
     
     -Depreciation and amortization
     
     
     2,017
     
     
     2,146
     
     
     2,497Amortization of above and below market leases, net
     
     
     (114
     )
     
     (362
     )
     
     (480
     )Amortization of loan acquisition costs
     
     
     61
     
     
     61
     
     
     64Decrease (increase) in tenant receivables
     
     
     -
     
     
     111
     
     
     (405
     )Increase in deferred costs
     
     
     (281
     )
     
     (168
     )
     
     (44
     )Decrease (increase) in other assets
     
     
     75
     
     
     3,442
     
     
     (772
     )Increase (decrease) in accounts payable and accrued liabilities
     
     
     (20
     )
     
     (180
     )
     
     1,483Increase (decrease) in accounts payable - related party
     
     
     (95
     )
     
     60
     
     
     (145
     )Increase (decrease) in security deposits
     
     
     (23
     )
     
     19
     
     
     (12
     )Net cash provided (used in) by operating activities
     
     
     13
     
     
     3,951
     
     
     527Cash flows from investing activities:Improvements to real estate
     
     
     (2,729
     )
     
     (4,999
     )
     
     (277
     )Net cash used in investing activities
     
     
     (2,729
     )
     
     (4,999
     )
     
     (277
     )Cash flows from financing activities:Proceeds from notes payable - related party
     
     
     712
     
     
     -
     
     
     -Payments on notes payable - related party
     
     
     (180
     )
     
     -
     
     
     -Contributions
     
     
     1,955
     
     
     1,136
     
     
     -Net cash provided by financing activities
     
     
     2,487
     
     
     1,136
     
     
     -Net increase (decrease) in cash and cash equivalents
     
     
     (229
     )
     
     88
     
     
     250Cash and cash equivalents, beginning of period
     
     
     338
     
     
     250
     
     
     -Cash and cash equivalents, end of period
     
     $
     109
     
     $
     338
     
     $
     250Supplemental schedule of cash flow information:Cash paid during the period for:Interest
     
     $
     2,109
     
     $
     2,114
     
     $
     1,929Taxes
     
     $
     24
     
     $
     32
     
     $
     -
  Supplemental schedule of non-cash transactions: During the year ended December 31, 2009, $75,000 of accounts payable to our limited partners was reclassified to equity contributions from limited partners.  During the year ended December 31, 2009, $420,000 of notes payable to one of our limited partners was reclassified to equity contributions from limited partners.  During the year ended December 31, 2009, we financed $145,000 of improvements to real estate through notes payable - related party.  See Notes to Financial Statements.  S-6


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AmREIT CASA LINDA, L.P. NOTES TO FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007  1.            Description of Business  AmREIT Casa Linda, L.P., a Texas limited partnership (the “Partnership”),was formed on December 8, 2006 to acquire Casa Linda, (the “Property”) a multi-tenant retail property located in Dallas, Texas with a combined gross leasable area of 324,569 squarefeet. During the year ended December 31, 2009, the property completed a substantial renovation that will allow it to maintain its historical character and prominence in the community, while updating the property’s features. This renovation was completed in April 2009 at a cost of $7.1 million. The General Partner of the Partnership is AmREIT Casa Linda GP, Inc.  The General Partner maintains its principal place of business in Houston, Texas.  The limited partners of the Partnership are AmREIT Monthly Income & Growth Fund III, Ltd. (“MIG III”) and AmREIT Monthly Income & Growth Fund IV, L.P. (“MIG IV”). Distributions are split between the partners in accordance with each partner’s ownership percentage. We have contracted with AmREIT Realty Investment Corporation (“ARIC”) to provide property management and leasing services. ARIC is a wholly-owned subsidiary of AmREIT, a Maryland corporation that has elected to be taxed as a real estate investment trust, and is an affiliate of MIG III and MIG IV.  2.            Summary of Significant Accounting Policies  BASIS OF PRESENTATION  Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred. Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) established the Accounting Standards Codification (“ASC”) as the primary source of authoritative Generally Accepted Accounting Principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities. Although the establishment of ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.  REVENUE RECOGNITION We lease space to tenants under agreements with varying terms.  All of the leases are accounted for as operating leases and although certain leases of the properties provide for tenant occupancy during periods for which no rent is due and/or increases or decreases in the minimum lease payments over the terms of the leases, revenue is recognized on a straight-line basis over the terms of the individual leases. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset.  Generally, this occurs on the lease commencement date. In all cases, we have determined that we are the owner of any tenant improvements that we fund pursuant to the lease terms.  In cases where tenant improvements are made prior to lease commencement, the leased asset is considered to be finished space, and revenue recognition therefore begins when the improvements are substantially complete. Accrued rents are included in tenant receivables. Revenue from tenant reimbursements of taxes, maintenance expenses and insurance is recognized in the period the related expense is recorded. Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. During the years ended December 31, 2009, 2008 and 2007, we recognized percentage rents of $5,000, $35,000 and $26,000, respectively.  We recognize lease termination fees in the period that the lease is terminated and collection of the fees is reasonably assured. Upon early lease termination we provide for losses related to unrecovered intangibles and other assets. During the years ended December 31, 2009, 2008 and 2007, we recognized no lease termination fees.  REAL ESTATE INVESTMENTS  Redevelopment-Land,
buildings and improvements are recorded at cost. Expenditures related to the
 redevelopment of real estate are carried at cost which includes capitalized carrying charges and redevelopment costs. Carrying charges, primarily interest,
 real estate taxes and loan acquisition costs, and direct and indirect development costs related to buildings under construction, are capitalized to building
 improvements.  S-7


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Acquired Properties and Acquired Lease Intangibles-We account for real estate acquisitions pursuant to ASC 805 Business Combinations. Accordingly, we allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and acquired liabilities based on their respective fair values. Identifiable intangibles include amounts allocated to acquired above and below-market leases, the value of in-place leases and customer relationship value, if any. We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to above-market and in-place leases are recorded as intangible lease costs, and intangibles related to below-market leases are recorded as below-market leases.  Amortization of above and below-market leases and in-place leases recorded as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired above and below market debt are amortized to interest expense over the remaining term of such debt.  Depreciation-Depreciation is computed using thestraight-line method over an estimated usefullife of up to 39 years for buildings, up to 20 years for site improvements and over the term of lease fortenant improvements.  Impairment-We review the property for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. We determine whether an impairment in value occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the property, with the carrying value of the individual property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its fair value. Both the estimated undiscounted cash flow analysis and fair value determination are based upon various factors which require complex and subjective judgments to be made by management.  Such assumptions include projecting lease-up periods, holding periods, cap rates,  rental rates, operating expenses, lease terms, tenant creditworthiness, tenant improvement allowances, terminal sales value and certain macroeconomic factors among other assumptions to be made for each property. We have not incurred any impairment losses since our inception.  ENVIRONMENTAL EXPOSURES  We are subject to numerous environmental laws and regulations as they apply to real estatepertaining to chemicals used by the dry cleaning industry, the existence of asbestos in older shopping centers, and underground petroleum storage tanks. We believe that the tenants who currently operate drycleaning plants or gas stations do so in accordance with current laws and regulations. We believe that theultimate disposition of currently known environmental matters will not have a material affect on ourfinancial position, liquidity, or operations (see Note 8). However, we can give no assurance that existingenvironmental studies with respect to the shopping centers have revealed all potential environmentalliabilities; that any previous owner, occupant or tenant did not create any material environmental condition not known to it; that the current environmental condition of the shopping center will not be affected bytenants and occupants, by the condition of nearby properties, or by unrelated third parties; or that changesin applicable environmental laws and regulations or their interpretation will not result in additionalenvironmental liability to the Partnership.  RECEIVABLES AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS  Tenant Receivables-Included in tenant receivables are base rents, tenant reimbursements andreceivables attributable to recording rents on a straight-line basis. Anallowancefor the uncollectibleportion of accrued rents and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. Bad debt expenses and any relatedrecoveries related to tenant receivables are included in property expense. As of December 31, 2009 and 2008, ourallowance for uncollectible accounts related to our tenant receivables was $67,000 and $25,000, respectively.  S-8


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DEFERRED COSTS  Deferred costs include loan acquisition costs and deferred leasing costs, net of amortization. Loanacquisition costs are incurred in obtaining financing and are amortized to interest expense over the term ofthe debt agreements. Deferred leasing costs consist of external commissionsassociatedwith leasing ourproperties and are amortized to depreciation and amortization expense over the lease term. Accumulated amortization related to loanacquisition costs as of December 31, 2009 and 2008 totaled $190,000 and $128,000, respectively. Accumulated amortization related to leasingcosts as of December 31, 2009 and 2008 totaled $89,000 and $35,000, respectively.  INCOME TAXES  Federal-No provision for U.S. federal income taxesisincluded in the accompanyingfinancial statements. As a partnership, we are not subject to federal income tax, and the federal tax effect ofour activities is passed through to our partners.  State-In May 2006, the State of Texas adoptedHouseBill 3, which modified the state’s franchisetax structure, replacing the previous tax based on capital or earned surplus with one based on margin (oftenreferred to as the “Texas Margin Tax”) effective with franchise tax reports filed on or after January 1, 2007.The Texas Margin Tax is computed by applying the applicable tax rate (1% for the Partnership) to theprofit margin, which, generally, will be determined for us as total revenue less a 30% standard deduction. Although House Bill 3 states that the Texas Margin Tax is not an income tax, the Partnership believes that ASC 740Income Taxes, applies to the Texas Margin Tax. The Texas Margin Tax accrued as of December 31, 2009 and 2008 totaled $31,000 and $33,000, respectively.  USE OF ESTIMATES  The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptionsthataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from those estimates.  FAIR VALUE OF FINANCIAL INSTRUMENTS  Our financial instruments consist primarily of cash and cash equivalents, tenant receivables, note payable, notes payable – related party, accounts payable and accrued liabilities, and accounts payable-related party. The carrying value of all but the notes payable are representative of their respective fair values due to the short-term nature of these instruments.  In determining the fair value of our debt instruments, we determine the appropriate Treasury Bill Rate based on the remaining time to maturity for each of the debt instruments.  We then add the appropriate yield spread to the Treasury Bill Rate. The yield spread is a risk premium estimated by investors to account for credit risk involved in debt financing. The spread is typically estimated based on the property type and loan-to-value ratio of the debt instrument. The result is an estimate of the market interest rate a typical investor would expect to receive given the underlying subject asset (property type) and remaining time to maturity.  Based on these estimates, the fair value of notes payable was $37.1 million and $38.8 million at December 31, 2009 and 2008, respectively.  NEWACCOUNTING STANDARDS  In June 2009, the FASB issued SFAS No. 167,Amendments to FASB Interpretation No. 46(R)(“SFAS No. 167”), which amends the consolidation guidance applicable to variable interest entities. The amendments will significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities—an interpretation of ARB No. 51 and changes the way entities account for securitizations and special purpose entities as a result of the elimination of the Qualified Special Purpose Entity (“QSPE”) concept in SFAS No.166. SFAS No. 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009 and early adoption is prohibited. We believe the consolidation requirements of SFAS No. 167 will not have an impact on our financial statements as we do not have any investments that would be considered variable interest entities.  S-9


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In June 2009, the FASB issued ASC 105,The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which became the single source of authoritative nongovernmental U.S. generally accepted accounting principles, superseding existing FASB, American Institute of Certified Public Accountants, EITF, and related accounting literature.  ASC 105 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure.  Also included is relevant SEC guidance organized using the same topical structure in separate sections.  ASC 105 is effective for all quarterly and annual reporting periods ending after September 15, 2009.  We adopted the provisions of ASC 105 in 2009.  Such adoption only changed the way we refer to GAAP to reflect the updated referencing convention and did not have an impact on our financial statements.  CASH AND CASH EQUIVALENTS  For purposes of the statements of cash flows, we consider all highly liquid debt instruments purchased with an original maturity of three months or less to becashequivalents. Cash andcash equivalents consist of demand deposits at commercial banks.  INTEREST  Interest is charged to interest expense as it accrues. No interest has been capitalized since inception of the Partnership.  3.            Operating Leases  Our operating leases generally range from one month to twelve years and generally include one or more five yearrenewal options. A summary of minimum future base rentals to be received, exclusive of any renewals, under non-cancelable operating leases in existence at December 31, 2009 is as follows:  Year
     
     Minimum Base 
Rents2010
     
     $
     2,955,0002011
     
     
     2,418,0002012
     
     
     1,963,0002013
     
     
     1,550,0002014
     
     
     1,270,000Thereafter
     
     
     6,490,000Total
     
     $
     16,646,000
   Future minimum rental revenueexcludesamounts that may be received from tenants forreimbursements of operating costs, real estate taxes and insurance. Expense reimbursements recognized as revenue totaled $1.1 million,$1.1 million and $1.3 million during the years ended December 31, 2009, 2008 and 2007, respectively.  4.            Acquired Lease Intangibles  In accordance with ASC 805,Business Combinations, we have identified and recorded the value of acquired lease intangibles at theproperty acquisition date. Such intangibles include the value of acquired in-place leases and above and below-market leases.Acquired lease intangible assets (in-place leases and above-market leases) areamortized over the leases’ remainingterms, which range from one month to approximately fourteen years. The amortization of above-market leases is recorded as areduction of rental income and the amortization of in-place leases is recorded as depreciation and amortization expense. Theamortization expense related to in-place leases was approximately $428,000, $701,000 and $1.1 million during the years ended December 31, 2009, 2008 and 2007, respectively. The amortization of above-market leases, which was recorded as a reduction ofrental income, was approximately $188,000, $165,000 and $173,000during the years ended December 31, 2009, 2008 and 2007, respectively.Acquired lease intangible liabilities (below-market leases)are accreted over the leases’ remaining non-cancelable lease term plus any fixed rate renewal options, ifapplicable, which range from one month to approximately five years. Accretion of below-market leases was approximately $303,000, $527,000 and $653,000during the years ended December 31, 2009, 2008 and 2007,respectively.  Such accretion is recorded as an increase to rental income.  S-10


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Acquired in-place lease and above and below-market lease values and their respective accumulated amortization are as follows (in thousands):  As of
December 31, 2009
     
     As of
December 31, 2008Acquired lease intangible assets:In-place leases
     
     $
     2,236
     
     $
     2,440In-place leases - accumulated amortization
     
     
     (1,748
     )
     
     (1,525
     )Above-market leases
     
     
     1,649
     
     
     1,718Above-market leases - accumulated amortization
     
     
     (467
     )
     
     (347
     )Acquired lease intangibles, net
     
     $
     1,670
     
     $
     2,286Acquired lease intangible liabilities:Below-market leases
     
     $
     1,232
     
     $
     1,409Below-market leases - accumulated accretion
     
     
     (1,117
     )
     
     (991
     )Acquired below-market lease intangibles, net
     
     $
     115
     
     $
     418
  The estimated aggregate amortization amounts fromacquiredlease intangibles for each of the nextfive years are as follows (in thousands):  Year ending December 31,
     
     Amortization expense
(in-place leases)
     
     Rental income (above
and below-market
leases)2010
     
     $
     165
     
     $
     (69
     )2011
     
     
     70
     
     
     (110
     )2012
     
     
     45
     
     
     (134
     )2013
     
     
     41
     
     
     (137
     )2014
     
     
     37
     
     
     (139
     )Totals
     
     $
     358
     
     $
     (589
     )
  5.            Notes Payable  Our outstanding debt at December 31, 2009 and 2008 consisted entirely of a $38.0 million fixed-rate mortgage loan, which requires monthly interest-onlypayments and matures in January 2014. Our mortgage loan is secured by certain real estate properties and may be prepaid, but is subject to a yield-maintenance premium or prepayment penalty. Our mortgage loan is fully guaranteed by our limited partners, MIG III and MIG IV.  As of December 31, 2009, the interest rateonour fixed-rate debt is 5.5%, and the remaining life is 4 years. Scheduled principal repayments on our note payable for the next 5 years are as follows (in thousands):  Scheduled payments by year
     
     Principal
     
     Loan maturities
     
     Total payments2010
     
     $
     -
     
     $
     -
     
     $
     -2011
     
     
     -
     
     
     -
     
     
     -2012
     
     
     -
     
     
     -
     
     
     -2013
     
     
     -
     
     
     -
     
     
     -2014
     
     
     -
     
     
     37,950
     
     
     37,950Thereafter
     
     
     -
     
     
     -
     
     
     -Total
     
     $
     -
     
     $
     37,950
     
     $
     37,950
  S-11


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6.            Concentrations  As of December 31, 2009, Casa Linda consisted of 61 tenants; none of which comprised more than 10% of our total base rent.  Followingare the base rents generated by our top five tenants during the years ended December 31, 2009, 2008 and 2007 (inthousands): Year ended December 31,Tenant
     
     2009
     
     2008
     
     2007Albertsons
     
     $
     287
     
     $
     287
     
     $
     287Chilis
     
     
     186
     
     
     148
     
     
     144El Fenix Restaurant
     
     
     181
     
     
     181
     
     
     181PETCO
     
     
     181
     
     
     178
     
     
     178Highland Park Cafeteria
     
     
     173
     
     
     179
     
     
     131Totals
     
     $
     1,008
     
     $
     973
     
     $
     921
  7.            Related Party Transactions  We have no employees or offices.
We rely on our General Partner to manage our business and affairs. Our General Partner utilizes the services of AmREIT and its affiliates in performing
its duties to us. These services primarily include the supervision of the management, leasing of the Property, construction management related to the redevelopment
 of the Property and brokerage commissions related to disposition of the property. As a result, we are dependent upon AmREIT and its affiliates.
In the event that these companies are unable to provide us with the respective services, we would be required to find alternative providers of these services.
During the years ended December 31, 2009, 2008 and 2007, we incurred property management and leasing fees of $443,000, $330,000 and $207,000,
respectively.  Our managing member and its affiliates receive fees primarily for providing services to us in the areas of property management and
leasing.  We have incurred $382,000 in construction management fees and $6.2 million in construction fees since the redevelopment began in April 2008.  These fees have been capitalized to
building.  8.            Commitments and ContingencieS  Litigation- In the ordinary course of business, we may become subject to litigation or claims. There are no material pending legal proceedings known to be contemplated against us.  Environmental matters- In connection with the ownership and operation of real estate, we may be potentially liable for costs and damages related to environmental matters. We have not been notified by any governmental authority of any non-compliance, liability or other claim.  In conjunction with our acquisition of Casa Linda in December2006, we identified an environmental exposure caused by a dry cleaning business that operated on the property prior to our ownership. We estimate that our obligation related to remediation of this exposure will be approximately $800,000.  Such amount has been placed in escrow and represents the deductible amount under an environmental insurance policy that we placed on the property upon acquisition.  We have recorded an asset retirement obligation for $800,000 and capitalized those estimated costs to Land in our accompanying balance sheet.  We believe that this matter will not have an adverse effect on our financial position or results of operations, and we are aware of no other environmental exposures. 9.
 SUBSEQUENT EVENTS In
May 2009, the FASB issued ASC 855, Subsequent Events, which we adopted in the second quarter of 2009.
 We have evaluated all events or transactions through March 10, 2010. During this period, we did not have any material
 subsequent events that impacted our consolidated financial statements. S-12


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