Table of Contents





|                                                                       |  | 
|---------------------------------------------------------------------- |  | 
|UNITED STATES
 SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,
 DC 20549
|                                                                       |  | 
|                                                                       |  | 
|                                                                       |  | 
|Form 10-K                                                             

|                                                 |                                                                                          
|------------------------------------------------ | -----------------------------------------------------------------------------------------
|(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, 2010                                              
|                                                 |                                                                                          
|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                
|                                                 |                                                                                          
|AmREIT MONTHLY INCOME & GROWTH FUND III, LTD.   
|(Name of Registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Texas                                                          |  | 20-2964630                          
|                                                               |  |                                     
|(State
or other jurisdiction of
incorporation or organization) |  | (I.R.S.
Employer
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(Title of
Class)

| |  | 
| |  | 
| |  | 

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

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

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
xNo 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 oNo 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 Exchange Act. (Check one):

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

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

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

|     |    |                                                                                                               |      |   
|---- | -- | ------------------------------------------------------------------------------------------------------------- | ---- | --
|ITEM |    |                                                                                                               | PAGE
|     |    |                                                                                                               |      |   
|     |    | PART I                                                                                                        |      |   
|     | 1  | BUSINESS                                                                                                      |      | 2 
|     | 1A | RISK FACTORS                                                                                                  |      | 14
|     | 1B | UNRESOLVED STAFF COMMENTS                                                                                     |      | 14
|     | 2  | PROPERTIES                                                                                                    |      | 14
|     | 3  | LEGAL PROCEEDINGS                                                                                             |      | 21
|     | 4  | REMOVED AND RESERVED                                                                                          |      | 21
|     |    |                                                                                                               |      |   
|     |    | PART II                                                                                                       |      |   
|     | 5  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
 AND ISSUER PURCHASES OF EQUITY SECURITIES |      | 21
|     | 6  | SELECTED FINANCIAL DATA                                                                                       |      | 23
|     | 7  | MANAGEMENTS
 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |      | 23
|     | 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                    |      | 31
|     | 8  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                   |      | 32
|     | 9  | CHANGES IN
 AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |      | 32
|     | 9A | CONTROLS AND PROCEDURES                                                                                       |      | 32
|     | 9B | OTHER INFORMATION                                                                                             |      | 33
|     |    |                                                                                                               |      |   
|     |    | PART III                                                                                                      |      |   
|     | 10 | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                        |      | 33
|     | 11 | EXECUTIVE COMPENSATION                                                                                        |      | 34
|     | 12 | SECURITY
 OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED
 STOCKHOLDER MATTERS             |      | 34
|     | 13 | CERTAIN
 RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    |      | 34
|     | 14 | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                        |      | 38
|     |    |                                                                                                               |      |   
|     |    | PART IV                                                                                                       |      |   
|     | 15 | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                    |      | 39
|     |    | SIGNATURES                                                                                                    |      | 42

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Table of Contents

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 Annual Report 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 Annual Report, 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.

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Table of Contents

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 has been 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.

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 27-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 (excluding any Units held by our General Partner). 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.

We
issued Units in the Offering in reliance upon exemptions from the registration
requirements of the Securities Act and state securities laws. As a result, our
Limited Partners may not transfer the Units except pursuant to an effective
registration statement or pursuant to an exemption from registration. The Units
are not currently listed on a securities exchange and there currently is no
established public trading market for the Units. We do not intend to list the
Units at this time and have no plans to list the Units on an exchange in the
future.

As
of December 31, 2010, 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.

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Table of Contents

As of December
31, 2010, these properties were 77% 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, 2010:

|                           |  |          |              |               |  |               |   |           |           |                          |  |     |   |   |            | 
|-------------------------- |  | -------- | ------------ | ------------- |  | ------------- | - | --------- | --------- | ------------------------ |  | --- | - | - | ---------- | 
|Property                   |  | Location |              | Percent Owned |  | SquareFootage |   | Occupancy |           | Annualized Base Rent (1) | 
|Market at Lake Houston (4) |  |          | Houston      |               |  | 60            | % |           | 101,799   |                          |  | 100 | % | $ | 1,581,000  | 
|Lantern Lane               |  |          | Houston      |               |  | 100           |   |           | 79,462    |                          |  | 88  |   |   | 1,296,000  | 
|Olmos Creek                |  |          | San
 Antonio |               |  | 100           |   |           | 102,178   |                          |  | 86  |   |   | 854,000    | 
|Westside Plaza             |  |          | Houston      |               |  | 100           |   |           | 43,021    |                          |  | 43  |   |   | 526,000    | 
|Berkeley Square (5)        |  |          | Dallas       |               |  | 20            |   |           | 125,333   |                          |  | 88  |   |   | 1,983,000  | 
|Casa Linda Plaza (5)       |  |          | Dallas       |               |  | 50            |   |           | 324,569   |                          |  | 72  |   |   | 3,293,000  | 
|Preston Park Gold (5)      |  |          | Dallas       |               |  | 20            |   |           | 101,096   |                          |  | 84  |   |   | 791,000    | 
|Preston Towne Crossing (5) |  |          | Dallas       |               |  | 20            |   |           | 169,844   |                          |  | 78  |   |   | 2,598,000  | 
|Woodlake Pointe (2)(5)(6)  |  |          | Houston      |               |  | 30            |   |           | 82,120    |                          |  | 100 |   |   | 216,000    | 
|Woodlake Square (3)(5)     |  |          | Houston      |               |  | 3             |   |           | 205,522   |                          |  | 62  |   |   | 1,564,000  | 
|5433 Westheimer (5)(7)     |  |          | Houston      |               |  | 58            |   |           | 133,881   |                          |  | 63  |   |   | 1,465,000  | 
|Totals                     |  |          |              |               |  |               |   |           | 1,468,825 |                          |  |     |   | $ | 16,167,000 | 

|    |                                                                                                                                                                                                                                           |  | 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|(1) | Annualized
 base rent represents base rents in place on leases with rent having commenced
 as of December 31, 2010 and does not reflect straight-line rent or other
 adjustments required under generally accepted accounting principles.
|    |                                                                                                                                                                                                                                           |  | 
|(2) | Property is
 planned for redevelopment.                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                           |  | 
|(3) | Property is
 currently under redevelopment.                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                           |  | 
|(4) | Property is
 60% owned through a joint venture and is consolidated in our financial
 statements and was sold subsequent to December 31, 2010.                                                                                            
|    |                                                                                                                                                                                                                                           |  | 
|(5) | Property is
 owned through a joint venture that is not consolidated in our financial
 statements.                                                                                                                                        
|    |                                                                                                                                                                                                                                           |  | 
|(6) | As of
 December 31, 2010 this property was occupied by a tenant with a temporary
 lease.                                                                                                                                                 
|    |                                                                                                                                                                                                                                           |  | 
|(7) | Property
 represents a mixed-use investment that includes a hotel and an 11 story
 office building. The information provided in this table is related to the
 office building only.                                                      
|    |                                                                                                                                                                                                                                           |  | 
|    | 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 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.

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Equity
Allocation

As
of December 31, 2010, we had invested substantially all of the net proceeds of
the Offering in real properties. We have invested approximately 75% of our
capital in existing commercial shopping centers, primarily multi-tenant
properties and mixed-use properties. Approximately 25% of our capital is
invested in the development and redevelopment of commercial shopping centers,
consisting primarily of multi-tenant and mixed-use 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 75% 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. 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 25% 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. 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.

We are currently redeveloping Woodlake
Square, and we plan to redevelop Woodlake Pointe. It is likely that these
properties will become mixed-use developments which may include office,
residential, entertainment and hospitality components. It is possible that our
future investments will have mixed-use components as well. Our General Partner
will analyze the market surrounding each mixed-use development to determine the
optimal mix of retail to non-retail components. We seek to develop properties
in locations that provide limited competition, quality demographics and strong
market fundamentals. We intend to commence the leasing process before
construction of a particular development property.

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Table of Contents

Our General Partner may hire a general
contractor to provide construction and construction management services for
each of our development and redevelopment projects. The general contractor will
be entitled to fees for providing these services, and these fees may be paid on a fixed price basis or a cost
plus basis. AmREIT Construction Company, an affiliate of our General Partner,
has historically provided construction and construction management services for
many of our development and redevelopment projects. During 2008,
AmREIT Construction Company ceased providing these services. 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 will 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.

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
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:

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| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | 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.

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.

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Net Leases

We
typically enter into net leases with our tenants. Net leases are leases that
typically require tenants to 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.

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.

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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 or of 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 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.

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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 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 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 the 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.

During
2010, our General Partner notified AmREIT of its intent to sell our Market at
Lake Houston property. Our General Partner and AmREIT followed the appraisal
process outlined above, and AmREIT exercised its right of first refusal to
acquire the property. In February 2011, we sold the Market at Lake Houston
property to AmREIT for a combination of cash and the assumption of debt.

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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.
Refinancing may permit 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 payment 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 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.

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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 that have similar investment
objectives and that 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.

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.

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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
it agrees 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 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.

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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 projects in 2007 and 2009,
respectively. During 2008, AmREIT Construction Company ceased providing 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.

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 a 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 77%, 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.

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Concentration of Credit Risk

We
have geographic concentration in our property holdings. In particular, as of
December 31, 2010, all of our properties were located in Texas. We have tenant
concentration in our properties. Rental income generated from H-E-B Grocery
represented 23% of our 2010 rental income.

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 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

None.

ITEM 2. PROPERTIES

Overview

During
the period from April 19, 2005 (inception) to December 31, 2010, 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.

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As of December
31, 2010, we owned interests in the following properties, all of which are
located in Texas:

|                           |  |              |  |               |           |  |              |  |     |                         |  |   |                                            |  |  |  |       | 
|-------------------------- |  | ------------ |  | ------------- | --------- |  | ------------ |  | --- | ----------------------- |  | - | ------------------------------------------ |  |  |  | ----- | 
|Property                   |  | Location     |  | SquareFootage |           |  | PercentOwned |  |     | Annualized Base Rent(1) |  |   | Percentage of TotalAnnualized Base Rent(1) | 
|Market at Lake Houston (2) |  | Houston      |  |               | 101,799   |  |              |  | 60  |                         |  | $ | 1,581,000                                  |  |  |  | 9.8   | 
|Lantern Lane               |  | Houston      |  |               | 79,462    |  |              |  | 100 |                         |  |   | 1,296,000                                  |  |  |  | 8.0   | 
|Olmos Creek                |  | San
 Antonio |  |               | 102,178   |  |              |  | 100 |                         |  |   | 854,000                                    |  |  |  | 5.3   | 
|Westside Plaza             |  | Houston      |  |               | 43,021    |  |              |  | 100 |                         |  |   | 526,000                                    |  |  |  | 3.3   | 
|Berkeley Square (3)        |  | Dallas       |  |               | 125,333   |  |              |  | 20  |                         |  |   | 1,983,000                                  |  |  |  | 12.3  | 
|Casa Linda Plaza (3)       |  | Dallas       |  |               | 324,569   |  |              |  | 50  |                         |  |   | 3,293,000                                  |  |  |  | 20.4  | 
|Preston Park Gold (3)      |  | Dallas       |  |               | 101,096   |  |              |  | 20  |                         |  |   | 791,000                                    |  |  |  | 4.9   | 
|Preston Towne Crossing (3) |  | Dallas       |  |               | 169,844   |  |              |  | 20  |                         |  |   | 2,598,000                                  |  |  |  | 16.0  | 
|Woodlake Pointe (3)(4)     |  | Houston      |  |               | 82,120    |  |              |  | 30  |                         |  |   | 216,000                                    |  |  |  | 1.3   | 
|Woodlake Square (3)        |  | Houston      |  |               | 205,522   |  |              |  | 3   |                         |  |   | 1,564,000                                  |  |  |  | 9.7   | 
|5433 Westheimer (3)        |  | Houston      |  |               | 133,881   |  |              |  | 58  |                         |  |   | 1,465,000                                  |  |  |  | 9.0   | 
|Totals                     |  |              |  |               | 1,468,825 |  |              |  |     |                         |  | $ | 16,167,000                                 |  |  |  | 100.0 | 

|    |                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Annualized
 base rent represents base rents in place on leases with rent having commenced
 as of December 31, 2010 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
 and was sold subsequent to December 31, 2010.                                                                                 
|    |                                                                                                                                                                                                                                 
|(3) | Property is
 owned through a joint venture that is not consolidated in our financial
 statements.                                                                                                                               
|    |                                                                                                                                                                                                                                 
|(4) | As of
 December 31, 2010 this property was occupied by a tenant with a temporary lease.                                                                                                                                         

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 with a June
2015 maturity 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 $9.4 million as of December 31, 2010.
The second loan in the amount of $640,000 bears an annual interest rate of
12.75% and had an outstanding principal balance of $635,000 as of December 31,
2010.

The
Westside Plaza property was 43% leased at December 31, 2010 and is anchored by
Fadis restaurant, which occupies 5,125 square feet with a lease scheduled to
expire in January 2012. In December 2010, we entered into a lease agreement with a
women's fashion retailer for 24,500 square feet. The lease expires in June 2016. We completed the redevelopment of the property by
adding aesthetic enhancements during 2007.

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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 100% leased as of December 31, 2010. 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.

In
February 2011, we sold the Market at Lake Houston property to AmREIT for a
combination of cash and the assumption of debt. The acquisition was subject to
the appraisal process set forth in Item 1. Business  Disposition Policies 
AmREITs Purchase Rights.

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. In December 2010, we
elected to extend the loan for a term of one year. The loan bears interest at
LIBOR plus a spread of 1.70%. The office building was 63% leased as of December
31, 2010. 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. The property is accounted for under the equity method of
accounting as it does not meet all conditions for consolidation outlined in
Accounting Standards Codification (ASC) 810 Consolidation.
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.
During 2010, the hotel was approximately 72% occupied, and generated an average
daily rate of $109.

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 with a November 2011 call
date in the amount of $11.2 million that bears an annual interest rate of
6.02%. As of December 31, 2010, the property was 86% leased. Major tenants
include H-E-B Grocery as the largest tenant occupying 55,513 square feet,
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 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.

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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 with a maturity
of September 2011 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 88% leased at December 31, 2010. 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 July 2007. The property is unencumbered and was
84% occupied as of December 31, 2010.

Preston
Towne Crossing and Berkeley Square.The 169,844-square-foot
Preston Towne Crossing and the 125,333-square-foot Berkeley Square were 78% and
88% occupied, respectively at December 31, 2010 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 $20.7 million as of December 31, 2010.
The Berkeley Square loan bears interest at 5.87% and had a balance of $16.8
million as of December 31, 2010.

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. Studio 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, 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 with a maturity of January 2014 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.

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The
property was 72% leased at December 31, 2010. 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, and
Supercuts. 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 acquired 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 was interest-only until maturity. The interest
related to this debt was 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, effectively fixing the investment rate at 5.465%.

In
July 2010, we and our affiliated joint venture partners on our Woodlake Square
property, MIG IV and ARIC, entered into a joint venture agreement with a third
party on our Woodlake Square property. As part of this transaction, we and our
affiliates sold 90% of our interest in the property and retained a 10%
ownership interest, which carries a promoted interest in cash flows once an
11.65% preferred return threshold is met on the project. Prior to the
transaction, we owned a 30% interest in the property, and we own a 3% interest,
post-transaction. We recorded an impairment of approximately $185,000 on this
investment which has been recorded as impairment in equity in losses from
non-consolidated subsidiaries in our consolidated statements of operations. The
sale generated cash proceeds of approximately $3.4 million, and we, our
affiliated partners, and our third party joint venture partner are responsible
for funding our pro rata amount of the redevelopment costs on the project,
which are currently estimated to be approximately $8.0 million. Additionally,
as part of the transaction, the $23.8 million loan on the property, which was
due to mature in September 2010, was paid in full at closing. The new entity in
which we now own a 3% interest, VIF II/AmREIT Woodlake L.P., is the borrower on
the new $20.9 million loan, which has a 3-year term with two one-year extension
options, provided certain conditions are met. The maturity of the new loan is
July 2017. We, along with our affiliate, MIG IV are joint and several repayment
guarantors on the loan. We will continue to account for this investment using
the equity method given our ability to significantly influence the propertys
operations.

Redevelopment
of the property began in July 2010 and the total cost of the project is
estimated to be $8.0 million. The former Randalls building has been demolished
and the pad site was turned over to Randalls on time and within budget. The
redevelopment is on track to be completed in April 2011. The property was 62%
leased at December 31, 2010. Randalls, the largest tenant, signed a new lease
in January 2010 that expires in 2035. Additional tenants are Walgreens, Jos.
A. Bank Clothiers, Ragin Cajun, and Woodlake Childrens Center.

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.

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.

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We
are currently evaluating options to redevelop this property. Louis Shanks was
our sole tenant during the 2010 period. Because this property is under
redevelopment, we recorded rental income as a reduction to the basis of the
asset. The Louis Shanks lease represented a temporary lease that expired in
January 2011. We are in the anchor leasing stage of development and currently
are under letter of intent with a large national fitness tenant for a 45,000
square foot building on the unimproved land and are in discussions with an
anchor tenant for the existing building. Phase I of the redevelopment is
expected to commence in July 2011.

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, 2010:

|                 |  |                         |    |                      |  |                                          |           |  |  |  |      | 
|---------------- |  | ----------------------- | -- | -------------------- |  | ---------------------------------------- | --------- |  |  |  | ---- | 
|Industry         |  | Total Number of
Tenants |    | Annualized Base
Rent |  | Percentage of Total
Annualized Base Rent
|Dining           |  |                         | 45 |                      |  | $                                        | 3,470,000 |  |  |  | 21.5 | 
|Grocery          |  |                         | 8  |                      |  |                                          | 2,583,000 |  |  |  | 16.0 | 
|Specialty Retail |  |                         | 42 |                      |  |                                          | 2,381,000 |  |  |  | 14.7 | 
|Services         |  |                         | 47 |                      |  |                                          | 1,371,000 |  |  |  | 8.5  | 
|Banking          |  |                         | 14 |                      |  |                                          | 1,189,000 |  |  |  | 7.4  | 

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, 2010, assuming no exercise of
renewal option or termination rights.

|                             |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|---------------------------- |  | ---------------- |  | -------------- | ------ | ---------------------------------------------- |  | ------------------------ | --- |  |  |  | ---- | 
|Property                     |  | Industry         |  | Square Footage |        | Percentage of
Property Rentable
Square Footage |  | Year of Lease
Expiration
|Tenant                       |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Market at
Lake Houston (1)   |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|H-E-B Grocery                |  | Grocery          |  |                | 80,641 |                                                |  |                          | 79  |  |  |  | 2017 | 
|Lantern
Lane                 |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Rice Food Markets, Inc.      |  | Grocery          |  |                | 21,450 |                                                |  |                          | 27  |  |  |  | 2013 | 
|Fidelity Investments         |  | Banking          |  |                | 9,578  |                                                |  |                          | 12  |  |  |  | 2013 | 
|Olmos
Creek                  |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|H-E-B Grocery                |  | Grocery          |  |                | 65,681 |                                                |  |                          | 64  |  |  |  | 2020 | 
|Westside
Plaza               |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Fadis Mediterranean Delight |  | Dining           |  |                | 5,125  |                                                |  |                          | 12  |  |  |  | 2012 | 
|Berkeley
Square              |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Movie Grill Concepts, Ltd.   |  | Entertainment    |  |                | 30,977 |                                                |  |                          | 25  |  |  |  | 2015 | 
|Casa Linda
Plaza             |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Albertsons                  |  | Grocery          |  |                | 59,561 |                                                |  |                          | 18  |  |  |  | 2016 | 
|Preston
Park Gold            |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Golds Gym                   |  | Gym              |  |                | 49,427 |                                                |  |                          | 49  |  |  |  | 2025 | 
|Chair King                   |  | Specialty
Retail |  |                | 27,438 |                                                |  |                          | 27  |  |  |  | 2017 | 
|Preston
Towne Crossing       |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Recreational Equipment, Inc. |  | Sporting
Goods   |  |                | 27,000 |                                                |  |                          | 16  |  |  |  | 2015 | 
|Plaza Park Salon             |  | Salon            |  |                | 20,000 |                                                |  |                          | 12  |  |  |  | 2012 | 
|Woodlake
Pointe              |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Louis Shanks of Texas (2)    |  | Specialty
Retail |  |                | 82,120 |                                                |  |                          | 100 |  |  |  | 2011 | 
|Woodlake
Square              |  |                  |  |                |        |                                                |  |                          |     |  |  |  |      | 
|Randalls                    |  | Grocery          |  |                | 56,430 |                                                |  |                          | 28  |  |  |  | 2013 | 

|    |                                          
|--- | -----------------------------------------
|(1) | Property was
sold subsequent to year end.

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | This
property is under development, and this lease represents a temporary lease
that expired in January 2011. Because this property is under redevelopment,
we recorded rental income as a reduction to the basis of the asset. We are in
the anchor leasing stage of development and currently are under letter of
intent with a large national fitness tenant for a 45,000 square foot building
on the unimproved land and are in discussions with an anchor tenants for the
existing building and pads. Phase I of the redevelopment is expected to
commence in the middle of 2011.

The
following table shows lease expirations for our four consolidated properties as
of December 31, 2010, 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 Base
Rent |  | Percentage of Total
Annualized Base Rent |          
|2011                     |  |                        | 6  |                      |  | 10,662               |  | $                                        | 255,000   |  |  | 6.0   | 
|2012                     |  |                        | 10 |                      |  | 27,023               |  |                                          | 566,000   |  |  | 13.3  | 
|2013                     |  |                        | 11 |                      |  | 56,476               |  |                                          | 1,030,000 |  |  | 24.2  | 
|2014                     |  |                        | 6  |                      |  | 11,118               |  |                                          | 251,000   |  |  | 5.9   | 
|2015                     |  |                        | 4  |                      |  | 7,282                |  |                                          | 168,000   |  |  | 4.0   | 
|2016                     |  |                        | 1  |                      |  | 1,172                |  |                                          | 77,000    |  |  | 1.8   | 
|2017                     |  |                        | 5  |                      |  | 84,815               |  |                                          | 1,347,000 |  |  | 31.6  | 
|2018                     |  |                        | 2  |                      |  | 7,000                |  |                                          | 161,000   |  |  | 3.8   | 
|2019                     |  |                        |   |                      |  |                     |  |                                          |          |  |  | 0.0   | 
|2020                     |  |                        | 3  |                      |  | 68,644               |  |                                          | 393,000   |  |  | 9.2   | 
|Thereafter               |  |                        | 1  |                      |  | 4,550                |  |                                          | 8,400     |  |  | 0.2   | 
|Totals                   |  |                        | 49 |                      |  | 278,742              |  | $                                        | 4,256,400 |  |  | 100.0 | 

The
following table shows lease expirations for our seven non-consolidated
properties as of December 31, 2010, 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
Base
Rent |  | Percentage
of Total
Annualized Base Rent |           
|2011 (1)                 |  |                        | 56  |                      |  | 195,147              |  | $                                        | 2,611,000  |  |  | 21.9  | 
|2012                     |  |                        | 43  |                      |  | 115,610              |  |                                          | 2,044,000  |  |  | 17.2  | 
|2013                     |  |                        | 37  |                      |  | 140,316              |  |                                          | 1,854,000  |  |  | 15.6  | 
|2014                     |  |                        | 18  |                      |  | 46,400               |  |                                          | 889,000    |  |  | 7.4   | 
|2015                     |  |                        | 31  |                      |  | 142,579              |  |                                          | 2,126,000  |  |  | 17.9  | 
|2016                     |  |                        | 13  |                      |  | 92,052               |  |                                          | 803,000    |  |  | 6.7   | 
|2017                     |  |                        | 1   |                      |  | 27,438               |  |                                          | 338,000    |  |  | 2.8   | 
|2018                     |  |                        | 1   |                      |  | 7,644                |  |                                          | 168,000    |  |  | 1.4   | 
|2019                     |  |                        | 4   |                      |  | 9,594                |  |                                          | 189,000    |  |  | 1.6   | 
|2020                     |  |                        | 1   |                      |  | 3,710                |  |                                          | 122,000    |  |  | 1.0   | 
|Thereafter               |  |                        | 5   |                      |  | 75,162               |  |                                          | 766,000    |  |  | 6.5   | 
|Totals                   |  |                        | 210 |                      |  | 855,652              |  | $                                        | 11,910,000 |  |  | 100.0 | 

|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(1) | Includes the
expiration of a short-term lease with Louis Shanks for 82,120 square feet of
Woodlake Pointe.

As
of December 31, 2010, 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.

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Table of Contents

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.

ITEM 4. REMOVED
AND RESERVED

PART II

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

Market Information and Holders

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 31, 2011, we
have 2,833 units outstanding held by 1,161 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, 2010, 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.

Distributions

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, 2009 and December 31,
2010:

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|                |  |                                    |           |                       |   |       | 
|--------------- |  | ---------------------------------- | --------- | --------------------- | - | ----- | 
|Period Paid (1) |  | Total
Amount of
Distributions Paid |           | Distribution
Per Unit |  
|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  |  |                                    |          |                       |   |      | 
|January, 2010   |  |                                    |          |                       |   |      | 
|February, 2010  |  |                                    |          |                       |   |      | 
|March, 2010     |  |                                    |          |                       |   |      | 
|April, 2010     |  |                                    |          |                       |   |      | 
|May, 2010       |  |                                    |          |                       |   |      | 
|June, 2010      |  |                                    |          |                       |   |      | 
|July, 2010      |  |                                    |          |                       |   |      | 
|August, 2010    |  |                                    |          |                       |   |      | 
|September, 2010 |  |                                    |          |                       |   |      | 
|October, 2010   |  |                                    |          |                       |   |      | 
|November, 2010  |  |                                    |          |                       |   |      | 
|December, 2010  |  |                                    |          |                       |   |      | 
|Total           |  | $                                  | 1,239,257 |                       |   |       | 

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

We
declared 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 declared 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, 2010 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;                                         

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| |   |                                       
| | - | --------------------------------------
| |  | 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.

Since
our inception, we have redeemed 11.2 Units. As of June 30, 2009, we suspended
all future redemptions of Units.

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., an SEC reporting, non-traded
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.

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, 2010, 2009, and 2008. As of December 31, 2010, our properties had
an average occupancy of 77%, and the average debt leverage ratio of the properties
in which we have an investment was approximately 60%, 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.

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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.

As
of December 31, 2010, 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, 2010, 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.

Given
the current economic environment we ceased 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.

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,
accounting for the investment in real estate assets, accounting for the
investment in non-consolidated entities, 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. 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. 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.

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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.

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
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 the lease for tenant
improvements and intangible lease costs.

Investment
in Non-consolidated Entities

As
of December 31, 2010, 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 investments in non-consolidated entities for other-than-temporary
impairment. Accordingly, we review the investments held by the underlying
investee entities 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 investment, with the carrying value of the individual investment. 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 investment. As discussed in Note 4,
our Woodlake Square property
recorded an impairment during the year ended December 31, 2010. Our portion of
such impairment was approximately $185,000 and was recorded in equity in losses
from non-consolidated subsidiaries. No impairment charges were recognized
during the years ended December 31, 2009, and 2008.

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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 Accounting Standards
Codification (ASC) 805, Business
Combinations. We expense acquisition costs associated with operating
properties as incurred. We capitalize costs associated with pending
acquisitions of raw land as incurred. Such costs are expensed if and when such
land acquisition becomes no longer probable. 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 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 leases 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. Any premiums or discounts on acquired out-of-market debt are amortized
to interest expense over the remaining term of such debt.

Recently Issued Accounting Pronouncements

In
June 2009, the Financial Accounting Standards Board (the FASB) amended the
consolidation guidance applicable to variable interest entities in ASC 810, Consolidation. 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 variable interest entities
as a result of the elimination of the Qualified Special Purpose Entity (QSPE)
concept in Statement of Financial Accounting Standards (SFAS) No.166. We
adopted the provisions of ASC 810 on January 1, 2010. The adoption of SFAS 167
did not have an effect on our results of operations or financial position.

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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
2011, 3.8% of the total square footage of our consolidated properties expires,
and 22.8% of the total square footage of our non-consolidated properties expires.
Our leasing strategy for 2011 focuses on negotiating 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 or 2010. 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 Market at Lake Houston, LP, 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, 2010 to the year
ended December 31, 2009

Revenue.Revenue decreased
approximately $617,000 for the year ended December 31, 2010 as compared to the
same period in 2009 ($6.2 million in 2010 versus $6.8 million in 2009). This
decrease was due to the lease expiration of DSW on our Westside Plaza property
and due to the move outs of Blockbuster on our Lantern Lane and Olmos Creek
properties during the 2010 period. Also, a decrease in recoverable property tax
expenses resulted in a corresponding decrease in expense recoveries billed to
our tenants.

Property
Expense. Property
expense decreased approximately $290,000 for the year ended December 31, 2010
as compared to the same period in 2009 ($1.6 million in 2010 versus $1.9
million in 2009). This decrease was primarily due to a 2009 property tax refund
received during the 2010 period for our Lantern Lane property, as well as a
reduction in property taxes for the 2010 tax year.

Property
Management Fees  Related Party.Property management fees decreased approximately $49,000 for the year
ended December 31, 2010 as compared to the same period in 2009 ($248,000 in
2010 versus $297,000 in 2009). Property management fees are calculated based on
tenant billings. This decrease was primarily due to a decrease in expense
recoveries that were billed to tenants during the 2010 period as compared to
the 2009 period.

Depreciation
and Amortization.Depreciation
and amortization decreased approximately $213,000 for the year ended December
31, 2010 as compared to the same period in 2009 ($2.4 million in 2010 versus
$2.6 million in 2009). This decrease was primarily due to a decrease in
depreciation and amortization of tenant improvements and in-place
leases as a substantial portion of those costs were written off due to tenant
vacancies during the 2009 period.

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Interest
and Other Income.Interest
and other income decreased approximately $29,000 for the year ended December
31, 2010 as compared to the same period in 2009 ($8,000 in 2010 versus $37,000
in 2009). This decrease resulted from a lower outstanding balance on the note
receivable from our joint venture partner on our investment in 5433 Westheimer,
L.P. That note was paid in full during 2009. Interest income earned during the
year ended December 31, 2010 was limited to interest earned on deposit
accounts.

Interest
Expense. Interest
expense increased $109,000 for the year ended December 31, 2010 as compared to
the same period in 2009 ($3.2 million in 2010 versus $3.1 million in 2009).
This increase resulted from interest accrued on borrowings from affiliates of
our General Partner.

Equity
in Losses from Non-consolidated Entities.Equity in losses from non-consolidated
entities increased approximately $2.0 million for the year ended December 31,
2010 as compared to the same period in 2009 ($3.6 million in 2010 versus $1.6
million in 2009). These amounts represent our ownership portion of our joint ventures
net income or loss for the period. The increased loss is due to increased
depreciation expense resulting from the redevelopment project at our Woodlake
Square property. Our joint venture reassessed and shortened the estimated
useful lives of various buildings consistent with the demolition of such
buildings as part of the redevelopment.

Net
Loss Attributable to Non-controlling Interest.Net loss attributable to non-controlling
interest decreased approximately $51,000 for the year ended December 31, 2010
as compared to the same period in 2009 ($43,000 in 2010 versus $94,000 in
2009). This decrease was primarily due to a decrease in the loss recorded at
our Lake Houston property resulting from increased revenues from a new tenant
and a decrease in depreciation and amortization expenses.

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

Revenue.Revenue decreased
approximately $413,000 for the year ended December 31, 2009 as compared to the
same period in 2008 ($6.8 million in 2009 versus $7.3 million in 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 for the year
ended December 31, 2009 as compared to the same period in 2008 ($97,000 in 2009
versus $164,000 in 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 for the year ended December 31, 2009
as compared to the same period in 2008 ($459,000 in 2009 versus $302,000 in
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 for the year
ended December 31, 2009 as compared to the same period in 2008 ($297,000 in
2009 versus $250,000 in 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 for the year ended
December 31, 2009 as compared to the same period in 2008 ($239,000 in 2009
versus $363,000 in 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.

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Interest
and Other Income.Interest and other income decreased
approximately $352,000 for the year ended December 31, 2009 as compared to the
same period in 2008 ($37,000 in 2009 versus $389,000 in 2008). This decrease
resulted from a lower outstanding balance on the note receivable from our joint
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 for the
year ended December 31, 2009 as compared to the same period in 2008 ($1.6
million in 2009 versus $1.8 million in 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
for the year ended December 31, 2009 as compared to the same period in 2008
($94,000 in 2009 versus $59,000 in 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.

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
made available from sales of properties. 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. In February 2011,
we sold our Market at Lake Houston property to AmREIT for net cash proceeds of
$2.7 million.

The
United States has undergone and may continue to experience economic weakness
that has been marked by pervasive and fundamental disruptions in the financial
markets. Continued concerns regarding the uncertainty of whether the U.S.
economy will be adversely affected by inflation, deflation or stagflation and
the systemic impact of increased unemployment, volatile energy costs,
geopolitical issues, the availability and cost of credit, the U.S. mortgage
market and a severely distressed real estate market have contributed to
increased market volatility and weakened business and consumer confidence. The
United States may not experience a sustained recovery and could suffer
pronounced instability and decreased economic activity for an extended period
of time. Our operations are sensitive to changes in overall economic conditions
that impact our tenants, including, among other things, increased bad debts due
to such recessionary pressures. A general reduction in the level of tenant
leasing or shifts in tenant leasing practices could adversely affect our
revenues, profitability and results of operations. It is difficult to determine
the breadth and duration of the financial market problems and the many ways in
which they may affect our tenants and our business in general. A significant
additional deterioration in the U.S. economy or the bankruptcy or insolvency of
one or more of our significant tenants could cause our cash resources to be
insufficient to meet our obligations over the next 12 months. Effective July
15, 2009, we suspended all distributions in an effort to conserve cash and to
protect partners invested capital. As we have several 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 believe
that the economy and real estate market may recover prior to our anticipated
liquidation commencement
date of October 31, 2012. However, if the economy remains in a protracted
recession, we may seek to postpone liquidation if we believe such liquidation
is not in the best interests of the Partners at that time.

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At
December 31, 2010 and 2009, our cash and cash equivalents totaled approximately
$2.6 million and approximately $3.3 million, respectively. Cash flows provided
by (used in) operating activities, investing activities and financing
activities for the years ended December 31, 2010, 2009 and 2008 are as follows
(in thousands):

|                     |  |      |        |      |   |       |   |   |        |  
|-------------------- |  | ---- | ------ | ---- | - | ----- | - | - | ------ | -
|                     |  | 2010 |        | 2009 |   | 2008  |  
|                    
|Operating activities |  | $    | 177    |      | $ | 2,338 |   | $ | 971    |  
|Investing activities |  |      | 337    |      |   | (806  | ) |   | 894    |  
|Financing activities |  |      | (1,165 | )    |   | 847   |   |   | (6,192 | )
|                     |  |      |        |      |   |       |   |   |        |  

Operating Activities

During
the year ended December 31, 2010, net cash flows provided by operating
activities decreased approximately $2.2 million ($177,000 of cash provided by
operating activities during the 2010 period versus $2.3 million during the same
period in 2009). This decrease in cash flows was primarily due to the
collection of accounts receivable  related party during the first quarter of
2009 for amounts that had been advanced during 2008. We had no such collections
in 2010. In addition, cash collections from tenants decreased as a result of the
timing of property tax recovery payments from our anchor tenants. The 2008
property tax recoveries were collected during the first quarter of 2009 while
the 2009 property tax recoveries were billed and collected during the fourth
quarter of 2009. Net cash flows provided by operating activities also decreased
as a result of the timing of property tax payments. We deferred payment of 2009
property taxes for three of our properties until the first quarter of 2010. In
2009, we deferred payment for only two properties.

Investing Activities

During
the year ended December 31, 2010, we received $897,000 in distributions from
our non-consolidated joint venture entities compared to $173,000 during the
same period in 2009. The increase in 2010 was primarily attributable to a
$573,000 distribution we received from our Woodlake Square investment which
resulted from the sale of 90% of our interest to a new joint venture partner.
Additionally, we invested $435,000 in our non-consolidated joint ventures
during the year ended December 31, 2010 compared to $1.2 million during the
same period in 2009. Investments were lower in 2010 due to reduced working
capital needs at our Casa Linda property, as that property has moved out of the
redevelopment phase. The increase in cash from the reduction of investments and
the increase in distributions received was offset by a decrease of $334,000 in
payments received on notes receivable as the note was paid in full in December
2009.

Financing Activities

During
the year ended December 31, 2010, we made net repayments on notes payable 
related party of $1.0 million compared to net borrowings of $2.5 million during
the 2009 period. During 2010, we had cash savings of $1.3 million due to the
suspension of all distribution and redemption payments beginning July 2009.

Contractual
Obligations

As
of December 31, 2010, 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 |      
|2011                        |  | $         | 175 |                 | $ | 24,615   | (1) | $              | 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                       |  | $         | 853 |                 | $ | 49,519   |     | $              | 8,625 |  | $ | 58,997 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The $24.6
 million in debt maturities in 2011 consists of a $13.4 million mortgage on
 our Lantern Lane property which matures in September 2011 and a $11.2 million
 mortgage on our Olmos Creek property that matures in December 2011. In each
 case, we believe that we will be able to extend the mortgage with the current
 lender, refinance with a new lender, or dispose of the property in an orderly
 sale prior to the maturity date. If we are unable to extend or refinance the
 mortgage, we may be forced to sell the properties at a time when it is
 disadvantageous to do so, and such disposal could result in a loss.

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., an SEC reporting, 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, 2010.

ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Not
applicable.

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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.
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) 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, 2010. Based on that evaluation, our General Partners CEO and CFO concluded
that, as of December 31, 2010, 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, Ltd. and its subsidiaries are being made only in
 accordance with authorizations of management and directors 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, 2010 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, 2010.

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Changes in Internal Controls

There
has been no change to our internal control over financial reporting during the
three months ended December 31, 2010 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9B. OTHER
INFORMATION

Pursuant to the definitive consent solicitation
statement on Schedule 14A filed with the SEC on January 24, 2011, on behalf of our General Partner, we voluntarily solicited the
consent of our Limited Partners to the proposed sale of a shopping center property known as “The Market at Lake Houston”
to our affiliate AmREIT. The property, a 101,799 square foot grocery-anchored shopping center situated on 13.86 acres in Atascocita,
Texas, a northern suburb of Houston, Texas, was built in 2001 and 2002 and is 100% leased and occupied. The anchor tenant is H-E-B
Grocery and other major tenants include Five Guys Burgers, Payless ShoeSource and Subway. Prior to the sale, we owned 60% of the
property and AmREIT Monthly Income & Growth Fund, Ltd. (“MIG”) owned the remaining 40% of the property.

AmREIT owns 100% of our General Partner and
the general partner of MIG. For any property that is sold by us to AmREIT, the transaction must be completed at fair market value
pursuant to an independent appraisal process. While consent of our Limited Partners was not required by our Agreement of Limited
Partnership or by Texas state law, our General Partner believed it to be in our best interest and the interest of our Limited Partners
to voluntarily seek and procure the affirmative consent of our Limited Partners. The board of directors of AmREIT appointed two
separate committees of its board of directors to represent its interests and the interests of us and MIG, respectively, in the
transaction. Each committee was comprised of three independent directors from the board of directors of AmREIT and was led by an
independent director who has substantial expertise in valuing commercial real estate. Each committee engaged its own independent,
nationally-known appraiser. If the two appraised values were within five percent of each other, then the market value of the property
would be deemed to be the average of the two appraisals. If the two appraisals were more than five percent apart, then a third
appraiser would be appointed by the two existing appraisers.

On February 23, 2011, the consent solicitation
expired, and our Limited Partners approved of the sale of The Market at Lake Houston to AmREIT. The following are the results for
the solicitation of consents:

Consents
    Withheld Consents1,575.6 Units
    35.5 Units


Based upon the number of Limited Partner consents and as a result
of the appraisal process, effective as of February 25, 2011, we completed the sale of the property to AmREIT pursuant to a Sales
Contract (the “Sales Contract”) for a combination of cash and the assumption of $15.7 million of our mortgage debt,
which matures on January 1, 2016 and is payable interest-only at a fixed rate of 5.75% per year. The Sales Contract
contains customary affirmative and negative covenants which are typical of sales contracts generally entered into by us in the
ordinary course of business. The foregoing description of the Sales Contract does not purport to be complete and is qualified in
its entirety by the full text of the Sales Contract, which is filed as Exhibit 10.17 to this Annual Report and incorporated by
reference herein.

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     |  | 60  |  | President,
 Chief Executive Officer and Director                                                     
|Chad C.
 Braun      |  | 38  |  | Executive
 Vice President, Chief Financial Officer, Chief Operating Officer, Treasurer
 and Secretary
|Brett P.
 Treadwell |  | 41  |  | Managing
 Vice President  Finance                                                                   

H.
Kerr Taylorserves as our General Partners President,
Chief Executive Officer and Director, and has served in this capacity since the
formation of the Partnership. 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 27 years. His primary
responsibilities include overseeing strategic initiatives as well as building,
mentoring and leading AmREITs team of professionals. Mr. Taylor has over 31
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.

Mr.
Taylor was selected and is qualified to serve as the sole director or our
General Partner because of his intimate knowledge of AmREIT and its affiliated
companies and his extensive experience within the real estate industry.

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Chad
C. Braunserves as our General Partners Executive
Vice President, Chief Financial Officer, Chief Operating Officer, Treasurer and
Secretary, and has served in this capacity since the formation of the
Partnership. 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 16 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 has served in this capacity since the formation of
the Partnership. 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 19 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.

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, 2010, we know of no
reporting person who has failed to file on a timely basis, as disclosed in the
above forms, any report required by Section 16(a) of the Exchange Act during
the fiscal year ended December 31, 2010.

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 31, 2011, there were 2,833 Units owned by 1,161 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.

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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 for each of the years ended December 31, 2010 and 2009. Our Casa Linda
property paid a total of $6.2 million in construction costs to an affiliated
entity who acted as a general contractor on the redevelopment during 2008 and
2009.

|                                                       |  |                                                                                                                                                                                                                                                                                                                            |  |                                                |  |                                              
|------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- |  | ---------------------------------------------
|Type and
 Recipient                                    |  | Determination
 of Amount                                                                                                                                                                                                                                                                                                   |  | For the
 fiscal year
 ended
 December 31, 2010 |  | For the
 fiscal year
 endedDecember
 31, 2009
|                                                       |  | Organization Stage                                                                                                                                                                                                                                                                                                         |  |                                                |  |                                              
|                                                       |  |                                                                                                                                                                                                                                                                                                                            |  |                                                |  |                                              
|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.                                                                                                                                                           |  | No amount to report                            |  | No amount to report                          
|                                                       |  |                                                                                                                                                                                                                                                                                                                            |  |                                                |  |                                              
|                                                       |  | Operating Stage                                                                                                                                                                                                                                                                                                            |  |                                                |  |                                              
|                                                       |  |                                                                                                                                                                                                                                                                                                                            |  |                                                |  |                                              
|Asset 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                                       |  | $617,753                                     
|                                                       |  |                                                                                                                                                                                                                                                                                                                            |  |                                                |  |                                              
|Development 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 report                          
|Property 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. |  | $338,487                                       |  | $368,995                                     
|                                                       |  |                                                                                                                                                                                                                                                                                                                            |  |                                                |  |                                              
|Reimbursement 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.                                                                                                                                                         |  | $437,473                                       |  | $459,408                                     
|                                                       |  |                                                                                                                                                                                                                                                                                                                            |  |                                                |  |                                              
|Financing Fees  General Partner                       |  | 1.0% of the
 loan proceeds for procuring debt financing for us.                                                                                                                                                                                                                                                            |  | No amount to report                            |  | No amount to report                          

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|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                |  |                                              
|------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- |  | ---------------------------------------------
|Type and
 Recipient                                                      |  | Determination
 of Amount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | For the
 fiscal year
 ended
 December 31, 2010 |  | For the
 fiscal year
 endedDecember
 31, 2009
|                                                                        
|Distributions 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | No amount to report                            |  | $13,000                                      
|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                |  |                                              
|Real 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                          
|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                |  |                                              
|                                                                         |  | Liquidating Stage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                |  |                                              
|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                |  |                                              
|Distributions 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.

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Joint Ventures with
Affiliates

As
of December 31, 2010, 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 February 2011, we sold the Market at Lake Houston property to AmREIT for a
combination of cash and the assumption of $15.7 million of our mortgage debt.The acquisition was subject to the
appraisal process set forth in Item 1. Business  Disposition Policies 
AmREITs Purchase Rights.

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 July
2010, we and our affiliated partners of AmREIT Woodlake, LP entered into a
joint venture with a third-party institutional partner wherein the partner
acquired a 90% interest in the joint venture. The sale to AEW generated $3.4
million in cash. In
connection with the transaction with AEW, we refinanced the Woodlake Square
loan with Frost which was due to mature in September 2010 with US Bank. As a result of this transaction, we now hold a 3%
interest in Woodlake Square, which carries a promoted interest in profits and
cash flows once an 11.65% return is met on the project. AmREIT Woodlake, LP
recorded an impairment for the year ended December 31, 2010. Our portion of
such impairment was $185,000 and has been recorded in equity in losses from
non-consolidated subsidiaries in our consolidated statements of operations. We
will continue to account for this investment using the equity method.

In
November 2007, we acquired a 30% interest in AmREIT Westheimer Gessner, LP,
which owns Woodlake Pointe, a 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
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.

Directors

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

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Table of Contents

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. During 2010, we repaid
$1.0 million of the $2.5 million.

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 who 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.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG, LLP,
independent registered public accounting firm and certified public accountants
(KPMG), served as our independent accountants for the fiscal year ended
December 31, 2010. The following is an explanation of the fees billed to us by
KPMG for professional services rendered for the fiscal years ended December 31,
2010, 2009 and 2008.

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-Q, or other services normally provided by KPMG in connection with
statutory and regulatory filings or engagements for the fiscal years ended
December 31, 2010, 2009 totaled $130,500 and $133,000 respectively. Included in
these amounts are $17,000 and $23,000 related to Sarbanes-Oxley testing fees
for the years ended December 31, 2010 and 2009, respectively.

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Table of Contents

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, 2010, 2009 and 2008.

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:

|              |  |                                                                                                                                                                                                             |  |                            |  |              |  |         |  |              |           |                 | 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- |  | ------------ |  | ------- |  | ------------ | --------- | --------------- | 
|              |  |                                                                                                                                                                                                             |  | Incorporated
 by Reference |  |             
|ExhibitNumber |  | 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 Monthly Income & Growth III
 Corporation and AmREIT, the initial limited partner. |  | 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 |                 | 

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Table of Contents

|                 |  |                                                                                                                                                                                                                                                              |  |                            |  |              |  |         |  |              |           |                 | 
|---------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- |  | ------------ |  | ------- |  | ------------ | --------- | --------------- | 
|                 |  |                                                                                                                                                                                                                                                              |  | Incorporated
 by Reference |  |             
|Exhibit 
 Number |  | Description                                                                                                                                                                                                                                                  |  | Form                       |  | File
 Number |  | Exhibit |  | Filing
 Date |           | Filed
 Herewith
|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 |                 | 
|                 |  |                                                                                                                                                                                                                                                              |  |                            |  |              |  |         |  |              |           |                 | 
|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 |                 | 

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Table of Contents

|                 |  |                                                                                                                                                                                                                                           |  |                            |  |              |  |         |  |              |           |                 |  
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- |  | ------------ |  | ------- |  | ------------ | --------- | --------------- | -
|                 |  |                                                                                                                                                                                                                                           |  | Incorporated
 by Reference |  |             
|Exhibit 
 Number |  | Description                                                                                                                                                                                                                               |  | Form                       |  | File
 Number |  | Exhibit |  | Filing
 Date |           | Filed
 Herewith
|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 |                 |  
|                 |  |                                                                                                                                                                                                                                           |  |                            |  |              |  |         |  |              |           |                 |  
|10.17            |  | Real Estate Sales Contract, effective as of January 14, 2011, between AmREIT Lake
Houston, L.P., and AmREIT Realty Investment Corporation.                                                                                                |  |                            |  |              |  |         |  |              |           |                 | X
|                 |  |                                                                                                                                                                                                                                           |  |                            |  |              |  |         |  |              |           |                 |  
|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

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Table of Contents

SIGNATURES

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

|                      |                                                |                                                                             | 
|--------------------- | ---------------------------------------------- | --------------------------------------------------------------------------- | 
|                      | AmREIT
 Monthly Income & Growth Fund III, Ltd.
|                      |                                                |                                                                             | 
|                      | By:                                            | AmREIT
 Monthly Income & Growth III 
 Corporation, its General Partner      | 
|                      |                                                |                                                                             | 
|Date: March
 31, 2011 |                                                |                                                                             | 
|                      |                                                |                                                                            
|                      | 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

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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, 2010 and 2009                                                     |  | F-3  | 
|Consolidated Statements of Operations for the years ended December
 31, 2010, 2009 and 2008                      |  | F-4  | 
|Consolidated Statements of Partners Capital for the years ended
 December 31, 2010, 2009 and 2008               |  | F-5  | 
|Consolidated Statements of Cash Flows for the years ended December
 31, 2010, 2009 and 2008                      |  | 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, 2010 |  | S-1  | 

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

---



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, 2010
and 2009, 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, 2010. 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 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 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,
2010 and 2009, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2010 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 31, 2011

F-2

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Table of Contents

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

|                                                                                      |  |                    |        |                    |   |        |  
|------------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------------ | - | ------ | -
|                                                                                      |  | December 31,
 2010 |        | December 31,
 2009 |  
|ASSETS                                                                                |  |                    |        |                    |   |        |  
|Real estate investments at cost:                                                      |  |                    |        |                    |   |        |  
|Land                                                                                  |  | $                  | 18,446 |                    | $ | 18,446 |  
|Buildings                                                                             |  |                    | 47,308 |                    |   | 47,295 |  
|Tenant improvements                                                                   |  |                    | 957    |                    |   | 983    |  
|                                                                                      |  |                    | 66,711 |                    |   | 66,724 |  
|Less accumulated depreciation and
 amortization                                       |  |                    | (8,372 | )                  |   | (6,691 | )
|                                                                                      |  |                    | 58,339 |                    |   | 60,033 |  
|                                                                                      |  |                    |        |                    |   |        |  
|Investment in non-consolidated entities                                               |  |                    | 22,190 |                    |   | 26,212 |  
|Acquired lease intangibles, net                                                       |  |                    | 1,285  |                    |   | 1,804  |  
|Net real estate investments                                                           |  |                    | 81,814 |                    |   | 88,049 |  
|                                                                                      |  |                    |        |                    |   |        |  
|Cash and
 cash equivalents                                                            |  |                    | 2,646  |                    |   | 3,297  |  
|Tenant
 receivables, net                                                              |  |                    | 471    |                    |   | 367    |  
|Accounts
 receivable - related party                                                  |  |                    | 163    |                    |   | 132    |  
|Deferred
 costs, net                                                                  |  |                    | 463    |                    |   | 522    |  
|Other assets                                                                          |  |                    | 642    |                    |   | 706    |  
|TOTAL ASSETS                                                                          |  | $                  | 86,199 |                    | $ | 93,073 |  
|                                                                                      |  |                    |        |                    |   |        |  
|LIABILITIES
AND CAPITAL                                                               |  |                    |        |                    |   |        |  
|Liabilities:                                                                          |  |                    |        |                    |   |        |  
|Notes payable                                                                         |  | $                  | 50,372 |                    | $ | 50,537 |  
|Notes payable - related party                                                         |  |                    | 2,556  |                    |   | 2,907  |  
|Accounts payable and other liabilities                                                |  |                    | 1,235  |                    |   | 1,292  |  
|Accounts payable - related party                                                      |  |                    | 30     |                    |   | 10     |  
|Acquired below-market lease intangibles,
 net                                         |  |                    | 181    |                    |   | 324    |  
|Security deposits                                                                     |  |                    | 164    |                    |   | 125    |  
|TOTAL LIABILITIES                                                                     |  |                    | 54,538 |                    |   | 55,195 |  
|                                                                                      |  |                    |        |                    |   |        |  
|Capital:                                                                              |  |                    |        |                    |   |        |  
|Partners capital:                                                                    |  |                    |        |                    |   |        |  
|General partner                                                                       |  |                    |       |                    |   |       |  
|Limited partners, 2,833 units outstanding
 at December 31, 2010 and December 31, 2009 |  |                    | 30,385 |                    |   | 36,638 |  
|Accumulated other comprehensive loss                                                  |  |                    |       |                    |   | (79    | )
|TOTAL PARTNERS CAPITAL                                                               |  |                    | 30,385 |                    |   | 36,559 |  
|                                                                                      |  |                    |        |                    |   |        |  
|Non-controlling interest                                                              |  |                    | 1,276  |                    |   | 1,319  |  
|TOTAL CAPITAL                                                                         |  |                    | 31,661 |                    |   | 37,878 |  
|TOTAL
 LIABILITIES AND CAPITAL                                                        |  | $                  | 86,199 |                    | $ | 93,073 |  

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 OPERATIONS
For the years ended December 31, 2010, 2009 and 2008
(in thousands, except for per unit data)

|                                                   |  |      |           |      |   |           |   |   |           |  
|-------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | - | - | --------- | -
|                                                   |  | 2010 |           | 2009 |   | 2008      |  
|Revenues:                                          |  |      |           |      |   |           |   |   |           |  
|Rental income from operating leases                |  | $    | 6,222     |      | $ | 6,839     |   | $ | 7,252     |  
|Total revenues                                     |  |      | 6,222     |      |   | 6,839     |   |   | 7,252     |  
|                                                   |  |      |           |      |   |           |   |   |           |  
|Expenses:                                          |  |      |           |      |   |           |   |   |           |  
|General and administrative                         |  |      | 109       |      |   | 97        |   |   | 164       |  
|General and administrative - related party         |  |      | 437       |      |   | 459       |   |   | 302       |  
|Asset management fees - related party              |  |      | 618       |      |   | 618       |   |   | 618       |  
|Property expense                                   |  |      | 1,589     |      |   | 1,879     |   |   | 1,946     |  
|Property management fees - related party           |  |      | 248       |      |   | 297       |   |   | 250       |  
|Legal and professional                             |  |      | 232       |      |   | 239       |   |   | 363       |  
|Depreciation and amortization                      |  |      | 2,365     |      |   | 2,578     |   |   | 2,598     |  
|Total operating expenses                           |  |      | 5,598     |      |   | 6,167     |   |   | 6,241     |  
|                                                   |  |      |           |      |   |           |   |   |           |  
|Operating
 income                                  |  |      | 624       |      |   | 672       |   |   | 1,011     |  
|                                                   |  |      |           |      |   |           |   |   |           |  
|Other income
 (expense):                           |  |      |           |      |   |           |   |   |           |  
|Interest and other income                          |  |      | 8         |      |   | 37        |   |   | 418       |  
|Interest expense                                   |  |      | (3,255    | )    |   | (3,146    | ) |   | (3,114    | )
|Equity in losses from non-consolidated
 entities   |  |      | (3,639    | )    |   | (1,570    | ) |   | (1,836    | )
|Margin tax expense                                 |  |      | (34       | )    |   | (26       | ) |   | (52       | )
|Total other expense                                |  |      | (6,920    | )    |   | (4,705    | ) |   | (4,584    | )
|                                                   |  |      |           |      |   |           |   |   |           |  
|                                                   |  |      |           |      |   |           |   |   |           |  
|Net loss,
 including non-controlling interest      |  |      | (6,296    | )    |   | (4,033    | ) |   | (3,573    | )
|                                                   |  |      |           |      |   |           |   |   |           |  
|Net loss attributable to non-controlling
 interest |  |      | 43        |      |   | 94        |   |   | 59        |  
|Net loss
 attributable to partners                 |  | $    | (6,253    | )    | $ | (3,939    | ) | $ | (3,514    | )
|                                                   |  |      |           |      |   |           |   |   |           |  
|Weighted
 average units outstanding                |  |      | 2,833     |      |   | 2,833     |   |   | 2,842     |  
|Net loss per
 unit                                 |  | $    | (2,207.20 | )    | $ | (1,390.40 | ) | $ | (1,236.45 | )

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 CAPITAL
For the years ended December 31, 2010, 2009, and 2008
(in thousands)

|                                      |  |                   |     |                   |   |                                             |   |                          |      |       |   |       |   |   |        |  
|------------------------------------- |  | ----------------- | --- | ----------------- | - | ------------------------------------------- | - | ------------------------ | ---- | ----- | - | ----- | - | - | ------ | -
|                                      |  | Partners Capital |     |                   |   |                                             |   |                          |     
|                                      |  | General
 Partner  |     | Limited
 Partners |   | Accumulated other comprehensive gain (loss) |   | Non-controlling interest |      | Total |  
|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 |  
|                                      |  |                   |     |                   |   |                                             |   |                          |      |       |   |       |   |   |        |  
|Net loss (1)                          |  |                   |    |                   |   | (6,253                                      | ) |                          |     |       |   | (43   | ) |   | (6,296 | )
|Increase in
 fair value of derivative |  |                   |    |                   |   |                                            |   |                          | 79   |       |   |      |   |   | 79     |  
|Balance at December 31, 2010          |  | $                 |    |                   | $ | 30,385                                      |   | $                        |     |       | $ | 1,276 |   | $ | 31,661 |  

|    |                                                                                                                                                                                                                                                                                                                                                                                 | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(1) | The
 allocation of net loss includes a curative allocation to increase the General
 Partner capital account by $62, $52 and $89 for the 2010, 2009 and 2008
 periods. The cumulative curative allocation since inception of the
 Partnership is $321. 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 FLOWS


For the years ended December 31, 2010, 2009 and 2008


(in thousands)


|                                                                                 |  |      |        |      |   |        |   |   |        |  
|-------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|                                                                                 |  | 2010 |        | 2009 |   | 2008   |  
|Cash flows
 from operating activities:                                           |  |      |        |      |   |        |   |   |        |  
|Net loss, including non-controlling
 interest                                    |  | $    | (6,296 | )    | $ | (4,033 | ) | $ | (3,573 | )
|Adjustments to reconcile net loss to net
 cash provided by operating activities: |  |      |        |      |   |        |   |   |        |  
|Equity in losses from non-consolidated
 entities                                 |  |      | 3,639  |      |   | 1,570  |   |   | 1,836  |  
|Depreciation and amortization                                                    |  |      | 2,365  |      |   | 2,578  |   |   | 2,598  |  
|Amortization of above- and below-market
 leases, net                             |  |      | (95    | )    |   | (139   | ) |   | (120   | )
|Amortization of loan acquisition costs                                           |  |      | 75     |      |   | 76     |   |   | 76     |  
|Bad debt expense                                                                 |  |      | 200    |      |   | 155    |   |   | 25     |  
|Decrease (increase) in tenant receivables                                        |  |      | (304   | )    |   | 370    |   |   | (287   | )
|Increase in accounts receivable                                                  |  |      |       |      |   | 2      |   |   | 7      |  
|Decrease (increase) in accounts receivable
 - related party                      |  |      | (31    | )    |   | 1,161  |   |   | 1,025  |  
|Increase in deferred costs                                                       |  |      | (91    | )    |   | (72    | ) |   | (128   | )
|Decrease (increase) in other assets                                              |  |      | 64     |      |   | 130    |   |   | (209   | )
|Increase (decrease) in accounts payable and
 other liabilities                   |  |      | (57    | )    |   | 237    |   |   | (223   | )
|Increase in accounts payable - related
 party                                    |  |      | 669    |      |   | 311    |   |   | (66    | )
|Increase (decrease) in security deposits                                         |  |      | 39     |      |   | (8     | ) |   | 10     |  
|Net cash provided by operating activities                                        |  |      | 177    |      |   | 2,338  |   |   | 971    |  
|                                                                                 |  |      |        |      |   |        |   |   |        |  
|Cash flows
 from investing activities:                                           |  |      |        |      |   |        |   |   |        |  
|Improvements to real estate                                                      |  |      | (125   | )    |   | (102   | ) |   | (348   | )
|Payments received on notes receivable                                            |  |      |       |      |   | 334    |   |   | 2,375  |  
|Payments received on notes receivable -
 related party                           |  |      |       |      |   |       |   |   | 537    |  
|Investments in non-consolidated entities                                         |  |      | (435   | )    |   | (1,211 | ) |   | (2,775 | )
|Distributions from non-consolidated
 entities                                    |  |      | 897    |      |   | 173    |   |   | 1,105  |  
|Net cash provided by (used in) investing
 activities                             |  |      | 337    |      |   | (806   | ) |   | 894    |  
|                                                                                 |  |      |        |      |   |        |   |   |        |  
|Cash flows
 from financing activities:                                           |  |      |        |      |   |        |   |   |        |  
|Payments on notes payable                                                        |  |      | (165   | )    |   | (156   | ) |   | (145   | )
|Proceeds from notes payable - related party                                      |  |      | 400    |      |   | 2,500  |   |   |       |  
|Payments on notes payable - related party                                        |  |      | (1,400 | )    |   |       |   |   |       |  
|Optional redemptions                                                             |  |      |       |      |   | (28    | ) |   | (207   | )
|Issuance costs                                                                   |  |      |       |      |   |       |   |   | (1     | )
|Distributions                                                                    |  |      |       |      |   | (1,252 | ) |   | (5,382 | )
|Distributions to non-controlling interest                                        |  |      |       |      |   | (217   | ) |   | (457   | )
|Net cash provided by (used in) financing
 activities                             |  |      | (1,165 | )    |   | 847    |   |   | (6,192 | )
|                                                                                 |  |      |        |      |   |        |   |   |        |  
|Net increase
 (decrease) in cash and cash equivalents                            |  |      | (651   | )    |   | 2,379  |   |   | (4,327 | )
|Cash and
 cash equivalents, beginning of period                                  |  |      | 3,297  |      |   | 918    |   |   | 5,245  |  
|Cash and
 cash equivalents, end of period                                        |  | $    | 2,646  |      | $ | 3,297  |   | $ | 918    |  
|                                                                                 |  |      |        |      |   |        |   |   |        |  
|Supplemental schedule of cash flow
 information:                                 |  |      |        |      |   |        |   |   |        |  
|                                                                                 |  |      |        |      |   |        |   |   |        |  
|Cash paid during the period for interest                                         |  | $    | 2,951  |      | $ | 3,095  |   | $ | 3,041  |  
|Cash paid during the period for taxes                                            |  | $    | 39     |      | $ | 23     |   | $ | 65     |  

Supplemental schedule of noncash investing
and financing activities:

During the
year ended December 31, 2010, $162,000 in accrued interest on notes payable -
related party was added to the note balances.

During the
year ended December 31, 2010, $487,000 in accounts payable - related party was
reclassified to notes payable - related party.

See Notes to Consolidated
Financial Statements.

F-6

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Table of Contents

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

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008

1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

AmREIT
Monthly Income & Growth Fund III, Ltd., a Texas limited partnership
(hereinafter referred to as the Partnership, MIG III, we, us or our),
was formed on April 19, 2005
to acquire, develop and operate, directly or indirectly through joint venture
arrangements, a portfolio of commercial real estate consisting primarily of
multi-tenant shopping centers and mixed-use developments. 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., a Securities and
Exchange Commission (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 accepted
subscriptions for 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 limited partnership units (the 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 December 31, 2010, our investments include three
wholly-owned properties comprising 225,000 square feet of gross leasable area,
one property in which we own a controlling interest comprising 102,000 square
feet of gross leasable area and seven properties in which we own a
non-controlling interest through joint ventures comprising 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.

The United
States has undergone and may continue to experience a prolonged recession that
has been marked by pervasive and fundamental disruptions in the financial
markets. Continued concerns regarding the uncertainty of whether the U.S.
economy will be adversely affected by inflation, deflation or stagflation and
the systemic impact of increased unemployment, volatile energy costs,
geopolitical issues, the availability and cost of credit, the U.S. mortgage
market and a severely distressed real estate market have contributed to
increased market volatility and weakened business and consumer confidence. The
United States may not experience a sustained recovery and could suffer
pronounced instability and decreased economic activity for an extended period
of time. Our operations are sensitive to changes in overall economic conditions
that impact our tenants, including, among other things, increased bad debts due
to such recessionary pressures. A general reduction in the level of tenant
leasing or shifts in tenant leasing practices could adversely affect our
revenues, profitability and results of operations. It is difficult to determine
the breadth and duration of the financial market problems and the many ways in
which they may affect our tenants and our business in general. A significant
additional deterioration in the U.S. economy or the bankruptcy or insolvency of
one or more of our significant tenants could cause our cash resources to be
insufficient to meet our obligations over the next 12 months. Effective July 15,
2009, we suspended all distributions in an effort to conserve cash and to
protect partners invested capital. As we have several 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 believe
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 may seek to postpone liquidation if we
believe such liquidation is not in the best interests of the Partners at that
time.

We have
$24.6 million in debt that matures during 2011. This consists of a $13.4
million mortgage on our Lantern Lane property which matures in September 2011
and a $11.2 million mortgage on our Olmos Creek property which matures in
December 2011. In each case, we believe that we will be able to extend the
mortgage with the current lender, refinance with a new lender, or dispose of the
property in an orderly sale prior to the maturity date. 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.

F-7

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Table of Contents

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. 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 3). 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). As of December 31, 2010,
we do not have any interests in variable interest entities. All significant
inter-company accounts and transactions have been eliminated in consolidation.

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. Revenue recognition under a lease begins when the lessee
takes possession of or controls the physical use of the leased asset.
Generally, possession or control occurs on the lease commencement date. We have
determined that we are the owner of any tenant improvements that we fund
pursuant to the lease terms. In cases where significant 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, 2010, 2009 and 2008, 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.
During the years ended December 31, 2010, 2009 and 2008, we recognized no lease
termination fees. Upon early lease termination, as applicable, we
also provide for losses related to unrecovered intangibles and other assets and
write off any assets or liabilities and the associated accumulated
amortization.

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. During the years ended December
31, 2010, 2009 and 2008, we did not capitalize any interest or taxes on
properties under development.

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Table of Contents

Acquired
Properties and Acquired Lease Intangibles - We account for acquisitions of
operating properties pursuant to ASC 805, Business
Combinations, as we believe our operating real estate meets the
definition of a business pursuant to this guidance. Accordingly, we allocate the purchase price
of the acquired operating 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- and below-market leases
and in-place lease value are recorded as acquired lease intangibles and are
amortized as an adjustment to rental income or
amortization expense, as appropriate, over the remaining terms of the
underlying leases. Below-market leases include fixed-rate renewal periods.
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 then expensed if and when the acquisition became no longer
probable. During the years ended December 31, 2010, 2009 and 2008, we expensed
acquisition costs of $0, $6,000 and $134,000, respectively.

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-specific
improvements. We re-evaluate the useful lives of our buildings and improvements
as warranted by changing conditions at our properties. As part of this
re-evaluation, we may also consider whether such changes indicate a potential
impairment, and we perform an impairment analysis as necessary, at the property
level. In the case of a property redevelopment, we reassess the useful lives of
specific buildings and other improvements to be demolished as part of that
redevelopment once the redevelopment is probable to occur. During 2010, we
reassessed the useful lives of certain buildings at our Woodlake Square
property (non-consolidated investment) as a result of our redevelopment of the
center, which included the demolition of several buildings. As a result of this
change in estimate, our equity in losses from non-consolidated entities was
$1.8 million higher ($645.11 per unit) for the year ended December 31, 2010
than it otherwise would have been.

Properties
Held for Sale -Properties will be 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. Properties held for sale will be carried at the lower of cost or fair
value less cost to sell. Depreciation
and amortization are suspended during the held for sale period. As of December
31, 2010 and December 31, 2009, we had no properties held for sale.

Impairment - We review our properties for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the assets, including acquired lease intangibles and 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. For our multi-building retail centers, we consider the entire retail center as the
asset group for purposes of our impairment analysis. We review our investments in
non-consolidated entities for impairment based of a similar review of the
properties held by the investee entity. As discussed in Note 4, our Woodlake
Square property recorded an impairment during the year ended December 31, 2010.
Our portion of such impairment was recorded in equity in losses from
non-consolidated subsidiaries. No impairment charges were recognized
during the years ended December 31,
2009, and 2008.

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Table of Contents

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, 2010 and 2009, our allowance for uncollectible accounts related to our tenant
receivables was $448,000 and $255,000, 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.

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
over the term of the debt agreements using
a method that approximates the effective interest method. Deferred leasing costs consist of external commissions associated with
leasing our properties and are amortized to depreciation and
amortization expense on a straight-line basis over the lease term. If a lease
is terminated early, or a loan is paid in full prior to maturity, the remaining
deferred costs will be written off. Accumulated
amortization related to loan acquisition costs as of December 31, 2010 and 2009
totaled $348,000 and $272,000, respectively. Accumulated amortization related
to leasing costs as of December 31, 2010 and 2009, totaled $156,000 and
$101,000, 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 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, 2010 and 2009 totaled $43,000 and $48,000, respectively.

F-10

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Table of Contents

USE
OF ESTIMATES

The
preparation of consolidated financial statements in conformity with GAAP
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.

ASC
820 requires the use of observable market data, when available, in making fair
value measurements. Observable inputs that the market participants would use in
pricing the asset or liability are developed based on market data obtained from
sources independent of our own. Unobservable inputs are inputs that reflect our
assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the
circumstances. When inputs used to measure fair value fall within different
levels of the hierarchy, the level within which the fair value measurement is
categorized is based on the lowest level input that is significant to the fair
value measurement.

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. We
believe the fair value of our notes payable is classified in Level 2 of the
fair value hierarchy. Based on these estimates, the fair value of notes payable
was $52.0 million and $48.8 million at December 31, 2010 and December 31, 2009,
respectively.

F-11

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Table of Contents

The
following table presents our notes payable and related valuation inputs within
the fair value hierarchy utilized to measure fair value as of December 31, 2010
(in thousands):

|              |  |         |   |         |   |         |  |   |   | 
|------------- |  | ------- | - | ------- | - | ------- |  | - | - | 
|              |  | Level 1 |   | Level 2 |   | Level 3 | 
|              |  |         |   |         |   |         |  |   |   | 
|Notes Payable |  | $       |  |         | $ | 52,021  |  | $ |  | 

NEWACCOUNTING
STANDARDS

In
June 2009, the FASB amended the consolidation guidance applicable to variable
interest entities in ASC 810, Consolidation.
The amendments 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 variable interest
entities as a result of the elimination of the Qualified Special Purpose Entity
concept. We adopted the provisions of ASC 810 on January 1, 2010. Such adoption
did not have an effect on our results of operations or financial position.

CASH
AND CASH EQUIVALENTS

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 has been capitalized
on any consolidated properties since inception of the Partnership.

SEGMENT
REPORTING

ASC
280, Segment Reporting
establishes 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 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 all periods presented. We evaluate operating performance on an
individual property level. However, as all of our properties have similar
economic characteristics, tenants, 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.

F-12

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Table of Contents

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, 2010 is as follows:

|           |  |   |                     | 
|---------- |  | - | ------------------- | 
|Year       |  |   | Minimum Base
 Rents | 
|2011       |  | $ | 4,355,000           | 
|2012       |  |   | 4,129,000           | 
|2013       |  |   | 3,443,000           | 
|2014       |  |   | 2,901,000           | 
|2015       |  |   | 2,601,000           | 
|Thereafter |  |   | 5,018,000           | 
|Total      |  | $ | 22,447,000          | 
|           |  |   |                     | 

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 $1.3 million, $1.7 million and
$1.7 million during the years ended December 31, 2010, 2009 and 2008,
respectively.

4. INVESTMENTS IN NON-CONSOLIDATED ENTITIES

Since
inception, we have made the following investments in five entities through
which we own an interest in seven properties:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In March 2006, we acquired
 a 50% interest in 5433 Westheimer, LP which owns an office building with a
 gross leasable area of 134,000 square feet and a 152-room hotel in Houston,
 Texas. 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 we and our joint venture partner share
 equally in decision making rights through our equal ownership in the general
 partner. Construction of the hotel was completed in August 2009, and we are
 currently evaluating opportunities to further develop the property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 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 an
 unaffiliated third party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 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, LP (MIG IV), an affiliate of our General Partner.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 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% interest was held by affiliated AmREIT
 entities, MIG IV and AmREIT Realty Investment Corporation (ARIC). In July
 2010, we and our affiliated partners of AmREIT Woodlake, LP entered into a
 joint venture with a third-party institutional partner wherein the partner
 acquired a 90% interest in the joint venture. As a result of this
 transaction, we now hold a 3% interest in Woodlake Square, which carries a promoted
 interest in profits and cash flows once an 11.65% return is met on the
 project. AmREIT Woodlake, LP recorded an impairment for the year ended
 December 31, 2010. Our portion of such impairment was $185,000 and has been
 recorded in equity in losses from non-consolidated subsidiaries in our
 consolidated statements of operations. We will continue to account
 for this investment using the equity method given our ability to
 significantly influence the propertys operations. The joint venture commenced
 redevelopment of this property in the third quarter of 2010. The total cost
 of the project is estimated to be $8.0 million, and it is scheduled to be
 completed in the second quarter of 2011.

F-13

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Table of Contents

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 entities, MIG IV and ARIC. In May 2008, AmREIT
 Westheimer Gessner, LP acquired an additional tract of land adjacent to
 Woodlake Pointe for $1.3 million.

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, 2010 and 2009 as follows:

|                                        |  |   |         |  |   |         | 
|--------------------------------------- |  | - | ------- |  | - | ------- | 
|Assets                                  |  |   |         |  |   |         | 
|Property, net                           |  | $ | 203,408 |  | $ | 212,882 | 
|Cash                                    |  |   | 3,295   |  |   | 2,869   | 
|Other assets                            |  |   | 17,657  |  |   | 19,311  | 
|Total assets                            |  | $ | 224,360 |  | $ | 235,062 | 
|Liabilities and partners capital       |  |   |         |  |   |         | 
|Notes payable                           |  | $ | 128,435 |  | $ | 131,697 | 
|Other liabilities                       |  |   | 14,527  |  |   | 18,387  | 
|Partners capital                       |  |   | 81,398  |  |   | 84,978  | 
|Total liabilities and partners capital |  | $ | 224,360 |  | $ | 235,062 | 
|                                        |  |   |         |  |   |         | 
|MIG III share of net assets             |  | $ | 22,190  |  | $ | 26,212  | 

|                                                  |  |                                |         |                                |   |                                |   |   |        |  
|------------------------------------------------- |  | ------------------------------ | ------- | ------------------------------ | - | ------------------------------ | - | - | ------ | -
|Combined statements of operations
 (in thousands) |  | Year
 ended
 December 31, 2010 |         | Year
 ended
 December 31, 2009 |   | Year
 ended
 December 31, 2008 |  
|Revenues                                          |  |                                |         |                                |   |                                |   |   |        |  
|Total revenues                                    |  | $                              | 20,850  |                                | $ | 19,563                         |   | $ | 19,164 |  
|Expenses                                          |  |                                |         |                                |   |                                |   |   |        |  
|Depreciation and amortization                     |  |                                | 14,145  |                                |   | 8,925                          |   |   | 9,817  |  
|Interest                                          |  |                                | 6,024   |                                |   | 6,023                          |   |   | 5,910  |  
|Other                                             |  |                                | 10,830  |                                |   | 8,289                          |   |   | 7,897  |  
|Total expenses                                    |  |                                | 30,999  |                                |   | 23,237                         |   |   | 23,624 |  
|Net Loss                                          |  | $                              | (10,149 | )                              | $ | (3,674                         | ) | $ | (4,460 | )
|                                                  |  |                                |         |                                |   |                                |   |   |        |  
|MIG III share of net loss                         |  | $                              | (3,639  | )                              | $ | (1,570                         | ) | $ | (1,836 | )

F-14

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Table of Contents

DERIVATIVE
FINANCIAL INSTRUMENTS

In
December 2007, AmREIT Woodlake Square, LP, one of our non-consolidated
investment entities, 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 as a hedge for financial reporting purposes. In accordance
with ASC 815 Derivatives and Hedging,
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 from derivative on the propertys
statement of operations. For the years ended December 31, 2010 and 2009, our
portion of the increase in fair value totaled $79,000 and $174,000,
respectively and is included in accumulated other comprehensive gain (loss) on
our consolidated statements of capital. This swap transaction was terminated,
and the underlying mortgage was refinanced in conjunction with the new joint
venture agreement on the Woodlake Square property. In accordance with ASC 815,
the balance in accumulated other comprehensive gain was recorded to interest
expense at the AmREIT Woodlake Square, LP level upon termination of the swap.
We recorded our portion of this expense as a component of equity in losses from
non-consolidated subsidiaries. We do not use derivative financial instruments
for trading or speculative purposes.

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 acquired in-place leases and above- and below-market leases.
Acquired lease intangible assets (in-place leases and above-market leases) are
amortized over the leases remaining terms, which range from 1 year to 14
years. Acquired lease intangible liabilities (below-market leases) are accreted
over the leases remaining non-cancelable lease term, plus any fixed-rate
renewal options, if any, which range from 1 year to 14 years. The amortization
(accretion) 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 $471,000, $630,000 and $686,000 for the years
ended December 31, 2010, 2009 and 2008, respectively. The amortization of
above-market leases, which was recorded as a reduction of rental income, was
approximately $48,000, $55,000 and $71,000 during the years ended December 31,
2010, 2009 and 2008, respectively. Accretion of below market leases was
approximately $143,000, $193,000 and $189,000 during the years ended December
31, 2010, 2009 and 2008, respectively.

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, 2010 |        | As of
 December 31, 2009 |  
|Acquired lease intangible
 assets:             |  |                          |        |                          |   |        |  
|In-place leases                                |  | $                        | 3,871  |                          | $ | 4,462  |  
|In-place leases - accumulated amortization     |  |                          | (2,618 | )                        |   | (2,738 | )
|Above-market leases                            |  |                          | 269    |                          |   | 269    |  
|Above-market leases - accumulated amortization |  |                          | (237   | )                        |   | (189   | )
|Acquired lease intangibles, net                |  | $                        | 1,285  |                          | $ | 1,804  |  
|                                               |  |                          |        |                          |   |        |  
|Acquired lease intangible
 liabilities:        |  |                          |        |                          |   |        |  
|Below-market leases                            |  | $                        | 686    |                          | $ | 1,127  |  
|Below-market leases - accumulated accretion    |  |                          | (505   | )                        |   | (803   | )
|Acquired below-market lease intangibles, net   |  | $                        | 181    |                          | $ | 324    |  

F-15

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Table of Contents

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) |  
|2011                      |  | $                                       | 286   |                                                   | $ | 55  | 
|2012                      |  |                                         | 264   |                                                   |   | 51  | 
|2013                      |  |                                         | 174   |                                                   |   | 10  | 
|2014                      |  |                                         | 149   |                                                   |   | 10  | 
|2015                      |  |                                         | 149   |                                                   |   | 10  | 
|Totals                    |  | $                                       | 1,022 |                                                   | $ | 136 | 

6. NOTES PAYABLE

Our
outstanding debt at December 31, 2010 and 2009 consisted entirely of fixed-rate
mortgage loans of approximately $50.4 million and $50.5 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, 2010, the
weighted-average interest rate on our fixed-rate debt is 5.9%, and the weighted
average remaining life of such debt is 9.1 years.

As
of December 31, 2010, scheduled principal repayments on notes payable were as
follows (in thousands):

|                            |  |           |     |                 |   |                |  |   |        | 
|--------------------------- |  | --------- | --- | --------------- | - | -------------- |  | - | ------ | 
|Scheduled
 payments by year |  | Principal |     | Loan maturities |   | Total payments | 
|2011                        |  | $         | 175 |                 | $ | 24,615         |  | $ | 24,790 | 
|2012                        |  |           | 183 |                 |   |               |  |   | 183    | 
|2013                        |  |           | 196 |                 |   |               |  |   | 196    | 
|2014                        |  |           | 207 |                 |   |               |  |   | 207    | 
|Thereafter                  |  |           | 92  |                 |   | 24,904         |  |   | 24,996 | 
|Total                       |  | $         | 853 |                 | $ | 49,519         |  | $ | 50,372 | 

We
serve as guarantor on debt in the amount of $36.9 million that is the primary
obligation of our non-consolidated joint ventures. This debt matures in 2013
and 2014. We have not accrued any liability with respect to these guarantees as
we believe it is unlikely we would be required to perform and, therefore, the
fair value of any obligation would be insignificant.

Notes
Payable  Related Party -In September 2009, we borrowed
$2.5 million from affiliates of our General Partner. In January of 2010, we
repaid $1 million to ARIC and borrowed $400,000 from AmREIT. In August 2010, we
repaid the $400,000 owed to AmREIT. Of the balance as of December 31, 2010,
$1.6 million accrues interest monthly at LIBOR plus a spread of 4.0% with a
floor of 7.0%, and the remaining amount accrues interest monthly at LIBOR plus
a spread of 3.875%, with a floor of 5.375%. The notes are secured by our
investment interests in the Woodlake Pointe property.

7. CONCENTRATIONS

As
of December 31, 2010, each of our four consolidated properties individually
comprised greater than 10% of our consolidated total assets. Consistent with
our strategy of investing in geographic 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 years ended December 31,
2010 and 2009. Houston is Texas largest city and the fourth largest city in
the United States.

F-16

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Table of Contents

Following
are the base rents generated by our top five tenants during the years ended
December 31, 2010, 2009 and 2008 ($ in thousands):

|                            |  |                         |       |      |   |       |  |   |       | 
|--------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|                            |  | Year ended December 31, |      
|Tenant                      |  | 2010                    |       | 2009 |   | 2008  | 
|H-E-B Grocery (1)           |  | $                       | 1,425 |      | $ | 1,425 |  | $ | 1,425 | 
|Designer Shoe Warehouse (2) |  |                         | 390   |      |   | 550   |  |   | 550   | 
|Rice Food Markets, Inc.     |  |                         | 292   |      |   | 292   |  |   | 292   | 
|Fidelity Investments        |  |                         | 193   |      |   | 211   |  |   | 211   | 
|Fadis Mediterranean Delight |  |                         | 131   |      |   | 131   |  |   | 131   | 
|Totals                      |  | $                       | 2,431 |      | $ | 2,609 |  | $ | 2,609 | 

|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | HEB Grocery
 is the anchor tenant on two of our properties, Market at Lake Houston and
 Olmos Creek. We sold our Market at Lake Houston property in February 2011 to
 AmREIT. The HEB Grocery on this property accounted for $1.1 million in base
 rents for each of the years ended December 31, 2010, 2009 and 2008.     
|    |                                                                                                                                                                                                                                                                                                                            
|(2) | On September
 15, 2010, Designer Shoe Warehouse (DSW), our second largest tenant as
 determined by base rents paid, vacated its space at our Westside Plaza property
 upon expiration of its lease. In December 2010, we entered into a lease
 agreement with a womens fashion retailer. The lease expires in June 2016.

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. We received no redemption requests during
the year ended December 31, 2010. 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. 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. Our
distributions were paid at a rate of 3.0% per annum on invested capital through
June 30, 2009. 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 payment. All distributions to date have been a
return of capital, and the source of such distributions has been cash flows
from operations as well as our capital raising activities. During the
liquidation stage of the Partnership (anticipated to commence in October 2012,
unless extended), net cash flow, as defined, will be distributed among the
limited partners and the General Partner in the following manner:

F-17

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Table of Contents

| |   |                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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. These affiliates also receive fees for ongoing property
management and administrative services. 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, 2010,
2009 and 2008, we did not make any payments to our affiliates for fees and
compensation related to our organizational stage of the Partnership.

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
2010, 2009 and 2008 periods:

|                                 |  |                                                                                                                                                                                                                                                                                                                                                                          |  |      |         |      |   |         |  |   |         | 
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- |  | - | ------- | 
|Type
 of Service                 |  | Service Description & Compensation                                                                                                                                                                                                                                                                                                                                       |  | 2010 |         | 2009 |   | 2008    | 
|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)                                                                                                                                                                  |  |      |        |      |   |        |  |   |        | 
|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. |  |      | 338,487 |      |   | 368,995 |  |   | 359,436 | 
|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                                                                                                                                                                                                                                                     |  |      |        |      |   |        |  |   |        | 

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Table of Contents

|                                     |  |                                                                                                                                                                |  |      |           |      |   |           |  |   |           | 
|------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | 
|Type
 of Service                     |  | Service Description & Compensation                                                                                                                             |  | 2010 |           | 2009 |   | 2008      | 
|Administration Costs
 Reimbursements |  | These costs represent actual expenses incurred by the General Partner
 in connection with its provision of administrative services, including
 personnel costs |  |      | 437,473   |      |   | 459,408   |  |   | 301,822   | 
|                                     |  | Total                                                                                                                                                          |  | $    | 1,393,713 |      | $ | 1,446,156 |  | $ | 1,279,011 | 

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, $1.2 million, and $981,000 to one of our
affiliated entities during the years ended December 31, 2010, 2009 and 2008,
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

As
discussed in Note 4 above, in July 2010, we and our affiliated partners of
AmREIT Woodlake L.P. entered into a joint venture agreement with a third party
whereby the new partner acquired a 90% interest in the sole property owned by
AmREIT Woodlake L.P. As a result of this transaction, we now hold a 3% interest
in the property.

We
had no acquisitions or dispositions of properties in which we have a
controlling financial interest during the years ended December 31, 2010, 2009
and 2008. See Note 4 for a discussion of our
investment activity with respect to our non-consolidated subsidiaries
during the same periods. See also Note 12 for a subsequent event involving the
sale of one of our consolidated properties subsequent to December 31, 2010.

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 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

We
have evaluated all events or transactions as of the date through which the
financial statements were made available for issuance. Except as noted below,
we did not have any material subsequent events that impacted our consolidated
financial statements during this period.

In February 2011, we sold the Market at Lake
Houston property to AmREIT for a combination of cash and the assumption of
debt. The acquisition was subject to the appraisal process set forth in Item
1. Business  Disposition Policies  AmREITs Purchase Rights.

F-19

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Table of Contents

AmREIT MONTHLY INCOME & GROWTH FUND III,
LTD. AND SUBSIDIARIES
SCHEDULE III - Consolidated Real Estate Owned and
Accumulated Depreciation
For the year ended December 31, 2010

|                     |  |                          |            |                                                   |   |            |                          |   |           |   |       |            |                         |   |              |  |              |            |  |   |            |   |  |            |  |   |            |  | 
|-------------------- |  | ------------------------ | ---------- | ------------------------------------------------- | - | ---------- | ------------------------ | - | --------- | - | ----- | ---------- | ----------------------- | - | ------------ |  | ------------ | ---------- |  | - | ---------- | - |  | ---------- |  | - | ---------- |  | 
|                     |  | Initial Cost             |            | Cost CapitalizedSubsequent toAcquisition (Note A) |   | Total Cost |                          |   |           |   |       |            |                        
|Property Description |  | Building andImprovements |            | Land                                              |   |            | Building andImprovements |   | Land      |   | Total |            | AccumulatedDepreciation |   | DateAcquired |  | Encumbrances |           
|Westside
 Plaza      |  |                          | 8,631,610  |                                                   |   | 4,750,000  |                          |   | 1,233,525 |   |       | 9,855,532  |                         |   | 4,759,603    |  |              | 14,615,135 |  |   | (1,509,645 | ) |  | 9/30/2005  |  |   | 10,081,959 | 
|Olmos
 Creek         |  |                          | 9,829,663  |                                                   |   | 4,261,553  |                          |   | (563,100  | ) |       | 9,979,522  |                         |   | 3,548,594    |  |              | 13,528,116 |  |   | (1,747,830 | ) |  | 6/30/2006  |  |   | 11,175,000 | 
|Lantern
 Lane        |  |                          | 11,386,338 |                                                   |   | 6,308,354  |                          |   | 752,666   |   |       | 12,118,012 |                         |   | 6,329,346    |  |              | 18,447,358 |  |   | (2,482,790 | ) |  | 9/29/2006  |  |   | 13,440,000 | 
|Lake
 Houston        |  |                          | 15,968,495 |                                                   |   | 3,800,000  |                          |   | 351,800   |   |       | 16,311,782 |                         |   | 3,808,513    |  |              | 20,120,295 |  |   | (2,631,501 | ) |  | 12/12/2005 |  |   | 15,675,000 | 
|                     |  |                          |            |                                                   |   |            |                          |   |           |   |       |            |                         |   |              |  |              |            |  |   |            |   |  |            |  |   |            |  | 
|Total                |  | $                        | 45,816,106 |                                                   | $ | 19,119,907 |                          | $ | 1,774,891 |   | $     | 48,264,848 |                         | $ | 18,446,056   |  | $            | 66,710,904 |  | $ | (8,371,766 | ) |  |            |  | $ | 50,371,959 | 

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, 2010 is as
follows:

|                              |  |      |            |                           |   |           |  
|----------------------------- |  | ---- | ---------- | ------------------------- | - | --------- | -
|                              |  | Cost |            | Accumulated
 Depreciation |  
|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 |  
|Acquisitions
 / additions     |  |      | 124,467    |                           |   |           |  
|Disposals                     |  |      | (137,800   | )                         |   | (118,923  | )
|Depreciation
 expense         |  |      |            |                           |   | 1,799,324 |  
|Balance at
 December 31, 2010 |  | $    | 66,710,904 |                           | $ | 8,371,766 |  

S-1

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