FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended          December 31, 1998


[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                        to

Commission file number              0-6103

                        Watermark Investors Realty Trust
             (Exact name of registrant as specified in the charter)


                Texas                            75-1372785

    (State or other jurisdiction of           (I.R.S. Employer
    incorporation or organization)           Identification No.)

227 West Trade Street, Suite 2320, Charlotte, North Carolina          28202
               (Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code            704/343-9334

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


Title of each class                  Name of each exchange on which registered
       None                                             None


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

                 Shares of Beneficial Interest, $1.00 par value
                                (Title of class)

     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  and Exchange Act
of 1934  during the  preceding  12 months (or for such  shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X     No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

     The aggregate  market value of the 178,996  shares of  Beneficial  Interest
(voting   securities)   held  by   non-affiliates   of  the  Registrant  is  not
ascertainable since no trading market presently exists for such shares.

     As of March 25, 1999,  there were 542,413 shares of Beneficial  Interest of
the Registrant.

                    DOCUMENTS INCORPORATED BY REFERENCE. None


                                        1

<PAGE>



SAFE HARBOR  STATEMENT  UNDER THE PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF
1995: This Annual Report, on Form 10-K, may contain  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the  Securities  Exchange  Act of 1934 which are not  historical  facts,  and
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from those  expected  and  projected.  Such risks and  uncertainties
include the following:  general economic  conditions and conditions  specific to
the real estate industry including its cyclical nature, and competitive factors,
changes in generally accepted accounting principles, changes in federal tax laws
regarding Real Estate Investment  Trusts,  and the risk factors listed from time
to  time  in  the  Company's   Securities  and  Exchange   Commission   filings.
Accordingly,  there can be no assurance  that the actual results will conform to
the forward-looking statements in the Annual Report.


                                     PART I

Item 1. Business.

     Watermark  Investors  Realty  Trust  (herein  referred to as the "Trust" or
"Watermark"  or the  "Registrant")  was  originally  organized as Ryan  Mortgage
Investors  pursuant  to the  Texas  Real  Estate  Investment  Trust  Act under a
Declaration  of Trust dated  October 13,  1971.  On March 6, 1984,  its name was
changed  to  Arlington  Realty  Investors   pursuant  to  an  Amendment  to  the
Declaration  of Trust.  On  December 5, 1995,  the  Trust's  name was changed to
Watermark  Investors Realty Trust pursuant to an Amendment to the Declaration of
Trust.  The Trust has  elected to be treated as a Real Estate  Investment  Trust
("REIT") under Section 856 through 860 of the Internal  Revenue Code of 1986, as
amended. The Trust has, in the opinion of the Trust's management,  qualified for
federal taxation as a REIT for each fiscal year subsequent to December 31, 1971.
Although not currently  active,  the Trust's primary  business and only industry
segment has been  investing in equity  interests in real estate and related real
estate activities.

     During March 1995,  the Trust formed a wholly owned  subsidiary,  Watermark
Texas 1, Inc., a Maryland corporation, and contributed its sole property to such
subsidiary.

Item 2.  Properties.

     At December 31, 1998, the Trust's only significant  asset was its ownership
interest  in its  subsidiary,  Watermark  Texas 1, Inc.,  which owns a parcel of
unimproved land consisting of approximately  4.5 acres located on Parker Road in
Houston,  Harris County,  Texas. The Trust has held the Parker Road property for
sale for several years,  has listed the property with various  brokers over that
time period, and inquired of the City of Houston as to the desire of the City to
acquire such property for a park site.  Management presently intends to sell the
Parker  Road  property  at the  first  available  opportunity.  The  anticipated
carrying costs associated with the Parker Road property are currently limited to
property taxes, insurance, and maintenance.

Item 3.  Legal Proceedings.

     At December 31, 1998, and thereafter  through the date of this report,  the
Trust was not a party,  nor was any property or assets of the Trust subject,  to
any material pending legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders.

         None.

                                        2

<PAGE>



                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

     The Trust's  shares of Beneficial  Interest (the  "Shares") are traded on a
sporadic  basis.  The Trust believes  there has been no established  independent
trading  market for the Shares  since the Shares  were  delisted  from NASDAQ in
1988.  A limited  number of Shares are believed to have been traded in privately
negotiated transactions.

     No regular  dividends on Shares were paid in 1997 or 1998.  As of March 25,
1999, 542,413 Shares were held by approximately 300 holders of record.

Item 6. Selected Financial Data.

     The following table sets forth a summary of certain selected financial data
of the  Trust.  This  summary  should be read in  conjunction  with the Notes to
Financial Statements included at Item 8.

                    (dollars in thousands, except per share)
                        For the Years Ended December 31,

<TABLE>
<CAPTION>


                                       1998               1997              1996            1995             1994
                                       ----               ----              ----            ----             ----
<S>                                    <C>                <C>               <C>               <C>            <C>

Statement of Operations
Data
Rental Operations, net                $ -               $ -               $ -               $ -             $  70
Real estate sales, net                  -                 -                 -                 -                -
Interest Income                         -                 -                 -                 -                -
Gain on Sale of Land                    -                 -                 -                 4                -
Net earnings <loss>                    <31>              <31>              <31>              <99>             <44>
Earnings <loss> per                   $(.06)            $(.06)            $<.06>           $<.18>           $<.09>
share
Distributions per share               $ -               $ -               $ -               $ -             $ -
Weighted average shares                542,413           542,413           542,413           542,413         505,172
outstanding
Balance Sheet Data

Total assets                            11                 1                12                 1              33
Shareholders' equity                 <149>              <118>             $<87>             $<56>           $<1>

</TABLE>

Item 7. Management's Discussion and Analysis of Financial1Condition and

Results of Operations

     Watermark  has had no revenue for the three years ended  December 31, 1998.
Watermark's sole real property consists of the Parker Road property. In February
of 1995, Watermark sold a 4,429 square foot strip of the Parker Road property to
the City of  Houston,  Texas,  for  $3,765.  Watermark  did not have any  rental
operations in 1996, 1997 or 1998.

Liquidity and Capital Resources

     Management  currently  plans for the  subsidiary  to sell the  Parker  Road
property at the first  available  opportunity.  The  anticipated  carrying costs
associated with the Parker Road property are currently limited to property

                                        3

<PAGE>



taxes,  insurance and  maintenance.  There are no other known material  demands,
commitments,  events or uncertainties that will result in or that are reasonably
likely  to result in  Watermark's  liquidity  increasing  or  decreasing  in any
material  way.  However,  in order to meet  corporate  expenses and the carrying
costs of the Parker Road property,  Watermark will have to (i) raise  additional
funds (possibly by selling or leasing the Parker Road property) or (ii) generate
additional  funds  (possibly  by selling or leasing the Parker  Road  property).
There are no material commitments for capital expenditures.

Inflationary Factors

     In recent years,  inflation has neither increased Watermark's revenues from
operating  assets nor  beneficially  affected the current value of its remaining
real estate assets to any significant degree.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     Management  does not believe  the  Company has any  exposure to market risk
other than the risks commonly associated with ownership of real property.

                                        4

<PAGE>



Item 8.  Financial Statements and Supplementary Data.

                          INDEX TO FINANCIAL STATEMENTS

                                                                          Page

Report of Farmer, Fuqua, Hunt & Munselle, P.C.
         Independent Auditors...............................................6

Consolidated Balance Sheets as of December 31, 1998 and 1997................7

Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996............................................8

Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1998, 1997 and 1996........................9

Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996...........................................10

Notes to Consolidated Financial Statements.................................11

Schedule III - Real Estate Investments and Accumulated Depreciation........14

All other schedules are omitted since they are not required, are not applicable,
or the financial information required is included in the financial statements or
the notes thereto.



                                        5

<PAGE>



                          INDEPENDENT AUDITORS' REPORT

To Board of Trustees and Shareholders
Watermark Investors Realty Trust

We have  audited  the  accompanying  consolidated  balance  sheets of  Watermark
Investors  Realty Trust and subsidiary as of December 31, 1998 and 1997, and the
related  consolidated  statements of operations,  shareholders' equity (deficit)
and cash flows for the years  ended  December  31,  1998,  1997 and 1996.  These
consolidated   financial  statements  are  the  responsibility  of  the  Trust's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes 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  consolidated  financial  position  of
Watermark Investors Realty Trust and subsidiary as of December 31, 1998 and 1997
and the results of their  operations  and their cash flows for each of the years
ended December 31, 1998,  1997 and 1996, in conformity  with generally  accepted
accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Trust will continue as a going concern.  As discussed in Note 10 to the
consolidated  financial  statements,  the  Trust  has  no  operating  assets  or
revenues, and is dependent upon the financial support of its shareholders. These
matters raise substantial doubt about the Trust's ability to continue as a going
concern.  Management's  plans in regard to these  matters are also  discussed in
Note 10. These consolidated  financial statements do not include any adjustments
that might result from this uncertainty.

As more  fully  described  in Note  2,  Watermark  Investors  Realty  Trust  was
operating under a Plan of Complete  Liquidation  and Termination  until June 30,
1994.  The  consolidated  financial  statements  include  adjustments to reflect
assets at their net  realizable  value as determined by the Trust's  management.
The ultimate  value of the assets will be determined at the time of sale and may
differ significantly from the value as determined by the Trust's management.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial  statements taken as a whole.  Schedule III is presented
for the purpose of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic consolidated financial statements.  This
schedule has been subjected to the auditing  procedures applied in the audits of
the basic consolidated financial statements and, in our opinion,  fairly states,
in all material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
March 24, 1999

                                        6

<PAGE>


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1998 and 1997



                                     ASSETS
                                                         1998         1997
                                                         ----         ----

Real estate                                           $ 168,588    $ 168,588
Less allowance for possible losses                     (168,588)    (168,588)
                                                        -------      -------
Cash                                                     10,714           74
                                                        -------      -------
                  Total assets                        $  10,714    $      74
                                                        =======      =======


                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities
         Note payable - related party                 $ 105,100     $ 70,350
         Accounts payable and accrued liabilities        14,423       17,478
             Accrued interest payable - related party    20,352       10,306
         Unclaimed dividends                             20,174       20,174
                                                        -------      -------
                  Total liabilities                     160,049      118,308

Shareholders' Equity (Deficit)
         Preferred shares of  beneficial  interest;
                  $.01 par value;  authorized,
                  10,000,000 shares;
                  -0- shares issued and outstanding at
                  December 31, 1998 and 1997                ---          ---

         Common shares of beneficial interest;
                  $1.00 par value; authorized,
                  10,000,000 shares;
                  542,413 shares issued and 
                  outstanding at
                  December 31, 1998 and 1997            196,235      196,235

         Additional paid-in capital                      44,205       44,205

         Accumulated deficit                           (389,775)    (358,674)
                                                        -------      -------
                  Total shareholders' equity (deficit) (149,335)    (118,234)
                                                        -------      -------
                  Total liabilities and shareholders'
                  equity (deficit)                     $ 10,714    $      74
                                                        =======    =========


        The accompanying notes are an integral part of these statements.

                                        7

<PAGE>



                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                               1998                  1997            1996
<S>                                        <C>                  <C>            <C> 

Revenues                                   $    ---             $     ---      $     ---
                                                ---                   ---            ---
Expenses

         Interest - related party            10,046                 7,722           2,584
         Property expenses                    4,314                 6,805           7,967
         Legal and professional              16,741                16,241          20,948
                                           --------             ---------       ---------
                  Total expenses             31,101                30,768          31,499
                                           --------             ---------       ---------
NET LOSS                                   $(31,101)            $ (30,768)     $  (31,499)
                                           ========             =========       ==========
Loss per share                                 (.06)                 (.06)     $     (.06)
                                           ========             =========      ==========
Distributions per share                    $    ---             $     ---      $      ---
                                           ========             =========      ==========
Weighted average shares of beneficial 
         interest used in
         computing loss per share           542,413               542,413         542,413
                                          =========            ==========      ==========


        The accompanying notes are an integral part of these statements.

                                        8

<PAGE>




                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                  Years Ended December 31, 1998, 1997 and 1996


</TABLE>
<TABLE>
<CAPTION>

                                             Shares of           Additional
                                             Beneficial            Paid-in             Accumulated
                                             Interest             Capital               Deficit                Total

<S>                                          <C>                  <C>                 <C>                   <C>

Balance at January 1, 1996                   $196,235             $ 44,205            $(296,407)           $ (55,967)
                                             --------             --------            ----------           ----------
         Net loss for the year                    ---                  ---              (31,499)             (31,499)
                                             --------             --------            ----------           ----------
Balance at December 31, 1996                 $196,235             $ 44,205            $(327,906)           $ (87,466)
                                             --------             --------            ----------           ----------
         Net loss for the year                    ---                  ---              (30,768)             (30,768)
                                             --------             --------            ----------           ----------
Balance at December 31, 1997                 $196,235             $ 44,205            $(358,674)           $(118,234)
                                             ========             ========            ==========           ==========
         Net loss for the year                    ---                  ---              (31,101)             (31,101)
                                             --------             --------            ----------           ----------
Balance at December 31, 1998                 $196,235             $ 44,205            $(389,775)           $(149,335)
                                             ========             ========            ==========           ==========

</TABLE>

        The accompanying notes are an integral part of these statements.


                                        9

<PAGE>



                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                                     1998                 1997                  1996
                                                                     ----                 ----                  ----
<S>                                                           <C>                  <C>                   <C> 

Cash flows from operating activities
   Net loss                                                   $     (31,101)       $     (30,768)        $    (31,499)
   Adjustments to reconcile net loss to net cash used for
      operating activities
      Gain on sale of real estate                                       ---                  ---                  ---
      Increase (decrease) in accounts payable and accrued
      liabilities                                                     6,991                8,340               (17,229)
      Expenses paid directly by shareholder                             ---                  ---                   ---
                                                              -------------        -------------         -------------
   Net cash used for operating activities                           (24,110)             (22,428)              (48,728)

Cash flows from financing activities
   Proceeds from loans                                               34,750               10,350                60,000
                                                             --------------        -------------         -------------
   Net cash provided by financing activities                         34,750               10,350                60,000
                                                             --------------        -------------         -------------
Increase (decrease) in cash                                          10,640              (12,078)               11,272
Cash at beginning of year                                                74               12,152                   880
                                                             --------------        -------------         -------------
Cash at end of year                                          $      10,714         $         74          $      12,152
                                                             --------------        -------------         =============
Supplemental cash flow information                           $          ---        $         ---         $         ---
                                                             --------------        -------------         -------------
   Cash paid for interest
</TABLE>


        The accompanying notes are an integral part of these statements.


                                       10

<PAGE>



                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Watermark  Investors Realty Trust  (Watermark) was originally  organized as Ryan
Mortgage  Investors pursuant to the Texas Real Estate Investment Trust Act under
a Declaration  of Trust dated  October 13, 1971. On March 6, 1984,  its name was
changed  to  Arlington  Realty  Investors   pursuant  to  an  Amendment  to  the
Declaration  of Trust.  On  December 5, 1995,  the  Trust's  name was changed to
Watermark  Investors Realty Trust pursuant to an Amendment to the Declaration of
Trust.  The Trust has  elected to be treated as a Real Estate  Investment  Trust
("REIT") under Sections 856 through 860 of the Internal  Revenue Code. The Trust
has, in the opinion of the Trust's management, qualified for federal taxation as
a REIT for each fiscal  year  subsequent  to December  31,  1971.  Although  not
currently  active,  the Trust's primary  business and only industry  segment has
been  investing  in equity  interests  in real  estate and  related  real estate
activities.  Under the Trust's Declaration of Trust and Bylaws, the Trustees, at
their option,  may terminate the Trust's status as a REIT for federal income tax
purposes.

During March 1995, the Trust formed a wholly-owned  subsidiary,  Watermark Texas
1, Inc.,  a Maryland  corporation,  and  contributed  its sole  property to such
subsidiary.

Principles of Consolidation

The consolidated financial statements include the accounts of Watermark, and its
wholly-owned  subsidiary,  Watermark Texas 1, Inc. All significant  intercompany
transactions and accounts have been eliminated.

Real Estate

Watermark  carries real estate at the lower of cost or estimated net  realizable
value.

Allowance for Possible Losses

Watermark  provides  for  possible  losses on real estate when such  amounts are
considered  necessary  after  making  periodic  reviews  of  the  estimated  net
realizable values of the real estate.

Earnings (Loss) Per Share

Earnings  (loss) per share (EPS) are calculated in accordance  with Statement of
Financial  Accounting Standards No. 128, Earnings per Share (SFAS 128) which was
adopted  in 1997 for all years  presented.  Basic EPS is  computed  by  dividing
income available to common shareholders by the weighted average number of common
shares  outstanding  during the period.  Diluted EPS does not apply to Watermark
due to the absence of dilutive potential common shares. The adoption of SFAS 128
had no effect on previously reported EPS.

Consolidated Statements of Cash Flows

Watermark  does not consider any of its assets to meet the  definition of a cash
equivalent.




                                       11

<PAGE>



                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                        December 31, 1998, 1997 and 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Accounting Estimates

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

Legal and Other Expenses

Legal and other expenses incurred for 1998, 1997 and 1996 include legal expenses
of approximately $6,500, $5,900 and $9,700, respectively.

Income Taxes

Watermark is qualified as a REIT.  To retain its REIT  qualification,  Watermark
must restrict its investments  principally to rental properties or notes secured
by real estate, and must not realize more than 30% of its gross income from gain
on the sale of real estate  assets held for less than four years.  In  addition,
Watermark  must pay out at least 95% of its taxable  income,  excluding  capital
gains,  as dividends,  provided that  Watermark  pays tax at corporate  rates on
capital gains not distributed.  No distributions  were required in 1998, 1997 or
1996, due to net operating losses.

NOTE 2 - PLAN OF LIQUIDATION AND TERMINATION

Watermark  operated under a Plan of Complete  Liquidation and  Termination  (the
"Plan" or the "Watermark  Plan") approved by the shareholders in 1985 until June
30, 1994.


NOTE 3 - REAL ESTATE

At December 31, 1998 and 1997,  Watermark's  only real estate asset was a parcel
of unimproved land consisting of approximately  4.5 acres located on Parker Road
in Houston,  Harris County,  Texas.  During 1992, a provision was made to reduce
the Parker Road land to its estimated net realizable value, which was determined
to be zero at  December  31,  1992.  During  March  1995,  the  Trust  formed  a
wholly-owned  subsidiary  and  contributed  the  Parker  Road  property  to such
subsidiary.  At December 31, 1998 and 1997, the Trust's only  significant  asset
was its ownership interest in such subsidiary.

NOTE 4 - NOTE PAYABLE
                                                     1998                 1997
                                                     ----                 ----
Note payable to Abbestate Holding, Inc., 
a related party, with an interest rate of 12%, 
uncollateralized, with interest and principal 
due August 1, 1999.                                $105,100             $70,350
                                                   ========             =======


NOTE 5 - FEDERAL INCOME TAXES

No Federal  income taxes have been  provided for  financial  statement  purposes
because, as a REIT with no operating income,  Watermark has no tax liability. At
December 31, 1998, net operating loss  carryforwards of  approximately  $937,000
were available for tax purposes which,  if not utilized,  will expire at various
dates through 2010.


                                       12

<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                        December 31, 1998, 1997 and 1996

NOTE 6 - RELATED PARTY TRANSACTIONS

HPI  Capital,  LLC  provides  administrative  and  accounting  services  to  the
Trust under  supervision of the Trust's  officers (two of whom are also officers
of HPI Capital, LLC). HPI Capital, LLC has not been compensated by the Trust for
any services rendered to the Trust.

NOTE 7 - FINANCIAL INSTRUMENTS

The estimated fair values of Watermark's  financial  instruments at December 31,
1998 and 1997 follow:

<TABLE>
<CAPTION>

                                                       1998                                         1997
                                                       ----                                         ----
                                          Carrying                Fair                  Carrying            Fair
                                           amount                value                   amount             value
<S>                                 <C>                      <C>                         <C>                <C> 

Cash                                $       10,714           $    10,714                     $74               $74
Note payable-related party                 105,100               105,100                  70,350            70,350

</TABLE>

The fair  value  amounts  for each of the  financial  instruments  listed  above
approximate carrying amounts due to the short maturities of these instruments.

NOTE 8 - LIQUIDATING DISTRIBUTION

The recorded par value of the outstanding  common shares of beneficial  interest
has been reduced by $346,178,  which represents the amount of a 1993 liquidating
distribution in excess of additional paid-in capital.

NOTE 9 - RECLASSIFICATIONS

Certain  reclassifications  have  been  made to the 1997  and 1996  consolidated
financial statements to conform to the 1998 presentation.

NOTE 10 - GOING CONCERN

The Trust has no  operating  assets or  revenues.  Its  continuation  as a going
concern is dependent upon the Trust's ability to raise  additional  capital from
its shareholders or from third parties.  The  shareholders  anticipate that they
will continue to provide such financial support to the Trust. However, there can
be no assurances that the shareholders  will continue to provide such support or
that the Trust will be  successful  in  raising  additional  capital  from other
sources.  Further,  there can be no assurance,  assuming the Trust  successfully
obtains such support, that the Trust will achieve profitability or positive cash
flow.

                                       13

<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                        December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                           Cost        Gross Amount
                                       Capitalized       at which
                            Initial     Subsequent      Carried at
                            Cost to         to         December 31,     Valuation     Accumulated      Date      Depreciable
       Description         Watermark   Acquisition         1998         Allowance    Depreciation    Acquired   Life (years)
       -----------         ---------   -----------        ------        ---------    ------------    --------   ------------
<S>    <C>                 <C>         <C>             <C>              <C>          <C>              <C>       <C>

       Undeveloped         $162,729       $5,859         $168,588       $(168,588)        ---         Various        ---
       land Houston, TX    ========       ======         ========       ==========       =====        =======       =====

</TABLE>

A summary of activity in real estate and accumulated  depreciation for the three
years in the period ended December 31, 1998 is as follows:


REAL ESTATE                       1998               1997              1996
-----------                       ----               ----              ----
Balance at beginning of year    $168,588           $168,588          $168,588
Sales                              ---                ---               ---
Foreclosure addition               ---                ---               ---
Improvements                       ---                ---               ---
                                  -----              -----             -----
Balance at end of year          $168,588           $168,588          $168,588
                                ========           ========          ========
ACCUMULATED DEPRECIATION
Balance at beginning of year     $ ---               $ ---            $ ---
Sales                              ---                 ---              ---
Depreciation                       ---                 ---              ---
                                  -----              -----             -----
Balance at end of year           $ ---              $ ---             $ ---
                                 =======           ========          ========

Item 9. Changes and Disagreements with Accountants on Accounting
        and Financial Disclosure.

        None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     The  business  affairs of the Trust are managed by, or under the  direction
of,  the  Board of  Trustees.  The  Trustees  are  responsible  for the  general
investment  policies  of the  Trust  and for  such  general  supervision  of the
business of the Trust  conducted  by  officers,  agents,  employees,  investment
advisors or  independent  contractors of the Trust as may be necessary to insure
that such  business  conforms to the  provisions  of the  Declaration  of Trust.
Pursuant to Article II, Section 2.1 of the Declaration of Trust, as amended,  of
the Trust,  there shall not be less than two (2),  nor more than  fifteen  (15),
Trustees of the Trust.  The number of Trustees shall be determined  from time to
time by resolution of the Trustees and the current  number of Trustees is set at
three (3).  Trustees  may succeed  themselves  in office and are  required to be
individuals  at least 21 years old not  under  legal  disability  and at least a
majority must be natural  persons.  Commencing  with the 1996 annual  meeting of
shareholders,  the Board of  Trustees of the Trust has been  divided  into three
classes, each class consists as nearly as possible of one-third of the Trustees.
The term of office of one class of Trustees  expires  each year.  After the 1996
annual meeting of

                                       14

<PAGE>



shareholders,  the  Trustees  of the class  elected  at each  annual  meeting of
shareholders thereafter shall hold office for a term of three years.

     The  current  Trustees  of the  Trust  (two of whom are also the  executive
officers) are listed below,  together with their ages, all positions and offices
with  the  Trust  and  their  principal  occupations,  business  experience  and
directorships with other companies during the last five years or more.

     David S. Givner, 54, has been Trustee, President and Treasurer of the Trust
since  December  5, 1995,  and is also the  President/Managing  Director  of HPI
Capital,  LLC.  Since 1992,  Mr. Givner has been  President and Chief  Operating
Officer of various affiliates of HPI Capital,  LLC. From 1987 until 1992, he was
Senior Vice  President/Director  of Leasing and Consulting Services for Williams
Real Estate  Company  based in New York,  New York.  Mr. Givner is also the sole
shareholder and the President of DAGI  Corporation,  a Delaware  corporation and
the general partner of DAGI Limited Partnership, a Delaware limited partnership.
Mr. Givner beneficially owns 59,655 Shares through DAGI Limited Partnership.

     Simon  Mizrachi,  50, has been Trustee of the Trust since  December 5, 1995
and is also the President of Midatlantic  Agency, Inc. a Florida corporation and
financial   consulting  company.   Mr.  Mizrachi  has  served  as  President  of
Midatlantic  Agency,  Inc. since 1992. Mr. Mizrachi and Midatlantic Agency, Inc.
are  the  sole  partners  of  MIZ  Investors  Associates,   a  Delaware  general
partnership.  Mr.  Mizrachi has been a director  and officer of PAZ  Securities,
Inc., an NASD  broker/dealer  firm,  since 1978. Mr. Mizrachi is an officer with
PAK Investors,  Inc.,  Pudgie's Chicken,  Inc., Topaz  Securities,  Inc., Topaz,
Inc.,  Cal-Mar,  Inc., TMT Hanes, Inc., and TMT Sales, Inc. Mr. Mizrachi is also
an officer of various  affiliates of MIZ Investors  Associates  and  Midatlantic
Agency, Inc. Mr. Mizrachi  beneficially owns 59,655 Shares through MIZ Investors
Associates.

     Michael S. Verruto,  38, has been Trustee,  Vice President and Secretary of
the  Trust  since  December  5,  1995 and is also  the  Vice  President/Managing
Director of HPI Capital,  LLC, a North Carolina limited  liability  company that
develops real estate. Since January 1990, Mr. Verruto has held various positions
with various  affiliates  of HPI  Capital,  LLC, all of which are active in real
estate development and management.  Mr. Verruto is also the sole shareholder and
the President and Treasurer of Fletcher  Napolitano  Styles and Verruto  Holding
Company,  Inc.,  a Delaware  corporation  and the  general  partner of  Fletcher
Napolitano Styles and Verruto Family Property Partners, L.P., a Delaware limited
partnership.  Mr.  Verruto  beneficially  owns 59,655  Shares  through  Fletcher
Napolitano Styles and Verruto Family Property Partners, L.P.

Meetings and Committees of Trustees

The business affairs of the Trust are managed by, or under the direction of, the
Board of Trustees.  During the fiscal year ended December 31, 1998, the Board of
Trustees  held no formal  meetings  and no matters  were  handled  by  unanimous
written  consent.  The Board of Trustees has no standing  audit,  nominating  or
compensation committee.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Under the securities laws of the United States, the Trust's trustees,  executive
officers,  and any persons  holding more than ten percent of the Trust's  Shares
are  required to report  their  ownership  of the Shares and any changes in that
ownership to the Securities and Exchange Commission (the "Commission"). Specific
due dates for these reports have been  established  under applicable law and the
Trust is required to report any failure to file by these dates during  1998.  To
the best  knowledge  of the current  officers of the Trust,  all of these filing
requirements  were  satisfied  by its trustees  and  executive  officers and ten
percent holders.

                                       15

<PAGE>



Item 11. Executive Compensation.

Neither the trustees nor the  officers of the Trust  received  salaries or other
cash  compensation  from the Trust for acting in such capacities during the year
ended December 31, 1998.  The Trust has no retirement,  annuity or pension plans
covering its trustees or officers.  Based upon the Trust's  current  operations,
the Board of Trustees does not believe compensation will be paid or given in the
near future.



                                       16

<PAGE>



Item 12. Security Ownership of Certain Beneficial Owners and Management.

Security Ownership of Certain Beneficial Owners

     According to the Share transfer records of the Trust and other  information
available to the Trust,  the following  persons were known to be the  beneficial
owners,  as of March 25, 1999, of more than five percent (5%) of the outstanding
Shares of the Trust:

<TABLE>
<CAPTION>

        Name and Address                            Amount of                   Percent of Shares
      of Beneficial Owner                      Beneficial Ownership              Outstanding (1)

<S>                                            <C>                               <C> 

Fletcher Napolitano Styles and                        59,665 (2)                         11.0 (2)
Verruto Family Property Partners, L.P. (3)            Shares
227 W. Trade Street
Suite 2320
Charlotte, NC 28202
Attn: Michael S. Verruto

MIZ Investors Associates (4)                         59,665 (2)                          11.0 (2)
6971 N. Federal Highway                              Shares
Suite 203
Boca Raton, FL 33487
Attn: Simon and Joseph Mizrachi

DAGI Limited Partnership (5)                         59,665 (2)                          11.0 (2)
227 W. Trade Street                                  Shares
Suite 2320
Charlotte, NC 28202
Attn: David S. Givner

Antapolis N.V.                                       184,422 (2)                         34.0 (2)
c/o MeesPierson Trust                                Shares
(Curacao) N.V.
Number 6 Curacao
Netherlands Antilles
Attn: John B. Goisiraweg

</TABLE>

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

(1)  Based on 542,413 Shares outstanding on March 25, 1999.

(2)  Does not include shares owned by others in group that filed a Schedule 13D
     dated  November 10, 1994.  The group  consists  solely of the four entities
     listed above,  which collectively own 363,417 Shares or 67.0% of the issued
     and outstanding Shares.

(3)  Through  his control of  Fletcher  Napolitano  Styles and  Verruto  Family
     Property Partners,  L.P., Michael S. Verruto is deemed the beneficial owner
     of 59,665 shares.

(4)  Through  their  control  of MIZ  Investors  Associates,  Simon and  Joseph
     Mizrachi are deemed to share beneficial ownership of 59,665 shares.

(5)  Through his control of DAGI Limited Partnership, David S. Givner is deemed
     the beneficial owner of 59,665 shares.

                                       17

<PAGE>



Security Ownership of Management

     According to the Share transfer records of the Trust and other  information
available to the Trust, as of March 25, 1999, the current trustees and executive
officers of the trust beneficially owned the following Shares:


  Name and Offices of Beneficial         Amount of
               Owner                Beneficial Ownership   Percent of Class (1)

   David S. Givner, Trustee, (3)           59,665 (2)                11.0 (2)
      President and Treasurer
   Simon Mizrachi, Trustee (4)             59,665 (2)                11.0 (2)
   Michael S. Verruto, Trustee, (5)        59,665 (2)                11.0 (2)
      Vice President and Secretary

    All trustees and executive            178,995 (2)                33.0 (2)
        officers as a group

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

(1)  Based on 542,413 Shares outstanding on March 25, 1999.

(2)  Does not include shares owned by others in group that filed a Schedule 13D
     dated  November 10, 1994.  The group  consists  solely of the four entities
     listed above,  which collectively own 363,417 Shares or 67.0% of the issued
     and outstanding Shares.

(3)  Through his control of DAGI Limited Partnership, David S. Givner is deemed
     the beneficial owner of 59,665 shares.

(4)  Through  their  control  of MIZ  Investors  Associates,  Simon and  Joseph
     Mizrachi are deemed to share beneficial ownership of 59,665 shares.

(5)  Through  his control of  Fletcher  Napolitano  Styles and  Verruto  Family
     Property Partners,  L.P., Michael S. Verruto is deemed the beneficial owner
     of 59,665 shares.

Item 13. Certain Relationships and Related Transactions.

     Since December 5, 1995, HPI Capital,  LLC has provided  administrative  and
accounting  services to the Trust under the supervision of the Trust's  officers
(two of whom are also officers of HPI Capital,  LLC).  HPI Capital,  LLC has not
been compensated by the Trust for any services rendered to the Trust.

                                       18

<PAGE>




                                     PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.

(a) The following documents are filed as part of this report:

     1. Consolidated Financial Statements:

          Balance Sheets as of December 31, 1998 and 1997.

          Statements of Operations for the years ended  December 31, 1998,  1997
          and 1996.

          Statements of  Shareholders'  Equity for the years ended  December 31,
          1998, 1997 and 1996.

          Statements of Cash Flows for the years ended  December 31, 1998,  1997
          and 1996.

          Notes to Financial Statements.

     2. Schedules:

          Schedule III - Real Estate Investments and Accumulated Depreciation.

          All other  schedules are omitted since they are not required,  are not
          applicable,  or the information  required is included in the financial
          statements or the notes thereto.

     3. Exhibits:

          The following documents are filed as exhibits to this report:

          Exhibit
          Number        Description

           3.1          Declaration of Trust, as amended (Incorporated by 
                        reference to Exhibit 3.1 to Registrant's Form 1-K for
                        the year ended December 31, 1995).

           3.2          By-laws, as amended (Incorporated by reference to
                        Exhibit 3.1 to Registrant's Form 10-K for the year
                        ended December 31, 1995).

           21           List of Subsidiaries.  (Incorporated by reference
                        to Exhibit 21 to Registrant's Form 10-K for the year
                        ended December 31, 1996).

           27           Financial Data Schedule

(b)      Reports on Form 8-K.

          During  the last  quarter of the period  covered  by this  report,  no
          reports on Form 8-K were filed.


                                       19

<PAGE>



                                   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,  on this the 30th day
of March, 1999.

                        WATERMARK INVESTORS REALTY TRUST



                                 By:      /s/ David S. Givner
                                          David S. Givner
                                          Trustee, President and Treasurer


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


       Signature                     Title                           Date

/s/ David S. Givner       Trustee, President and Treasurer      March 30, 1999
------------------------  (Principal Executive Officer and 
    David S. Givner               Principal Financial 
                                  and Accounting Officer)

/s/ Michael S. Verruto    Trustee, Vice President and           March 30, 1999
------------------------  Secretary
    Michael S. Verruto


                                       20