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

For the fiscal year ended         December 31, 2005
                          ------------------------------------------------------

[ ]  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         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.)
               100 N. Tryon Street, Suite 5500,                     28202
                  Charlotte, North Carolina
-----------------------------------------------------------  -------------------
           (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 if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes     No  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     No  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 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. [X]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

     Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]


<PAGE>

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes     No  X .
                                       ---    ---

     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 1, 2006, there were 542,413 shares of Beneficial Interest of
the Registrant.


                    DOCUMENTS INCORPORATED BY REFERENCE. None


     SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This Annual Report, on Form 10-K, may contain "forward-looking statements"
for purposes of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are based on current expectations and are not
guarantees of future performance.

     All statements other than statements of historical facts are
forward-looking statements, and can be identified by the use of forward-looking
terminology such as "may," "will," "might," "would," "expect," "anticipate,"
"estimate," "would," "could," "should," "believe," "intend," "project,"
"forecast," "target," "plan," or "continue" or the negative of these words or
other variations or comparable terminology, are subject to certain risks, trends
and uncertainties that could cause actual results to differ materially from
those projected. Because these statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by the forward-looking statements. We caution you not to place undue
reliance on those statements, which speak only as of the date of this report.

     Among the factors that could cause actual results to differ materially are:

[ ]       general economic conditions, competition and the supply of and demand;

[ ]       interest rate levels and the availability of financing;

[ ]       potential environmental liability and other risks associated with the
          ownership, development and

[ ]       acquisition of our property;

[ ]       greater than anticipated construction or operating costs;

[ ]       inflationary and other general economic trends;

[ ]       other risks detailed from time to time in the reports filed by us with
          the Securities and Exchange Commission.

     Except for ongoing obligations to disclose material information as required
by the federal securities laws, we undertake no obligation to release publicly
any revisions to any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

                                     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 Sections 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


                                       2
<PAGE>

owned subsidiary, Watermark Texas 1, Inc., a Maryland corporation, and
contributed to such subsidiary its only significant asset consisting of 4.5
acres of unimproved land located on Parker Road in Houston, Harris County,
Texas.

Item 1A.  Risk Factors

     You should carefully consider the risks described below.


     Adverse Effect To Property Income And Value Due To General Real Estate
Investment Risks

     Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the properties do not generate sufficient
income to meet operating expenses, including debt service and capital
expenditures, cash flow and the ability to make distributions to stockholders
will be adversely affected. The performance of the economy in each of the areas
in which the properties are located affects occupancy, market rental rates and
expenses.

     Consequently, the income from the properties and their underlying values
may be impacted. The financial results of major local employers may have an
impact on the cash flow and value of certain of the properties as well.

     Liquidity of real estate investments could significantly impede our ability
to respond to adverse changes in the performance of our properties.

     Because real estate investments are relatively illiquid, our ability to
promptly sell the Parker Road property in response to changing economic,
financial and investment conditions is limited. The real estate market is
affected by many factors, such as general economic conditions, availability of
financing, interest rates and other factors, including supply and demand, that
are beyond our control. We cannot predict whether we will be able to sell any
property for the price or on the terms set by us, or whether any price or other
terms offered by a prospective purchaser would be acceptable to us. We also
cannot predict the length of time needed to find a willing purchaser and to
complete the sale of a property.

     We may be required to expend funds to correct defects or to make
improvements before a property can be sold. We may not have funds available to
correct those defects or to make those improvements. In acquiring a property, we
may agree to lockout provisions that materially restrict us from selling that
property for a period of time or impose other restrictions, such as a limitation
on the amount of debt that can be placed or repaid on that property. These
lockout provisions would restrict our ability to sell a property. These factors
and any others that would impede our ability to respond to adverse changes in
the performance of our properties could significantly harm our financial
condition and operating results.

     We anticipate that our working capital reserves and cash flow from
operations may not be adequate to cover all of our cash needs and we will have
to obtain financing from other sources.

     We anticipate that our working capital reserves will not be adequate to
cover all of our cash needs. In order to cover those needs, we may have to
obtain financing from other sources. Sufficient financing may not be available
or, if available, may not be available on economically feasible terms or on
terms acceptable to us. Additional borrowings for working capital purposes will
increase our interest expense, and therefore may harm our financial condition
and results of operations. In order to meet the corporate expenses and carrying
costs of the Parker Road property, we may have to raise additional funds.

     Risk of Inflation /Deflation

     Substantial inflationary or deflationary pressures could have a negative
effect on rental rates and property operating expenses.

     Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses.

     Changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC
regulations, and NASDAQ rules, are creating uncertainty for companies such as


                                       3
<PAGE>

ours. These new or changed laws, regulations and standards are subject to
varying interpretations in many cases due to their lack of specificity, and as a
result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies, which could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices.

     We have debt obligations which may further reduce our operating
performance.

     We have outstanding debt and other liabilities in the aggregate amount of
approximately $505,650. In addition, we may incur additional indebtedness in the
future. As a result, we are subject to the risks normally associated with debt
financing, including the risk that our cash flow will be insufficient to meet
required payments of principal and interest, the risk that interest rates may
increase on variable-rate debt and the risk that indebtedness on our properties
cannot be refinanced at maturity or that the terms of such refinancing will not
be as favorable as the terms of such indebtedness.

     If our internally generated cash is inadequate to repay our indebtedness
upon maturity, then we will be required to repay debt through refinancing. If we
are unable to refinance our indebtedness on acceptable terms, or at all, we
might be forced to dispose of our property, potentially upon disadvantageous
terms, which might result in losses and might adversely affect our cash
available for distribution.

     We may be subjected to liability for environmental contamination which
might have a material adverse impact on our financial condition and results of
operations.

     As an owner and operator of real estate, we may be liable for the costs of
removal or remediation of hazardous or toxic substances present at, on, under,
in or released from our property, as well as for governmental fines and damages
for injuries to persons and property. We may be liable without regard to whether
we knew of, or were responsible for, the environmental contamination and with
respect to properties previously owned by companies we have acquired, whether
the contamination occurred before or after the acquisition.

     Our President and affiliates of the Trust own approximately 11% of the
shares of Beneficial Interest in the Trust and exercise significant control over
our company and may delay, defer or prevent us from taking actions that would be
beneficial to our other stockholders.

     David S. Givner, our President and Treasurer and other affiliates of the
Trust own approximately 11% of the outstanding shares of the Beneficial Interest
of the Trust. Accordingly, Mr. Givner and other affiliates of the Trust are able
to exercise significant control over the outcome of substantially all matters
required to be submitted to our stockholders for approval, including decisions
relating to the election of our board of directors and the determination of our
day-to-day corporate and management policies. Mr. Givner's ownership interest in
the Trust may discourage third parties from seeking to acquire control of the
Trust which may adversely affect the market price of our shares of Beneficial
Interest.

     Our organizational documents contain provisions which may discourage the
takeover of our company, may make removal of our management more difficult and
may depress our stock price.

     Our organizational documents contain provisions that may have an
anti-takeover effect and inhibit a change in our management. For instance, our
charter contains ownership limits and restrictions on transferability of shares
of our capital stock in order to protect our status as a REIT. These provisions
prevent any one stockholder from owning, actually or constructively, more than
9.9% of the value or number of outstanding shares of our capital stock without
our prior consent. In addition, our charter and bylaws contain other provisions
that may have the effect of delaying, deferring or preventing a change of
control or the removal of existing management and, as a result, could prevent
our shareholders from receiving a premium for their shares of common stock above
the prevailing market prices.

     If we fail to remain qualified as a REIT, our distributions will not be
deductible by us, and our income will be subject to taxation, reducing our
earnings available for distribution.

     We intend to remain qualified as a REIT under the Internal Revenue Code,
which will afford us significant tax advantages. The requirements for this
qualification, however, are complex. If we fail to meet these requirements, our
distributions will not be deductible by us and we will have to pay a corporate
level tax on our income. This would substantially reduce our cash available to
pay distributions. In addition, such a tax liability might cause us to borrow
funds, liquidate some of our investments or take other steps, which could
negatively affect our operating results. Moreover, if our REIT status is
terminated because of our failure to meet a technical REIT requirement or if we
voluntarily revoke our


                                       4
<PAGE>

election, we would generally be disqualified from electing treatment as a REIT
for the four taxable years following the year in which REIT status is lost.

     Even REITs are subject to federal and state income taxes.

     Even if we qualify and maintain our status as a REIT, we may become subject
to federal income taxes and related state taxes. For example, if we have net
income from a "prohibited transaction," that income will be subject to a 100%
tax. A "prohibited transaction" is, in general, the sale or other disposition of
inventory or property, other than foreclosure property, held primarily for sale
to customers in the ordinary course of business. We may not be able to make
sufficient distributions to avoid excise taxes applicable to REITs. We may also
decide to retain income we earn from the sale or other disposition of our
property and pay income tax directly on that income. In that event, our
stockholders would be treated as if they earned that income and paid the tax on
it directly. However, stockholders that are tax-exempt, such as charities or
qualified pension plans, would have no benefit from their deemed payment of that
tax liability.

     We may also be subject to state and local taxes on our income or property,
either directly or at the level of Watermark Texas 1, our other company through
which we indirectly own the Parker Road property. We may not be able to continue
to satisfy the REIT requirements, or it may not be in our best interests to
continue to do so.

     Loss of Key Personnel Could Harm Our Business.

     Our ability to successfully execute our acquisition and growth strategy
depends to a significant degree upon the continued contributions of David S.
Givner, our President and Treasurer. There is no guarantee that Mr. Givner will
remain employed with us. The loss of the services of Mr. Givner could have a
material adverse effect on our results of operations.

Item 2.   Properties.

     As of December 31, 2005, 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 Board of Trustees currently
plans to continue in its efforts to effectuate a sale of the Parker Road
property by Watermark Texas 1, Inc. at the first available opportunity, however,
as of December 31, 2005, no offers to purchase the Parker Road property have
been received by the Board of Trustees. If the Board of Trustees should decide
to pursue a sale of the Parker Road property, the proceeds of the sale will most
likely be used to pay down the Trust's debts. The anticipated carrying costs
associated with the Parker Road property are currently limited to property
taxes, stock transfer services, accounting services and maintenance.

Item 3.   Legal Proceedings.

     As of December 31, 2005, 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.


                                    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 2005 or 2004. As of March 29,
2006, 542,413 Shares were held by approximately 300 holders of record.

Item 6.   Selected Financial Data.


                                       5
<PAGE>

     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,
                                   2005      2004      2003      2002      2001
                                   ----      ----      ----      ----      ----

Statement of Operations Data
----------------------------
      Rental Operations, net         $-        $-        $-       $ -        $-
      Real estate sales, net          -         -         -         -         -
             Interest Income          -         -         -         -         -
        Gain on Sale of Land          -         -         -         -         -
         Net earnings (loss)      $(62)     $(60)     $(69)      (44)      (36)
   Earnings (loss) per share     $(.12)    $(.11)    $(.13)    $(.08)    $(.07)
     Distributions per share        $ -        $-        $-        $-       $ -
     Weighted average shares    542,413   542,413   542,413   542,413   542,413
                 outstanding
Balance Sheet Data
------------------
Total assets                         14        21        11         5         6
Shareholders' equity              (492)     (429)     (369)     (300)     (256)
(deficit)


Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operation.

     Results of Operations
     ---------------------

     Watermark has had no revenues for the three years ended December 31, 2005.
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 2003, 2004, or 2005.

     Liquidity and Capital Resources
     -------------------------------

     Management currently plans to cause its 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
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 raise additional funds
possibly by selling or leasing the Parker Road property. There are no material
commitments for capital expenditures.

     The following table sets forth certain information regarding Watermark's
significant contractual obligations, including payments due by period, as of
December 31, 2005:


                                       6
<PAGE>

   Contractual Obligations                  Payments due by period
                                Total       Less        1-3     3-5    More than
                                         than 1 year   years   years    5 years
       Long-Term Debt          290,000                                  290,000
 Capital Lease Obligations
     Operating Leases
    Purchase Obligations
 Other Long-Term Liabilities
Reflected on the Registrant's
  Balance Sheet under GAAP
           Total


     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.

     Off-Balance Sheet Arrangements
     ------------------------------

     None.

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.

Item 8.   Financial Statements and Supplementary Data.


                                       7
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firm........................6

Consolidated Balance Sheets as of December 31, 2005 and 2004...................7

Consolidated Statements of Operations for the years ended

December 31, 2005, 2004 and 2003...............................................8

Consolidated Statements of Shareholders' Equity (Deficit)

for the years ended December 31,  2005, 2004 and 2003..........................9

Consolidated Statements of Cash Flows for the years ended

December 31, 2005, 2004 and 2003..............................................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.


                                       8
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2005 and 2004, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years ended December 31, 2005, 2004 and 2003. 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 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
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, 2005 and 2004
and the results of their operations and their cash flows for each of the years
ended December 31, 2005, 2004 and 2003, in conformity with U.S. 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 9 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 9. 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, & HUFF, P.C.

Plano, Texas
March 29, 2006


                                       9
<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2005 and 2004



                                     ASSETS
                                                             2005          2004
                                                             ----          ----
Real estate                                              $168,588      $168,588
Less allowance for possible losses                       (168,588)     (168,588)
                                                         --------      --------
                                                            ---           ---
Cash                                                       13,907        21,166
                                                         --------      --------
          Total assets                                    $13,907       $21,166
                                                         ========      ========

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities
     Note payable - related party                        $295,000      $270,000
     Accounts payable and accrued liabilities              14,923        14,423
     Accounts payable - related party                       1,030         5,000
     Accrued interest payable - related party             174,549       140,908
     Unclaimed dividends                                   20,174        20,174
                                                         --------      --------
          Total liabilities                               505,676       450,505

Shareholders' Equity (Deficit)
     Preferred shares of beneficial interest;               ---           ---
          $.01 par value; authorized,
          10,000,000 shares; -0- shares
          issued and outstanding at
          December 31, 2005 and 2004
     Common shares of beneficial interest;                196,235       196,235
          $1.00 par value; authorized,
          10,000,000 shares; 542,413 shares
          issued and outstanding at
          December 31, 2005 and 2004
     Additional paid-in capital                            44,205        44,205
     Accumulated deficit                                 (732,209)     (669,779)
                                                         --------      --------
          Total shareholders' equity (deficit)           (491,769)     (429,339)
                                                         --------      --------
          Total liabilities and shareholders'            --------
               equity (deficit)                           $13,907       $21,166
                                                         ========      ========

        The accompanying notes are an integral part of these statements.


                                       10
<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years Ended December 31, 2005, 2004 and 2003



                                           2005         2004         2003
                                           ----         ----         ----
Revenues                                 $    ---     $    ---     $    ---
                                         --------     --------     --------
                                              ---          ---          ---
                                         --------     --------     --------
Expenses

          Interest - related party         33,641       28,757       25,173
          Property expenses                 8,392        4,402        3,592
          Legal and professional           20,397       26,976       40,504
                                           ------       ------       ------
               Total expenses              62,430       60,135       69,269
                                           ------       ------       ------

NET LOSS                                 $(62,430)    $(60,135)    $(69,269)
                                         ========     ========     ========
Loss per share                           $   (.12)    $   (.11)    $   (.13)
                                         ========     ========     ========
Distributions per share                  $    ---     $    ---     $    ---
                                         ========     ========     ========
Weighted average shares of beneficial     542,413      542,413      542,413
     interest used in computing loss     ========     ========     ========
     per share


        The accompanying notes are an integral part of these statements.


                                       11
<PAGE>

                WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                  Years Ended December 31, 2005, 2004 and 2003



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

Balance at January 1, 2003      $  196,235  $   44,205  $  (540,375)  $(299,935)
                                ==========  ==========  ===========   =========
     Net loss for the year             ---         ---  $   (69,269)  $ (69,269)
                                ----------  ----------  -----------   ---------
Balance at December 31, 2003    $  196,235  $   44,205  $  (609,644)  $(369,204)
                                ==========  ==========  ===========   =========
     Net loss for the year             ---         ---  $   (60,135)  $ (60,135)
                                ----------  ----------  -----------   ---------
Balance at December 31, 2004    $  196,235  $   44,205  $  (669,779)  $(429,339)
                                ==========  ==========  ===========   =========
     Net loss for the year             ---         ---  $   (62,430)  $ (62,430)
                                ----------  ----------  -----------   ---------
Balance at December 31, 2005    $  196,235  $   44,205  $  (732,209)  $(491,769)
                                ==========  ==========  ===========   =========


        The accompanying notes are an integral part of these statements.


                                       12
<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2005, 2004 and 2003



<TABLE>
<CAPTION>
                                                                          2005               2004                2003
                                                                          ----               ----                ----
<S>                                                                     <C>              <C>                 <C>
Cash flows from operating activities
   Net loss                                                               $(62,430)         $ (60,135)          $ (69,269)
      Adjustments to reconcile net loss to net cash used for
      operating activities
                                                                              ---                ---                 ---
      Increase in accounts payable and accrued liabilities                  30,171             25,763              30,167
                                                                            ------             ------              ------
   Net cash used for operating activities                                  (32,259)           (34,372)            (39,102)
Cash flows from financing activities
   Proceeds from
   loans                                                                    25,000             45,000              44,900
                                                                            ------             ------              ------


Net cash provided by financing activities                                   25,000            $45,000             $44,900
Increase (decrease) in cash                                                 (7,259)            10,628               5,798
Cash at beginning of year                                                   21,166             10,538               4,740
                                                                            ------             ------               -----
Cash at end of year                                                        $13,907            $21,166             $10,538
                                                                           =======            =======             =======
Supplemental cash flow information
   Cash paid for interest                                                $   ---            $   ---             $    ---
                                                                         ---------          ---------           ---------
   Cash paid for taxes                                                   $   ---            $   ---             $    ---
                                                                         ---------          ---------           ---------
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       13
<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2005, 2004 and 2003


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations
-------------------------------------

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 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.


                                       14
<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                        December 31, 2005, 2004 and 2003

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 2005, 2004 and 2003 include legal expenses
of approximately $9,000, $14,000 and $27,000 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 2005, 2004 or
2003, due to net operating losses.

NOTE 2 - PLAN OF LIQUIDATION AND TERMINATION

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

NOTE 3 - REAL ESTATE

At December 31, 2005 and 2004, 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, 2005 and 2004, the Trust's only significant asset was its ownership
interest in such subsidiary. This real estate is held for sale.

NOTE 4 - NOTE PAYABLE - RELATED PARTY

                                                              2005        2004
                                                            --------    --------
Note payable to Abbestate Holding, Inc., a related party    $295,000    $270,000
that has a common shareholder with Watermark, with an       ========    ========
interest rate of 12%, uncollateralized, with interest
and principal due December 31, 2020.


                                       15
<PAGE>

                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                        December 31, 2005, 2004 and 2003



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, 2005 net operating loss carryforwards of approximately $835,000
were available for tax purposes which, if not utilized, will expire at various
dates through 2025. Any deferred tax asset that would be associated with the net
operating loss carryforward has been reduced to $-0- due to recurring net
losses, no factors indicating that the trend of net losses will reverse and the
fact that if the trend did reverse, the net income from a REIT is not taxable as
long as specific REIT requirements have been met.

NOTE 6 - RELATED PARTY TRANSACTIONS

HPI Management, LP, a North Carolina limited partnership, provides
administrative and accounting services to the Trust under supervision of the
Trust's officers (two of whom are also officers of HPI Management, LP). HPI
Manangment, LP has not been compensated by the Trust for any services rendered
to the Trust until January 2001, when HPI Management, LP began charging the
Trust $1,000 per year for administrative and accounting services. This amount
has been accrued and is shown on the face of the balance sheet as A/P- related
party.

NOTE 7 - FINANCIAL INSTRUMENTS

The estimated fair values of Watermark's financial instruments at December 31,
2005 and 2004 follow:



                                         2005                       2004
                                         ----                       ----
                                Carrying          Fair     Carrying         Fair
                                  Amount         value       Amount        value
                                --------         -----     --------        -----

Cash                            $ 13,907      $ 13,907     $ 21,166     $ 21,166
Note payable-related party       295,000       295,000      270,000      270,000

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.


                                       16
<PAGE>

NOTE 9 - QUARTERLY DATA (UNAUDITED)

The table below reflects the Watermark's selected quarterly information for the
years ended December 31, 2005 and 2004.

<TABLE>
<CAPTION>
                                                                     Year ended December 31, 2005
                                                    ---------------------------------------------------------------
                                                        First           Second           Third          Fourth
                                                       Quarter          Quarter         Quarter        Quarter
                                                       -------          -------         -------        -------
<S>                                               <C>               <C>              <C>             <C>
Revenue                                             $    ---          $    ---        $    ---         $   ---
Operating expenses                                      12,392          16,275          20,519          13,244

Net (loss) attributable to Common shares               (12,392)        (16,275)        (20,519)        (13,244)

Earnings (loss) per share:
  Net (loss) applicable to Common shares                (.02)            (.03)           (.04)          (.03)

                                                                     Year ended December 31, 2004
                                                    ---------------------------------------------------------------
                                                        First           Second           Third          Fourth
                                                       Quarter          Quarter         Quarter        Quarter
                                                       -------          -------         -------        -------

Revenue                                             $    ---          $    ---        $    ---         $   ---
Operating expenses                                      7,907           25,282          13,076          13,870

Net (loss) attributable to Common shares               (7,907)         (25,282)        (13,076)        (13,870)

Earnings (loss) per share:
  Net (loss) applicable to Common shares                (.01)            (.05)           (.02)          (.03)
</TABLE>


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 are anticipated to
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.


                                       17
<PAGE>

                                                                    SCHEDULE III


                 WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                        December 31, 2005, 2004 and 2003

<TABLE>
<CAPTION>
       Description          Initial        Cost        Gross Amount    Valuation     Accumulated      Date     Depreciable
       -----------          Cost to     Capitalized      at which      Allowance    Depreciation    Acquired   Life (years)
                           Watermark    Subsequent      Carried at     ---------    ------------    --------   ------------
                                            to         December 31,
                                        Acquisition        2005
                                        -----------    ------------
<S>                       <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, 2005 is as follows:

REAL ESTATE                                   2005           2004          2003
-----------                                   ----           ----          ----
Balance at beginning of year              $168,588       $168,588      $168,588
Sales                                          ---            ---           ---
Foreclosure additions                          ---            ---           ---
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                    $    ---       $    ---      $    ---
                                          ========       ========      ========


                                       18
<PAGE>

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

     None.

Item 9A.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures
------------------------------------------------

Watermark's principal executive officer and principal financial officer have
concluded that, as of the end of the period covered by this report, Watermark's
disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)
of the Securities Exchange Act of 1934, as amended) were effective, based on the
evaluation of these controls and procedures required by Rule 13a-15(b) or
15d-15(b) of the Securities Exchange Act of 1934, as amended.

Watermark's management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable assurance
regarding the reliability of Watermark's financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of Watermark; (ii) 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 Watermark are being made only in accordance with
authorizations of management and directors of Watermark; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of Watermark's assets that could have a material
effect on the financial statements.

Inherent Limitations on Effectiveness of Controls
--------------------------------------------------

Watermark's management, including the President, does not expect that our
disclosure controls or our internal control over financial reporting will
prevent or detect all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that
the control system's objectives will be met. The design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls is
based in part on certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies or procedures.

Changes in Internal Control Over Financial Reporting
----------------------------------------------------

There have been no changes in our internal controls over financial reporting
during the year ended December 31, 2005 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

Item 9B.  Other Information.

     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


                                       19
<PAGE>

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. The Trustees of the class elected at each annual meeting of
shareholders 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, 61, has been Trustee, President and Treasurer of the Trust
since December 5, 1995, and is also the President/Managing Director of HPI
Management, LP. Since 1992, Mr. Givner has been President and Chief Operating
Officer of various affiliates of HPI Management, LP. 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, 56, 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, 44, has been Trustee, Vice President and Secretary of
the Trust since December 5, 1995 and is also the Vice President/Managing
Director of HPI Management, LP and HPI Capital, Inc., a Florida corporation that
develops real estate. Since January 1990, Mr. Verruto has held various positions
with various affiliates of HPI Management, LP, 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, 2005, the Board of
Trustees held no formal meetings and no matters were handled by unanimous
written consent. Since Watermark is currently inactive (please see discussion in
Items 1 and 2 above), the Board of Trustees has determined that there is no need
for Watermark to have a standing audit, nominating or compensation committee,
and thus no such committees are in existence.

     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 2005. 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.


                                       20
<PAGE>

     Code of Ethics
     --------------

Since, as discussed above, Watermark is currently inactive, and thus its
directors and officers are not presently conducting ongoing operations for
Watermark. As a result, Watermark has not adopted a code of ethics.

     Audit Committee Financial Expert
     --------------------------------

Since Watermark does not have an audit committee, it does not have a financial
expert on any such committee.

     Identification of the Audit Committee
     -------------------------------------

As stated above, since Watermark is currently inactive, the Board of Trustees
has determined that there is no need to have a standing audit committee in
existence.

     Material Changes to Procedures for Board of Trustees Nominations
     ----------------------------------------------------------------

During the fiscal year ending December 31, 2005, there were no material changes
to the procedures by which shareholders may recommend nominees to Watermark's
Board of Trustees.

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, 2005. 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.

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

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 15, 2006, 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
100 N. Tryon Street
Suite 5500
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)
100 N. Tryon Street                                     Shares
Suite 5500
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>


                                       21

<PAGE>

(1)  Based on 542,413 Shares outstanding on March 15, 2006.

(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.

     Security Ownership of Management
     --------------------------------

     According to the Share transfer records of the Trust and other information
available to the Trust, as of March 15, 2006, the current trustees and executive
officers of the trust beneficially owned the following Shares:

<TABLE>
<CAPTION>
  Name and Offices of Beneficial                Amount of
               Owner                       Beneficial Ownership           Percent of Class(1)
  -------------------------------          --------------------           ----------------
<S>                                             <C>                             <C>
   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
</TABLE>


(1)  Based on 542,413 Shares outstanding on March 15, 2006.

(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 Management, LP, a North Carolina limited
partnership, has provided administrative and accounting services to the Trust
under the supervision of the Trust's officers, two of whom are also officers HPI
Management, LP. HPI Management, LP has not been compensated by the Trust for any
services rendered to the Trust until


                                       22
<PAGE>

January 2001, when HPI Management, LP began charging the Trust $1,000 per year
for administrative and accounting services. This amount has been accrued and is
shown on the face of the balance sheet as A/P- related party.

Item 14.  Principal Accounting Fees and Services.

     Audit Fees
     ----------

     The aggregate fees billed, for each of the last two fiscal years, for
professional services rendered by Watermark's principal accountant for the audit
of Watermark's annual financial statements and review of financial statements
included in Watermark's Form 10-Q or for services that are normally provided by
Watermark's accountant in connection with statutory and regulatory filings or
engagements for those fiscal years, are as follows:

               2005                                2004

              $4,250                              $4,250


     Audit-Related Fees
     ------------------

     The aggregate fees billed in each of the last two fiscal years for
assurance and related services by Watermark's principal accountant that are
reasonably related to the performance of the audit or review of Watermark's
financial statements are as follows:

               2005                                2004

                $0                                  $0


     Tax Fees
     --------

     The aggregate fees billed in each of the last two fiscal years for
professional services rendered by Watermark's principal accountant for tax
compliance, tax advice, and tax planning are as follows:

                                                      2005                 2004

Preparation of Federal Income Tax Return              $750                $2,350


     All Other Fees
     --------------

     All other aggregate fees billed in each of the last two fiscal years for
products and services provided by Watermark's principal accountant are as
follows:

               2005                                2004

                $0                                  $0


Since Watermark does not have an audit committee, there are no audit committee
pre-approval policies and procedures in existence.


                                       23
<PAGE>


                                     PART IV


Item 15. 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, 2005 and 2004.

               Statements of Operations for the years ended December 31, 2005,
               2004 and 2003.

               Statements of Shareholders' Equity for the years ended December
               31, 2005, 2004 and 2003.

               Statements of Cash Flows for the years ended December 31, 2005,
               2004 and 2003.

               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 10-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).

          10.1      Contract of Sale and Purchase of Real Property, by and
                    between Watermark Texas One, Inc. and The Peterson Group,
                    Inc., dated as of October 16, 2003 (incorporated by
                    reference to Exhibit 10.1 of Watermark's Form 10-Q for the
                    quarterly period ended September 30, 2003, filed on November
                    14, 2003).

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

          31(a)     Certification of the Principal Executive Officer of
                    Watermark Investors Realty Trust, pursuant to Rule 13a-14(a)
                    or 15d-14(a), as adopted pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 2002 (filed herewith).

          31(b)     Certification of the Principal Financial Officer of
                    Watermark Investors Realty Trust pursuant to Rule 13a-14(a)
                    or 15d-14(a), as adopted pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 2002 (filed herewith).


                                       24
<PAGE>

          32(a)     Certification of the Principal Executive Officer of
                    Watermark Investors Realty Trust furnished pursuant to 18
                    U.S.C. Section 1350, as adopted pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002 (furnished herewith).

          32(b)     Certification of the Principal Financial Officer of
                    Watermark Investors Realty Trust furnished pursuant to 18
                    U.S.C. Section 1350, as adopted pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002 (furnished herewith).

(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.


                                       25
<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 29th day
of March, 2006.

                                         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.


<TABLE>
<CAPTION>
          Signature                           Title                             Date

<S>                           <C>                                           <C>
/s/ David S. Givner              Trustee, President and Treasurer               March 29, 2006
-------------------
David S. Givner                  (Principal Executive Officer and
                                 Principal Financial and Accounting
                                 Officer)

/s/ Michael S. Verruto           Trustee, Vice President and Secretary          March 29, 2006
----------------------
Michael S. Verruto
</TABLE>


                                       26