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

                                    FORM 10-K

(mark one)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                             -----------------

                                       OR

[ ]   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  0-8003
                                              -------

                         TARRAGON REALTY INVESTORS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                NEVADA                                      94-2432628
   -------------------------------                        ----------------
   (State or other jurisdiction of                        (I.R.S. Employer
   incorporation or organization)                         Identification No.)

 3100 MONTICELLO, SUITE 200, DALLAS, TX                       75205
----------------------------------------                    ----------
(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code   (214) 599-2200

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

                                      NONE

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

              9% SERIES A SUBORDINATED DEBENTURES DUE JUNE 30, 2003

                          COMMON STOCK, $.01 PAR VALUE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

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

As of March 9, 1998, the Registrant had 1,286,897 shares of common stock
outstanding. Of the total shares outstanding, 898,894 were held by other than
those who may be deemed to be affiliated, for an aggregate value of $8,651,855
based on the last trade as reported by the National Association of Securities
Dealers Automated Quotations System on March 9, 1998. The basis of this
calculation does not constitute a determination by the Registrant that all of
such persons or entities are affiliates of the Registrant as defined in rule 405
of the Securities Act of 1933, as amended.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE



                                       1
<PAGE>   2

                                    INDEX TO
                           ANNUAL REPORT ON FORM 10-K

<TABLE>
<CAPTION>
                                                                              Page
                                                                              ----
<S>  <C>                                                                       <C>
                                     PART I

Item 1.   Business...........................................................  3

Item 2.   Properties.........................................................  6

Item 3.   Legal Proceedings..................................................  9

Item 4.   Submission of Matters to a Vote of Security Holders................  9

                                     PART II

Item 5.   Market for Registrant's Common Equity
           and Related Stockholder Matters...................................  10

Item 6.   Selected Financial Data............................................  11

Item 7.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations..............................  13

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.........  20

Item 8.   Financial Statements and Supplementary Data........................  21

Item 9.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosures.............................  45

                                    PART III

Item 10.  Directors, Executive Officers, and Advisor of the Registrant.......  45

Item 11.  Executive Compensation.............................................  53

Item 12.  Security Ownership of Certain Beneficial Owners and
            Management.......................................................  54

Item 13.  Certain Relationships and Related Transactions.....................  56

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and
            Reports on Form 8-K..............................................  58

Signature Page...............................................................  60
</TABLE>



                                       2
<PAGE>   3
                                    PART I

ITEM 1.  BUSINESS

General

Tarragon Realty Investors, Inc., (the "Company") is a Nevada corporation
incorporated April 2, 1997, and the ultimate successor in interest to Vinland
Property Trust (the "Trust"), a California business trust which was established
July 18, 1973, and commenced operations April 2, 1974. On July 10, 1997, the
shareholders of the Trust approved the conversion of the Trust into a Nevada
corporation, which was accomplished by incorporating the Trust as a California
corporation and merging it into the Company, a wholly-owned subsidiary of the
Trust, with the Company as the surviving entity. The effective date of the
merger of the Trust and the Company was July 25, 1997. References to the
Company, its Board of Directors, its stockholders, and its shares of common
stock in relation to dates prior to July 25, 1997, refer to the Trust, its Board
of Trustees, its shareholders, and its shares of beneficial interest. While the
Trust had a November 30 fiscal year end, the Company has a December 31 fiscal
year end. Accordingly, the Consolidated Financial Statements presented in ITEM
8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" include Statements of
Operations, Stockholders' Equity, and Cash Flows for the one month period ended
December 31, 1996, which represents the transition period related to the change
in fiscal year end. In certain instances throughout this report, matters at
December 31, 1997, (the fiscal year end of the Company) may be compared to
November 30, 1996, (the fiscal year end of the Trust). The Company has elected
to be treated as a Real Estate Investment Trust ("REIT"), as defined under
Sections 856 through 860 of the Internal Revenue Code of 1986 (the "Code"), and,
in the opinion of the Company's management, the Company and its predecessor have
continuously qualified for federal taxation as such.

The Company's principal offices are located at 3100 Monticello, Suite 200,
Dallas, Texas 75205. The telephone number is (214) 599-2200 and fax number is
(214) 599-2220. In the opinion of the Company's management, the Company's
offices are adequate for its present operations.

Business Description and Investment Objectives

The Company was established to provide investors with a professionally managed,
diversified portfolio of real estate investments selected to produce current
income and capital appreciation. The Company's primary business and only
industry segment is investing in income-producing real estate. At December 31,
1997, the Company's real estate portfolio, concentrated in Texas, Oklahoma,
California, and Florida, consisted of nine multifamily properties, a shopping
center, a combination office building and shopping center, a combination
office/retail/medical facility, an office park, and a farm and luxury residence.

The Company's principal objectives are to increase funds from operations, as
defined by the National Association of Real Estate Investment Trusts, and
maximize the value of its existing real estate through aggressive management and
consistent capital improvements. The Company intends to use the proceeds from
property sales and mortgage refinancings to expand its portfolio through
opportunistic purchases of income-producing properties, predominantly in markets
where the Company presently operates. Future investments will be focused on
older, mismanaged, or under-performing properties, both multifamily and
commercial, and will be selected based on initial rates of return and the
potential for appreciation through revenue-enhancing capital improvements and
proper management. Investments may take the form of joint ventures, new
construction, mortgage participations, and investments in partnerships as well
as outright purchases.




                                       3
<PAGE>   4
ITEM 1.  BUSINESS  (Continued)

Possible Consolidation with National Income Realty Trust and Acquisition of
Advisor

On February 19, 1998, the Company and National Income Realty Trust ("NIRT")
jointly announced the agreement of their respective boards to form a single
consolidated entity with the Company, for convenience, as the survivor. The
surviving consolidated entity is intended to operate as a self-administered
REIT. The consolidation transaction will be submitted to shareholders of each of
the Company and NIRT for approval at special meetings to be held during 1998.
Under the proposed agreement, each shareholder of NIRT will receive 1.97 shares
of the Company's common stock for each share of beneficial interest of NIRT
held. NIRT, also a REIT, has a similar opportunistic approach to real estate
investment and had total consolidated assets of approximately $266 million as of
December 31, 1997. Upon the approval and consummation of the consolidation
transaction by the respective shareholders of each entity, the Company will
acquire Tarragon Realty Advisors, Inc. ("TRA" or the "Advisor"), the Company's
advisor since March 1, 1994, and NIRT's advisor since April 1, 1994, for 100,000
shares of the Company's common stock and options to acquire additional shares of
the Company's common stock at prices ranging between $13 and $16 per share. The
resulting consolidated entity with the Company as the survivor will emerge from
these transactions as an integrated, self-administered, self-managed REIT
controlling approximately 14,000 apartment units and 2.1 million square feet of
retail and office space, primarily in California, Florida, and Texas.  The
consolidation transaction will be accounted for as a reverse acquisition of the
Company by NIRT.

William S. Friedman, President, Chief Executive Officer, and Director of the
Company, also serves as Director and Chief Executive Officer of TRA and as
Trustee, President, and Chief Executive Officer of NIRT. TRA is owned by Mr.
Friedman and his wife, Lucy N. Friedman. The Friedman family also owns
approximately 30% of the outstanding shares of common stock of the Company and
approximately 33% of the outstanding shares of beneficial interest of NIRT.

Management of the Company

The Board of Directors (the "Board"), elected annually by the stockholders of
the Company or appointed by the incumbent Board until the next annual meeting of
stockholders, manages the affairs of the Company. There are currently four
members on the Board, three of whom are unaffiliated with the Company. The
day-to-day operations of the Company and the implementation of Company policies,
as defined by the Board, are managed by TRA which operates under the supervision
of the Board pursuant to a written advisory agreement approved by stockholders.
TRA's duties include, among other things, locating, investigating, evaluating,
and recommending real estate investment and sale opportunities and financing and
refinancing sources for the Company. The Advisor also serves as a consultant in
connection with the business plan and investment policy decisions made by the
Board.

A majority of the officers of the Company are also officers of TRA. The Company
has no employees. Employees of TRA provide executive and administrative services
to the Company.

TRA also serves as the advisor to NIRT. All of the officers of the Company are
also officers of NIRT. TRA and the Company officers owe fiduciary duties to NIRT
as well as to the Company. Historically, in determining to which entity to
allocate a particular investment opportunity, TRA and the Company officers have
considered the respective investment objectives of each entity and the
appropriateness of a particular investment in light of each entity's existing
real estate portfolio. To the extent that any particular investment opportunity
is appropriate for both entities, such investment opportunity has been allocated
to the entity which had uninvested funds for the longer period of time or, if
appropriate, the investment has been shared between the entities. TRA
periodically informs the Board of real estate investments made by any of its
affiliates, and the Board periodically reviews the performance of such
investments.



                                       4
<PAGE>   5

ITEM 1.  BUSINESS (Continued)

Property Management

TRA and its wholly-owned subsidiary, Tarragon Management, Inc. ("TMI"), provide
property management services to the Company's properties for a fee of 4.5% of
the monthly gross rents collected. Until April 1996, TRA subcontracted with
other entities for the provision of the property-level management services. TMI
currently provides such services to the Company's multifamily properties, while
the property-level management services are provided by third party
subcontractors for the Company's commercial properties.

Competition

The Company's plans are to continue to improve the quality of its properties
through consistent capital improvements and, to the extent surplus funds and
attractive investments are available, to acquire additional multifamily and
commercial properties, primarily in locations where the Company presently
operates. Management believes that ownership of the type of properties in which
the Company invests is highly fragmented among individuals, partnerships, public
and private corporations, and other REITs and that no dominant entities exist in
the market for such properties. The Company competes with numerous entities and
individuals engaged in real estate activities, many of which may have greater
financial resources than the Company. However, the Company has not experienced
difficulty in locating investment opportunities.

Management believes that success in real estate investment is primarily
dependent upon general market conditions determined by such factors as job
formation and income growth; geographic location; and the performance of asset
and property managers in marketing, collections, tenant services, capital
improvements, control of operating expenses, and the maintenance and appearance
of the property more than on the activities of competitors. Additional
competitive factors with respect to commercial properties are the ease of access
to the property, the adequacy of related facilities (such as parking), and
sensitivity in setting rental rates. With respect to multifamily properties,
management believes that there is and will continue to be a strong demand for
well-maintained, affordable housing in the markets in which it operates.
However, since the success of any real estate investment is impacted by other
factors outside the control of the Company, including general demand for
apartment housing, interest rates, operating costs, and the ability to attract
and retain qualified property managers, there can be no assurances that the
Company will be successful.

Certain Factors Associated with Real Estate and Related Investments

The Company is subject to the risks associated with the ownership, operation,
and financing of real estate. These risks include, but are not limited to,
liability for environmental hazards; changes in general or local economic
conditions; changes in interest rates and availability of permanent mortgage
financing which may render the acquisition, sale, or refinancing of a property
difficult or unattractive and which may make debt service burdensome; changes in
real estate and zoning laws; changes in income or real estate taxes and federal
or local economic or rent controls; floods, earthquakes, and other acts of God;
and other factors beyond the control of the Company or TRA. The illiquidity of
real estate investments generally may impair the ability of the Company to
respond promptly to changing circumstances. The Company's management believes
that some of these risks are compounded by the concentration of the Company's
properties in Texas, Oklahoma, California, and Florida and the Company's
intention to acquire older, mismanaged, or under-performing properties.



                                       5
<PAGE>   6
ITEM 2.  PROPERTIES

Details of the Company's real estate portfolio at December 31, 1997, are set
forth in Schedule III to the Consolidated Financial Statements and NOTE 2. "REAL
ESTATE AND DEPRECIATION" of the Notes to Consolidated Financial Statements, both
included at ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." The
discussion set forth below provides summary information regarding the portfolio.

The Company acquired two properties in 1997, three properties in 1996 (including
one property acquired in December 1996, the transition period related to the
change in fiscal year end), and three properties in 1995 and sold two properties
during 1996. At December 31, 1997, the Company owned fourteen properties,
consisting of nine apartment complexes with 1,293 units, one shopping center,
one combination office building and shopping center, one combination
office/retail/medical facility, one office park, and one farm and luxury
residence. The carrying value of one of the Company's properties (One Turtle
Creek Office Complex) exceeded 10% of the Company's total consolidated assets at
December 31, 1997. All properties except three are pledged separately to secure
mortgage debt totaling $25.3 million at December 31, 1997.

To continue to qualify for federal taxation as a REIT under the Code, the
Company is required, among other things, to hold at least 75% of the value of
its assets in real estate assets, government securities, and cash and cash
equivalents at the close of each quarter of each taxable year. At December 31,
1997, 74% of the Company's assets consisted of real estate held for investment,
11% consisted of real estate held for sale, 5% consisted of investments in and
advances to partnerships that own real estate or mortgage loans secured by real
estate, and 3% consisted of cash and cash equivalents. The remaining 7% of the
Company's assets consisted of restricted cash and other assets. The percentage
of the Company's assets invested in any one category at any particular time is
subject to change, and no assurance can be given that the composition of the
Company's assets in the future will approximate the percentages stated above.

The following tables present certain information relating to the Company's
current real estate portfolio and mortgage loans secured by the Company's real
estate at December 31, 1997:








                     [This space intentionally left blank.]



                                       6
<PAGE>   7
                         TARRAGON REALTY INVESTORS, INC.
                               REAL ESTATE SUMMARY
                                DECEMBER 31, 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        Average Rent Per Sq. Ft.(a)    Economic Occupancy (b)
                                                                          For the Years Ended           For the Years Ended
                                                                         ------------------------      -----------------------
                                              Number                    Dec 31,      November 30,     Dec 31,    November 30,
                                               of        Square         --------    -------------     -------  ---------------
Property                 Location             Units      Footage         1997       1996     1995      1997    1996       1995
--------                 --------             -----      -------         ----       ----     ----      ----    ----       ----
<S>                      <C>                    <C>       <C>         <C>          <C>      <C>         <C>     <C>        <C>
PROPERTIES ACQUIRED PRIOR TO NOVEMBER 30, 1995:
Multifamily:
Aspentree                Dallas, TX             296       212,864       $  7.50    $ 7.39   $ 7.02      93%     96%        96%
Collegewood              Tallahassee, FL        162        83,700          8.04      7.57     7.57      93%     91%        92%
French Villa             Tulsa, OK              101       104,720          6.09      6.26     5.70      93%     97%        91%
Phoenix                  Tulsa, OK              254       208,726          4.91      4.63     4.03      90%     91%        90%
Riverside                Austin, TX             145       110,868          8.49      8.76     8.20      92%     92%        94%
Southern Elms            Tulsa, OK               78        65,159          6.66      6.62     6.26      91%     93%        88%
                                             ------     ---------       -------    ------   ------     ---     ---        ---
  SUBTOTAL OR WEIGHTED AVERAGE (f)            1,036       786,037          6.75      6.66     6.21      92%     93%        93%
                                             ------     ---------       -------    ------   ------     ---     ---        ---
Commercial:
Briarwest                Houston, TX             --        25,323         11.14     10.66    10.47      85%     87%        92%
One Turtle Creek         Dallas, TX              --       102,811          9.33     10.30    10.15      74%     89%        90%
                                             ------     ---------       -------    ------   ------     ---     ---        ---
  SUBTOTAL OR WEIGHTED AVERAGE (f)               --       128,134          9.69     10.37    10.21      76%     88%        91%
                                             ------     ---------       -------    ------   ------     ---     ---        ---
PROPERTIES ACQUIRED IN 1996:
Multifamily:
Holly House              North Miami, FL         57        45,417          7.84      6.75       --      89%     84%        --
Mission Trace            Tallahassee, FL         96       104,400          4.59      4.58       --      73%     71%        --
                                             ------     ---------       -------    ------   ------     ---     ---        ---
  SUBTOTAL OR WEIGHTED AVERAGE (f)              153       149,817          5.58      5.24       --      78%     75%        --
                                             ------     ---------       -------    ------   ------     ---     ---        ---

PROPERTIES ACQUIRED IN 1997:
Multifamily:
The Brooks               Addison, TX            104        94,176          6.84        --       --      89%     --         --
Commercial:
Tarzana Plaza (g)        Tarzana, CA             --        37,208         16.27        --       --      87%     --         --
Park 20 West             Tallahassee, FL         --        69,066         14.82        --       --      96%     --         --
                                             ------     ---------       -------    ------   ------     ---     ---        ---
  SUBTOTAL OR WEIGHTED AVERAGE (f)              104       200,450         11.34        --       --      91%     --         --
                                             ------     ---------       -------    ------   ------     ---     ---        ---
GRAND TOTAL OR WEIGHTED AVERAGE (f)           1,293     1,264,438       $  7.64    $ 6.90   $ 6.77      88%     90%        92%
                                             ======     =========       =======    ======   ======     ===     ===        ===

<CAPTION>
                                                                    Gross Potential   Current
                                                    Physical        Rent Per Sq Ft    Market
                                                    Occupancy          Year Ended    Rent Per Sq
Property                 Location                Dec. 31, 1997(c)   Dec 31,1997(d)    Foot(e)
--------                 --------                ----------------   --------------    -------
<S>                                                     <C>             <C>          <C>
PROPERTIES ACQUIRED PRIOR TO NOVEMBER 30, 1995:
Multifamily:
Aspentree                Dallas, TX                     95%             $ 8.19       $ 8.77
Collegewood              Tallahassee, FL                92%               9.07        10.12
French Villa             Tulsa, OK                      91%               6.68         7.04
Phoenix                  Tulsa, OK                      90%               5.60         5.93
Riverside                Austin, TX                     96%               9.51        10.01
Southern Elms            Tulsa, OK                      90%               7.34         7.90
                                                       ---              ------       ------
  SUBTOTAL OR WEIGHTED AVERAGE (f)                      93%               7.51         8.03
                                                       ---              ------       ------
Commercial:
Briarwest                Houston, TX                    82%              13.24        14.00
One Turtle Creek         Dallas, TX                     69%              13.32        17.50
                                                       ---              ------       ------
  SUBTOTAL OR WEIGHTED AVERAGE (f)                      71%              13.31        16.81
                                                       ---              ------       ------
PROPERTIES ACQUIRED IN 1996:
Multifamily:
Holly House              North Miami, FL                88%               9.03         9.43
Mission Trace            Tallahassee, FL                90%               6.66         7.08
                                                       ---              ------       ------
  SUBTOTAL OR WEIGHTED AVERAGE (f)                      89%               7.38         7.79
                                                       ---              ------       ------

PROPERTIES ACQUIRED IN 1997:
Multifamily:
The Brooks               Addison, TX                    89%               7.85         7.48
Commercial:
Tarzana Plaza (g)        Tarzana, CA                    80%              19.78        19.64
Park 20 West             Tallahassee, FL                97%              14.19        14.03
                                                       ---              ------       ------
  SUBTOTAL OR WEIGHTED AVERAGE (f)                      90%              12.25        11.99
                                                       ---              ------       ------
GRAND TOTAL OR WEIGHTED AVERAGE (f)                     90%             $ 8.83       $ 9.52
                                                       ===              ======       ======
</TABLE>

(a)  Amounts represent average rental revenue per square foot on an annual
     basis. Rental revenue is equal to gross potential rent after giving effect
     to all rental losses including bad debts, vacancies, and discounts and
     concessions. Gross potential rent equals average lease rates on leased
     units and market rates on vacant units.

(b)  Computed as follows: [(Annual gross potential rent less annual vacancy
     losses) divided by annual gross potential rent].

(c)  Represents actual physical occupancy as of the end of the last week of the
     year ended December 31, 1997.

(d)  Represents annualized gross potential rent for all months owned during the
     period divided by square footage.

(e)  Represents annualized market rate per square foot at December 31, 1997,
     based upon scheduled rents at such time.

(f)  The weighted average rent per square foot and economic occupancy are based
     on the square footage in each property.

(g)  Acquired December 1, 1996. For purposes of this schedule, this property is
     classified as a 1997 acquisition.

The Company also owns Cochonour Horse Farm, a 188 acre horse farm with a 5,000
square foot luxury residential home in Carrollton, Missouri.

Management believes that its properties are adequately covered by liability and
casualty insurance, consistent with industry standards


                                       7
<PAGE>   8

                         TARRAGON REALTY INVESTORS, INC.
                   MORTGAGE LOANS SECURED BY OWNED PROPERTIES
                                DECEMBER 31, 1997
                             (Dollars in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                           Stated                         Balance
                                                  Original            Balance             Interest        Maturity         Due at
Name of Property                                   Amount           Dec 31, 1997           Rate(A)          Date          Maturity
----------------                                   ------           ------------          ---------       --------        --------
<S>                                             <C>              <C>                        <C>            <C>         <C>
Multifamily

   Aspentree............................        $      3,966     $         3,881            8.33%          11/01/05    $     3,390
   The Brooks...........................               1,324               1,306            9.63%          09/01/04          1,074
   Collegewood..........................               2,050               2,042            9.00%          08/01/99          2,002
   French Villa.........................               1,970               1,901            8.53%          11/01/00          1,836
   Mission Trace........................               2,220               1,978            8.25%          05/01/06             27
   Mission Trace........................                 290                 259            8.50%          05/01/06              4
   Riverside............................               4,200               4,200            7.16%          12/01/07          3,617
   Southern Elms........................               1,370               1,327            9.68%          02/01/02          1,242
                                                 -----------       -------------            ----                        ----------
                                                      17,390              16,894            8.34% (B)                       13,192
                                                 -----------       -------------            ----                        ----------

Commercial

   Briarwest............................               1,700               1,698            8.38%          11/01/04          1,507
   One Turtle Creek.....................               2,000               1,854            9.00%          02/01/05          1,504
   Park 20 West.........................               1,944               1,926            8.68%          03/01/06          1,429
   Tarzana Towne Plaza..................               2,971               2,947            9.81%          11/01/06          2,613
                                                 -----------       -------------            ----                        ----------
                                                       8,615               8,425            9.09% (B)                        7,053
                                                 -----------       -------------            ----                        ----------
Total...................................         $    26,005       $      25,319            8.59% (B)                   $   20,245
                                                 ===========       =============            ====                        ==========
</TABLE>



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

(A)  For loans with variable interest rates, the rate in effect for the month of
     December 1997 is presented.

(B)  Represents weighted average interest rate at December 31, 1997.




                                       8
<PAGE>   9
ITEM 2.  PROPERTIES  (Continued)

In addition to real estate owned directly, the Company holds an interest in
Larchmont West Apartments ("Larchmont") through its 57% interest in Larchmont
Associates Limited Partnership. This property collateralizes mortgage debt of
$5.3 million. The following table summarizes certain information relating to
this property.

<TABLE>
<CAPTION>
                                                           Average Rent Per          Economic
                                                           Square Foot (a)          Occupancy (b)
                                                          ------------------    -----------------
                                                             Years Ended            Years Ended
                                                          ------------------    -----------------
                                                          Dec 31     Nov 30     Dec 31     Nov 30
                Property          Number     Square       ------     ------     ------    -------
 Partnership    Location        of Units     Footage       1997       1996       1997       1996
 -----------    --------        --------     -------      ------     ------     ------    -------
<S>             <C>             <C>          <C>          <C>        <C>        <C>       <C>
 Larchmont      Toledo, OH         504       339,654        $4.94      $5.03        86%       91%
</TABLE>



As of December 31, 1997, annual market rent per square foot for Larchmont was
$6.48, and physical occupancy was 88%.

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

(a)  Amounts represent average rental revenue per square foot on an annual
     basis. Rental revenue is equal to gross potential rent after giving effect
     to all rental losses including bad debts, vacancies, and discounts and
     concessions. Gross potential rent equals average lease rates on leased
     units and market rates on vacant units.

(b)  Computed as follows: [(Annual gross potential rent less annual vacancy
     losses) divided by annual gross potential rent].

ITEM 3.  LEGAL PROCEEDINGS

The Company is a party to various claims and routine litigation arising in the
ordinary course of business. Management of the Company does not believe that the
results of these claims and litigation, individually or in the aggregate, will
have a material adverse effect on its business, financial position, or results
of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders.








                     [This space intentionally left blank.]



                                       9
<PAGE>   10

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the over-the-counter market of the
National Association of Securities Dealers Automated Quotation ("NASDAQ") System
under the symbol "VIPT." The Trust's shares of beneficial interest were also
traded on the over-the-counter market of the NASDAQ System under the symbol
"VIPTS."

The following table sets forth the high and low bid quotations of the Company's
common stock and the Trust's shares of beneficial interest as reported by the
NASDAQ System for the periods indicated which consist of the last two fiscal
years and the quarter ending for which this report is filed (over-the-counter
market quotations reflect Inter Dealer prices, without retail mark up, mark
down, or commissions, and may not necessarily represent actual transactions).
The quotations noted below for the second quarter ended May 31, 1997, and prior
periods represent those of the shares of the predecessor. Those subsequent to
July 25, 1997, the effective date of the merger between the Company and the
Trust, represent those of the Company's common stock.

<TABLE>
<CAPTION>
                                                         High             Low
                                                      ----------     ------------
<S>                                                   <C>                <C>
          First quarter ended February 29, 1996       $  6  1/2          $  5
          Second quarter ended May 31, 1996              6  1/2             5
          Third quarter ended August 31, 1996            7  7/8             5
          Fourth quarter ended November 30 , 1996        7  1/2             7

          First quarter ended February 28, 1997          7                  7
          Second quarter ended May 31, 1997              9                  8
          Third quarter ended September 30, 1997        10  3/4             9
          Fourth quarter ended December 31, 1997        10                 10

          First quarter ending March 31, 1998
            (through March 9, 1998)                     10  3/8             9  5/8
</TABLE>

For the first quarter of 1998 through March 9, 1998, the Company's common stock
traded as high as $10 7/16, and the closing bid quotation reported by the NASDAQ
System was $9 5/8. According to the transfer agent's records, such shares were
held by approximately 4,500 holders, including beneficial holders.

Dividends

Cash dividends of $.10 per share were declared in December 1997 and paid in
January 1998 to stockholders of record on December 26, 1997. For federal income
tax purposes, the Company's 1997 fiscal year ended November 30, 1997, and the
cash dividend declared in December 1997 had no impact on the 1997 tax year. No
cash dividends were paid in 1996.

Future dividends to stockholders will be dependent upon the Company's realized
income, financial condition, capital requirements, and other factors deemed
relevant by the Board of Directors (the "Board"). In general, the Board intends
to make cash dividends to stockholders only to the minimum extent required to
maintain the Company's qualification as a real estate investment trust ("REIT").


                                       10
<PAGE>   11


ITEM 6.  SELECTED FINANCIAL DATA

The following information should be read in conjunction with all of the
financial statements and notes thereto and with the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K. Dollar amounts are in
thousands, except per share amounts.

While the Trust had a November 30 fiscal year end, the Company has a December 31
fiscal year end. Accordingly, the Consolidated Financial Statements presented at
ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" include Statements of
Operations, Stockholders' Equity, and Cash Flows for the one month period ended
December 31, 1996, which represents the transition period related to the change
in fiscal year end. The following information includes certain financial data
for the transition period and compares certain data as of November 30, 1996, to
December 31, 1997.

<TABLE>
<CAPTION>
                                           For the Year   For the Month
                                           Ended Dec 31,   Ended Dec 31,             For the Years Ended November 30,
                                            -----------     -----------   -------------------------------------------------------
                                                1997            1996          1996          1995          1994            1993
                                            -----------     -----------   -----------   -----------   -----------     -----------
<S>                                         <C>             <C>           <C>           <C>           <C>             <C>
OPERATING DATA
Income ..................................   $     9,711     $       697   $     9,464   $     8,437   $     6,846     $     6,042
Expense .................................         9,415             716         9,537         8,410         7,275           6,649
                                            -----------     -----------   -----------   -----------   -----------     -----------
Income (loss) before net gain on
    sale of real estate and
    extraordinary gain ..................           296             (19)          (73)           27          (429)           (607)
Net gain on sale of real estate .........            --              --           673            --            --              --
                                            -----------     -----------   -----------   -----------   -----------     -----------
Income (loss) from continuing
    operations ..........................           296             (19)          600            27          (429)           (607)
Extraordinary gain ......................            --              --           253            --            --              --
                                            -----------     -----------   -----------   -----------   -----------     -----------
Net income (loss) .......................   $       296     $       (19)  $       853   $        27   $      (429)    $      (607)
                                            ===========     ===========   ===========   ===========   ===========     ===========

PER SHARE DATA (1)
Earnings per share - basic and diluted
Income (loss) from continuing
    operations ..........................   $       .22     $      (.01)  $       .44   $       .02   $      (.31)    $      (.51)
Extraordinary gain ......................            --              --           .19            --            --              --
                                            -----------     -----------   -----------   -----------   -----------     -----------
Net income (loss) .......................   $       .22     $      (.01)  $       .63   $       .02   $      (.31)    $      (.51)
                                            ===========     ===========   ===========   ===========   ===========     ===========

Weighted average shares (2) .............     1,331,314       1,344,576     1,354,415     1,392,006     1,368,527       1,193,572

Weighted average shares -
    assuming dilution (3) ...............     1,343,583       1,350,122     1,356,520     1,392,006     1,368,527       1,193,572

Cash dividends (4) ......................   $       .10     $        --   $        --   $        --   $        --     $      1.25
</TABLE>

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

(1)  All share and per share data for the year ended November 30, 1995, and
     earlier periods have been restated to give effect to the one-for-five
     reverse stock split effective December 1, 1995.

(2)  Represents the weighted average shares of common stock used in the
     computation of earnings per share.

(3)  Represents the weighted average shares of common stock used in the
     computation of earnings per share - assuming dilution.

(4)  The 1997 dividend was declared subsequent to the end of the Company's 1997
     tax year and, therefore, had no tax effect to stockholders in fiscal 1997.
     The 1993 dividend was taxable to stockholders.



                                       11

<PAGE>   12
ITEM 6.  SELECTED FINANCIAL DATA  (Continued)

<TABLE>
<CAPTION>
                                          Dec 31,                     November 30,
                                        ----------     -------------------------------------------
                                           1997         1996        1995        1994        1993
                                        ----------     -------     -------     -------     -------
<S>                                     <C>            <C>         <C>         <C>         <C>
BALANCE SHEET DATA
Real estate .......................     $   31,873     $22,248     $31,686     $20,362     $20,438
Total assets ......................         37,477      28,757      36,978      22,738      23,478
Notes, debentures, and interest
    payable .......................         26,416      17,516      26,491      12,442      13,058
Stockholders' equity ..............          9,770       9,869       9,256       9,229       8,932
Book value per share ..............     $     7.41     $  7.34     $  6.65     $  6.63     $  7.42
</TABLE>


<TABLE>
<CAPTION>
                                               For the Year  For the Month
                                               Ended Dec 31,  Ended Dec 31,          For the Years Ended November 30,
                                               ------------- -------------- ----------------------------------------------
                                                    1997         1996         1996         1995         1994         1993
                                                  -------      -------      -------      -------      -------      -------
<S>                                               <C>          <C>          <C>          <C>          <C>          <C>
OTHER DATA
Cash flows provided by (used in):
     Operating activities ...................     $   696      $   (20)     $ 1,366      $   811      $   575      $  (384)
     Investing activities ...................      (5,022)         549         (979)        (807)        (333)      (1,107)
     Financing activities ...................       2,175          (51)        (550)       2,634         (167)       1,499

Calculation of funds from operations (1)
     Net income (loss) (2) ..................     $   296      $   (19)     $   853      $    27      $  (429)     $  (607)
     Extraordinary gain .....................          --           --         (253)          --           --           --
     Net gain on sale of real estate ........          --           --         (673)          --           --           --
     Depreciation and amortization  of
       real estate assets ...................         908           83          914          991          898          841
     Depreciation and amortization of
       real estate assets of partnerships ...          16           10          108           --           --           --
                                                  -------      -------      -------      -------      -------      -------

Funds from operations .......................     $ 1,220      $    74      $   949      $ 1,018      $   469      $   234
                                                  =======      =======      =======      =======      =======      =======
</TABLE>

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

(1)  The Company generally considers funds from operations ("FFO") to be an
     appropriate measure of the performance of an equity REIT. FFO, as defined
     by the National Association of Real Estate Investment Trusts ("NAREIT"),
     equals net income (loss), computed in accordance with generally accepted
     accounting principles ("GAAP"), excluding gains (or losses) from debt
     restructuring and sales of property, plus depreciation and amortization of
     real estate assets, and after adjustments for unconsolidated partnerships
     and joint ventures. Adjustments for unconsolidated partnerships and joint
     ventures are calculated to reflect FFO on the same basis. The amortization
     of deferred financing costs is not added back to net income (loss) in the
     Company's calculation. This treatment is consistent with the Company's
     historical calculation of FFO. The Company believes that FFO is useful to
     investors as a measure of the performance of an equity REIT because, along
     with cash flows from operating activities, investing activities, and
     financing activities, it provides investors an understanding of the ability
     of the Company to incur and service debt and to make capital expenditures.
     The Company believes that in order to facilitate a clear understanding of
     its operating results, FFO should be examined in conjunction with net
     income (loss) as presented in the financial statements included elsewhere
     in this report. FFO does not represent cash generated from operating
     activities in accordance with GAAP and therefore should not be considered
     an alternative to net income as an indication of the Company's operating
     performance or to cash flow as a measure of liquidity and is not
     necessarily indicative of cash available to fund cash needs and dividends.
     The Company's calculation of FFO may differ from the methodology for
     calculating FFO utilized by other REITs and, accordingly, may not be
     comparable to such REITs.

     Effective December 1, 1996, the Company modified its calculation of FFO to
     include the add back of amortization of leasing commissions associated
     with its commercial properties.  The Company believes that this treatment
     is consistent with a majority of other REITs.  If the Company had
     calculated FFO in the same manner for each of the years ended November 30,
     1996, 1995, 1994, and 1993, FFO would have been higher by $46,000,
     $95,000, $31,000, and $28,000, respectively.

(2)  Net income for the fiscal year ended November 30, 1995, included a
     provision for losses credit of $190,000. See NOTE 3. "ALLOWANCE FOR
     ESTIMATED LOSSES AND PROVISIONS FOR LOSSES" in the Notes to Consolidated
     Financial Statements for a description of the provision for losses.




                                       12
<PAGE>   13

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

The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the accompanying Notes thereto.

Introduction

Tarragon Realty Investors, Inc., (the "Company") is a Nevada corporation
incorporated April 2, 1997, and the ultimate successor in interest to Vinland
Property Trust (the "Trust"), a California business trust which was established
July 18, 1973, and commenced operations April 2, 1974. The Trust was formed to
invest in real estate, including commercial and multifamily properties. On July
10, 1997, the shareholders of the Trust approved the conversion of the Trust
into a Nevada corporation, which was accomplished by incorporating the Trust as
a California corporation and merging it into the Company, a wholly-owned
subsidiary of the Trust, with the Company as the surviving entity. The effective
date of the merger of the Trust and the Company was July 25, 1997. References to
the Company, its Board of Directors, its stockholders, and its shares of common
stock in relation to dates prior to July 25, 1997, refer to the Trust, its Board
of Trustees, its shareholders, and its shares of beneficial interest. While the
Trust had a November 30 fiscal year end, the Company has a December 31 fiscal
year end. Accordingly, the Consolidated Financial Statements presented in ITEM
8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" include Statements of
Operations, Stockholders' Equity, and Cash Flows for the one month ended
December 31, 1996, which represents the transition period related to the change
in fiscal year end. The following discussion compares the fiscal year ended
December 31, 1997, to the fiscal year ended November 30, 1996, and the fiscal
year ended November 30, 1996, to the fiscal year ended November 30, 1995.

At December 31, 1997, the Company's real estate consisted of fourteen
properties, including nine apartment complexes, one shopping center, one
combination office building and shopping center, one combination
office/retail/medical facility, one office park, and one farm and luxury
residence. All of the Company's real estate except three properties is
encumbered by mortgages.

The Company's management continues to focus on the capital appreciation of the
Company's existing portfolio and the search for additional investments.
Management's first priority is to invest surplus funds in needed improvements to
the current real estate portfolio. The Company intends to use additional funds
generated from property operations, sales, and refinancings to make selective
acquisitions, both multifamily and commercial, with a preference for properties
in markets where the Company currently operates. However, because of various
real estate industry conditions, including competing entities and individuals
and the overall volatility of the real estate market, there is no assurance that
the Company will be able to continue to increase the size of its portfolio.

Liquidity and Capital Resources

The Company's principal sources of cash have been property operations,
collections of mortgages receivable, proceeds from the sale of real estate, and
refinancing proceeds. The Company does not anticipate making additional mortgage
loans except in connection with the sale of property. Therefore, as existing
mortgages receivable are paid off, this source of cash has declined and is
expected to continue to decline. The Company believes that cash on hand along
with funds provided by property operations and anticipated external sources,
such as property sales and refinancings, is sufficient to fund any needed
property maintenance and capital improvements as well as meet the Company's debt
service obligations.

Cash and cash equivalents totaled $1 million at December 31, 1997, compared to
$2.7 million at November 30, 1996. The underlying components of the change in
cash and cash equivalents are discussed below.




                                       13
<PAGE>   14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

     Operating Activities

The Company's net cash flow from property operations (rentals collected less
payments for property operations) increased from $2.8 million in fiscal 1995 to
$3.7 million in fiscal 1996 and increased slightly to $3.8 million in 1997. The
improvement between 1995 and 1996 resulted primarily from the operations of 1995
and 1996 acquisitions. In October 1996, the Company sold Polynesia Village
Apartments ("Polynesia"), the operations of which accounted for an increase in
cash flow from property operations in fiscal 1996 of $530,000. See NOTE 2. "REAL
ESTATE AND DEPRECIATION" in the Notes to Consolidated Financial Statements for a
discussion of the sale. Net cash flow from property operations increased only
slightly in 1997 compared with 1996 in spite of the sale of Polynesia due to the
properties acquired in 1996 and 1997. Along with the benefit derived from the
operations of these acquired properties, the Company incurred higher interest
payments due to the associated mortgage debt secured by certain of these
properties.

     Investing Activities

During 1997, the Company purchased The Brooks Apartments, a 104-unit property in
Addison, Texas, and Park 20 West, a 69,066 square foot office park in
Tallahassee, Florida, for an aggregate purchase price of $5.8 million, the cash
portion of which was $2.6 million. The remainder of the purchase price was
financed through taking each property subject to existing mortgages.

In December 1996, the Company acquired Tarzana Towne Plaza, a 37,208 square foot
combination office/retail/medical facility in Tarzana, California, through the
acquisition of a controlling interest in 18607 Ventura Associates, Ltd., the
partnership which owns the property. During the fourth fiscal quarter of 1996,
the Company advanced $572,000 to the partnership. The interest-bearing advances
were converted to a 60% interest in the partnership in December 1996. Under the
partnership agreement, the Company's advances with interest at 15% per annum are
to be repaid in full before any cash distributions may be made to the partners.
At December 31, 1997, unrecovered advances plus interest totaled $708,000.

During fiscal 1996, the Company purchased Mission Trace Apartments, a 96-unit
property in Tallahassee, Florida, and Holly House Apartments, a 57-unit property
in North Miami, Florida, for an aggregate purchase price of $4.2 million, the
cash portion of which was $1.8 million. The remainder of the purchase price was
financed through a $2.5 million mortgage on Mission Trace Apartments.

During fiscal 1996, the Company sold two multifamily properties for an aggregate
sale price of $14.9 million. The Company received net cash proceeds of $3.1
million in connection with these sales.

In December 1995, the Company acquired a 20% general partner interest and an
effective 37% limited partner interest in Larchmont Associates Limited
Partnership ("Larchmont") and an effective 25% nonmanaging member interest in
Kearny Wrap LLC ("Kearny"), both accounted for using the equity method, for cash
investments of $418,000 and $395,000, respectively. In January 1998, Kearny sold
its primary asset, a wraparound mortgage secured by a 1 million square foot
distribution facility net leased to the United States Postal Service located in
Kearny, New Jersey. The Company received approximately $700,000 as its
proportionate share of the net sales proceeds.

During fiscal 1995, the Company purchased Collegewood Apartments ("Collegewood")
in Tallahassee,  Florida,  consummated the tax-free exchange for Riverside
Apartments ("Riverside") in Austin, Texas, and recorded the in-substance
foreclosure of




                                       14
<PAGE>   15

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

     Investing Activities (Continued)

Polynesia. Under the terms of these three separate transactions, the portion of
the acquisition price paid in cash totaled $258,000. The remainder of the
acquisition price was satisfied through the assumption of first mortgage debt
totaling $11.1 million and, in the case of Riverside, the conveyance of the
exchanged property, Westover Valley Apartments in Fort Worth, Texas.

In December 1996, the Company received $600,000 as payment in full of the Swiss
Village note receivable which had matured in November 1996. The Company expects
note receivable collections to decline as existing mortgage loans are paid off
and does not anticipate funding additional loans in the future, except in
connection with property sales. However, during 1995 and pursuant to the
restructured terms of the mortgage loan secured by a second lien on Polynesia,
the Company funded an additional $196,000 to the borrower for renovations which
the Company supervised. In August 1995, the Company and the borrower agreed to a
settlement of litigation involving the mortgage loan whereby the Company gained
control of the property and as a result recorded an in-substance foreclosure, as
noted above.

The Company invested $1.3 million in capital improvements during 1997, compared
to $822,000 during fiscal 1996 and $534,000 during fiscal 1995. During 1998, the
Company anticipates investing approximately $2.1 million in capital improvements
to properties currently owned.

In addition to capital improvements noted above, payments for property
operations in 1997, fiscal 1996, and fiscal 1995 include property replacements
of $481,000, $450,000, and $552,000, respectively. Property replacements
include, but are not limited to, such items as carpet; appliances; plumbing and
heating, ventilation, and air conditioning replacements; exterior painting; and
parking lot improvements.

Since November 30, 1996, the Company has advanced $846,000 to Larchmont, largely
to fund capital improvements of Larchmont West Apartments, the partnership's
sole property. The Company expects such advances to continue during the first
half of 1998. Advances are subject to repayment with simple interest at 18%
prior to any other distributions to the partners.

In December 1997, the Company advanced $380,000 to National Omni Associates,
L.P. ("Omni"), in exchange for a 25% interest in this partnership. In January
and February 1998, the Company advanced an additional $1 million to Omni, which
purchased 5600 Collins Avenue, a 289-unit high rise apartment property in Miami
Beach, Florida, in February 1998.

     Financing Activities

During 1997, the Company obtained first mortgage financing totaling $8 million
on three properties, receiving net cash proceeds of $2.3 million after the
payoff of $4.8 million in existing debt, funding escrows, and paying the
associated closing costs. Additionally, the Company made other mortgage
principal payments totaling $454,000 during 1997. During fiscal 1996, the
Company made mortgage principal payments totaling $371,000. During fiscal 1995,
the Company obtained first mortgage financing totaling $5.3 million on two
properties, receiving net cash proceeds of $3.6 million after the payoff of $1.4
million in existing debt, funding escrows, and paying the associated closing
costs. Additionally, the Company made other mortgage principal payments totaling
$901,000 during fiscal 1995. Mortgage principal payments totaling $493,000 are
due in 1998, and the Company intends to make the payments when due.





                                       15
<PAGE>   16

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

     Financing Activities (Continued)

The Board of Trustees of the Trust approved a one-for-five reverse split of the
Trust's shares of beneficial interest which was effective at the close of
business on December 1, 1995, on the basis of one new share (a "Post-Split
Share") for each five shares then outstanding (each an "Old Share").

Following the one-for-five reverse share split, on December 1, 1995, the Trust
offered to purchase all shares of each shareholder holding 99 or fewer
Post-Split Shares (or less than 500 Old Shares) either of record or beneficially
on December 1, 1995. Under such offer (the "Odd-Lot Offer"), the Trust agreed to
purchase all Post-Split Shares duly tendered prior to February 29, 1996, at a
price equal to the next closing price of the Post-Split Shares on the day the
Trust received the tendered shares. Additionally, in December 1995, the Board of
Trustees authorized the Company to repurchase up to 139,200 of its shares in
open market and negotiated transactions. During fiscal 1996, the Trust
repurchased 47,430 shares, including 43,696 shares related to the Odd-Lot Offer,
323 shares representing fractional shares related to the December 1995 reverse
share split, and 3,411 shares representing purchases in open market
transactions, at a total cost of $240,000 or an average of $5.06 per share.
During 1997, 26,764 shares were repurchased in open market transactions at a
total cost of $245,000 or an average of $9.15 per share.

In October 1993, the Trust paid to shareholders a taxable distribution of $1.25
per share, totaling $1.5 million, in the form of either 9% Series A Convertible
Subordinated Debentures ("Debentures") or Uncertificated Convertible
Subordinated Obligations ("Obligations"). On December 30, 1994, the Trust
redeemed all the outstanding Obligations. See NOTE 5. "NOTES, DEBENTURES, AND
INTEREST PAYABLE" in the Notes to Consolidated Financial Statements.

Results of Operations

1997 COMPARED TO 1996. The Company reported net income for the year ended
December 31, 1997, of $296,000 compared to net income of $853,000 for the fiscal
year ended November 30, 1996. The major component of the change in results of
operations was the $844,000 gain on sale of Polynesia in October 1996. Other
components of this change are discussed in the following paragraphs.

Net rental income (rental revenue less property operating expenses) increased
from $3.3 million in fiscal 1996 to $3.8 million in 1997. An increase of $1
million is attributable to the operations of the properties added to the
Company's portfolio during 1996 and 1997, while a decrease of $683,000 resulted
from the sale of Polynesia. Properties held in both years reported an overall
increase of $173,000 in net rental income, primarily due to higher rental rates
at certain properties. Overall economic occupancy levels for properties held in
both years fell slightly, primarily due to decreased physical occupancy at One
Turtle Creek Office Complex from 85% at November 30, 1996, to 69% at December
31, 1997.

Interest expense increased from $1.9 million in fiscal 1996 to $2.1 million in
1997. Of this increase, $545,000 resulted from interest expense associated with
loans obtained or assumed in connection with the 1996 and 1997 property
acquisitions. Properties held in both years reported an overall increase of
$49,000 mainly due to the refinancing of the mortgage debt secured by
Collegewood, Riverside, and Briarwest Shopping Center, which increased mortgage
debt by a total of $3.1 million. Due to the timing of these refinancings during
1997, the Company expects a greater impact on interest expense from these
refinancings in 1998. These increases were partially offset by a decrease of
$390,000 due to the sale of the Polynesia.



                                       16
<PAGE>   17

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Results of Operations (Continued)

Upon reclassifying One Turtle Creek Office Complex to real estate held for sale
in March 1997, the Company ceased depreciation of this property, resulting in a
decrease in depreciation expense of $318,000 for the year ended December 31,
1997, compared to the year ended November 30, 1996. A $196,000 increase in
depreciation expense is associated with the 1996 and 1997 acquisitions.

Advisory fees to Tarragon Realty Advisors, Inc., ("TRA") totaled $181,000 in
fiscal 1996 and $232,000 in 1997. Since March 1, 1994, TRA has provided advisory
services to the Company pursuant to an advisory agreement. William S. Friedman,
President, Chief Executive Officer, and Director of the Company, serves as a
Director and Chief Executive Officer of TRA. TRA is owned by Mr. Friedman and
Lucy N. Friedman, his wife. The Friedman family owns approximately 30% of the
outstanding common stock of the Company. A majority of the officers of the
Company are also officers of TRA. Under the advisory agreement with TRA, the
Company pays an incentive advisory fee equal to 16% per annum of adjusted funds
from operations, as defined in the advisory agreement. Funds from operations
("FFO") increased from $949,000 for the year ended November 30, 1996, to $1.2
million for the year ended December 31, 1997. See ITEM 6. "SELECTED FINANCIAL
DATA" for the calculation and definition of FFO. For a more detailed discussion
of advisory and other fees and services, see ITEM 10. "DIRECTORS, EXECUTIVE
OFFICERS, AND ADVISOR OF THE REGISTRANT - The Advisor."

In addition to the $844,000 gain on sale of Polynesia, during fiscal 1996, the
Company recorded a loss on the sale of real estate of $171,000 and an
extraordinary gain of $253,000 both related to the sale of Villas at Central
Park Apartments in January 1996.

1996 COMPARED TO 1995. The Company reported net income of $853,000 for fiscal
1996 compared to net income of $27,000 for fiscal 1995. The primary reason for
this improvement was the $844,000 gain on sale of Polynesia. Other underlying
components of this improvement in operating results are discussed in the
following paragraphs.

Net rental income increased from $2.6 million in fiscal 1995 to $3.3 million in
fiscal 1996. An increase of $729,000 was attributable to the operations of the
properties added to the Company's multifamily portfolio during 1995 and 1996,
while a decrease of $334,000 resulted from the sale of Villas at Central Park
Apartments in 1996. $494,000 of the 1996 increase in net rental income was
attributable to Polynesia which was sold in October 1996. Properties held in
both 1995 and 1996 reported an overall increase of $275,000 in net rental
income. Higher rental rates at certain properties and a reduction in leasing
expenses contributed to this improvement. Overall occupancy levels for
multifamily properties held in both years increased slightly, while those for
commercial properties held in both years fell slightly.

Interest expense increased from $1.4 million in fiscal 1995 to $1.9 million in
fiscal 1996. Of this increase, $498,000 resulted from interest expense
associated with loans obtained or assumed in connection with the 1995 and 1996
property acquisitions. Properties held in both years reported an overall
increase of $381,000 mainly due to the refinancing of the mortgage debt secured
by Southern Elms Apartments and Aspentree Apartments during 1995, which
increased mortgage debt by a total of $3.9 million. These increases were
partially offset by a decrease of $391,000 due to the sale of Villas at Central
Park Apartments in 1996.

Advisory fees to TRA totaled $146,000 in fiscal 1995 and $181,000 in fiscal
1996. Under the current advisory agreement with TRA, effective since April 1,
1995, the Company pays an incentive advisory fee equal to 16% per annum of
adjusted funds from operations, as defined in the advisory agreement. Prior to
April 1, 1995, the Company also paid an annual base advisory



                                       17
<PAGE>   18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Results of Operations (Continued)

fee of $50,000. FFO was $949,000 for the year ended November 30, 1996, compared
to $1 million for the year ended November 30, 1995. See ITEM 6. "SELECTED
FINANCIAL DATA" for the calculation and definition of FFO.

General and administrative expenses increased from $356,000 in fiscal 1995 to
$466,000 in fiscal 1996, primarily due to increases in advisor expense
reimbursements and professional fees related to administration of the
one-for-five reverse share split in December 1995 and the Odd-Lot Offer in the
first quarter of 1996.

The Company recorded a provision for loss credit of $190,000 in August 1995 as a
result of a reversal of an allowance for estimated losses of $1 million recorded
in previous years against the Company's note receivable secured by a second lien
mortgage on Polynesia and a $1.4 million provision for loss due to permanent
impairment of Villas at Central Park Apartments recorded in August 1995. Also,
the Company determined that the remaining $802,000 balance of the allowance for
estimated losses was no longer required against the Company's mortgage note
receivable portfolio, while a $241,000 allowance for estimated losses was needed
against the carrying value of one of its properties held for sale. As such, the
Company recorded a reversal of $561,000 in August 1995.

Allowance for Estimated Losses and Provision for Losses

The Company's management periodically evaluates the carrying values of the
Company's properties held for sale. Generally accepted accounting principles
require that the carrying value of a property held for sale cannot exceed the
lower of its cost or its estimated fair value less estimated costs to sell. In
those instances in which estimates of fair value less estimated selling costs of
the Company's properties held for sale are less than the carrying values thereof
at the time of evaluation, an allowance for loss is provided by a charge against
operations. The evaluation generally includes selective site inspections, a
review of the property's current rents compared to market rents, a review of the
property's expenses, a review of maintenance requirements, discussions with the
manager of the property, and a review of the surrounding area. Future
evaluations could cause the Company's management to adjust current estimates of
fair value.

The Company's management also evaluates the Company's properties held for
investment for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. This review
generally consists of a review of the property's cash flow and current and
projected market conditions, as well as any changes in general and local
economic conditions. If an impairment loss exists based on the results of this
review, a loss is recognized by a charge against current earnings and a
corresponding reduction in the respective asset's carrying value. The amount of
this impairment loss is equal to the amount by which the carrying value of the
property exceeds its estimated fair value.

Environmental Matters

Under various federal, state, and local environmental laws, ordinances, and
regulations, the Company may be potentially liable for removal or remediation
costs, as well as certain other potential costs (including governmental fines
and injuries to persons and property) relating to hazardous or toxic substances
where property-level managers have arranged for the removal, disposal, or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery from the Company for personal injury
associated with such materials.



                                       18
<PAGE>   19

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Environmental Matters (Continued)

The Company's management is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the Company's
business, assets, or results of operations.

Tax Matters

For the 1997, 1996, and 1995 tax years, the Company elected and, in the opinion
of the Company's management, qualified to be treated as a real estate investment
trust ("REIT") as defined under Sections 856 through 860 of the Internal Revenue
Code of 1986 (the "Code"). The Code requires a REIT to distribute at least 95%
of its REIT taxable income plus 95% of its net income from foreclosure property,
as defined in Section 857 of the Code, to stockholders. The conversion to a
corporation and the change in fiscal year end described above under
"Introduction" had no effect on the Company's status as a REIT.

Impact of the Year 2000 Issue

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

The Company has initiated an assessment to determine the extent to which the
Company is vulnerable to Year 2000 Issues. Management does not anticipate a
material impact on the Company's business, financial position, or results of
operations from the Year 2000 Issue.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130 - "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
Comprehensive income is defined as "the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners." The
Company will adopt this statement, as required, on January 1, 1998, and expects
the only effect of adoption to be reporting of comprehensive income in the
Consolidated Statements of Operations.

Also in June 1997, the FASB issued SFAS No. 131 - "Disclosures About Segments of
an Enterprise and Related Information," which supersedes SFAS No. 14 "Financial
Reporting for Segments of a Business Enterprise," SFAS No. 18 "Financial
Reporting for Segments of a Business Enterprise - Interim Financial Statements,"
SFAS No. 24 - "Reporting Segment Information in Financial Statements that are
Presented in Another Enterprise's Financial Report," and SFAS No. 30 -
"Disclosure of Information About Major Customers." This statement is effective
for financial statements for periods beginning after December 15, 1997. The
Company's management has not fully evaluated the effects of implementing this
statement but expects the Company's current financial statement disclosures will
not be affected.




                                       19
<PAGE>   20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Possible Consolidation with National Income Realty Trust and Acquisition of
Advisor

On February 19, 1998, the Company and National Income Realty Trust ("NIRT")
jointly announced the agreement of their respective boards to form a single
consolidated entity with the Company, for convenience, as the survivor. The
surviving consolidated entity is intended to operate as a self-administered
REIT. The consolidation transaction will be submitted to shareholders of each of
the Company and NIRT for approval at special meetings to be held during 1998.
Under the proposed agreement, each shareholder of NIRT will receive 1.97 shares
of the Company's common stock for each share of beneficial interest of NIRT
held. NIRT, also a REIT, has a similar opportunistic approach to real estate
investment and had total consolidated assets of approximately $266 million as of
December 31, 1997. Upon the approval and consummation of the consolidation
transaction by the respective shareholders of each entity, the Company will
acquire TRA, the Company's advisor since March 1, 1994, and NIRT's advisor since
April 1, 1994, for 100,000 shares of the Company's common stock and options to
acquire additional shares of the Company's common stock at prices ranging
between $13 and $16 per share. The resulting consolidated entity with the
Company as the survivor will emerge from these transactions as an integrated,
self-administered, self-managed REIT controlling approximately 14,000 apartment
units and 2.1 million square feet of retail and office space, primarily in
California, Florida, and Texas.  The consolidated transaction will be accounted
for as a reverse acquisition of the Company by NIRT.

William S. Friedman, President, Chief Executive Officer, and Director of the
Company, also serves as Director and Chief Executive Officer of TRA and as
Trustee, President, and Chief Executive Officer of NIRT. TRA is owned by Mr.
Friedman and his wife, Lucy N. Friedman. The Friedman family also owns
approximately 30% of the outstanding shares of common stock of the Company and
approximately 33% of the outstanding shares of beneficial interest of NIRT.

Risks Associated with Forward-Looking Statements Included in this Form 10-K

This Form 10-K contains certain 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 intended to be covered by the safe harbors
created thereby. These statements include the plans and objectives of management
for future operations, including plans and objectives relating to capital
expenditures on Company properties. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive, and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate, and, therefore, there can be no assurance that the forward-looking
statements included in this Form 10-K will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not applicable to the Company at this time.




                                       20
<PAGE>   21
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Report of Independent Public Accountants ...............................   22

Consolidated Balance Sheets -
     December 31, 1997, and  November 30, 1996 .........................   23

Consolidated Statements of Operations -
     Year Ended December 31, 1997
     Month Ended December 31, 1996
     Years Ended November 30, 1996 and 1995.............................   24

Consolidated Statements of Stockholders' Equity -
     Year Ended December 31, 1997
     Month Ended December 31, 1996
     Years Ended November 30, 1996 and  1995............................   25

Consolidated Statements of Cash Flows -
     Year Ended December 31, 1997
     Month Ended December 31, 1996
     Years Ended November 30, 1996 and 1995.............................   26

Notes to Consolidated Financial Statements..............................   28

Schedule III - Real Estate and Accumulated Depreciation.................   43
</TABLE>




All other schedules are omitted because they are not required or are not
applicable or the information required is included in the Consolidated Financial
Statements or the notes thereto.


                                       21
<PAGE>   22

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of Tarragon Realty Investors, Inc.


We have audited the accompanying consolidated balance sheets of Tarragon Realty
Investors, Inc., (effective July 25, 1997, ultimate successor in interest to
Vinland Property Trust) and subsidiaries as of December 31, 1997, and November
30, 1996, and the related statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1997, the month ended December 31,
1996, and each of the two years in the period ended November 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Tarragon Realty Investors,
Inc., and subsidiaries as of December 31, 1997, and November 30, 1996, and the
results of their operations and their cash flows for the year ended December 31,
1997, the month ended December 31, 1996, and each of the two years in the period
ended November 30, 1996, in conformity with generally accepted accounting
principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule III is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic 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 financial statements taken as a whole.



                                                       Arthur Andersen LLP


Dallas, Texas
March 20, 1998






                                       22
<PAGE>   23
                         TARRAGON REALTY INVESTORS, INC.
                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                                 December 31,   November 30,
                                                                                 ------------   ------------
                                                                                     1997          1996
                                                                                 ------------   ------------
                                                                                   (dollars in thousands)
                          Assets
<S>                                                                                <C>           <C>
Real estate held for sale (net of accumulated depreciation
  of  $1,484 in 1997) ........................................................     $  4,319      $    241
Less - allowance for estimated losses ........................................         (241)         (241)
                                                                                   --------      --------
                                                                                      4,078            --
Real estate held for investment (net of accumulated depreciation
  of $4,986 in 1997 and $5,575 in 1996) ......................................       27,795        22,248
Investments in and advances to partnerships ..................................        1,991         1,365
Cash and cash equivalents ....................................................        1,011         2,684
Restricted cash ..............................................................          737           479
Other assets, net ............................................................        1,865         1,981
                                                                                   --------      --------
                                                                                   $ 37,477      $ 28,757
                                                                                   ========      ========
              Liabilities and Stockholders' Equity

Liabilities
Notes, debentures, and interest payable ......................................     $ 26,416      $ 17,516
Other liabilities ............................................................        1,291         1,372
                                                                                   --------      --------
                                                                                     27,707        18,888
Commitments and contingencies ................................................

Stockholders' equity
Common stock, $.01 par value; authorized shares, 20,000,000;
  shares issued and outstanding, 1,317,812 in 1997 and
  1,344,576 in 1996 (after deducting 30,175 in 1997
  and 3,411 in 1996 held in treasury) ........................................           13         2,239
Paid-in capital ..............................................................       45,696        43,715
Accumulated dividends in excess of
  accumulated earnings .......................................................      (35,939)      (36,085)
                                                                                   --------      --------
                                                                                      9,770         9,869
                                                                                   --------      --------
                                                                                   $ 37,477      $ 28,757
                                                                                   ========      ========
</TABLE>




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




                                       23
<PAGE>   24

                         TARRAGON REALTY INVESTORS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                             For the Year    For the Month
                                                             Ended Dec 31,    Ended Dec 31,     For the Years Ended Nov 30,
                                                             ------------     -----------      ----------------------------
                                                                  1997            1996             1996             1995
                                                             ------------     -----------      -----------      -----------
<S>                                                           <C>             <C>              <C>              <C>
Income
   Rentals ..............................................     $     9,525     $       708      $     9,357      $     8,306
   Interest .............................................             147              16              127              131
   Equity in income (loss) of partnerships ..............              39             (27)             (20)              --
                                                              -----------     -----------      -----------      -----------
                                                                    9,711             697            9,464            8,437
Expense
   Property operations (including $339 in 1997,
      $26 in December 1996, $235 in fiscal
      1996, and $83 in fiscal 1995 to affiliates) .......           5,747             427            6,047            5,666
   Interest .............................................           2,135             157            1,929            1,441
   Depreciation .........................................             816              79              914              991
   Advisory fee to affiliate ............................             232              13              181              146
   General and administrative (including $236 in
      1997, $32 in December 1996, $232 in fiscal
      1996, and $165 in fiscal 1995 to affiliates)  .....             485              40              466              356
   Provision for losses .................................              --              --               --             (190)
                                                              -----------     -----------      -----------      -----------
                                                                    9,415             716            9,537            8,410
                                                              -----------     -----------      -----------      -----------

Income (loss) before net gain on sale of real estate
   and extraordinary gain ...............................             296             (19)             (73)              27
Net gain on sale of real estate .........................              --              --              673               --
                                                              -----------     -----------      -----------      -----------
Income (loss) from continuing operations ................             296             (19)             600               27
Extraordinary gain ......................................              --              --              253               --
                                                              -----------     -----------      -----------      -----------
Net income (loss) .......................................     $       296     $       (19)     $       853      $        27
                                                              ===========     ===========      ===========      ===========

Earnings per share - basic and diluted
Income (loss) from continuing operations ................     $       .22     $      (.01)     $       .44      $       .02
Extraordinary gain ......................................              --              --              .19               --
                                                              -----------     -----------      -----------      -----------
Net  income (loss).......................................     $       .22     $      (.01)     $       .63      $       .02
                                                              ===========     ===========      ===========      ===========

Weighted average shares of common stock used in
   computing earnings per share .........................       1,331,314       1,344,576        1,354,415        1,392,006
                                                              ===========     ===========      ===========      ===========

Weighted average shares of common stock used in
   computing earnings per share - assuming dilution .....       1,343,583       1,350,122        1,356,520        1,392,006
                                                              ===========     ===========      ===========      ===========
</TABLE>




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



                                       24
<PAGE>   25

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


<TABLE>
<CAPTION>

                                                                                       Accumulated
                                                                                        Dividends
                                               Common Stock                            in Excess of
                                        --------------------------      Paid-in        Accumulated     Stockholders'
                                          Shares          Amount        Capital         Earnings         Equity
                                        ----------      ----------     ----------      ----------      ----------
                                                                 (dollars in thousands)
<S>                                      <C>            <C>            <C>             <C>             <C>
Balance, November 30, 1994 ........      1,392,006      $    2,318     $   43,876      $  (36,965)     $    9,229

Net income ........................             --              --             --              27              27
                                        ----------      ----------     ----------      ----------      ----------
Balance, November 30, 1995 ........      1,392,006           2,318         43,876         (36,938)          9,256

Share repurchases .................        (47,430)            (79)          (161)             --            (240)

Net income ........................             --              --             --             853             853
                                        ----------      ----------     ----------      ----------      ----------
Balance, November 30, 1996 ........      1,344,576           2,239         43,715         (36,085)          9,869

Net (loss) ........................             --              --             --             (19)            (19)
                                        ----------      ----------     ----------      ----------      ----------
Balance, December 31, 1996 ........      1,344,576           2,239         43,715         (36,104)          9,850

Adjustment for change
    in par value ..................             --          (2,198)         2,198              --              --

Share repurchases .................        (26,764)            (28)          (217)             --            (245)

Cash dividend to stockholders
    ($.10 per share) ..............             --              --             --            (131)           (131)

Net income ........................             --              --             --             296             296
                                        ----------      ----------     ----------      ----------      ----------

Balance, December 31, 1997 ........      1,317,812      $       13     $   45,696      $  (35,939)     $    9,770
                                        ==========      ==========     ==========      ==========      ==========
</TABLE>




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




                                       25
<PAGE>   26

                         TARRAGON REALTY INVESTORS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  For the Year     For the Month
                                                                  Ended Dec 31,     Ended Dec 31,     For the Years Ended Nov 30,
                                                                  -------------    -------------     ----------------------------
                                                                       1997             1996             1996             1995
                                                                   -----------      -----------      -----------      -----------
                                                                                      (dollars in thousands)
<S>                                                                <C>              <C>              <C>              <C>
Cash Flows from Operating Activities
  Rentals collected ..........................................     $     9,520      $       709      $     9,377      $     8,320
  Interest collected .........................................             124               19              129              128
  Interest paid ..............................................          (2,007)            (186)          (1,752)          (1,383)
  Payments for property operations (including $339 in 1997,
    $26 in December 1996, $235 in fiscal 1996,
    and  $83 in fiscal 1995 to  affiliates) ..................          (5,722)            (528)          (5,723)          (5,532)
  General and administrative expenses paid (including
    $236 in 1997, $32 in December 1996, $232 in
    fiscal 1996, and  $165 in fiscal 1995 to affiliates) .....            (571)             (31)            (421)            (427)
  Advisory fee paid to affiliate .............................            (231)              --             (238)            (138)
  Advisory fee received from prior advisor ...................              --               --               --              115
  Organizational costs paid ..................................            (127)              --               --               --
  Deferred financing costs paid ..............................            (290)              (3)              (6)            (272)
                                                                   -----------      -----------      -----------      -----------
    Net cash provided by (used in) operating activities ......             696              (20)           1,366              811
                                                                   -----------      -----------      -----------      -----------

Cash Flows from Investing Activities
  Acquisition of real estate .................................          (2,641)              --           (1,863)            (258)
  Proceeds from the sale of real estate ......................              --               --            3,088               --
  Real estate improvements ...................................          (1,332)             (96)            (822)            (534)
  Collections of notes receivable ............................              68              685                3              181
  Funding of note receivable .................................              --               --               --             (196)
  Distributions from partnerships ............................              69               --               --               --
  Acquisition of partnership interests .......................              --               --             (813)              --
  Advances to partnerships ...................................          (1,186)             (40)            (572)              --
                                                                   -----------      -----------      -----------      -----------
    Net cash  provided by (used in) investing activities .....          (5,022)             549             (979)            (807)
                                                                   -----------      -----------      -----------      -----------

Cash Flows from Financing Activities
  Proceeds from borrowings ...................................           7,950               --               --            5,336
  Payments of notes payable ..................................          (5,286)             (34)            (371)          (2,343)
  Redemption of uncertificated obligations ...................              --               --               --              (91)
  Replacement escrow (deposits) receipts, net ................            (244)             (17)              61             (268)
  Share repurchases ..........................................            (245)              --             (240)              --
                                                                   -----------      -----------      -----------      -----------
    Net cash provided by (used in) financing activities ......           2,175              (51)            (550)           2,634
                                                                   -----------      -----------      -----------      -----------

Net increase (decrease)  in cash and cash equivalents ........          (2,151)             478             (163)           2,638
Cash and cash equivalents, beginning of period ...............           3,162            2,684            2,847              209
                                                                   -----------      -----------      -----------      -----------
Cash and cash equivalents, end of period .....................     $     1,011      $     3,162      $     2,684      $     2,847
                                                                   ===========      ===========      ===========      ===========
</TABLE>



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



                                       26
<PAGE>   27

                         TARRAGON REALTY INVESTORS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<TABLE>
<CAPTION>
                                                                   For the Year     For the Month
                                                                   Ended Dec 31,    Ended Dec 31,    For the Years Ended Nov 30,
                                                                   -----------      -----------      ----------------------------
                                                                      1997             1996             1996             1995
                                                                   -----------      -----------      -----------      -----------
                                                                                       (dollars in thousands)
<S>                                                                <C>              <C>              <C>              <C>
Reconciliation of net income (loss) to net cash
  provided by (used in) operating activities:
  Net income (loss) ............................................   $       296      $       (19)     $       853      $        27
  Extraordinary gain ...........................................            --               --             (253)              --
  Net gain on sale of real estate ..............................            --               --             (673)              --
  Depreciation and amortization  ...............................         1,021               89            1,033            1,137
  Provision for losses .........................................            --               --               --             (190)
  Equity in (income) loss of partnerships ......................           (39)              27               20               --
  Changes in other assets and liabilities, net of effects
     of  noncash investing and financing activities
     (Increase) in other assets ................................          (566)             (30)            (117)             (65)
     Increase (decrease) in other liabilities...................           (51)             (57)             396             (104)
     Decrease in interest receivable............................            --                5               --               --
     Increase (decrease) in interest payable....................            35              (35)             107                6
                                                                   -----------      -----------      -----------      -----------
Net cash provided by (used in) operating activities ............   $       696      $       (20)     $     1,366      $       811
                                                                   ===========      ===========      ===========      ===========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Changes in assets and liabilities in connection with the
  purchase, foreclosure, or exchange of real estate
    Real estate ................................................   $     5,776      $     3,973      $     4,344      $    13,393
    Advances to partnership ....................................            --             (572)              --               --
    Notes and interest receivable ..............................            --               --               --           (1,935)
    Other assets ...............................................           171              (17)              39              194
    Notes and interest payable .................................        (3,275)          (2,995)          (2,510)         (11,142)
    Other liabilities ..........................................           (31)            (389)             (10)            (252)
                                                                   -----------      -----------      -----------      -----------
      Cash paid ................................................   $     2,641      $        --      $     1,863      $       258
                                                                   ===========      ===========      ===========      ===========

Assets disposed of and liabilities released in connection
  with the sale of real estate
    Real estate ................................................   $        --      $        --      $    13,732      $        --
    Other assets ...............................................            --               --              (91)              --
    Notes and interest payable .................................            --               --          (11,160)              --
    Other liabilities ..........................................            --               --             (319)              --
    Net gain on sale ...........................................            --               --              673               --
    Extraordinary gain .........................................            --               --              253               --
                                                                   -----------      -----------      -----------      -----------
      Cash received ............................................   $        --      $        --      $     3,088      $        --
                                                                   ===========      ===========      ===========      ===========
</TABLE>


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



                                       27
<PAGE>   28

                         TARRAGON REALTY INVESTORS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements of Tarragon Realty Investors,
Inc., subsidiaries, and consolidated partnerships (the "Company") have been
prepared in conformity with generally accepted accounting principles ("GAAP"),
the most significant of which are described in NOTE 1. "SIGNIFICANT ACCOUNTING
POLICIES." The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. These, along with the remainder of the Notes to
Consolidated Financial Statements, are an integral part of the Consolidated
Financial Statements. The data presented in the Notes to Consolidated Financial
Statements are as of December 31, 1997, and for the year then ended, unless
otherwise indicated. Dollar amounts in tables are in thousands, except per share
amounts.

Certain balances for 1995 and 1996 have been reclassified to conform to the 1997
presentation.

NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES

Organization and Company business. Tarragon Realty Investors, Inc., ("TRI" or
the "Company") is a Nevada corporation incorporated April 2, 1997, and the
ultimate successor in interest to Vinland Property Trust (the "Trust"), a
California business trust which was established July 18, 1973, and commenced
operations April 2, 1974. The Trust was formed to invest in real estate,
including commercial and multifamily properties. On July 10, 1997, the
shareholders of the Trust approved the conversion of the Trust into a Nevada
corporation, which was accomplished by incorporating the Trust as a California
corporation and merging it into the Company, a wholly-owned subsidiary of the
Trust, with the Company as the surviving entity. The effective date of the
merger of the Trust and the Company was July 25, 1997. References to the
Company, its Board of Directors, its stockholders, and its shares of common
stock ($.01 par value)in relation to dates prior to July 25, 1997, refer to the
Trust, its Board of Trustees, its shareholders, and its shares of beneficial
interest (no par value). While the Trust had a November 30 fiscal year end, the
Company has a December 31 fiscal year end. Accordingly, the accompanying
Consolidated Financial Statements include Statements of Operations,
Stockholder's Equity, and Cash Flows for the one month period ended December 31,
1996, which represents the transition period related to the change in fiscal
year end.

Basis of consolidation. The Consolidated Financial Statements include the
accounts of the Company, its subsidiaries, and partnerships which it controls.
All significant intercompany transactions and balances have been eliminated.

Real estate and depreciation. Real estate held for sale is carried at the lower
of cost or estimated fair value less estimated costs to sell. Real estate held
for investment is carried at cost unless an impairment is determined to exist,
as discussed below. Impaired properties are written down to their estimated fair
values. The Company capitalizes property improvements and major rehabilitation
projects which increase the value of the respective property and have useful
lives greater than one year, except for individual expenditures less than
$10,000 which are not part of a planned renovation project. Under this policy,
during 1997, expenditures of $1.3 million were capitalized and property
replacements of $432,000 were expensed. Property replacements include, but are
not limited to, such items as carpet; appliances; plumbing and heating,
ventilation, and air conditioning replacements; exterior painting; and parking
lot improvements. Depreciation is provided against real estate held for
investment by the straight-line method over the estimated useful lives of the
assets, which range from five to 40 years.





                                       28
<PAGE>   29
                         TARRAGON REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company's management evaluates the Company's properties held for investment
for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. This evaluation generally
consists of a review of the property's cash flow and current and projected
market conditions, as well as any changes in general and local economic
conditions. If an impairment loss exists based on the results of this review, a
loss is recognized by a charge against current earnings and a corresponding
reduction in the respective asset's carrying value. The amount of this
impairment loss is equal to the amount by which the carrying value of the
property exceeds its estimated fair value.

At least annually, all properties held for sale are reviewed by the Company's
management, and a determination is made if the held for sale classification
remains appropriate. The following are among the factors considered in
determining that a change in classification to held for investment is
appropriate: (i) the property has been held for at least one year; (ii)
management has no intent to dispose of the property within the next twelve
months; (iii) the property is a "qualifying asset" as defined in the Internal
Revenue Code of 1986, as amended (the "Code"); (iv) property improvements have
been funded; and (v) the Company's financial resources are such that the
property can be held long-term.

The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121
- "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" on December 1, 1995. There was no cumulative effect nor any
impact on the Company's financial position as a result of the adoption. Pursuant
to the adoption, the Company ceased depreciation of its properties held for
sale.

Allowance for estimated losses. Valuation allowances are provided for estimated
losses on properties held for sale to the extent that the investment in the
properties exceeds the Company's estimate of fair value less estimated selling
costs. The provisions for losses are based on estimates, and actual losses may
vary from current estimates. Such estimates are reviewed periodically. Any
additional provision determined to be necessary or the reversal of any existing
allowance no longer required is recorded by a charge or credit to current
earnings.

Cash equivalents. The Company considers all highly liquid debt instruments
purchased with maturities of three months or less to be cash equivalents.

Restricted cash. Restricted cash represents escrow accounts, generally held by
the lenders of certain of the Company's mortgage notes payable, for taxes,
insurance, and property repairs.

Other assets. Other assets consist primarily of tenant accounts receivable,
notes and interest receivable, prepaid leasing commissions, and deferred
borrowing costs. Prepaid leasing commissions are amortized to leasing commission
expense, included in property operating expenses, on the straight-line method
over the related lease terms. Deferred borrowing costs are amortized on the
straight-line method (which approximates the effective interest method) over the
related loan terms, and such amortization is included in interest expense.

Revenue recognition on the sale of real estate. Gains on sales of real estate
are recognized when and to the extent permitted by SFAS No. 66 - "Accounting for
Sales of Real Estate." Until the requirements of SFAS No. 66 for full profit
recognition have been met, transactions are accounted for using the deposit,
installment, cost recovery, or financing methods, whichever is appropriate.




                                       29
<PAGE>   30
                         TARRAGON REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments in noncontrolled partnerships. The Company uses the equity method to
account for investments in partnerships it does not control. Under the equity
method, the Company's initial investment is increased by the Company's
proportionate share of the partnership's operating income and additional
advances and decreased by the Company's proportionate share of the partnership's
operating losses and distributions received.

Earnings per share. Income (loss) per share of common stock is computed based
upon the weighted average number of shares of common stock outstanding during
each fiscal year. Effective December 1, 1995, the Board of Trustees approved a
one-for-five reverse split of the Trust's shares of beneficial interest. All
share and per share data for the year ended November 30, 1995, and earlier
periods have been restated to give effect to the one-for-five reverse share
split.

On December 31, 1997, The Company adopted SFAS No. 128 - "Reporting Earnings Per
Share," which superseded the Accounting Principles Board's Opinion No. 15 ("APB
No. 15") - "Earnings Per Share." This statement requires business enterprises
with other than simple capital structures to report both basic and diluted
earnings per share for each period for which a statement of operations is
presented. There was no cumulative effect nor any impact on the Company's
financial position as a result of the adoption.

Fair value of financial instruments. SFAS No. 107 - "Disclosures About Fair
Value of Financial Instruments" requires the Company to disclose the estimated
fair values of its financial instrument assets and liabilities.

Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1997, and November 30,
1996. Considerable judgment is necessary to interpret market data and develop
estimated fair values. Accordingly, the estimated fair values presented do not
purport to present amounts to be ultimately realized or paid by the Company,
which may vary significantly from the estimated fair values presented. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair values.

As of December 31, 1997, and November 30, 1996, the Company's management
estimates that the carrying amounts approximate fair value for cash and cash
equivalents and restricted cash because of the short maturities of those
instruments. In addition, the carrying amounts of notes receivable and other
liabilities approximate fair value. The fair values of the Company's notes and
debentures payable are estimated by discounting future expected cash flows using
current rates for loans with similar terms and maturities.

Stock option plans. On December 1, 1995, the Company adopted SFAS No. 123
"Accounting and Disclosure of Stock-Based Compensation," which requires
disclosures based on the fair values of stock options at the date of grant.
There was no cumulative effect nor any impact on the Company's financial
position as a result of the adoption. The Company will continue to measure any
compensation costs associated with the issue of stock options using the guidance
provided by APB No. 25. Under APB No. 25, compensation costs related to stock
options issued pursuant to compensatory plans are measured based on the
difference between the quoted market price of the stock at the measurement date
(ordinarily the date of grant) and the exercise price and should be charged to
expense over the periods during which the grantee performs the related services.
All stock options issued to date by the Company have exercise prices equal to
the market price of the stock at the dates of grant. See NOTE 9. "STOCK
OPTIONS."




                                       30
<PAGE>   31
                         TARRAGON REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2.   REAL ESTATE AND DEPRECIATION

In March 1997, after receiving an unsolicited offer to purchase One Turtle Creek
Office Complex, the Company initiated a formal marketing program to sell this
property and reclassified it to held for sale. Accordingly, the Company ceased
depreciation of this property in March 1997. As the estimated fair value of this
property exceeded its carrying value, no loss was recognized in connection with
this reclassification.

At December 31, 1997, all of the Company's real estate, except Phoenix
Apartments, Holly House Apartments, and Cochonour farm and luxury residence
("Cochonour"), was pledged as collateral on notes payable. See NOTE 5. "NOTES,
DEBENTURES, AND INTEREST PAYABLE."

Since November 30, 1994, the Company has purchased four multifamily properties
and two commercial properties comprising 433,967 square feet, as presented
below, and, in connection with these acquisitions, paid Tarragon Realty
Advisors, Inc. ("TRA"), the Company's advisor since March 1, 1994, real estate
acquisition fees totaling $121,370. These properties are located in the same
geographical areas where the Company currently operates and were acquired in
separate transactions.

<TABLE>
<CAPTION>
                                                                                                        Cost of Acquisition
                                                            Date                           Square     -----------------------
       Property                  Location                 Acquired          Units         Footage     Cash               Debt
       --------                  --------                 --------          -----         -------     ----               ----
<S>                              <C>                      <C>              <C>           <C>       <C>                <C>
     1997 Acquisitions
     The Brooks                  Addison, TX              Jan-97             104           94,176   $      931         $   1,324
     Park 20 West                Tallahassee, FL          Aug-97              --           69,066        1,710             1,944
                                                                            ----         --------   ----------         ---------
                                                                             104          163,242        2,641             3,268
                                                                            ----         --------   ----------         ---------
     December 1996 Acquisition
     Tarzana Towne Plaza         Tarzana, CA              Dec-96              --           37,208          594             2,971

     Fiscal 1996  Acquisitions
     Holly House                 North Miami, FL          Apr-96              57           45,417        1,438               -
     Mission Trace               Tallahassee, FL          May-96              96          104,400          325             2,510
                                                                            ----         --------   ----------         ---------
                                                                             153          149,817        1,763             2,510
                                                                            ----         --------   ----------         ---------
     Fiscal 1995 Acquisition
     Collegewood                 Tallahassee, FL          May-95             162           83,700          118             2,363
                                                                            ----         --------   ----------         ---------
                                                                             419          433,967   $    5,116         $  11,112
                                                                            ====         ========   ==========         =========
</TABLE>


The Company purchased Collegewood from Investors Florida Capitol Fund II, Ltd.,
a Florida limited partnership (the "Seller"). Investors General, Inc. ("IGI"),
which owns a 1% general partnership interest in the Seller, is owned by
Investors General Acquisition Corporation ("IGAC"). John A. Doyle, Director and
Chief Financial Officer of the Company until September 1996, is a 62.5%
stockholder of IGAC. Mr. Doyle also served as Director and President and was 50%
owner of TRA until September 1996. TRA is currently owned by William S. Friedman
and Lucy N. Friedman, his wife. Mr. Friedman serves as President, Chief
Executive Officer, and Director of the Company and Director and Chief Executive
Officer of TRA. The Friedman family owns approximately 30% of the outstanding
common stock of the Company. The purchase price of the property was based on its
fair market value, and the entire transaction was approved by a majority of the
limited partners of the Seller as well as the unaffiliated Directors of the
Company. IGI and Messrs. Friedman and Doyle abstained in the votes. Because the
property was acquired from an affiliate, in accordance with the advisory
agreement between the Company and TRA, no acquisition fee was paid to TRA in
connection with this transaction.



                                       31
<PAGE>   32

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

NOTE 2.  REAL ESTATE AND DEPRECIATION (Continued)

In August 1994, the Company entered into a contract for a tax-free exchange of
Westover Valley Apartments in Fort Worth, Texas, for Riverside Apartments
("Riverside"), a 145-unit property in Austin, Texas. In August 1995, the
exchange was completed. In connection with the exchange closing, the Company
assumed the $2.9 million note payable secured by a first lien mortgage on
Riverside. The Company recognized no gain or loss on the exchange. Between
August 1994 and August 1995, the Company leased Riverside under an operating
lease for $40,000 per month.

In August 1995, the Company and the borrower agreed to a settlement of the $2
million note receivable secured by a second lien mortgage on Polynesia Village
Apartments ("Polynesia"), a 448-unit apartment complex located in Tacoma,
Washington, which was subject to $5.8 million senior underlying debt. In
accordance with the terms of the agreement, the Company paid the borrower
$175,000 and gained control of the property. In August 1995, the Company
recorded an in-substance foreclosure of Polynesia. As the estimated fair value
of the property exceeded the Company's recorded investment in the mortgage note,
a $1 million previously established allowance for estimated loss was reversed
with a corresponding credit to provision for losses in August 1995.

In October 1996, the Company sold Polynesia for $9.6 million. The Company
accepted a note receivable of $325,000 from the purchaser for a portion of the
purchase price, and the purchaser agreed to reimburse the Company for certain
capital improvements to the property totaling approximately $99,000. Through
prorations at closing, the note balance was reduced to $192,000. The note bears
interest at 12% per annum, matures in October 2000, and is secured by a .001%
interest in the partnership which acquired the property. Once the note balance
is paid in full, the Company's interest in the partnership terminates. The note
receivable balance is included in "Other assets" in the accompanying
Consolidated Balance Sheets. The Company received net cash proceeds of $3
million, including earnest money deposits received prior to closing, after the
payoff of the first mortgage loan, closing costs and prorated property taxes,
and a selling commission to the purchaser's real estate broker. In connection
with this disposition, the Company paid TRA a brokerage commission of 2% of the
total sales consideration, or $194,000. The Company recorded a gain on this sale
of $844,000.

In September 1995, the Company ceased payments on the mortgage debt secured by
the Villas at Central Park Apartments, a 288-unit complex located in Orlando,
Florida, as the Company determined that further investment in the property could
not be justified without substantial modification of the debt, consisting of a
$2.4 million first lien and a $3 million second lien. In January 1996, the
property was sold to a third party for $5.3 million. Pursuant to the sale
contract, the second lien holder agreed to discount the mortgage debt assumed by
the purchaser. In connection with the sale, the Company recorded an
extraordinary gain of $253,000 due to the debt forgiveness and a loss on the
sale of $171,000 equal to the amount by which the carrying value plus the costs
to sell the property exceeded the sale price.

Results of operations for real estate held for sale for the year ended December
31, 1997, the month ended December 31, 1996, and the years ended November 30,
1996 and 1995, were $129,000, $(35,000),$(130,000), and $(74,000), respectively.
Operations for these properties (One Turtle Creek Office Complex and Cochonour)
include rental revenue, property operating expenses, interest expense, and,
prior to December 1, 1995, depreciation expense. For more information about
these properties, See Schedule III.

The Company's aggregate net basis in its real estate for federal income tax
purposes exceeded its net basis for GAAP purposes by $1.7 million and $6.5
million, at December 31, 1997, and November 30, 1996, respectively.

NOTE 3.  ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS FOR LOSSES

There has been no activity in the allowance for estimated losses since November
30, 1995.

In August 1995, the Company reversed a $1 million previously established
allowance for loss related to Polynesia. See NOTE 2. "REAL ESTATE AND
DEPRECIATION."

The Company also concluded at August 31, 1995, that the remaining $802,000
balance in the allowance for estimated losses was no longer required against
certain notes receivable. However, the Company ascertained that a $241,000
allowance against the carrying value of Cochonour was necessary to reduce its
net carrying value to its estimated fair value. As a result, a reversal of
$561,000 of the allowance for estimated losses was recorded in August 1995 as a
credit to current earnings.





                                       32
<PAGE>   33

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

NOTE 3.  ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS FOR LOSSES (Continued)

In August 1995, the Company determined a permanent impairment in value existed
on the Villas at Central Park Apartments and recorded a direct write-down of
$1.4 million reducing the property carrying value to its then estimated fair
value. This property was sold in January 1996. See NOTE 2. "REAL ESTATE AND
DEPRECIATION."

NOTE 4.  INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

Investments in and advances to partnerships consist of the following:

<TABLE>
<CAPTION>
                                                         Dec 31         Nov 30
                                                          1997           1996
                                                       ----------     ----------
<S>                                                    <C>            <C>
 18607 Ventura Associates ("Ventura") ............     $       --     $      572
 Kearny Wrap LLC ("Kearny") ......................            441            395
 Larchmont Associates L.P. ("Larchmont") .........          1,170            398
 National Omni Associates, L.P. ("Omni") .........            380             --
                                                       ----------     ----------
                                                       $    1,991     $    1,365
                                                       ==========     ==========
</TABLE>

In December 1995, the Company acquired a 20% general partner and an effective
37% limited partner interest in Larchmont for a cash investment of $418,000.
Larchmont owns Larchmont West Apartments ("Larchmont West"), a 504-unit complex
in Toledo, Ohio, which collateralizes nonrecourse mortgage debt of $5.3 million.
During the thirteen months ended December 31, 1997, the Company advanced
$846,000 to Larchmont primarily to fund capital improvements to Larchmont West.

In consideration of a $395,000 cash capital contribution, in June 1996, the
Company acquired an effective 25% nonmanaging member interest in Kearny, which
owned a $20.9 million wraparound mortgage loan secured by a 1 million square
foot distribution facility net leased to the United States Postal Service
located in Kearny, New Jersey. The note bears interest at 6% per annum and
matures in 2013. The $16 million underlying first mortgage loan bears interest
at 6% per annum and matures in 1998. In January 1998, Kearny sold the wraparound
mortgage. For a discussion of the disposition, see NOTE 17. "SUBSEQUENT EVENTS."

Advances to partnerships included in the accompanying December 31, 1997,
Consolidated Balance Sheet include $380,000 the Company advanced in December
1997 to Omni in exchange for a 25% interest in this partnership. Subsequent to
year end, the Company advanced an additional $1 million to this partnership,
which purchased 5600 Collins Avenue in Miami Beach, Florida. See NOTE 17
"SUBSEQUENT EVENTS." As the Company holds a noncontrolling interest in Omni, its
investment in this partnership is accounted for using the equity method.

Advances to partnerships included in the accompanying November 30, 1996,
Consolidated Balance Sheet represent $572,000 the Company advanced in September
and October 1996 to Ventura, which purchased Tarzana Towne Plaza ("Tarzana"), a
37,208 square foot combination office/retail/medical building located in
Tarzana, California, in October 1996. In December 1996, the Company converted
its advances to a 1% general partner interest and a 59% limited partner interest
in Ventura. In accordance with the partnership agreement, the Company's advances
plus interest at 15% per annum are to be repaid in full before any distributions
are to be paid to the partners. As the Company holds a controlling interest in
Ventura, the operations of Tarzana have been consolidated. See NOTE 2. "REAL
ESTATE AND DEPRECIATION."



                                       33
<PAGE>   34

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

NOTE 4.  INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)

Set forth below are summarized financial data for Larchmont and Kearny
(unaudited):

LARCHMONT ASSOCIATES, L.P.

<TABLE>
<CAPTION>
                                                           Dec 31,       Nov 30,
                                                           -------      -------
                                                             1997         1996
                                                           -------      -------
<S>                                                        <C>          <C>
 Real estate (net of accumulated depreciation of
   $288 in 1997 and $107 in 1996) ....................     $ 7,080      $ 6,334
 Other assets ........................................         389          573
 Note payable ........................................      (5,309)      (5,391)
 Due to partners .....................................      (1,491)        (645)
 Other liabilities ...................................        (196)        (213)
                                                           -------      -------
 Partners' capital ...................................     $   473      $   658
                                                           =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                        Year Ended    Month Ended     Year Ended
                                         Dec 31,        Dec 31,        Nov 30,
                                        ---------      ---------      ---------
                                          1997           1996           1996
                                        ---------      ---------      ---------
<S>                                     <C>            <C>            <C>
Rental revenue ....................     $   1,818      $     149      $   1,652
Property operating expenses .......        (1,331)          (128)        (1,200)
Interest expense ..................          (476)           (36)          (365)
Depreciation expense ..............          (171)           (10)          (107)
                                        ---------      ---------      ---------
Net (loss) ........................     $    (160)     $     (25)     $     (20)
                                        =========      =========      =========
</TABLE>

KEARNY WRAP LLC

<TABLE>
<CAPTION>
                                                                      Dec 31,       Nov 30,
                                                                     --------      --------
                                                                       1997          1996
                                                                     --------      --------
<S>                                                                  <C>           <C>
Note receivable (net of discount of $3,203 in 1997 and 1996) ...     $ 17,702      $ 18,496
Other assets ...................................................           70            64
Note payable ...................................................      (15,976)      (16,880)
                                                                     --------      --------
Members' capital ...............................................     $  1,796      $  1,680
                                                                     ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                        Year Ended     Month Ended   Year Ended
                                         Dec 31,        Dec 31,        Nov 30,
                                        ---------      ---------      ---------
                                          1997           1996           1996
                                        ---------      ---------      ---------
<S>                                     <C>            <C>            <C>
Interest income ...................     $   1,280      $     108      $     547
Interest expense ..................          (986)           (84)          (437)
Other expense .....................           (25)            (1)            (9)
                                        ---------      ---------      ---------
Net income ........................     $     269      $      23      $     101
                                        =========      =========      =========
</TABLE>




                                       34
<PAGE>   35
                       TARRAGON REALTY INVESTORS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5.  NOTES, DEBENTURES, AND INTEREST PAYABLE

Notes, debentures, and interest payable consisted of the following:

<TABLE>
<CAPTION>
                                   December 31,               November 30,
                             -----------------------     -----------------------
                                       1997                       1996
                             -----------------------     -----------------------
                             Estimated                   Estimated
                               Fair         Book           Fair          Book
                              Value         Value          Value         Value
                             ---------     ---------     ---------     ---------
<S>                          <C>           <C>           <C>           <C>
Notes payable ..........     $  27,256     $  25,319     $  16,975     $  16,450
Debentures .............           886           928           869           928
                             ---------     ---------     ---------     ---------
                             $  28,142        26,247     $  17,844        17,378
                             =========                   =========
Interest payable .......                         169                         138
                                           ---------                   ---------
                                           $  26,416                   $  17,516
                                           =========                   =========
</TABLE>

At December 31, 1997, notes payable bear interest at rates ranging from 7.16% to
9.81% per annum and mature between 1999 and 2007. These notes are generally
nonrecourse and are primarily collateralized by deeds of trust on real estate
with an aggregate net carrying value of $28.4 million. Debentures bear interest
at 9% per annum, mature June 30, 2003, and are redeemable by the Company at any
time at 100% of the principal amount together with accrued but unpaid interest.
Interest is payable semiannually in June and December. See NOTE 7.
"DISTRIBUTIONS TO STOCKHOLDERS."

During the years ended November 30, 1995, and December 31, 1997, the Company
obtained long term first mortgage financing on five properties totaling $13.3
million, receiving net cash proceeds of $5.9 million after the payoff of $6.2
million in existing debt. The remainder of the financing proceeds was used to
fund escrows for property taxes, insurance, replacements, and repairs and to pay
the associated closing costs. In connection with these financings the Company
paid refinancing fees totaling $132,860 to TRA.

At December 31, 1997, scheduled principal payments on notes and debentures
payable are due as follows:

<TABLE>
<S>              <C>                                                  <C>
                 1998........................................         $     493
                 1999........................................             2,533
                 2000........................................             2,393
                 2001........................................               583
                 2002........................................             1,852
                 Thereafter..................................            18,393
                                                                      ---------
                                                                      $  26,247
                                                                      =========
</TABLE>





                                       35
<PAGE>   36
                         TARRAGON REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6.   SHARE REPURCHASES

Following the December 1, 1995, one-for-five reverse share split, the Company
offered to purchase all shares of each shareholder holding 99 or fewer shares
either of record or beneficially on December 1, 1995. Under such offer (the
"Odd-Lot Offer"), the Company agreed to purchase all shares duly tendered prior
to February 29, 1996, at a price equal to the next closing price of the shares
on the day the Company received the tendered shares. Additionally, in December
1995, the Board of Trustees authorized the Company to repurchase up to 139,200
shares in open market and negotiated transactions.

During fiscal 1996, the Company repurchased 47,430 shares, which included 43,696
shares related to the Odd-Lot Offer, 323 shares representing fractional shares
related to the December 1995 reverse share split, and 3,411 shares in open
market transactions, at a total cost of $240,000. During 1997, the Company
repurchased 26,764 shares in open market transactions at a total cost of
$245,000.

NOTE 7.  DISTRIBUTIONS TO STOCKHOLDERS

In October 1993, the Company paid to shareholders of record on September 15,
1993, a taxable dividend of $1.25 per share, totaling $1.5 million and equal to
the Company's 1992 taxable income, in the form of either 9% Series A Convertible
Subordinated Debentures ("Debentures") or Uncertificated Convertible
Subordinated Obligations ("Obligations"). On December 30, 1994, the Company
redeemed all the outstanding Obligations. At December 31, 1997, the outstanding
principal balance of the Debentures totaled $928,000. See NOTE 5. "NOTES,
DEBENTURES, AND INTEREST PAYABLE."

The Company declared a cash dividend of $.10 per share to stockholders of record
on December 26, 1997, payable to stockholders in January 1998. No dividends were
declared or paid in fiscal 1995 or 1996.

NOTE 8.  EARNINGS PER SHARE

Following is a reconciliation of the weighted average shares of common stock
outstanding used in the computation of earnings per share and earnings per share
- assuming dilution.

<TABLE>
<CAPTION>
                                                Year Ended            Month Ended
                                                December 31,          December 31,            For the Years Ended November 30,
                                                ------------          ------------            --------------------------------
                                                   1997                  1996                    1996                  1995
                                                ----------            ----------              ----------             ---------
<S>                                              <C>                   <C>                     <C>                   <C>
Weighted average shares of
   common stock outstanding.............         1,331,314             1,344,576               1,354,415             1,392,006

Stock options...........................            12,269                 5,546                   2,105                   -
                                                 ---------             ---------               ---------             ---------

Weighted average shares of
   common stock outstanding -
   assuming dilution....................         1,343,583             1,350,122               1,356,520             1,392,006
                                                 =========             =========               =========             =========
</TABLE>

The stock options outstanding at November 30, 1995, are not reflected in the
calculation of weighted average shares of common stock outstanding - assuming
dilution for the year ended November 30, 1995, because their effect was
anti-dilutive.



                                       36
<PAGE>   37

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

NOTE 9.  STOCK OPTIONS

In November 1995, the Company's stockholders approved two stock option plans:
the Independent Director Stock Option Plan (the "Director Plan") and the Share
Option and Incentive Plan (the "Incentive Plan"). Options granted pursuant to
the Director Plan are immediately exercisable and expire on the earlier of the
first anniversary of the date on which a Director ceases to be a Director of the
Company or ten years from the date of grant. For each year an Independent
Director continues to serve as a Director, he will be awarded an option to
purchase 300 shares of common stock on December 1 of each year. The Director
Plan provides for options covering a total of 60,000 shares.

Under the Incentive Plan, options have been granted to certain Company officers,
key employees of TRA and Tarragon Management, Inc., ("TMI") a wholly-owned
subsidiary of TRA, and a third party consultant to the Company. The Incentive
Plan provides for options covering a total of 100,000 shares, and all grants are
determined by the Option Committee, which is presently comprised of two
Directors, Mr. Friedman and Mr. Michael E. Smith. Options granted pursuant to
the Incentive Plan are exercisable beginning one year after the date of grant
and expire five years from the date of grant.

The following table summarizes stock option activity:

<TABLE>
<CAPTION>
                                                                       Outstanding                        Exercisable
                                                             ---------------------------------  --------------------------------
                                            Option Price                      Weighted Average                  Weighted Average
                                             per Share           Options       Exercise Price     Options        Exercise Price
                                           --------------    --------------   ----------------  --------------  ----------------
<S>                                           <C>                <C>               <C>             <C>              <C>
November 30, 1994, balance .............    $   --                  --          $   --               --          $   --
Options granted ........................      5 5/8              1,800             5.63            1,800            5.63
                                            -------------       ------          -------           ------         -------
November 30, 1995, balance .............      5 5/8              1,800             5.63            1,800            5.63
Options granted ........................      5 - 5 5/8         27,300             5.08           19,300            5.03
Options forfeited ......................      5                 (8,000)            5.00             --               --
                                            -------------       ------          -------           ------         -------
November 30, 1996, balance .............      5 - 5 5/8         21,100             5.16           21,100            5.08
Options granted ........................      7                  6,900             7.00            6,900            7.00
                                            -------------       ------          -------           ------         -------
December 31, 1996, balance .............      5 - 7             28,000             5.61           28,000            5.55
Options granted ........................      7 - 10 1/16       35,300             9.12              900           10.06
Options forfeited ......................     10                   (600)           10.00             --               --
                                            -------------       ------          -------           ------         -------
December 31, 1997, balance .............    $ 5 - 10 1/16       62,700          $  7.54           28,900         $  5.69
                                            =============       ======          =======           ======         =======
</TABLE>

The Company applies APB No. 25 and related Interpretations in accounting for
stock options granted pursuant to its plans. All stock options issued to date by
the Company have exercise prices equal to the market price of the stock at the
dates of grant. Accordingly, no compensation cost has been recognized for its
stock option plans. Had compensation cost for the Company's two stock option
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:




                                      37
<PAGE>   38
                         TARRAGON REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE  9.  STOCK OPTIONS (Continued)

<TABLE>
<CAPTION>
                                                                 For the Years Ended
                                               -------------------------------------------------------
                                                   December 31, 1997             November 30, 1996
                                               -------------------------     -------------------------
                                               As Reported    Pro Forma      As Reported    Pro Forma
                                               ----------     ----------     ----------     ----------
<S>                                            <C>            <C>            <C>            <C>
Net income ...............................     $      296     $      245     $      853     $      807

Earnings per share - basic and diluted
Net income ...............................     $      .22     $      .18     $      .63     $      .60
</TABLE>


The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                              For the Years Ended
                                                       --------------------------------------
                                                       December 31,              November 30,
                                                       ------------              ------------
                                                          1997                       1996
                                                       ------------              ------------
<S>                                                         <C>                        <C>
 Dividend yield.....................................         --                         --
 Expected volatility................................         32%                        77%
 Risk-free interest rate............................        6.2%                       5.4%
 Expected lives (in years)..........................          3                          3
 Forfeitures........................................         10%                        10%
</TABLE>

The weighted average fair value per share of options granted during the year
ended December 31, 1997, the month ended December 31, 1996, and the year ended
November 30, 1996, was $2.68, $2.06, and $2.68, respectively. At both December
31, 1997, and November 30, 1996, the weighted average remaining contractual
life of the options then outstanding was 4.3 years.

In January 1998, the Company granted options covering 6,200 shares, all of which
are exercisable on January 1, 1999, pursuant to the Incentive Plan. Also, an
additional 15,400 of the December 31, 1997, outstanding options became
exercisable in January and March 1998.

NOTE 10.  INCOME TAXES

At November 30, 1993, the Company recognized an aggregate deferred tax benefit
of $600,000 due to tax deductions available to it in future years. However, due
to, among other factors, the Company's inconsistent earnings history, the
Company was unable to conclude that the future realization of the deferred tax
benefit, which requires the generation of taxable income, was more likely than
not. Accordingly, a valuation allowance for the entire amount of the deferred
tax benefit has been recorded.

For the 1997, 1996, and 1995 tax years, the Company has elected and, in the
opinion of the Company's management, qualified to be taxed as a Real Estate
Investment Trust ("REIT"), as defined in Sections 856 through 860 of the Code,
and, as such, will not be taxed for federal income tax purposes on that portion
of its taxable income which is distributed to stockholders, provided that at
least 95% of its REIT taxable income is distributed. See NOTE 7. "DISTRIBUTIONS
TO STOCKHOLDERS."





                                       38
<PAGE>   39

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

NOTE 10.  INCOME TAXES (Continued)

No provision has been made for federal income taxes because the Company believes
it has qualified as a REIT and expects that it will continue to do so. The
conversion to a corporation and the change in fiscal year end described in NOTE
1. "SIGNIFICANT ACCOUNTING POLICIES" had no effect on the Company's status as a
REIT. Although the Company's 1997 fiscal year ended December 31, 1997, for
federal income tax purposes, its 1997 fiscal year ended November 30, 1997.
Therefore, the cash dividend declared in December 1997 had no effect on the
Company's 1997 tax year.

NOTE 11.  RENTALS UNDER OPERATING LEASES

The Company's rental operations include the leasing of four commercial
properties subject to leases with terms greater than one year. The leases
thereon expire at various dates through 2013. The following is a schedule of
future minimum rentals on non-cancelable operating leases as of December 31,
1997:

<TABLE>
<S>              <C>                                                  <C>
                 1998........................................         $      2,333
                 1999........................................                1,777
                 2000........................................                1,268
                 2001........................................                  967
                 2002........................................                  357
                 Thereafter..................................                  802
                                                                      ------------
                                                                      $      7,504
                                                                      ============
</TABLE>

NOTE 12.  ADVISORY AGREEMENT

Although the Board is directly responsible for managing the affairs of the
Company and for setting the policies which guide it, the day-to-day operations
of the Company are performed by an advisory firm which operates under the
supervision of the Board pursuant to a written advisory agreement approved by
stockholders. The duties of the advisor include, among other things, locating,
investigating, evaluating, and recommending real estate investment and sale
opportunities and financing and refinancing sources for the Company. The advisor
also serves as a consultant in connection with the business plan and investment
policy decisions made by the Board.

Since March 1, 1994, TRA has provided advisory services to the Company pursuant
to an advisory agreement approved by the Board and ratified by the stockholders
on November 20, 1995. William S. Friedman, President, Chief Executive Officer,
and Director of the Company, serves as a Director and Chief Executive Officer of
TRA. TRA is owned by Mr. Friedman and Lucy N. Friedman, his wife. The Friedman
family owns approximately 30% of the outstanding common stock of the Company.

Under the Company's initial advisory agreement, the Company paid TRA an annual
base advisory fee of $50,000 plus an incentive advisory fee equal to 16% of the
Company's adjusted funds from operations before deduction of the advisory fee.
Adjusted funds from operations is defined as funds from operations ("FFO"), as
defined by the National Association of Real Estate Investment Trusts, plus any
loss due to the write-down or sale of any real property or mortgage loan
acquired prior to January 1, 1989. FFO represents net income (loss), computed in
accordance with GAAP, excluding gains (or losses) from the sales of properties
and debt restructurings, plus depreciation and amortization of real estate
assets, and after adjustments for unconsolidated partnerships and joint
ventures. Additionally, TRA could receive commissions of 1% based upon (i)
acquisition cost of real estate, (ii) mortgage loans acquired, and (iii)
mortgage loans obtained or refinanced and a 10% incentive sales commission based
on gains from the sale of real estate.



                                       39
<PAGE>   40

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

NOTE 12.  ADVISORY AGREEMENT (Continued)

At the March 1995 Board meeting, the Directors approved a revised advisory
agreement, effective April 1, 1995, which was approved by the stockholders at
the November 20, 1995, annual stockholder meeting. In addition to technical
changes designed to clarify the responsibilities and rights of TRA, the new
agreement eliminated the $50,000 annual base fee, the incentive sales
compensation, and mortgage loan acquisition commissions. Moreover, it provides
that real estate brokerage commissions shall be payable to TRA and its
affiliates only following specific Board approval for each transaction rather
than as a general practice. The renewal of the advisory agreement between the
Company and TRA was approved by stockholders on July 10, 1997.

Employees of TRA render services to the Company, as the Company has no
employees. In accordance with the terms of the advisory agreement, certain
services provided by the advisor, including, but not limited to, accounting,
legal, investor relations, data processing, and the related departmental
overhead, are reimbursed directly by the Company.

Under the advisory agreement, all or a portion of the advisory fee must be
refunded by the advisor to the Company if the Operating Expenses, as defined,
exceed certain limits based on the book value, net asset value, and net income
of the Company during such fiscal year. The operating expenses of the Company
did not exceed such limitation in 1995, 1996, or 1997. In 1993, the operating
expense limitation required the Company's prior advisor to refund $146,000 of
the 1993 advisory fee. In August 1994, the Company accepted a promissory note
for the outstanding balance of 1993 advisory fees. This unsecured note accrued
interest at 12% per annum, called for monthly payments of $10,000, and all
outstanding principal and interest was paid in full on October 1, 1995.

For additional information on compensation paid to the advisor, see ITEM 10.
"DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT - The Advisor."

NOTE 13.  PROPERTY MANAGEMENT

Since March 1, 1994, TRA has provided property management services to the
Company for a fee of 4.5% of the monthly gross rents collected. Until April
1996, TRA subcontracted with other entities for the provision of the
property-level management services for the Company. TMI currently provides
property-level management services to the Company's multifamily properties for a
fee of 4.5% of the monthly gross rents collected, while the property-level
management services are provided by third party subcontractors for the Company's
commercial properties.







                     [This space intentionally left blank.]


                                       40
<PAGE>   41

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

NOTE 14.  ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.

Fees and expense reimbursements to TRA and affiliates were as follows:

<TABLE>
<CAPTION>
                             Year Ended   Month Ended
                            December 31,  December 31,  Years Ended November 30,
                            ------------  ------------  ------------------------
                               1997          1996          1996          1995
                            ----------    ----------    ----------     ---------
<S>                          <C>           <C>           <C>           <C>
Fees

   Advisory                  $     232     $      13     $     181     $     146
   Acquisition                      56            22            43            --
   Real estate brokerage            --            --           194            --
   Equity refinancing               80            --            --            53
   Property management*            339            26           235            83
                             ---------     ---------     ---------     ---------
                             $     707     $      61     $     653     $     282
                             =========     =========     =========     =========

Expense reimbursements       $     236     $      32     $     232     $     165
                             =========     =========     =========     =========
</TABLE>

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

*Net of property management fees paid to third party subcontractors.

NOTE 15.  COMMITMENTS AND CONTINGENCIES

The Company is a party to various claims and routine litigation arising in the
ordinary course of business. Management of the Company does not believe that the
results of such claims and litigation, individually or in the aggregate, will
have a material adverse effect on its business, financial position, or results
of operations.

NOTE 16.  PRO FORMA CONDENSED FINANCIAL INFORMATION  (Unaudited)

As more fully described in NOTE 2. "REAL ESTATE AND DEPRECIATION," the Company
purchased six properties between December 1, 1994, and December 31, 1997.
Following is supplemental pro forma operating data related to certain of these
acquisitions, as summarized below:

<TABLE>
<CAPTION>
                                               Number     Square         Date
          Property          Location          of Units   Footage       Acquired
         -----------      ---------------     --------   -------     ------------
<S>                       <C>                 <C>        <C>         <C>
         Collegewood      Tallahassee, FL       162       83,700     May 1995
         Holly House      North Miami, FL        57       45,417     April 1996
         Mission Trace    Tallahassee, FL        96      104,400     May 1996
         Park 20 West     Tallahassee, FL        --       69,066     August 1997
</TABLE>

The following unaudited supplemental pro forma operating data is presented as if
each of the above acquisitions had been consummated as of the beginning of the
year prior to the year in which it occurred.

The pro forma operating results combine the Company's historical operating
results with the historical incremental rental revenue and operating expenses
associated with the acquired properties and pro forma adjustments. Pro forma
adjustments primarily represent the increase in interest costs assuming the
borrowings to finance property acquisitions had occurred at the beginning of the
year prior to the year in which they occurred.




                                       41
<PAGE>   42

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

NOTE 16.  PRO FORMA CONDENSED FINANCIAL INFORMATION  (Unaudited) (Continued)

These pro forma amounts are not necessarily indicative of what the actual
results of operations of the Company would have been assuming the above
acquisitions had been consummated as of the beginning of the year prior to the
year in which they occurred, nor do they purport to represent the future results
of operations of the Company.

<TABLE>
<CAPTION>
                                                                    For the Years Ended
                                                          ---------------------------------------
                                                          Dec 31,             November 30,
                                                          --------      -------------------------
                                                            1997           1996           1995
                                                          --------      ---------       ---------
<S>                                                       <C>           <C>             <C>
         Total revenue.................................   $ 10,374      $  10,653       $   9,688
         Income from continuing operations.............        410            764             138
         Net income....................................        410          1,017             138

         Earnings per share - basic and diluted
         Net income....................................   $    .31      $     .75       $     .10
</TABLE>

NOTE 17.  SUBSEQUENT EVENTS

In December 1997, the Company advanced $380,000 to Omni in exchange for a 25%
interest in this partnership. See NOTE 4. "INVESTMENTS IN AND ADVANCES TO
PARTNERSHIPS." Subsequent to year end, the Company advanced an additional $1
million, and Omni purchased 5600 Collins Avenue, a 289-unit, high rise apartment
building in Miami Beach, Florida, for $31 million in February 1998. $26 million
of the purchase price was financed through first and second lien mortgages.
Omni paid a brokerage commission of $100,000 to Highland Funding Corp., for
which Chester Beck, a Director of the Company, serves as President, for
consulting services provided in connection with this acquisition.  Omni also
paid TRA an acquisition fee of $150,000 in connection with this acquisition.

In January 1998, Kearny closed on the disposition of the wraparound mortgage
secured by a 1 million square foot distribution facility net leased to the
United States Postal Service located in Kearny, New Jersey. The gross sale
price was $3.4 million, and the Company received $705,000 representing its
proportionate share of the net sale proceeds. In connection with the
disposition, the Company will recognize a gain of approximately $264,000.

On February 19, 1998, the Company and National Income Realty Trust ("NIRT")
jointly announced the agreement of their respective boards to form a single
consolidated entity with the Company, for convenience, as the survivor. The
surviving consolidated entity is intended to operate as a self-administered
REIT. The consolidation transaction will be submitted to shareholders of each of
the Company and NIRT for approval at special meetings to be held during 1998.
Under the proposed agreement, each shareholder of NIRT will receive 1.97 shares
of the Company's common stock for each share of beneficial interest of NIRT
held. NIRT, also a REIT, has a similar opportunistic approach to real estate
investment and had total consolidated assets of approximately $266 million as of
December 31, 1997. Upon the approval and consummation of the consolidation
transaction by the respective shareholders of each entity, the Company will
acquire TRA, the Company's advisor since March 1, 1994, and NIRT's advisor since
April 1, 1994, for 100,000 shares of the Company's common stock and options to
acquire additional shares of the Company's common stock at prices ranging
between $13 and $16 per share. The resulting consolidated entity with the
Company as the survivor will emerge from these transactions as an integrated,
self-administered, self-managed REIT controlling approximately 14,000 apartment
units and 2.1 million square feet of retail and office space, primarily in
California, Florida, and Texas.  The consolidation transaction will be accounted
for as a reverse acquisition of the Company by NIRT.




                                       42
<PAGE>   43


                                                                    SCHEDULE III

                         TARRAGON REALTY INVESTORS, INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31,1997
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      COSTS CAPITALIZED
                                                          INITIAL COST                  SUBSEQUENT TO
                                                  -----------------------------         ACQUISITION
                                                                  BUILDINGS AND   ----------------------------
DESCRIPTION                       ENCUMBRANCES        LAND        IMPROVEMENTS    IMPROVEMENTS       OTHER
----------------                  ------------    ------------    -------------   ------------    ------------
<S>                               <C>             <C>             <C>             <C>             <C>
PROPERTIES HELD FOR INVESTMENT
Apartments
Aspentree Apartments              $      3,881    $        666    $      3,445    $      1,122    $         --
  Dallas, TX
The Brooks                               1,306             443           1,797             273              --
  Addison, TX
Collegewood Apartments                   2,042             500           1,996             206              --
  Tallahassee, FL
French Villa Apartments                  1,901             126           1,022             194              --
  Tulsa, OK
Holly House Apartments                      --             295           1,182             463              --
  North Miami, FL
Mission Trace Apartments                 2,237             574           2,294              71              --
  Tallahassee, FL
Phoenix Apartments                          --             464           1,873           1,315            (719)(1)
  Tulsa, OK
Riverside Apartments                     4,200             723           2,894              71              --
  Austin, Texas
Southern Elms Apartments                 1,327              61             816             106              --
  Tulsa, OK

Commercial
Briarwest Shopping Center                1,698             269           1,077             194              --
  Houston, TX
Park 20 West Office Park                 1,926             706           2,830              --              --
  Tallahassee, FL
Tarzana Towne Plaza                      2,947             684           2,737              11              --
  Tarzana, CA
                                  ------------    ------------    ------------    ------------    ------------
                                        23,465           5,511          23,963           4,026            (719)

PROPERTIES HELD FOR SALE
One Turtle Creek                         1,854             548           2,261           2,753              --
  Office Complex
  Dallas, TX
Cochonour Farm/Residence                    --             150              91              --              --
  Carroll County, MO              ------------    ------------    ------------    ------------    ------------


                                         1,854             698           2,352           2,753              --
                                  ------------    ------------    ------------    ------------    ------------
Total                             $     25,319    $      6,209    $     26,315    $      6,779    $       (719)
                                  ============    ============    ============    ============    ============
<CAPTION>

                                                                                                                      LIFE ON WHICH
                                            GROSS CARRYING AMOUNTS                                                     DEPRECIATION
                                               AT END OF YEAR                                                           IN LATEST
                                --------------------------------------------                                            STATEMENT
                                                BUILDINGS AND                   ACCUMULATED    DATE OF       DATE     OF OPERATIONS
DESCRIPTION                         LAND        IMPROVEMENTS       TOTAL        DEPRECIATION CONSTRUCTION  ACQUIRED    IS COMPUTED
------------------              ------------    ------------    ------------    ------------ ------------  ---------- ------------
<S>                             <C>             <C>             <C>             <C>             <C>          <C>        <C>
PROPERTIES HELD FOR INVESTMENT
Apartments
Aspentree Apartments            $        666    $      4,567    $      5,233    $      1,939         1974    01/01/88   5-40 years
  Dallas, TX
The Brooks                               443           2,070           2,513              45    1969-1973    01/31/97   5-40 years
  Addison, TX
Collegewood Apartments                   500           2,202           2,702             163    1967-1973    05/01/95   5-40 years
  Tallahassee, FL
French Villa Apartments                  126           1,216           1,342             372         1971    11/17/88   5-40 years
  Tulsa, OK
Holly House Apartments                   295           1,645           1,940              52         1968    04/01/96   5-40 years
  North Miami, FL
Mission Trace Apartments                 574           2,365           2,939             103         1989    05/01/96   5-40 years
  Tallahassee, FL
Phoenix Apartments                       464           2,469           2,933           1,371         1971    01/31/86   5-40 years
  Tulsa, OK
Riverside Apartments                     723           2,965           3,688             188         1991    08/18/95   5-40 years
  Austin, Texas
Southern Elms Apartments                  61             922             983             294         1968    11/17/88   5-40 years
  Tulsa, OK

Commercial
Briarwest Shopping Center                269           1,271           1,540             344         1971    11/30/90   5-40 years
  Houston, TX
Park 20 West Office Park                 706           2,830           3,536              29         1972    08/15/97     40 years
  Tallahassee, FL
Tarzana Towne Plaza                      684           2,748           3,432              86         1985    12/01/96   5-40 years
  Tarzana, CA
                                ------------    ------------    ------------    ------------
                                       5,511          27,270          32,781           4,986

PROPERTIES HELD FOR SALE
One Turtle Creek                         548           5,014           5,562           1,484         1969    03/31/92   5-40 years
  Office Complex
  Dallas, TX
Cochonour Farm/Residence                 150              91             241              --         1982    09/30/94           --
  Carroll County, MO            ------------    ------------    ------------    ------------


                                         698           5,105           5,803           1,484
                                ------------    ------------    ------------    ------------
Total                           $      6,209    $     32,375    $     38,584    $      6,470
                                ============    ============    ============    ============

</TABLE>


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

(1)  Write-down of property due to permanent impairment.





                                       43
<PAGE>   44
                                                                    SCHEDULE III
                                                                     (Continued)

                         TARRAGON REALTY INVESTORS, INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION


<TABLE>
<CAPTION>
                                              Year Ended     Month Ended
                                             December 31,    December  31,   Years Ended November 30,
                                             ------------    -----------    ---------------------------
                                                 1997           1996           1996            1995
                                              -----------    -----------    -----------     -----------
                                                               (dollars in thousands)
<S>                                           <C>            <C>            <C>             <C>
Reconciliation of real estate

Beginning balance ........................    $    31,913    $    28,064    $    37,199     $    24,375

  Additions:
    Acquisitions and improvements ........          6,671          3,849          5,208           6,136
    Foreclosures .........................             --             --             --           8,058

  Deductions:
    Write-downs ..........................             --             --             --          (1,370)(1)
    Sales ................................             --             --        (14,343)             --
                                              -----------    -----------    -----------     -----------
Ending balance ...........................    $    38,584    $    31,913    $    28,064     $    37,199
                                              ===========    ===========    ===========     ===========


Reconciliation of accumulated depreciation

Beginning balance ........................    $     5,654    $     5,575    $     5,272     $     4,281

  Additions:
    Depreciation .........................            816             79            914             991

  Deductions:
    Sales ................................             --             --           (611)             --
                                              -----------    -----------    -----------     -----------
Ending balance ...........................    $     6,470    $     5,654    $     5,575     $     5,272
                                              ===========    ===========    ===========     ===========
</TABLE>


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

(1) Write-down of Villas at Central Park due to permanent impairment.



                                       44
<PAGE>   45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable.

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

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT

Directors

The affairs of Tarragon Realty Investors, Inc., (the "Company") are managed and
controlled by a Board of Directors (the "Board") presently consisting of four
members. The Directors are elected at the Annual Meeting of Stockholders or
appointed by the incumbent Board and serve until the next Annual Meeting of
Stockholders or until their respective successor has been duly elected.

The Directors of the Company are listed below, together with their ages, terms
of service, all positions and offices with the Company and Tarragon Realty
Advisors, Inc., ("TRA") the Company's advisor since March 1, 1994, their
principal occupations, business experience, and directorships with other
companies during the last five years or more. The designation "Affiliated" when
used below with respect to a Director means that the Director is an officer,
director, or employee of TRA or an officer of the Company. The designation
"Independent" when used below with respect to a Director means that the Director
is neither an officer of the Company nor a director, officer, or employee of
TRA, although the Company may have certain business or professional
relationships with such Director. See ITEM 13. "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - Certain Business Relationships." Also, see ITEM 11.
"EXECUTIVE COMPENSATION" for a discussion of compensation paid to Independent
Directors.

CHESTER BECK:  Age 68, Director  (Independent) (since May 1995).

     President (since March 1995) Highland Funding Corp., a mortgage brokerage
     firm; National Sales Manager (January 1994 to March 1995) Columbia Equities
     Limited, a real estate financing entity; Senior Vice President (April 1992
     to January 1994) Peregrine Mortgage Company, Inc., an FHA approved
     mortgagee specializing in multifamily and health care project financing.

WILLIE K. DAVIS:  Age 66, Director  (Independent) (since October 1988).

     President (1971 to 1985) and Chairman and 50% shareholder (since 1985) of
     Mid-South Financial Corporation, holding company for Mid-South Mortgage
     Company and Gibbs Mortgage Company; Chairman and sole shareholder (since
     December 1985) of FMS, Inc., a property management and real estate
     development firm; Director (since 1987) of Southtrust Bank of Middle
     Tennessee; Director and Treasurer (since 1986) of Baptist Hospital, Inc., a
     Tennessee general welfare not-for-profit corporation; Director (since 1988)
     of Middle Tennessee Medical Center, a Tennessee general welfare
     not-for-profit corporation; Trustee or Director (October 1988 to March
     1995) of Continental Mortgage and Equity Trust ("CMET"), Income Opportunity
     Realty Investors, Inc. ("IORI"), and Transcontinental Realty Investors,
     Inc. ("TCI"); and Trustee (October 1988 to March 1995) of National Income
     Realty Trust ("NIRT").




                                       45
<PAGE>   46

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT
         (Continued)

Directors (Continued)

WILLIAM S. FRIEDMAN:  Age 54, Director (Affiliated).

     Director or Trustee (since March 1988), Chief Executive Officer (since
     December 1993), President (since December 1988), Acting Chief Financial
     Officer (May 1990 to February 1991), Treasurer (August to September 1989),
     and Acting Principal Financial and Accounting Officer (December 1988 to
     August 1989) of the Company and NIRT; Trustee or Director (March 1988 to
     February 1994), Chief Executive Officer (December 1993 to February 1994),
     President (December 1988 to February 1994), Acting Chief Financial Officer
     (May 1990 to February 1991), Treasurer (August to September 1989), and
     Acting Principal Accounting Officer (December 1988 to August 1989) of CMET,
     IORI, and TCI; Director and Chief Executive Officer (since December 1990)
     of TRA; President (February 1989 to March 1993) and Director (February to
     December 1989) of Basic Capital Management, Inc. ("BCM"), the Company's
     advisor from March 1989 to March 1994; General Partner (1987 to March 1994)
     of Syntek Asset Management, L.P. ("SAMLP"), which is the General Partner of
     National Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP");
     Director and President (March 1989 to February 1994) and Secretary (March
     1989 to December 1990) of Syntek Asset Management, Inc. ("SAMI"), the
     Managing General Partner of SAMLP and a corporation owned by BCM;
     practicing Attorney (since 1971) with the Law Offices of William S.
     Friedman.

MICHAEL E. SMITH: Age 55, Director (Independent) (from October 1988 to August
                  1991 and since May 1995).

     Lawyer and Assistant Professor of Law (since August 1995) University of
     Wisconsin, Madison, Wisconsin; President (1988 to January 1995) and
     Director (1978 to May 1994) of the Vera Institute of Justice, a New York
     not-for-profit corporation concerned with the administration of justice;
     Director of Prosecuting Attorney's Research Council, Inc. (since 1987), New
     York Lawyers for the Public Interest (1986-1995), Center for Alternative
     Sentencing and Employment Services, Inc., formerly the Court Employment
     Project, Inc. (since 1978), and New York City Criminal Justice Agency, Inc.
     (since 1978); and Attorney at Law (since 1971).



                     [This space intentionally left blank.]



                                       46
<PAGE>   47
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT
         (Continued)

Litigation and Claims Involving Mr. Friedman Related to Southmark Corporation

Separation of Messrs. Phillips and Friedman from Southmark. Until January 1989,
William S. Friedman was an executive officer and director of Southmark
Corporation ("Southmark"), serving as Vice Chairman of the Board (since 1982),
Director (since 1980), and Secretary (since 1984) of Southmark. As a result of a
deadlock on Southmark's Board of Directors, Mr. Friedman and Gene E. Phillips
(who served as Director of the Company until December 31, 1992) reached a series
of related agreements (later modified) with Southmark on January 17, 1989
(collectively, the "Separation Agreement"), whereby Messrs. Friedman and
Phillips resigned their positions with Southmark and certain of Southmark's
subsidiaries and affiliates. Southmark filed a voluntary petition in bankruptcy
under Chapter 11 of the United States Bankruptcy Code on July 14, 1989.
Subsequent to the filing of the Southmark bankruptcy, several lawsuits were
filed against Southmark, its former officers and directors (including Mr.
Friedman), and others, alleging, among other things, that such persons and
entities misrepresented the financial condition of Southmark. Mr. Friedman
denies all of such allegations. Those lawsuits in which Mr. Friedman was also
involved as a defendant during the last five years are summarized below. The
Company was not a defendant in any of these lawsuits, all of which have been
dismissed or settled.

Mr. Friedman also served as a director of Pacific Standard Life Insurance
Company ("PSL"), a wholly-owned subsidiary of Southmark, from October 1984 to
January 1989. In a proceeding brought by the California Insurance Commissioner
(the "Commissioner"), a California Superior Court appointed a conservator for
PSL on December 11, 1989.

On October 12, 1990, the Commissioner filed suit against the former directors of
PSL (including Mr. Friedman) seeking damages of $12 million and additional
punitive damages. Such lawsuit alleged, among other things, that the defendants
knowingly and willfully conspired among themselves to breach their duties as
directors of PSL to benefit Southmark. Such suit further alleged that PSL's
board of directors failed to convene meetings and delegated to Mr. Phillips
authority to make decisions regarding loans, investments, and other transfers
and exchanges of PSL assets. In August 1993, five former directors of PSL,
including Mr. Friedman, settled this lawsuit without admitting any liability.
Mr. Friedman complied with his obligations under the settlement and was
discharged from any further liability in January 1998.

One of Southmark's principal businesses was real estate syndication, and, from
1981 through 1987, Southmark raised over $500 million in investments from
limited partners in several hundred limited partnerships. Seven lawsuits were
filed by investors alleging breach of fiduciary duties on the part of Mr.
Friedman and others. Two cases were settled in July and October 1993 for nominal
payments. In one case, all claims were dismissed by the Court, and the
defendants (including Mr. Friedman) were awarded sanctions against plaintiff's
counsel. The other four cases were voluntarily dismissed by the plaintiffs
without payment of any kind by the defendants.

San Jacinto Savings Association. On November 30, 1990, San Jacinto Savings
Association ("SJSA"), a savings institution that had been owned by Southmark
since 1983, was placed under conservatorship of the Resolution Trust Corporation
("RTC") by federal banking authorities. The Office of Thrift Supervision ("OTS")
also conducted a formal investigation of SJSA and its affiliates. During late
November 1994, Mr. Friedman entered into certain agreements with the RTC and OTS
settling all claims relating to (i) his involvement with SJSA and (ii) any
guarantor arrangement of Mr. Friedman as to other financial institutions taken
over by the RTC. Mr. Friedman's liability terminated on September 30, 1996, when
the respondents as a group had paid a total of $4 million out of the total
requirement. Mr. Friedman also consented to an order prohibiting him from
participating in an insured depository institution without the prior written
approval of the Director of OTS.



                                       47
<PAGE>   48

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT
         (Continued)

Board Committees

The Board held two meetings and acted by written consent two times during 1997
and held one meeting in December 1996.  For such year, no incumbent Director
attended fewer than 75% of the aggregate of (i) the total number of meetings
held by the Board of Directors and (ii) the total number of meetings held by all
committees of the Board of Directors on which he served during the periods that
he served.

The Board has an Audit Committee, the function of which is to review the
Company's operating and accounting procedures. Mr. Davis, an Independent
Director, is the Chairman of the Audit Committee. Mr. Beck is also a member of
the Audit Committee. The Audit Committee met once during 1997.

The Board also has an Option Committee which is currently comprised of two
Directors, Messrs. Friedman and Smith, which determines grants under the Share
Option and Incentive Plan. The Option Committee acted by written consent three
times during 1997.

The Board of Directors has no other committees.

Executive Officers

William S. Friedman, President and Chief Executive Officer, currently serves as
the only executive officer of the Company. His position with the Company is not
subject to a vote of stockholders. Mr. Friedman's age, term of service, all
positions and offices with the Company and TRA, other principal occupations,
business experience, and directorships with other companies during the last five
years or more are set forth above.

Officers

Although not executive officers of the Company, the following persons currently
serve as officers of the Company. Their positions with the Company are not
subject to a vote of stockholders. Their ages, terms of service, all positions
and offices with the Company and TRA, other principal occupations, business
experience, and directorships with other companies during the last five years
are set forth below:

BRUCE A. SCHNITZ:  Age 48, Chief Operating Officer.

    Chief Operating Officer (since January 1996) of the Company, NIRT, and TRA;
    President (since February 1996) of Tarragon Management, Inc., ("TMI") a
    wholly-owned subsidiary of TRA; President and Chief Executive Officer
    (1993-1994) of McNeil Acquisition Corporation; and President, Chief
    Operating Officer, and Director (1991-1993), McNeil Real Estate Management,
    Inc.

ROBERT C. IRVINE:  Age 48, Executive Vice President and Chief Financial Officer.

    Chief Financial Officer (since September 1996) of the Company, NIRT, TRA,
    and TMI; Executive Vice President and Chief Financial Officer of FYI, Inc.
    (February 1996 to July 1996); Executive Vice President, Secretary,
    Treasurer, Chief Financial Officer, and a director of McNeil Real Estate
    Management, Inc., and a Vice President of McNeil Investors, an affiliated
    entity (1991-1995); and Certified Public Accountant (since 1977).




                                       48
<PAGE>   49

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT
         (Continued)

Officers (Continued)

CHRIS W. CLINTON:  Age 51, Senior Vice President - Asset Management.

     Senior Vice President - Asset Management (since May 1995), and Senior Vice
     President - Commercial Asset Management (March 1994 to April 1995) of the
     Company and NIRT; Senior Vice President (since March 1994) of TRA; Vice
     President (October 1988 to March 1994) of the Company, American Realty
     Trust, Inc. ("ART"), CMET, IORI, NIRT, TCI, and BCM.

WILLIAM L. GRIGSBY:   Age 49,  Senior Vice President - Construction.

     Senior Vice President - Construction (since September 1996) of the Company
     and NIRT; Senior Vice President (since September 1996) of TRA; Director of
     Construction (December 1994 to August 1996) of the Company and NIRT; Area
     Vice President of Property Management, Grapat Group Real Estate Management
     (1993 - 1994); and Registered Landscape Architect since 1979.

PETER LARSEN:  Age 56,  Senior Vice President  - Acquisitions.

     Senior Vice President - Acquisitions (since July 1997) of the Company and
     NIRT, Senior Vice President (since July 1997) of TRA; Vice President -
     Acquisitions (April 1996 to June 1997) of the Company and NIRT; Vice
     President (April 1996 to June 1997) of TRA; Independent Consultant (January
     1995 to June 1996); Vice President (May 1992 to December 1994) of BCM; Vice
     President (May 1992 to December 1994) of Carmel Realty Services, Inc.

TODD C. MINOR:  Age 39, Treasurer.

     Treasurer (since December 1996), Senior Vice President - Mortgage Servicing
     and Financing (May 1995 to November 1996), and Senior Vice President -
     Finance (March 1994 to April 1995 and from July 1993 to January 1994) of
     the Company and NIRT; Senior Vice President (since March 1994) of TRA;
     Senior Vice President - Finance (July 1993 to March 1994) of BCM, ART,
     CMET, IORI, and TCI; Vice President (January 1989 to July 1993) of BCM; and
     Vice President (April 1991 to July 1993) of the Company, ART, CMET, IORI,
     NIRT, and TCI.

NEIL SWINGRUBER: Age 39,  Senior Vice President - Director of Property
                 Management.

    Senior Vice President - Director of Property Management (since June 1997) of
    the Company and NIRT; Executive Vice President (since February 1996) of TMI;
    Vice President of Property Management (1994 to 1995) of Binings; Vice
    President of Property Management (1986 to 1993) of McNeil Real Estate
    Management, Inc.

JANICE CLINE: Age 48, Vice President - Asset Management.

     Vice President - Asset Management of the Company and NIRT (since March
     1997); Vice President of TRA (since March 1997); Asset Manager for MBL Life
     Insurance Company (August 1995 - March 1997); Senior Asset Analyst,
     Structured Finance, for J.E. Robert Companies (January 1995 - July 1995);
     and Senior Investment Administrator, Asset Manager, and Real Estate
     Paralegal for The Travelers Corporation and Travelers Realty Investment
     Company (October 1987 - May 1994).




                                       49
<PAGE>   50

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT
         (Continued)

Officers (Continued)

ERIN D. DAVIS:  Age 36, Vice President and Chief Accounting Officer.

     Vice President and Chief Accounting Officer (since September 1996) of the
     Company, NIRT, and TRA; Accounting Manager of the Company, NIRT, and TRA
     (June 1995 to August 1996); Senior Associate, BDO Seidman (January 1993 to
     June 1995); and Certified Public Accountant (since 1990).

In addition to the foregoing officers, the Company has other officers who are
not listed herein.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Under the securities laws of the United States, the Company's Directors, certain
officers, and any persons holding more than ten percent of the Company's common
stock are required to report their ownership of the Company's shares and any
changes in that ownership to the Securities and Exchange Commission (the
"Commission"). Specific due dates for these reports have been established, and
the Company is required to report any failure to file by these dates during
1997. All of these filing requirements were satisfied during 1997. In making
these statements, the Company has relied on the written representations of its
incumbent Directors and officers, its ten percent holders, and copies of the
reports that they have filed with the Commission.

The Advisor

Although the Board is directly responsible for managing the affairs of the
Company and for setting the policies which guide it, the day-to-day operations
of the Company are performed by an advisory firm which operates under the
supervision of the Board pursuant to a written advisory agreement approved by
shareholders. The duties of the advisor include, among other things, locating,
investigating, evaluating, and recommending real estate investment and sale
opportunities and financing and refinancing sources for the Company. The advisor
also serves as a consultant in connection with the business plan and investment
policy decisions made by the Board.

TRA has provided advisory services to the Company since March 1, 1994. On July
10, 1997, the stockholders approved the renewal of the advisory agreement dated
April 1, 1995, between TRA and the Company. Mr. Friedman serves as a Director
and Chief Executive Officer of TRA. TRA is owned by Mr. Friedman and Lucy N.
Friedman, his wife. The Friedman family owns approximately 30% of the
outstanding shares of the Company.

The advisory agreement provides for an incentive advisory fee equal to 16% of
the Company's adjusted funds from operations before deduction of the advisory
fee. Adjusted funds from operations is defined as funds from operations ("FFO"),
as defined by the National Association of Real Estate Investment Trusts, plus
any loss due to the write-down or sale of any real property or mortgage loan
acquired prior to January 1, 1989. FFO represents net income (loss), computed in
accordance with generally accepted accounting principles, before gains (or
losses) from the sales of properties and debt restructurings plus depreciation
and amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. The incentive fee is cumulative within any
fiscal year to maintain the 16% per annum rate. Between March 1994 and April
1995, the advisory agreement also provided for a $50,000 annual base advisory
fee.

In addition to the advisory fee, the advisory agreement provides for the
following compensation to TRA:




                                       50
<PAGE>   51

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT
         (Continued)

The Advisor  (Continued)

     (a)    TRA is to receive an acquisition commission of 1% of the acquisition
            cost of real estate for supervising the acquisition, purchase, or
            long-term lease of real estate for the Company, except that no fee
            will be paid for any acquisition through or from an affiliate of the
            Company or TRA. The aggregate of each purchase price of each
            property including the acquisition commission and all real estate
            brokerage fees may not exceed such property's appraised value at
            acquisition.

     (b)    For obtaining loans to the Company or refinancing on its properties,
            TRA is to receive a mortgage brokerage and refinancing fee equal to
            the lesser of (i) 1% of the amount of the loan or the amount
            refinanced or (ii) a brokerage or refinancing fee which is
            reasonable and fair under the circumstances; provided, however, that
            no such fee shall be paid on loans from TRA or an affiliate without
            the approval of the Board. No fee shall be paid on loan extensions.

In addition, the advisory agreement provides that real estate brokerage
commissions shall be payable to TRA and its affiliates only following specific
approval by the Board for each transaction rather than as a general practice.

If and to the extent that the Company were to request the advisor or an
affiliate of the advisor to render services for the Company other than those
specifically required by the advisory agreement, such services would be
separately compensated on terms to be agreed upon between such party and the
Company from time to time. The advisor is required to formulate and submit
annually for approval by the Board a budget and business plan for the Company
containing a twelve-month forecast of operations and cash flow, a general plan
for asset sales or acquisitions, borrowing activity, and other investments, and
the advisor is required to report quarterly to the Board on the Company's
performance against the business plan. In addition, all transactions or
investments by the Company shall require prior approval by the Board unless they
are explicitly provided for in the approved business plan or are made pursuant
to authority expressly delegated to the advisor by the Board.

The advisory agreement also requires prior approval of the Board for retention
of all consultants and third party professionals, other than legal counsel. The
agreement provides that the advisor shall be deemed to be in a fiduciary
relationship to the Company's stockholders; contains guidelines for the
advisor's allocation of investment opportunities as among itself, the Company,
and other entities it advises; and contains a broad standard governing the
advisor's liability for losses incurred by the Company. Under the advisory
agreement, neither the advisor nor any of its stockholders, directors,
officers, or employees shall be liable to the Company, the Directors, or the
holders of securities of the Company for any losses from the operations of the
Company if the advisor had determined, in good faith, that the course of conduct
which caused the loss or liability was in the best interests of the Company, and
the loss or liability was not the result of negligence or misconduct by the
advisor.

In no event will the directors, officers, or employees of the advisor be
personally liable for any action unless it was the result of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.

Employees of the advisor render services to the Company, as the Company has no
employees. In accordance with the terms of the advisory agreement, certain
services provided by the advisor including, but not limited to, accounting,
legal, investor relations, data processing, and the related departmental
overhead are reimbursed directly by the Company.

Under the advisory agreement, all or a portion of the advisory fee must be
refunded by the advisor to the Company if the Operating Expenses, as defined,
exceed certain limits based on book value, net asset value, and net income of
the Company during such fiscal year. The operating expenses of the Company did
not exceed such limitation in 1995, 1996, or 1997.




                                       51
<PAGE>   52

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT
         (Continued)

The advisory agreement may be assigned only with the prior consent of the
Company.

The directors and principal officers of TRA are set forth below:

WILLIAM S. FRIEDMAN:      Director and Chief Executive Officer

BRUCE A. SCHNITZ:         Chief Operating Officer

ROBERT C. IRVINE:         Executive Vice President and Chief Financial Officer

CHRIS W. CLINTON:         Senior Vice President

WILLIAM L. GRIGSBY:       Senior Vice President

PETER LARSEN:             Senior Vice President

TODD C. MINOR:            Treasurer

JANICE CLINE:             Vice President

ERIN D. DAVIS:            Vice President and Chief Accounting Officer

EILEEN GOLDBERG:          Secretary

Property Management

Since March 1, 1994, TRA has provided property management services to the
Company for a fee of 4.5% of the monthly gross rents collected. Until April
1996, TRA subcontracted with other entities for the provision of the
property-level management services to the Company. TMI currently provides
property-level management services to the Company's multifamily properties for a
fee of 4.5% of the monthly gross rents collected, while the property-level
management services are provided by third party subcontractors for the Company's
commercial properties.

Since March 1, 1994, TRA's real estate brokerage affiliate has been available to
and may act as a broker in both purchases and sales of Company property with
commissions payable in amounts customarily charged in arm's-length transactions
by others rendering similar property acquisition services in the same
geographical location and for comparable property. Such commissions require
Board approval.






                                       52
<PAGE>   53
ITEM 11.  EXECUTIVE COMPENSATION

The Company has no employees and pays no compensation to its executive officer.
The Directors and executive officers of the Company who are also officers or
employees of TRA are compensated by TRA. Such affiliated Directors and executive
officers of the Company perform a variety of services for the advisor, and the
amount of their compensation is determined solely by TRA.

The Independent Directors are paid an annual stipend directly by the Company and
granted certain stock options, as discussed below. The Independent Directors (i)
review the business plan of the Company to determine that it is in the best
interest of the Company's stockholders, (ii) review the Company's agreement with
the advisor, (iii) supervise the performance of the Company's advisor and review
the reasonableness of the compensation which the Company pays to its advisor in
terms of the nature and quality of services performed, (iv) review the
reasonableness of the total fees and expenses of the Company, and (v) select,
when necessary, a qualified independent real estate appraiser to appraise
properties acquired by the Company. Since June 1, 1993, the Independent
Directors receive compensation in the amount of $6,000 per year plus
reimbursement of expenses. In addition, each Independent Director receives (i)
$3,000 per year for each committee of the Board of Directors on which he serves,
(ii) $2,500 per year for each committee chairmanship, and (iii) $1,000 per day
for any special services rendered by him to the Company outside of his ordinary
duties as Director plus reimbursement for expenses related to services
specifically requested by the Board.

Pursuant to the approval of the Independent Director Share Option Plan (the
"Plan") at the November 1995 stockholder meeting, the Company issued to each of
the three Independent Directors on November 20, 1995, options to purchase 600
shares of common stock (a total of 1,800 shares). The exercise price of the
options is equal to the market price on the grant date. The options expire on
the earlier of the first anniversary of the date on which a Director ceases to
be a Director of the Company or ten years from the date of grant (the
"Termination Date") and are exercisable at any time between the date of grant
and the Termination Date. These options have been adjusted to give effect to the
one-for-five reverse stock split effective December 1, 1995. In addition, for
each year such Director continues to serve as a Director, he will be awarded an
option covering 300 shares of common stock on December 1 of each year.
Accordingly, on each of December 1, 1995, 1996, and 1997, the Company issued to
each Independent Director additional options covering 300 shares of common stock
(a total of 2,700 shares) with exercise prices equal to the market price on the
dates of grant and the same Termination Date as the options granted in November
1995. The Plan provides for options covering a total of 60,000 shares of common
stock.

Fees paid to Independent Directors during 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
                               Year Ended           Month Ended          Year Ended
                              Nov 30, 1996          Dec 31, 1996        Dec 31, 1997
                            ----------------     -----------------     ---------------
<S>                         <C>                  <C>                   <C>
      Chester Beck          $          6,000     $             750     $         9,000
      Willie K. Davis                 14,250                   958              11,500
      Michael E. Smith                 6,000                   500               6,000
                            ----------------     -----------------     ---------------
                            $         26,250     $           2,208     $        26,500
                            ================     =================     ===============
</TABLE>







                                       53
<PAGE>   54
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners. The following table sets forth
the ownership of the Company's shares of common stock, both beneficially and of
record, both individually and in the aggregate, for those persons or entities
known by the Company to be beneficial owners of more than 5% of its shares of
common stock as of the close of business on March 9, 1998.

<TABLE>
<CAPTION>
                                               Amount and Nature
                                                  of Beneficial        Percent of
Name and Address of Beneficial Owner               Ownership            Class (1)
------------------------------------           -----------------        ---------
<S>                                             <C>                       <C>
Lucy N. Friedman                                379,303(2)(3)(4)(5)(6)    29.5%
280 Park Avenue
East Building, 20th Floor
New York, NY  10017
</TABLE>

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

(1)  Percentages are based upon 1,286,897 shares of common stock outstanding at
     March 9, 1998.

(2)  Includes 272,007 shares owned by Lucy N. Friedman, William S. Friedman's
     wife. Also includes 29,750 shares owned by Tarragon Capital Corporation
     ("TCC"), of which Mrs. Friedman and Mr. Friedman are executive officers and
     directors. Mrs. Friedman may be deemed to be a beneficial owner by virtue
     of her position as an executive officer, director, and more than 10%
     shareholder of such company.

(3)  Includes 54,546 shares owned by Tarragon Partners, Ltd., of which Mrs.
     Friedman and Mr. Friedman are limited partners and TCC is the general
     partner.

(4)  Includes 21,000 shares owned by Beachwold Partners, L.P., of which Mrs.
     Friedman and Mr. Friedman are general partners and their four children are
     limited partners.

(5)  Does not include 7,750 shares owned Tanya Friedman or 1,000 shares owned by
     Ezra Friedman, adult children of Mrs. Friedman. Mrs. Friedman disclaims
     beneficial ownership of such shares.

(6)  Includes 2,000 shares owned by Mrs. Friedman's minor sons Gideon and
     Samuel.

Security Ownership of Management. The table below sets forth the ownership of
the Company's shares of common stock, both beneficially and of record, both
individually and in the aggregate, for the Directors and executive officer of
the Company as of the close of business on March 9, 1998.

<TABLE>
<CAPTION>
                                    Amount and Nature
                                      of Beneficial                Percent of
Name of Beneficial Owner                Ownership                   Class (a)
------------------------            -----------------               ---------
<S>                                 <C>                               <C>
William S. Friedman                 379,303  (b)(c)(d)(e)(f)(g)       29.5%

Chester Beck                          3,500  (h)                          *

Willie K. Davis                       2,700  (i)                          *
</TABLE>



                                       54
<PAGE>   55

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         (Continued)

<TABLE>
<CAPTION>
                                    Amount and Nature
                                      of Beneficial                Percent of
Name of Beneficial Owner                Ownership                   Class (a)
------------------------            -----------------               ---------
<S>                                 <C>                               <C>
Michael E. Smith                         2,500 (j)                       *

All Directors                          388,003 (b)(c)(d)(e)(f)       30.2%
and Executive Officers                         (g)(h)(i)(j)
as a group (4 individuals)
</TABLE>

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

* less than 1%

(a)  Percentages are based upon 1,286,897 shares of common stock outstanding at
     March 9, 1998.

(b)  Includes 272,007 shares owned by William S. Friedman's wife, Lucy N.
     Friedman. Mrs. Friedman has complete control over the shares owned by her,
     and Mr. Friedman disclaims beneficial ownership of such shares.

(c)  Includes 29,750 shares owned by TCC.

(d)  Includes 54,546 shares owned by Tarragon Partners, Ltd.

(e)  Includes 21,000 shares owned by Beachwold Partners, L.P.

(f)  Does not include 7,750 shares owned by Tanya Friedman or 1,000 shares owned
     by Ezra Friedman, adult children of Mr. Friedman. Mr. Friedman disclaims
     beneficial ownership of such shares.

(g)  Includes 2,000 shares owned by Mr. Friedman's minor sons Gideon and Samuel.

(h)  Includes 2,000 shares owned by Chester Beck directly and 1,500 shares
     covered by four separate presently exercisable options.

(i)  Includes 1,200 shares owned by Willie K. Davis directly and 1,500 shares
     covered by four separate presently exercisable options.

(j)  Includes 1,000 shares owned by Michael E. Smith directly and 1,500 shares
     covered by four separate presently exercisable options.





                                       55
<PAGE>   56

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Business Relationships

Since March 1, 1994, TRA has served as the Company's advisor pursuant to an
advisory agreement. Mr. Friedman serves as Director and Chief Executive Officer
of TRA. TRA is owned by Mr. Friedman and Lucy N. Friedman, his wife. The
Friedman family owns approximately 30% of the outstanding shares of the Company.

Since April 1, 1994, TRA has also served as NIRT's advisor. Mr. Friedman also
serves as a Trustee, President, and Chief Executive Officer of NIRT. NIRT has
the same relationship with TRA as the Company. Mr. Friedman owes fiduciary
duties to NIRT as well as the Company under applicable law.

From March 1994 to October 1996, TRA occupied office space at the Company's One
Turtle Creek Office Complex, which served as the Company's executive offices.
During such period, TRA and affiliates paid the Company annual rent of $12 per
square foot, which was at least equal to rent paid the Company by unaffiliated
tenants for similar space.

In February 1998, National Omni Associates, L.P., in which the Company holds a
25% interest, paid a brokerage commission of $100,000 to Highland Funding Corp.,
for which Chester Beck serves as President, for consulting services provided in
connection with the acquisition of 5600 Collins Avenue in Miami Beach, Florida.

Related Party Transactions

Historically, the Company has engaged in and may continue to engage in business
transactions, including real estate partnerships, with related parties. All
related party transactions entered into by the Company must be approved by a
majority of the Board of Directors, including a majority of the Independent
Directors. The Company's management believes that all of the related party
transactions represented the best investments available at the time and were at
least as advantageous to the Company as could have been obtained from unrelated
third parties.

The Company has incurred fees and expense reimbursements paid to TRA and TMI as
follows (dollars in thousands):

<TABLE>
<CAPTION>
                                      Year Ended       Month Ended    Year Ended
                                      Nov 30, 1996    Dec 31, 1996    Dec 31, 1997
                                      ------------    ------------    ------------
<S>                                    <C>            <C>             <C>
Advisory fees                          $       181    $         13    $        232
Property management fees                       235              26             339
Acquisition fees                                43              22              56
Real estate brokerage commissions              194               -               -
Equity refinancing fees                          -               -              80
Expense reimbursements                         232              32             236
</TABLE>







                                       56
<PAGE>   57
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Restrictions on Related Party Transactions

Article FOURTEENTH of the Company's Articles of Incorporation provides that the
Company shall not, directly or indirectly, contract or engage in any transaction
with (i) any director, officer, or employee of the Company, (ii) any director,
officer, or employee of the advisor, (iii) the advisor, or (iv) any affiliate or
associate (as such terms are defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended) of any of the aforementioned persons, unless (a) the
material facts as to the relationship among or financial interest of the
relevant individuals or persons and as to the contract or transaction are
disclosed to or are known by the Company's Board of Directors or the appropriate
committee thereof and (b) the Company's Board of Directors or committee thereof
determines that such contract or transaction is fair to the Company and
simultaneously authorizes or ratifies such contract or transaction by the
affirmative vote of a majority of independent directors of the Company entitled
to vote thereon.

Article FOURTEENTH defines an "Independent Director" as one who is neither an
officer nor employee of the Company nor a director, officer, or employee of the
Company's advisor.



                     [This space intentionally left blank.]


                                       57
<PAGE>   58
                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES,  AND REPORTS ON FORM 8-K

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

1.    Consolidated Financial Statements

Report of Independent Public Accountants             - Arthur Andersen LLP

Consolidated Balance Sheets - December 31, 1997, and November 30, 1996

Consolidated Statements of Operations -
  Year Ended December 31, 1997, Month Ended December 31, 1996, and Years Ended
  November 30, 1996 and 1995

Consolidated Statements of Shareholders' Equity -
  Year Ended December 31, 1997, Month Ended December 31, 1996, and Years Ended
  November 30, 1996 and 1995

Consolidated Statements of Cash Flows -
  Year Ended December 31, 1997, Month Ended December 31, 1996, and Years Ended
  November 30, 1996 and 1995

Notes to Consolidated Financial Statements

2.    Financial Statement Schedules

Schedule III -    Real Estate and Accumulated Depreciation

All other schedules are omitted because they are not applicable or because the
required information is shown in the financial statements or the notes thereto.

3.    Exhibits

The following exhibits are filed herewith or incorporated by reference as
indicated:

Exhibit
Designation                 Description of Exhibit
-----------                 ----------------------

3.1            Articles of Incorporation of Vinland Property Corporation
               (incorporated by reference to Exhibit 3.1 to Form 8-K dated July
               10, 1997).

3.2            Articles of Incorporation of Tarragon Realty Investors, Inc.
               (incorporated by reference to Exhibit 3.2 to Form 8-K dated July
               10, 1997).




                                       58
<PAGE>   59

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES,  AND REPORTS ON FORM 8-K
         (Continued)

Exhibit
Designation                 Description of Exhibit
-----------                 ----------------------

3.3            Bylaws of Tarragon Realty Investors, Inc. (incorporated by
               reference to Exhibit 3.3 to Form 8-K dated July 10, 1997).

3.4            Agreement and Plan of Merger of Vinland Property Corporation and
               Tarragon Realty Investors, Inc., dated July 25, 1997
               (incorporated by reference to Exhibit 3.4 to Form 8-K dated July
               10, 1997).

3.5            Articles of Merger of Vinland Property Corporation into Tarragon
               Realty Investors, Inc. (incorporated by reference to Exhibit 3.5
               to Form 8-K dated July 10, 1997).

4.1            Indenture Agreement dated September 15, 1993, between Vinland
               Property Trust and American Stock Transfer and Trust Company
               (incorporated by reference to Exhibit No. 4.7 to the Registrant's
               Registration Statement No. 33-66294 on Form S-11).

10.1           Advisory Agreement dated April 1, 1995, between Vinland Property
               Trust and Tarragon Realty Advisors, Inc. (incorporated by
               reference to Exhibit 10.1 to the Registrant's Current Report on
               Form 8-K dated April 1, 1995).

21.0           Subsidiaries of the Registrant.

27.0           Financial Data Schedule.


(b)       The following reports on Form 8-K were filed during the fourth quarter
          covered by this report or with respect to events occurring after the
          period covered by this report but prior to the filing of this report.

<TABLE>
<CAPTION>
            Date of Event              Date Filed                  Items Reported
            -------------            ----------------          -----------------------------------------
<S>                                  <C>                       <C>
            July 25, 1997            October 28, 1997          5.  Other Events
                                                               8.  Change in Fiscal Year

            August 15, 1997          November 3, 1997          2.   Acquisition or Disposition of Assets
                                                               7.   Financial Statements and Exhibits
</TABLE>





                                       59
<PAGE>   60
                                   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.

                                             TARRAGON REALTY INVESTORS, INC.



Dated:  March 27, 1998                       By: /s/ William S. Friedman
      ----------------                          --------------------------
                                                William S. Friedman
                                                President, Chief Executive
                                                Officer, and Director

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                       Capacities in                           Date
                                which signed
<S>                             <C>                                     <C>
/s/  William S. Friedman        President, Chief Executive Officer,     March 27, 1998
--------------------------      and Director
William S. Friedman             (Principal Executive Officer)

/s/  Robert C. Irvine           Executive Vice President and            March 27, 1998
--------------------------      Chief Financial Officer
Robert C. Irvine                (Principal Financial Officer)

/s/  Erin D. Davis              Vice President and                      March 27, 1998
--------------------------      Chief Accounting Officer
Erin D. Davis                   (Principal Accounting Officer)

/s/  Chester  Beck              Director                                March 27, 1998
--------------------------
Chester Beck

/s/ Willie K. Davis             Director                                March 27, 1998
--------------------------
Willie K. Davis


/s/ Michael E. Smith            Director                                March 27, 1998
--------------------------
Michael E. Smith
</TABLE>




                                       60
<PAGE>   61
                        TARRAGON REALTY INVESTORS, INC.
                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
Exhibit
Designation                           Description of Exhibit
-----------                           ----------------------
<S>       <C>
3.1       Articles of Incorporation of Vinland Property Corporation
          (incorporated by reference to Exhibit 3.1 to Form 8-K dated July 10,
          1997).

3.2       Articles of Incorporation of Tarragon Realty Investors, Inc.
          (incorporated by reference to Exhibit 3.2 to Form 8-K dated July 10,
          1997).

3.3       Bylaws of Tarragon Realty Investors, Inc. (incorporated by reference
          to Exhibit 3.3 to Form 8-K dated July 10, 1997).

3.4       Agreement and Plan of Merger of Vinland Property Corporation and
          Tarragon Realty Investors, Inc., dated July 25, 1997 (incorporated by
          reference to Exhibit 3.4 to Form 8-K dated July 10, 1997).

3.5       Articles of Merger of Vinland Property Corporation into Tarragon
          Realty Investors, Inc. (incorporated by reference to Exhibit 3.5 to
          Form 8-K dated July 10, 1997).

4.1       Indenture Agreement dated September 15, 1993, between Vinland Property
          Trust and American Stock Transfer and Trust Company (incorporated by
          reference to Exhibit No. 4.7 to the Registrant's Registration
          Statement No. 33-66294 on Form S-11).

10.1      Advisory Agreement dated April 1, 1995, between Vinland Property Trust
          and Tarragon Realty Advisors, Inc. (incorporated by reference to
          Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated
          April 1, 1995).

21.0      Subsidiaries of the Registrant.

27.0      Financial Data Schedule.
</TABLE>





                                       61