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                                                                    EXHIBIT 99.7







                             THE TIMBERS APARTMENTS

                              STATEMENT OF REVENUES
                          AND DIRECT OPERATING EXPENSES
                          YEAR ENDED DECEMBER 31, 1997










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                          Independent Auditors' Report



To the Board of Trustees
Transcontinental Realty Investors, Inc.

We have audited the accompanying statement of revenues and direct operating
expenses of The Timbers Apartments for the year ended December 31, 1997. This
statement of revenues and direct operating expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
statement of revenues and direct operating expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and direct operating expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of revenues and
direct operating expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement of revenues and direct operating expenses
presentation. We believe that our audit provides a reasonable basis for our
opinion.

The accompanying financial statement is prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in Form 8-K of Transcontinental Realty Investors, Inc.) and, as
described in Note 1, is not intended to be a complete presentation of the
results of operations.

In our opinion, the statement of revenues and direct operating expenses referred
to above presents fairly, in all material respects, the revenues and direct
operating expenses of The Timbers Apartments for the year ended December 31,
1997, in conformity with generally accepted accounting principles.




FARMER, FUQUA, HUNT & MUNSELLE, P.C.

Dallas, Texas
April 7, 1998


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                             THE TIMBERS APARTMENTS
                              STATEMENT OF REVENUES
                          AND DIRECT OPERATING EXPENSES
                          Year Ended December 31, 1997


<TABLE>
<S>                                                   <C>
REVENUES
         Net rental revenues                          $444,956
         Other revenues                                 25,874
                                                      --------

                  Total revenues                       470,830

DIRECT OPERATING EXPENSES
         Salaries and benefits                         111,896
         Repairs and maintenance                        71,869
         Utilities                                      70,056
         Property taxes                                 37,890
         Insurance                                      11,206
                                                      --------

                  Total direct operating expenses      302,917
                                                      --------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES       $167,913
                                                      ========
</TABLE>




         The accompanying notes are an integral part of this statement.



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                             THE TIMBERS APARTMENTS
                         NOTES TO STATEMENT OF REVENUES
                          AND DIRECT OPERATING EXPENSES
                                December 31, 1997


NOTE 1:           ORGANIZATION AND BASIS OF PRESENTATION

                  The Timbers Apartments is a 100-unit apartment complex located
                  in Tyler, Texas. During 1997, the property was owned by John
                  Hancock Mutual Life Insurance Company.

                  The accompanying financial statement does not include a
                  provision for depreciation and amortization, bad debt expense,
                  interest expense, or income taxes. Accordingly, this statement
                  is not intended to be a complete presentation of the results
                  of operations.

NOTE 2:           ACCOUNTING ESTIMATES

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

NOTE 3:           OTHER REVENUES

                  Other revenues consist of the following:

<TABLE>
                           <S>                               <C>
                           Miscellaneous fees                $     16,409
                           NSF and late fees                        8,780
                           Forfeited deposits                         685
                                                             ------------

                                                             $     25,874
                                                             ============
</TABLE>

NOTE 4:           SUBSEQUENT EVENT

                  The property was sold to Transcontinental Realty Investors,
                  Inc., a Nevada corporation, on December 30, 1997.


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