UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C. 20549
                           -----------------------

                                 FORM 10-KSB

[X]  Annual Report under Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the fiscal year ended June 30, 2006

[ ]  Transition Report under Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the transition period from ______ to ______

Commission file number 1-10324

                          THE INTERGROUP CORPORATION
                          --------------------------
                 (Name of Small Business Issuer in its Charter)

          Delaware                                        13-3293645
-------------------------------                       ------------------
(State or Other Jurisdiction of                        (IRS Employer
 Incorporation or Organization)                       Identification No.)

820 Moraga Drive, Los Angeles, California                 90049-1632
-----------------------------------------                 ----------
(Address of Principal Executive Offices)                  (Zip Code)

                 Issuer's Telephone Number:  (310) 889-2500

      Securities registered under Section 12(b) of the Exchange Act:

   Title of Each Class               Name of Each Exchange on Which Registered
---------------------------          -----------------------------------------
Common Stock-$.01 par value                   The NASDAQ Stock Market, LLC

Common Stock-$.01 par value                     Pacific Exchange, Inc.

    Securities registered under Section 12(g) of the Exchange Act: None

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will 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-
KSB or any amendment to this Form 10-KSB. [X]

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

The issuer's revenues for its most recent fiscal year were $12,832,000.

<PAGE>

The aggregate market value of the common equity held by non-affiliates of
issuer, computed by reference to the price the common equity was sold on
September 12, 2006 was $14,155,050.

The number of shares outstanding of the issuer's Common Stock, $.01 par value,
as of September 12, 2006 was 2,356,560.

Transitional Small Business Disclosure Format (check one): Yes   No [X]


                  DOCUMENTS INCORPORATED BY REFERENCE: None

                             TABLE OF CONTENTS

PART I                                                                  PAGE

    Item 1.  Description of Business                                      3

    Item 2.  Description of Properties                                   10

    Item 3.  Legal Proceedings                                           19

    Item 4.  Submission of Matters to a Vote of Security Holders         19


PART II

    Item 5.  Market For Common Equity and Related Stockholder Matters    19

    Item 6.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations                         21

    Item 7.  Financial Statements                                        29

    Item 8.  Changes in and Disagreements With Accountants
             on Accounting and Financial Disclosure                      50

    Item 8A. Controls and Procedures                                     50

    Item 8B. Other Information                                           51

PART III

    Item 9.  Directors, Executive Officers, Promoters and Control
             Persons; Compliance With Section 16(a) of the Exchange Act  51

    Item 10. Executive Compensation                                      54

    Item 11. Security Ownership of Certain Beneficial Owners
             and Management                                              59

    Item 12. Certain Relationships and Related Transactions              61

    Item 13. Exhibits and Reports on Form 8-K                            62

    Item 14. Principal Accountant Fees and Services                      64

    SIGNATURES                                                           65

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<PAGE>

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB contains some "forward-looking statements"
within the meaning of the Private Securities Litigation reform Act of 1995.
Forward-looking statements give our current expectations or forecasts of
future events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. They contain words such as
"anticipate," "estimate," expect," "project," intend," "plan," "believe"
"may," "could," "might" and other words or phrases of similar meaning in
connection with any discussion of future operating or financial performance.
From time to time we also provide forward-looking statements in our Forms 10-
QSB and 8-K, Annual reports to Shareholders, press releases and other
materials we may release to the public. These statements are subject to
certain risks and uncertainties, such as the impact of terrorism and war on
the national and international economies, including tourism and securities
markets, natural disasters, general economic conditions and competition in the
hotel industry in the San Francisco are, labor relations and labor
disruptions, partnership distributions, the ability to obtain financing at
favorable interest rates and terms, securities markets, regulatory factors,
litigation and other factors discussed below in this Report. Consequently, no
forward looking statement can be guaranteed and our actual future results may
differ materially.

We caution you not to place undue reliance on these forward-looking
statements, which speak only as to the date hereof. We undertake no obligation
to publicly update any forward looking statements, whether as a result of new
information, future events or otherwise. You are advised, however, to consult
any further disclosures we make on related subjects on our Forms 10-KSB, 10-
QSB, and 8-K reports to the Securities and Exchange Commission.


                                 PART I

Item 1. Description of Business.

BUSINESS DEVELOPMENT

The InterGroup Corporation ("InterGroup" or the "Company") is a Delaware
corporation formed in 1985, as the successor to Mutual Real Estate Investment
Trust ("M-REIT"), a New York real estate investment trust created in 1965.
The Company has been a publicly-held company since M-REIT's first public
offering of shares in 1966 and has been a reporting company pursuant to
Section 12(g) of the Securities Exchange Act of 1934 since that time.

The Company was organized to buy, develop, operate, rehabilitate and dispose
of real property of various types and descriptions, and to engage in such
other business and investment activities as would benefit the Company and its
shareholders.  The Company was founded upon, and remains committed to, social
responsibility.  Such social responsibility was originally defined as
providing decent and affordable housing to people without regard to race.  In
1985, after examining the impact of federal, state and local equal housing
laws, the Company determined to broaden its definition of social
responsibility.  The Company changed its form from a REIT to a corporation so
that it could pursue a variety of investments beyond real estate and broaden
its social impact to engage in any opportunity which would offer the potential
to increase shareholder value within the Company's underlying commitment to
social responsibility, which it redefined to encompass investments in any area
which can have a socially redeeming value and promote the establishment of a
fair, equal and better society.

                                    -3-
<PAGE>

The Company's principal sources of revenue have been, and continue to be,
derived from the operations of its multi-family residential properties, from
the sales and disposition of its real property assets, from the operations of
its majority owned subsidiary, Santa Fe Financial Corporation ("Santa Fe"),
and from the investment of its cash and securities assets. Santa Fe is a
public company (OTCBB: SFEF).


BUSINESS OF ISSUER

The Company's principal business is the ownership and management of real
estate.  Properties include nineteen apartment complexes, an equity interest
in a hotel, two commercial real estate properties, and two single-family
houses as strategic investments.  The properties are located throughout the
United States, but are concentrated in Texas and Southern California.  The
Company also has investments in unimproved real property.  All of the
Company's residential rental properties with exception of the Austin, Texas
and Irving, Texas properties, are managed by professional third party property
management companies.

The Company acquires its investments in real estate and other investments
utilizing cash, securities or debt, subject to approval or guidelines of the
Board of Directors.  The Company also invests in income-producing instruments,
equity and debt securities and will consider other investments if such
investments offer growth or profit potential. See Item 2 for a description of
the Company's current investments in real estate and its investment policies
concerning real property and marketable securities.

As of June 30, 2006, the Company had the power to vote 78%, of the voting
shares of Santa Fe Financial Corporation ("Santa Fe"), a public company
(OTCBB: SFEF). Santa Fe's revenue is primarily generated through the
management of its 68.8% owned subsidiary, Portsmouth Square, Inc.
("Portsmouth"), a public company (OTCBB: PRSI), which derives its revenue
primarily as a general partner and a 50.0% limited partner in Justice
Investors, a California limited partnership ("Justice" or the "Partnership").
Justice owns the land, improvements and leaseholds now known as the Hilton San
Francisco Financial District, a 549-room hotel in San Francisco, California
(the "Hotel").  Both Santa Fe and Portsmouth are consolidated into the
Company's financial statements.

In April 2006, Portsmouth purchased a 0.20% limited partnership interest in
Justice from another limited partner for $180,000, which brought Portsmouth's
limited partnership interest in Justice to exactly 50.0%. Portsmouth's
investment in Justice is recorded on the equity basis. Portsmouth also serves
as one of the two general partners.  The other general partner, Evon
Corporation ("Evon"), acts as the managing general partner. All significant
partnership decisions require the active participation and approval of both
general partners.  The Company and Evon jointly consult and determine the
amount of partnership reserves and the amount of cash to be distributed to the
limited partners.  As of June 30, 2006, there were approximately 86 limited
partners in Justice (not including multiple family accounts).

Pursuant to the terms of the partnership agreement, voting rights of the
partners are determined according to the partners' entitlement to share in the
net profit and loss of the partnership.  The Company is not entitled to any
additional voting rights by virtue of its position as a general partner.
The partnership agreement also provides that no portion of the partnership
real property can be sold without the written consent of the general and
limited partners entitled to more than 72% of the net profit.

                                    -4-
<PAGE>

The Company's principal business is conducted through its general and limited
partnership interest in Justice.  Justice was formed in 1967 to acquire real
property for the development and lease of a hotel located at 750 Kearny
Street, San Francisco, California 94108(the "Hotel") and related facilities,
including a five level underground parking garage.  Historically, the
Partnership's most significant source of income was a lease between Justice
and Holiday Inn for the Hotel portion of the property.  That lease was amended
in 1995, and ultimately assumed by Felcor Lodging Trust, Inc. ("Felcor", NYSE:
FCH) in 1998. As discussed below, the lease of the Hotel to Felcor was
terminated effective June 30, 2004. The Partnership also derives income from
its lease of the garage portion of the property to Evon and the lease of
approximately 5,400 square feet on the lobby level of the Hotel to Tru Spa,
LLC for the operation of a health and beauty spa.  As a general partner,
Portsmouth takes an active role in monitoring and overseeing the operations of
the Hotel, the lease of the parking garage and the spa.

The Company also derives income from management fees as a general partner in
Justice and from the investment of its cash and securities assets. The Company
has invested in income-producing instruments, equity and debt securities and
will consider other investments if such investments offer growth or profit
potential. Please see discussion of Investment Policies under Item 2 below.


SAN FRANCISCO HOTEL LEASE

The Hotel portion of the Partnership's San Francisco property was initially
leased to Holiday Inns of America in 1970 and operated as a Holiday Inn brand
hotel.  On March 15, 1995, an amended and restated lease was entered into by
Justice with an effective date of January 1, 1995 (the "Hotel Lease").  The
Hotel Lease was assumed by Felcor, effective July 28, 1998 and continued to be
operated as a Holiday Inn. The initial term of the Hotel Lease was for a 10-
year term expiring on December 31, 2004.  The lessee also had an option to
renew the lease for one additional term of five years, which would extend the
lease to December 31, 2009.  The Hotel Lease required the lessee to pay an
annual rent of the greater of twenty percent (20%) of gross room revenues or
$2,500,000 plus fifty percent (50%) of lessee's cash available as defined by
the Hotel Lease.  Under the terms of the Hotel Lease, the lessee was
responsible for all maintenance and repairs to the property, certain capital
improvements, taxes and insurance.  The lessee also had an obligation to
convert the Hotel property to a "Holiday Inn Select" and to maintain the
property to those standards, at its own cost and expense.

In July 2003, Justice delivered to the hotel lessee, a notice citing certain
deficiencies in the physical condition of the hotel property and in its
furniture, fixtures and equipment and requested that those deficiencies be
corrected in accordance with the lessee's obligations under the Hotel Lease.
On May 3, 2004, Justice entered into a Settlement Agreement with Felcor to
resolve disputes regarding certain obligations of Felcor and others under the
terms of the Hotel Lease.  Pursuant to the terms of the Settlement Agreement,
Felcor was required to pay to Justice $5,000,000 towards the costs of capital
repairs, replacements and improvements necessary to place the hotel in the
condition required by the Hotel Lease at the end of its term.  Felcor also
agreed to transfer to Justice and terminate its leasehold estate and its
option right under the Hotel Lease, effective June 30, 2004. In addition, the
parties to the Settlement agreed to mutual releases and to cooperate for a
smooth transition of the operations of the Hotel.  The Settlement Agreement
was fully effectuated as of June 30, 2004.

                                    -5-
<PAGE>

DOW HOTEL COMPANY MANAGEMENT AGREEMENT

With the termination of the Hotel Lease, Justice assumed the role of an owner
operator of the Hotel on July 1, 2004.  On May 19, 2004, Justice entered into
a third party Management Agreement with Dow Hotel Company, LLC, a Washington
limited liability company ("Dow") to operate and manage the Hotel as an agent
of the Partnership, effective July 1, 2004.  The Management Agreement has an
initial term of 10 years, with an option of Justice to extend the original
term for another 10 year period.  The Management Agreement provides for a base
management fee to Dow of up to 2.5% of annual gross operating revenues of the
Hotel and incentive fees not to exceed, in the aggregate, 4% of gross
operating revenues of the Hotel.  The Management Agreement can be terminated
by Justice upon at least 60 days written notice, subject to certain
termination fees during the first year of the Agreement.

On March 25, 2005, the Partnership entered into an amendment of the Dow
Management Agreement to cover the period of time the Hotel was closed for
renovations. Pursuant to that amendment, Dow was entitled to a fee for
services rendered under the Management Agreement in the amount of $15,000 per
month, which was paid as follows: (i) one half ($7,500) payable monthly and
(ii) the other half ($7,500) earned, but payment deferred until the first
month that the Hotel had a positive net operating income sufficient to make
such lump sum payment, but in no event later than April 1, 2006. Management
fees for the fiscal year ended June 30, 2006 were approximately $193,000 and
no incentive management fees were earned for that period.

HOLIDAY HOSPITALITY FRANCHISING AGREEMENT

Effective July 1, 2004, The Partnership entered into a short term franchise
agreement with Holiday Inn Hospitality Franchising, Inc. to continue to
operate the Hotel as a Holiday Inn Select brand hotel, until such time as the
Partnership was able to secure a replacement hotel brand and operate the Hotel
under a new flag.  Under the terms of that Holiday Inn franchise agreement,
the Partnership paid monthly royalties, marketing and reservation fees of 5%,
1.5% and 1%, respectively, of the Hotel's gross room revenue for the preceding
calendar month. The Holiday Inn franchise agreement terminated on May 31,
2005, at which time the Hotel was closed for renovations.


HILTON HOTELS FRANCHISE LICENSE AGREEMENT

With the termination of the Hotel Lease to Felcor, the Partnership was able to
actively pursue a franchise agreement with a new nationally recognized brand
in an effort to move the Hotel up-market and become more competitive. After
considering and negotiating with several brands, the Partnership entered into
a Franchise License Agreement with Hilton Hotels Corporation (the "Hilton
Franchise Agreement") on December 10, 2004 for the right to operate the Hotel
as a Hilton brand hotel.  The term of the Hilton Franchise Agreement is for 15
years commencing on the opening date of the Hotel, with an option to extend
that Agreement for another five years, subject to certain conditions.

The Partnership will pay monthly royalty fees for the first two years of three
percent of the Hotel's gross room revenue, as defined, for the preceding
calendar month, the third year will be four percent of the Hotel's gross room
revenue, and the fourth year until the end of the term will be five percent of
the Hotel's gross room revenue.  The partnership will also pay a monthly
program fee of four percent of the Hotel's gross room revenue and an

                                    -6-
<PAGE>

information technology recapture charge of 0.75% of the Hotel's gross revenue.
The amount of the monthly program fee is subject to change; however, the
monthly fee will not exceed five percent of gross room revenue.

Prior to operating the Hotel as a Hilton hotel, the Partnership was required
to make substantial renovations to the Hotel to meet Hilton standards in
accordance with a product improvement plan ("PIP") agreed upon by Hilton and
the Partnership, as well as comply with other brand standards.  That project
included a complete renovation and upgrade of all of the Hotel's guestrooms,
meeting rooms, common areas and restaurant and bar.  As of January 12, 2006
the Hotel renovation work was substantially completed, at which time Justice
obtained approval from Hilton to open the Hotel as the "Hilton San Francisco
Financial District". The Hotel opened with a limited number of rooms available
to rent, which increased as the Hotel transitioned into full operations by the
end of February 2006.

The total cost of the construction-renovation project of the Hotel was
approximately $36.4 million, which excludes approximately $630,000 in interest
costs incurred during for the construction phase that were capitalized.  To
meet those substantial financial commitments, and the costs of operations
during the renovation period and for the first five months when the Hotel
ramped up its operations, the Partnership has relied on additional borrowings
to meet its obligations.  As discussed in Item 2 herein, the Partnership has
been able to secure financing, collateralized by the Hotel, in the aggregate
amount of up to $46,500,000 to meet those commitments. That amount of leverage
and the associated debt service will create additional risk for the
Partnership and its ability to generate cash flows in the future since the
Hotel asset has been virtually debt free for many years.

TEMPORARY CLOSURE OF HOTEL FOR RENOVATIONS

On March 15, 2005, the Partnership announced its decision to close down its
Hotel operations effective, May 31, 2005, to complete the renovations of the
Hotel as required by the Hilton Franchise Agreement.  The Partnership made
this decision because of, among other things, the scope of the work in the
common areas, engineering factors and potential environmental and safety
issues which made it preferable to temporarily close the Hotel portion of the
property. The Hotel was closed for more than seven months before it reopened
as the "Hilton San Francisco Financial District" on January 12, 2006.  The
below ground parking garage and Tru Spa located on the lobby level of the
Hotel, both of which are lessees of the Partnership, remained open during the
renovation work.

GARAGE LEASE AND OPERATIONS

The garage lease between the Partnership and Evon provides for a monthly
rental of sixty percent (60%) of gross parking revenues with a minimum rent of
$19,764 per month.  That lease expires in November 2010.  The lessee is
responsible for insurance, repairs and maintenance, utilities and all taxes
assessed against the improvements to the leased premises. The garage was
operated by Ampco Systems Parking ("Ampco") pursuant to a sublease agreement.
On August 31, 2005, Evon terminated its sublease with Ampco. Effective
September 1, 2005, Ace Parking Management, Inc. ("Ace Parking") became the new
parking garage operator pursuant to a Parking Facility Management Agreement
with the garage lessee, Evon. That agreement is for a period of sixty two
months (62) months and terminates on October 31, 2010, with a five year option
to renew. The agreement can be terminated upon ten (10) days prior written
notice of the termination of Evon's lease of the garage or upon 90 days
written notice without cause. The agreement provides that Evon will pay a

                                    -7-
<PAGE>

management fee to Ace of $2,000 per month, plus an accounting fee of $250 per
month, plus 3% of the annual net profit, as defined, from the operations of
the garage in excess of $100,000.

TRU SPA LEASE

During July 2002, Justice entered into a lease with Tru Spa, LLC, which was
amended effective January 1, 2004.  The lease premises consist of
approximately 5,400 square feet of space on the lobby level of the hotel for
the construction and operation of a health and beauty spa.  The term of the
lease is for ten years commencing with the opening of the spa on June 1, 2003,
with a five year option to extend the term.  The spa lease provides for
minimum monthly rent of $11,667, additional rent of $2,072 (up to a total of
$250,000 to help defray certain relocation construction costs) and other
tenant fees.  Minimum rental amounts are subject to adjustment every three
years based on any percentage increase in the Consumer Price Index.  Under the
terms of the lease, Justice was responsible for up to $1,497,586 in leasehold
improvements, which were paid using the partnership's line of credit.  The spa
lease is structured to reimburse the Partnership for those leasehold
improvements over the term of the lease.  Due to the certain disruptions of
the operations of the spa resulting from the temporary closing of the Hotel
and the renovation work, the Partnership and Tru Spa entered into lease
amendments that would permit Tru Spa to apply its security deposit of $35,000
to pay its monthly obligations for June 30, 2005 and July 31, 2005, with the
balance to be applied as partial payment of its August 2005 rent and to
provide for a rent free period for the balance of the August 2005 rent through
January 31, 2006.  The Partnership reserved the right, in its discretion, to
require Tru Spa to make an additional security deposit in the future.  The
Partnership believes that the spa facilities in the Hotel will help it to be
more competitive in the future by providing greater amenities to its guests.

CHINESE CULTURE FOUNDATION LEASE

On March 15, 2005, the Partnership entered into an amended lease with the
Chinese Culture Foundation of San Francisco (the "Foundation") for the third
floor space of the Hotel commonly known as the Chinese Cultural Center. The
amended lease requires the Partnership to pay to the Foundation a monthly
event space fee in the amount of $4,600, adjusted annually based on the local
Consumer Price Index. The term of the amended lease remains the same as the
current lease, expiring on October 17, 2023, with an automatic extension for
another 10 year term if the property continues to be operated as a hotel. This
amendment allowed Justice to incorporate the third floor into the renovation
of the Hotel resulting in a new ballroom for the joint use of the Hotel and
new offices and a gallery for the Chinese Culture Center.

COMPENSATION OF GENERAL PARTNERS AND REPOSITIONING FEES

Due to the termination of the Hotel Lease on June 30, 2004, it was necessary
for the Partnership to amend the agreement by which the general partners of
Justice were compensated since the general partners would be taking on new
responsibilities as Justice assumed the role as owner-operator of the Hotel.
Furthermore, the prior agreement was based on a percentage of gross rents,
which the Partnership would no longer be receiving from the Hotel. The
expiring compensation agreement provided that the general partners were
entitled to receive compensation equal to 3% of the annual gross rents of the
partnership.  From the first $150,000 of compensation payable to the general
partners, $120,000 was payable to Evon, as the managing general partner, and
$30,000 is payable to Portsmouth as the other general partner.  Any
compensation in excess of the $150,000 was to be split 50/50 between the
general partners.

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<PAGE>

On July 16, 2004, Justice entered into a new General Partner Compensation
Agreement (the "Compensation Agreement"), with an effective date of May 31,
2004. This was done to provide adequate compensation to Evon and Portsmouth
and provide incentives to the general partners to encourage excellence in the
performance of their responsibilities.  The new agreement provides that the
general partners will receive annual base compensation of 1.5% of gross
revenues, with a minimum annual base compensation of $263,000, adjusted for
inflation. From the minimum annual base compensation, 80% will be paid to Evon
for its services as the managing general partner and 20% will be paid to
Portsmouth as the other general partner. Base annual compensation in excess of
the minimum will be payable in equal amounts to Evon and Portsmouth. The
maximum base annual compensation that can be earned by the general partners is
1.5% of $40,000,000 of gross revenues.  The Compensation Agreement also
provides for incentive compensation to the general partners in a sum equal to
the 5.0% of the annual net operating income of Justice, as defined in the Dow
Management Agreement, that is in excess of $7,000,000. Incentive compensation
shall be payable in equal amounts to Evon and Portsmouth.

In addition, the Compensation Agreement provides that the general partners are
to receive a repositioning fee in the aggregate amount of $275,000, to be paid
in equal amounts to Evon and Portsmouth in two installments.  The first
installment of approximately $69,000 to each of Evon and Portsmouth was paid
within 10 days of the execution of the Compensation Agreement with the second
installment paid upon the substantial completion of the renovation of the
Hotel.

Due to the expanded scope of the renovation project, the additional time
commitments required of the general partners and the increased value brought
to the Partnership as a result of the repositioning of the Hotel, Justice
entered into an amended and restated compensation agreement with its general
partners, Evon and Portsmouth, effective February 23, 2006. Pursuant to that
amended agreement, Evon and Portsmouth are each to receive a total of $378,000
in repositioning fees as compensation for their services rendered to Justice
with respect to repositioning the Hotel and restructuring its business and
management subject to certain performance criteria. For fiscal year ended June
30, 2006, a total of $119,000 in repositioning fees was paid to Portsmouth. An
additional $100,000 in repositioning fees has been earned by Portsmouth and
accrued by Justice but not yet paid.

COMPETITION

All of the properties owned by the Company are in areas where there is
substantial competition.  However, management believes that its apartments,
hotel, and commercial properties are generally in a competitive position in
their respective communities.  The Company intends to continue upgrading and
improving the physical condition of its existing properties and will consider
selling existing properties, which the Company believes have realized their
potential, and re-investing in properties that may require renovation but that
offer greater appreciation potential.

Until May 31, 2005, the Hotel was operated as a Holiday Inn brand hotel and
was part of Holiday Inn's worldwide reservation system.  The Hotel was
designed to Holiday Inn's specifications to serve both business travelers and
tourists and cater to both individuals and tour groups.  It also handled
conferences and business meetings, having meeting and dining facilities for
groups of up to 400 people. The Hotel had traditionally enjoyed a favorable
year-round occupancy rate, but both occupancy and average daily room rates
suffered since fiscal year ended June 30, 2001.  Newer and more upscale
properties opened in or near the Financial District, which provide greater
amenities to its guests, making it difficult for the Hotel to compete.  Those
competitors were better positioned to attract both the business traveler and

                                    -9-
<PAGE>

tourists. Management believed that the Hotel could not continue to be
competitive under the conditions it operated under while a Holiday Inn Select
brand hotel. The Hotel was approximately 25 years old, with no major
renovations having been made to the property during that time. By terminating
the Hotel Lease with Felcor, and taking over the operations of the Hotel, the
Partnership obtained much greater ability to direct the future of the Hotel.

The newly opened Hilton San Francisco Financial District hotel has 549 well
appointed guestrooms and luxury suites with bay or city views, featuring large
working desks, ergonomic chairs, wired and wireless high-speed Internet
access, and "The Suite Dreams" beds by Hilton, complete with duvet, down
comforter and jumbo size pillows. The newly redesigned meeting rooms and
ballroom will accommodate meetings and events for up to 500 people with video
conferencing and premium audio/visual equipment. A new business center and
fitness center are additional amenities. The new Hilton hotel also has the
only hotel day spa (Tru Spa) in the Financial District. A redesigned entry way
is integrated into the lobby and management expects the new restaurant "Seven
Fifty" and lounge, with a dramatic fireplace treatment, are expected to bring
a new level of excitement and service to the guests of the Hotel. Management
believes that the new Hilton hotel now has the ability to directly compete
with all hotels in the Financial District.

EMPLOYEES

As of June 30, 2006, the Company had a total of 11 full-time employees in its
corporate office. Effective July 2002, the Company entered into a client
service agreement with Administaff Companies II, L.P. ("Administaff"), a
professional employer organization serving as an off-site, full service human
resource department for its corporate office.  Administaff personnel
management services are delivered by entering into a co-employment
relationship with the Company's employees. There are also approximately 10
employees at the Company's properties outside of the State of California that
are subject to similar co-employment relationships with Administaff. The
employees and the Company are not party to any collective bargaining
agreement, and the Company believes that its employee relations are
satisfactory.


Item 2.  Description of Properties.

PROPERTIES

At June 30, 2006, the Company's investment in real estate consisted of
properties located throughout the United States, but which are concentrated in
Texas and Southern California.  These properties include nineteen apartment
complexes, two single-family houses as strategic investments, and two
commercial real estate properties, one of which serves as the Company's
corporate headquarters.  All properties are operating properties with
exception of the Company's corporate office.   In addition to the properties,
the Company owns approximately 4.1 acres of unimproved real estate in Texas
and 2 acres of unimproved land in Maui, Hawaii.

The Company also owns an interest in a San Francisco hotel property through
its subsidiaries' interest in Justice Investors.  In the opinion of
management, each of the properties is adequately covered by insurance.  None
of the properties are subject to foreclosure proceedings or litigation, other
than such litigation incurred in the normal course of business.  The Company's
rental property leases are short-term leases, with no lease extending beyond
one year.

                                    -10-
<PAGE>

Las Colinas, Texas.  The Las Colinas property is a water front apartment
community along Beaver Creek that was developed in 1993 with 358 units on
approximately 15.6 acres of land.  The Company acquired the complex on April
30, 2004 for approximately $27,145,000.  Depreciation is recorded on the
straight-line method, based upon an estimated useful life of 27.5 years.  Real
estate property taxes for the year ended June 30, 2006 were approximately
$811,000.  The outstanding mortgage balance was approximately $19,696,000 at
June 30, 2006 and the maturity date of the mortgage is May 1, 2013.

Morris County, New Jersey.  The Morris County property is a two-story garden
apartment complex that was completed in June 1964 with 151 units on
approximately 8 acres of land.  The Company acquired the complex on September
15, 1967 at an initial cost of approximately $1,600,000.  Real estate property
taxes for the year ended June 30, 2006 were approximately $160,000.
Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years.  The outstanding mortgage balance was approximately
$10,118,000 at June 30, 2006 and the maturity date of the mortgage is May 1,
2013.

St. Louis, Missouri.  The St. Louis property is a two-story project with 264
units on approximately 17.5 acres.  The Company acquired the complex on
November 1, 1968 at an initial cost of $2,328,000.  For the year ended June
30, 2006, real estate property taxes were approximately $141,000.
Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years.  The outstanding mortgage balance was approximately
$5,352,000 at June 30, 2006 and the maturity date of the mortgage is July 1,
2008.

Florence, Kentucky.  The Florence property is a three-story apartment complex
with 157 units on approximately 6.0 acres.  The Company acquired the property
on December 20, 1972 at an initial cost of approximately $1,995,000.  For the
year ended June 30, 2006, real estate property taxes were approximately
$47,000.  Depreciation is recorded on the straight-line method, based upon an
estimated useful life of 40 years.  The outstanding mortgage balance was
approximately $4,200,000 at June 30, 2006 and the maturity date of the
mortgage is July 1, 2014.

Irving, Texas.  The Irving property is a two-story apartment with 224 units on
approximately 9.9 acres.  The Company acquired the property on September 16,
1994 at an initial cost of approximately $4,150,000.  For the year ended June
30, 2006, real estate property taxes were approximately $189,000.
Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years.  The outstanding mortgage balance was
approximately $4,106,000 at June 30, 2006 and the maturity date of the
mortgage is January 1, 2008.  As of June 30, 2006, this property is currently
listed for sale.

San Antonio, Texas. The San Antonio property is a two-story project with 132
units on approximately 4.3 acres.  The Company acquired the complex on June
29, 1993 for $2,752,000.  For the year ended June 30, 2006, real estate taxes
were approximately $121,000.  Depreciation is recorded on the straight-line
method, based upon an estimated useful life of 40 years.  The outstanding
mortgage balance was approximately $2,938,000 at June 30, 2006 and the
maturity date of the mortgage is December 1, 2008.

Austin, Texas. The Austin property is a two-story project with 249 units on
approximately 7.8 acres.  The Company acquired the complex with 190 units on
November 18, 1999 for $4,150,000.  The Company also acquired an adjacent
complex with 59 units on January 8, 2002 for $1,681,000.  For the year ended
June 30, 2006, real estate taxes were approximately $141,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of

                                    -11-
<PAGE>

40 years.  The outstanding mortgage balance was approximately $7,762,000 at
June 30, 2006 and the maturity date of the mortgage is July 1, 2023.  The
Company also owns approximately 4.1 acres of unimproved land adjacent to this
property.

Los Angeles, California.  The Company owns two commercial properties, twelve
apartment complexes, and two single-family houses in the general area of West
Los Angeles.

The first Los Angeles commercial property is a 5,500 square foot, two story
building that serves as the Company's corporate offices.  The Company acquired
the building on March 4, 1999 for $1,876,000. The property taxes for the year
ended June 30, 2006 were approximately $29,000.  Depreciation is recorded on
the straight-line method, based upon an estimated useful life of 40 years.
The outstanding mortgage balance was approximately $1,145,000 at June 30, 2006
and the maturity date of the mortgage is April 15, 2009.

The second Los Angeles commercial property is a 5,900 square foot commercial
building.  The Company acquired the building on September 15, 2000 for
$1,758,000. The property taxes for the year ended June 30, 2006 were
approximately $11,000.  Depreciation is recorded on the straight-line method,
based upon an estimated useful life of 40 years.  The outstanding mortgage
balance was approximately $767,000 at June 30, 2006 and the maturity date of
the mortgage is December 15, 2013.

The first Los Angeles apartment complex is a 10,600 square foot two-story
apartment with 12 units.  The Company acquired the property on July 30, 1999
at an initial cost of approximately $1,305,000.  For the year ended June 30,
2006, real estate property taxes were approximately $17,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $1,014,000 at
June 30, 2006 and the maturity date of the mortgage is December 1, 2018.

The second Los Angeles apartment complex is a 29,000 square foot three-story
apartment with 27 units.  This complex is held by Intergroup Woodland Village,
Inc. ("Woodland Village"), which is 55.4% and 44.6% owned by Santa Fe and the
Company, respectively.  The property was acquired on September 29, 1999 at an
initial cost of approximately $4,075,000.  For the year ended June 30, 2006,
real estate property taxes were approximately $51,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $1,811,000 at
June 30, 2006 and the maturity date of the mortgage is October 1, 2029.

The third Los Angeles apartment complex is a 12,700 square foot apartment with
14 units.  The Company acquired the property on October 20, 1999 at an initial
cost of approximately $2,150,000.  For the year ended June 30, 2006, real
estate property taxes were approximately $29,000.  Depreciation is recorded on
the straight-line method, based upon an estimated useful life of 40 years.
The outstanding mortgage balance was approximately $1,069,000 at June 30, 2006
and the maturity date of the mortgage is November 1, 2029.

The fourth Los Angeles apartment complex is a 10,500 square foot apartment
with 9 units.  The Company acquired the property on November 10, 1999 at an
initial cost of approximately $1,675,000.  For the year ended June 30, 2006,
real estate property taxes were approximately $22,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $799,000 at June
30, 2006 and the maturity date of the mortgage is December 31, 2029.

The fifth Los Angeles apartment complex is a 26,100 square foot two-story
apartment with 31 units.  The Company acquired the property on May 26, 2000 at

                                    -12-
<PAGE>

an initial cost of approximately $7,500,000.  For the year ended June 30,
2006, real estate property taxes were approximately $90,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $4,009,000 at
June 30, 2006 and the maturity date of the mortgage is August 1, 2033.

The sixth Los Angeles apartment complex is a 27,600 square foot two-story
apartment with 30 units.  The Company acquired the property on July 7, 2000 at
an initial cost of approximately $4,411,000.  For the year ended June 30,
2006, real estate property taxes were approximately $59,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years. In June 2003, the operations of this property stopped and in
December 2003, major renovations of the property began.  In May 2004, the
Company paid off the mortgage in the amount of $2,576,000 and obtained a new
construction loan in the amount of $6,268,000 as part of the renovation of the
property.  As of June 30, 2006, the balance of the construction loan was
approximately $6,878,000 and the maturity of the loan is June 1, 2007.  The
property was approximately 80% completed in June 2006 and renting of the
apartments commenced towards the latter part of the June.

The seventh Los Angeles apartment complex is a 3,000 square foot apartment
with 4 units.  The Company acquired the property on July 19, 2000 at an
initial cost of approximately $1,070,000.  For the year ended June 30, 2006,
real estate property taxes were approximately $14,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $428,000 at June
30, 2006 and the maturity date of the mortgage is August 1, 2030.

The eighth Los Angeles apartment complex is a 4,500 square foot two-story
apartment with 4 units.  The Company acquired the property on July 28, 2000 at
an initial cost of approximately $1,005,000.  For the year ended June 30,
2006, real estate property taxes were approximately $13,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $713,000 at June
30, 2006 and the maturity date of the mortgage is December 1, 2018.

The ninth Los Angeles apartment complex is a 7,500 square foot apartment with
7 units.  The Company acquired the property on August 9, 2000 at an initial
cost of approximately $1,308,000.  For the year ended June 30, 2006, real
estate property taxes were approximately $17,000.  Depreciation is recorded on
the straight-line method, based upon an estimated useful life of 40 years.
The outstanding mortgage balance was approximately $1,048,000 at June 30, 2006
and the maturity date of the mortgage is December 1, 2018.

The tenth Los Angeles apartment complex is a 32,800 square foot two-story
apartment with 24 units.  The Company acquired the property on March 8, 2001
at an initial cost of approximately $2,859,000.  For the year ended June 30,
2006, real estate property taxes were approximately $38,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $1,693,000 at
June 30, 2006 and the maturity date of the mortgage is April 1, 2031.

The eleventh Los Angeles apartment complex is a 13,000 square foot two-story
apartment with 8 units.  The Company acquired the property on May 1, 2001 at
an initial cost of approximately $1,206,000.  For the year ended June 30,
2006, real estate property taxes were approximately $16,000.  Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $556,000 at June
30, 2006 and the maturity date of the mortgage is November 1, 2029.

                                    -13-
<PAGE>

The twelfth Los Angeles apartment complex, which is owned 100% by the
Company's subsidiary Santa Fe, is a 4,200 square foot two-story apartment with
2 units.  Santa Fe acquired the property on February 1, 2002 at an initial
cost of approximately $785,000. For the year ended June 30, 2006, real estate
property taxes were approximately $10,000. Depreciation is recorded on the
straight-line method based upon an estimated useful Life of 40 years.  The
outstanding mortgage balance was approximately $436,000 at June 30, 2006 and
the maturity date of the mortgage is February 1, 2032.

The first Los Angeles single-family house is a 2,771 square foot home.  The
Company acquired the property on November 9, 2000 at an initial cost of
approximately $660,000.  For the year ended June 30, 2006, real estate
property taxes were approximately $9,000.  Depreciation is recorded on the
straight-line method, based upon an estimated useful life of 40 years.  The
outstanding mortgage balance was approximately $461,000 at June 30, 2006 and
the maturity date of the mortgage is December 1, 2030.

The second Los Angeles single-family house is a 2,201 square foot home.  The
Company acquired the property on August 22, 2003 at an initial cost of
approximately $700,000.  For the year ended June 30, 2006, real estate
property taxes were approximately $10,000.  Depreciation is recorded on the
straight-line method, based upon an estimated useful life of 40 years.  The
outstanding mortgage balance was approximately $507,000 at June 30, 2006 and
the maturity date of the mortgage is November 1, 2033.

San Francisco, California Hotel.

The newly opened Hilton San Francisco Financial District hotel is owned
directly by the Partnership. The Hotel is centrally located near the Financial
District, one block from the Transamerica Pyramid. The Embarcadero Center is
within walking distance and North Beach is two blocks away.  Chinatown is
directly across the bridge that runs from the hotel to Portsmouth Square Park.
The Hotel is a 31-story (including parking garage), steel and concrete, A-
frame building, which has 549 well appointed guest rooms and luxury suites
situated on 22 floors as well as a 5,400 square foot Tru Spa health and beauty
spa on the lobby level.  The third floor houses the Chinese Culture Center and
grand ballroom.  The Hotel has approximately 15,000 square feet of meeting
room space, including the grand ballroom. Other features of the Hotel include
a rooftop swimming pool, 5-storied underground garage and pedestrian bridge
across Kearny Street connecting the Hotel and the Chinese Culture Center with
Portsmouth Square Park in Chinatown.  The bridge, built and owned by the
partnership, is included in the lease to the Chinese Culture Center.

The Hotel is located in an area of intense competition from other hotels in
the Financial District. Since the Hotel was just reopened under the Hilton
brand after being closed for more than seven months for a substantial
renovation project, some hotels may be better known to the business and
leisure traveler. It may take some time for the Hotel, now operating as a
Hilton, to gain recognition as a totally upgraded and higher level property
after being under the Holiday Inn brand for almost 25 years.  The Hotel is
also somewhat limited by having only 15,000 square feet of meeting room space.
Other hotels, with greater meeting room space, may have a competitive
advantage by being able to attract larger groups and small conventions.
Management, in conjunction with its management company Dow and Hilton, will
make every effort to market the Hotel as an upscale property to business
travelers, leisure customers and small to medium size groups. While it may
take some time for the Hotel to be fully recognized and reach its full
potential, management believes that the substantial renovations made to the
Hotel, coupled with the strength of the Hilton brand and its Hilton Honors
program, have provided the foundation for the Hotel to meet or exceed all of
its competition.

                                    -14-
<PAGE>

Since the Hotel was just totally renovated, there is no present program for
any further major renovations; however, the Partnership expects to reserve
approximately 3% of gross annual Hotel revenues for calendar year 2006 and 4%
of gross annual Hotel revenues for each year thereafter for future capital
requirements.  In the opinion of management the property is adequately covered
by insurance.


PROPERTY FINANCINGS

On July 27, 2005, Justice entered into a first mortgage loan (the "Prudential
Loan") with The Prudential Insurance Company of America in a principal amount
of $30,000,000.  The term of the Loan is for 120 months at a fixed interest
rate of 5.22% per annum. The Loan calls for monthly installments of principal
and interest in the amount of approximately $165,000, calculated on a 360
month amortization schedule. The Loan is collateralized by a first deed of
trust on the Partnership's Hotel property, including all improvements and
personal property thereon and an assignment of all present and future leases
and rents. The Loan is without recourse to the limited and general partners of
Justice.

From the proceeds of the Prudential Loan, the Partnership retired its then
existing line of credit in the approximate amount of $4,500,000, including
accrued interest, and paid off a short term uncollateralized line of credit
from United Commercial Bank in the amount of $2,007,000, including accrued
interest.

On July 27, 2005, Justice also obtained a new $10,000,000 Revolving Line of
Credit ("LOC") from United Commercial Bank. The term of the LOC is for 60
months, expiring on June 30, 2010, at an annual interest rate based on the
index selected by Justice at the time of the request for each advance. The
interest rate will either be a variable rate equal to The Wall Street Journal
Prime Rate or the Libor Rate plus 2%, fixed for the period selected by the
Partnership. The LOC is collateralized by a second deed of trust on the Hotel
property. Interest only is payable monthly with principal and accrued interest
due at maturity. On January 20, 2006, the Partnership obtained a $4,500,000
increase in its LOC, raising the total amount available to the Partnership to
$14,500,000. The increase in the credit line is on the same terms as the
existing line of credit with additional loan and documentation fees of $4,000.
On May 23, 2006, Justice obtained a short term increase of its LOC of an
additional $2,000,000, raising the total amount available to the Partnership
to $16,500,000.  If the short term increase is not paid off by December 31,
2006, UCB has the right to record a lien on the Hotel property for the
additional $2,000,000. That increase is also on the same terms as the existing
LOC, with additional documentation fees of $1,000. As of June 30, 2006,
approximately $16,000,000 of the LOC was utilized.

The Prudential Loan and the LOC have provided Justice with sufficient
financial resources for the Partnership to complete the substantial
renovations to the Hotel required by its Franchise License Agreement with
Hilton and to meet its debt service requirements and operating capital needs
through the reopening of the Hotel and the period of time necessary to ramp up
operations. The Hotel started to generate net operating income in June 2006.
The Partnership also believes that there is sufficient equity in the Hotel
assets to support future borrowings if necessary. The Partnership believes
that the revenues expected to be generated from the Hotel operations for the
fiscal year beginning July 1, 2006, and in the future, will be sufficient to
meet all of its current and future obligations and financial requirements.

                                    -15-
<PAGE>

REAL ESTATE INVESTMENT POLICIES

The most significant investment activity of the Company has been to acquire,
renovate, operate, and when appropriate, sell income-producing real estate.
Through its marketable securities portfolio, the Company has indirectly
invested in additional real estate related investments such as hotels and
office buildings.

The Company may also look for new real estate investment opportunities in
hotels, apartments, office buildings and shopping centers.  The acquisition of
any new real estate investments will depend on the Company's ability to find
suitable investment opportunities and the availability of sufficient financing
to acquire such investments.  To help fund any such acquisition, the Company
plans to borrow funds to leverage its investment capital.  The amount of any
such debt will depend on a number of factors including, but not limited to,
the availability of financing and the sufficiency of the acquisition
property's projected cash flows to support the operations and debt service.

MORTGAGES

Information with respect to mortgage notes payable of the Company is set forth
in Note 5 of the Notes to Consolidated Financial Statements.

ECONOMIC AND PHYSICAL OCCUPANCY RATES

The Company leases units in its residential rental properties on a short-term
basis, with no lease extending beyond one year.  The economic occupancy (gross
potential less rent below market, vacancy loss, bad debt, discounts and
concessions divided by gross potential rent) and the physical occupancy(gross
potential rent less vacancy loss divided by gross potential rent) for each of
the Company's operating properties for fiscal year ended June 30, 2006 are
provided below.

                                        Economic              Physical
         Property                       Occupancy             Occupancy
         --------                       ---------            ----------
         Apartments:

         1.  Las Colinas,TX                74%                    90%
         2.  Morris County, NJ             89%                    95%
         3.  St. Louis, MO                 80%                    89%
         4.  Florence, KY                  87%                    91%
         5.  Irving, TX                    73%                    94%
         6.  San Antonio, TX               88%                    90%
         7.  Austin, TX                    49%                    82%
         8.  Los Angeles, CA (1)           77%                    93%
         9.  Los Angeles, CA (2)           68%                    95%
         10. Los Angeles, CA (3)           86%                    95%
         11. Los Angeles, CA (4)           80%                    95%
         12. Los Angeles, CA (5)           67%                    95%
         13. Los Angeles, CA (6)            *                      *
         14. Los Angeles, CA (7)           82%                    92%
         15. Los Angeles, CA (8)           82%                    84%
         16. Los Angeles, CA (9)           85%                    90%
         17. Los Angeles, CA (10)          83%                    96%
         18. Los Angeles, CA (11)          82%                    97%
         19. Los Angeles, CA (12)          91%                    93%

                                    -16-
<PAGE>

*This property was undergoing significant renovations and was 80% completed as
of June 30, 2006.  As of June 30, 2006, only two units of a total of 30 units
were occupied.

The Company's Los Angeles, California properties are subject to various rent
control laws, ordinances and regulations which impact the Company's ability to
adjust and achieve higher rental rates.


MANAGEMENT OF THE PROPERTIES

The Company may engage third party management companies as agents to manage
certain of Company's residential rental properties. Effective April 2006, the
Company entered into third party management agreements (the "Agreements") with
JPI Management Services, L.P. ("JPI") for property management services for
five of its properties located in: Irving, Texas; San Antonio, Texas;
Parsippany, New Jersey; Florissant, Missouri; and Florence, Kentucky.  The
Agreements provide for a management fee equal to 3.5% of the gross monthly
receipts of each property and are for a term of one year, but can be
terminated by either party upon thirty days written notice.

Effective August 2005, the Company entered into a Management Agreement with
Century West Properties, Inc. ("Century West") to act as an agent of the
Company to rent and manage all of the Company's residential rental properties
in the Los Angeles, California area. The Management Agreement with Century
West is for a term of twelve months ending on July 31, 2006 and will continue
thereafter on a month-to-month basis, unless terminated upon 30 days prior
written notice. The Management Agreements provide for a monthly fee equal to
4% of the monthly gross receipts from the properties with resident managers
and a fee of 4 1/2% of monthly gross receipts for properties without resident
mangers.


MARKETABLE SECURITIES INVESTMENT POLICIES

In addition to real estate, the Company also invests from time to time in
income producing instruments, corporate debt and equity securities, mortgage
backed securities, securities issued by REIT's and other companies which
invest primarily in real estate.

The Company's securities investments are made under the supervision of a
Securities Investment Committee of the Board of Directors. The Committee
currently has three members and is chaired by the Company's Chairman of the
Board and President, John V. Winfield.  The Committee has delegated authority
to manage the portfolio to the Company's Chairman and President together with
such assistants and management committees he may engage.  The Committee has
established investment guidelines for the Company's investments.  These
guidelines presently include: (i) corporate equity securities should be listed
on the New York or American Stock Exchanges or the Nasdaq NMS Market; (ii)
securities should be priced above $5.00 per share; and (iii) investment in a
particular issuer should not exceed 5% of the market value of the total
portfolio. The investment policies do not require the Company to divest itself
of investments, which initially meet these guidelines but subsequently fail to
meet one or more of the investment criteria.  Non-conforming investments
require the approval of the Securities Investment Committee.  The Committee
has in the past approved non-conforming investments and may in the future
approve non-conforming investments.  The Securities Investment Committee may
modify these guidelines from time to time.

                                    -17-
<PAGE>

The Company's investment portfolio is diversified with 60 different equity
securities.  The Company has five individual positions that comprise more than
5% of the equity value of the portfolio with the largest being 10.2% of the
value of the portfolio.  The amount of the Company's investment in any
particular issue may increase or decrease, and additions or reductions to its
securities portfolio may occur, at any time.  While it is the internal policy
of the Company to limit its initial investment in any single equity to less
than 5% of its total portfolio value, that investment could eventually exceed
5% as a result of equity appreciation or reductions in other positions.
Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date.  As of June
30, 2006, the market value of the Company's marketable securities was
$29,186,000.

The Company may also invest, with the approval of the Securities Investment
Committee, in unlisted securities, such as convertible notes, through private
placements including private equity investment funds.  Those investments in
non-marketable securities are carried at cost on the Company's balance sheet
as part of other investments and reviewed for impairment on a periodic basis.
As of June 30, 2006, the Company had other investments of $4,344,000.

As part of its investment strategies, the Company may assume short positions
in marketable securities.  Short sales are used by the Company to potentially
offset normal market risks undertaken in the course of its investing
activities or to provide additional return opportunities.  As of June 30,
2006, the Company had obligations for securities sold (equities short) of
$6,635,000 and had no naked short positions.

In addition, the Company may utilize margin for its marketable securities
purchases through the use of standard margin agreements with national
brokerage firms.  The use of available leverage is guided by the business
judgment of management and is subject to any internal investment guidelines,
which may be imposed by the Securities Investment Committee.  The margin used
by the Company may fluctuate depending on market conditions.  The use of
leverage could be viewed as risky and the market values of the portfolio may
be subject to large fluctuations.  As of June 30, 2006, the Company had a
margin balance of $11,532,000 and incurred $767,000 and $904,000 in margin
interest expense during the year ended June 30, 2006 and June 30, 2005,
respectively.

On July 18, 2003, the disinterested members of the respective Boards of
Directors of the Company's subsidiary, Santa Fe and Santa Fe's subsidiary,
Portsmouth, established a performance based compensation program for the
Company's CEO, John V. Winfield, to keep and retain his services as a direct
and active manager of the securities portfolios of those companies.  On
January 12, 2004, the disinterested members of the Securities Investment
Committee of InterGroup also established a performance based compensation
program for Mr. Winfield, which was ratified by the Board of Directors. The
terms of that compensation arrangement are discussed in detail in Item 10
"Executive Compensation" of this Report.  During the year ended June 30, 2006,
no performance based compensation was earned by the Company's CEO.  During the
year ended June 30, 2005, the Company and subsidiaries paid $320,000 to the
Company's CEO as performance based compensation related to the management of
the securities portfolios.

As Chairman of the Securities Investment Committee, the Company's President
and Chief Executive officer, John V. Winfield, directs the investment activity
of the Company in public and private markets pursuant to authority granted by
the Board of Directors.  Mr. Winfield also serves as Chief Executive Officer

                                    -18-
<PAGE>

and Chairman of Santa Fe and Portsmouth and oversees the investment activity
of those companies.  Depending on certain market conditions and various risk
factors, the Chief Executive Officer, his family, Santa Fe and Portsmouth may,
at times, invest in the same companies in which the Company invests.  The
Company encourages such investments because it places personal resources of
the Chief Executive Officer and his family members, and the resources of Santa
Fe and Portsmouth, at risk in connection with investment decisions made on
behalf of the Company.


Item 3.  Legal Proceedings

The Company is not subject to any legal proceedings requiring disclosure under
this Item.


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


No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.



                              PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

The Company's Common Stock is traded on NASDAQ Global Market (formerly the
Nasdaq National Market) of the NASDAQ Stock Market LLC under the symbol:
"INTG".  It is also listed on the Pacific Exchange, Inc.  The following table
sets forth the high and low sales prices for the Company's common stock for
each quarter of the last two fiscal years as reported by NASDAQ.


Fiscal 2006                           High                Low
-----------                           -----               -----
First Quarter 7/1 - 9/30             $17.25              $14.50
Second Quarter 10/1 - 12/31          $16.40              $14.72
Third Quarter 1/1 - 3/31             $16.45              $14.00
Fourth Quarter 4/1 - 6/30            $17.16              $14.00


Fiscal 2005                           High                Low
-----------                           -----               -----
First Quarter 7/1 - 9/30             $14.96              $11.15
Second Quarter 10/1 - 12/31          $14.31              $12.50
Third Quarter 1/1 - 3/31             $15.20              $13.41
Fourth Quarter 4/1 - 6/30            $19.10              $14.75


As of September 12, 2006, there were approximately 540 shareholders of record
and more than 1,400 beneficial holders of the Company's Common Stock.

DIVIDENDS

The Company has not declared any cash dividends on its common stock and does
not foresee issuing cash dividends in the near future.

                                    -19-
<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

The following table sets forth information as of June 30, 2006, with respect
to compensation plans (including individual compensation arrangements) under
which equity securities of the Company are authorized for issuance, aggregated
as follows:

Plan category       Securities to     Weighted average   Remaining available
                      be issued       exercise price     for future issuance
                    upon exercise     of outstanding        under equity
                    of outstanding       options         compensation plans
                       options,        warrants and         (excluding
                     warrants and         rights             securities
                       rights                               reflected in
                                                             column (a))
                         (a)                (b)                 (c)
-------------------  ------------      -------------     -------------------
Equity compensation
plans approved by
security holders       390,000             $9.91               60,000
----------------------------------------------------------------------------
Equity compensation
plans not approved
by security holders      None               N/A                 None
----------------------------------------------------------------------------
     Total             390,000             $9.91               60,000
----------------------------------------------------------------------------

<TABLE>
         SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

                                            (c)Total Number         (d)Maximum Number
             (a)Total         (b)           of Shares Purchased     of Shares that May
Fiscal        Number of      Average         as Part of Publicly     Yet Be Purchased
 2006          Shares        Price Paid       Announced Plans         Under the Plans
Period       Purchased      Per Share         or Programs             or Programs
--------------------------------------------------------------------------------------
<S>           <C>           <C>                <C>                      <C>
Month #1
(April 1-       479         $14.99               479                    39,917
April 30)
--------------------------------------------------------------------------------------
Month #2
(May 1-       3,000         $15.93             3,000                    36,917
May 31)
--------------------------------------------------------------------------------------
Month #3
(June 1-        800         $15.86               800                    36,117
June 30)
--------------------------------------------------------------------------------------
Total         4,279         $15.81             4,279                    36,117
--------------------------------------------------------------------------------------
</TABLE>

The Company currently has only one stock repurchase program.  The program was
initially announced on January 13, 1998 and was first amended on February 10,
2003. The total number of shares authorized to be repurchased was 720,000,
adjusted for stock splits.  On October 12, 2004, the Board of Directors
authorized the Company to purchase up to an additional 150,000 shares of
Company's common stock, increasing the total remaining number of shares
authorized for repurchase to 152,941.  The program has no expiration date and
can be amended from time to time in the discretion of the Board of Directors.
No plan or program expired during the period covered by the table.

                                    -20-
<PAGE>

Item 6. Management Discussion and Analysis of Financial Condition
        and Results of Operations.


FORWARD-LOOKING STATEMENTS AND PROJECTIONS

The Company may from time to time make forward-looking statements and
projections concerning future expectations.  When used in this discussion, the
words "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," "may," "could," "might" and similar expressions, are intended to
identify forward-looking statements.  These statements are subject to certain
risks and uncertainties, such as the impact of terrorism and war on the
national and international economies, including tourism and securities
markets, natural disasters, general economic conditions and competition in the
hotel industry in the San Francisco area, labor relations and labor
disruptions, partnership distributions, the ability to obtain financing at
favorable interest rates and terms, securities markets, regulatory factors,
litigation and other factors discussed below in this Report that could cause
actual results to differ materially from those projected.  Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as to the date hereof.  The Company undertakes no obligation
to publicly release the results of any revisions to those forward-looking
statements, which may be made to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.


RESULTS OF OPERATIONS

The Company's principal business is the ownership and operation of real
estate.  Properties include nineteen apartment complexes, an equity interest
in a hotel, two commercial real estate properties, and two single-family
houses as strategic investments.  The properties are located throughout the
United States, but are concentrated in Texas and Southern California.  The
Company also has investments in unimproved real property.  All of the
Company's residential rental properties with exception of its Austin, Texas
and Irving, Texas properties, are managed by professional third party property
management companies.

The Company acquires its investments in real estate and other investments
utilizing cash, securities or debt, subject to approval or guidelines of the
Board of Directors.  The Company also invests in income-producing instruments,
equity and debt securities and will consider other investments if such
investments offer growth or profit potential.


For the Year Ended June 30, 2006 as compared to June 30, 2005.

The Company had a net loss of $1,923,000 for the year ended June 30, 2006
compared a net loss of $3,128,000 for the year ended June 30, 2005.  The
reduction in the net loss is primarily the result of the significant
improvement in net gains(losses) from investments to net gains of $4,921,000
during the year ended June 30, 2006 from net losses of $4,874,000 during the
year ended June 30, 2005, partially offset by the decrease in income from
discontinued operations (properties sold or listed for sale) to $583,000 for
the year ended June 30, 2006 from $3,483,000 for the year ended June 30, 2005
and the increase in the equity in net loss of Justice Investors to $4,564,000
for the year ended June 30, 2006 from $2,303,000 for the year ended June 30,
2005.

                                    -21-
<PAGE>

The loss from real estate operations increased to $2,158,000 for the year
ended June 30, 2006 from $1,756,000 for the year ended June 30, 2005 primarily
as the result in the increase in property operating expenses to $6,315,000 for
fiscal year 2006 from $4,608,000 for fiscal year 2005, partially offset by the
amortization of an intangible asset of $555,000 and the loss on early
extinguishment of debt of $160,000 during the year ended June 30, 2005.
The increase in property operating expenses is due to management's overall
effort to improve the Company's real estate operations and to prepare for sale
certain non-strategic real estate properties.  As the result of management's
effort to improve the condition of the Company's apartments and to provide a
higher quality of service to the current and potential tenants, across the
Company's real estate portfolio, repairs and maintenance expenses increased by
approximately $744,000 and leasing and other services expenses increased by
approximately $168,000.  Management also hired professional third party
property managers during fiscal year 2006 to oversee the day-to-day real
estate operations of all the Company's rental properties with exception to the
two properties located in Austin and Irving, Texas, respectively.  This
resulted in additional property management fees of approximately $159,000 for
the year end June 30, 2006.  In-house real estate management is currently
focusing on improving the two properties not managed by third party property
managers with the Irving, Texas property currently listed for sale.  The
operational results of this property are classified under discontinued
operations.   The additional operating expenses incurred to improve the real
estate operations did increase rental income to $12,014,000 for fiscal year
2006 from $11,630,000 for fiscal year 2005.

During fiscal 2006, utilities expense, which is a component of real estate
operating expenses, increased by $120,000 as the result of higher energy
costs.  Professional fees related to the management of the properties also
increased by approximately $450,000.  During the year ended June 30, 2006, the
Company hired a professional consultant and paid $250,000 in consulting fees
to help management analyze and determine which non-strategic real estate
properties to sell.  The sale of some of these real estate assets is discussed
below.  Additionally, during fiscal 2006, the Company incurred approximately
$200,000 in litigation and settlement expenses related to two of its
California properties.  These expenses are included in property operating
expenses.

Gains on the sale of real estate decreased to $1,321,000 for the year ended
June 30, 2006 from $6,069,000 for the year ended June 30, 2005. During fiscal
2006, the Company sold three apartment properties and a parcel of land and
realized gains on the sale of real estate of totaling $1,321,000.  During
fiscal year 2005, the Company sold 442-unit apartment complex located in
Houston, Texas, for $11,850,000 and recognized a gain of $6,069,000.  These
real estate sales are a part of the Company's overall strategy to sell-off
non-strategic assets.

In February 2006, the Company sold 5.4 acres of unimproved land in Pasadena,
Texas for $467,000 and recognized a gain on the sale of $147,000.  In December
2005, the Company sold its 54-unit apartment complex located in Irving, Texas
for $3,100,000 and realized a gain on the sale of real estate of $598,000.
In November 2005, the Company sold its 5-unit apartment complex located in Los
Angeles, California for $1,620,000 and realized a gain on the sale of real
estate of $592,000. In August 2005, the Company sold its 112-unit apartment
complex located in Austin, Texas for $4,400,000 and realized a net loss on the
sale real estate of $16,000.  The net gain on the sales of these properties
and the related revenues and expenses are excluded from the real estate
operations and are presented under discontinued operations.

                                    -22-
<PAGE>

During the twelve months ended June 30, 2005, the Company incurred a loss on
early termination of debt of $133,000 as the result of the repayment of
$1,180,000 mortgage on 54-unit apartment complex located in Irving, Texas that
was eventually sold in December 2005.  The amortization expense of $555,000
during the twelve months ended June 30, 2005 was related to the amortization
of the intangible asset acquired along with the purchase of the Las Colinas,
Texas property purchased in April 2004.  No such expenses were incurred during
the fiscal year 2006.

The Company's equity in net loss of Justice Investors increased to $4,564,000
for year ended June 30, 2006 from $2,303,000 for the year ended June 30, 2005.
For the year ended June 30, 2006, the Justice Investors sustained a total net
loss of $8,601,000 compared to a net loss of $4,221,000 for the year ended
June 30, 2005. The increase in that net loss was primarily attributable to
greater losses from the operations of the Hotel, increased general and
administrative expenses for professional services and other costs associated
with the repositioning and reopening of the Hotel, higher interest costs,
insurance costs, property taxes and greater depreciation and amortization
expenses resulting from the renovation of the Hotel.

For the year ending June 30, 2006, Justice had a net loss from Hotel
operations of approximately $3,787,000 on revenues of approximately $9,054,000
compared to a net operating loss of approximately $1,734,000 on revenues of
approximately $12,930,000 in fiscal 2005. Effective, May 31, 2005, the
Partnership elected to close down its Hotel operations to complete the
renovations of the Hotel as required by the Hilton Franchise Agreement. Since
the Hotel did not reopen until January 12, 2006, less than six months of
operating results from the Hotel are included in fiscal 2006, while for the
2005 fiscal year eleven months of Hotel operating results were included. The
increase in the net loss from Hotel operations was primarily due to
approximately $1,230,000 in start up costs incurred for the reopening of the
Hotel and higher operating expenses, including property taxes and sales and
marketing costs as the Hotel ramped up its operations.  Garage rent decreased
to $945,000 from $1,005,000 primarily due to the Hotel being closed for almost
seven months in fiscal 2006.

Average daily room rates for the Hotel increased to approximately $148 for
fiscal 2006 (for five months of operations) from approximately $90 for fiscal
2005 (for 11 months of operations), while average monthly occupancy rates
decreased to 52% in fiscal 2006 from approximately 65% in fiscal 2005. The
increase in average daily room rates is primarily attributable to the
renovation and repositioning of the Hotel as a Hilton making it possible to
achieve higher room rates. The decrease in average monthly occupancy rates is
primarily attributable to the fact that the Hotel opened with a limited number
of rooms available in January 2006 and did not transition into full operations
until the end of February 2006 and it took several months until the Hotel was
able to reach a level where it began generating net operating income in June
2006. Management understands that such a ramp up period is typical in the
industry for hotels that shut down operations for major renovations,
especially for those hotels that reopen with a different brand.  As a general
partner of Justice, Portsmouth will continue to work diligently with Evon, Dow
and Hilton to improve the operations of the Hotel.

Net gains(losses) on marketable securities improved significantly to net gains
of $4,921,000 for the year ended June 30, 2006 from net losses of $4,874,000
for the year ended June 30, 2005.  The change was due to the significant
improvement in the performance of Company's investment portfolio during the
year ended June 30, 2006.  For the year ended June 30, 2006, the Company had
net unrealized gains of $2,873,000 and net realized gains $2,048,000.  For the
year ended June 30, 2005, the Company had net unrealized losses of $7,734,000

                                    -23-
<PAGE>

and realized gains of $2,860,000.  Gains and losses on marketable securities
and other investments may fluctuate significantly from period to period in the
future and could have a significant impact on the Company's net income.
However, the amount of gain or loss on marketable securities and other
investments for any given period may have no predictive value and variations
in amount from period to period may have no analytical value.  For a more
detailed description of the composition of the Company's marketable securities
please see the Marketable Securities section below.

During the year ended June 30, 2006, the Company recorded impairment losses on
other investments of $513,000 that were considered permanently impaired.  In
the comparable year, the Company recorded impairment losses of $740,000
related to other investments.  These investments were determined to be
impaired after review of the most recent financial statements and news
releases of the entity in which the Company invested.

Dividend and interest income decreased to $697,000 for the year ended June 30,
2006 from $914,000 for the year ended June 30, 2005 as a result of the
decreased investment in income yielding securities during the current fiscal
year 2006.

General and administrative expenses increased to $1,659,000 from $1,460,000
primarily as the result of the increase in accounting audit fees to $470,000
for fiscal year 2006 from $244,000 for fiscal year 2005.

The total provision for income tax benefit decreased to $2,131,000 for the
year ended June 30, 2006 from $2,668,000 for the year ended June 30, 2005 as
the result of the decrease in the total loss before income taxes to $4,541,000
from $7,239,000 for the respective comparable year.

Minority interest benefit decreased to $487,000 for the year ended June 30,
2006 from $1,443,000 for the year ended June 30, 2005 as a result of the lower
losses incurred by the Company's subsidiaries, Santa Fe and Portsmouth, during
the year ended June 30, 2006 as compared to the year ended June 30, 2005.


MARKETABLE SECURITIES

The Company's securities investments are made under the supervision of a
Securities Investment Committee of the Board of Directors. The Committee
currently has three members and is chaired by the Company's Chairman of the
Board and President, John V. Winfield.  The Committee has delegated authority
to manage the portfolio to the Company's Chairman and President together with
such assistants and management committees he may engage.  The Committee has
established investment guidelines for the Company's investments.  These
guidelines presently include: (i) corporate equity securities should be listed
on the New York or American Stock Exchanges or the Nasdaq NMS Market; (ii)
securities should be priced above $5.00 per share; and (iii) investment in a
particular issuer should not exceed 5% of the market value of the total
portfolio. The investment policies do not require the Company to divest itself
of investments, which initially meet these guidelines but subsequently fail to
meet one or more of the investment criteria.  Non-conforming investments
require the approval of the Securities Investment Committee.  The Committee
has in the past approved non-conforming investments and may in the future
approve non-conforming investments.  The Securities Investment Committee may
modify these guidelines from time to time.

The Company's investment portfolio is diversified with 60 different equity
securities.  The Company has five individual positions that comprise more than
5% of the equity value of the portfolio with the largest being 10.2% of the

                                    -24-
<PAGE>

value of the portfolio.  The amount of the Company's investment in any
particular issue may increase or decrease, and additions or reductions to its
securities portfolio may occur, at any time.  While it is the internal policy
of the Company to limit its initial investment in any single equity to less
than 5% of its total portfolio value, that investment could eventually exceed
5% as a result of equity appreciation or reductions in other positions.
Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date.  As of June
30, 2006, the market value of the Company's marketable securities was
$29,186,000.

The Company may also invest, with the approval of the Securities Investment
Committee, in unlisted securities, such as convertible notes, through private
placements including private equity investment funds.  Those investments in
non-marketable securities are carried at cost on the Company's balance sheet
as part of other investments and reviewed for impairment on a periodic basis.
As of June 30, 2006, the Company had other investments of $4,344,000.

As part of its investment strategies, the Company may assume short positions
in marketable securities.  Short sales are used by the Company to potentially
offset normal market risks undertaken in the course of its investing
activities or to provide additional return opportunities.  As of June 30,
2006, the Company had obligations for securities sold (equities short) of
$6,635,000 and had no naked short positions.

In addition, the Company may utilize margin for its marketable securities
purchases through the use of standard margin agreements with national
brokerage firms.  The use of available leverage is guided by the business
judgment of management and is subject to any internal investment guidelines,
which may be imposed by the Securities Investment Committee.  The margin used
by the Company may fluctuate depending on market conditions.  The use of
leverage could be viewed as risky and the market values of the portfolio may
be subject to large fluctuations.  As of June 30, 2006, the Company had a
margin balance of $11,532,000 and incurred $767,000 and $904,000 in margin
interest expense during the year ended June 30, 2006 and June 30, 2005,
respectively.

As of June 30, 2006, the Company had investments in marketable equity
securities of $29,186,000.  The following table shows the composition of the
Company's marketable securities portfolio by selected industry groups as of
June 30, 2006:

                                                             % of Total
                                                              Investment
   Industry Group                      Market Value           Securities
   --------------                      ------------           ----------
   Insurance, banks and brokerages     $ 5,066,000               17.4%
   Telecommunications and media          3,856,000               13.2%
   Consumer goods and retail             3,577,000               12.3%
   Newspapers and paper mills            3,188,000               10.9%
   Pharmaceuticals and healthcare        2,984,000               10.2%
   REITs and building materials          2,603,000                8.9%
   Services                              2,380,000                8.2%
   Technology, internet and computers    2,065,000                7.1%
   Utilities and energy                  1,381,000                4.7%
   Automobiles and motor vehicle parts     419,000                1.4%
   Other                                 1,667,000                5.7%
                                        ----------              ------
                                       $29,186,000              100.0%
                                        ==========              ======

                                    -25-
<PAGE>

The following table shows the net gain or loss on the Company's marketable
securities and the associated margin interest and trading expenses for the
respective years:

For the year ended June 30,                 2006                   2005
                                       ------------           ------------
Net investment gains(losses)            $ 4,921,000           $ (4,874,000)
Impairment loss on other investments       (513,000)              (740,000)
Dividend & interest income                  697,000                914,000
Margin interest                            (767,000)              (904,000)
Trading expenses                         (1,718,000)            (1,753,000)
                                       ------------           ------------
                                       $  2,620,000           $ (7,357,000)
                                       ============           ============

FINANCIAL CONDITION AND LIQUIDITY

The Company's cash flows are generated primarily from its real estate
activities, sales of investment securities and borrowings related to both.
The Company generated cash flow of $319,000 from operating activities,
generated net cash flow of $4,602,000 from investing activities, and used net
cash flow of $5,206,000 for financing activities during the year ended June
30, 2006.

In February 2006, the Company sold 5.4 acres of unimproved land in Pasadena,
Texas for $467,000 and recognized a gain on the sale of $147,000. The Company
received net proceeds after closing costs and attorney's fees of $437,000.

In December 2005, the Company sold its 54-unit apartment complex located in
Irving, Texas for $3,100,000 and realized a gain on the sale of real estate of
$598,000.  The Company received net proceeds of $2,931,000 after selling costs
and attorney's fees.

In November 2005, the Company sold its 5-unit apartment complex located in Los
Angeles, California for $1,620,000 and realized a gain on the sale of real
estate of $592,000.  The Company received net proceeds of $870,000 after
selling costs and attorney's fees and the repayment of the mortgage note in
the amount of $660,000.

In August 2005, the Company sold its 112-unit apartment complex located in
Austin, Texas for $4,400,000 and realized a net loss on the sale real estate
of $16,000.   The Company received net proceeds of $1,664,000 after selling
costs and attorney's fees and the repayment of the mortgage note in the amount
of $2,186,000.

In September 2004, the Company sold its 442-unit multi-family apartment
complex located in Houston, Texas for $11,850,000.  The Company realized a
gain of $6,069,000 and received net proceeds of $11,273,000 after selling
costs and attorneys' fees.

During the year ended June 30, 2006, the Company improved properties in the
aggregate amount of $2,917,000. Management believes the improvements to the
properties should enhance market values, maintain the competitiveness of the
Company's properties and potentially enable the Company to obtain a higher
yield through higher rents.

During the year ended June 30, 2006, the Company purchased 19,900 shares of
Portsmouth stock for a total investment of $718,000.

During the year ended June 30, 2006, the Company purchased 14,100 shares of
Santa Fe stock for a total investment of $260,000.

                                    -26-
<PAGE>

In April 2006, Portsmouth purchased a 0.20% limited partnership interest in
Justice from another limited partner for $180,000, which brought its limited
partnership interest in Justice to exactly 50.0%.

During the year ended June 30, 2006, the Company made additional borrowings of
$1,745,000 from its construction loan related to the renovation of its 30-unit
apartment complex located in Los Angeles, California and made principal
payments on its mortgages totaling $3,921,000. The Company also repaid
$2,055,000 of its line of credit.

The Company's Board of Directors has given the Company the authority to
repurchase, from time to time, shares of its Common Stock.  Such repurchases
may be made at the discretion of management and depending upon market
conditions.  During the year ended June 30, 2006, the Company acquired an
additional 60,324 shares of its Common Stock for $975,000.  Approximately
36,000 shares remain eligible for the Company to repurchase under that
authorization.

Prior to operating the hotel as a Hilton, the Partnership was required to make
substantial renovations to the hotel to meet Hilton standards in accordance
with a product improvement plan agreed upon by Hilton and the Partnership, as
well as complying with other brand standards. The total cost of the
construction-renovation project of the Hotel was approximately $36.4 million,
which excludes approximately $630,000 in interest costs incurred during for
the construction phase that were capitalized.

To meet its substantial financial commitments for the renovation project and
transition of the Hotel to a Hilton, Justice had to rely on borrowings to meet
its obligations. On July 27, 2005, Justice entered into a first mortgage loan
(the "Prudential Loan") with The Prudential Insurance Company of America in a
principal amount of $30,000,000. The term of the Loan is for 120 months at a
fixed interest rate of 5.22% per annum. The Loan calls for monthly
installments of principal and interest in the amount of approximately
$165,000, calculated on a 360 month amortization schedule. The Loan is
collateralized by a first deed of trust on the Partnership's Hotel property,
including all improvements and personal property thereon and an assignment of
all present and future leases and rents. The Loan is without recourse to the
limited and general partners of Justice.

On July 27, 2005, Justice also obtained a $10,000,000 Revolving Line of Credit
("LOC") from United Commercial Bank ("UCB"). The term of the LOC is for 60
months at an annual interest rate, based on an index selected by Justice at
the time of the advance, equal to the Wall Street Journal Prime Rate or the
Libor Rate plus 2%, fixed for the period selected by the Partnership. The Loc
is collateralized by a second deed of trust on the Hotel property. Interest
only is payable monthly with principal and accrued interest due a maturity. On
January 20, 2006, the Partnership obtained a $4,500,000 increase in its LOC,
raising the total amount available to the Partnership pursuant to $14,500,000.
The increase in the credit line is on the same terms as the existing line of
credit with additional loan and documentation fees of $4,000. On May 23, 2006,
Justice obtained a short term increase of its LOC of an additional $2,000,000,
raising the total amount available to the Partnership to $16,500,000.  If the
short term increase of is not paid off by December 31, 2006, UCB has the right
to record a lien on the Hotel property for the additional $2,000,000. That
increase is also on the same terms as the existing LOC, with additional
documentation fees of $1,000. As of June 30, 2006, approximately $16,000,000
of the LOC was utilized.

                                    -27-
<PAGE>

The Prudential Loan and the LOC have provided Justice with sufficient
financial resources for the Partnership to complete the substantial
renovations to the Hotel required by its Franchise License Agreement with
Hilton and to meet its debt service requirements and operating capital needs
through the reopening of the Hotel and the period of time necessary to ramp up
operations. The Hotel started to generate net operating income from its
operations in June 2006.  The Partnership also believes that there is
sufficient equity in the Hotel assets to support future borrowings if
necessary. The Partnership believes that the revenues expected to be generated
from the Hotel operations after July 1, 2006 will be sufficient to meet all of
its current and future obligations and financial requirements.

The additional amount of leverage related to the Prudential Loan and the
utilization of the LOC and the associated debt service will create additional
risk for the Partnership and its ability to generate cash flows in the future
since the Hotel asset has been virtually debt free for many years. The
Partnership does not anticipate paying any partnership distributions until
some time after operations stabilize under the Hilton brand and net income and
capital requirements warrant such distributions.  As a result, the Company may
have to depend more on the revenues generated from the investment of its cash
and securities assets during that transition period.

The Company has invested in short-term, income-producing instruments and in
equity and debt securities when deemed appropriate.  The Company's marketable
securities are classified as trading with unrealized gains and losses recorded
through the statement of operations.

Management anticipates that the net cash flow generated from future operating
activities will be sufficient to meet its operating and long-term debt service
requirements.


OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off balance sheet arrangements.


CONTRACTUAL OBLIGATIONS

The annual combined aggregate principal payments on the mortgage notes payable
for the five-year period commencing July 1, 2006, and thereafter, are as
follows:

                 Year ending June 30,
                      2007               $ 8,038,000
                      2008                 5,963,000
                      2009                10,069,000
                      2010                 1,102,000
                      2011                 1,165,000
                      Thereafter          51,919,000
                                         -----------
                       Total             $78,256,000
                                         ===========


IMPACT OF INFLATION

The Company's residential and commercial rental properties provide income from
short-term operating leases and no lease extends beyond one year.  Rental
increases are expected to offset anticipated increased property operating
expenses.

                                    -28-
<PAGE>

The Company's revenue from its interest in Justice Investors is primarily
dependent on hotel revenues.  Hotel room rates are typically impacted by
supply and demand factors, not inflation, since rental of a hotel room is
usually for a limited number of nights.  Room rates can be, and usually are,
adjusted to account for inflationary cost increases.  To the extent that the
hotel lessee is able to adjust room rates, there should be minimal impact on
partnership revenues due to inflation.  Partnership revenues are also subject
to interest rate risks, which may be influenced by inflation.  For the two
most recent fiscal years, the impact of inflation on the Company's income is
not viewed by management as material.


CRITICAL ACCOUNTING POLICIES

The Company reviews its long-lived assets including its investment in real
estate and other investments for impairment when circumstances indicate that a
potential loss in carrying value may have occurred.  To the extent that
projected future undiscounted cash flows from the operation of the hotel
property, owned through the Company's investment in Justice Investors, and
rental properties are less than the carrying value of the assets, the carrying
value of the assets are reduced to their fair value.  For other investments,
the Company reviews the investment's operating results, financial position and
other relevant factors to determine whether the estimated fair value of the
asset is less than the carrying value of the asset.

Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date.  Marketable
securities are classified as trading with net change in unrealized gains or
losses included in the statement of operations.  The Company's other
accounting policies are straightforward in their application.


Item 7.  Financial Statements.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                             Page
                                                                       ----

Report of Independent Registered Public Accounting Firm                 30

Consolidated Balance Sheet at June 30, 2006                             31

Consolidated Statements of Operations for the
  years ended June 30, 2006 and June 30, 2005                           32

Consolidated Statements of Shareholders' Equity for the years
  ended June 30, 2006 and June 30, 2005                                 33

Consolidated Statements of Cash Flows for the years ended
  June 30, 2006 and June 30, 2005                                       34

Notes to Consolidated Financial Statements                              35

                                    -29-
<PAGE>


         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders of The InterGroup Corporation:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of The
InterGroup Corporation at June 30, 2006, and the results of its operations and
its cash flows for each of the two years in the period ended June 30, 2006 in
conformity with accounting principles generally accepted in the United States
of America.  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 of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States).  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.


/s/ PricewaterhouseCoopers LLP


Irvine, California
September 27, 2006

                                    -30-
<PAGE>

                      THE INTERGROUP CORPORATION
                         CONSOLIDATED BALANCE SHEET

As of June 30,                                                 2006
                                                            -----------
                             ASSETS

Investment in real estate, at cost:
 Land                                                     $  25,989,000
 Buildings, improvements and equipment                       69,160,000
 Less: accumulated depreciation                             (19,867,000)
                                                            -----------
                                                             75,282,000
 Property held for sale                                       3,634,000
                                                            -----------
                                                             78,916,000
Investment in Justice Investors                               5,646,000
Cash and cash equivalents                                       583,000
Restricted cash                                               2,712,000
Investment in marketable securities                          29,186,000
Other investments                                             4,344,000
Prepaid expenses and other assets                             1,497,000
                                                            -----------
        Total Assets                                      $ 122,884,000
                                                            ===========
                  LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
 Mortgage notes payable                                   $  74,150,000
 Mortgage notes payable - property held for sale              4,106,000
 Due to securities brokers                                   11,532,000
 Obligation for securities sold                               6,635,000
 Line of credit                                               4,258,000
 Accounts payable and other liabilities                       3,405,000
 Deferred income taxes                                        3,887,000
                                                            -----------
        Total Liabilities                                   107,973,000
                                                            -----------
Minority Interest                                             5,668,000
                                                            -----------
Commitments and Contingencies

Shareholders' Equity:
Preferred stock, $.01 par value, 2,500,000 shares
  authorized; none issued                                             -
Common stock - Class A, $.01 par value, 2,500,000
  shares authorized: none issued                                      -
Common stock, $.01 par value, 4,000,000 shares
  authorized; 3,193,745 shares issued and 2,359,862
  outstanding                                                    21,000
Additional paid-in capital                                    8,686,000
Retained earnings                                             9,350,000
Treasury stock, at cost, 833,883 shares                      (8,814,000)
                                                            -----------
        Total Shareholders' Equity                            9,243,000
                                                            -----------
        Total Liabilities and Shareholders' Equity        $ 122,884,000
                                                            ===========

The accompanying notes are an integral part of the consolidated financial
statements.

                                    -31-
<PAGE>


                         THE INTERGROUP CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year Ended June 30,                           2006           2005
                                                   -----------    -----------

Real estate operations:
  Rental income                                   $ 12,014,000   $ 11,630,000
  Rental expenses:
    Property operating expenses                     (6,315,000)    (4,608,000)
    Mortgage interest expense                       (3,697,000)    (3,784,000)
    Real estate taxes                               (1,798,000)    (1,870,000)
    Depreciation                                    (2,362,000)    (2,409,000)
    Amortization                                             -       (555,000)
    Loss on early extinguishment of debt                     -       (160,000)
                                                   -----------    -----------
Loss from real estate operations                    (2,158,000)    (1,756,000)
                                                   -----------    -----------
Equity in net loss of Justice Investors             (4,564,000)    (2,303,000)
                                                   -----------    -----------
Investment transactions:
  Net investment gains(losses)                       4,921,000     (4,874,000)
  Impairment loss on other investments                (513,000)      (740,000)
  Dividend and interest income                         697,000        914,000
  Margin interest and trading expenses              (2,485,000)    (2,657,000)
                                                   -----------    -----------
    Income(loss) from investment transactions        2,620,000     (7,357,000)
                                                   -----------    -----------
Other income(expense):
  General and administrative expenses               (1,659,000)    (1,460,000)
  Other income                                         121,000        121,000
                                                   -----------    -----------
    Other expense                                   (1,538,000)    (1,339,000)
                                                   -----------    -----------
Loss before provision for income
 taxes and minority interest                        (5,640,000)   (12,755,000)

Provision for income tax benefit                     2,647,000      4,701,000
                                                   -----------    -----------
Loss before minority interest                       (2,993,000)    (8,054,000)
Minority interest benefit, net of tax                  487,000      1,443,000
                                                   -----------    -----------
Net loss from continuing operations               $ (2,506,000)  $ (6,611,000)
                                                   -----------    -----------
Discontinued operations:
  Net loss on discontinued operations             $   (222,000)  $   (553,000)
  Gain on sale of real estate                        1,321,000      6,069,000
  Provision for income tax expense                    (516,000)    (2,033,000)
                                                   -----------    -----------
Income from discontinued operations               $    583,000   $  3,483,000
                                                   -----------    -----------
Net loss                                          $ (1,923,000)  $ (3,128,000)
                                                   ===========    ===========
Loss per share from continuing operations
  Basic                                           $      (1.05)  $      (2.69)
  Diluted                                         $      (1.05)  $      (2.69)
                                                   ===========    ===========
Income per share from discontinued operations
  Basic                                           $       0.24   $       1.42
  Diluted                                         $       0.21   $       1.23
                                                   ===========    ===========
Net loss per share
  Basic                                           $      (0.81)  $      (1.27)
  Diluted                                         $      (0.81)  $      (1.27)
                                                   ===========    ===========

Weighted average number of shares outstanding        2,385,008      2,453,544
                                                   ===========    ===========
Diluted weighted average number of shares
  outstanding                                        2,754,008      2,821,044
                                                   ===========    ===========

The accompanying notes are an integral part of the consolidated
financial statements.

                                    -32-
<PAGE>

<TABLE>
                          THE INTERGROUP CORPORATION
                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                             Additional
                   Common     paid-in       Retained      Treasury
                    stock     capital       Earnings       Stock           Total
                   -------   ----------   -----------    -----------  -------------
<S>               <C>        <C>          <C>            <C>           <C>
Balance at
 June 30, 2004    $ 21,000   $8,686,000   $14,401,000    $(6,799,000)  $16,309,000

Net loss                                   (3,128,000)                  (3,128,000)

Purchase of
 treasury stock                                           (1,040,000)   (1,040,000)
                   -------   ----------   -----------    -----------   -----------
Balance at
 June 30, 2005     21,000    8,686,000    11,273,000     (7,839,000)   12,141,000

Net loss                                   (1,923,000)                  (1,923,000)

Purchase of
 treasury stock                                             (975,000)     (975,000)

                   -------   ----------   -----------    -----------   -----------
Balance at
 June 30, 2006     $21,000   $8,686,000   $ 9,350,000    $(8,814,000)  $ 9,243,000
                   =======   ==========   ===========    ===========   ===========

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                    -33-
<PAGE>

                        THE INTERGROUP COPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended June 30,                          2006           2005
                                                 -----------    -----------
Cash flows from operating activities:
Net loss                                         $(1,923,000)   $(3,128,000)
Adjustments to reconcile net loss
 to cash provided by operating activities:
  Depreciation of real estate                      2,362,000      2,409,000
  Depreciation - discontinued operations             149,000        495,000
  Amortization of intangible asset                         -        555,000
  Gain on sale of real estate                     (1,321,000)    (6,069,000)
  Loss on early extinguishment of debt                     -        160,000
  Equity in net loss of Justice Investors          4,564,000      2,303,000
  Net unrealized (gain)loss on investments        (2,873,000)     7,734,000
  Impairment loss on other investments               513,000        740,000
  Minority interest                                 (487,000)    (1,443,000)
  Changes in assets and liabilities:
   Restricted cash                                   269,000        572,000
   Prepaid expenses and other assets                 370,000      1,204,000
   Investment in marketable securities            (2,279,000)    34,632,000
   Other investments                              (2,689,000)    (1,716,000)
   Accounts payable and other liabilities           (107,000)      (958,000)
   Due to securities broker                        4,806,000    (15,719,000)
   Obligations for securities sold                 1,378,000    (16,328,000)
   Deferred taxes                                 (2,413,000)   (1,516,000)
                                                 -----------    ------------
Net cash provided by operating activities            319,000      3,927,000
                                                 -----------   ------------
Cash flows from investing activities:

  Net proceeds from sale of real estate            8,677,000     11,273,000
  Investment in real estate                                -     (1,467,000)
  Additions to buildings, improvements and
   equipment                                      (2,917,000)    (2,920,000)
  Investment in Santa Fe                            (260,000)      (197,000)
  Investment in Portsmouth                          (718,000)    (1,499,000)
  Investment in Justice Investors                   (180,000)             -
                                                 -----------    -----------
Net cash provided by investing activities          4,602,000      5,190,000
                                                 -----------    -----------
Cash flows from financing activities:

  Borrowings from mortgage notes payable           1,745,000      6,703,000
  Principal payments on mortgage notes payable    (3,921,000)   (16,002,000)
  Borrowings from(repayment of) line of credit    (2,055,000)     1,313,000
  Purchase of treasury stock                        (975,000)    (1,040,000)
                                                 -----------    -----------
Net cash used in financing activities             (5,206,000)    (9,026,000)
                                                 -----------    -----------
Net increase(decrease) in cash and cash
  equivalents                                       (285,000)        91,000
Cash and cash equivalents at beginning of
 period                                              868,000        777,000
                                                 -----------    -----------
Cash and cash equivalents at end of period       $   583,000    $   868,000
                                                 ===========    ===========

The accompanying notes are an integral part of the consolidated financial
statements.

                                    -34-
<PAGE>


                      THE INTERGROUP CORPORATION
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Business and Significant Accounting Policies and Practices:

Description of the Business

The InterGroup Corporation ("InterGroup" or the "Company") was formed to buy,
develop, operate and dispose of real property and to engage in various
investment activities to benefit the Company and its shareholders.

As of June 30, 2006 and 2005, the Company had the power to vote 78% and 76.9%,
respectively, of the voting shares of Santa Fe Financial Corporation ("Santa
Fe"), a public company (OTCBB: SFEF).  Those percentages include the power to
vote an approximately 4% interest in the common stock in Santa Fe owned by the
Company's Chairman and President pursuant to a voting trust agreement entered
into on June 30, 1998.

Santa Fe's revenue is primarily generated through the management of its 68.8%
owned subsidiary, Portsmouth Square, Inc. ("Portsmouth"), a public company
(OTCBB: PRSI), which derives its revenue primarily as a general partner and a
50% limited partner in Justice Investors, a California limited partnership
("Justice" or the "Partnership").  Justice owns the land, improvements and
leaseholds now known as the "Hilton San Francisco Financial District", a 549-
room hotel in San Francisco, California (the "Hotel").

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
all controlled subsidiaries. All significant inter-company transactions and
balances have been eliminated.

Use of Estimates

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

Investment in Real Estate

Investments in real estate are stated at cost.  Depreciation of buildings,
improvements and equipment is provided on the straight-line method based upon
estimated useful lives of five to forty years for buildings and improvements
and five to ten years for equipment.  Expenditures for repairs and maintenance
are charged to expense as incurred and improvements are capitalized.

In accordance with Statement of Financial Accounting Standards No. 144 (SFAS
144), "Accounting for Impairment or Disposal of Long-Lived Assets", the
Company reviews its rental property assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.  If expected future cash flows (undiscounted and excluding
interest costs) are less than the carrying value of the rental asset, the
asset is written down to its fair value.  The estimation of expected future
net cash flows is inherently uncertain and relies to a considerable extent on
assumptions regarding current and future economic and market conditions, and

                                    -35-
<PAGE>

the availability of capital. If, in future periods, there are changes in the
estimates or assumptions incorporated into the impairment review analysis, the
changes could result in an adjustment to the carrying amount of the long-lived
asset. No impairment losses on the investment in real estate have been
recorded for the year ended June 30, 2006 and 2005.

Properties are classified as held for sale when management commits to a plan
to sell the asset, the asset is available for immediate sale, an active
program to locate a buyer has been initiated, the sale of the asset is
probable, the sale of the asset is actively marketed and it is unlikely that
significant changes to the sale plan will be made or withdrawn.  As of June
30, 2006, the Company had one property classified as held for sale.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with an original
maturity of three months or less when purchased and are carried at cost, which
approximates fair value.

Restricted Cash

Restricted cash is comprised of amounts held by lenders for payment of real
estate taxes, insurance, replacement reserves for the operating properties and
tenant security deposits that are invested in certificates of deposit.

Investment in Marketable Securities

Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date.  Marketable
securities are classified as trading securities with all unrealized gains and
losses on the Company's investment portfolio recorded through the statement of
operations.

Other Investments

Other investments in non-marketable securities are carried at cost on the
Company's balance sheet as part of other investments and reviewed for
impairment on a periodic basis.

Due to Securities Broker

The Company may utilize margin for its marketable securities purchases through
the use of standard margin agreements with national brokerage firms.  Various
securities brokers have advanced funds to the Company for the purchase of
marketable securities under standard margin agreements. These advanced funds
are recorded as a liability.

Obligation for Securities Sold

Obligation for securities sold represents the fair market value of shares sold
with the promise to deliver that security at some future date and the fair
market value of shares underlying the written call options with the obligation
to deliver that security when and if the option is exercised.  The obligation
may be satisfied with current holdings of the same security or by subsequent
purchases of that security.  Unrealized gains and losses from changes in the
obligation are included in the statement of operations.

                                    -36-
<PAGE>

Treasury Stock

The Company records the acquisition of treasury stock under the cost method.

Rental Income

Rental income is recognized as earned.  Revenue recognition from apartment
rentals commences when an apartment unit is placed in service and occupied by
a rent-paying tenant.    Apartment units are leased on a short-term basis, with
no lease extending beyond one year.

Income Taxes

Deferred income taxes are determined using the liability method.  A deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by
statutory tax rates.  Deferred tax expense is the result of changes in the
asset and/or liability for deferred taxes.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, restricted cash, marketable
securities, other investments, mortgage notes payable, amounts due securities
brokers and obligations for securities sold approximates fair value.  The fair
value of mortgage notes payable is estimated using discounted cash flows of
future payments based on the borrowing rates available to the Company for debt
with similar terms and maturities.

Environmental Remediation Costs

Liabilities for environmental remediation costs are recorded and charged to
expense when it is probable that obligations have been incurred and the
amounts can be reasonably estimated.  Recoveries of such costs are recognized
when received.  As of June 30, 2006, there were no liabilities for
environmental remediation.

The Company adopted Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations - an Interpretation of FASB Statement No. 143 ("FIN
47") during the fiscal year ended June 30, 2006.  FIN 47 clarifies that the
term conditional asset retirement obligation as used in FASB Statement No.
143, Accounting for Asset Retirement Obligations, refers to a legal obligation
to perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may or may not be within the
control of the Company.  The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the timing and
(or) method of settlement. Accordingly, the Company is required to recognize a
liability for the fair value of a conditional asset retirement obligation if
the fair value of the liability can be reasonably estimated.  The adoption of
FIN 47 did not have any impact on the Company's consolidated balance sheet as
of June 30, 2006 or its consolidated statements of operations or its
consolidated statements of cash flows for the years ended June 30, 2006 and
June 30, 2005.

Stock-Based Compensation Plans

Effective December 15, 2002, the Company adopted Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation-
Transition and Disclosure", which amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 148). In
accounting for its plans, the Company, as allowable under the provisions of

                                    -37-
<PAGE>

SFAS 148, applies Accounting Principles Board Opinions No. 25, "Accounting for
Stock issued to Employees." As a result of this election, the Company does not
recognize compensation expense for its stock option plans.

During the years ended June 30, 2006 and 2005, the Company granted 12,000 and
15,000 options, respectively.  Had the Company determined compensation expense
based on the fair value for its stock options at grant date, net income(loss)
and earnings(loss) per share would have been reduced to the pro forma amounts
as follows:

  For the year ended June 30,                  2006           2005
                                           -----------     ----------
  Net loss                                 $(1,923,000)   $(3,128,000)
  Stock based employee
   Compensation expense*                       (56,000)       (77,000)
                                            ----------     ----------
  Pro forma net loss                       $(1,979,000)   $(3,205,000)

  Loss per share
   Basic as reported                       $     (0.81)   $     (1.27)
   Basic pro forma                         $     (0.83)   $     (1.31)
   Diluted as reported                     $     (0.81)   $     (1.27)
   Diluted pro forma                       $     (0.83)   $     (1.31)

*Determined under fair value based on method for awards net of related tax
effects (40%).

The Black-Scholes option pricing model was used with the following weighted-
average assumptions:


For the year ended June 30,                      2006           2005
                                              -----------   ------------
Risk free interest rate                          5.07%           3.87%
Dividend yield                                   0.00%           0.00%
Price volatility factor                         24.46           24.60
Weighted average expected life                     10              10
Fair value of each option granted               $7.71           $7.83
Aggregate fair value of options granted       $92,000        $129,000

Earnings Per Share

Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding.  The computation of diluted earnings per share is similar to the
computation of basic earnings per share except that the weighted-average
number of common shares is increased to include the number of additional
common shares that would have been outstanding if potential dilutive common
shares had been issued.  The Company's only potentially dilutive common shares
are stock options.  Stock options are included in diluted earnings per share
by application of the treasury stock method.  As of June 30, 2006, the Company
had 369,000 stock options that were considered potentially dilutive common
shares and 36,000 stock options that were considered anti-dilutive.  These
amounts were included in the calculation for diluted earnings per share.  As
of June 30, 2005, the Company had 367,500 stock options that were considered
potentially dilutive common shares and 25,500 stock options that were
considered anti-dilutive.  These amounts were included in the calculation for
diluted earnings per share.

                                    -38-
<PAGE>

Reclassifications

Certain prior year balances have been reclassified to conform with the current
year presentation.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ( FASB ) issued
Statement of Financial Accounting Standards (SFAS) No. 123-R, Share-Based
Payment.  This Statement addresses the accounting for share-based payment
transactions in which a company receives employee services in exchange for (a)
equity instruments of the company, such as stock options, or (b) liabilities,
such as those related to performance units, that are based on the fair value
of the company s equity instruments or that may be settled by the issuance of
such equity instruments.

SFAS No. 123-R, which is effective for the Company beginning in the first
quarter of fiscal year 2007, eliminates the ability to account for share-based
compensation transactions using APB Opinion No. 25, and generally requires
that such transactions be accounted for using prescribed fair-value-based
methods. SFAS No. 123-R permits public companies to adopt its requirements
using one of two methods: (a) a  modified prospective  method in which
compensation costs are recognized beginning with the effective date based on
the requirements of SFAS No. 123-R for all share-based payments granted after
the effective date and based on the requirements of SFAS No. 123 for all
awards granted to employees prior to the effective date of SFAS No. 123-R that
remain unvested on the effective date or (b) a  modified retrospective  method
which includes the requirements of the modified prospective method described
above, but also permits companies to restate based on the amounts previously
recognized under SFAS No. 123 for purposes of pro forma disclosures either for
all periods presented or prior interim periods of the year of adoption.  The
Company does not believe the adoption of SFAS No. 123(R) will have a material
impact on its consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes." This Interpretation clarifies
the accounting for uncertainty in income taxes recognized in a company's
financial statements in accordance with FASB Statement No. 109, "Accounting
for Income Taxes." FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. Guidance is also
provided on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company is in the process of
evaluating the impact, if any, of FIN 48 on its consolidated financial
statements.


2.  Investment in Real Estate:

At June 30, 2006, the Company's investment in real estate consisted of twenty
three properties located throughout the United States.  These properties
include nineteen apartment complexes, two single-family houses as strategic
investments, and two commercial real estate properties, one of which serves as
the Company's corporate headquarters.  The Company also owns two unimproved
real estate properties located in Irving, Texas and Maui, Hawaii.

In February 2006, the Company sold 5.4 acres of unimproved land in Pasadena,
Texas for $467,000 and recognized a gain on the sale of $147,000. The Company
received net proceeds after closing costs and attorney's fees of $437,000.

                                    -39-
<PAGE>

In December 2005, the Company sold its 54-unit apartment complex located in
Irving, Texas for $3,100,000 and realized a gain on the sale of real estate of
$598,000.  The Company received net proceeds of $2,931,000 after selling costs
and attorney's fees.

In November 2005, the Company sold its 5-unit apartment complex located in Los
Angeles, California for $1,620,000 and realized a gain on the sale of real
estate of $592,000.  The Company received net proceeds of $870,000 after
selling costs and attorney's fees and the repayment of the mortgage note in
the amount of $660,000.

In August 2005, the Company sold its 112-unit apartment complex located in
Austin, Texas for $4,400,000 and realized a net loss on the sale real estate
of $16,000.   The Company received net proceeds of $1,664,000 after selling
costs and attorney's fees and the repayment of the mortgage note in the amount
of $2,186,000.

In September 2004, the Company sold its 442-unit multi-family apartment
complex located in Houston, Texas for $11,850,000.  The Company realized a
gain of $6,069,000 and received net proceeds of $11,273,000 after selling
costs and attorneys' fees.

Under the provisions of the Statement of Financial Accounting Standards
No.144, Accounting for Impairment or Disposal of Long-Lived Assets, for
properties disposed of during the year or for properties for which the Company
actively markets for sale at a price that is reasonable in relation to its
market value, the properties are required to be classified as held for sale on
the balance sheet and accounted for under discontinued operations in the
statement of operations.  The revenues and expenses from the operation of
these properties have been reclassified from continuing operations for the
year ended June 30, 2006 and 2005 and reported as income from discontinued
operations in the consolidated statements of operations.

As of June 30, 2006, the Company had one property located in Texas classified
as held for sale.   The revenues and expenses from the operation for this
property along with the properties that were sold during the years ended June
30, 2006 and 2005 respectively, have been reclassified from continuing
operations and reported as income from discontinued operations in the
consolidated statements of operations for the respective years.
Revenues and expenses from the operation of these properties for the year
ended June 30, 2006 and 2005 are summarized as follows:


For the year ended June 30,               2006               2005
                                       ----------        ----------
      Revenues                         $1,522,000       $ 2,922,000
      Expenses                         (1,744,000)       (3,475,000)
                                       ----------        ----------
      Net loss                           (222,000)         (553,000)
                                       ==========        ==========


Depreciation expense for the year ended June 30, 2006 and 2005, was $149,000
and $495,000, respectively.

                                    -40-
<PAGE>

3.  Marketable Securities and Other Investments:

At June 30, 2006, all of the Company's marketable securities are classified as
trading securities.  In accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the change in the unrealized gains
and losses on these investments are included the statement of operations.
Trading securities are summarized as follows:

<TABLE>

As of June 30, 2006
                               Gross         Gross            Net             Market
Investment   Cost        Unrealized Gain Unrealized Loss  Unrealized Gain     Value
---------- -----------   --------------- ---------------  ---------------  ------------
<S>        <C>            <C>            <C>               <C>            <C>
Corporate
Equities   $23,665,000    $6,802,000     ($1,281,000)      $5,521,000     $29,186,000

</TABLE>

As of June 30, 2006, the Company had $647,000 of unrealized losses related to
securities held for over one year.

As of June 30, 2006, the Company had net other investments of $4,344,000.
This balance includes gross other investments of $5,823,000, net an impairment
loss of $1,479,000.

As part of the investment strategies, the Company may assume short positions
in marketable securities.  Short sales are used by the Company to potentially
offset normal market risks undertaken in the course of its investing
activities or to provide additional return opportunities.  As of June 30,
2006, the Company had obligations for securities sold (equities short) of
$6,635,000 and had no naked short positions.

Net gains on marketable securities on the statement of operations are
comprised of realized and unrealized gains.  Below is the composition of the
two components for the years ended June 30, 2006 and 2005.

<TABLE>
For the year ended June 30,                            2006             2005
                                                    -----------      -----------
<S>                                                 <C>              <C>
Realized gains on marketable securities             $ 2,048,000      $ 2,860,000
Unrealized gains(losses) on marketable securities     2,873,000       (7,734,000)
                                                    -----------      -----------
Net gains(losses) on marketable securities            4,921,000      $(4,874,000)
                                                    ===========      ===========
</TABLE>

4.  Investment in Justice Investors:

The Company has a 50% interest in Justice Investors.  Justice owns the land,
improvements and leaseholds now known as the "Hilton San Francisco Financial
District", a 549-room hotel in San Francisco, California.  Portsmouth is both
a general and limited partner in Justice and oversees operations and shares
management responsibilities with the other general partner. Portsmouth records
its investment in Justice on the equity basis.

The Company amortizes on a straight-line basis the step up in the asset values
which represents the excess purchase price over the underlying book value and
is allocable to the depreciable assets of its investment in Justice Investors
over 40 years, which approximates the remaining life of the primary asset, the
hotel building.

For the Company's investment in Justice, to the extent that projected future
undiscounted cash flows from the operation of the Hotel property are less than
the carrying value of the asset, the investment would be considered impaired
and the carrying value of the asset would be reduced to its fair value.
All significant partnership decisions require the active participation and
approval of both general partners.  The Company and Evon jointly consult and

                                    -41-
<PAGE>

determine the amount of partnership reserves and the amount of cash to be
distributed to the limited partners.  Pursuant to the terms of the partnership
agreement, voting rights of the partners are determined according to the
partners' entitlement to share in the net profit and loss of the partnership.
The Company is not entitled to any additional voting rights by virtue of its
position as a general partner.

The partnership agreement also provides that no portion of the partnership
real property can be sold without the written consent of the general and
limited partners entitled to more than 72% of the net profit.

Historically, Justice's most significant income source was a lease between the
Partnership and Felcor Lodging Trust, Inc. ("Felcor") for the Hotel portion of
the property.  Pursuant to a Settlement Agreement entered into on May 3, 2004,
Felcor agreed to terminate its lease and surrender possession of the Hotel to
Justice, on June 30, 2004.  Effective July 1, 2004, Justice became the owner-
operator of the Hotel, with the assistance of a Management Agreement with Dow
Hotel Company, LLC. ("Dow") to perform the day-to-day management functions of
the Hotel. The Partnership also derives income from the lease of the garage
portion of the property to Evon and from a lease on the lobby level of the
Hotel to Tru Spa.  The Company also derives revenue from management fees from
Justice for actively managing the hotel as a general partner.

On December 10, 2004, Justice entered into a Franchise License Agreement for
the right to operate the Hotel property as a Hilton brand hotel. Prior to
operating the hotel as a Hilton, the Partnership was required to make
substantial renovations to the hotel to meet Hilton standards in accordance
with a product improvement plan agreed upon by Hilton and the Partnership, as
well as complying with other brand standards.  The Agreement required that
those renovations be complete and the Hotel commence operations as a Hilton
hotel no later than June 1, 2006. The term of the Agreement is for a period of
15 years commencing on the opening date, with an option to extend the license
term for another five years, subject to certain conditions.

On March 15, 2005, the Partnership announced its decision to close down its
Hotel operations on or about June 1, 2005 to complete renovations of the Hotel
as required by the Hilton Agreement.  The below ground parking garage and Tru
Spa located on the lobby level of the Hotel, both of which are lessees of the
Partnership, remained open during the renovation work. The Hotel renovation
work was substantially completed on January 12, 2006 at which time the
Partnership obtained approval from Hilton to open the Hotel as the "Hilton San
Francisco Financial District". The Hotel opened with a limited number of rooms
available to rent, which increased as the Hotel transitioned into full
operations by the end of February 2006.

The total cost of the construction-renovation project of the Hotel was
approximately $36.4 million, which excludes approximately $630,000 in interest
costs incurred during for the construction phase that were capitalized.

On July 14, 2005, the Financial Accounting Standards Board directed Staff
Position (FSP) SOP 78-9-1, "Interaction of AICPA Statement of Position 78-9
and EITF Issue No. 04-5" to amend the guidance in AICPA Statement of Position

78-9, "Accounting for Investments in Real Estate Ventures" (SOP 78-9) to be
consistent with the consensus in Emerging Issues Task Force Issue No. 04-5
"Determining Whether a General Partner, or General Partners as a Group,
Controls a Limited Partnership or Similar Entity When the Limited Partners
Have Certain Rights" (Issue 04-5). FSP SOP 78-9-1 eliminated the concept of
"important rights" in paragraph .09 of SOP 78-9 and replaces it with the
concepts of "kick out rights" and "substantive participating rights" as
defined in Issue 04-5.

                                    -42-
<PAGE>

Under the amendment to paragraph .09 of SOP 78-9 the general partners of a
limited partnership should be deemed to control a limited partnership;
however, the rights of the limited partners may overcome that presumption of
control. The guidance in EITF Issue No. 04-5 should be used to determine
whether the rights of the limited partners overcome the presumption of control
by the general partners. The presumption of control is not overcome by the
rights of the limited partners and if a single general partner controls the
limited partnership, that general partner should consolidate the limited
partnership and apply the principles of accounting applicable for investments
in subsidiaries. For existing partnership agreements such as Justice
Investors, the guidance should be applied in financial statements issued for
the first reporting period in the fiscal years beginning after December 15,
2005 and early application is encouraged.

During the fiscal quarter ended March 31, 2006, Portsmouth conducted an
assessment of its general and limited interest in Justice Investors under the
new guidance provided by SOP 78-9-1. The Company determined that, under the
limited partnership agreement, the limited partners of Justice do not have
either "kick out rights" to remove Portsmouth as a general partner or
"substantive participating rights" to direct the business of the Partnership.
Significant in that assessment is the fact that the limited partners of
Justice do not have the ability to dissolve (liquidate) the Partnership and
effectively remove the general partners without the participation and consent
of Portsmouth's 50.0% limited partnership interest since any action to sell
the Partnership real property and dissolve the Partnership requires the
approval of partners entitled to more than 72% of the net profit of the
Partnership. Based on its assessment, Portsmouth has concluded that rights of
the limited partners under the Partnership agreement do not overcome the
presumption that Portsmouth, as a general partner and a significant limited
partner, controls the Partnership in accordance with guidance set forth in FSP
SOP 78-9-1. Thus, Portsmouth will be able to consolidate Justice and apply the
principles of accounting applicable for investments in subsidiaries due to its
substantial limited partnership interest and general partnership rights.

Portsmouth will apply the guidance of FSP SOP 78-9-1 in its financial
statements issued for the first reporting period of its fiscal year beginning
July 1, 2006.

Condensed financial statements for Justice Investors are as follows:

                            JUSTICE INVESTORS
                         CONDENSED BALANCE SHEET

As of June 30,                                                 2006
                                                            ----------
Assets
Cash                                                      $  2,352,000
Other assets                                                 2,057,000
Property, plant and equipment, net of
  accumulated depreciation of $14,814,000                   42,146,000
Land                                                         1,124,000
                                                            ----------
    Total assets                                          $ 47,679,000
                                                            ==========
Liabilities and partners' capital
Total current liabilities                                 $  6,647,000
Long term liabilities                                       45,719,000
Partners' capital deficit                                   (4,687,000)
                                                            ----------
    Total liabilities and partners' capital               $ 47,679,000
                                                            ==========

                                    -43-
<PAGE>

                                JUSTICE INVESTORS
                        CONDENSED STATEMENTS OF OPERATIONS

For the year ended June 30,                    2006            2005
                                            ----------      ----------
Hotel revenue                            $   9,054,000    $ 12,930,000
Garage rent                                    945,000       1,005,000
Other income(loss)                          (2,195,000)         53,000
Operating expenses                         (16,405,000)    (16,218,000)
Loss on disposition of assets                        -      (1,991,000)
                                            ----------      ----------
Net loss                                 $  (8,601,000)   $ (4,221,000)
                                            ==========      ==========


5.  Mortgage Notes Payable:

As of June 30, 2006, the Company had mortgage debt outstanding of $78,256,000.
The mortgages carry variable rates from 6.45% to 9.25% and fixed rates ranging
from 4.35% to 7.95%.

In May 2004, the Company obtained a construction loan in the amount of
$6,268,000 as part of a major renovation of its 30-unit apartment complex
located in Los Angeles, California.  In December 2005, the Company entered
into a loan modification agreement with the bank and increased the loan amount
to $7,286,000 with maturity on June 1. 2007.  As of June 30, 2006, the balance
on the construction loan was $6,878,000.

In November 2005, the Company paid off a mortgage in the amount of $660,000
related to the sale of its 5-unit family apartment located Los Angeles,
California.

In August 2005, the Company paid off a mortgage in the amount of $2,186,000
related to the sale of its 112-unit multi-family apartment located Austin,
Texas.

In June 2005, the Company refinanced a loan in the amount of $4,006,000 on its
157-unit Florence, Kentucky property and obtained a new mortgage in the amount
of $4,200,000.  The loan is a 10 year fixed rate loan at 4.995%.

In September 2004, as a part of the sale of its 442-unit property in Houston,
Texas, the Company paid off the related mortgage loan in the amount of
$9,864,000.

In August 2004, the Company repaid a mortgage in the amount of $1,180,000 on
its 54-unit multi-family apartment located in Irving, Texas.  Related to the
repayment of the mortgage, the Company incurred an early termination fee of
$133,000.

In August 2004, to facilitate the purchase of the land in Kihei, Maui, the
Company obtained a loan in the amount of $750,000.  The loan is for a term of
three years at a floating interest rate equal to the bank's base rate (8.25%
as of June 30, 2006) plus 1%.  Interest only is payable monthly.

Each mortgage is secured by its respective land and building. Mortgage notes
payable secured by real estate are comprised of the following information as
of June 30, 2006:

                                    -44-
<PAGE>

                Number        Note            Note          Mortgage  Interest
  Property      of Units   Origination       Maturity        Balance     Rate
                              Date            Date
------------  ----------- --------------   ------------    ---------    -----

Los Angeles         30    May       2004   June      2007 $ 6,878,000   7.31%
Los Angeles      Office   September 2000   December  2013     767,000   6.45%
Los Angeles         24    March     2001   April     2031   1,693,000   7.15%
Los Angeles          5    July      2000   August    2030     428,000   7.59%
Los Angeles          1    November  2000   December  2030     461,000   8.44%
Kihei, Maui       Land    August    2004   August    2007     750,000   9.25%
                                                           ----------
                            Total variable interest debt  $10,977,000

Austin             249    June      2003   July      2023   7,762,000   5.46%
Florence           157    June      2005   July      2014   4,200,000   4.99%
Irving             224    July      2001   January   2008   4,106,000   7.01%
Las Colinas        358    April     2004   May       2013  19,696,000   4.99%
Morris County      151    April     2003   May       2013  10,118,000   5.43%
San Antonio        132    November  1998   December  2008   2,938,000   6.62%
St. Louis          264    June      1998   July      2008   5,352,000   6.73%
Los Angeles         31    July      2003   August    2033   4,009,000   4.35%
Los Angeles         27    October   1999   October   2029   1,811,000   7.73%
Los Angeles         14    October   1999   November  2029   1,069,000   7.89%
Los Angeles         12    November  2003   December  2018   1,014,000   6.38%
Los Angeles          9    November  1999   December  2029     799,000   7.95%
Los Angeles          8    May       2001   November  2029     556,000   7.00%
Los Angeles          7    November  2003   December  2018   1,048,000   6.38%
Los Angeles          4    November  2003   December  2018     713,000   6.38%
Los Angeles          2    February  2002   February  2032     436,000   6.45%
Los Angeles          1    October   2003   November  2033     507,000   5.75%
Los Angeles      Office   February  1999   April     2009   1,145,000   7.76%
                                                          -----------
                            Total fixed interest debt     $67,279,000
                                                          -----------
                              Total mortgages             $78,256,000
                                                          ===========

The annual combined aggregate principal payments on the mortgage notes payable
for the five-year period commencing July 1, 2006, and thereafter, are as
follows:

                 Year ending June 30,
                      2007               $ 8,038,000
                      2008                 5,963,000
                      2009                10,069,000
                      2010                 1,102,000
                      2011                 1,165,000
                      Thereafter          51,919,000
                                         -----------
                       Total             $78,256,000
                                         ===========

At June 30, 2006, the total outstanding mortgage balance approximates the
estimated fair value of the outstanding debt.


                                    -45-
<PAGE>

6. Line of Credit:

In August 2004, the Company obtained a revolving $1,500,000 line of credit
secured by its 31-unit property Los Angeles property.  In June 2006, the
balance of the line of credit of $1,400,000 was paid off.

In April 2004, the Company obtained a revolving $5,000,000 line of credit
("LOC").  The LOC carries a variable interest rate of 9.00% as of June 30,
2006.  Interest is paid on a monthly basis.  As of June 30, 2006, the balance
of the LOC is $4,258,000.  In July 2006, the LOC was renewed through October
2007.

7.  Income Taxes:

The provision for the Company's income tax benefit (expense) is comprised of
the following:

For the year ended June 30,                   2006               2005
                                           ----------         ----------
Current tax expense                       $  (283,000)       $  (299,000)
Deferred tax benefit                        2,414,000          2,967,000
                                           ----------         ----------
                                          $ 2,131,000        $ 2,668,000
                                           ==========         ==========

The components of the deferred tax liability as of June 30, 2006, are as
follows:

Net operating loss carryforwards                             $ 8,634,000
Capital loss carryforwards                                       295,000
Accruals and reserves                                            939,000
                                                              ----------
   Deferred tax assets                                         9,868,000
                                                              ----------
Deferred real estate gains                                   $(8,750,000)
Unrealized gains on marketable securities                     (2,299,000)
Depreciation                                                  (1,516,000)
Book/tax difference on investment in Justice Investors        (1,130,000)
State taxes                                                      (60,000)
                                                              ----------
   Deferred tax liabilities                                  (13,755,000)
                                                              ----------

Net deferred tax liability                                   $(3,887,000)
                                                              ==========

The provision for income taxes differs from the amount of income tax computed
by applying the federal statutory income tax rate to income before taxes as a
result of the following differences:

                                    -46-
<PAGE>

For the year ended June 30,                          2006           2005
                                                 -----------    -----------
Income tax at federal statutory rates           $  1,544,000   $  2,382,000
State income taxes, net of federal benefit                 -        390,000
Dividend received deduction                           64,000        196,000
Other adjustments                                    523,000       (300,000)
                                                 -----------    -----------
   Total income tax benefit                      $ 2,131,000  $   2,668,000
                                                 ===========    ===========

As of June 30, 2006, the Company had net operating losses(NOLs) of $22,123,000
and $14,867,000 for federal and state purposes, respectively.  Below is the
break-down of the NOLs for Intergroup, Santa Fe and Portsmouth. The
carryforward expires in varying amounts through the year 2025.

                                    Federal         State
                                  ----------    ----------
Intergroup                       $10,678,000   $ 6,735,000
Santa Fe                           5,357,000     2,351,000
Portsmouth                         6,088,000     5,781,000
                                  ----------    ----------
                                 $22,123,000   $14,867,000
                                  ==========    ==========

The Company also has capital losses available for carryforward of $660,000 and
$802,000 for federal and state purposes, respectively.  These carryforwards
expire in varying amounts through 2011.


8.  Segment Information

The Company operates in three reportable segments, the operations of its
multi-family residential properties, the operation of Justice Investors, and
the investment of its cash and securities assets. These three operating
segments, as presented in the financial statements, reflect how management
internally reviews each segment's performance.  Management also makes
operational and strategic decisions based on this same information.

Information below represents reported segments for the years ended June 30,
2006 and 2005.  Operating income for rental properties consist of rental
income.  Operating income(loss) from Justice Investors consist of the
operations of the hotel and garage included in the equity in net income(loss)
of Justice Investors.  Operating income for investment transactions consist of
net investment gains and dividend and interest income.

<TABLE>
                                   Real Estate
                           -------------------------
Year ended                  Rental        Justice     Investment                                  Discontinued
June 30, 2006               Properties    Investors   Transactions     Other         Subtotal      Operations       Total
                           -----------   -----------  ------------   -----------   ------------   ------------   ------------
<S>                        <C>           <C>           <C>          <C>            <C>            <C>            <C>
Operating income(loss)     $12,014,000   $(4,564,000)  $ 5,105,000  $          -   $ 12,555,000   $  1,522,000   $ 14,077,000
Operating expenses          (6,315,000)            -    (2,485,000)            -     (8,800,000)      (988,000)    (9,788,000)
Real estate taxes           (1,798,000)            -             -             -     (1,798,000)      (228,000)    (2,026,000)
                           -----------   -----------   -----------   -----------   ------------   ------------   ------------
Net operating income(loss)   3,901,000    (4,564,000)    2,620,000             -      1,957,000        306,000      2,263,000
Gain on sale of real estate          -                                                               1,321,000      1,321,000
Mortgage interest expense   (3,697,000)            -             -             -     (3,697,000)      (379,000)    (4,076,000)
Depreciation                (2,362,000)            -             -             -     (2,362,000)      (149,000)    (2,511,000)
General and administrative
  Expense                            -             -             -    (1,659,000)    (1,659,000)             -     (1,659,000)
Other income                         -             -             -       121,000        121,000              -        121,000
Income tax expense                   -             -             -     2,647,000      2,647,000       (516,000)     2,131,000
Minority interest                    -             -             -       487,000        487,000              -        487,000
                           -----------   -----------   -----------   -----------   ------------   ------------   ------------
Net income(loss)           $(2,158,000)  $(4,564,000)  $ 2,620,000   $ 1,596,000  $  (2,506,000)  $    583,000   $ (1,923,000)
                           ===========   ===========   ===========   ===========   ============   ============   ============
Total Assets               $75,282,000   $ 5,646,000   $33,530,000   $ 4,792,000  $ 119,250,000   $  3,634,000   $122,884,000
                           ===========   ===========   ===========   ===========   ============   ============   ============
</TABLE>

                                    -47-
<PAGE>

<TABLE>
                                  Real Estate
                           -------------------------
Year ended                  Rental        Justice     Investment                                  Discontinued
June 30, 2005               Properties    Investors   Transactions     Other         Subtotal      Operations       Total
                           -----------   -----------  ------------   -----------   ------------   ------------   ------------
<S>                        <C>           <C>           <C>          <C>            <C>            <C>            <C>
Operating income           $11,630,000   $(2,303,000)  $(4,700,000) $          -   $  4,627,000   $  2,922,000   $  7,549,000
Operating expenses          (4,608,000)            -    (2,657,000)            -     (7,265,000)    (1,874,000)    (9,139,000)
Real estate taxes           (1,870,000)            -             -             -     (1,870,000)      (364,000)    (2,234,000)
                           -----------   -----------   -----------   -----------   ------------   ------------   ------------
Net operating income(loss)   5,152,000    (2,303,000)   (7,357,000)            -     (4,508,000)       684,000     (3,824,000)
Gain on sale of real estate          -             -             -             -              -      6,069,000      6,069,000
Mortgage interest expense   (3,784,000)            -             -             -     (3,784,000)      (742,000)    (4,526,000)
Depreciation                (2,409,000)            -             -             -     (2,409,000)      (495,000)    (2,904,000)
Amort. of intangible asset    (555,000)            -             -             -       (555,000)             -       (555,000)
Loss on early termination
 Of debt                      (160,000)            -             -             -       (160,000)             -       (160,000)
General and administrative
  Expense                            -             -             -    (1,460,000)    (1,460,000)             -     (1,460,000)
Other income                         -             -             -       121,000        121,000              -        121,000
Income tax benefit(expense)          -             -             -     4,701,000      4,701,000     (2,033,000)     2,668,000
Minority interest                    -             -             -     1,443,000      1,443,000              -      1,443,000
                           -----------   -----------   -----------   -----------   ------------   ------------   ------------
Net income(loss)           $(1,756,000)  $(2,303,000) $ (7,357,000) $  4,805,000  $  (6,611,000)  $  3,483,000   $ (3,128,000)
                           ===========   ===========   ===========   ===========   ============   ============   ============
Total Assets               $77,629,000   $ 9,522,000   $24,033,000   $ 7,884,000  $ 119,068,000   $ 8,237,000   $127,305,000
                           ===========   ===========   ===========   ===========   ============   ============   ============
</TABLE>

9.  Supplemental Cash Flow Information:

Cash paid for margin interest for the year ended June 30, 2006 and 2005 was
$969,000 and $904,000, respectively.  Cash paid for interest on mortgage notes
payable for the year ended June 30, 2006 and 2005 was $4,105,000 and
$4,554,000, respectively.  For the year ended June 30, 2006, the Company
received net tax refunds of $216,000.  For the year ended June 30, 2005, the
Company made net tax payments of 113,000.


10.  Stock Option Plans

On December 8, 1998, the Company adopted and authorized a stock option plan
(the "1998 Non-employee Directors Plan") for non-employee directors. The 1998
Non-employee Directors Plan provides for the granting of stock options to
purchase shares of the Company's common stock to non-employee directors of the
Company. The aggregate number of shares to be delivered upon exercise of all
options granted under the Plan may not exceed 150,000.  During fiscal years
2006 and 2005, the Company granted stock options of 12,000 and 15,000 shares
in each respective year, to the directors of the Company.  These options have
exercise prices of $18.00 and $11.75 per share, respectively.  All 12,000 and
15,000 options granted during the year ended June 30, 2006 and 2005,
respectively, were vested on the date of grant.  The options have a term of 10
years.

On December 22, 1998, the Company adopted and authorized a stock option plan
(the "1998 Key Officers Plan") for selected key officers. The 1998 Plan
provides for the granting of stock options to purchase shares of the Company's
common stock to key officers of the Company. The aggregate number of shares to
be delivered upon exercise of all options granted under the Plan may not
exceed 300,000. On December 22, 1998, the Board of Directors of the Company
granted a total of 225,000 stock options to the President and Chairman of the
Company at an exercise price of $7.92 per share. As of June 30, 2006, all
225,000 options are vested.

                                    -48-
<PAGE>

Information relating to the stock options during the fiscal years ended June
30, 2005 and 2005 are as follows:

                                      Number of          Weighted-average
                                       Shares            Exercise Price
                                      ----------         ------------
Unexercised options
  outstanding at June 30, 2004:         378,000                  $ 9.58
Granted                                  15,000                  $ 9.52
Exercised                                     -                       -
Forfeited                                     -                       -
                                      ----------         ---------------
Unexercised options
  outstanding at June 30, 2005:         393,000                  $ 9.66
Granted                                  12,000                  $18.00
Exercised                                     -                       -
Forfeited                                     -                       -
                                      ----------         ---------------
Unexercised options
  Outstanding at June 30, 2006          405,000                   $9.91


As of June 30, 2006, 9,000 of the total 405,000 unexercised options
outstanding were not yet vested.

Unexercised            Range of       Weighted Average  Weighted Average
Options                Exercise Price Exercise Price    Remaining Life
----------------      --------------  ----------------  ----------------
June 30, 2005          $7.92-$29.63      $ 9.66           4.23 years
June 30, 2006          $7.92-$29.63      $ 9.91           3.44 years


12.  Commitments and Contingencies:

The Company is a defendant or co-defendant in various other legal actions
involving various claims incident to the conduct of its business.  Most of
these claims are covered by insurance.  Management does not anticipate the
Company to suffer any material liability by reason of such actions.


13.  Related Party Transactions:

Gary N. Jacobs, a Director of the Company, is of Counsel to the law firm of
Christensen, Glaser, Fink, Jacobs, Weil & Shapiro, LLP ("the law firm").
Through May 31, 2000 he was a senior partner of said firm, which provides
legal services to the Company when needed.  During the year ended June 30,
2006, the Company made no payments to the law firm.  During the year ended
June 30, 2005, the Company made payments of approximately $44,000 to the law
firm, $38,000 of which was incurred in fiscal 2004.

As Chairman of the Securities Investment Committee, the Company's President
and Chief Executive Officer, John V. Winfield, directs the investment activity
of the Company in public and private markets pursuant to authority granted by
the Board of Directors.  Mr. Winfield also serves as Chief Executive Officer
and Chairman of InterGroup and oversees the investment activity
of the Company.  Depending on certain market conditions and various risk
factors, the Chief Executive Officer, his family and the Company may, at
times, invest in the same companies in which the Company invests.  The Company
encourages such investments because it places personal resources of the Chief
Executive Officer and his family members, and the resources of InterGroup, at
risk in connection with investment decisions made on behalf of the Company.

                                    -49-
<PAGE>

On July 18, 2003, the Company's subsidiaries established a performance based
compensation program for the Company's CEO, John V. Winfield, to keep and
retain his services as a direct and active manager of the securities
portfolios of those companies.  On January 12, 2004, the disinterested members
of the Securities Investment Committee of InterGroup also established a
performance based compensation program for Mr. Winfield, which was ratified by
the Board of Directors. The Company's previous experience and results with
outside money managers was not acceptable.  Pursuant to the criteria
established the Board of Directors, Mr. Winfield is entitled to performance
compensation for his management of the securities portfolios of the Company
and its subsidiaries equal to 20% of all net investment gains generated in
excess of an annual return equal to the Prime Rate of Interest (as published
by the Wall Street Journal) plus 2%. Compensation amounts are earned,
calculated and paid quarterly based on the results of the Company's investment
portfolio for that quarter.  Should the companies have a net investment loss
during any quarter, Mr. Winfield would not be entitled to any further
performance-based compensation until any such investment losses are recouped
by the Company.  This performance based compensation program may be modified
or terminated at the discretion of the respective Boards of Directors.

During the year ended June 30, 2006, Mr. Winfield did not receive any
performance based compensation.  During the year ended June 30, 2005, Mr.
Winfield was paid performance based compensation of $320,000.   Of the total
amount of the bonus for fiscal 2005, $57,000 was paid by Santa Fe and $4,000
was paid by Portsmouth.


14. Subsequent Events:

In July 2006, the Company listed its 30-unit apartment complex located in Los
Angeles, California for sale.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

Item 8A. Controls and Procedures.

(a) Disclosure Controls and Procedures.

The Company's management, with the participation of the Company's Chief
Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
fiscal period covered by this Annual Report on Form 10-KSB.  Except as noted
below, based upon such evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in ensuring that
information required to be disclosed in this filing is accumulated and
communicated to management and is recorded, processed, summarized and reported
in a timely manner and in accordance with Securities and Exchange Commission
rules and regulations.

                                    -50-
<PAGE>

 (b) Changes in Internal Control Over Financial Reporting.

There have been no changes in the Company's internal control over financial
reporting during the last quarterly period covered by this Annual Report on
Form 10-KSB that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.

Item 8B. Other Information.

None.


                             PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act.

The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company as of June 30, 2005:

                         Position with
    Name                  the Company         Age       Term to Expire
------------------     ------------------     ---      -----------------
Class A Directors:

John V. Winfield      Chairman of the Board;   59    Fiscal 2006 Annual Meeting
(1)(4)(6)(7)          President and Chief
                      Executive Officer

Josef A.              Director and Vice        58    Fiscal 2006 Annual Meeting
Grunwald(2)(3)(7)     Chairman of the Board

Class B Directors:

Gary N. Jacobs
(1)(5)(6)(7)          Secretary; Director      61    Fiscal 2007 Annual Meeting

William J. Nance (1)
(2)(3)(4)(6)(7)       Director                 61    Fiscal 2007 Annual Meeting

Class C Director:

John C. Love          Director                 66    Fiscal 2008 Annual Meeting
(3)(4)(5)

Other Executive Officers:

David C. Gonzalez     Vice President           39      N/A
                      Real Estate

Michael G. Zybala     Asst. Secretary          54      N/A
                      and Counsel

David T. Nguyen       Treasurer and            33      N/A
                      Controller
------------------
(1)  Member of the Executive Committee
(2)  Member of the Administrative and Compensation Committee
(3)  Member of the Audit and Finance Committee
(4)  Member of the Real Estate Investment Committee
(5)  Member of the Nominating Committee
(6)  Member of the Securities Investment Committee
(7)  Member of the Special Strategic Options Committee

                                    -51-
<PAGE>

Business Experience:

 The principal occupation and business experience during the last five years
for each of the Directors and Executive Officers of the Company are as
follows:

John V. Winfield -- Mr. Winfield was first appointed to the Board in 1982.  He
currently serves as the Company's Chairman of the Board, President and Chief
Executive Officer, having first been appointed as such in 1987.  Mr. Winfield
also serves as President, Chairman and Chief Executive Officer of Santa Fe
Financial Corporation ("Santa Fe") and Portsmouth Square, Inc. ("Portsmouth")
both public companies.

Josef A. Grunwald -- Mr. Grunwald is an industrial, commercial and residential
real estate developer.  He serves as Chairman of PDG N.V. (Belgium), a hotel
management company, and President of I.B.E. Services S.A. (Belgium), an
international trading company.  Mr. Grunwald was first elected to the Board in
1987 and named Vice Chairman on January 30, 2002.  Mr. Grunwald is also a
Director of Portsmouth.

William J. Nance -- Mr. Nance is a Certified Public Accountant and private
consultant to the real estate and banking industries.  He is also President of
Century Plaza Printers, Inc.  Mr. Nance was first elected to the Board in
1984.  He served as the Company's Chief Financial Officer from 1987 to 1990
and as Treasurer from 1987 to June 2002.  Mr. Nance is also a Director of
Santa Fe and Portsmouth. Mr. Nance also serves as a director of Goldspring,
Inc., a public company.

Gary N. Jacobs -- Mr. Jacobs was appointed to the Board and as Secretary in
1998. Mr. Jacobs is Executive Vice President, General Counsel, Secretary and a
Director of MGM MIRAGE (NYSE: MGG) and Of Counsel to the law firm of
Christensen, Glaser, Fink, Jacobs, Weil & Shapiro, LLP.  Through May 31, 2000,
he was a partner of said firm and the head of the corporate department.

John C. Love -- Mr. Love was appointed to the Board in 1998.  Mr. Love is an
international hospitality and tourism consultant and a hotel broker. He was
formerly a partner in the national CPA and consulting firm of Pannell Kerr
Forster.  He is Chairman Emeritus of the Board of Trustees of Golden Gate
University in San Francisco. Mr. Love is also a Director of Santa Fe and
Portsmouth.

David C. Gonzalez -- Mr. Gonzalez was appointed Vice President Real Estate of
the Company on January 31, 2001.  Over the past 17 years, Mr. Gonzalez has
served in numerous capacities with the Company, including Controller and
Director of Real Estate.

David T. Nguyen - Mr. Nguyen was appointed as Treasurer of the Company on
February 26, 2003.  Mr. Nguyen also serves as Treasurer of Santa Fe and
Portsmouth, having been appointed to those positions on February 27, 2003.
Mr. Nguyen is a Certified Public Accountant and, from 1995 to 1999, was
employed by PricewaterhouseCoopers LLP where he was a Senior Accountant
specializing in real estate.  Mr. Nguyen served as the Company's Controller
from 1999 to 2001 and from 2003 to the present.

                                    -52-
<PAGE>

Michael G. Zybala -- Mr. Zybala was appointed Vice President Operations and
Assistant Secretary of the Company on January 27, 1999 and served as Vice
President Operations until July 15, 2002.  Mr. Zybala is an attorney at law
and has served as a special legal consultant to the Company.  Mr. Zybala is
also the Vice President and Secretary of Santa Fe and Portsmouth and has
served as their General Counsel since 1995.  Mr. Zybala has provided legal
services to Santa Fe and Portsmouth since 1978.


Family Relationships:  There are no family relationships among directors,
executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.

Involvement in Certain Legal Proceedings:  No director or executive officer,
or person nominated or chosen to become a director or executive officer, was
involved in any legal proceeding requiring disclosure.


BOARD AND COMMITTEE INFORMATION

InterGroup's common stock trades on the NASDAQ Global Market (formerly the
Nasdaq National Market) of the NASDAQ Stock Market LLC.  It is also listed on
the Pacific Exchange, Inc.  InterGroup is a small business issuer under the
rules and regulations of the Securities and Exchange Commission ("SEC").  With
the exception of the Company's President and CEO, John V. Winfield, all of
InterGroup's Board of Directors consists of "independent" directors as
independence is defined by the applicable rules of the SEC and NASDAQ.

Audit Committee and Audit Committee Financial Expert

The Company is a small business issuer under SEC rules.  The Company's Audit
Committee is currently comprised of three members: Directors Nance
(Chairperson), Grunwald and Love, each of who meet the independence
requirements of the SEC and NASDAQ as modified or supplemented from time to
time.  Directors Nance and Love also meet the Audit Committee Financial Expert
requirement as defined by the SEC and NASDAQ.

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

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and each beneficial owner of more than ten percent of
the Common Stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission.  Officers, directors
and greater than ten-percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during fiscal 2006 all
filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.

Code of Ethics.

The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer
or controller, or persons performing similar functions.  A copy of the Code of
Ethics is filed as Exhibit 14 to this Report.  The Company will provide to any
person without charge, upon request, a copy of its Code of Ethics by sending

                                    -53-
<PAGE>

such request to: The InterGroup Corporation, Inc., Attn: Treasurer, 820 Moraga
Drive, Los Angeles 90049. The Company does not maintain an Internet website.
The Company will promptly disclose any amendments or waivers to its Code of
Ethics on Form 8-K.


Item 10.  Executive Compensation.

The following table provides certain summary information concerning
compensation awarded to, earned by, or paid to the named Executive Officers of
the Company who earned more than $100,000 (salary and bonus) for all services
rendered to the Company and its subsidiaries for fiscal years 2006, 2005 and
2004.  There are currently no employment contracts with the Executive
Officers. No long-term compensation, options or stock appreciation rights were
granted to any of the named Executive Officers during the last three fiscal
years.

<TABLE>

                         SUMMARY COMPENSATION TABLE

                                  Annual Compensation
                              --------------------------------------------
                                                                  Other Annual    All Other
Name and Principal Position    Year    Salary         Bonus       Compensation   Compensation
---------------------------    ----    ------      ------------   ------------   ------------
<S>                            <C>    <C>          <C>             <C>            <C>
John V. Winfield               2006   $522,000(1)  $        -(2)   $67,500(3)     $85,000(4)
Chairman, President and        2005   $522,000(1)  $  320,000(2)   $52,500(3)     $85,000(4)
Chief Executive Officer        2004   $522,000(1)  $2,077,000(2)   $52,426(3)     $85,000(4)

David C. Gonzalez              2006   $180,000     $        -      $     -        $     -
Vice President                 2005   $180,000     $   25,000      $     -        $     -
Real Estate                    2004   $184,900     $   50,000      $70,579(5)     $     -

David T. Nguyen                2006   $176,500(6)  $        -      $     -        $     -
Treasurer and                  2005   $120,000(6)  $   12,000      $     -        $     -
Controller                     2004   $120,000(6)  $   12,000      $     -        $     -

Michael G. Zybala              2006   $ 90,000(7)  $        -      $18,000(8)     $     -
Vice President                 2005   $ 84,000(7)  $    8,000      $18,000(8)     $     -
Real Estate                    2004   $ 84,000(7)  $    8,000      $ 9,000(8)     $     -
---------------------------
</TABLE>

(1) Mr. Winfield also serves as President and Chairman of the Board of the
Company's subsidiary, Santa Fe, and Santa Fe's subsidiary, Portsmouth.  Mr.
Winfield received salary and directors fees of $267,000, $328,000 and $251,000
from those entities during fiscal years 2006, 2005 and 2004, respectively,
which amounts are included in this item.

(2) These amounts reflect performance bonuses, paid by the Company and its
subsidiary Santa Fe and Santa Fe's subsidiary, Portsmouth, based on the
results of Mr. Winfield's management of the securities portfolios of those
companies for the fiscal years ended June 30, 2006, 2005 and 2004. Of the
total amount of the bonus for fiscal 2005, $57,000 was paid by Santa Fe and
$4,000 was paid by Portsmouth. For fiscal 2004, $211,000 was paid by Santa Fe
and $407,000 was paid by Portsmouth. No performance bonus was paid for fiscal
2006.

(3) Amounts include an auto allowance and compensation for a portion of the
salary of an assistant. The auto allowance was $15,000, $15,000 and $15,000
during fiscal years 2006, 2005 and 2004, respectively.  The amount of
compensation related to the assistant was approximately $53,000, $38,000 and
$38,000 during fiscal years 2006, 2005 and 2004, respectively.

                                    -54-
<PAGE>

(4) During fiscal 2006, 2005 and 2004, the Company and its subsidiaries also
paid annual premiums in the total amount of $85,000 for split dollar whole
life insurance policies owned by, and the beneficiary of which are, a trust
for the benefit of Mr. Winfield's family. Of the $85,000 in premiums paid each
year, Santa Fe and Portsmouth paid $43,000 of that amount. The Company has a
secured right to receive, from any proceeds of the policies, reimbursement of
all premiums paid prior to any payment to the beneficiary.

(5) Amount shown reflects the cost of an automobile purchased by the Company
for Mr. Gonzalez.

(6) Mr. Nguyen's salary and bonuses are allocated approximately 50% to the
Company and 50% to Santa Fe and Portsmouth.

(7) Mr. Zybala's salary and bonuses are allocated approximately 25% to the
Company and 75% to Santa Fe and Portsmouth.

(8) Amounts are for Special Hotel Committee fees paid by Portsmouth.


On July 18, 2003, the disinterested members of the respective Boards of
Directors of the Company's subsidiary, Santa Fe and Santa Fe's subsidiary,
Portsmouth, established a performance based compensation program for the
Company's CEO, John V. Winfield, to keep and retain his services as a direct
and active manager of the securities portfolios of those companies.  On
January 12, 2004, the disinterested members of the Securities Investment
Committee of InterGroup also established a performance based compensation
program for Mr. Winfield, which was ratified by the Board of Directors. The
Company's previous experience and results with outside money managers was not
acceptable.  Pursuant to the criteria established the Board of Directors, Mr.
Winfield is entitled to performance compensation for his management of the
securities portfolios of the Company and its subsidiaries equal to 20% of all
net investment gains generated in excess of an annual return equal to the
Prime Rate of Interest (as published by the Wall Street Journal) plus 2%.
Compensation amounts are earned, calculated and paid quarterly based on the
results of the Company's investment portfolio for that quarter.  Should the
companies have a net investment loss during any quarter, Mr. Winfield would
not be entitled to any further performance-based compensation until any such
investment losses are recouped by the Company.  This performance based
compensation program may be modified or terminated at the discretion of the
respective Boards of Directors.

Internal Revenue Code Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that, in the case of a publicly held corporation, the corporation is
not generally allowed to deduct remuneration paid to its chief executive
officer and certain other highly compensated officers to the extent that such
remuneration exceeds $1,000,000 for the taxable year.  Certain remuneration,
however, is not subject to disallowance, including compensation paid on a
commission basis and, if certain requirements prescribed by the Code are
satisfied, other performance based compensation.  Since InterGroup, Santa Fe
and Portsmouth are each public companies, the $1,000,000 limitation applies
separately to the compensation paid by each entity.  For fiscal years 2006 and
2005 no compensation paid by the Company to its CEO or other executive
officers was subject the deduction disallowance prescribed by Section 162(m)
of the Code.

                                    -55-
<PAGE>

                  OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

The Company did not have any individual grants of stock options or Stock
Appreciation Rights ("SARs") during the year ended June 30, 2006 to any named
executive officer.


              AGGREGATE OPTIONS/SAR EXERCISES IN THE LAST FISCAL YEAR
                  AND FISCAL YEAR END OPTION/SAR VALUES


The following table contains information concerning each exercise of stock
options (or tandem SARs) and freestanding SARs during the last completed
fiscal year by each of the named executive officers and the fiscal year-end
value of unexercised options and SARs (adjusted for March 31, 2003 stock
split):

<TABLE>
                                              Number of Securities
              Shares                         Underlying Unexercised      Value of Unexercised
           Acquired on        Value            Options/SARs as of        In-the-Money Options/
Name       Exercise (#)     Realized ($)          June 30, 2006            at June 30, 2006
----       ------------     -----------      -----------------------      --------------------
                                           Exercisable/Unexercisable   Exercisable/Unexercisable
                                           -------------------------   -------------------------
<S>                 <C>    <C>                    <C>                       <C>
John V.
Winfield            -      $     -                225,000/0                 $1,775,250/$0(1)

David C.
Gonzalez            -      $     -                  6,000/9,000             $   15,840/$23,760(1)
--------------
</TABLE>

(1) Based on the closing price of the Company's Common Stock on June 30, 2006
    of $15.81 per share.


1998 Stock Option Plan for Non-Employee Directors

On December 8, 1998, the Board of Directors of the Company adopted, subject to
stockholder approval and ratification, a 1998 Stock Option Plan for Non-
employee Directors (the "Plan").  The stockholders ratified that plan on
January 27, 1999.

The stock to be offered under the Plan shall be shares of the Company's Common
Stock, par value $.01 per share, which may be unissued shares or treasury
shares.  Subject to certain adjustments upon changes in capitalization, the
aggregate number of shares to be delivered upon exercise of all options
granted under the Plan shall not exceed 150,000 shares (adjusted for March 31,
2003 stock split).  The Plan shall terminate on the earliest to occur of (i)
the dates when all of the Common Stock available under the Plan shall have
been acquired through the exercise of options granted under the Plan; (ii) 10
years after the date of adoption of the Plan by the Board; or (iii) such other
date that the Board may determine.

Pursuant to the Plan, each non-employee director as of the adoption date of
the Plan shall be granted on the date thereof: (i) if he or she became a non-
employee director prior to January 1, 1998, an option to purchase 8,000 shares
of Common Stock; and (ii) if he or she became a non-employee director on or
after January 1, 1998, an option to purchase 4,000 shares of Common Stock.

                                    -56-
<PAGE>

Each new non-employee director who is elected to the Board shall automatically
be granted an option to purchase 4,000 shares of Common Stock upon the initial
date of election to the Board.  On each July 1 following the adoption date,
each non-employee director shall be granted an option to purchase 3,000 shares
of Common Stock (adjusted for stock split) provided he or she holds such
position on that date and the number of Common Shares available for grant
under the Plan is sufficient to permit such automatic grant.

The exercise price of the option shall be determined at the time of grant and
shall not be less than 100% of the fair market value of the Common Stock at
the time of the grant of the option.  The term of the option shall be for ten
years.  Options granted to any non-employee director will not vest 100% until
such person has been a member of the Board for four (4) years or more.  Non-
employee directors who have been a member of the Board less than four (4)
years, shall be vested with respect to 20% of the options on the date of grant
and 20% on each anniversary of such person having become a member of the
Board, provided that the optionee is on each such date serving as a member of
the Board or as an employee or consultant to the Company.

Pursuant to the Plan, the following non-employee directors of the Company were
granted options during fiscal 2006 to purchase 2,400 shares each of the Common
Stock of the Company: Josef A. Grunwald; William J. Nance; Mildred Bond
Roxborough; Gary N. Jacobs; and John C. Love.  The exercise price for the
options is $18.00 per share, which was the closing price (adjusted for stock
split) of the Company's Common Stock on the Nasdaq National Market System as
of the date of grant on July 1, 2005.  Those grants were limited to 2,400
shares since all of the options authorized to be issued under the Plan had
been issued.


1998 Stock Option Plan for Selected Key Officers,
Employees and Consultants

On December 8, 1998, the Board of Directors of the Company adopted, subject to
shareholder approval and ratification, a 1998 Stock Option Plan for selected
key officers, employees and consultants (the "Key Employee Plan").  The Key
Employee Plan was ratified by the stockholders on January 27, 1999.

The stock to be offered under the Key Employee Plan shall be shares of the
Company's Common Stock, par value $.01 per share, which may be unissued shares
or treasury shares.  Subject to certain adjustments upon changes in
capitalization, the aggregate number of shares to be delivered upon exercise
of all options granted under the Key Employee Plan shall not exceed 300,000
shares (adjusted for stock split).  The Key Employee Plan shall terminate on
the earliest to occur of (i) the dates when all of the Common Stock available
under the Key Employee Plan shall have been acquired through the exercise of
options granted under the Key Employee Plan; (ii) 10 years after the date of
adoption of the Key Employee Plan by the Board; or (iii) such other date that
the Board may determine.

The Key Employee Plan is administered by a Committee appointed by the Board of
Directors which consists of two or more disinterested persons within the
meaning of Rule 16b-3 promulgated pursuant to the Securities Exchange Act of
1934 (the "Exchange Act").  Persons eligible to receive options under the Key
Employee Plan shall be employees who are selected by the Committee.  In
determining the Employees to whom options shall be granted and the number of
shares to be covered by each option, the Committee shall take into account the

                                    -57-
<PAGE>

duties of the respective employee, their present and potential contribution to
the success of the Company, their anticipated number of years of active
service remaining and other factors as it deems relevant in connection with
accomplishing the purposes of the Key Employee Plan.  An employee who has been
granted an option may be granted an additional option or options as the
Committee shall so determine.

The exercise price of the option shall be determined at the time of grant and
shall not be less than 100% of the fair market value of the Common Stock at
the time of the grant of the option.  The term of the option shall not exceed
10 years from the date on which the option is granted.  The vesting schedule
for the options and the method or time that when the option may be exercised
in whole or in part shall be determined by the Committee.  However, in no
event shall an option be exercisable within six months of the date of grant in
the case of an optionee subject to Section 16(b) of the Exchange Act.  Subject
to certain exceptions, the option shall terminate six months after the
optionee's employment with the Company terminates.  No options to purchase
shares were granted pursuant to the Key Employee Plan during fiscal 2006.


Compensation of Directors

Each director is paid a fee of $1,500 per quarter for a total annual
compensation of $6,000.  The Chairman of the Board of Directors is eligible to
receive $9,000 per annum. Directors also are eligible to receive $500 for each
committee meeting attended and $600 for each committee meeting chaired.
Members of the Audit Committee receive a fee of $500 per quarter.  Directors
who are also Executive Officers do not receive any fee for attending Board or
Committee meetings.  As an Executive Officer, the Company's Chairman has also
elected to forego his annual board fee.  The Directors are also eligible for
grants of options to purchase shares of the Company's Common Stock pursuant to
the 1998 Stock Option Plan for Non-Employee Directors. As discussed above, all
of the options authorized to be issued under that Plan were exhausted
effective with the July 1, 2005 option grant. It is expected that the Board of
Directors will review the form and amounts of compensation that the Company
pays to its directors so that it can continue to attract and retain qualified
directors.

Except for the foregoing, there are no other arrangements for compensation of
Directors and there are no employment contracts between the Company and its
Directors or any change in control arrangements.

                                    -58-
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth, as of September 12, 2006, certain information
with respect to the beneficial ownership of Common Stock of the Company
(adjusted for stock split) owned by (i) those persons or groups known by the
Company to own more than five percent of the outstanding shares of Common
Stock, (ii) each Director and Executive Officer, and (iii) all Directors and
Executive Officers as a group.


Name and Address of           Amount and Nature
Beneficial Owner (1)         of Beneficial Owner(2)     Percentage(3)
--------------------        ----------------------     -------------

John V. Winfield               1,613,907(4)                 62.5%

Josef A. Grunwald                126,861(3)                  5.3%

William J. Nance                  77,697(3)                  3.3%

Gary N. Jacobs                    29,775(3)(5)               1.2%

John C. Love                      26,400(3)                  1.1%

David C. Gonzalez                 21,750(6)                    *

Michael G. Zybala                      0                       *

David T. Nguyen                        0                       *

All Directors and
Executive Officers as a
Group (9 persons)              1,896,390                    70.1%
------------------
*  Ownership does not exceed 1%.

(1)  Unless otherwise indicated, the address for the persons listed is
820 Moraga Drive, Los Angeles, CA 90049.

(2) Unless otherwise indicated and subject to applicable community property
laws, each person has sole voting and investment power with respect to the
shares beneficially owned.

(3) Percentages are calculated on the basis of 2,356,650 shares of Common
Stock outstanding at September 12, 2006, plus any securities that person has
the right to acquire within 60 days pursuant to options, warrants, conversion
privileges or other rights.  The following options are included in director's
shares:  Josef A. Grunwald-32,400; William J. Nance-32,400; Gary N. Jacobs-
26,400; John C. Love-26,400.

(4) Includes 225,000 shares of which Mr. Winfield has the right to acquire
pursuant to options

(5) Other than his options, all shares of Mr. Jacobs are held by the Gary and
Robin Jacobs Family Trust.

(6) Includes 6,000 shares of which Mr. Gonzalez has the right to acquire
pursuant to options.

As of September 12, 2006, there were approximately 540 shareholders of record
and more than 1,400 beneficial holders of the Company's Common Stock.

                                    -59-
<PAGE>

Changes in Control Arrangements

There are no arrangements that may result in a change in control of the
Company.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

The following table sets forth information as of June 30, 2006 (adjusted for
March 31, 2003 stock split), with respect to compensation plans (including
individual compensation arrangements) under which equity securities of the
Company are authorized for issuance, aggregated as follows:


Plan category       Securities to     Weighted average   Remaining available
                      be issued       exercise price     for future issuance
                    upon exercise     of outstanding        under equity
                    of outstanding       options         compensation plans
                       options,        warrants and         (excluding
                     warrants and         rights             securities
                       rights                               reflected in
                                                             column (a))
                         (a)                (b)                 (c)
-------------------  ------------      -------------     -------------------

Equity compensation
plans approved by
security holders       390,000             $9.91               60,000

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

Equity compensation
plans not approved
by security holders      None               N/A                 None

----------------------------------------------------------------------------
     Total             390,000             $9.91               60,000
----------------------------------------------------------------------------

                                    -60-
<PAGE>

Item 12.  Certain Relationships and Related Transactions.

On December 4, 1998, the Administrative and Compensation Committee authorized
the Company to obtain whole life and split dollar insurance policies covering
the Company's President and Chief Executive Officer, Mr. Winfield.  During
fiscal 2006 and 2006, the Company paid annual premiums in the amount of
approximately $85,000 for the split dollar insurance policy owned by, and the
beneficiary of which is, a trust for the benefit of Mr. Winfield's family.
The Company has a secured right to receive, from any proceeds of the policy,
reimbursement of all premiums paid prior to any payments to the beneficiary.

On June 30, 1998, the Company's Chairman and President entered into a voting
trust agreement with the Company giving the Company the power to vote his 4.0%
interest in the outstanding shares of the Santa Fe common stock.

As Chairman of the Securities Investment Committee, the Company's President
and Chief Executive officer, John V. Winfield, oversees the investment
activity of the Company in public and private markets pursuant to authority
granted by the Board of Directors.  Mr. Winfield also serves as Chief
Executive Officer and Chairman of Santa Fe and Portsmouth and oversees the
investment activity of those companies.  Depending on certain market
conditions and various risk factors, the Chief Executive Officer, his family,
Santa Fe and Portsmouth may, at times, invest in the same companies in which
the Company invests.  The Company encourages such investments because it
places personal resources of the Chief Executive Officer and his family
members, and the resources of Santa Fe and Portsmouth, at risk in connection
with investment decisions made on behalf of the Company.  Under the direction
of the Securities Investment Committee, the Company has instituted certain
modifications to its procedures to reduce the potential for conflicts of
interest.

The Company, its subsidiary Santa Fe and Santa Fe's subsidiary, Portsmouth,
have established performance based compensation programs for Mr. Winfield's
management of the securities portfolios of those companies.  For the fiscal
years ended June 30, 2005, Mr. Winfield received, in the aggregate,
performance based compensation in the amount of $320,000. Of the total amount
of the bonus for fiscal 2005, $57,000 was paid by Santa Fe and $4,000 was paid
by Portsmouth. No performance bonus was paid for fiscal 2006. The performance
based compensation was approved by the disinterested members of the respective
Boards of Directors of the Company and its subsidiaries.

Gary N. Jacobs, a Director of the Company, is Of Counsel to the law firm of
Christensen, Glaser, Fink, Jacobs, Weil & Shapiro, LLP.  Through May 31, 2000
he was a senior partner of said firm, which provided legal services to the
Company during the year ended June 30, 2005.  No payments were made to this
firm during the year ended June 30, 2006.  During the year ended June 30,
2005, the Company made payments of approximately $44,000 to Christensen,
Glaser, Fink, Jacobs, Weil & Shapiro, LLP, $38,000 of which was incurred in
fiscal 2004.

                                    -61-
<PAGE>

Item 13.  Exhibits, List and Reports on Form 8-K.

(a) Listing of Exhibits by Table Number
    -----------------------------------

3.  Certificate of Incorporation and By-Laws *

    Restated Certificate of Incorporation dated February 20, 1998 is
    incorporated herein by reference to the Company's Form 10-QSB Report
    filed with the Securities and Exchange Commission on May 15, 1998.

4.  Instruments defining the rights of security holders, including
    Indentures  *

9.  Voting Trust Agreement

    Voting Trust Agreement dated June 30, 1998 between John V. Winfield and
    The InterGroup Corporation is incorporated by reference to the Company's
    Form 10-KSB Annual Report filed with the Securities and Exchange
    Commission on September 28, 1998.

10. Material Contracts

    (a) Note and Exercise Agreement from Mr. John V. Winfield dated May 17,
        1996 **

    (b) 1998 Stock Option Plan for Non-Employee Directors approved by the
        Board of Directors on December 8, 1998 and ratified by the
        shareholders on January 27, 1999 ***

    (c) 1998 Stock Option Plan for Selected Key Officers, Employees and
        Consultants approved by the Board of Directors on December 8, 1998
        and ratified by the shareholders on January 27, 1999 ***

14. Code of Ethics

21. Subsidiaries:

 (1) Intergroup Summit Hills, Inc. (incorporated on August 12, 1993 in TX)
 (2) Intergroup Mariposa, Inc. (incorporated on June 23, 1994 in TX)
 (3) Intergroup Arlington Arms, Inc. (incorporated on August 5, 1993 in TX)
 (4) Intergroup Woodland Village, Inc. (incorporated on August 5, 1993 in OH)
 (5) Intergroup Cross Keys, Inc. (incorporated on April 1, 1994 in MO)
 (6) Intergroup Bridgeton, Inc. (incorporated on May 12, 1994 in MO)
 (7) Intergroup Whisperwood, Inc. (incorporated on June 20, 1994 in PA)
 (8) Intergroup Eagle Creek, Inc. (incorporated on April 15, 1994 in TX)
 (9) Intergroup Entertainment Corp. (incorporated on December 23, 1993 in DE)
(10) Mutual Real Estate Corp. (incorporated on March 10, 1994 in TX)
(11) WinGroup Capital (incorporated on September 21, 1994 in CA)
(12) Broadview Enterprises, Inc. (incorporated April 14, 1995 in MO)
(13) Wayward, Inc. (incorporated April 18, 1995 in MO)
(14) Golden West Entertainment, Inc. (incorporated February 15, 1990 in CA)
(15) Golden West Television Productions, Inc. (incorporated September 17,
     1991 in CA)
(16) Golden West Television Productions, Inc. (incorporated March 17, 1986 in
     NY)
(17) Intergroup The Trails, Inc. (incorporated on September 14, 1994 in TX)
(18) Intergroup Meadowbrook Gardens, Inc. (incorporated on June 23, 1994 in
     NJ)
(19) Intergroup Pine Lake, Inc. (incorporated on February 9, 1996 in KY)
(20) Bellagio Capital Fund, LLC (established on June 18, 1997 in CA)

                                    -62-
<PAGE>

(21) Intergroup Casa Maria, Inc. (incorporated on April 3, 1997 in TX)
(22) Healthy Planet Communications, Inc. (incorporated July 3, 1997 in CA)
(23) Santa Fe Financial Corporation (incorporated July 25, 1967 in NV)
(24) Portsmouth Square, Inc. (incorporated July 6, 1967 in CA)
(24) 2301 Bel-Air Equity, Inc. (incorporated May 25, 2000 in CA)
(26) 11378 Ovada Properties, Inc. (incorporated June 21, 2000 in CA)
(27) 11371 Ovada Properties, Inc. (incorporated May 25, 2000 in CA)
(28) 11361 Ovada Properties, Inc. (incorporated June 1, 2000 in CA)
(29) 11680 Bellagio Properties, Inc. (incorporated May 25, 2000 in CA)
(30) North Sepulveda Properties, Inc. (incorporated June 21, 2000 in CA)
(31) 11650 Bellagio Properties, Inc. (incorporated August 17, 2000 in CA)
(32) Intergroup Elwood, Inc. (incorporated October 12, 2000 in TX)
(33) 11720 Bellagio Properties, Inc. (incorporated January 17, 2001 in CA)
(34) 636 Acanto Properties, Inc. (incorporated February 15, 2001 in CA)
(35) Intergroup Tollgate Creek, Inc. (incorporated June 14, 2001 in TX)
(36) 614 Acanto Properties, Inc. (incorporated November 7, 2001 in CA)
(37) Intergroup Uluniu, Inc. (incorporated August 12, 2004 in HI)

31.1   Certification of Chief Executive Officer of Periodic Report
       Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2   Certification of Chief Financial Officer of Periodic Report
       Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32.1   Certification of Chief Executive Officer Pursuant to 18
       U.S.C. Section 1350.

32.2   Certification of Chief Financial Officer Pursuant to 18
       U.S.C. Section 1350.

* All Exhibits marked by two asterisks are incorporated herein by reference to
the Trust's Registration Statement on Form S-4 as filed with the Securities
and Exchange Commission on September 6, 1985, Amendment No. 1 to Form S-4 as
filed with the Securities and Exchange Commission on October 23, 1985, Exhibit
14 to Form 8 Amendment No. 1 to Form 8 filed with the Securities & Exchange
Commission November 1987 and Form 8 Amendment No. 1 Item 4 filed with the
Securities & Exchange Commission October 1988.

** All Exhibits marked by five asterisks are incorporated herein by reference
to the Company's Form 10-KSB Annual Report filed with the Securities and
Exchange Commission on September 16, 1996.

*** All Exhibits marked by six asterisks are incorporated herein by
reference to the Company's Schedule 14A filed with the Securities and
Exchange Commission on December 21, 1998.


 (b) Reports on Form 8-K:
    -------------------

The Company did not file any reports on Form 8-K during the last quarter of
the period covered by this Report.

                                    -63-
<PAGE>



Item 14.  Principal Accountant Fees and Services.

Audit Fees - The aggregate fees billed for each of the last two fiscal years
ended June 30, 2006 and 2005 for professional services rendered by
PricewaterhouseCoopers LLP, the principal accountant for the audit of the
Company's annual financial statements and review of financial statements
included in the Company's Form 10-QSB or services normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years, were as follows:

                                            Fiscal Year
                                       --------------------
                                         2006        2005
                                       --------    --------
        Audit Fees                     $470,000    $244,000
        Audit-Related Fees             $      -    $      -
        Tax Fees                       $      -    $      -
        All Other Fees                 $      -    $      -


Audit Committee Pre-Approval Policies

The Audit Committee shall pre-approve all auditing services and permitted non-
audit services (including the fees and terms thereof) to be performed for the
Company by its independent auditor, subject to any de minimus exceptions that
may be set for non-audit services described in Section 10A(i)(1)(B) of the
Exchange Act which are approved by the Committee prior to the completion of
the audit.  The Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority to
grant pre-approvals of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant pre-approvals shall be presented to
the full Committee at its next scheduled meeting.

All of the services described herein were approved by the Audit Committee
pursuant to its pre-approval policies.

None of the hours expended on the principal accountant's engagement to audit
the Company's financial statements for the most recent fiscal year were
attributed to work performed by persons other than the principal accountant's
full-time permanent employees.

                                    -64-
<PAGE>

                                SIGNATURES
                                ----------

   In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                               THE INTERGROUP CORPORATION
                                                     (Registrant)

Date: September 28, 2006         by /s/ John V. Winfield
      ------------------            ---------------------------------------
                                    John V. Winfield, Chairman of the Board,
                                    President and Chief Executive Officer


Date: September 28, 2006         by /s/ David T. Nguyen
      ------------------            ---------------------------------------
                                    David T. Nguyen, Treasurer and Controller
                                    Controller (Principal Accounting Officer)



   In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.


Date: September 28, 2006            /s/ John V. Winfield
      ------------------            ---------------------------------------
                                    John V. Winfield, Chairman of the Board,
                                    President and Chief Executive Officer


Date: September 28, 2006            /s/ Josef A. Grunwald
      ------------------            ----------------------------------------
                                    Josef A. Grunwald, Vice Chairman of Board


Date: September 28, 2006            /s/ Gary N. Jacobs
      ------------------            ---------------------------------------
                                    Gary N. Jacobs, Director


Date: September 28, 2006            /s/ John C. Love
      ------------------            ---------------------------------------
                                    John C. Love, Director


Date: September 28, 2006            /s/ William J. Nance
      ------------------            ---------------------------------------
                                    William J. Nance, Director


                                    -65-