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                                                                    EXHIBIT 10.0

                               ADVISORY AGREEMENT
                                     BETWEEN
                         AMERICAN REALTY INVESTORS, INC.
                                       AND
                       PRIME INCOME ASSET MANAGEMENT, LLC

         This ADVISORY AGREEMENT is made and entered into as of this 1st day of
October, 2003, between AMERICAN REALTY INVESTORS, INC., a Nevada corporation
(the "Company") and PRIME INCOME ASSET MANAGEMENT, LLC (the "Advisor"), a Nevada
limited liability company.

                                   WITNESSETH:

         WHEREAS, the Company desires to avail itself of the experience, sources
of information, advice and assistance of the Advisor and to have the Advisor
undertake the duties and responsibilities hereinafter set forth, on behalf of
and subject to the supervision of the Board of Directors (the "Directors") of
the Company, all as provided herein; and

         WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Directors, on the terms and conditions
hereinafter set forth;

         NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:

                  1. Definitions. As used herein, the following terms shall have
the meanings set forth below:

                  (a) "Affiliate" shall mean (i) any Person directly or
         indirectly owning, controlling or holding with power to vote, five
         percent (5%) or more of the outstanding voting securities of such other
         Person; (ii) any person five percent (5%) or more of whose outstanding
         voting securities are directly or indirectly owned, controlled, or held
         with power to vote, by such other Person; (iii) any Person directly or
         indirectly controlling, controlled by, or under common control with,
         such other Person; or (iv) any officer, director, partner, copartner,
         or employee of such other Person.

                  (b) "Average Invested Assets" for any period shall mean the
         average of the aggregate book value of the assets of the Company,
         before reserves for depreciation or bad debts or other similar non-cash
         reserves. This figure will be computed by taking the

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         average of such values at the end of each month during such period.

                  (c) "Book Value" of an asset shall mean the value of such
         asset on the books of the Company, before allowance for depreciation or
         amortization.

                  (d) "Fiscal Year" shall mean any period for which an income
         tax return is submitted by the Company to the Internal Revenue Service
         and which is treated by the Internal Revenue Service as a reporting
         period for the Company.

                  (e) "Mortgage" shall mean a mortgage, a deed of trust or any
         other instrument creating a security interest in a Real Property.

                  (f) "Mortgage Loan" shall mean a loan evidenced by a Mortgage.

                  (g) "Net Income" for any period shall mean total revenues
         applicable to such period, less the expenses applicable to such period
         other than additions to reserves for depreciation or bad debts or other
         similar non-cash reserves.

                  (h) "Person" shall mean and include individuals, corporations,
         limited partnerships, general partnerships, joint stock companies or
         associations, joint ventures, associations, companies, trusts, banks,
         trust companies, land trusts, business trusts, or other entities and
         governments and agencies and political subdivisions thereof.

                  (i) "Real Property" shall mean improved and unimproved land,
         improvements, furniture and fixtures located on or used in connection
         with land, and any right or interest in any of the foregoing, including
         a leasehold interest, an interest in air, subterranean or mineral
         rights, but shall not include Mortgage Loans.

                  2. Duties of the Advisor. The Advisor agrees to act on a basis
which is fair and reasonable to the Company and its shareholders in selecting
from among the particular investment opportunities that come to it; provided,
however, that the Advisor shall not be required to present to the Company any
particular investment opportunity which comes to it even if the opportunity is
one which, if presented to the Company, could be taken by the Company. Subject
to the supervision of the Directors, the Advisor shall:

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                  (a) use its best efforts to present and recommend to the
         Company a continuing and suitable investment program consistent with
         the investment policies and objectives of the Company;

                  (b) administer the Company's day-to-day investment operations
         and perform or supervise the performance of such other administrative
         functions in connection with the management of the Company as may be
         agreed upon by the Advisor and the Directors;

                  (c) serve as the Company's investment adviser and consultant
         in connection with policy decisions to be made by the Directors and, as
         requested, furnish reports to the Directors and provide research and
         economic and statistical data in connection with the Company's
         investments and investment policies;

                  (d) investigate, select and conduct relations on behalf of the
         Company with consultants, borrowers, lenders, mortgagors and other
         mortgage and investment participants, accountants, mortgage loan
         originators, or brokers, correspondents and servicers, technical
         advisers, attorneys, underwriters, brokers and dealers, corporate
         fiduciaries, escrow agents, depositaries, custodians, agents for
         collection, insurers, insurance agents, banks, builders and developers,
         and persons acting in any other capacity deemed by the Directors
         necessary or desirable, and enter into appropriate contracts with,
         employ, retain and supervise services performed or to be performed by,
         any such parties in connection with investments which have been or may
         be acquired, sold or otherwise disposed of by the Company;

                  (e) consult with the Directors and present to them
         opportunities to acquire Mortgage Loans and other investments
         consistent with the investment policies and objectives of the Company
         and furnish the Directors with advice and recommendations with respect
         to the making, the acquiring (by purchase, investment, exchange or
         otherwise), the holding and the disposition (through sale, exchange or
         otherwise) of investments consistent with the policies and objectives
         of the Company, commitments therefor, loans secured by the pledge of
         mortgage loans as collateral, participations in any one of the
         foregoing, or Government or other securities or other investments of,
         or investments considered by, the Company;

                  (f) obtain for the Company such services as may be required
         for property management, mortgage servicing, construction and
         development loan disbursements and other activities relating to the
         investment portfolio of the Company, and act as the attorney-in-fact or
         agent of the Company in working with and supervising whomever is
         selected to perform such services; provided, however,

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         that nothing herein shall be construed to require the Advisor to
         perform such services itself;

                  (g) act as attorney-in-fact or agent of the Company in
         acquiring and disposing of investments, disbursing and collecting the
         funds of the Company, paying the debts and fulfilling the obligations
         of the Company, and handling, prosecuting and settling of any claims of
         the Company, including foreclosing and otherwise enforcing mortgage and
         other liens securing investments, and exercise its own sound discretion
         in doing so;

                  (h) assist in negotiations on behalf of the Company with
         investment banking firms, securities brokers or dealers and other
         institutions or investors for public or private sales of shares or
         other securities of the Company or public offerings or private
         placements by the Company of its securities, and obtain loans for the
         Company, but in no event in such a way that the Advisor would be deemed
         to be acting as a broker-dealer or underwriter;

                  (i) invest or reinvest any money of the Company;

                  (j) provide office space and office equipment, the use of
         accounting and computing equipment when required, and necessary
         executive, clerical and secretarial personnel for the performance of
         the foregoing services as Advisor;

                  (k) make reports to the Directors of its performance of the
         foregoing services and furnish advice and recommendations with respect
         to other aspects of the business and affairs of the Company from time
         to time or at any time requested by the Directors;

                  (l) in general, inform the Directors of any factors which come
         to its attention which would influence the policies of the Company; and

                  (m) assist in the preparation of reports and other documents
         necessary to satisfy the continuous reporting and other requirements of
         any governmental bodies or agencies and to maintain effective
         communications with stockholders of the Company.

                  3.  Records. At all times, the Advisor shall keep proper books
of account and records relating to services performed hereunder, which books of
account and records shall be accessible for inspection by the Company at any
time during ordinary business hours.

                  4.  Other Activities of Advisor.

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                  (a) Nothing herein contained shall prevent the Advisor, or any
         Affiliate of the Advisor, from acting as adviser to any other person or
         entity even though such entity may have investment policies similar to
         the Company; provided, however, that if, at any time, the Advisor
         serves as adviser to more than one real estate entity (including the
         Company) with similar investment policies, it will offer loans and
         investments which are appropriate to more than one such entity first to
         that entity which has had uninvested funds for the longest period of
         time.

                  (b) Affiliates of the Advisor may serve as Directors,
         officers, employees, agents, nominees or signatories for the Company.
         When executing documents or otherwise acting in such capacities for the
         Company, such persons shall use their respective titles in the Company.

                  5. Additional Obligations of the Advisor.

                  Notwithstanding any other provision of this Agreement to the
contrary, the Advisor shall refrain from any action which, in its reasonable
judgment or any judgment of the Board of Directors of which the Advisor has
written notice would (a) violate any law, rule or regulation of any governmental
body or agency having jurisdiction over the Company or its securities or (b)
cause the Company to be required to register as an investment company under the
Investment Company Act of 1940. If any such action is ordered by the Board of
Directors, the Advisor shall promptly notify the Board of the Advisor's judgment
that such action would adversely affect such status or violate such law, rule or
regulation or require such registration and shall refrain from taking such
action pending further clarification or instruction from the Board of Directors.

                  6. Bond. The Advisor shall maintain a fidelity bond with a
responsible surety company in such amount as may be required by the Directors
from time to time, covering all officers, employees and agents of the Advisor
handling funds of the Company and any investment documents or records pertaining
to investments of the Company. Such bond shall inure to the benefit of the
Company in respect of losses of any such property from acts of such persons
through theft, embezzlement, fraud, negligence, error or omission or otherwise
(provided that such bond can be obtained for such acts at reasonable expense),
the premium for said bond to be at the expense of the Company.

                  7. Expenses of the Advisor. Without regard to the amount of
compensation received hereunder by the Advisor, the Advisor shall bear the
following expenses of the Company:

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                  (a) all direct and indirect remuneration and all other
         employment expenses of employees of the Advisor, including but not
         limited to, salaries, wages, payroll taxes and the costs of employee
         benefit plans, but not including fees paid to Directors affiliated with
         the Advisor;

                  (b) rent, telephone, utilities, office furniture, equipment
         and machinery and other office expenses of the Advisor and the Company,
         except as any of such expenses relate to an office maintained by the
         Company separate from the office of the Advisor;

                  (c) costs including but not limited to travel, marketing,
         seminars, courier, business promotions, entertainment, advertising,
         office supplies, etc. where such costs are not directly identifiable to
         the Company's assets, liabilities, operations, business and financial
         affairs; and

                  (d) miscellaneous administrative expenses relating to
         performance by the Advisor of its duties hereunder.

                  8. Compensation. The Advisor shall be paid for services
rendered by it under this Agreement as follows:

                  (a) Base Compensation. On or before the fifteenth (15th) day
         of each calendar month, the Company shall pay to the Advisor .0625%
         (.75% on an annualized basis) of Average Invested Assets of the Company
         during the preceding month.

                  (b) Incentive Compensation. In order to further reward the
         Advisor for performance hereunder, the Company shall pay to the Advisor
         on or before the ninetieth (90th) day after the close of each Fiscal
         Year an incentive fee equal to ten percent (10%) of Net Income for such
         Fiscal Year in excess of a ten percent (10%) return on shareholders'
         equity. The Advisor shall also receive ten percent (10%) of the excess,
         if any, of net capital gain over net capital loss, if any, realized for
         sales of assets.

                  (c) Mortgage Placement Fee. For originating or purchasing
         Mortgage Loans for the Company, the Advisor shall receive a mortgage
         placement fee equal to fifty percent (50%), measured on a cumulative
         basis, of the total amount of mortgage origination and placement fees
         for Mortgage Loans advanced by the Company for the Fiscal Year.

                  (d) Acquisition Commission. For locating, leasing or
         purchasing Real Property for the Company, the Advisor or an Affiliate
         shall receive an Acquisition Commission equal to the lesser of (i) up
         to 6% of costs of acquisition, inclusive of

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         commissions, if any, paid to nonaffiliated brokers; or (ii) the
         compensation customarily charged in arm's-length transactions by others
         rendering similar property acquisition services as an ongoing public
         activity in the same geographical location and for comparable property.

                  (e) Disposition Fees. For the sale of each equity investment
         in Real Property, the Advisor or an Affiliate shall receive a
         Disposition Fee equal to the lesser of (i) 3% of the sales price of
         each property, exclusive of fees, if any, paid to nonaffiliated
         brokers; or (ii) the compensation customarily charged in arm's length
         transactions by others rendering similar services as an ongoing public
         activity in the same geographical location for comparable property.

                  (f) Loan Arrangement Fee. For arranging any loans to the
         Company, the Advisor shall receive a fee equal to 1% of the principal
         amount of any such loan. For purposes of this Section 8(f) the
         principal amount of any line of credit shall be the maximum
         availability under such line.

                  9. Additional Services. If and to the extent that the Company
shall request the Advisor, or any director, officer, partner or employee of the
Advisor, to render services for the Company other than those required to be
rendered by the Advisor hereunder, such additional services, if performed, will
be compensated separately on terms agreed upon between such party and the
Company from time to time, subject to applicable law. In particular, but without
limitation, if the Company shall request that the Advisor perform property
management, mortgage servicing, loan disbursement or similar functions, the
Company and the Advisor shall enter into a separate agreement specifying the
obligations of the parties and providing for reasonable additional compensation
to the Advisor for performing such services.

                  10. Statements. The Advisor shall prepare, at the request of
the Directors, a statement showing the computation of the fee, if any, payable
with respect to any period so requested.

                  11. Information Furnished to Advisor. The Directors shall at
all times keep the Advisor fully informed with regard to the investment policy
of the Company, the capitalization policy of the Company, and generally their
then current intentions as to the future of the Company. In particular, the
Directors shall notify the Advisor promptly of their intention to sell or
otherwise dispose of any of the Company's investments, or to make any new
investment. The Company shall furnish the Advisor with a copy of all financial
statements, a signed copy of each report prepared by independent certified
public

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accountants, and such other information with regard to its affairs which the
Advisor from time to time may reasonably request.

                  12. Expenses of the Company. Except as expressly otherwise
provided in this Agreement, the Company shall pay all expenses not assumed by
the Advisor; including, but not limited to:

                  (a) To the extent the Advisor is not required to pay such
         expenses pursuant to Section 7 hereof, the salaries and other
         employment expenses of the Directors of and personnel employed by the
         Company and travel and related expenses of directors, officers and
         employees of the Advisor and of Directors, officers and employees of
         the Company relating to the business and financial affairs of the
         Company;

                  (b) the cost of borrowed money;

                  (c) taxes on income, taxes on property, assessments against
         property, and all other taxes and applicable to the Company;

                  (d) legal, audit, accounting, underwriting, brokerage,
         listing, registration and other fees, printing, engraving and other
         expenses and taxes incurred in connection with the issuance,
         distribution, transfer, registration and stock exchange listing of the
         Company's securities;

                  (e) fees and expenses paid to independent advisers,
         independent contractors, consultants (including investor relations
         consultants), managers and other agents employed directly by the
         Company (other than through the Advisor);

                  (f) to the extent not paid by borrowers from the Company,
         costs of loan administration and mortgage servicing;

                  (g) expenses related to mortgage loans and connected with the
         acquisition, disposition, leasing and ownership of investments,
         including, to the extent not paid by others, but not limited to, legal
         fees and other expenses of professional services; the costs of
         foreclosure; costs of financings and refinancings; insurance premiums;
         legal or accounting services; taxes; title and abstract expenses;
         brokerage and sales commissions; maintenance, repair or improvement of
         property; architectural and engineering fees; expenses of managing real
         property equity interests and appraisal or inspection fees except when
         performed by employees of the Advisor;

                  (h) expenses related to real estate equity interests owned by
         the Company, including, but not limited to, insurance premiums;

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         legal or accounting services; architectural and engineering fees;
         appraisal or inspection fees except when performed by employees of the
         Advisor; taxes; title and abstract expenses; brokerage and sales
         commissions; management fees and expenses; and costs of financings and
         refinancings;

                  (i) other insurance as required by the Directors (including
         Directors' liability insurance, if any);

                  (j) the expenses of dissolving the Company or of amending the
         Articles of Incorporation or Bylaws of the Company or of merging the
         Company with any other entity;

                  (k) expenses connected directly with payments to holders of
         securities of the Company and other bookkeeping and clerical work
         necessary in maintaining relations with holders of securities and the
         investment community in general, including the cost of preparing,
         printing and distributing proxy materials, reports to shareholders,
         news releases, and certificates for securities, and any legal
         assistance related thereto;

                  (l) transfer agents', registrars', warrant agents', dividend
         paying agents' and indenture trustees' fees and charges;

                  (m) advertising expenses incurred in seeking investments for
         the Company; and

                  (n) all costs including but not limited to travel, marketing,
         seminars, courier, business promotions, entertainment, advertising,
         office supplies, etc. where such costs are directly attributable and
         identifiable to the Company's assets, liabilities, operations, business
         and financial affairs.

                  13. No Partnership or Joint Venture. The Company and the
Advisor are not partners or joint venturers with each other and nothing herein
shall be construed so as to make them such partners or joint venturers or impose
any liability as such on either of them.

                  14. Term of Agreement. This Agreement shall continue in force
for a period of twelve (12) months from October 1, 2003 and thereafter shall be
automatically renewed from year to year unless terminated in accordance with the
provisions of this Agreement;

                  15. Termination. Notwithstanding any other provision of this
Agreement to the contrary, this Agreement may be terminated by the Advisor
without penalty for any reason upon sixty (60) days' written notice to the
Company or may be terminated by the Company without penalty for any reason by
the Directors or by the holders of a majority

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in interest of the then outstanding shares of the Company upon sixty (60) days'
written notice to the Advisor.

                  16. Assignment. The Advisor shall not assign this Agreement
without the written consent of the Company. The Company may terminate this
Agreement in the event of its assignment by the Advisor except in the event of
an assignment to a corporation, association, trust, or other successor
organization which may take over the property and carry on the affairs of the
Advisor, provided that following such assignment the entity which controlled the
operations of the Advisor immediately prior to the assignment shall control the
operations of the successor organization, including the performance of the
Advisor's duties under this Agreement, and it shall be bound by the same
restrictions by which it was bound prior to such assignment; however, if at any
time subsequent to such an assignment such entity shall cease to control the
operations of the successor organization, the Company may thereupon terminate
this agreement. Such an assignment or any other assignment of this Agreement by
the Advisor shall bind the assignee hereunder in the same manner as the Advisor
is bound hereunder. In addition, the Advisor may delegate, assign, or otherwise
discharge any of its obligations under this Agreement to or through any of its
wholly-owned subsidiaries or their wholly-owned subsidiaries, subject to the
same terms and conditions as are applicable to the Advisor itself under this
Agreement.

                  17. Default, Bankruptcy, etc. At the option solely of the
Directors, this Agreement shall be and become terminated immediately upon
written notice of termination from the Directors to the Advisor if any of the
following events shall occur:

                  (a) if the Advisor shall violate any provision of this
         Agreement, and after notice of such violation shall not cure such
         default within thirty (30) days;

                  (b) if the Advisor shall be adjudged bankrupt or insolvent by
         a court of competent jurisdiction, or an order shall be made by a court
         of competent jurisdiction for the appointment of a receiver, liquidator
         or trustee of the Advisor or of all or substantially all of its
         property by reason of the foregoing, or approving any petition filed
         against the Advisor for its reorganization and such adjudication or
         order shall remain in full force or unstayed for a period of thirty
         (30) days; or

                  (c) if the Advisor shall institute proceedings for voluntary
         bankruptcy or shall file a petition seeking reorganization under the
         Federal bankruptcy laws, or for relief under any law for the relief of
         debtors, or shall consent to the appointment of a receiver of itself or
         all or substantially all

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         its property, or shall make a general assignment for the benefit of its
         creditors, or shall admit in writing its inability to pay its debts
         generally as they become due.

                  The Advisor agrees that if any of the events specified in
subsections (b) or (c) of this Section 17 shall occur, it will give written
notice thereof to the Directors within seven (7) days after the occurrence of
such event.

                  18. Action Upon Termination. From and after the effective date
of expiration or termination of this Agreement, pursuant to Sections 14, 15, 16
or 17 hereof, the Advisor shall not be entitled to compensation for further
services hereunder but shall be paid all compensation accruing to the date of
expiration or termination. The Advisor shall forthwith upon any such event:

                  (a) pay over the Company all monies collected and held for the
         account of the Company pursuant to this Agreement;

                  (b) as soon as possible, deliver to the Directors a full
         accounting, including a statement showing all payments collected by it
         and a statement of all monies held by it, covering the period following
         the date of the last accounting furnished to the Directors;

                  (c) deliver to the Directors all property and documents of the
         Company then in the custody of the Advisor; and

                  (d) cooperate with the Company and take all reasonable steps
         requested by the Directors to assist the Directors in making an orderly
         transition.

                  19. Advisor's Liability. The Advisor assumes no responsibility
under this Agreement other than to render the services called for hereunder in
good faith and to make decisions and advise courses of action that it
determines, in good faith, to be in the best interests of the Company, and the
Advisor shall not be responsible for any action of the Directors in following or
declining to follow any advice or recommendations of the Advisor. Neither the
Advisor nor its shareholders, directors, officers or employees shall be liable
to the Company, the Directors, the holders of securities of the Company or to
any successor or assign of the Company except by reason of acts constituting bad
faith, willful misfeasance, gross negligence or reckless disregard of their
duties.

                  20. Notices. Any notice, report or other communication
required or permitted to be given hereunder shall be in writing unless some
other method of giving such notice, report or other communication

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is accepted by the party to whom it is given, and shall be given by being
delivered or being mailed, certified or registered mail, return receipt
requested, to the following addresses of the parties hereto:

         The Directors and                  American Realty Investors, Inc.
         The Company:                       1800 Valley View Lane
                                            Suite 300
                                            Dallas, Texas 75234
                                            Attn: President

         The Advisor                        Prime Income Asset Management, LLC
                                            1800 Valley View Lane
                                            Suite 300
                                            Dallas, Texas 75234
                                            Attn: President

                  Either part may at any time give notice in writing to the
other party of a change of its address for the purpose of this Section 20.

                  21. Amendments. This Agreement shall not be changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by both parties hereto, or their respective successors or assigns, or
otherwise as provided herein.

                  22. Headings. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.

                  23. Governing Law. This Agreement has been prepared,
negotiated and executed in the State of Texas. The provisions of this Agreement
shall be construed and interpreted in accordance with the laws of the State of
Texas applicable to agreements made and to be performed therein.

                  24. Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
assigns, subject to the provisions of Section 16 of this Agreement.

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                  IN WITNESS WHEREOF, the Company and the Advisor have caused
this Agreement to be executed by their respective duly authorized officers as of
the day and year first above written.

                                  AMERICAN REALTY INVESTORS, INC.

                                  By:  /s/ Ronald E. Kimbrough
                                       -----------------------------------------
                                       Ronald E. Kimbrough
                                       Executive Vice President

                                  PRIME INCOME ASSET MANAGEMENT, LLC

                                  By:  /s/ Mark W. Branigan
                                       -----------------------------------------
                                       Mark W. Branigan
                                       Executive Vice President

                                       13<PAGE>

                                                                    EXHIBIT 10.0

                               ADVISORY AGREEMENT

                                     BETWEEN

                     TRANSCONTINENTAL REALTY INVESTORS, INC.

                                       AND

                       PRIME INCOME ASSET MANAGEMENT, LLC

         THIS AGREEMENT dated as of October 1, 2003, between Transcontinental
Realty Investors, Inc., a Nevada corporation (the "Company"), and Prime Income
Asset Management, LLC (the "Advisor"), a Nevada limited liability company.

                              W I T N E S S E T H:

         1.       The Company owns a complex, diversified portfolio of real
estate, mortgages and other assets, including many non-performing or troubled
assets.

         2.       The Company is an active real estate investment company with
funds available for investment primarily in the acquisition of income-producing
real estate and to a lesser extent in short and medium term mortgages.

         3.       The Advisor and its employees have extensive experience in the
administration of real estate assets and the origination, structuring and
evaluation of real estate and mortgage investments.

         NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties agree as follows:

         1.       DUTIES OF THE ADVISOR. Subject to the supervision of the Board
of Directors, the Advisor will be responsible for the day-to- day operations of
the Company and, subject to Section 17 hereof, shall

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provide such services and activities relating to the assets, operations and
business plan of the Company as may be appropriate, including:

                  (a)      preparing and submitting an annual budget and
business plan for approval by the Board of the Company (the "Business Plan");

                  (b) using its best efforts to present to the Company a
continuing and suitable investment program consistent with the investment
policies and objectives of the Company as set forth in the Business Plan;

                  (c)      using its best efforts to present to the Company
investment opportunities consistent with the Business Plan and such investment
program as the Directors may adopt from time to time;

                  (d)      furnishing or obtaining and supervising the
performance of the ministerial functions in connection with the administration
of the day-to-day operations of the Company including the investment of reserve
funds and surplus cash in short-term money market investments;

                  (e)      serving as the Company's investment and financial
advisor and providing research, economic, and statistical data in connection
with the Company's investments and investment and financial policies;

                  (f)      on behalf of the Company, investigating, selecting
and conducting relations with borrowers, lenders, mortgagors, brokers,
investors, builders, developers and others; provided however, that the Advisor
shall not retain on the Company's behalf any consultants or third party
professionals, other than legal counsel, without prior Board approval;

                  (g)      consulting with the Directors and furnishing the
Directors with advice and recommendations with respect to the making,

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acquiring (by purchase, investment, exchange or otherwise), holding and
disposition (through sale, exchange, or otherwise) of investments consistent
with the Business Plan of the Company;

                  (h)      obtaining for the Directors such services as may be
required in acquiring and disposing of investments, disbursing and collecting
the funds of the Company, paying the debts and fulfilling the obligations of the
Company, and handling, prosecuting, and settling any claims of the Company,
including foreclosing and otherwise enforcing mortgage and other liens securing
investments;

                  (i)      obtaining for and at the expense of the Company such
services as may be required for property management, loan disbursements, and
other activities relating to the investments of the Company, provided, however,
the compensation for such services shall be agreed to by the Company and the
service provider;

                  (j)      advising the Company in connection with public or
private sales of shares or other securities of the Company, or loans to the
Company, but in no event in such a way that the Advisor could be deemed to be
acting as a broker dealer or underwriter;

                  (k)      quarterly and at any time requested by the Directors,
making reports to the Directors regarding the Company's performance to date in
relation to the Company's approved Business Plan and its various components, as
well as the Advisor's performance of the foregoing services;

                  (l)      making or providing appraisal reports, where
appropriate, on investments or contemplated investments of the Company;

                  (m)      assisting in preparation of reports and other
documents necessary to satisfy the reporting and other requirements of any

                                       3

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governmental bodies or agencies and to maintain effective communications with
stockholders of the Company; and

                  (n)      doing all things necessary to ensure its ability to
render the services contemplated herein, including providing office space and
office furnishings and personnel necessary for the performance of the foregoing
services as Advisor, all at its own expense, except as otherwise expressly
provided for herein.

         2.       NO PARTNERSHIP OR JOINT VENTURE. The Company and the Advisor
are not partners or joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.

         3.       RECORDS. At all times, the Advisor shall keep proper books of
account and records of the Company's affairs which shall be accessible for
inspection by the Company at any time during ordinary business hours.

         4.       ADDITIONAL OBLIGATIONS OF THE ADVISOR. The Advisor shall
refrain from any action that would (a) violate any law, rule, regulation, or
statement of policy of any governmental body or agency having jurisdiction over
the Company or over its securities, (b) cause the Company to be required to
register as an investment company under the Investment Company Act of 1940, or
(c) otherwise not be permitted by the Articles of Incorporation of the Company.

         5.       BANK ACCOUNTS. The Advisor may establish and maintain one or
more bank accounts in its own name, and may collect and deposit into any such
account or accounts, and disburse from any such account or accounts, any money
on behalf of the Company, under such terms and conditions as the Directors may
approve, provided that no funds in any

                                       4

<PAGE>

such account shall be commingled with funds of the Advisor; and the Advisor
shall from time to time render appropriate accounting of such collections and
payments to the Directors and to the auditors of the Company.

         6.       BOND. The Advisor shall maintain a fidelity bond with a
responsible surety company in such amount as may be required by the Directors
from time to time, covering all directors, officers, employees, and agents of
the Advisor handling funds of the Company and any investment documents or
records pertaining to investments of the Company. Such bond shall inure to the
benefit of the Company in respect to losses of any such property from acts of
such directors, officers, employees, and agents through theft, embezzlement,
fraud, negligence, error, or omission or otherwise, the premium for said bond to
be at the expense of the Company.

         7.       INFORMATION FURNISHED ADVISOR. The Directors shall have the
right to change the Business Plan at any time, effective upon receipt by the
Advisor of notice of such change. The Company shall furnish the Advisor with a
certified copy of all financial statements, a signed copy of each report
prepared by independent certified public accountants, and such other information
with regard to the Company's affairs as the Advisor may from time to time
reasonably request.

         8.       CONSULTATION AND ADVICE. In addition to the services described
above, the Advisor shall consult with the Directors, and shall, at the request
of the Directors or the officers of the Company, furnish advice and
recommendations with respect to any aspect of the business and affairs of the
Company, including any factors that in the Advisor's best judgment should
influence the policies of the Company.

                                       5

<PAGE>

         9.       ANNUAL BUSINESS PLAN AND BUDGET. No later than January 15th of
each year, the Advisor shall submit to the Directors a written Business Plan for
the current Fiscal Year of the Company. Such Business Plan shall include a
twelve-month forecast of operations and cash flow with explicit assumptions and
a general plan for asset sales or acquisitions, lending, foreclosure and
borrowing activity, other investments or ventures and proposed securities
offerings or repurchases or any proposed restructuring of the Company. To the
extent possible, the Business Plan shall set forth the Advisor's recommendations
and the basis therefor with respect to all material investments of the Company.
Upon approval by the Board of Directors, the Advisor shall be authorized to
conduct the business of the Company in accordance with the explicit provisions
of the Business Plan, specifically including the borrowing, leasing,
maintenance, capital improvements, renovations and sale of investments set forth
in the Business Plan. Any transaction or investment not explicitly provided for
in the approved Business Plan shall require the prior approval of the Board of
Directors unless made pursuant to authority expressly delegated to the Advisor.
Within sixty (60) days of the end of each calendar quarter, the Advisor shall
provide the Board of Directors with a report comparing the Company's actual
performance for such quarter against the Business Plan.

         10.      DEFINITIONS. As used herein, the following terms shall have
the meanings set forth below:

                  (a)      "Affiliate" shall mean, as to any Person, any other
Person who owns beneficially, directly, or indirectly, 1% or more of the
outstanding capital stock, shares or equity interests of such

                                       6
<PAGE>

Person or of any other Person which controls, is controlled by, or is under
common control with such Person or is an officer, retired officer, director,
employee, partner, or trustee (excluding noninterested trustees not otherwise
affiliated with the entity) of such Person or of any other Person which
controls, is controlled by, or is under common control with, such Person.

                  (b) "Appraised Value" shall mean the value of a Real Property
according to an appraisal made by an independent qualified appraiser who is a
member in good standing of the American Institute of Real Estate Appraisers and
is duly licensed to perform such services in accordance with the applicable
state law, or, when pertaining to Mortgage Loans, the value of the underlying
property as determined by the Advisor.

                  (c) "Book Value" of an asset or assets shall mean the value of
such asset or assets on the books of the Company, before provision for
amortization, depreciation, depletion or valuation reserves and before deducting
any indebtedness or other liability in respect thereof, except that no asset
shall be valued at more than its fair market value as determined by the
Directors.

                  (d) "Book Value of Invested Assets" shall mean the Book Value
of the Company's total assets (without deduction of any liabilities), but
excluding (i) goodwill and other intangible assets, (ii) cash, and (iii) cash
equivalent investments with terms which mature in one year or less.

                  (e) "Business Plan" shall mean the Company's investment
policies and objectives and the capital and operating budget based thereon,
approved by the Board as thereafter modified or amended.

                                       7
<PAGE>

                  (f) "Fiscal Year" shall mean any period for which an income
tax return is submitted to the Internal Revenue Service and which is treated by
the Internal Revenue Service as a reporting period.

                  (g) "Gross Asset Value" shall mean the total assets of the
Company after deduction of allowance for amortization, depreciation or depletion
and valuation reserves.

                  (h) "Mortgage Loans" shall mean notes, debentures, bonds, and
other evidences of indebtedness or obligations, whether negotiable or
non-negotiable, and which are secured or collateralized by mortgages, including
first, wraparound, construction and development, and junior mortgages.

                  (i) "Net Asset Value" shall mean the Book Value of all the
assets of the Company minus all the liabilities of the Company.

                  (j) "Net Income" for any period shall mean the Net Income of
the Company for such period computed in accordance with generally accepted
accounting principles after deduction of the Gross Asset Fee, but before
deduction of the Net Income Fee, as set forth in Sections 11(a) and 11(b),
respectively, herein, and inclusive of gain or loss of the sale of assets.

                  (k) "Net Operating Income" shall mean rental income less
         property operating expenses.

                  (l) "Operating Expenses" shall mean the aggregate annual
         expenses regarded as operating expenses in accordance with generally
         accepted accounting principles as determined by the independent
         auditors selected by the Directors and including the Gross Asset Fee
         payable to the Advisor and fees and expenses

                                       8
<PAGE>
         paid to the Directors who are not employees or Affiliates of the
         Advisor.

                  (m) The operating expenses shall exclude, however, the
         following:

                           (i)      the cost of money borrowed by the Company;

                           (ii)     income taxes, taxes and assessments on real
                  property and all other taxes applicable to the Company;

                           (iii)    expenses and taxes incurred in connection
                  with the issuance, distribution, transfer, registration and
                  stock exchange listing of the Company's securities (including
                  legal, auditing, accounting, underwriting, brokerage,
                  printing, engraving and other fees);

                           (iv)     fees and expenses paid to independent
                  mortgage servicers, contractors, consultants, managers and
                  other agents retained by or on behalf of the Company;

                           (v)      expenses directly connected with the
                  purchase, origination, ownership and disposition of Real
                  Properties or Mortgage Loans (including the costs of
                  foreclosure, insurance, legal, protective, brokerage,
                  maintenance, repair and property improvement services) other
                  than expenses with respect thereto of employees of the
                  Advisor, except legal, internal auditing, foreclosure and
                  transfer agent services performed by employees of the Advisor;

                           (vi)     expenses of maintaining and managing real
                  estate equity interests and processing and servicing mortgage
                  and other loans;

                                       9
<PAGE>

                           (vii)    expenses connected with payments of
                  dividends, interest or distributions by the Company to
                  shareholders;

                           (viii)   expenses connected with communications to
                  shareholders and bookkeeping and clerical expenses for
                  maintaining shareholder relations, including the cost of
                  printing and mailing share certificates, proxy solicitation
                  materials and reports;

                           (ix)     transfer agent's, registrar's and indenture
                  trustee's fees and charges; and

                           (x)      the cost of any accounting, statistical,
                  bookkeeping or computer equipment necessary for the
                  maintenance of books and records of the Company. Additionally,
                  the following expenses of the Advisor shall be excluded:

                           (i)      employment expenses of the Advisor's
                  personnel (including Directors, officers and employees of the
                  Company who are directors, officers or employees of the
                  Advisor or its Affiliates), other than the expenses of those
                  employee services listed at (v) above.

                           (ii)     rent, telephone, utilities and office
                  furnishings and other office expenses of the Advisor (except
                  those relating to a separate office, if any, maintained by the
                  Company); and

                           (iii)    the Advisor's overhead directly related to
                  performance of its functions under this Agreement.

                  (n) "Person" shall mean and include individuals, corporations,
        limited partnerships, general partnerships, joint

                                       10
<PAGE>

         stock companies or associations, joint ventures, associations,
         companies, trusts, banks, trust companies, land trusts, business
         trusts, or other entities and governments and agencies and political
         subdivisions thereof.

                  (o) "Real Property" shall mean and include land, rights in
         land, leasehold interests (including but not limited to interests of a
         lessor or lessee therein), and any buildings, structures, improvements,
         fixtures, and equipment located on or used in connection with land,
         leasehold interests, and rights in land or interests therein.

         All calculations made pursuant to this Agreement shall be based on
statements (which may be unaudited, except as provided herein) prepared on an
accrual basis consistent with generally accepted accounting principles,
regardless of whether the Company may also prepare statements on a different
basis. All other terms shall have the same meaning as set forth in the Company's
Articles of Incorporation and Bylaws.

         11.      ADVISORY COMPENSATION.

                  (a)      Gross Asset Fee. On or before the twenty-eighth day
         of each month during the term hereof, the Company shall pay to the
         Advisor, as compensation for the basic management and advisory services
         rendered to the Company hereunder, a fee at the rate of .0625% per
         month of the average of the Gross Asset Value of the Company at the
         beginning and at the end of the next preceding calendar month. Without
         negating the provisions of Sections 18, 19, 22 and 23 hereof, the
         annual rate of the Gross Asset Fee shall be .75% per annum.

                                       11
<PAGE>

                  (b)      Net Income Fee. As an incentive for successful
         investment and management of the Company's assets, the Advisor will be
         entitled to receive a fee equal to 7.5% per annum of the Company's Net
         Income for each Fiscal Year or portion thereof for which the Advisor
         provides services. To the extent the Company has Net Income in a
         quarter, the 7.5% Net Income fee is to be paid quarterly on or after
         the third business day following the filing of the report on Form 10-Q
         with the Securities and Exchange Commission, except for the payment for
         the fourth quarter, ended December 31, which is to be paid on or after
         the third business day following the filing of the report on Form 10-K
         with the Securities and Exchange Commission.

                  The 7.5% Net Income Fee is to be cumulative within any Fiscal
         Year, such that if the Company has a loss in any quarter during the
         Fiscal Year, each subsequent quarter's payment during such Fiscal Year
         shall be adjusted to maintain the 7.5% per annum rate, with final
         settlement being made with the fourth quarter payment and in accordance
         with audited results for the Fiscal Year. The 7.5% Net Income Fee is
         not cumulative from year to year.

                  (c)      Acquisition Commission. For supervising the
         acquisition, purchase or long term lease of Real Property for the
         Company, the Advisor is to receive an Acquisition Commission equal to
         the lesser of (i) up to 1% of the cost of acquisition, inclusive of
         commissions, if any, paid to nonaffiliated brokers; or (ii) the
         compensation customarily charged in arm's-length transactions by others
         rendering similar property acquisition

                                       12
<PAGE>
         services as an ongoing public activity in the same geographical
         location and for comparable property. The aggregate of each purchase
         price of each property (including the Acquisition Commissions and all
         real estate brokerage fees) may not exceed such property's Appraised
         Value at acquisition.

                  (d)      Incentive Sales Compensation. To encourage periodic
         sales of appreciated Real Property at optimum value and to reward the
         Advisor for improved performance of the Company's Real Property, the
         Company shall pay to the Advisor, on or before the 45th day after the
         close of each Fiscal Year, an incentive fee equal to 10% of the amount,
         if any, by which the aggregate sales consideration for all Real
         Property sold by the Company during such Fiscal Year exceeds the sum
         of: (i) the cost of each such Real Property as originally recorded in
         the Company's books for tax purposes (without deduction for
         depreciation, amortization or reserve for losses), (ii) capital
         improvements made to such assets during the period owned by the
         Company, and (iii) all closing costs, (including real estate
         commissions) incurred in the sale of such Real Property; provided
         however, no incentive fee shall be paid unless (a) such Real Property
         sold in such Fiscal Year, in the aggregate, has produced an 8% simple
         annual return on the Company's net investment, including capital
         improvements, calculated over the Company's holding period before
         depreciation and inclusive of operating income and sales consideration
         and (b) the aggregate Net Operating Income from all Real Property owned
         by the Company for all of the prior Fiscal Year and the current Fiscal

                                       13
<PAGE>
         Year shall be at least 5% higher in the current Fiscal Year than in the
         prior Fiscal Year.

                  (e)      Mortgage or Loan Acquisition Fees. For the
         acquisition or purchase from an unaffiliated party of any existing
         mortgage or loan by the Company, the Advisor or an Affiliate is to
         receive a Mortgage or Loan Acquisition Fee equal to the lesser of (a)
         1% of the amount of the mortgage or loan purchased by the Company or
         (b) a brokerage or commitment fee which is reasonable and fair under
         the circumstances. Such fee will not be paid in connection with the
         origination or funding by the Company of any mortgage loan.

                  (f)      Mortgage Brokerage and Equity Refinancing Fees. For
         obtaining loans to the Company or refinancing on Company properties,
         the Advisor or an Affiliate is to receive a Mortgage Brokerage and
         Equity Refinancing Fee equal to the lesser of (a) 1% of the amount of
         the loan or the amount refinanced or (b) a brokerage or refinancing fee
         which is reasonable and fair under the circumstances; provided, however
         that no such fee shall be paid on loans from the Advisor or an
         Affiliate without the approval of the Board of Directors. No fee shall
         be paid on loan extensions.

         12.      LIMITATION ON THIRD PARTY MORTGAGE PLACEMENT FEES. The
Advisor or any of its Affiliates shall pay to the Company, one-half of any
compensation received by the Advisor or any such Affiliate from third parties
with respect to the origination, placement or brokerage of any loan made by the
Company, provided, however, the compensation retained by the Advisor or
Affiliate shall not exceed the lesser of (a)

                                       14
<PAGE>

2% of the amount of the loan committed by the Company or (b) a loan brokerage
and commitment fee which is reasonable and fair under the circumstances.

        13.       STATEMENTS. The Advisor shall furnish to the Company not
later than the tenth day of each calendar month, beginning with the second
calendar month of the term of this Agreement, a statement showing the
computation of the fees, if any, payable in respect to the next preceding
calendar month (or, in the case of incentive compensation, for the preceding
Fiscal Year, as appropriate) under the Agreement. The final settlement of
incentive compensation for each Fiscal Year shall be subject to adjustment in
accordance with, and upon completion of, the annual audit of the Company's
financial statements; any payment by the Company or repayment by the Advisor
that shall be indicated to be necessary in accordance therewith shall be made
promptly after the completion of such audit and shall be reflected in the
audited statements to be published by the Company.

        14.       COMPENSATION FOR ADDITIONAL SERVICES. If and to the extent
that the Company shall request the Advisor or any director, officer, partner, or
employee of the Advisor to render services for the Company other than those
required to be rendered by the Advisor hereunder, such additional services, if
performed, will be compensated separately on terms to be agreed upon between
such party and the Company from time to time. In particular, but without
limitation, if the Company shall request that the Advisor perform property
management, leasing, loan disbursement or similar functions, the Company and the
Advisor shall enter into a separate agreement specifying the obligations of the

                                       15
<PAGE>

parties and providing for reasonable additional compensation to the Advisor for
performing such services.

        15.       EXPENSES OF THE ADVISOR. Without regard to the amount of
compensation or reimbursement received hereunder by the Advisor, the Advisor
shall bear the following expenses:

                           (a)      employment expenses of the personnel
                  employed by the Advisor (including Directors, officers, and
                  employees of the Company who are directors, officers, or
                  employees of the Advisor or of any company that controls, is
                  controlled by, or is under common control with the Advisor),
                  including, but not limited to, fees, salaries, wages, payroll
                  taxes, travel expenses, and the cost of employee benefit plans
                  and temporary help expenses except for those personnel
                  expenses described in Sections 16(e) and (p);

                           (b)      advertising and promotional expenses
                  incurred in seeking investments for the Company;

                           (c)      rent, telephone, utilities, office furniture
                  and furnishings, and other office expenses of the Advisor and
                  the Company, except as any of such expenses relates to an
                  office maintained by the Company separate from the office of
                  the Advisor; and

                           (d)      miscellaneous administrative expenses
                  relating to performance by the Advisor of its functions
                  hereunder.

                  16. EXPENSES OF THE COMPANY. The Company shall pay all of its
expenses not assumed by the Advisor and, without limiting the generality of the
foregoing, it is specifically agreed that the

                                       16
<PAGE>

following expenses of the Company shall be paid by the Company and shall not be
paid by the Advisor:

                  (a)      the cost of money borrowed by the Company;

                  (b)      income taxes, taxes and assessments on real property,
         and all other taxes applicable to the Company;

                  (c)      legal, auditing, accounting, underwriting, brokerage,
         listing, registration and other fees, printing, and engraving and other
         expenses, and taxes incurred in connection with the issuance,
         distribution, transfer, registration, and stock exchange listing of the
         Company's securities:

                  (d)      fees, salaries, and expenses paid to officers, and
         employees of the Company who are not directors, officers or employees
         of the Advisor, or of any company that controls, is controlled by, or
         is under common control with the Advisor;

                  (e)      expenses directly connected with the origination or
         purchase of Mortgage Loans and with the acquisition, disposition and
         ownership of real estate equity interests or other property (including
         the costs of foreclosure, insurance, legal, protective, brokerage,
         maintenance, repair, and property improvement services) and including
         all compensation, traveling expenses, and other direct costs associated
         with the Advisor's employees or other personnel engaged in (i) real
         estate transaction legal services, (ii) internal auditing, (iii)
         foreclosure and other mortgage finance services, (iv) sale or
         solicitation for sale of mortgages, (v) engineering and appraisal
         services, and (vi) transfer agent services.

                                       17

<PAGE>

                  (f)      expenses of maintaining and managing real estate
         equity interests;

                  (g)      insurance, as required by the Directors (including
         Directors' liability insurance);

                  (h)      the expenses of organizing, revising, amending,
         converting, modifying, or terminating the Company;

                  (i)      expenses connected with payments of dividends or
         interest or distributions in cash or any other form made or caused to
         be made by the Directors to holders of securities of the Company;

                  (j)      all expenses connected with communications to holders
         of securities of the Company and the other bookkeeping and clerical
         work necessary in maintaining relations with holders of securities,
         including the cost of printing and mailing certificates for securities
         and proxy solicitation materials and reports to holders of the
         Company's securities;

                  (k)      the cost of any accounting, statistical, bookkeeping
         or computer equipment or computer time necessary for maintaining the
         books and records of the Company and for preparing and filing Federal,
         State and Local tax returns;

                  (l)      transfer agent's, registrar's, and indenture
         trustee's fees and charges;

                  (m)      legal, accounting, investment banking, and auditing
         fees and expenses charged by independent parties performing these
         services not otherwise included in clauses (c) and (e) of this Section
         16;

                                       18

<PAGE>

                  (n)      expenses incurred by the Advisor, arising from the
         sales of Company properties, including those expenses related to
         carrying out foreclosure proceedings;

                  (o)      commercially reasonable fees paid to the Advisor for
         efforts to liquidate mortgages before maturity, such as the
         solicitation of offers and negotiation of terms of sale;

                  (p)      costs and expenses connected with computer services,
         including but not limited to employee or other personnel compensation,
         hardware and software costs, and related development and installation
         costs associated therewith;

                  (q)      costs and expenses associated with risk management
         (i.e. insurance relating to the Company's assets);

                  (r)      loan refinancing compensation; and

                  (s)      expenses associated with special services requested
         by the Directors pursuant to Section 14 hereof.

         17.      OTHER ACTIVITIES OF ADVISOR. The Advisor, its officers,
directors, or employees or any of its Affiliates may engage in other business
activities related to real estate investments or act as advisor to any other
person or entity (including another real estate investment trust), including
those with investment policies similar to the Company, and the Advisor and its
officers, directors, or employees and any of its Affiliates shall be free from
any obligation to present to the Company any particular investment opportunity
that comes to the Advisor or such persons, regardless of whether such
opportunity is in accordance with the Company's Business Plan. However, to
minimize any possible conflict, the Advisor shall consider the respective
investment objectives of, and the appropriateness of a particular investment to

                                       19

<PAGE>

each such entity in determining to which entity a particular investment
opportunity should be presented. If appropriate to more than one entity, the
Advisor shall present the investment opportunity to the entity that has had
sufficient uninvested funds for the longest period of time.

         18.      LIMITATION ON OPERATING EXPENSES. To the extent that the
Operating Expenses of the Company for any Fiscal Year exceed the lesser of (a)
1.5% of the average of the Book Values of Invested Assets of the Company at the
end of each calendar month of such Fiscal Year, or (b) the greater of 1.5% of
the average of the Net Asset Value of the Company at the end of each calendar
month of such Fiscal Year or 25% of the Company's Net Income, the Advisor shall
refund to the Company from the fees paid to the Advisor the amount, if any, by
which the Operating Expenses so exceed the applicable amount, provided, however,
that the Advisor shall not be required to refund to the Company, with respect to
any Fiscal Year, any amount which exceeds the aggregate of the Gross Asset Fees
paid to the Advisor under this Agreement with respect to such Fiscal Year.

         19.      TERM; TERMINATION OF AGREEMENT. This Agreement shall continue
in force until the next Annual Meeting of Stockholders of the Company, and,
thereafter, it may be renewed from year to year, subject to any required
approval of the Stockholders of the Company and, if any Director is an Affiliate
of the Advisor, the approval of a majority of the Directors who are not so
affiliated. Notice of renewal shall be given in writing by the Directors to the
Advisor not less than 60 days before the expiration of this Agreement or of any
extension thereof. This Agreement may be terminated for any reason without
penalty upon 60

                                       20

<PAGE>

days' written notice by the Company to the Advisor or 120 days' written notice
by the Advisor to the Company, in the former case by the vote of a majority of
the Directors who are not Affiliates of the Advisor or by the vote of holders of
a majority of the outstanding shares of the Company. Notwithstanding the
foregoing, however, in the event of any material change in the ownership,
control or management of the Advisor, the Company may terminate this Agreement
without penalty and without advance notice to the Advisor.

         20.      AMENDMENTS. This Agreement shall not be changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by both parties hereto, or their respective successors or assigns, or
otherwise as provided herein.

         21.      ASSIGNMENT. This Agreement shall not be assigned by the
Advisor without the prior consent of the Company. The Company may terminate this
Agreement in the event of its assignment by the Advisor without the prior
consent of the Company. Such an assignment or any other assignment of this
Agreement shall bind the assignee hereunder in the same manner as the Advisor is
bound hereunder. This Agreement shall not be assignable by the Company without
the consent of the Advisor, except in the case of assignment by the Company to a
corporation, association, trust, or other organization that is a successor to
the Company. Such successor shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound hereunder.

         22.      DEFAULT, BANKRUPTCY, ETC. At the option solely of the
Directors, this Agreement shall be and become terminated immediately upon
written notice of termination from the Directors to the Advisor if any of the
following events shall occur:

                                       21

<PAGE>

                  (a)      If the Advisor shall violate any provision of this
         Agreement, and after notice of such violation shall not cure such
         default within 30 days; or

                  (b)      If the Advisor shall be adjudged bankrupt or
         insolvent by a court of competent jurisdiction, or an order shall be
         made by a court of competent jurisdiction for the appointment of a
         receiver, liquidator, or trustee of the Advisor or of all or
         substantially all of its property by reason of the foregoing, or
         approving any petition filed against the Advisor for its
         reorganization, and such adjudication or order shall remain in force or
         unstayed for a period of 30 days; or

                  (c)      If the Advisor shall institute proceedings for
         voluntary bankruptcy or shall file a petition seeking reorganization
         under the Federal bankruptcy laws, or for relief under any law for the
         relief of debtors, or shall consent to the appointment of a receiver of
         itself or of all or substantially all its property, or shall make a
         general assignment for the benefit of its creditors, or shall admit in
         writing its inability to pay its debts generally, as they become due.

         The Advisor agrees that if any of the events specified in subsections
(b) and (c) of this Section 22 shall occur, it will give written notice thereof
to the Directors within seven days after the occurrence of such event.

         23.      ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the
Advisor shall not be entitled to compensation for further

                                       22

<PAGE>

services hereunder but shall be paid all compensation accruing to the date of
termination. The Advisor shall forthwith upon such termination:

                  (a)      pay over to the Company all monies collected and held
         for the account of the Company pursuant to this Agreement;

                  (b)      deliver to the Directors a full accounting, including
         a statement showing all payments collected by it and a statement of any
         monies held by it, covering the period following the date of the last
         accounting furnished to the Directors; and

                  (c)      deliver to the Directors all property and documents
         of the Company then in the custody of the Advisor.

         24.      MISCELLANEOUS. The Advisor shall be deemed to be in a
fiduciary relationship to the stockholders of the Company. The Advisor assumes
no responsibility under this Agreement other than to render the services called
for hereunder in good faith, and shall not be responsible for any action of the
Directors in following or declining to follow any advice or recommendations of
the Advisor. Neither the Advisor nor any of its shareholders, directors,
officers, or employees shall be liable to the Company, the Directors, the
holders of securities of the Company or to any successor or assign of the
Company for any losses arising from the operation of the Company if the Advisor
had determined, in good faith, that the course of conduct which caused the loss
or liability was in the best interests of the Company and the liability or loss
was not the result of negligence or misconduct by the Advisor. However, in no
event will the directors, officers or employees of the Advisor be personally
liable for any act or failure to act unless it was the result of such person's
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.

                                       23

<PAGE>

         25.      NOTICES. Any notice, report, or other communication required
or permitted to be given hereunder shall be in writing unless some other method
of giving such notice, report, or other communication is accepted by the party
to whom it is given, and shall be given by being delivered at the following
addresses of the parties hereto:

        The Directors and/or the Company:

                   Transcontinental Realty Investors, Inc.
                   1800 Valley View Lane
                   Suite 300
                   Dallas, Texas 75234
                   Attention: President

       The Advisor:

                   Prime Income Asset Management, LLC
                   1800 Valley View Lane
                   Suite 300
                   Dallas, Texas 75234
                   Attention: Executive Vice President and Chief Financial
                              Officer

         Either party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 25.

         26.      HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.

         27.      GOVERNING LAW. This Agreement has been prepared, negotiated
and executed in the State of Texas. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas
applicable to agreements made and to be performed entirely in the State of
Texas.

                                       24

<PAGE>

         28.      EXECUTION. This instrument is executed and made on behalf of
the Company by an officer of the Company, not individually but solely as an
Officer, and the obligations under this Agreement are not binding upon, nor
shall resort be had to the private property of, any of the Directors,
stockholders, officers, employees, or agents of the Company personally, but bind
only the Company property.

                                       25

<PAGE>

         IN WITNESS WHEREOF, TRANSCONTINENTAL REALTY INVESTORS, INC. and PRIME
INCOME ASSET MANAGEMENT, LLC, by their duly authorized officers, have signed
these presents all as of the day and year first above written.

                                            TRANSCONTINENTAL REALTY
                                            INVESTORS, INC.

                                            By: /s/ Ronald E. Kimbrough
                                                --------------------------------
                                                Ronald E. Kimbrough
                                                Executive Vice President

                                            PRIME INCOME ASSET MANAGEMENT, LLC

                                            By: /s/ Mark W. Branigan
                                                --------------------------------
                                                Mark W. Branigan
                                                Executive Vice President

                                       26

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