<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                   (Mark One)
                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 1-14029

                              AMRESCO CAPITAL TRUST
             (Exact name of Registrant as specified in its charter)

                       TEXAS                                     75-2744858
          (State or other jurisdiction of                     (I.R.S. Employer
           incorporation or organization)                    Identification No.)

700 N. PEARL STREET, SUITE 1900, LB 342, DALLAS, TEXAS            75201-7424
      (Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (214) 953-7700

          Securities registered pursuant to Section 12(b) of the Act:
                                      NONE
                                (Title of class)

          Securities registered pursuant to Section 12(g) of the Act:

         COMMON SHARES OF BENEFICIAL INTEREST, $0.01 PAR VALUE PER SHARE
                         PREFERRED SHARE PURCHASE RIGHTS
                                (Title of class)

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

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

As of February 7, 2002, 10,039,974 shares of the registrant's common stock, par
value $.01 per share, were outstanding. As of that date, the aggregate market
value of the shares of common stock held by non-affiliates of the registrant
(based upon the closing price of $1.36 per share on February 7, 2002 as reported
on The Nasdaq Stock Market(R)) was approximately $13.5 million. Shares of common
stock held by each executive officer and trust manager have been excluded in
that such persons may be deemed to be affiliates. From and after February 8,
2002, the registrant's common stock is traded on the OTC Bulletin Board(R).

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

<PAGE>

                              AMRESCO CAPITAL TRUST
                                      INDEX


<Table>
<Caption>
                                                                                Page No.
                                                                                --------
<S>        <C>                                                                  <C>
PART I

Item 1.    Business ..........................................................      3
Item 2.    Properties ........................................................      8
Item 3.    Legal Proceedings .................................................      8
Item 4.    Submission of Matters to a Vote of Security Holders ...............      8

PART II

Item 5.    Market for Registrant's Common Equity and Related Shareholder
              Matters ........................................................      9
Item 6.    Selected Financial Data ...........................................     11
Item 7.    Management's Discussion and Analysis of Financial Condition and
              Results of Operations ..........................................     13
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk ........     24
Item 8.    Financial Statements and Supplementary Data .......................     24
Item 9.    Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure ...........................................     24

PART III

Item 10.  Trust Managers and Executive Officers of the Company ...............     25
Item 11.  Executive Compensation .............................................     27
Item 12.  Security Ownership of Certain Beneficial Owners and Management .....     30
Item 13.  Certain Relationships and Related Transactions .....................     31

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...     33

SIGNATURES ...................................................................     34
</Table>



                                       2
<PAGE>

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

AMRESCO Capital Trust (the "Company") was organized on January 6, 1998 as a real
estate investment trust ("REIT") under the laws of the State of Texas. The
Company was formed to take advantage of certain mid- to high-yield lending and
investment opportunities in real estate related assets, including various types
of commercial mortgage loans (including, among others, participating loans,
mezzanine loans, acquisition loans, construction loans, rehabilitation loans and
bridge loans), commercial mortgage-backed securities ("CMBS"), commercial real
estate, equity investments in joint ventures and/or partnerships, and certain
other real estate related assets. The Company was initially capitalized through
the sale of 100 of its common shares of beneficial interest, par value $.01 per
share (the "Common Shares"), to AMRESCO, INC. on February 2, 1998 for $1,000.
The Company commenced operations on May 12, 1998, concurrent with the completion
of its initial public offering ("IPO") of 9,000,000 Common Shares and private
placement of 1,000,011 Common Shares (the "Private Placement") at $15.00 per
share.

Immediately after the closing of the IPO, the Company began originating and
acquiring investments. Prior to its decision to liquidate (as described below),
the Company's principal business objective was to maximize shareholder value by
producing cash flow for distribution to its shareholders through investment in
mid- to high-yield real estate related assets which earn an attractive spread
over the Company's cost of funds. In accordance with this objective, the Company
made investments in senior mortgage loans, mezzanine loans, CMBS and commercial
real estate (through investments in partnerships) while maintaining what
management believed to be a conservative leverage position.

Beginning in mid 1998 (shortly after the closing of the Company's IPO), market
prices for publicly traded REITs and mortgage REITs in particular began a
significant decline. Additionally, during the third and fourth quarters of 1998,
the commercial mortgage-backed securitization market deteriorated dramatically.
Because of these developments, the Company, like many other REITs, became
limited in its ability to raise new capital to achieve its business strategy.
REITs are limited in their ability to grow through retained earnings because
they are required to distribute a substantial portion of their REIT taxable
income annually. In order to continue to grow its asset base as a stand-alone
entity, a REIT must raise new capital either in the form of equity or debt. It
also became apparent that the market was pricing the Company's equity at
severely discounted values relative to its book value.

Accordingly, in late 1998, the Company's Board of Trust Managers began
discussions of ways to strengthen the Company's balance sheet, gain access to
additional sources of capital and provide liquidity to use for future
investments and operations. Following an extensive review of the various
alternatives available to the Company and after consideration of several
proposals from other entities, the Company ultimately entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Impac Commercial Holdings, Inc.
("ICH"), another mortgage REIT, in early August 1999. Although the Company
believed at that time that the combination would be beneficial to its
shareholders, prevailing market conditions and other factors made the merger
less attractive as time progressed. Furthermore, it appeared that the benefits
to be derived from the combination would take longer than originally anticipated
to materialize. Ultimately, the Company and ICH mutually agreed to terminate the
Merger Agreement in late December 1999. During the latter part of 1999, the
Company's Common Shares continued to trade at a substantial discount to the
Company's book value and the CMBS market continued to deteriorate.

In early 2000, the Board of Trust Managers approved a course of action to market
and sell the Company's non-core assets, including its CMBS investments and its
equity investments in real estate. During the first quarter of 2000, the Company
also continued to analyze strategic alternatives to maximize shareholder value,
including continuing to operate as a going concern (either as a REIT or as a C
corporation), merging or combining with other entities, selling its shares or
its assets, or winding down its operations in a liquidation. On March 29, 2000,
the Board of Trust Managers unanimously approved a Plan of Liquidation and
Dissolution (the "Plan") for the Company. On September 26, 2000, shareholders
approved the liquidation and dissolution of the Company under the terms and
conditions of the Plan. At the Company's 2000 Annual Meeting, which was held on
September 26, 2000, 78.5% of the Company's outstanding Common Shares were cast
in favor of the liquidation and dissolution proposal. Of the votes cast on this
proposal, 99.5% were in favor of the liquidation and dissolution.



                                       3
<PAGE>

As of December 31, 2001, the Company had disposed of all of its assets other
than one mortgage loan. On March 21, 2002, the Company sold its remaining
mortgage loan for $10.300 million. During the year ended December 31, 2001,
three of the Company's loans were fully repaid; at their respective disposition
dates, these three loans had amounts outstanding totaling $31.549 million.
Additionally, in June 2001, the Company received $42.382 million in complete
satisfaction of another loan; at the time of the settlement, amounts outstanding
under this loan totaled $42.882 million. In January 2001, the Company sold its
remaining CMBS holdings; at the time the three securities were sold, the Company
received net cash proceeds totaling $16.555 million. On March 5, 2001, a
partnership controlled by the Company's unconsolidated taxable subsidiary sold a
mixed-use property. During the period from March 6, 2001 through December 31,
2001, the Company received distributions totaling $2.155 million from this
unconsolidated subsidiary. On March 6, 2002, the Company received a final
distribution of $28,000 from the unconsolidated subsidiary. In January 2001,
March 2001 and August 2001, the Company made liquidating distributions to its
shareholders totaling $3.514 million (or $0.35 per share), $26.104 million (or
$2.60 per share) and $70.280 million (or $7.00 per share), respectively. Now
that the Company has disposed of its last real estate related asset, the Board
of Trust Managers intends to distribute the Company's remaining assets (net of
any required reserves) to its shareholders as soon as administratively
practical. Currently, the Company expects to make one final liquidating
distribution on or about April 30, 2002. The Company currently estimates that
its final liquidating distribution will approximate $1.51 to $1.56 per share.
Including liquidating distributions paid in 2000 and 2001, a final liquidating
distribution within this range would result in total liquidating distributions
of $12.11 to $12.16 per share. There can be no assurances, however, that the
actual amount of the final liquidating distribution (or the timing of its
payment) will not vary materially from the estimates. For additional discussion
regarding the status of the Company's liquidation efforts, reference is made to
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".

The Company believes that it has operated and it intends to continue to operate
(through the date of its final dissolution) in a manner so as to continue to
qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"). As a result, the Company will generally not be
subject to federal income tax on that portion of its ordinary income or capital
gain that is currently distributed to its shareholders if it distributes at
least 90% of its annual REIT taxable income and it complies with a number of
other organizational and operational requirements including, among others, those
concerning the ownership of its outstanding Common Shares, the nature of its
assets and the sources of its income. During the tax years ended December 31,
2000, 1999 and 1998, the Company was required to distribute at least 95% of its
annual REIT taxable income. For tax years beginning after December 31, 2000, the
minimum distribution requirement was reduced to 90%.

Pursuant to the terms of a Management Agreement dated as of May 12, 1998, as
amended, and subject to the direction and oversight of the Board of Trust
Managers, the Company's day-to-day operations are managed by AMREIT Managers,
L.P. (the "Manager"), an affiliate of AMRESCO, INC. (together with its
affiliated entities, the "AMRESCO Group"), which was formed in March 1998. The
terms of the Management Agreement are more fully described below.

On July 2, 2001, AMRESCO, INC. ("AMRESCO") filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code. The Manager was not
included in this bankruptcy filing.

Prior to July 5, 2000, AMREIT Holdings, Inc. ("Holdings"), a wholly-owned
subsidiary of AMRESCO, owned 1,500,011 shares, or approximately 15% of the
Company's outstanding common stock. Holdings acquired 1,000,011 shares at the
IPO Price pursuant to the Private Placement; the remaining 500,000 shares were
acquired through the IPO. On July 5, 2000, these Common Shares (and the 100
Common Shares held by AMRESCO) were sold to affiliates of Farallon Capital
Management, L.L.C. For the terms of such sale, reference is made to Item 8
"Financial Statements and Supplementary Data". As a result of this sale, AMRESCO
and Holdings no longer own any of the Company's outstanding Common Shares.

As described above, shareholders approved the liquidation and dissolution of the
Company on September 26, 2000. As a result, the Company adopted liquidation
basis accounting on that date. Prior to September 26, 2000, the Company's
operating results were presented in accordance with the historical cost (or
going concern) basis of accounting. Under liquidation basis accounting, the
Company's revenues and expenses are reported as changes in net assets in
liquidation. Additionally, under liquidation basis accounting, the Company's
assets are carried at their estimated net realizable values and the Company's
liabilities are reported at their expected settlement amounts in a consolidated
statement of net assets in liquidation. Among other things, statements of income
are not presented under the liquidation basis of accounting.



                                       4
<PAGE>

EMPLOYEES

The Company has no employees nor does it maintain a separate office. Instead,
the Company relies on the facilities and resources of the Manager and its
executive officer, who is employed by AMRESCO. Additionally, the Company relies
on two other officers, its Chairman of the Board of Trust Managers and Chief
Executive Officer and its President and Chief Investment Officer, neither of
whom is employed by either the Company or AMRESCO. The Company is not a party to
any collective bargaining agreements. Headquartered in Dallas, Texas, AMRESCO is
in the process of winding up its affairs. As of December 31, 2001 and 2000,
AMRESCO employed approximately 11 people and 200 people, respectively.

MANAGEMENT AGREEMENT

For its services during the period from May 12, 1998 (the Company's inception of
operations) through March 31, 2000, the Manager was entitled to receive a base
management fee equal to 1% per annum of the Company's average invested
non-investment grade assets and 0.5% per annum of the Company's average invested
investment grade assets. In addition to the base management fee, the Manager was
entitled to receive incentive compensation for each fiscal quarter in an amount
equal to 25% of the dollar amount by which all of the Company's Funds From
Operations (as defined by the National Association of Real Estate Investment
Trusts) plus gains (or minus losses) from debt restructurings and sales of
property, as adjusted, exceeded the ten-year U.S. Treasury rate plus 3.5%. In
addition to the fees described above, the Manager was also entitled to receive
reimbursement for its costs of providing certain due diligence and professional
services to the Company.

On March 29, 2000, the Company's Board of Trust Managers approved certain
modifications to the Manager's compensation in response to the changes in the
Company's business strategy. In addition to the base management fee described
above, the Manager is entitled to receive reimbursement for its quarterly
operating deficits, if any, from and after April 1, 2000. These reimbursements
are equal to the excess, if any, of the Manager's operating costs (including
principally personnel and general and administrative expenses) over the sum of
its base management fees and any other fees earned by the Manager from sources
other than the Company. Currently, AMRESCO (through the Manager) employs 2
people who are fully dedicated to the Company. As part of the modification, the
Manager is no longer entitled to receive incentive compensation and/or a
termination fee in the event that the Management Agreement is terminated. Prior
to the modifications, the Manager could have been entitled to a termination fee
in the event that the Management Agreement was terminated by the Company without
cause, including a termination resulting from the liquidation and dissolution of
the Company. The termination fee would have been equal to the sum of the
Manager's base management fee and incentive compensation earned during the
twelve-month period immediately preceding the termination.

The following table summarizes the amounts charged to the Company by the Manager
during the years ended December 31, 2001, 2000 and 1999 under the terms of the
amended Management Agreement (in thousands):

<Table>
<Caption>
                                                   2001        2000        1999
                                                  ------      ------      ------
<S>                                               <C>         <C>         <C>
         Base management fees                     $  575      $1,762      $2,066
         Incentive compensation                       --          --          --
         Reimbursable expenses                        --          20         192
         Operating deficit reimbursements          1,286         243          --
                                                  ------      ------      ------

                                                  $1,861      $2,025      $2,258
                                                  ======      ======      ======
</Table>

HISTORICAL INVESTMENT ACTIVITIES

General

The Company, as an investor in real estate related assets, operated in only one
reportable segment. Historically, the Company's asset allocation decisions and
investment strategies within this segment were influenced by changing market
factors and conditions. The Company had no policy requiring that any specific
percentage of its assets be invested in any particular type or form of real
estate investment nor did it limit any particular type or form of real estate
investment (other than CMBS) to a specific percentage. CMBS investments, by
policy, could not exceed 40% of the Company's total consolidated assets. At
December 31, 2001, 2000 and 1999, investments in CMBS comprised approximately
0%, 14% and 12%, respectively, of the Company's investment portfolio.



                                       5
<PAGE>

The Company's historical investment activities were focused in three primary
areas: loan investments, CMBS and equity investments in real estate. For
information regarding the revenues that were derived from each of these
categories during the year ended December 31, 2001, the period from September
26, 2000 (the date on which the Company adopted liquidation basis accounting)
through December 31, 2000, the period from January 1, 2000 through September 25,
2000 and the year ended December 31, 1999, reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and notes thereto included in
Items 7 and 8, respectively, of this report.

The Company did not have, nor did it rely upon, any major customers.
Additionally, the Company made no investments outside of the United States.

Loan Investments

Historically, the Company specialized in providing mid- to high-yield senior and
mezzanine financing to real estate owners and developers on a participating and
non-participating basis. Mezzanine loans, the repayment of which is subordinated
to senior mortgage loans, are secured by a second lien mortgage and/or a pledge
of the ownership interests of the borrower. Mezzanine loans generally afford a
relatively higher yield and entail greater risks than senior mortgage loans. The
underwriting process for the Company's loans took into account special risks
associated with mid- to high-yield lending, including an in-depth assessment of
the character, experience (including operating history) and financial capacity
of the borrower or the borrowers' principal(s), a detailed analysis of the
property or project being financed and an analysis of the market in which the
borrower operates, including competition, market share data, comparable
properties, absorption rates and market rental rates as well as general
information such as population, employment trends, median income and demographic
data. Prior to closing, the Manager either obtained a Phase I environmental
assessment or reviewed a recently obtained Phase I environmental assessment and
at least one of the Manager's representatives performed a site inspection.
Sources of information which were examined (if available) during the due
diligence process included: (a) current and historical operating statements; (b)
existing or new appraisals; (c) sales comparables; (d) industry statistics and
reports regarding operating expenses; (e) existing leases and market rates for
comparable leases; and (f) deferred maintenance observed during site inspections
and described in structural and engineering reports. Using all of the
information obtained during the due diligence process, the Manager then
developed projections of net operating income and cash flows to determine
current and expected exit values, as well as appropriate lending limits and
pricing given the risks inherent in each transaction.

As of December 31, 2001, the Company held one mortgage loan investment. The loan
(a mezzanine investment) had a commitment amount and an outstanding principal
balance of $14,700,000. Prior to its sale on March 21, 2002, the loan provided
for interest at a pay rate of 10% per annum and an accrual rate of 12% per
annum. The incremental interest earned at the accrual rate was due (from the
borrower) at maturity. The loan, which was scheduled to mature on March 31,
2003, also provided the Company with the opportunity for profit participation
above the contractual accrual rate. The repayment of the Company's second lien
loan was subordinated to a $26.2 million non-recourse first lien mortgage
provided by an unaffiliated third party. The first lien loan and the Company's
second lien loan were secured by a 301,000 square foot office building in
Richardson, Texas. Inet Technologies, Inc. (Nasdaq: INTI) and Macromedia, Inc.
(Nasdaq: MACR) lease approximately 80% and 19%, respectively, of the building's
net rentable area. During the year ended December 31, 2001, the Company reduced
the carrying value of its second lien loan by $4,400,000, from $14,700,000 to
$10,300,000 (the amount at which the loan was liquidated); additionally, the
Company reduced the carrying value of the related accrual rate interest
receivable by $673,000, from $673,000 to $0.

Commercial Mortgage-backed Securities

Prior to September 26, 2000, the Company's investments in non-investment grade
CMBS were classified as available for sale and were carried at estimated fair
value as determined by quoted market rates. Any unrealized gains or losses were
excluded from earnings and reported as a component of accumulated other
comprehensive income (loss) in shareholders' equity. From and after September
26, 2000, the Company's CMBS available for sale were carried at estimated net
realizable value; any unrealized gains or losses (changes in estimated net
realizable value) were reported in the consolidated statement of changes in net
assets in liquidation.



                                       6
<PAGE>

In most commercial mortgage securitizations, including those from which the
Company had acquired its bonds, a series of CMBS is issued in multiple classes
in order to obtain investment-grade credit ratings for the senior classes (i.e.,
those with credit ratings of "BBB", "A", "AA" or "AAA") in order to increase
their marketability. The non-investment grade, or subordinated classes,
typically include classes with ratings below investment grade "BBB". These
subordinated classes also typically include an unrated higher-yield,
credit-support class which generally is required to absorb the first losses on
the underlying mortgage loans. Each class of CMBS may be issued with a specific
fixed rate or variable coupon rate and has a stated maturity or final scheduled
distribution date. As the subordinated classes provide credit protection to the
senior classes by absorbing losses from underlying mortgage loan defaults or
foreclosures, they carry more credit risk than the senior classes. Subordinated
classes are generally issued at a discount to their outstanding face value and
therefore generally afford a higher yield than the senior classes.

Because there were numerous characteristics to consider when evaluating CMBS for
purchase, each CMBS was analyzed individually, taking into consideration both
objective data as well as subjective analysis. The Manager's due diligence
included an analysis of (i) the underlying collateral pool, (ii) the prepayment
and default history of the mortgage loans previously originated by the
originator, (iii) cash flow analyses under various prepayment and interest rate
scenarios (including sensitivity analyses) and (iv) an analysis of various
default scenarios. However, which of these characteristics (if any) were
important and how important each characteristic may have been to the evaluation
of a particular CMBS depended on the individual circumstances. The Manager used
sampling and other analytical techniques to determine on a loan-by-loan basis
which mortgage loans would undergo a full-scope review and which mortgage loans
would undergo a more streamlined review process. Although the choice was a
subjective one, considerations that influenced the choice for scope of review
included mortgage loan size, debt service coverage ratio, loan-to-value ratio,
mortgage loan maturity, lease rollover, property type and geographic location. A
full-scope review may have included, among other factors, a site inspection,
tenant-by-tenant rent roll analysis, review of historical income and expenses
for each property securing the mortgage loan, a review of major leases for each
property (if available); recent appraisals (if available), engineering and
environmental reports (if available), and the price paid for similar CMBS by
unrelated third parties in arm's length purchases and sales (if available) or a
review of broker price opinions (if the price paid by a bona fide third party
for similar CMBS was not available and such price opinions were available). For
those mortgage loans that were selected for the more streamlined review process,
the Manager's evaluation may have included a review of the property operating
statements, summary loan level data, third party reports, and a review of prices
paid for similar CMBS by bona fide third parties or broker price opinions, each
as available. If the Manager's review of such information did not reveal any
unusual or unexpected characteristics or factors, no further due diligence was
performed.

Equity Investments in Real Estate

The Company made equity investments in real estate through two partnerships.
Both of these investments were liquidated in 2000. In considering potential
equity investments in real estate, the Company's Manager performed due diligence
substantially similar to that described above in connection with the acquisition
or origination of loan investments.

The Company's unconsolidated taxable subsidiary held interests (indirectly) in a
partnership which had owned a 909,000 square foot mixed-use property in
Columbus, Ohio. The partnership interests were acquired through foreclosure on
February 25, 1999. On March 5, 2001, the partnership sold the mixed-use property
to an unaffiliated third party.

The Company did not operate the real estate owned by the partnerships, but
rather it relied upon qualified and experienced real estate operators
unaffiliated with the Company.

COMPETITION

Historically, the Company competed in the acquisition and origination of
investments with a significant number of other REITs, investment banking firms,
savings and loan associations, banks, mortgage bankers, insurance companies,
mutual funds, credit companies and other entities, some of which had greater
financial resources than the Company. As the Company is now liquidating, it no
longer competes with any of these entities for new investments.

The owners of the real properties which had secured the Company's mortgage loans
competed with numerous other owners and operators of similar properties,
including commercial developers, real estate companies and REITs. Many of these
entities may have had greater financial and other resources and more operating
experience than the owners of the real properties which had secured the
Company's mortgage loans. The real properties owned and operated by the
borrowers under the Company's mortgage loans were located in markets or
submarkets in which significant construction



                                       7
<PAGE>

or rehabilitation of properties could occur. This could have resulted in
overbuilding in these markets or submarkets. Any such overbuilding could have
adversely impacted the ability of the borrowers under the Company's mortgage
loans to lease, refinance and/or sell their respective properties and repay
their mortgage loans. This could, in turn, have adversely impacted the Company's
income and the timing and amount of its liquidating distributions. As the
Company's mortgage loan portfolio has now been completely liquidated, the
Company no longer competes in these areas.

ENVIRONMENTAL MATTERS

Under existing and future environmental legislation, a current or previous owner
or operator of real estate may be liable for the remediation of hazardous or
toxic substances on, under or in such real estate. As a part of the Manager's
due diligence activities, Phase I environmental assessments were obtained on all
real estate acquired by the Company and on the real estate collateralizing its
loan investments. The purpose of Phase I environmental assessments was to
identify potential environmental contamination that is made apparent from
historical reviews of the real estate, reviews of certain public records,
preliminary (non-invasive) investigations of the sites and surrounding real
estate, and screening of relevant records for the presence of hazardous
substances, toxic substances and underground storage tanks. There can be no
assurance that such assessments revealed all existing or potential environmental
risks and liabilities, nor that there will be no unknown or material
environmental obligations or liabilities.

Based on these assessments, the Company believes that its real estate
investments and the real estate underlying its loan investments were (during its
term of ownership) in compliance, in all material respects, with all federal,
state and local ordinances and regulations regarding hazardous or toxic
substances and other environmental matters, the violation of which could have a
material adverse effect on the Company or the borrowers, as applicable. The
Company has not been notified by any governmental authority of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental matters in connection with any of its previously owned
properties (including the property which had been owned by its taxable
subsidiary) nor is it aware of any such noncompliance with respect to the real
estate collateralizing its previous loan investments.

SHAREHOLDER RIGHTS PLAN

On February 25, 1999, the Company's Board of Trust Managers adopted a
shareholder rights plan (the "Rights Plan"). The Rights Plan was adopted in
response to the consolidation trend in the REIT industry rather than in response
to any specific proposals or communications. The Rights Plan is designed to
provide the Company's Board of Trust Managers with negotiating leverage in
dealing with a potential acquirer, to protect the Company from unfair and
abusive takeover tactics and to prevent an acquirer from gaining control of the
Company without offering a full and fair price to all shareholders. The Rights
Plan is not intended to prevent an acquisition beneficial to all of the
Company's shareholders. In connection with the adoption of the Rights Plan, the
Board of Trust Managers declared a dividend of one preferred share purchase
right (a "Right") for each outstanding Common Share of the Company. The dividend
was paid on March 11, 1999 to shareholders of record on March 11, 1999. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a Series A Junior Participating Preferred Share ("Preferred
Share") for $37.50 per one one-hundredth of a Preferred Share. On June 29, 2000,
the Rights Plan was amended to permit affiliates of Farallon Capital Management,
L.L.C. to acquire up to 18.2% of the Company's outstanding Common Shares. The
Rights trade with the Company's Common Shares and are not exercisable until a
triggering event, as defined, occurs.

ITEM 2. PROPERTIES

The Company does not maintain a separate office. It relies exclusively on the
facilities of its manager, AMREIT Managers, L.P. (the "Manager"), an affiliate
of AMRESCO, INC. The executive offices of the Company, the Manager and AMRESCO,
INC. are located at 700 North Pearl Street, Suite 1900, Dallas, Texas 75201.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any pending legal proceedings.

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

No matters were submitted to a vote of the Company's security holders during the
fourth quarter of 2001, through the solicitation of proxies or otherwise.



                                       8
<PAGE>
                                     PART II

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

MARKET INFORMATION

Prior to February 8, 2002, the Company's common shares of beneficial interest,
par value $.01 per share (the "Common Shares"), were traded on The Nasdaq Stock
Market(R) ("Nasdaq") under the symbol "AMCT". From and after February 8, 2002,
the Company's Common Shares are traded on the OTC Bulletin Board(R) under the
symbol "AMCT". The following table sets forth for the indicated periods the high
and low sale prices for the Common Shares, as reported by Nasdaq.

<Table>
<Caption>
                                                                         High          Low
                                                                      -----------   -----------
<S>                                                                   <C>           <C>
               2000

                  First Quarter ...................................     10.250         8.313
                  Second Quarter ..................................     10.750         9.688
                  Third Quarter ...................................     11.250        10.063
                  Fourth Quarter ..................................     10.938         9.688

               2001

                  First Quarter ...................................     10.563         9.625
                  Second Quarter ..................................      8.380         7.625
                  Third Quarter ...................................      8.440         0.650
                  Fourth Quarter ..................................      1.430         1.060

               2002

                  First Quarter (through February 7, 2002) ........      1.400         1.280
</Table>

SHAREHOLDER INFORMATION

At February 28, 2002, the Company had approximately 35 holders of record of its
Common Shares. It is estimated that there were approximately 1,400 beneficial
owners of the Common Shares at that date.

Because the Board of Trust Managers believes it is essential for the Company to
continue to qualify as a REIT, the Company's Amended and Restated Declaration of
Trust, subject to certain exceptions, limits the number of Common Shares that
may be owned by any single person or affiliated group to 9.8% (the "Aggregate
Share Ownership Limit") of the total outstanding Common Shares. The Trust
Managers may waive the Aggregate Share Ownership Limit and have waived such
Aggregate Share Ownership Limit with respect to Farallon Capital Management,
L.L.C. and its affiliates (for whom the Aggregate Share Ownership Limit is
18.2%) and FMR Corp. (for whom the Aggregate Share Ownership Limit is 15%).



                                       9
<PAGE>

DISTRIBUTION INFORMATION

Historically, the Company's policy was to distribute at least 95% of its REIT
taxable income to shareholders each year. To that end, dividends were paid
quarterly through the first quarter of 2000. On September 26, 2000, shareholders
approved the liquidation and dissolution of the Company. As a result, the
Company's dividend policy was modified to provide for the distribution of the
Company's assets to its shareholders. Through December 31, 2001, the Company had
declared five liquidating distributions. The following table sets forth
information regarding the declaration, payment and federal income tax status of
the Company's distributions for the years ended December 31, 2001 and 2000 (in
thousands, except per share amounts).

<Table>
<Caption>
                                                                                                     FEDERAL INCOME TAX STATUS
                                                                                   DISTRIBUTION  ----------------------------------
                 DECLARATION         RECORD           PAYMENT        DISTRIBUTION    PER COMMON  ORDINARY  RETURN OF   LIQUIDATING
                    DATE              DATE              DATE            PAID          SHARE       INCOME    CAPITAL   DISTRIBUTIONS
                 -----------         ------           -------        ------------  ------------  --------  ---------  -------------
<S>            <C>                <C>               <C>              <C>           <C>           <C>       <C>        <C>
2000
First Quarter  April 25, 2000     May 4, 2000       May 15, 2000       $ 3,405        $0.34       $0.34     $    --     $    --

Liquidating
 Distributions:
     First     September 27, 2000 October 6, 2000   October 19, 2000     3,012         0.30          --          --        0.30
     Second    October 31, 2000   November 9, 2000  November 21, 2000    3,514         0.35          --          --        0.35
     Third     December 21, 2000  December 31, 2000 January 17, 2001     3,514         0.35          --          --        0.35
                                                                       -------        -----     -------     -------       -----

                                                                       $13,445        $1.34       $0.34     $    --       $1.00
                                                                       =======        =====     =======     =======       =====
2001
Liquidating
 Distributions:
     Fourth    March 8, 2001      March 19, 2001    March 30, 2001     $26,104        $2.60     $    --     $    --       $2.60
     Fifth     July 19, 2001      July 30, 2001     August 9, 2001      70,280         7.00          --          --        7.00
                                                                       -------        -----     -------     -------       -----

                                                                       $96,384        $9.60     $    --     $    --       $9.60
                                                                       =======        =====     =======     =======       =====
</Table>

Currently, the Company expects to make one final liquidating distribution. The
timing and amount of this liquidating distribution will be at the discretion of
the Board of Trust Managers and will be dependent upon the Company's anticipated
wrap-up expenses, reserve requirements, if any, and such other factors as the
Board of Trust Managers deems relevant. The Company believes that its final
liquidating distribution will be sufficient to allow it to continue to qualify
as a REIT under the Internal Revenue Code of 1986, as amended, through the date
of its dissolution.

In order to maintain its qualification as a REIT, the Company was required to
make annual distributions to its shareholders of at least 95% of its REIT
taxable income for the tax year ended December 31, 2000. For tax years beginning
after December 31, 2000, the minimum distribution requirement was reduced from
95% to 90%. For the tax years ended December 31, 2001 and 2000, the Company
declared distributions totaling $96,384,000 and $13,445,000, respectively, which
satisfied the 90% and 95% distribution requirements for such years.



                                       10
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

On September 26, 2000, shareholders approved the liquidation and dissolution of
the Company. As a result, the Company adopted liquidation basis accounting on
that date. Among other things, statements of income and earnings per share data
are not presented under the liquidation basis of accounting. Instead, the
Company's revenues and expenses are reported as changes in net assets in
liquidation. Additionally, under liquidation basis accounting, the Company's
assets are carried at their estimated net realizable values and the Company's
liabilities are reported at their expected settlement amounts in a consolidated
statement of net assets in liquidation. The selected financial data set forth
below for the year ended December 31, 2001 and the period from September 26,
2000 through December 31, 2000 has been derived from the Company's audited
consolidated financial statements prepared under the liquidation basis of
accounting for such periods. This information should be read in conjunction with
"Item 1. Business" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations", as well as the audited
consolidated financial statements and notes thereto included in "Item 8.
Financial Statements and Supplementary Data".

<Table>
<Caption>
                                                                                                                   Period from
                                                                                                                September 26, 2000
                                                                                              Year Ended             through
               (In thousands, except per share data)                                       December 31, 2001    December 31, 2000
                                                                                           -----------------    ------------------
<S>                                                                                        <C>                  <C>
              Revenues ...................................................................      $   5,999            $   3,758
              Decrease in net assets in liquidation from operating activities ............      $  (1,491)           $  (1,531)
              Liquidating distributions declared per common share ........................      $    9.60            $    1.00
              Total assets ...............................................................      $  17,027            $ 119,159
              Total debt .................................................................      $      --            $      --
              Net assets in liquidation ..................................................      $  15,617            $ 117,006
</Table>

The selected financial data set forth below for the period from January 1, 2000
through September 25, 2000 (the date immediately prior to the adoption of
liquidation basis accounting), the year ended December 31, 1999 and the period
from February 2, 1998 (date of initial capitalization) through December 31, 1998
has been derived from the Company's audited consolidated financial statements
prepared under the historical cost (or going concern) basis of accounting. This
information should also be read in conjunction with "Item 1. Business" and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as the audited consolidated financial statements and notes
thereto included in "Item 8. Financial Statements and Supplementary Data".

<Table>
<Caption>
                                                                          Period from                             Period from
                                                                        January 1, 2000                         February 2, 1998
                                                                            through             Year Ended          through
   (In thousands, except per share and ratio data)                     September 25, 2000   December 31, 1999   December 31, 1998
                                                                       ------------------   -----------------   -----------------
<S>                                                                     <C>                 <C>                 <C>

   Revenues ..........................................................      $  15,708            $  23,393           $   8,745
   Net income ........................................................      $   5,948            $   7,320           $   3,952
   Earnings per common share:
      Basic ..........................................................      $    0.59            $    0.73           $    0.56
      Diluted ........................................................      $    0.59            $    0.73           $    0.56
   Dividends declared per common share ...............................      $    0.34            $    1.59           $    0.74
   Total assets ......................................................      $ 147,269            $ 231,244           $ 190,926
   Total debt ........................................................      $  22,000            $ 105,097           $  46,838
   Long-term debt ....................................................      $      --            $  34,600           $  46,838
   Total shareholders' equity ........................................      $ 124,004            $ 117,951           $ 130,266
   Debt to equity ratio ..............................................       0.2 to 1             0.9 to 1            0.4 to 1
   Debt to equity ratio (excluding non-recourse debt on real
       estate)........................................................       0.2 to 1             0.6 to 1            0.3 to 1
</Table>



                                       11
<PAGE>

Although the Company was initially capitalized on February 2, 1998 (with
$1,000), it did not commence operations until its initial public offering was
completed on May 12, 1998. As a result, the Company had no earnings prior to the
commencement of its operations. Accordingly, the 1998 data set forth below
reflects operations and earnings per common share for the period from May 12,
1998 (inception of operations) through December 31, 1998.

<Table>
<Caption>
          (In thousands, except per share data)
<S>                                                        <C>
          Revenues ......................................  $ 8,745
          Net income ....................................  $ 3,952
          Earnings per common share:
              Basic .....................................  $  0.39
              Diluted ...................................  $  0.39
</Table>



                                       12
<PAGE>

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

OVERVIEW

AMRESCO Capital Trust (the "Company") is a real estate investment trust ("REIT")
which was formed in early 1998 to take advantage of certain mid- to high-yield
lending and investment opportunities in real estate related assets, including
various types of commercial mortgage loans (including, among others,
participating loans, mezzanine loans, acquisition loans, construction loans,
rehabilitation loans and bridge loans), commercial mortgage-backed securities
("CMBS"), commercial real estate, equity investments in joint ventures and/or
partnerships, and certain other real estate related assets. Subject to the
direction and oversight of the Board of Trust Managers, the Company's day-to-day
operations are managed by AMREIT Managers, L.P. (the "Manager"), an affiliate of
AMRESCO, INC. (together with its affiliated entities, the "AMRESCO Group").

The Company commenced operations on May 12, 1998 concurrent with the completion
of its initial public offering of 9,000,000 common shares and private placement
of 1,000,011 common shares with AMREIT Holdings, Inc., a wholly-owned subsidiary
of AMRESCO, INC. From the Company's inception of operations through July 5,
2000, AMRESCO, INC. and AMREIT Holdings, Inc. collectively owned 1,500,111
shares, or approximately 15%, of its outstanding common stock. On July 5, 2000,
all of these common shares were sold to affiliates of Farallon Capital
Management, L.L.C. Historically, the Company's investment activities were
focused in three primary areas: loan investments, CMBS and equity investments in
real estate.

In early 2000, the Board of Trust Managers approved a course of action to market
and sell the Company's non-core assets, including its CMBS holdings and its
equity investments in real estate. On September 26, 2000, shareholders approved
the liquidation and dissolution of the Company under the terms and conditions of
a Plan of Liquidation and Dissolution which was approved by the Company's Board
of Trust Managers on March 29, 2000. As of December 31, 2001, the Company had
disposed of all of its real estate related assets other than one mortgage loan.
The remaining loan, a $14.7 million mezzanine investment, was sold on March 21,
2002 for $10.3 million.

Now that the Company has disposed of its last real estate related asset, the
Board of Trust Managers intends to distribute the Company's remaining assets
(net of any required reserves) to its shareholders as soon as administratively
practical. Currently, the Company expects to make one final liquidating
distribution on or about April 30, 2002. The Company currently estimates that
its final liquidating distribution will approximate $1.51 to $1.56 per share.
Including liquidating distributions paid in 2000 and 2001, a final liquidating
distribution within this range would result in total liquidating distributions
of $12.11 to $12.16 per share. There can be no assurances, however, that the
actual amount of the final liquidating distribution (or the timing of its
payment) will not vary materially from the estimates. Shortly after the final
distribution is made, the Company expects to file articles of dissolution.

As described above, shareholders approved the liquidation and dissolution of the
Company on September 26, 2000. As a result, the Company adopted liquidation
basis accounting on that date. Prior to September 26, 2000, the Company's
operating results were presented in accordance with the historical cost (or
going concern) basis of accounting. Under liquidation basis accounting, the
Company's assets are carried at their estimated net realizable values and the
Company's liabilities are reported at their expected settlement amounts in a
consolidated statement of net assets in liquidation. Additionally, under
liquidation basis accounting, the Company's revenues and expenses are reported
as changes in net assets in liquidation. Statements of income, earnings per
share data and an amount representing total comprehensive income are not
presented. For a discussion of the liquidation basis of accounting and a summary
of the adjustments to the Company's assets and liabilities resulting from the
adoption thereof, reference is made to the Company's audited consolidated
financial statements and notes thereto included in Item 8 of this report.



                                       13
<PAGE>

RESULTS OF OPERATIONS

The following discussion of the Company's operating results should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in "Item 8. Financial Statements and Supplementary Data".

Under the liquidation basis of accounting, net assets in liquidation decreased
by $101,389,000 during the year ended December 31, 2001, of which $99,898,000
was attributable to liquidating distributions that were paid to the Company's
shareholders in January, March and August 2001. During 2001, revenues and
expenses totaled $5,999,000 and $2,100,000, respectively. The Company's expenses
were comprised of management fees and general and administrative expenses of
$987,000 and $1,113,000, respectively. The management fees are fully described
in the notes to the audited consolidated financial statements included in "Item
8. Financial Statements and Supplementary Data." During the year ended December
31, 2001, general and administrative expenses were comprised of the following:
$174,000 for professional services; $689,000 for directors and officers'
insurance; $120,000 of fees paid to the Company's Trust Managers (excluding the
Chairman of the Board) for their services to the Company; $60,000 of fees paid
to the Company's Chairman of the Board of Trust Managers and Chief Executive
Officer for his services to the Company; $30,000 of fees paid to the Company's
President and Chief Investment Officer for his services to the Company; and
$40,000 of other miscellaneous expenditures. Additionally, during the year, the
Company reduced the carrying value of its last remaining mortgage loan and the
accrual rate interest receivable associated therewith by $4,400,000 and
$673,000, respectively; furthermore, the Company increased the carrying value of
its investment in its unconsolidated subsidiary by $183,000. These adjustments
(changes in estimated net realizable value), and a $500,000 loss on the
disposition of another mortgage loan, are discussed further in this section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the sub-heading "Loan Investments".

During the period from September 26, 2000 through December 31, 2000, net assets
in liquidation decreased by $8,025,000, of which $6,526,000 was attributable to
liquidating distributions that were paid to the Company's shareholders in
October and November 2000. During this period, revenues and expenses totaled
$3,758,000 and $2,482,000, respectively. The Company's expenses were comprised
largely of management fees totaling $2,094,000. Included in this amount was a
charge equal to the aggregate amount of termination benefits expected to be
payable to certain employees of the Manager. These costs, totaling $1,490,000,
were expected (as of December 31, 2000) to be borne by the Company through
future operating deficit reimbursements under the terms of the amended
Management Agreement. Ultimately, amounts paid to the employees aggregated
$1,506,000 ($884,000 in June 2001 and $622,000 in January 2002). During the
period from September 26, 2000 through December 31, 2000, base management fees
totaled $361,000. During this same period, operating deficit reimbursements
totaled $243,000, of which $192,000 was related to termination benefits which
were paid to departing employees of the Manager on December 31, 2000.
Additionally, during the period, the Company reduced the carrying value of its
investment in its unconsolidated taxable subsidiary by $3,114,000 and it
increased the carrying value of its CMBS by $307,000. These adjustments (changes
in estimated net realizable value) are discussed further in this section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the sub-headings "Loan Investments" and "Commercial
Mortgage-backed Securities", respectively. During the period, the Company also
received $32,000 from the exercise of 4,000 stock options.

Under the historical cost (or going concern) basis of accounting, net income for
the period from January 1, 2000 through September 25, 2000 (the date immediately
prior to the adoption of liquidation basis accounting) and the year ended
December 31, 1999 was $5,948,000 and $7,320,000, respectively, or $0.59 and
$0.73 per common share, respectively. The Company's sources of revenue for the
period from January 1, 2000 through September 25, 2000 and the year ended
December 31, 1999, totaling $15,708,000 and $23,393,000, respectively, are set
forth below.

o        $11,790,000 and $16,099,000, respectively, from loan investments. As
         some of the Company's loan investments were accounted for as either
         real estate or joint venture investments for financial reporting
         purposes, these revenues were included in the consolidated statements
         of income for the period from January 1, 2000 through September 25,
         2000 and the year ended December 31, 1999 as follows: interest income
         on mortgage loans of $8,937,000 and $14,568,000, respectively, and
         operating income from real estate of $2,853,000 and $1,531,000,
         respectively.

o        $2,405,000 and $3,699,000, respectively, from investments in CMBS.

o        $2,387,000 and $3,327,000, respectively, of operating income from real
         estate previously owned by the Company (through a majority-owned
         partnership).



                                       14
<PAGE>

o        $(1,091,000) and $17,000, respectively, of equity in earnings (losses)
         from its unconsolidated subsidiary, partnerships and other real estate
         ventures.

o        $217,000 and $251,000, respectively, of interest income from short-term
         investments.

Additionally, the Company realized gains of $1,930,000 and $584,000 during the
period from January 1, 2000 through September 25, 2000 and the year ended
December 31, 1999, respectively, in connection with the repayments of ADC loan
arrangements. The gains realized in 2000 were comprised principally of the
incremental interest income earned on the loan investments, the recapture of
previously recorded depreciation and the recognition (in earnings) of the loan
commitment fees which had been received by the Company at the time the loans
were originated; additionally, the gain associated with one of the repayments in
2000 included a profit participation of $261,000. The 1999 gain was comprised
principally of interest income earned at the accrual rate over the life of the
loan investment. During the period from January 1, 2000 through September 25,
2000, the Company realized gains of $1,485,000 and $674,000 in connection with
the sale of real estate and two unconsolidated partnership investments,
respectively; these sales were completed during the second quarter of 2000. The
real estate disposition was effected by a sale of the Company's 99.5% interest
in a master partnership that, through individual subsidiary partnerships, owned
five grocery-anchored shopping centers.

The Company incurred expenses of $9,530,000 and $16,631,000 during the period
from January 1, 2000 through September 25, 2000 and the year ended December 31,
1999, respectively. These expenses are set forth below.

o        $4,396,000 and $5,593,000, respectively, of interest expense (net of
         capitalized interest totaling $0 and $593,000, respectively) associated
         with the Company's credit facilities and five non-recourse loans
         secured by real estate.

o        $1,140,000 and $2,206,000, respectively, of management fees, including
         $1,401,000 and $2,066,000, respectively, of base management fees
         payable to the Manager pursuant to the amended Management Agreement and
         $(261,000) and $140,000, respectively, of expense (credits) associated
         with compensatory options granted to the Manager. Costs associated with
         the compensatory options decreased during the period from January 1,
         2000 through September 25, 2000 primarily as a result of a decrease in
         the expected volatility of the Company's stock. No incentive fees or
         operating deficit reimbursements were incurred during either of these
         periods.

o        $1,018,000 and $1,437,000, respectively, of general and administrative
         costs, including $0 and $200,000, respectively, of resolution costs
         associated with a non-performing loan, $705,000 and $304,000,
         respectively, for professional services (including a financial
         advisor's fee during the period from January 1, 2000 through September
         25, 2000), $172,000 and $234,000, respectively, for directors and
         officers' insurance, $20,000 and $192,000, respectively, of
         reimbursable costs pursuant to the amended Management Agreement,
         $(27,000) and $(8,000), respectively, related to compensatory options
         granted to certain members of the AMRESCO Group, $0 and $114,000,
         respectively, of dividend equivalent costs, $37,000 and $23,000,
         respectively, of fees paid to the Company's Independent Trust Managers
         for their services to the Company, $29,000 and $0, respectively, of
         fees paid to the Company's Chairman of the Board of Trust Managers and
         Chief Executive Officer for his services to the Company, $34,000 and
         $91,000, respectively, related to restricted stock awards to the
         Company's Independent Trust Managers and $17,000 and $111,000,
         respectively, of travel costs. Costs associated with the compensatory
         options decreased during the period from January 1, 2000 through
         September 25, 2000 primarily as a result of a decrease in the expected
         volatility of the Company's stock. These categories do not represent
         all general and administrative expenses.

o        $0 and $1,737,000, respectively, of costs associated with an abandoned
         merger.

o        $1,188,000 and $1,252,000, respectively, of depreciation expense,
         including $499,000 and $810,000, respectively, related to five
         grocery-anchored shopping centers and $689,000 and $442,000,
         respectively, related to loan investments that were accounted for as
         real estate.

o        $0 and $1,084,000, respectively, of participating interest associated
         with amounts due to an affiliate.

o        $1,788,000 and $3,322,000, respectively, of provision for loan losses.
         During the year ended December 31, 1999, the Company charged-off
         $500,000 against an existing allowance for losses related to the
         non-performing loan referred to above. This loan is discussed further
         in this section of Management's Discussion and Analysis of Financial
         Condition and Results of Operations under the sub-heading "Loan
         Investments". No charge-offs were recorded during the period from
         January 1, 2000 through September 25, 2000.



                                       15
<PAGE>

Additionally, the Company realized losses of $4,267,000 during the period from
January 1, 2000 through September 25, 2000 in connection with the sales of two
of its CMBS holdings. The sales occurred in January 2000 and August 2000
resulting in losses totaling $130,000 and $4,137,000, respectively. No losses
were realized during 1999.

During the period from January 1, 2000 through September 25, 2000 and the year
ended December 31, 1999, minority interest in a subsidiary partnership's net
income totaled $52,000 and $26,000, respectively.

Period from January 1, 2000 through September 25, 2000 Compared to Year Ended
December 31, 1999

The Company's revenues decreased by $7,685,000, or 33%, from $23,393,000 to
$15,708,000, due primarily to declines in interest income on mortgage loans of
$5,631,000, income from commercial mortgage-backed securities of $1,294,000 and
equity in earnings/losses of unconsolidated subsidiary, partnerships and other
real estate ventures of $1,108,000. The declines in interest income on mortgage
loans and income from commercial mortgage-backed securities were due, in part,
to the shorter reporting period in 2000. Additionally, interest income on
mortgage loans declined as a result of the fact that the Company had lower
average outstanding balances during 2000 as compared to 1999; the decline in
income from commercial mortgage-backed securities was also attributable to the
sales (in January 2000 and August 2000) of two of the Company's CMBS holdings.
The decrease in equity in earnings/losses of unconsolidated subsidiary,
partnerships and other real estate ventures was due, in part, to the loss of
revenue resulting from the sale of the unconsolidated subsidiary's CMBS
investment in March 2000 and the Company's share of the loss realized in
connection with such sale; furthermore, in addition to less favorable operating
results from the partnership that the Company assumed control of on February 25,
1999, the 2000 results included $346,000 of costs associated with a settlement
of alleged defaults under the partnership's first lien mortgage. Operating
income from real estate increased by $382,000 as a result of the fact that the
properties underlying two of the Company's ADC loan arrangements that had been
accounted for as real estate were substantially completed on July 1, 1999 and
October 1, 1999, respectively, and began producing operating income thereafter
(one of these loans was repaid on September 14, 2000 while the other was not
repaid until November 10, 2000). The increase in operating income from real
estate which was attributable to ADC loan arrangements was partially offset by
lower revenues from the real estate that had been owned by the Company (through
a majority-owned partnership); revenues derived from the owned real estate were
lower as a result of the sale of such real estate on June 14, 2000.

The Company's expenses decreased by $7,101,000, or 43%, from $16,631,000 to
$9,530,000 as all expense categories were lower in the 2000 period as compared
to 1999. The declines in interest expense and management fees were due, in part,
to the shorter reporting period in 2000. Interest expense decreased by
$1,197,000, a portion of which was attributable to lower average debt balances
under the Company's two credit facilities and its non-recourse debt on real
estate. The non-recourse debt was assumed by the buyer of the Company's real
estate on June 14, 2000. The Company's base management fees decreased by
$665,000, from $2,066,000 to $1,401,000, as a result of the shorter reporting
period and the fact that the Company's average asset base (upon which the fee is
calculated) was smaller during 2000 (as compared to 1999) while compensatory
option charges (included in management fees) declined by $401,000, from $140,000
to $(261,000), as a result of a decrease in the value of the options. The
decline in general and administrative expenses was due largely to the shorter
reporting period in 2000. Additionally, during 1999, the Company incurred
reimbursable costs under the Management Agreement of $192,000 and dividend
equivalent costs of $114,000. During 2000, the Company did not incur any
dividend equivalent costs as the dividend equivalents program was terminated in
early 2000; furthermore, reimbursable costs were limited to $20,000 in 2000 as
the provision of the Management Agreement which gave rise to such Manager cost
reimbursements was terminated effective April 1, 2000. The Company's 1999
expenses included $1,737,000 of abandoned merger costs and $1,084,000 of
participating interest in mortgage loans; no such costs were incurred during
2000. The Company incurred no participating interest in mortgage loans during
2000 as the financing arrangement giving rise to such costs was fully
extinguished on November 1, 1999. The decrease in provision for loan losses of
$1,534,000, from $3,322,000 to $1,788,000, was attributable to the fact that the
Company's allowance for loan losses at September 25, 2000 was deemed to be
adequate at that time.

For the reasons cited above, income before gains (losses) and minority interests
declined by $584,000 (or 9%), from $6,762,000 to $6,178,000. Net income
decreased by $1,372,000 (or 19%), from $7,320,000 to $5,948,000. In addition to
the factors cited above, minority interest in a subsidiary partnership's net
income, dissimilar gains from repayments of ADC loan arrangements (in 1999 and
2000), losses associated with sales of CMBS (in 2000) and gains from the sales
of real estate and two unconsolidated partnership investments (in 2000)
contributed to the net income variance from period to period.



                                       16
<PAGE>

Distributions

Historically, the Company's policy was to distribute at least 95% of its REIT
taxable income to shareholders each year; to that end, dividends were paid
quarterly through the first quarter of 2000. Under its original policy,
dividends declared, as well as their federal income tax status, were as follows
(in thousands, except per share amounts):

<Table>
<Caption>
                                                                                                             FEDERAL INCOME
                                                                                                DIVIDEND       TAX STATUS
                                                                                                  PER     --------------------
                              DECLARATION           RECORD            PAYMENT       DIVIDEND     COMMON   ORDINARY    RETURN OF
                                 DATE                DATE               DATE          PAID       SHARE     INCOME      CAPITAL
                              -----------           ------            -------       --------    --------  ---------   ---------

<S>                        <C>                <C>                 <C>               <C>         <C>       <C>         <C>
 1998

 Period from May 12, 1998
    through June 30, 1998  July 23, 1998      July 31, 1998      August 17, 1998    $ 1,001       $0.10    $0.1000     $    --
 Third Quarter             October 22, 1998   October 31, 1998   November 16, 1998    2,401        0.24     0.2400          --
 Fourth Quarter            December 15, 1998  December 31, 1998  January 27, 1999     4,002        0.40     0.4000          --
                                                                                    -------       -----    -------     -------

                                                                                    $ 7,404       $0.74    $0.7400     $    --
                                                                                    =======       =====    =======     =======

 1999

 First Quarter             April 22, 1999     April 30, 1999     May 17, 1999       $ 3,602       $0.36    $0.3268     $0.0332
 Second Quarter            July 22, 1999      July 31, 1999      August 16, 1999      3,906        0.39     0.3466      0.0434
 Third Quarter             October 21, 1999   October 31, 1999   November 15, 1999    4,006        0.40     0.3555      0.0445
 Fourth Quarter            December 15, 1999  December 31, 1999  January 27, 2000     4,407        0.44     0.3911      0.0489
                                                                                    -------       -----    -------     -------

                                                                                    $15,921       $1.59    $1.4200     $0.1700
                                                                                    =======       =====    =======     =======
 2000

 First Quarter             April 25, 2000     May 4, 2000        May 15, 2000       $ 3,405       $0.34    $0.3400     $    --
                                                                                    =======       =====    =======     =======
</Table>

A portion of each of the distributions declared in 1999 was classified as a
non-taxable return of capital as a result of the merger related charges
described above.

On September 26, 2000, shareholders approved the liquidation and dissolution of
the Company. As a result, the Company's dividend policy was modified to provide
for the distribution of the Company's assets to its shareholders. To date, the
Company has declared five liquidating distributions pursuant to the Plan of
Liquidation and Dissolution. The following table sets forth information
regarding the declaration, record and payment dates for these liquidating
distributions (in thousands, except per share amounts).

<Table>
<Caption>
                                                                                                                  DISTRIBUTION
                                                                                                                      PER
                                              DECLARATION           RECORD           PAYMENT          TOTAL          COMMON
                                                  DATE               DATE              DATE       DISTRIBUTION       SHARE
                                              -----------           ------           -------      ------------    ------------
<S>                                       <C>                 <C>                <C>                  <C>          <C>
  First Liquidating Distribution          September 27, 2000  October 6, 2000    October 19, 2000     $  3,012        $ 0.30
  Second Liquidating Distribution         October 31, 2000    November 9, 2000   November 21, 2000       3,514          0.35
  Third Liquidating Distribution          December 21, 2000   December 31, 2000  January 17, 2001        3,514          0.35
                                                                                                      --------        ------
      Total Liquidating Distributions
          Declared in 2000                                                                              10,040          1.00
                                                                                                      --------        ------

  Fourth Liquidating Distribution         March 8, 2001       March 19, 2001     March 30, 2001         26,104          2.60
  Fifth Liquidating Distribution          July 19, 2001       July 30, 2001      August 9, 2001         70,280          7.00
                                                                                                      --------        ------

      Total Liquidating Distributions
          Declared in 2001                                                                              96,384          9.60
                                                                                                      --------        ------
      Total Liquidating Distributions
          Declared to Date                                                                            $106,424        $10.60
                                                                                                      ========        ======
</Table>

As described above, the Company currently expects to make one final liquidating
distribution on or about April 30, 2002. The timing and amount of this
liquidating distribution will be at the discretion of the Board of Trust
Managers and will be dependent upon the Company's anticipated wrap-up expenses,
reserve requirements, if any, and such other factors as the Board of Trust
Managers deems relevant. The Company believes that its final liquidating
distribution will be sufficient to allow it to continue to qualify as a REIT
under the Internal Revenue Code of 1986, as amended (the "Code"), through the
date of its dissolution. Tax basis income differs from the operating results
reported for financial reporting purposes under the historical cost (or going
concern) basis of accounting and the liquidation basis of accounting due to



                                       17
<PAGE>

differences in methods of accounting for revenues, expenses, gains and losses.
As a result of these accounting differences, net income (under the historical
cost [or going concern] basis of accounting) and the increase/decrease in net
assets from operating activities (under the liquidation basis of accounting) are
not necessarily indicative of the distributions which must be made by the
Company in order for it to continue to qualify as a REIT under the Code.

For the years ended December 31, 2001 and 2000, $9.60 per share and $1.00 per
share, respectively, were reported to the Company's shareholders (for federal
income tax purposes) as liquidating distributions. The Company believes that
distributions made to shareholders pursuant to its Plan of Liquidation and
Dissolution will be treated for federal income tax purposes as distributions in
a complete liquidation. In this case, in general, shareholders will realize, for
federal income tax purposes, gain or loss equal to the difference between the
cash distributed to them from the liquidating distributions and their adjusted
tax basis in their shares. Tax consequences to shareholders may differ depending
upon their circumstances. Shareholders are encouraged to consult with their own
tax advisors.

Loan Investments

During the period from May 12, 1998 (inception of operations) through December
31, 1998, the Company assembled a portfolio of 21 loans. During the year ended
December 31, 1999, three loan originations were closed (the last of which
occurred in August 1999), six of the Company's loans were fully repaid and four
loans were sold to AMRESCO Commercial Finance, Inc., a member of the AMRESCO
Group. Finally, one loan was reclassified, net of a $500,000 charge-off, to
investment in unconsolidated subsidiary following the subsidiary's acquisition
(through foreclosure on February 25, 1999) of the partnership interests of one
of the Company's borrowers. During the year ended December 31, 2000, six of the
Company's loans were fully repaid. As further described below, $1,250,000 was
received in complete satisfaction of another loan. One additional loan was
repaid at an amount which was $576,000 less than its par (or face) value. Prior
to September 26, 2000, this loan had been accounted for as real estate for
financial reporting purposes; upon adoption of liquidation basis accounting, the
carrying value of this ADC loan arrangement was increased to the amount that was
ultimately realized when the loan was repaid on November 10, 2000. At December
31, 2000, the Company had commitments to fund $92.270 million (under five
loans), of which $88.401 million was outstanding.

During the year ended December 31, 2001, three of the Company's loans were fully
repaid; at their respective disposition dates, these three loans had amounts
outstanding totaling $31.549 million. Additionally, in June 2001, the Company
received $42.382 million in complete satisfaction of another loan; at the time
of the settlement, amounts outstanding under this loan totaled $42.882 million
(at December 31, 2000, $42.152 million was outstanding under this loan).

On March 21, 2002, the Company sold its remaining mortgage loan, a mezzanine
investment, to an unaffiliated third party for $10,300,000. During the year
ended December 31, 2001, the Company reduced the carrying value of this loan by
$4,400,000, from $14,700,000 (the amount outstanding) to $10,300,000.
Additionally, during the year ended December 31, 2001, the Company reduced the
carrying value of the related accrual rate interest receivable by $673,000, from
$673,000 to $0.

The Company provided financing through certain real estate loan arrangements
that, because of their nature, qualified (under the historical cost [or going
concern] basis of accounting) either as real estate or joint venture investments
for financial reporting purposes. For a discussion of these loan arrangements
and the changes thereto resulting from the adoption of liquidation basis
accounting, see the notes to the audited consolidated financial statements
included in "Item 8. Financial Statements and Supplementary Data".

In cases where the Company originated loans, the borrowers paid a commitment fee
to the Company that was in addition to interest payments due under the terms of
the loan agreements. Prior to September 26, 2000, commitment fees were deferred
and recognized over the life of the loan as an adjustment of yield or, in those
cases where loan investments were classified as either real estate or joint
ventures for financial reporting purposes, such fees were deferred and
recognized upon the disposition of the investment.

A mezzanine loan with an outstanding balance of $8,262,000 and a recorded
investment of $7,191,000 was deemed to be impaired as of December 31, 1999. The
allowance for loan losses related to this investment, which was secured by
partnership interests in the borrower, totaled $4,190,000 at December 31, 1999.
In addition to the Company's mortgage, the property was encumbered by a $45.5
million first lien mortgage provided by an unaffiliated third party, of which
$44 million was outstanding. In early 2000, the Company made an additional
investment in this loan totaling $37,000. Through March 2000, all interest
payments were made in accordance with the terms of the first lien mortgage and
the Company's loan. On February 15, 2000, the Company entered into a Conditional
Agreement with the borrower. Under the terms of the Conditional Agreement, which
was subject to approval by the first lien lender, the Company agreed to accept
$3,000,000 in complete satisfaction of all amounts owed to it by the borrower
provided that such payment was received by the Company on or before May 15,
2000. On May 10, 2000, the borrower notified the Company that it would be unable
to make the $3,000,000 payment called for under the terms of the Conditional
Agreement. At this time, the borrower also informed the Company that it would
not make the April 2000 interest payment to the first lien lender before the
grace period for such payment expired. After the grace period elapsed, the first
lien lender served a default notice to the borrower for its failure to make this
interest payment. Concurrently, the Company served a default notice to the
borrower for its failure to pay interest due under the terms of the mezzanine
loan. Effective as of May 15, 2000, the Company entered into an Agreement for
DPO (or discounted payoff) with the borrower (the "DPO Agreement"). Under



                                       18
<PAGE>

the terms of the DPO Agreement, the Company agreed to accept $1,250,000 (the
"DPO Amount") in complete satisfaction of all amounts owed to it by the borrower
provided that certain conditions were met. On or before May 31, 2000, the
borrower was required to pay $250,000 of the DPO Amount to the Company. The
recorded investment of this loan was reduced by $250,000 upon receipt of this
payment on May 31, 2000. On May 16, 2000, the borrower cured the default on the
first lien mortgage by making the April 2000 interest payment. The borrower's
ability to fully satisfy the loan pursuant to the DPO Agreement was further
conditioned upon there being no subsequent defaults under the first lien
mortgage. Through October 2000, all debt service payments were made in
accordance with the terms of the first lien mortgage. As a result of the events
described above, the Company recorded an additional loan loss provision of
$1,788,000 during the first quarter of 2000. On October 31, 2000, the Company
received the balance of the DPO Amount ($1,000,000).

A mezzanine (second lien) loan with an outstanding balance of $6,839,000 and a
recorded investment of $6,659,000 was over 30 days past due as of December 31,
1998. The allowance for loan losses related to this investment totaled $500,000
at December 31, 1998. On February 25, 1999, an unconsolidated taxable subsidiary
of the Company assumed control of the borrower (a partnership) through
foreclosure of the partnership interests. In addition to the mezzanine mortgage,
the 909,000 square foot mixed-use property was encumbered by a $17 million
non-recourse first lien mortgage provided by an unaffiliated third party. The
first lien mortgage, which was fully repaid on March 5, 2001, required interest
only payments throughout its term. On March 11, 1999, the first lien lender
notified the Company that it considered the first lien loan to be in default
because of defaults under the Company's mezzanine loan; however, it did not give
notice of an intention to accelerate the balance of the first lien loan at that
time. On September 21, 1999, a subsidiary of the Company entered into a
non-binding letter agreement with a prospective investor who intended to make a
substantial equity commitment to the project. Under the terms of the agreement,
the Company would have continued to have an interest in the project as an equity
owner. On March 16, 2000, the first lien lender gave notice to the partnership
of its intention to accelerate the first lien loan in the event that certain
alleged non-monetary events of default were not cured. In addition to the
alleged default described above, the first lien lender asserted that the
borrower permitted a transfer of a beneficial interest in the partnership in
violation of the loan agreement and that it had failed to perform certain
obligations under the Intercreditor Agreement. The notice also specified that,
as a result of the alleged defaults, interest had accrued at the default rate
from the date of the earliest event of default. Through March 2000, all interest
payments at the stated rate had been made in accordance with the terms of the
first lien mortgage. Under the terms of a negotiated settlement, the borrower
paid $250,000 of default interest to the first lien lender. Additionally, the
borrower reimbursed the first lien lender for its legal fees and other costs
incurred in connection with the negotiation and closing of the settlement. These
fees and other costs totaled approximately $96,000. Following the payment of
these amounts on May 19, 2000, all of the alleged defaults under the first lien
mortgage were cured. Initially, the first lien lender indicated a willingness to
permit the to-be-formed investment partnership to assume the first lien
mortgage; however, the parties ultimately could not agree on the terms of an
assumption agreement. At that time, the Company was informed by the prospective
investor that it was negotiating with two lenders in an effort to secure
take-out financing for the first lien mortgage and that such financing was
expected to be in place by December 2000. In early December 2000, the
prospective investor informed the Company that it was abandoning the proposed
transaction. Immediately thereafter, the Company retained a broker and proceeded
to market the property for sale. On January 24, 2001, the partnership entered
into an agreement to sell the property at a gross sales price of $18,250,000.
Through February 28, 2001, the partnership received non-refundable deposits
totaling $1,150,000 from the purchaser. The closing was originally scheduled to
occur on March 1, 2001 (the maturity date of the first lien mortgage); however,
the purchaser was entitled to extend the closing date to April 2, 2001 upon
payment of an extension fee of $100,000. The non-refundable extension fee was
received by the partnership on February 28, 2001. Under the terms of the
extension, the purchaser was obligated to reimburse the partnership (up to
$100,000) for costs that it might be charged by the first lien lender as a
result of the partnership's failure to repay the first lien mortgage on or
before its scheduled maturity date. These costs, totaling $9,000, were
reimbursed by the purchaser on March 5, 2001 (the date on which the sale was
consummated). At closing, $17 million was received from the purchaser; such
proceeds were used to fully extinguish the first lien mortgage. The balance of
the sales price (or $100,000) was evidenced by a promissory note which was
collected (by the partnership) on July 24, 2001. Concurrent with its adoption



                                       19
<PAGE>

of liquidation basis accounting, the Company reduced the carrying value of its
investment in the unconsolidated taxable subsidiary by $1,000,000. As a result
of the events which occurred in December 2000 and January 2001, the Company
reduced the carrying value of this investment by an additional $3,114,000 as of
December 31, 2000; this adjustment was reported as a change in estimated net
realizable value in the audited consolidated statement of changes in net assets
in liquidation. During the first quarter of 1999, the Company charged-off
$500,000 against the allowance for losses related to this investment which
amount represented management's estimate at that time of the amount of the
expected loss which could result upon a disposition of the collateral. At
December 31, 2000, the carrying value of the Company's investment in its taxable
subsidiary totaled $2,000,000, which amount represented management's estimate at
that time of the value that it expected to derive from such investment as a
result of the transaction described above. During the period from March 6, 2001
through December 31, 2001, the Company received distributions totaling
$2,155,000 from the taxable subsidiary. During the year ended December 31, 2001,
the Company increased the carrying value of its investment in the unconsolidated
taxable subsidiary by $183,000. On March 6, 2002, the Company received a final
distribution of $28,000 from the taxable subsidiary.

Commercial Mortgage-backed Securities

During 1998, the Company acquired five non-investment grade commercial
mortgage-backed securities ("CMBS") at an aggregate purchase price of $34.5
million. All of these securities were acquired on or before September 1, 1998.
Due to the significant widening of spreads in the CMBS market during the latter
half of 1998, the value of the Company's CMBS holdings had declined by $6.245
million at December 31, 1998. During the year ended December 31, 1999, the value
of the Company's CMBS holdings declined by an additional $4.440 million due to
an increase in comparable-term U.S. Treasury rates and continued (albeit less
dramatic) spread widening in the CMBS market. During the period from January 1,
2000 through September 25, 2000 (the date immediately prior to the adoption of
liquidation basis accounting), the value of the Company's CMBS holdings declined
by $630,000 due primarily to continued widening of spreads in the CMBS market.
As a result, during the period from January 1, 2000 through September 25, 2000,
the year ended December 31, 1999 and the period from May 12, 1998 (inception of
operations) through December 31, 1998, the Company recorded unrealized losses of
$630,000, $4.440 million and $6.245 million, respectively, on its CMBS
portfolio. Additionally, during the period from January 1, 2000 through
September 25, 2000 and the period from May 12, 1998 through December 31, 1998,
the Company recorded unrealized losses (net of tax effects) of $13,000 and
$230,000, respectively, related to one commercial mortgage-backed security which
had been owned by its unconsolidated taxable subsidiary; this security was
purchased by the subsidiary in May 1998. During the year ended December 31,
1999, the Company recorded an unrealized gain of $103,000, net of tax effects,
related to the security which had been held by the taxable subsidiary. Unlike
spreads for the majority of the Company's direct CMBS investments, the spread
for this particular bond declined during the year ended December 31, 1999. As
these securities were classified as available for sale under the historical cost
(or going concern) basis of accounting, the unrealized losses were reported as a
component of accumulated other comprehensive income (loss) in shareholders'
equity for financial reporting purposes.

On January 11, 2000 and August 23, 2000, the Company sold two of its CMBS
holdings (the "B-2A" security and the "G-2" security, respectively).
Additionally, on March 21, 2000, the Company's unconsolidated taxable subsidiary
sold its only CMBS (the "B-3A" security). The total disposition proceeds and the
gross realized loss for each bond were as follows (in thousands):

<Table>
<Caption>
                                          Total                           Gross
                          Security     Disposition     Amortized        Realized
           Security        Rating       Proceeds          Cost            Loss
           --------       --------     -----------     ---------        --------
<S>                     <C>           <C>            <C>             <C>
             B-2A            B            $3,784         $3,914         $  (130)

             B-3A            B-           $3,341         $3,481         $  (140)

              G-2            B-           $4,030         $8,167         $(4,137)
</Table>

The Company's share of the gross realized loss from the sale of the B-3A
security is included in equity in losses from unconsolidated subsidiary,
partnerships and other real estate ventures in the audited consolidated
statement of income for the period from January 1, 2000 through September 25,
2000.



                                       20
<PAGE>

As of December 31, 2000, the Company's CMBS investments were summarized as
follows (in thousands):

<Table>
<Caption>
                                                                         Estimated
                                                                            Net
                              Security     Amortized      Unrealized     Realizable
                Security       Rating         Cost          Losses          Value
                --------      --------     ---------      ----------     ----------
<S>                           <C>          <C>            <C>            <C>
                   G             BB-        $  4,305      $ (1,131)       $  3,174
                   H             B            15,880        (4,812)         11,068
                   J             B-            3,167          (798)          2,369
                                            --------      --------        --------

                                            $ 23,352      $ (6,741)       $ 16,611
                                            ========      ========        ========
</Table>

On January 18, 2001, the Company sold its remaining CMBS holdings to an
unaffiliated third party (the "Buyer"). At the time of the sale, the Company
received net cash proceeds totaling $16.555 million plus accrued interest of
$266,000, of which $170,000 was accrued as of December 31, 2000. Concurrently,
AMRESCO Investments, Inc. ("AMRESCO Investments"), a member of the AMRESCO
Group, sold (to the Buyer) its unrated bonds which had been issued from the same
securitization. As the former owner of the unrated class, AMRESCO Investments
had had the right to grant special servicing rights with respect to all of the
subject securities. Under the terms of an earlier agreement, AMRESCO Investments
is obligated to pay the designated special servicer a termination fee in the
event that such servicer's rights are terminated on or before March 17, 2003.
The simultaneous sale of the Company's securities and AMRESCO Investments'
securities was a condition precedent to the Buyer's acquisition of either
party's securities. In order to induce AMRESCO Investments to sell its unrated
securities, the Company agreed to reimburse the affiliate in an amount equal to
the termination fee if the Buyer elects to terminate AMRESCO Investments'
appointee on or before March 17, 2003. Alternatively, if a termination has not
occurred prior to the time that the Company intends to declare its final
liquidating distribution, then the Company can satisfy this obligation by paying
to AMRESCO Investments an amount equal to one-half of the termination fee that
would have been payable had an actual termination occurred at that time. Under
the terms of the agreement between AMRESCO Investments and the special servicer,
the termination fee is based, in part, on the number of months remaining until
March 17, 2003 and therefore the amount of such fee declines each month. If a
termination had occurred at the time the bonds were sold, the Company would have
been obligated to reimburse AMRESCO Investments approximately $300,000 (the
estimated maximum reimbursement obligation). At the time of closing, the Buyer
informed the Company that it had no present intention to terminate AMRESCO
Investments' appointee and that its future decisions with regard to the special
servicer would be based upon the servicer's performance. When recording the
sale, the Company accrued the amount at which it expects to settle this
obligation. These additional selling expenses, totaling $114,000, are included
in accounts payable and other liabilities at December 31, 2001; such expenses
were considered when estimating the net realizable value of the Company's CMBS
at December 31, 2000. Based on the terms of the sale (as described above), the
Company increased the carrying value of its CMBS by $307,000 on December 31,
2000. This adjustment was reported as a change in estimated net realizable value
in the audited consolidated statement of changes in net assets in liquidation.

While management believed that the fundamental value of the real estate
mortgages underlying the Company's bonds had been largely unaffected during its
term of ownership, the combination of increasing spreads and comparable-term
U.S. Treasury rates caused the current fair value of these securities to
decline.

In February 1999, the Company contributed $0.7 million to a newly formed
investment partnership with Olympus Real Estate Corporation. The partnership,
which was 5% owned by the Company, acquired several classes of subordinated CMBS
at an aggregate purchase price of $12.7 million. In connection with the
partnership's procurement of financing, the Company's investment in this
partnership was reduced to $0.3 million in February 2000. On June 30, 2000, the
Company sold its 5% ownership interest for $326,000. The gain associated with
this transaction totaled $12,000.

Equity Investments in Real Estate

On October 23, 1998, the Company (through a majority-owned partnership) acquired
an interest in the first of five newly constructed, grocery-anchored shopping
centers in the Dallas/Fort Worth, Texas area, an 82,730 square foot facility in
Arlington, Texas, for $10.3 million. In connection with this acquisition, the
title-holding partnership obtained non-recourse financing of $7.5 million.
Immediately prior to the closing, the Company contributed $3.4 million of
capital to the partnership which was used to fund the balance of the purchase
price, to pay costs associated with the financing and to provide initial working
capital to the title-holding partnership. On April 30, 1999, the Company
(through the



                                       21
<PAGE>

majority-owned partnership) acquired interests in three additional
grocery-anchored shopping centers. These newly constructed properties, which
were acquired by three subsidiary partnerships at an aggregate purchase price of
$30.2 million, included an 86,516 square foot facility in Flower Mound, Texas, a
61,440 square foot facility in Fort Worth, Texas and an 85,611 square foot
facility in Grapevine, Texas. In connection with these acquisitions, the three
title-holding partnerships obtained non-recourse financing totaling $19.5
million. Immediately prior to the closings, the Company contributed $11.4
million of capital to the partnership. The proceeds from this contribution were
used to fund the balance of the purchase price, to pay costs associated with the
financing and to provide initial working capital to the title-holding
partnerships. On August 25, 1999, the Company (through the majority-owned
partnership) acquired an interest in the fifth grocery-anchored shopping center.
The newly constructed property, an 87,540 square foot facility in Richardson,
Texas, was acquired by a subsidiary partnership at a purchase price of $10.7
million. In connection with this acquisition, the title-holding partnership
obtained non-recourse financing of $7.6 million. Immediately prior to the
closing, the Company contributed $3.4 million of capital to the partnership
which was used to fund the balance of the purchase price, to pay costs
associated with the financing and to provide initial working capital to the
title-holding partnership. Prior to June 14, 2000, the Company held a 99.5%
interest in the majority-owned (or master) partnership. The master partnership
owned, directly or indirectly, 100% of the equity interests in each of the five
title-holding partnerships. On June 14, 2000, the Company sold its 99.5%
ownership interest for $18.327 million. The sale generated a gain of $1,485,000.

The five consolidated title-holding partnerships were indebted under the terms
of five non-recourse loan agreements with Jackson National Life Insurance
Company, an unaffiliated third party. All five loans, aggregating $34.6 million,
bore interest at 6.83% per annum. The interest rates on the first four loans
were adjusted in connection with the placement of the fifth loan on August 25,
1999. Prior to that time, a $7.5 million loan bore interest at 7.28% per annum
and three loans aggregating $19.5 million bore interest at 6.68% per annum. The
five non-recourse loans were assumed by the buyer in connection with the sale
described above.

On March 2, 1999, the Company acquired a 49% limited partner interest in a
partnership which owned a 116,000 square foot office building in Richardson,
Texas. The property was encumbered by a first lien mortgage approximating $13.7
million. In connection with this acquisition, the Company contributed $1.4
million of capital to the partnership. On April 3, 2000, the Company sold its
49% limited partner interest for $1.8 million. The gain associated with this
transaction totaled $662,000.

Previously, the Company's unconsolidated taxable subsidiary held interests
(indirectly) in a partnership which, until March 5, 2001, had owned a 909,000
square foot mixed-use property in Columbus, Ohio. This investment is described
above under the sub-heading "Loan Investments".

LIQUIDITY AND CAPITAL RESOURCES

The following discussion of liquidity and capital resources should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in "Item 8. Financial Statements and Supplementary Data".

At the date of this report, the Company's principal demand for liquidity is cash
for operations, including funds which will be required to pay its management
fees and its general and administrative expenses, including those that will be
incurred in connection with the wrap-up of the Company's affairs. As its real
estate investment portfolio has been completely liquidated, the Company no
longer has any capital requirements. The Company's principal source of liquidity
is its cash reserves. The Company believes that its cash reserves will be
sufficient to meet the Company's currently expected liquidity requirements
through the date of its dissolution.

Previously, the Company was a party to a line of credit agreement and a
repurchase agreement. Borrowings under the line of credit, which was provided by
Prudential Securities Credit Corporation, LLC (PSCC), could be used to finance a
portion of the Company's structured loan and equity real estate investments. The
repurchase agreement was provided by Prudential-Bache International, Ltd., an
affiliate of PSCC; borrowings under this facility could be used to finance a
portion of the Company's portfolio of mortgage-backed securities. Both of the
Company's credit facilities bore interest at variable rates based on a spread
over LIBOR. The repurchase agreement and the line of credit agreement matured on
June 30, 2000 and April 30, 2001, respectively. All amounts then outstanding
under these facilities were fully repaid on June 16, 2000 and November 14, 2000,
respectively.

To reduce the impact that rising interest rates would have on its floating rate
indebtedness, the Company periodically entered into interest rate cap



                                       22
<PAGE>

agreements with a major international financial institution. These interest rate
cap agreements entitled the Company to receive from the counterparty the
amounts, if any, by which one-month LIBOR exceeded certain thresholds. During
2000 and 1999, amounts due from the counterparty totaled $70,000 and $13,000,
respectively. There were no margin requirements associated with the interest
rate caps and therefore there was no liquidity risk associated with this
particular hedging instrument.

In connection with a previous amendment and extension of its line of credit, the
Company granted warrants to Prudential Securities Incorporated ("PSI"), an
affiliate of PSCC, to purchase 250,002 common shares of beneficial interest at
$9.83 per share. The exercise price represented the average closing market price
of the Company's common shares for the ten-day period ending on May 3, 1999. The
warrants were issued in lieu of a commitment fee or other cash compensation. On
September 25, 2000, PSI purchased 20,863 of the Company's common shares by
tendering all 250,002 warrants. No cash was received by the Company in
connection with this issuance of common shares.

REIT STATUS

Management expects the Company to continue to qualify as a REIT for federal
income tax purposes through the date of its final dissolution. As a REIT, the
Company will not pay income taxes at the trust level on any taxable income which
is distributed to its shareholders. Qualification for treatment as a REIT
requires the Company to meet specified criteria, including certain requirements
regarding the nature of its ownership, assets, income and distributions of
taxable income. The Company may, however, be subject to tax at normal corporate
rates on any ordinary income or capital gains not distributed. Given the changes
in the nature of the Company's assets and in the Company's sources of income
during the liquidation process and the need to retain assets to meet
liabilities, there can be no assurance that the Company will continue to meet
the REIT qualification tests. If the Company ceases to qualify as a REIT for any
taxable year, it would not be entitled to deduct dividends paid to shareholders
from its taxable income. In this case, the Company would be liable for federal
income taxes with respect to its gains from sales of assets and the Company's
income from operations for that year and for subsequent taxable years, if any.
Prior to its liquidation in March 2002, AMREIT II, Inc., the Company's "taxable
REIT subsidiary", was subject to tax at the corporate level.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-K are not based on historical facts
and are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company intends that
forward-looking statements be subject to such Act and any similar state or
federal laws. Forward-looking statements, which are based on various
assumptions, include statements regarding the intent, belief or current
expectations of the Company, its Manager, and their respective Trustees or
directors and officers, and may be identified by reference to a future period or
periods or by use of forward-looking terminology such as "intends," "may,"
"could," "will," "believe," "expect," "anticipate," "plan," or similar terms or
variations of those terms or the negative of those terms. Actual results could
differ materially from those set forth in forward-looking statements due to
risks, uncertainties and changes with respect to a variety of factors,
including, but not limited to, changes in prevailing short-term interest rates,
credit risks, conditions which may affect public securities markets generally,
changes in federal income tax laws and regulations, and other risks described
from time to time in the Company's SEC reports and filings, including its
registration statement on Form S-11 and periodic reports on Form 10-Q, Form 8-K
and Form 10-K.



                                       23
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At the date of this report, the Company is a party to certain financial
instruments (trade receivables and payables and amounts due to manager) which,
due to their short-term nature, are not subject to market risk; accordingly, no
discussion of these instruments is provided herein. Previously, the Company was
a party to two credit facilities, each of which bore interest at floating rates.
One of the facilities was used to finance a portion of the Company's commercial
mortgage-backed securities (the "Repurchase Agreement") while the other facility
was used to finance some of the Company's structured loan and equity real estate
investments (the "Line of Credit"). The Repurchase Agreement and the Line of
Credit were fully repaid on June 16, 2000 and November 14, 2000, respectively.
During the period from January 1, 1999 through November 1, 2000, the Company was
also a party to several interest rate cap agreements which it entered into in
order to mitigate the market risk exposure associated with its floating rate
credit facilities. As of December 31, 2001, the Company held one mezzanine
(second lien) loan which was subject to market risk. As this loan was sold on
March 21, 2002, no discussion of market risk exposures related to mortgage loans
is provided herein. Similarly, no discussion of market risk exposures related to
commercial mortgage-backed securities ("CMBS") is provided in this report as the
Company sold its remaining CMBS holdings on January 18, 2001.

All of the Company's financial instruments, including its derivative financial
instruments, were entered into for purposes other than trading. The Company has
not entered into, nor does it intend to enter into, any financial instruments
for trading or speculative purposes. As the Company has no investments outside
of the United States, it is not (nor was it) subject to foreign currency
exchange rate risk.

As a real estate investment trust, the Company is subject to certain limitations
imposed by the Internal Revenue Code of 1986, as amended, as it relates to the
use of derivative instruments, particularly with regard to hedging fair value
exposures. As a result, the Company generally did not attempt to hedge its
exposure to changes in the fair value of its investments through the use of
derivative instruments. Instead, these exposures were managed by the Company
through its diversification efforts and strict underwriting of its investments.
Furthermore, the Company generally intended to hold its mortgage loan
investments to maturity.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Included herein at pages F-1 through F-26.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None



                                       24
<PAGE>

                                    PART III

ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE COMPANY

TRUST MANAGERS

Currently, the Company's Board of Trust Managers is comprised of six members,
one of which was affiliated with AMREIT Managers, L.P. ("AMREIT Managers"), the
Company's Manager, through March 31, 2000, one of which was so affiliated
through November 15, 2000, and four of whom are independent trust managers. As
required by the Company's Declaration of Trust, the Board of Trust Managers is
divided into three classes. Each class consists of two trust managers, at least
one of whom is an independent trust manager. As defined in the Company's Bylaws,
an independent trust manager is a natural person who is not an officer or
employee of the Company or any of its affiliates, or an affiliate of any advisor
or manager to the Company under any advisory or management agreement with the
Company. In addition, except for acting as a trust manager or as a director of
any entity controlled by the Company, an independent trust manager cannot have
performed more than a "de minimus" amount of service for the Company or had a
material business relationship with AMREIT Managers or any other advisor or
manager of the Company. The term of office of one class of trust managers
expires each year at the annual meeting of shareholders. The initial term of
office of the Class III trust managers was scheduled to expire at the 2001
annual meeting of shareholders; as a result of the fact that the Company elected
not to hold a 2001 annual meeting, the term of office of the Class III trust
managers will continue until the Company files its articles of dissolution,
which currently is expected to occur in May 2002. The terms of office of the
Class I and Class II trust managers were scheduled to expire at the 2002 and
2003 annual meetings of shareholders, respectively, but such terms are now
expected to expire on the date that the Company files its articles of
dissolution.

The Company's Bylaws require the Board of Trust Managers to have not less than
two nor more than nine members, as determined from time to time by the existing
Board of Trust Managers. The Bylaws further require that the majority of the
members of the Board of Trust Managers and of any committee of the Board of
Trust Managers be independent trust managers, except in the case of a vacancy.
Vacancies occurring on the Board of Trust Managers among the independent trust
managers may be filled by the vote of a majority of the trust managers,
including the independent trust managers, or the holders of a majority of the
outstanding common shares at an annual or special meeting of shareholders.

The following table sets forth certain information with respect to the Company's
current trust managers:

<Table>
<Caption>
                                                                                  Trust
                                                                                 Manager            Board
            Name               Age               Position                         Since   Class   Committees
-------------------------      ---   ---------------------------------------     -------  -----   ----------

<S>                            <C>   <C>                                         <C>      <C>     <C>
Robert L. Adair III            58    Chairman of the Board of Trust Managers      1998       I    (a)(b)
                                         and Chief Executive Officer
John C. Deterding              70    Independent Trust Manager                    1998       I    (a)(b)(d)
Bruce W. Duncan                50    Independent Trust Manager                    1998      II    (a)(b)(c)
Robert H. Lutz, Jr.            52    Trust Manager                                1998      II    (a)
Christopher B. Leinberger      51    Independent Trust Manager                    1998     III    (a)(c)(d)
James C. Leslie                46    Independent Trust Manager                    1998     III    (b)(c)(d)
</Table>

(a)        Member of the Executive Committee

(b)        Member of the Investment Committee

(c)        Member of the Audit Committee

(d)        Member of the Compensation Committee

Robert L. Adair III is Chairman of the Board of Trust Managers and Chief
Executive Officer of the Company. Mr. Adair has served as Chief Executive
Officer of the Company since November 1998 and has served as Chairman of the
Board of Trust Managers of the Company since its inception in 1998. From 1994
through March 31, 2000, Mr. Adair also served as a director, President and Chief
Operating Officer of AMRESCO, INC. Mr. Adair served AMRESCO, INC. and its
predecessors in various capacities since 1987. Since December 2000, Mr. Adair
has served as President of Real Estate Value Managers, a real estate advisory
company. From July 1998 to February 2002, Mr. Adair also served as a director of
Stratus Properties, Inc. He holds a B.B.A. degree from The University of Texas
and an M.B.A. degree from the Wharton School at the University of Pennsylvania.



                                       25
<PAGE>
 John C. Deterding is a member of the Board of Trust Managers and has served in
such capacity since May 1998. Mr. Deterding served as Senior Vice President and
General Manager of the Commercial Real Estate Division of General Electric
Capital Corporation ("GECC") from 1975 to June 1993. From November 1989 to June
1993, Mr. Deterding also served as Chairman of the General Electric Real Estate
Investment Company, a privately-held REIT. From 1986 to 1993, Mr. Deterding
served as a Director of GECC Financial Corporation. Since retiring from GECC in
June 1993, Mr. Deterding has worked as a private real estate consultant. He
served as a director of Patriot American Hospitality Inc. / Wyndham
International, a publicly-held REIT (or its predecessors) from September 1995 to
June 1999. He currently serves as a board member of U.S. Restaurant Properties,
Inc., a publicly-traded REIT, and as a trustee of Fortress Investment Fund. He
holds a B.S. degree from the University of Illinois.

Bruce W. Duncan is a member of the Board of Trust Managers and has served in
such capacity since May 1998. Since March 2002, Mr. Duncan has served as a board
member and President of Equity Residential Properties Trust, a publicly-traded
REIT. From 1995 until its sale in March 2000, Mr. Duncan was the Chairman,
President and Chief Executive Officer of Cadillac Fairview Corporation Limited
("Cadillac Fairview"). Prior to joining Cadillac Fairview, Mr. Duncan worked for
JMB Realty Corporation from 1978 to 1992, where he served as Executive Vice
President and a member of the Board of Directors. From 1992 to 1994, he was
President and Co-Chief Executive Officer of JMB Institutional Realty
Corporation. From 1994 to 1995, he was with Blakely Capital, Inc. From March
2000 to March 2002, Mr. Duncan focused on his personal investments. Mr. Duncan
is a member of the Board of Trustees of Starwood Hotels and Resorts Worldwide,
Inc. and is a member of the Partnership Committee of The Rubenstein Company,
L.P., a privately owned real estate operating company focusing on office
properties in the mid-Atlantic region. Mr. Duncan holds an M.B.A. degree from
the University of Chicago and an undergraduate degree from Kenyon College. He is
also a Certified Public Accountant.

Robert H. Lutz, Jr. is a member of the Board of Trust Managers and has served in
such capacity since the Company's inception in 1998. From May 1994 through
November 15, 2000, Mr. Lutz served as Chief Executive Officer of AMRESCO, INC.
From May 1994 through March 31, 2000, Mr. Lutz also served as Chairman of the
Board of AMRESCO, INC. Since November 2000, Mr. Lutz has focused on his personal
investments. From November 1991 to May 1994, Mr. Lutz was President of
Allegiance Realty, a real estate management company. Mr. Lutz is also a director
of Felcor Lodging Trust, a publicly-traded REIT. He holds a B.A. degree from
Furman University and an M.B.A. degree from Georgia State University.

Christopher B. Leinberger is a member of the Board of Trust Managers and has
served in such capacity since May 1998. Mr. Leinberger has been Managing
Director and co-owner of Robert Charles Lesser & Co. since 1982. Mr. Leinberger
is also a partner in Arcadia Land Company. Mr. Leinberger is Chair of the Board
of The College of Santa Fe. He is a graduate of Swarthmore College and the
Harvard Business School.

James C. Leslie is a member of the Board of Trust Managers and has served in
such capacity since May 1998. From 1996 through March 2001, Mr. Leslie served as
President and Chief Operating Officer of The Staubach Company. From 1988 through
March 2001, Mr. Leslie also served as a director of the Staubach Company. Mr
Leslie was President of Staubach Financial Services from January 1992 until
February 1996. From 1982 until January 1992, Mr. Leslie served as Chief
Financial Officer of The Staubach Company. Since March 2001, Mr. Leslie has
focused on his personal investments. Mr. Leslie is President and a board member
of Wolverine Holding Company, and serves on the boards of Stratus Properties,
Inc. and the North Texas Chapter of the Arthritis Foundation. Mr. Leslie holds a
B.S. degree from The University of Nebraska and an M.B.A. degree from The
University of Michigan Graduate School of Business.

EXECUTIVE OFFICERS

Set forth below are the names and ages of all executive officers of the Company.
The executive officers of the Company serve at the discretion of, and are
elected annually by, the Board of Trust Managers. Each officer holds office
until his successor is duly elected and qualified or until death, resignation or
removal, if earlier.

<Table>
<Caption>
        Name                       Age                                        Position
-----------------------            ---       -------------------------------------------------------------------------
<S>                                <C>       <C>
Robert L. Adair III (1)             58       Chairman of the Board of Trust Managers and Chief Executive Officer
David M. Striph                     43       President and Chief Investment Officer
Thomas R. Lewis II                  39       Senior Vice President, Chief Financial and Accounting Officer, Controller
                                                 and Secretary
</Table>

(1)      See section entitled "Trust Managers" above for biographical
         information regarding Mr. Adair.



                                       26
<PAGE>

David M. Striph is President and Chief Investment Officer of both the Company
and AMREIT Managers and has served in such capacity since January 1, 2001. As
President and Chief Investment Officer, Mr. Striph has had primary
responsibility for the day-to-day management and liquidation of the Company's
investments. From February 2000 until December 31, 2000, Mr. Striph served as
Executive Vice President and Chief Investment Officer of the Company. Mr. Striph
has served as one of the Company's executive officers since November 1998.
Initially, his primary responsibilities included nationwide business development
and management of the staff responsible for the origination, underwriting and
portfolio management of the Company's high-yield commercial real estate
mortgages and equity investments. Mr. Striph was the Western Division Manager
for AMRESCO, INC.'s Real Estate Structured Finance Group from December 1996
until August 1998. Mr. Striph was employed by AMRESCO, INC. from 1994 until June
30, 2001. From 1994 through August 1998, Mr. Striph served in various positions
within AMRESCO, INC.'s former Asset Management/Loan Workout division. Since July
2001, Mr. Striph has served as Vice President and Regional Manager of the
Commercial Real Estate Division of Fremont Investment and Loan. Mr. Striph has
over 15 years of real estate lending/banking experience including owning a
commercial mortgage brokerage company for five years. Mr. Striph has a B.S.
Degree from Southern Illinois University and is a licensed real estate broker.

Thomas R. Lewis II is Senior Vice President, Chief Financial and Accounting
Officer and Controller of both the Company and AMREIT Managers and has served in
such capacity since February 2000. Additionally, since January 1, 2001, Mr.
Lewis has also served as Secretary of the Company. From the Company's inception
until February 2000, Mr. Lewis served as Vice President and Controller of both
the Company and AMREIT Managers. Mr. Lewis has been employed by AMRESCO, INC.
since November 1995 and until April 1998 had responsibility for accounting, cash
management and reporting for its 40 institutional advisory clients. From 1993 to
1995, Mr. Lewis served in a similar capacity as Vice President-Finance for
Acacia Realty Advisors, Inc. ("Acacia"). From 1989 to 1993, Mr. Lewis served as
Senior Controller for Prentiss Properties Limited, Inc., an affiliate of Acacia.
Mr. Lewis was employed by Price Waterhouse from 1985 to 1989. Mr. Lewis holds a
B.B.A. degree in Accounting from Texas A&M University and is a Certified Public
Accountant.

RELATIONSHIPS

There are no family relationships among any of the trust managers or executive
officers of the Company. Except as described above, none of the Company's trust
managers hold directorships in any company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934 (the "Exchange
Act") or pursuant to Section 15(d) of the Exchange Act or any company registered
as an investment company under the Investment Company Act of 1940. There are no
arrangements or understandings between any trust manager or executive officer
and any other person pursuant to which that trust manager or executive officer
was selected.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's officers and trust
managers, and persons who beneficially own more than 10% of the Company's common
shares, to file initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, trust managers
and greater than 10% beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.

Based solely on a review of the copies of such reports furnished to the Company
and representations from the officers and trust managers, the Company believes
that all Section 16(a) filing requirements with respect to fiscal 2001
applicable to its officers, trust managers and greater than 10% beneficial
owners were satisfied by such persons.

ITEM 11. EXECUTIVE COMPENSATION

The Company does not pay a salary or bonus to its executive officers, nor does
it currently provide any other compensation or incentive programs to its
executive officers other than its Chief Executive Officer and its President and
Chief Investment Officer. Effective April 1, 2000, the Company's Chairman of the
Board of Trust Managers and Chief Executive Officer is paid a quarterly fee of
$15,000 for his services to the Company. Prior to April 1, 2000, this executive
officer was affiliated with AMRESCO, INC. and the Manager and was not
compensated by the Company other than as described below. Effective July 1,
2001, the Company's President and Chief Investment Officer is paid a monthly fee
of



                                       27
<PAGE>

$5,000 for his services to the Company; prior to July 1, 2001, this executive
officer was employed by AMRESCO, INC. (through the Manager) and was not
compensated by the Company other than as described below.

During 1998, the Company granted share option awards to its executive officers,
the Manager and certain other members of the AMRESCO Group. Additionally, during
the period from February 1999 through February 2000, the Company paid dividend
equivalents on all vested and unexercised share options, excluding those held by
the Manager. These dividend equivalents were equal to the dividends paid on the
Company's common shares, excluding those distributions that were characterized
as a non-taxable return of capital for tax purposes, and therefore were not
preferential. On February 24, 2000, the Board of Trust Managers terminated the
dividend equivalents program. As a result, the Company has not made any dividend
equivalent payments since January 27, 2000, the date on which it made the
dividend equivalent payment relating to the Company's 1999 fourth quarter
dividend.

Other than the Company's Chief Executive Officer and its President and Chief
Investment Officer, AMREIT Managers, at its expense, provides all personnel
necessary to conduct the business of the Company. Under the terms of a
Management Agreement, as amended, AMREIT Managers receives a base management fee
and operating deficit reimbursements for its services to the Company. For a
description of the amended Management Agreement, see caption entitled "The
Manager" in Item 13 "Certain Relationships and Related Transactions". Excluding
the compensation associated with past share option awards and dividend
equivalents and the fees which are currently being paid to the Company's Chief
Executive Officer and its President and Chief Investment Officer, AMREIT
Managers pays all salaries, bonuses and other compensation to the Company's
executive officers. In February 2000, Messrs. Striph and Lewis entered into
retention and severance arrangements with AMREIT Managers; as described in Item
13 of this report, the Company accrued (in 2000) an amount equal to the amount
of termination benefits expected to be payable to these officers and certain
other employees of the Manager. Some of these costs have already been borne by
the Company through operating deficit reimbursements to AMREIT Managers in 2001;
the remainder of these costs is expected to be borne by the Company in 2002
(through operating deficit reimbursements to AMREIT Managers).

The following tables summarize the compensation provided by the Company to its
named executive officers during the years ended December 31, 2001, 2000 and
1999. No stock appreciation rights ("SARs") were granted during any of these
years.

SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                       Annual Compensation             Long-Term Compensation
                                                   ---------------------------   -----------------------------------
                                                                                              Number of    Long-Term
                                                                     Other       Restricted   Securities   Incentive
                   Name                                              Annual         Stock     Underlying      Plan     All Other
                   and                             Salary  Bonus  Compensation      Awards   Options/SARs    Payouts  Compensation
            Principal Position              Year    ($)     ($)       ($)            ($)       Granted         ($)       ($)(1)
------------------------------------------- -----  ------  -----  ------------   ----------  ------------  ---------  ------------
<S>                                         <C>    <C>     <C>    <C>            <C>         <C>           <C>        <C>
Robert L. Adair III, Chairman of the        2001     --      --        --            --           --           --         60,000
   Board of  Trust Managers and Chief       2000     --      --        --            --           --           --         45,000
   Executive Officer                        1999     --      --        --            --           --           --         11,925

David M. Striph, President and              2001     --      --        --            --           --           --         30,000
     Chief Investment Officer               2000     --      --        --            --           --           --             --
                                            1999     --      --        --            --           --           --          1,860

Thomas R. Lewis II, Senior Vice             2001     --      --        --            --           --           --             --
   President, Chief Financial and           2000     --      --        --            --           --           --             --
   Accounting Officer, Controller and       1999     --      --        --            --           --           --          1,590
   Secretary
</Table>

(1)  For the years ended December 31, 2001 and 2000, all other compensation is
     comprised solely of fees paid to Messrs. Adair and Striph for their
     services to the Company. The amounts paid to Mr. Adair include fees for his
     services as both Chairman of the Board of Trust Managers and Chief
     Executive Officer. For the year December 31, 1999, all other compensation
     is comprised solely of non-preferential dividend equivalents earned by the
     executive officers. Dividend equivalents were paid to the executive
     officers on August 16, 1999, November 15, 1999 and January 27, 2000. The
     payments made on these dates totaled the amounts shown above.



                                       28
<PAGE>

SHARE OPTION/SAR GRANTS IN FISCAL 2001

During fiscal 2001, no share options or SARs were granted to the Company's
executive officers.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<Table>
<Caption>
                                                                  Number of Securities            Value of Unexercised
                                                                Underlying Unexercised            In-the-Money Options
                                 Shares                      Options at December 31, 2001        at December 31, 2001 ($)
                               Acquired on       Value       -----------------------------    -----------------------------
           Name               Exercise (#)   Realized ($)    Exercisable     Unexercisable    Exercisable     Unexercisable
  ---------------------       ------------   ------------    -----------     -------------    -----------     -------------
<S>                           <C>            <C>             <C>             <C>              <C>             <C>
  Robert L. Adair III              --             --            33,750           11,250             --              --
  David M. Striph                  --             --             4,500            1,500             --              --
  Thomas R. Lewis II               --             --             4,500            1,500             --              --
</Table>

COMPENSATION OF TRUST MANAGERS

In lieu of the cash payment of fees to independent trust managers for attendance
at the regularly scheduled board meetings, the Company granted 2,250 and 1,500
restricted common shares to each independent trust manager in May 1999 and May
1998, respectively. In addition, in 1999, the Company paid each independent
trust manager a fee of $1,000 for each special board meeting that he attended;
these fees totaled $23,000 for all independent trust managers in 1999.

During the period from February 1999 through February 2000, the Company granted
dividend equivalent rights to all of its trust managers. During this period,
each trust manager received cash payments equal to the Company's per share
dividend (excluding those distributions that were characterized as a non-taxable
return of capital for tax purposes) multiplied by the number of common shares
such trust manager was eligible to purchase under options that were vested at
the time the dividend was declared. Dividend equivalents totaling $60,950 were
paid to trust managers under this program. On February 24, 2000, the Board of
Trust Managers terminated the dividend equivalents program. The final dividend
equivalent payment relating to the Company's 1999 fourth quarter dividend was
made on January 27, 2000.

On March 29, 2000, the Board of Trust Managers determined to instead pay each
independent trust manager an annual fee of $20,000, payable quarterly in
advance, plus $1,000 for each special meeting that he attends. These fee
provisions were extended to include Mr. Lutz following his resignation from
AMRESCO, INC. on November 15, 2000. During the years ended December 31, 2001 and
2000, fees paid to the independent trust managers and Mr. Lutz totaled $120,000
and $58,000, respectively. Effective April 1, 2000, the Company pays Mr. Adair
an annual fee of $60,000, payable quarterly in advance, for his services as both
Chairman of the Board of Trust Managers and Chief Executive Officer; such
compensation was approved by the Board of Trust Managers on March 29, 2000.
During the years ended December 31, 2001 and 2000, Mr. Adair was paid fees
totaling $60,000 and $45,000, respectively. The Company did not separately
compensate Messrs. Adair and Lutz prior to April 1, 2000 and November 15, 2000,
respectively, other than through its Share Option and Award Plan and dividend
equivalents program. All trust managers are reimbursed for their costs and
expenses in attending meetings of the Board of Trust Managers (or any committee
thereof).

Immediately after the closing of the Company's initial public offering, each
independent trust manager received options to purchase 20,000 common shares at
$15.00 per share (the initial public offering price). Messrs. Adair and Lutz
were each awarded options to purchase 45,000 common shares at $15.00 per share.
All of the trust managers' options vest ratably over a four-year period
commencing on the first anniversary of the date of grant.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2001, the Company's Compensation Committee consisted of Christopher B.
Leinberger, John C. Deterding and James C. Leslie, none of whom was, prior to or
during 2001, an officer or employee of the Company or any of its affiliates.
None of the Company's officers nor its affiliates' officers served as a member
of the compensation committee or similar committee or board of directors of any
entity whose members served on the Company's Compensation Committee. None of
such persons had any relationships requiring disclosure under applicable rules
and regulations.



                                       29
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of March 15, 2002, there were 10,039,974 shares of the Company's common stock
outstanding. The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of March 15, 2002 by: (1)
each person known to the Company to be the beneficial owner of more than 5% of
the Company's common stock; (2) the Company's Trust Managers; (3) the Company's
named executive officers; and (4) all Trust Managers and executive officers as a
group. Unless otherwise indicated in the footnotes, all such shares of common
stock are owned directly and the indicated person has sole voting and investment
power with respect thereto.

<Table>
<Caption>
                                                                                                 Percentage of
                                                                   Amount and Nature of          Common Shares
                 Name of Beneficial Owner (1)                      Beneficial Ownership        Beneficially Owned
  -----------------------------------------------------------      --------------------        ------------------
<S>                                                                <C>                         <C>
  Farallon Capital Management, L.L.C. .......................          1,722,011(2)                 17.15%
  Taunus Corporation/Deutsche Banc Alex. Brown Inc ..........          1,290,900(3)                 12.86%
  AMREIT Managers, L.P. .....................................          1,000,011(4)                  9.06%
  FMR Corp. .................................................            578,694(5)                  5.76%
  John C. Deterding .........................................             23,750(6)                    *
  Bruce W. Duncan ...........................................             37,450(6)                    *
  Christopher B. Leinberger .................................             29,000(6)                    *
  James C. Leslie ...........................................             28,750(6)                    *
  Robert H. Lutz, Jr. .......................................             55,000(7)                    *
  Robert L. Adair III .......................................            125,000(8)                  1.24%
  David M. Striph ...........................................             10,250(9)                    *
  Thomas R. Lewis II ........................................              7,000(9)                    *
  All Trust Managers and executive officers as
      a group (8 persons) ...................................            316,200(10)                 3.09%
</Table>

* Less than 1%.

(1)      A Person is deemed to be the beneficial owner of securities that can be
         acquired by such Person within 60 days upon the exercise of options.
         Each beneficial owner's percentage ownership was determined by assuming
         that options that are held by such Person (but not those held by any
         other Person) and which are exercisable within 60 days have been
         exercised.

(2)      The information set forth above is based solely on the Schedule 13D
         filed with the SEC on July 13, 2000 by Farallon Capital Partners, L.P.,
         Farallon Capital Institutional Partners, L.P., Farallon Capital
         Institutional Partners II, L.P., Farallon Capital Institutional
         Partners III, L.P., Tinicum Partners, L.P., Farallon Capital
         Management, L.L.C., Farallon Partners, L.L.C., Enrique H. Boilini,
         David I. Cohen, Joseph F. Downes, William F. Duhamel, Andrew B.
         Fremder, Richard B. Fried, William F. Mellin, Stephen L. Millham,
         Meridee A. Moore, Thomas F. Steyer and Mark C. Wehrly. In such Schedule
         13D, Farallon Capital Partners, L.P. reported that it had shared voting
         and shared dispositive power over 627,211 shares, Farallon Capital
         Institutional Partners, L.P., reported that it had sole voting power
         and shared dispositive power over 616,800 shares, Farallon Capital
         Institutional Partners II, L.P. reported that it had shared voting
         power and shared dispositive power over 214,700 shares, Farallon
         Capital Institutional Partners III, L.P. reported that it had shared
         voting power and shared dispositive power over 128,000 shares, Tinicum
         Partners, L.P. reported that it had shared voting power and shared
         dispositive power over 3,400 shares, RR Capital Partners, L.P. reported
         that it had shared voting power and shared dispositive power over
         60,000 shares, Farallon Capital Management, L.L.C. reported that it had
         shared voting power and shared dispositive power over 71,900 shares,
         Farallon Partners, L.L.C. reported that it had shared voting power and
         shared dispositive power over 1,650,111 shares, Enrique H. Boilini,
         David I. Cohen, Joseph F. Downes, William F. Duhamel, Andrew B.
         Fremder, Richard B. Fried, William F. Mellin, Stephen L. Millham,
         Meridee A. Moore, Thomas F. Steyer and Mark C. Wehrly each reported
         that he or she had shared voting power and shared dispositive power
         over 1,722,011 shares. The address of all such persons is One Maritime
         Plaza, Suite 1325, San Francisco, California 94111, except the address
         of Enrique H. Boilini is c/o Farallon Capital Management, L.L.C., 75
         Holly Hill Lane, Greenwich, Connecticut 06830.

(3)      The information set forth above is based solely on the Schedule 13G
         filed by Taunus Corporation and Deutsche Banc Alex. Brown Inc. with the
         SEC on March 5, 2002. In such Schedule 13G, Deutsche Banc Alex. Brown
         Inc. reported that it had sole voting power and sole dispositive power
         with respect to 1,290,900 shares. Taunus Corporation reported that it
         had sole voting power and sole dispositive power over 1,290,900 shares,
         which included the shares reported by Deutsche Banc Alex. Brown Inc.
         and with respect to which Taunus Corporation declared, pursuant to Rule
         13d-4 under the Securities Exchange Act of 1934 (the "Act"), that the
         filing of such Schedule 13G was not an admission that it is the
         beneficial owner of such shares for purposes of Section 13(d) or 13(g)
         of the Act. The address of Taunus Corporation and Deutsche Banc Alex.
         Brown Inc. is 31 West 52nd Street, New York, New York 10019. The
         Company has notified Taunus Corporation and Deutsche Banc Alex. Brown
         Inc. that their beneficial ownership of the Company's common shares
         exceeds the ownership limits set forth in the Company's Amended and
         Restated Declaration of Trust (the "Declaration of Trust") and that
         they must therefore dispose of sufficient shares in order to become
         compliant with the Declaration of Trust.

(4)      Represents options which are exercisable by AMREIT Managers, L.P.
         within 60 days to purchase 1,000,011 common shares. AMREIT Managers'
         address is 700 North Pearl Street, Suite 1900, Dallas, Texas 75201.



                                       30
<PAGE>

(5)      The information set forth above is based solely on the Schedule 13G
         filed by FMR Corp. with the SEC on February 13, 2002. FMR Corp.
         reported that, through its subsidiaries, it had sole dispositive power
         with respect to all such shares and sole voting power with respect to
         225,094 of such shares. FMR Corp. is the parent holding company of an
         investment management company registered under Section 203 of the
         Investment Advisers Act of 1940 that provides investment advisory and
         management services to its clients. FMR Corp. disclaims investment
         power or voting power over any of the securities referenced above;
         however, it may be deemed to "beneficially own" such securities by
         virtue of Rule 13d-3 under the Securities Exchange Act of 1934. FMR
         Corp.'s address is 82 Devonshire Street, Boston, Massachusetts 02109.

(6)      Includes options which are exercisable within 60 days to purchase
         20,000 common shares.

(7)      Includes options which are exercisable within 60 days to purchase
         45,000 common shares. Excludes 5,000 shares of the Company's common
         stock that are owned by Mr. Lutz's spouse as to which Mr. Lutz
         disclaims ownership.

(8)      Includes options which are exercisable within 60 days to purchase
         45,000 common shares.

(9)      Includes options which are exercisable within 60 days to purchase 6,000
         common shares.

(10)     Includes options which are exercisable within 60 days to purchase
         182,000 common shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

THE MANAGER

Pursuant to the terms of a Management Agreement dated as of May 12, 1998, as
amended, and subject to the direction and oversight of the Board of Trust
Managers, the Company's day-to-day operations are managed by AMREIT Managers,
L.P. (the "Manager"), an affiliate of AMRESCO, INC. ("AMRESCO") (together with
its affiliated entities, the "AMRESCO Group"). Under the terms of the Management
Agreement, the Manager performs such services and activities relating to the
assets and operations of the Company as may be required or appropriate in
accordance with the Company's policies and guidelines that are approved from
time to time and monitored by the Board of Trust Managers. Such responsibilities
include but are not necessarily limited to: (i) servicing and managing the
invested portfolio; (ii) asset/liability and risk management, hedging of
floating rate liabilities, and financing, management and disposition of the
invested portfolio, (iii) capital management and investor relations activities;
and (iv) the provision of certain administrative and managerial services such as
accounting and information technology services.

For its services during the period from May 12, 1998 (the Company's inception of
operations) through March 31, 2000, the Manager was entitled to receive a base
management fee equal to 1% per annum of the Company's average invested
non-investment grade assets and 0.5% per annum of the Company's average invested
investment grade assets. In addition to the base management fee, the Manager was
entitled to receive incentive compensation for each fiscal quarter in an amount
equal to 25% of the dollar amount by which all of the Company's Funds From
Operations (as defined by the National Association of Real Estate Investment
Trusts) plus gains (or minus losses) from debt restructurings and sales of
property, as adjusted, exceeded the ten-year U.S. Treasury rate plus 3.5%. In
addition to the fees described above, the Manager was also entitled to receive
reimbursement for its costs of providing certain due diligence and professional
services to the Company.

On March 29, 2000, the Company's Board of Trust Managers approved certain
modifications to the Manager's compensation in response to the changes in the
Company's business strategy. In addition to the base management fee described
above, the Manager is entitled to receive reimbursement for its quarterly
operating deficits, if any, from and after April 1, 2000. These reimbursements
are equal to the excess, if any, of the Manager's operating costs (including
principally personnel and general and administrative expenses) over the sum of
its base management fees and any other fees earned by the Manager from sources
other than the Company. Currently, AMRESCO (through the Manager) employs 2
people who are fully dedicated to the Company. As part of the modification, the
Manager is no longer entitled to receive incentive compensation and/or a
termination fee in the event that the Management Agreement is terminated. Prior
to the modifications, the Manager could have been entitled to a termination fee
in the event that the Management Agreement was terminated by the Company without
cause, including a termination resulting from the liquidation and dissolution of
the Company. The termination fee would have been equal to the sum of the
Manager's base management fee and incentive compensation earned during the
twelve-month period immediately preceding the termination.



                                       31
<PAGE>

During the year ended December 31, 2001, the following amounts were charged to
the Company by the Manager under the terms of the amended Management Agreement
(in thousands):

<Table>
<S>                                                    <C>
             Base management fees                      $  575
             Incentive compensation                        --
             Reimbursable expenses                         --
             Operating deficit reimbursements           1,286
                                                       ------

                                                       $1,861
                                                       ======
</Table>

As set forth above, operating deficit reimbursements totaled $1,286,000, of
which $884,000 was attributable to termination benefits which were paid to
departing employees of the Manager during the year ended December 31, 2001 (one
of which was the Company's President and Chief Investment Officer). Amounts
approximating these termination benefits ($874,000), and amounts approximating
those paid to the remaining employees of the Manager in January 2002 ($616,000),
were charged to management fee expense during the period from September 26, 2000
(the date on which the Company adopted liquidation basis accounting) through
December 31, 2000.

The Company relies primarily on the facilities, personnel and resources of the
Manager to conduct its operations; accordingly, it does not maintain separate
office space. The executive offices of the Company, the Manager and AMRESCO are
located at 700 North Pearl Street, Suite 1900, Dallas, Texas 75201.

The Manager has options to purchase 1,000,011 common shares; 70% of the options
are exercisable at an option price of $15.00 per share (the "IPO Price") and the
remaining 30% of the options are exercisable at an option price of $18.75 per
share. The options vest in four equal installments on May 12, 1999, May 12,
2000, May 12, 2001 and May 12, 2002.

The current term of the Management Agreement expires on May 12, 2002 or, if
earlier, on the date that the Company files its articles of dissolution. The
Management Agreement may be renewed at the end of each term for a period of one
year, upon review and approval by a majority of the independent trust managers.
If the independent trust managers do not vote to terminate or renew the
Management Agreement at least 90 days prior to the end of the then current
period, the Management Agreement will automatically renew for a one-year period.
The Manager has the right to terminate the Management Agreement upon 180 days
prior written notice to the Company. Under the terms of a letter agreement dated
November 16, 2001, the Company has the right to terminate the Management
Agreement upon 15 days prior written notice to the Manager.

TRANSACTIONS INVOLVING MEMBERS OF THE AMRESCO GROUP

On January 18, 2001, the Company sold three non-investment grade commercial
mortgage-backed securities ("CMBS") to an unaffiliated third party (the
"Buyer"). Concurrently, AMRESCO Investments, Inc. ("AMRESCO Investments"), a
member of the AMRESCO Group, sold (to the Buyer) its unrated bonds which had
been issued from the same securitization. As the former owner of the unrated
class, AMRESCO Investments had had the right to grant special servicing rights
with respect to all of the subject securities. Under the terms of an earlier
agreement, AMRESCO Investments is obligated to pay the designated special
servicer a termination fee in the event that such servicer's rights are
terminated on or before March 17, 2003. The simultaneous sale of the Company's
securities and AMRESCO Investments' securities was a condition precedent to the
Buyer's acquisition of either party's securities. In order to induce AMRESCO
Investments to sell its unrated securities, the Company agreed to reimburse the
affiliate in an amount equal to the termination fee if the Buyer elects to
terminate AMRESCO Investments' appointee on or before March 17, 2003.
Alternatively, if a termination has not occurred prior to the time that the
Company intends to declare its final liquidating distribution, then the Company
can satisfy this obligation by paying to AMRESCO Investments an amount equal to
one-half of the termination fee that would have been payable had an actual
termination occurred at that time. Under the terms of the agreement between
AMRESCO Investments and the special servicer, the termination fee is based, in
part, on the number of months remaining until March 17, 2003 and therefore the
amount of such fee declines each month. If a termination had occurred at the
time the bonds were sold, the Company would have been obligated to reimburse
AMRESCO Investments approximately $300,000 (the estimated maximum reimbursement
obligation). At the time of closing, the Buyer informed the Company that it had
no present intention to terminate AMRESCO Investments' appointee and that its
future decisions with regard to the special servicer would be based upon the
servicer's performance. When recording the sale, the Company accrued the amount
at which it expects to settle this obligation. The estimate of these additional
selling expenses was $114,000.



                                       32
<PAGE>

                                     PART IV

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

         (a)   1. Financial Statements

                  Included herein at pages F-1 through F-26.

               2. Financial Statement Schedules

                  As of December 31, 2001, the Company had one loan which
                  exceeded 20% of its total consolidated assets. As this loan
                  was sold on March 21, 2002, audited financial statements for
                  the underlying operating property are not included herein.

                  All other schedules for which provision is made in Regulation
                  S-X are either not required to be included herein under the
                  related instructions or are inapplicable or the related
                  information is included in the audited financial statements or
                  notes thereto.

               3. Exhibits

                  The following exhibits are filed as part of this Annual
                  Report on Form 10-K:

                  Exhibit No:

                  11        Computation of Per Share Earnings.

                  21        Subsidiaries of the Registrant.

         (b)      Reports on Form 8-K. The following reports on Form 8-K were
                  filed with respect to events occurring during the quarterly
                  period for which this report is filed:

                  None



                                       33
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                              AMRESCO CAPITAL TRUST


                            By: /s/ Thomas R. Lewis II
                   ------------------------------------------
                               Thomas R. Lewis II
                   Senior Vice President, Chief Financial and
                   Accounting Officer, Controller & Secretary

Date:    March 28, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<Table>
<Caption>
           Date                                 Signature
           ----                                 ---------

<S>                           <C>
      March 28, 2002                   /s/ Robert L. Adair III
                              ----------------------------------------------
                                           Robert L. Adair III
                                 Chairman of the Board of Trust Managers
                                       and Chief Executive Officer
                                      (Principal Executive Officer)

      March 28, 2002                   /s/ Thomas R. Lewis II
                              ----------------------------------------------
                                            Thomas R. Lewis II
                                  Senior Vice President, Chief Financial
                              and Accounting Officer, Controller & Secretary
                               (Principal Financial and Accounting Officer)

      March 28, 2002                   /s/ John C. Deterding
                              ----------------------------------------------
                                            John C. Deterding
                                         Independent Trust Manager

      March 28, 2002                   /s/ Bruce W. Duncan
                              ----------------------------------------------
                                             Bruce W. Duncan
                                         Independent Trust Manager

      March 28, 2002                   /s/ Christopher B. Leinberger
                              ----------------------------------------------
                                        Christopher B. Leinberger
                                         Independent Trust Manager

      March 28, 2002                   /s/ James C. Leslie
                              ----------------------------------------------
                                             James C. Leslie
                                         Independent Trust Manager

      March 28, 2002                   /s/ Robert H. Lutz, Jr.
                              ----------------------------------------------
                                           Robert H. Lutz, Jr.
                                              Trust Manager
</Table>



                                       34
<PAGE>

                              AMRESCO CAPITAL TRUST

                          INDEX TO FINANCIAL STATEMENTS

<Table>
<Caption>
                                                                                                        Page No.
<S>                                                                                                     <C>
REGISTRANT'S FINANCIAL STATEMENTS

  Independent Auditors' Report .......................................................................     F-2

  Consolidated Statements of Net Assets in Liquidation -- December 31, 2001 and 2000..................     F-3

  Consolidated Statements of Changes in Net Assets in Liquidation -- For the Year Ended
      December 31, 2001 and the Period from September 26, 2000 through December 31, 2000..............     F-4

  Consolidated Statements of Income (Going Concern Basis) -- For the Period from January 1, 2000
    through September 25, 2000 and the Year Ended December 31, 1999...................................     F-5

  Consolidated Statements of Changes in Shareholders' Equity (Going Concern Basis) -- For
    the Period from January 1, 2000 through September 25, 2000 and the Year Ended December 31, 1999...     F-6

  Consolidated Statements of Cash Flows in Liquidation -- For the Year Ended December 31, 2001 and
    the Period from September 26, 2000 through December 31, 2000......................................     F-7

  Consolidated Statements of Cash Flows (Going Concern Basis) -- For the Period from January 1,
    2000 through September 25, 2000 and the Year Ended December 31, 1999..............................     F-8

  Notes to Consolidated Financial Statements..........................................................     F-9
</Table>



                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Trust Managers and Shareholders
   of AMRESCO Capital Trust

We have audited the accompanying consolidated statements of net assets in
liquidation of AMRESCO Capital Trust and its subsidiaries (the Company) as of
December 31, 2001 and 2000, and the related consolidated statements of changes
in net assets in liquidation and cash flows in liquidation for the year ended
December 31, 2001 and the period from September 26, 2000 through December 31,
2000. In addition, we have audited the accompanying consolidated statements of
income, changes in shareholders' equity and cash flows for AMRESCO Capital Trust
and its subsidiaries for the period from January 1, 2000 through September 25,
2000 and the year ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

As discussed in Note 2 to the financial statements, the shareholders of AMRESCO
Capital Trust approved the liquidation and dissolution of the Company on
September 26, 2000, and the Company commenced liquidation shortly thereafter. As
a result, the Company changed its basis of accounting from the going concern
basis to the liquidation basis effective as of September 26, 2000.

In our opinion, such consolidated financial statements present fairly, in all
material respects: (1) the net assets in liquidation of AMRESCO Capital Trust
and its subsidiaries as of December 31, 2001 and 2000, (2) the changes in their
net assets in liquidation and their cash flows in liquidation for the year ended
December 31, 2001 and the period from September 26, 2000 through December 31,
2000, and (3) the results of their operations and their cash flows for the
period from January 1, 2000 through September 25, 2000 and the year ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.


/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
March 22, 2002




                                      F-2
<PAGE>

                              AMRESCO CAPITAL TRUST
              CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<Table>
<Caption>
                                                                                         December 31,   December 31,
                                                                                             2001           2000
                                                                                         ------------   ------------

<S>                                                                                      <C>            <C>
ASSETS
   Mortgage loans ...................................................................      $  10,300      $  88,401
   Commercial mortgage-backed securities - available for sale .......................             --         16,611
   Investment in unconsolidated subsidiary ..........................................             28          2,000
   Receivables and other assets .....................................................            175          2,346
   Cash and cash equivalents ........................................................          6,524          9,801
                                                                                           ---------      ---------

      TOTAL ASSETS ..................................................................         17,027        119,159
                                                                                           ---------      ---------

LIABILITIES
  Accounts payable and other liabilities ............................................            597             82
  Amounts due to manager ............................................................            813          2,071
                                                                                           ---------      ---------

      TOTAL LIABILITIES .............................................................          1,410          2,153
                                                                                           ---------      ---------

COMMITMENTS AND CONTINGENCIES (NOTE 5)

NET ASSETS IN LIQUIDATION (10,039,974 common shares issued and outstanding) .........      $  15,617      $ 117,006
                                                                                           =========      =========
</Table>

See notes to consolidated financial statements.



                                      F-3
<PAGE>

                              AMRESCO CAPITAL TRUST
         CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
                                 (IN THOUSANDS)


<Table>
<Caption>
                                                                                                   Period from
                                                                                                  September 26,
                                                                                                      2000
                                                                                   Year Ended        through
                                                                                  December 31,     December 31,
                                                                                     2001              2000
                                                                                  ------------    -------------
<S>                                                                               <C>             <C>
REVENUES:
  Interest income on mortgage loans .......................................         $   5,025       $   3,050
  Income from commercial mortgage-backed securities .......................                96             538
  Interest income from short-term investments .............................               878             170
                                                                                    ---------       ---------
    TOTAL REVENUES ........................................................             5,999           3,758
                                                                                    ---------       ---------

EXPENSES:
  Interest expense ........................................................                --             226
  Management fees .........................................................               987           2,094
  General and administrative ..............................................             1,113             162
                                                                                    ---------       ---------
    TOTAL EXPENSES ........................................................             2,100           2,482
                                                                                    ---------       ---------

Loss on disposition of mortgage loan ......................................              (500)             --

Changes in estimated net realizable value of certain assets ...............            (4,890)         (2,807)
                                                                                    ---------       ---------

DECREASE IN NET ASSETS IN LIQUIDATION FROM OPERATING ACTIVITIES ...........            (1,491)         (1,531)

Cash received from exercise of stock options ..............................                --              32

Liquidating distributions to shareholders .................................           (99,898)         (6,526)
                                                                                    ---------       ---------

DECREASE IN NET ASSETS IN LIQUIDATION DURING THE PERIOD ...................          (101,389)         (8,025)

NET ASSETS IN LIQUIDATION, BEGINNING OF PERIOD ............................           117,006         125,031
                                                                                    ---------       ---------

NET ASSETS IN LIQUIDATION, END OF PERIOD ..................................         $  15,617       $ 117,006
                                                                                    =========       =========


SHAREHOLDERS' EQUITY, END OF GOING CONCERN PERIOD .........................                         $ 124,004

Net increase in carrying value of certain assets upon adoption
   of liquidation basis accounting ........................................                               817

Net decrease in carrying value of certain liabilities and minority
   interests upon adoption of liquidation basis accounting ................                               210
                                                                                                    ---------

NET ASSETS IN LIQUIDATION, BEGINNING OF LIQUIDATION PERIOD ................                         $ 125,031
                                                                                                    =========
</Table>

See notes to consolidated financial statements.



                                      F-4
<PAGE>

                              AMRESCO CAPITAL TRUST
             CONSOLIDATED STATEMENTS OF INCOME (GOING CONCERN BASIS)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<Table>
<Caption>
                                                                                  Period from
                                                                                January 1, 2000
                                                                                     through        Year Ended
                                                                                  September 25,    December 31,
                                                                                       2000            1999
                                                                                ---------------    ------------

<S>                                                                             <C>                 <C>
REVENUES:
  Interest income on mortgage loans .......................................         $  8,937          $ 14,568
  Income from commercial mortgage-backed securities .......................            2,405             3,699
  Operating income from real estate .......................................            5,240             4,858
  Equity in earnings (losses) of unconsolidated
    subsidiary, partnerships and other real estate ventures ...............           (1,091)               17
  Interest income from short-term investments .............................              217               251
                                                                                    --------          --------
    TOTAL REVENUES ........................................................           15,708            23,393
                                                                                    --------          --------

EXPENSES:
  Interest expense ........................................................            4,396             5,593
  Management fees .........................................................            1,140             2,206
  General and administrative ..............................................            1,018             1,437
  Abandoned merger costs ..................................................               --             1,737
  Depreciation ............................................................            1,188             1,252
  Participating interest in mortgage loans ................................               --             1,084
  Provision for loan losses ...............................................            1,788             3,322
                                                                                    --------          --------
    TOTAL EXPENSES ........................................................            9,530            16,631
                                                                                    --------          --------

INCOME BEFORE GAINS (LOSSES) AND MINORITY INTERESTS .......................            6,178             6,762

  Loss on sale of commercial mortgage-backed securities ...................           (4,267)               --
  Gain associated with repayment of ADC loan arrangements .................            1,930               584
  Gain on sale of real estate .............................................            1,485                --
  Gain on sale of unconsolidated partnership investments ..................              674                --
                                                                                    --------          --------

INCOME BEFORE MINORITY INTERESTS ..........................................            6,000             7,346

  Minority interests ......................................................               52                26
                                                                                    --------          --------

NET INCOME ................................................................         $  5,948          $  7,320
                                                                                    ========          ========


EARNINGS PER COMMON SHARE:
   Basic ..................................................................         $   0.59          $   0.73
                                                                                    ========          ========
   Diluted ................................................................         $   0.59          $   0.73
                                                                                    ========          ========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
   Basic ..................................................................           10,000            10,000
                                                                                    ========          ========
   Diluted ................................................................           10,029            10,012
                                                                                    ========          ========
</Table>


See notes to consolidated financial statements.



                                      F-5
<PAGE>


                              AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (GOING CONCERN BASIS)
                  FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH
             SEPTEMBER 25, 2000 AND THE YEAR ENDED DECEMBER 31, 1999
                        (IN THOUSANDS, EXCEPT SHARE DATA)



<Table>
<Caption>
                                                        Common Stock
                                                       $.01 Par Value
                                                 --------------------------   Additional    Unearned
                                                   Number of                   Paid-in        Stock
                                                    Shares        Amount       Capital     Compensation
                                                 ------------   -----------   ----------   ------------

<S>                                              <C>          <C>             <C>          <C>
Balance at December 31, 1998 ...............       10,006,111    $      100    $  140,941    $     (848)
Issuance of trust managers'
  restricted shares ........................            9,000            --            91           (91)
Issuance of warrants .......................                                          400
Decrease in fair value of
  compensatory options .....................                                         (434)          434
Total nonowner changes in equity:
 Net income ................................
 Unrealized losses on securities
   available for sale ......................

Comprehensive income .......................

Amortization of unearned trust
  manager compensation .....................                                                         91
Amortization of compensatory
  options ..................................                                                        132
Dividends declared ($1.59 per
  common share) ............................
                                                 ------------    ----------    ----------    ----------
Balance at December 31, 1999 ...............       10,015,111           100       140,998          (282)
Issuance of common shares upon
 exercise of warrants ......................           20,863            --            --
Decrease in fair value of
  compensatory options .....................                                         (517)          517
Total nonowner changes in equity:
 Net income ................................
 Unrealized losses on securities
   available for sale:
   Unrealized holding losses ...............
   Reclassification adjustment for
     losses included in net income .........

Comprehensive income .......................

Amortization of unearned trust
  manager compensation .....................                                                         34
Amortization of compensatory
  options ..................................                                                       (288)
Dividends declared ($0.34 per
  common share) ............................
                                                 ------------    ----------    ----------    ----------
Balance at September 25, 2000 ..............       10,035,974    $      100    $  140,481    $      (19)
                                                 ============    ==========    ==========    ==========

<Caption>

                                                  Accumulated    Distributions     Total
                                                    Other         in Excess of   Nonowner       Total
                                                 Comprehensive    Accumulated     Changes    Shareholders'
                                                  Income(Loss)      Earnings     in Equity     Equity
                                                 -------------   -------------   ---------   -------------

<S>                                              <C>             <C>             <C>         <C>
Balance at December 31, 1998 ...............     $      (6,475)  $      (3,452)               $    130,266
Issuance of trust managers'
  restricted shares ........................                                                            --
Issuance of warrants .......................                                                           400
Decrease in fair value of
  compensatory options .....................                                                            --
Total nonowner changes in equity:
 Net income ................................                             7,320   $    7,320          7,320
 Unrealized losses on securities
   available for sale ......................            (4,337)                      (4,337)        (4,337)
                                                                                 ----------
Comprehensive income .......................                                     $    2,983
                                                                                 ==========
Amortization of unearned trust
  manager compensation .....................                                                            91
Amortization of compensatory
  options ..................................                                                           132
Dividends declared ($1.59 per
  common share) ............................                           (15,921)                    (15,921)
                                                 -------------   -------------                ------------
Balance at December 31, 1999 ...............           (10,812)        (12,053)                    117,951
Issuance of common shares upon
 exercise of warrants ......................
Decrease in fair value of
  compensatory options .....................                                                            --
Total nonowner changes in equity:
 Net income ................................                             5,948   $    5,948          5,948
 Unrealized losses on securities
   available for sale:
   Unrealized holding losses ...............              (643)                        (643)          (643)
   Reclassification adjustment for
     losses included in net income .........             4,407                        4,407          4,407
                                                                                 ----------
Comprehensive income .......................                                     $    9,712
                                                                                 ==========
Amortization of unearned trust
  manager compensation .....................                                                            34
Amortization of compensatory
  options ..................................                                                          (288)
Dividends declared ($0.34 per
  common share) ............................                            (3,405)                     (3,405)
                                                 -------------   -------------                ------------
Balance at September 25, 2000 ..............     $      (7,048)  $      (9,510)               $    124,004
                                                 =============   =============                ============
</Table>


See notes to consolidated financial statements.



                                      F-6
<PAGE>



                              AMRESCO CAPITAL TRUST
              CONSOLIDATED STATEMENTS OF CASH FLOWS IN LIQUIDATION
                                 (IN THOUSANDS)

<Table>
<Caption>

                                                                                                                   Period from
                                                                                                                  September 26,
                                                                                                                      2000
                                                                                                   Year Ended       through
                                                                                                  December 31,     December 31,
                                                                                                      2001            2000
                                                                                                  -------------    -------------

<S>                                                                                               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Decrease in net assets in liquidation from operating activities ............................      $ (1,491)        $ (1,531)
   Adjustments to reconcile to net cash provided by operating activities:
      Loss on disposition of mortgage loan ....................................................           500               --
      Changes in estimated net realizable value of certain assets .............................         4,890            2,807
      Decrease in receivables and other assets ................................................         1,264              225
      Decrease in interest receivable related to commercial mortgage-backed securities ........           170              142
      Increase (decrease) in accounts payable and other liabilities ...........................           515             (570)
      Increase (decrease) in amounts due to manager ...........................................        (1,258)           1,668
      Amortization of prepaid insurance .......................................................           234               62
                                                                                                     --------         --------
           NET CASH PROVIDED BY OPERATING ACTIVITIES ..........................................         4,824            2,803
                                                                                                     --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Investments in mortgage loans ..............................................................          (730)          (2,187)
   Principal collected on mortgage loans ......................................................        73,931           31,953
   Proceeds from sale of commercial mortgage-backed securities ................................        16,441               --
   Distributions from unconsolidated subsidiary ...............................................         2,155               --
                                                                                                     --------         --------
           NET CASH PROVIDED BY INVESTING ACTIVITIES ..........................................        91,797           29,766
                                                                                                     --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayment of borrowings under line of credit ...............................................            --          (22,000)
   Liquidating distributions paid to common shareholders ......................................       (99,898)          (6,526)
   Net proceeds from issuance of common stock .................................................            --               32
                                                                                                     --------         --------
           NET CASH USED IN FINANCING ACTIVITIES ..............................................       (99,898)         (28,494)
                                                                                                     --------         --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..........................................        (3,277)           4,075

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................................         9,801            5,726
                                                                                                     --------         --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................................      $  6,524         $  9,801
                                                                                                     ========         ========
</Table>

See notes to consolidated financial statements.



                                      F-7
<PAGE>



                              AMRESCO CAPITAL TRUST
           CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)
                                 (IN THOUSANDS)


<Table>
<Caption>
                                                                                                     Period from
                                                                                                    January 1, 2000
                                                                                                       through         Year Ended
                                                                                                     September 25,    December 31,
                                                                                                         2000            1999
                                                                                                    ---------------   ------------

<S>                                                                                                 <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income ..................................................................................       $  5,948        $  7,320
   Adjustments to reconcile net income to net cash provided by operating activities:
      Provision for loan losses ................................................................          1,788           3,322
      Depreciation .............................................................................          1,188           1,252
      Gain associated with repayment of ADC loan arrangements ..................................         (1,930)           (584)
      Loss on sale of commercial mortgage-backed securities ....................................          4,267              --
      Gain on sale of unconsolidated partnership investments ...................................           (674)             --
      Gain on sale of real estate ..............................................................         (1,485)             --
      Loss (gain) on sale of interest rate cap .................................................            (19)              5
      Amortization of prepaid insurance ........................................................            172             234
      Discount amortization on commercial mortgage-backed securities ...........................           (282)           (329)
      Amortization of compensatory stock options and unearned trust manager compensation .......           (254)            223
      Amortization of loan commitment and extension fees .......................................           (592)         (1,050)
      Receipt of loan commitment and extension fees ............................................            460             427
      Increase in receivables and other assets .................................................           (219)           (592)
      Decrease (increase) in interest receivable related to commercial mortgage-backed
        securities..............................................................................            (40)             74
      Increase (decrease) in accounts payable and other liabilities ............................         (1,428)          1,756
      Increase (decrease) in minority interests ................................................            (26)             26
      Increase (decrease) in amounts due to manager and affiliates .............................           (163)          1,226
      Equity in losses (earnings) of unconsolidated subsidiary, partnerships and
         other real estate ventures ... ........................................................          1,091             (17)
      Distributions from unconsolidated subsidiary, partnership and other real estate venture ..             23             124
                                                                                                       --------        --------
           NET CASH PROVIDED BY OPERATING ACTIVITIES ...........................................          7,825          13,417
                                                                                                       --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Investments in mortgage loans ...............................................................         (8,480)        (44,622)
   Investments in ADC loan arrangements ........................................................         (1,034)        (24,688)
   Sale of mortgage loans to affiliate .........................................................             --          13,340
   Principal collected on mortgage loans .......................................................         10,398          26,252
   Principal and interest collected on ADC loan arrangements ...................................         17,953          11,513
   Proceeds from sale of real estate, net of cash on hand ......................................         17,938              --
   Proceeds from sale of unconsolidated partnership investments ................................          2,126              --
   Proceeds from sale of commercial mortgage-backed securities .................................          7,814              --
   Investments in real estate ..................................................................           (350)        (40,913)
   Investments in unconsolidated partnerships and subsidiary ...................................           (282)         (2,684)
   Distributions from unconsolidated subsidiary and partnerships ...............................          3,493             344
                                                                                                       --------        --------
           NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .................................         49,576         (61,458)
                                                                                                       --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from borrowings under line of credit ...............................................             --          39,162
   Repayment of borrowings under line of credit ................................................        (38,641)        (17,859)
   Proceeds from borrowings under repurchase agreement .........................................             --          12,103
   Repayment of borrowings under repurchase agreement ..........................................         (9,856)         (2,247)
   Proceeds from financing provided by affiliate ...............................................             --             907
   Proceeds from non-recourse debt on real estate ..............................................             --          27,100
   Purchase of interest rate caps ..............................................................             --            (110)
   Proceeds from sale of interest rate caps ....................................................             30              30
   Deferred financing costs associated with line of credit .....................................             --            (120)
   Deferred financing costs associated with non-recourse debt on real estate ...................             --            (594)
   Distributions paid to common shareholders ...................................................         (7,812)        (15,516)
                                                                                                       --------        --------
           NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .................................        (56,279)         42,856
                                                                                                       --------        --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........................................          1,122          (5,185)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................................................          4,604           9,789
                                                                                                       --------        --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................................................       $  5,726        $  4,604
                                                                                                       ========        ========
</Table>


See notes to consolidated financial statements.



                                      F-8

<PAGE>


                              AMRESCO CAPITAL TRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999


1. ORGANIZATION AND RELATIONSHIPS

AMRESCO Capital Trust (the "Company"), a real estate investment trust ("REIT"),
was organized under the laws of the State of Texas. The Company was formed to
take advantage of certain mid- to high-yield lending and investment
opportunities in real estate related assets, including various types of
commercial mortgage loans (including, among others, participating loans,
mezzanine loans, acquisition loans, construction loans, rehabilitation loans and
bridge loans), commercial mortgage-backed securities, commercial real estate,
equity investments in joint ventures and/or partnerships, and certain other real
estate related assets. The Company was initially capitalized on February 2, 1998
and commenced operations on May 12, 1998, concurrent with the completion of its
initial public offering ("IPO"). On September 26, 2000, shareholders approved
the liquidation and dissolution of the Company under the terms and conditions of
a Plan of Liquidation and Dissolution which was approved by the Company's Board
of Trust Managers on March 29, 2000.

Pursuant to the terms of a Management Agreement dated as of May 12, 1998, as
amended, and subject to the direction and oversight of the Board of Trust
Managers, the Company's day-to-day operations are managed by AMREIT Managers,
L.P. (the "Manager"), an affiliate of AMRESCO, INC. ("AMRESCO") (together with
its affiliated entities, the "AMRESCO Group"). For its services during the
period from May 12, 1998 (the Company's inception of operations) through March
31, 2000, the Manager was entitled to receive a base management fee equal to 1%
per annum of the Company's Average Invested Non-Investment Grade Assets, as
defined, and 0.5% per annum of the Company's Average Invested Investment Grade
Assets, as defined. In addition to the base management fee, the Manager was
entitled to receive incentive compensation for each fiscal quarter in an amount
equal to 25% of the dollar amount by which Funds From Operations (as defined by
the National Association of Real Estate Investment Trusts), as adjusted,
exceeded a certain threshold. In addition to the fees described above, the
Manager was also entitled to receive reimbursement for its costs of providing
certain due diligence and professional services to the Company.

On March 29, 2000, the Company's Board of Trust Managers approved certain
modifications to the Manager's compensation effective as of April 1, 2000. In
addition to its base management fee, the Manager is entitled to receive
reimbursements for its quarterly operating deficits, if any, from and after
April 1, 2000. These reimbursements are equal to the excess, if any, of the
Manager's operating costs (including principally personnel and general and
administrative expenses) over the sum of its base management fees and any other
fees earned by the Manager from sources other than the Company. Pursuant to the
First Amendment to Management Agreement, the Manager is no longer entitled to
receive incentive compensation and/or a termination fee in the event that the
Management Agreement is terminated, including a termination resulting from the
Company's liquidation and dissolution. The base management fee and
reimbursements, if any, are payable quarterly in arrears.



                                      F-9
<PAGE>


2. BASIS OF PRESENTATION

As described in Note 1, shareholders approved the liquidation and dissolution of
the Company on September 26, 2000. As a result, the Company adopted liquidation
basis accounting on that date. Prior to September 26, 2000, the Company's
operating results were presented in accordance with the historical cost (or
going concern) basis of accounting. Under liquidation basis accounting, the
Company's revenues and expenses are reported as changes in net assets in
liquidation. Additionally, under liquidation basis accounting, the Company's
assets are carried at their estimated net realizable values and the Company's
liabilities are reported at their expected settlement amounts in a consolidated
statement of net assets in liquidation. The adjustments to the Company's assets
and liabilities resulting from the adoption of liquidation basis accounting are
summarized as follows (in thousands):

<Table>
<Caption>

                                                                     Increase
                                                                     (Decrease)
                                                                     in Carrying
                                                                       Value
                                                                     -----------
<S>                                                                  <C>
Mortgage loans ..................................................     $    574
ADC loan arrangements ...........................................        1,257
Investments in unconsolidated partnerships and subsidiary .......       (1,000)
Receivables and other assets ....................................          (14)
                                                                      --------

Net increase in carrying value of assets upon
 adoption of liquidation basis accounting .......................     $    817
                                                                      ========
</Table>


<Table>
<Caption>
                                                                       Decrease
                                                                      in Carrying
                                                                        Value
                                                                      -----------

<S>                                                                   <C>
Accounts payable and other liabilities.............................   $      60
Minority interests.................................................         150
                                                                      ---------

Net decrease in carrying value of liabilities and minority
 interests upon adoption of liquidation basis accounting...........  $      210
                                                                      =========
</Table>

Under the liquidation basis of accounting, statements of income, earnings per
share data and an amount representing total comprehensive income are not
presented.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and, prior to June 14, 2000, a majority-owned
partnership. Prior to September 26, 2000, the Company accounted for its
investment in AMREIT II, Inc., a taxable subsidiary, using the equity method of
accounting, and thus reported its share of income or loss based on its ownership
interest. The Company used the equity method of accounting due to the non-voting
nature of its ownership interest and because the Company was entitled to
substantially all of the economic benefits of ownership of AMREIT II, Inc. Under
liquidation basis accounting, the Company's investment in AMREIT II, Inc. was
carried at its estimated net realizable value. From and after September 26,
2000, the Company accounted for its investment in AMREIT II, Inc. using the cost
method of accounting and thus reported income only when cash was received.
Changes in the estimated net realizable value of this investment, if any, were
reported in the consolidated statement of changes in net assets in liquidation.
On December 31, 2000, the Company reduced the carrying value of its investment
in AMREIT II, Inc. by $3,114,000, from $5,114,000 to $2,000,000. During the year
ended December 31, 2001, the Company increased the carrying value of its
investment in AMREIT II, Inc. by $183,000. As described in Note 16, the Company
received its final distribution from AMREIT II, Inc. on March 6, 2002. During
the period from January 1, 2000 through September 25, 2000, the Company sold its
non-controlling interests in two partnerships; prior to their disposition, the
Company



                                      F-10
<PAGE>

accounted for these investments using the equity method of accounting and thus
reported its share of income or loss based on its ownership interests. All
significant intercompany balances and transactions have been eliminated in
consolidation.

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 certain assets and liabilities at the date of the
financial statements and revenues and expenses for the reporting period. Actual
results may differ from those estimates.

MORTGAGE LOANS

From and after September 26, 2000, mortgage loans are stated at estimated net
realizable value as determined by management. Loan extension fees, if any, are
recognized when they are received. Consistent with the historical cost (or going
concern) basis of accounting, interest income on mortgage loans is recognized on
an accrual basis at the contractual accrual rate. Interest income on impaired
loans is recognized using a cash-basis method. Loans are deemed to be impaired
when it is probable that a borrower will not be able to fulfill the contractual
terms of its loan agreement. Changes in the estimated net realizable values of
mortgage loans, if any, are reported in the consolidated statement of changes in
net assets in liquidation.

Prior to September 26, 2000, mortgage loans were stated at cost, net of deferred
origination and commitment fees and associated direct costs, if any. Loan
origination and commitment fees and incremental direct costs, if any, were
deferred and recognized over the life of the loan as an adjustment of yield
using the interest method.

ACQUISITION, DEVELOPMENT AND CONSTRUCTION (ADC) LOAN ARRANGEMENTS

The Company provided financing through certain real estate loan arrangements
that, because of their nature, qualified (prior to September 26, 2000) as either
real estate or joint venture investments for financial reporting purposes. Using
the guidance set forth in the Third Notice to Practitioners issued by the AICPA
in February 1986 entitled "ADC Arrangements" (the "Third Notice"), the Company
evaluated each investment to determine whether loan, joint venture or real
estate accounting was appropriate; such determination affected the Company's
balance sheet classification of these investments and the recognition of
revenues derived therefrom. The Third Notice was issued to address those real
estate acquisition, development and construction arrangements where a lender has
virtually the same risks and potential rewards as those of real estate owners or
joint venturers. EITF 86-21, "Application of the AICPA Notice to Practitioners
regarding Acquisition, Development, and Construction Arrangements to Acquisition
of an Operating Property" expanded the applicability of the Third Notice to
loans on operating real estate.

The Company accounted for its loan investments classified as real estate in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 67, "Accounting for Costs and Initial Rental Operations of Real
Estate Projects" and SFAS No. 66, "Accounting for Sales of Real Estate",
consistent with its accounting for direct real estate investments. Depreciation
on buildings and improvements was provided under the straight-line method over
an estimated useful life of 39 years for office buildings and 27.5 years for
multi-family projects.

The Company accounted for its loan investments classified as joint ventures in
accordance with the provisions of Statement of Position 78-9, "Accounting for
Investments in Real Estate Ventures" and thus reported its share of income or
loss under the equity method of accounting based on its preferential ownership
interest.

On September 26, 2000, the carrying values of these ADC loan arrangements were
adjusted to their estimated net realizable values as determined by management;
concurrently, such investments were reclassified to mortgage loans. Under the
liquidation basis of accounting, the Company accounted for these investments in
the same manner as it accounts for its other mortgage loans. As these loan
arrangements were carried at their estimated net realizable values prior to
their disposition during the period from September 26, 2000 through December 31,
2000, the Company no longer provided for systematic depreciation of these
investments during such period.



                                      F-11
<PAGE>


PROVISION FOR LOAN LOSSES

Prior to September 26, 2000, the Company provided for estimated loan losses by
establishing an allowance for losses through a charge to earnings. Management
performed a periodic evaluation of the allowance with consideration given to
economic conditions and trends, collateral values and other relevant factors.
ADC loan arrangements were considered in the allowance for loan losses.

Impairment on a loan-by-loan basis was determined by assessing the probability
that a borrower would not be able to fulfill the contractual terms of its loan
agreement. If a loan was determined to be impaired, the amount of the impairment
was measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate or by the fair value of the collateral
less estimated costs to sell if those costs were expected to reduce the cash
flows available to repay or otherwise satisfy the loan. The allowance for loan
losses was adjusted accordingly. The recognition of income on impaired loans was
dependent upon their classification as either mortgage loans, real estate or
joint venture investments. Interest income on impaired mortgage loans was
recognized using a cash-basis method while income recognition related to ADC
loan arrangements was dependent upon the facts and circumstances specific to
each investment.

Under liquidation basis accounting, an allowance for loan losses is no longer
separately reported as the Company's loans are carried at their estimated net
realizable values.

REAL ESTATE

Prior to its sale on June 14, 2000, real estate was stated at cost, net of
accumulated depreciation. Costs associated with the acquisition, development and
construction of a real estate project were capitalized as a cost of that project
during its construction period. In accordance with SFAS No. 34, "Capitalization
of Interest Cost", interest on the Company's borrowings was capitalized to the
extent such asset qualified for capitalization. When a real estate project was
substantially completed and held available for occupancy, rental revenues and
operating costs were recognized as they accrued. Depreciation on buildings and
improvements was provided under the straight-line method over an estimated
useful life of 39 years. Depreciation on land improvements was provided using
the 150% declining-balance method over an estimated useful life of 15 years.
Maintenance and repair costs were charged to operations as incurred, while
significant capital improvements and replacements were capitalized. Leasing
commissions and leasehold improvements were deferred and amortized on a
straight-line basis over the terms of the related leases. Other deferred charges
were amortized over terms applicable to the expenditure.

LEASES

The Company, having retained substantially all of the risks and benefits of
ownership, accounted for its leases as operating leases. Rental income was
recognized over the terms of the leases as it was earned.

COMMERCIAL MORTGAGE-BACKED SECURITIES

At December 31, 2000, the Company's investments in commercial mortgage-backed
securities ("CMBS") were carried at estimated net realizable value, which
approximated the amount that was realized by the Company in connection with the
sale of these securities in January 2001. From and after September 26, 2000,
income from CMBS was recognized at the fixed coupon rate; any unrealized gains
or losses (changes in estimated net realizable value) were reported in the
consolidated statement of changes in net assets in liquidation. On December 31,
2000, the Company increased the carrying value of its CMBS by $307,000.

Prior to September 26, 2000, the Company's CMBS investments were classified as
available for sale and were carried at estimated fair value as determined by
quoted market rates. Any unrealized gains or losses were excluded from earnings
and reported as a component of accumulated other comprehensive income (loss) in
shareholders' equity. Income from CMBS was recognized based on the effective
interest method using the anticipated yield over the expected life of the
investments.



                                      F-12
<PAGE>

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consists of cash on hand and highly liquid investments
with maturities of three months or less at the date of purchase.

STOCK-BASED COMPENSATION

Prior to the adoption of liquidation basis accounting on September 26, 2000, the
Company applied APB Opinion No. 25, "Accounting for Stock Issued to Employees"
and related Interpretations in accounting for stock option awards granted to its
officers and trust managers (the "APB 25 Options"). Pro forma disclosures of net
income and earnings per common share as if the fair value based method of
accounting had been applied are included in Note 8.

Stock options awarded to the Manager and certain other members of the AMRESCO
Group and warrants granted to an affiliate of one of the Company's lenders were
accounted for under the fair value method prescribed by SFAS No. 123,
"Accounting for Stock-Based Compensation" and related Interpretations.

Under liquidation basis accounting, the Company no longer records compensation
expense associated with the options that are held by the Manager and certain
other members of the AMRESCO Group. In liquidation, the assumptions underlying
the fair value based method of accounting for stock options are no longer
appropriate. Accordingly, pro forma disclosures related to the APB 25 Options
are provided only for the periods ending prior to September 26, 2000.

EARNINGS PER COMMON SHARE

Basic earnings per common share ("EPS") excludes dilution and was computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS gives effect to all
dilutive potential common shares that were outstanding during the period.

INCOME TAXES AND DISTRIBUTIONS

The Company has elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code"). As a result, the
Company will generally not be subject to federal income tax on that portion of
its ordinary income or capital gain that is currently distributed to its
shareholders if it distributes at least 90% of its annual REIT taxable income
and it complies with a number of other organizational and operational
requirements. The minimum distribution requirement was reduced from 95% to 90%
for tax years beginning after December 31, 2000. Prior to its liquidation in
March 2002, AMREIT II, Inc. was subject to federal income tax on its taxable
income at regular corporate rates.

Historically, the Company's policy was to distribute at least 95% of its REIT
taxable income to shareholders each year. To that end, dividends were paid
quarterly through the first quarter of 2000. Earnings and profits, which (prior
to September 26, 2000) determined the taxability of distributions to
shareholders, differs from the operating results reported for financial
reporting purposes under the historical cost (or going concern) basis of
accounting and the liquidation basis of accounting due to differences in methods
of accounting for revenues, expenses, gains and losses. As a result of these
accounting differences, net income (under the historical cost [or going concern]
basis of accounting) and the increase/decrease in net assets from operating
activities (under the liquidation basis of accounting) are not necessarily
indicative of the distributions which must be made by the Company in order for
it to continue to qualify as a REIT under the Code.

As described in Note 1, shareholders approved the liquidation and dissolution of
the Company on September 26, 2000. As a result, the Company's dividend policy
was modified to provide for the distribution of the Company's assets to its
shareholders through liquidating distributions. The timing and amount of
liquidating distributions will be at the discretion of the Board of Trust
Managers and will be dependent upon the Company's financial condition, tax basis
income, capital requirements, the timing of asset dispositions, reserve
requirements, the annual distribution requirements under the REIT provisions of
the Code and such other factors as the Board of Trust Managers deems relevant.
At a minimum, the Company intends to make distributions which will allow it to
continue to qualify as a REIT under the Code. The Company believes that
distributions made to shareholders pursuant to the Plan of Liquidation and
Dissolution will be treated for federal income tax purposes as distributions in
a complete liquidation.



                                      F-13
<PAGE>

4. MORTGAGE LOANS

At December 31, 2001 and 2000, the Company's mortgage loans are summarized as
follows (dollars in thousands):

<Table>
<Caption>
                                                                                             Estimated Net
  Date of                                   Commitment Amount       Amount Outstanding      Realizable Value    Interest  Interest
  Initial   Disposition                 ------------------------- ----------------------- --------------------    Pay      Accrual
Investment      Date        Location       2001          2000       2001          2000       2001      2000       Rate      Rate
----------  ----------- --------------- ------------ ------------ ------------ ---------- ---------- ---------  --------- --------

<S>         <C>         <C>             <C>          <C>          <C>          <C>        <C>        <C>        <C>       <C>
 05/12/98     03/21/02   Richardson, TX   $ 14,700      $ 14,700    $ 14,700    $ 14,700   $ 10,300  $  14,700     10.0%    12.0%
 06/01/98     06/01/01   Houston, TX            --        11,800          --      11,800         --     11,800     12.0%    12.0%
 06/22/98     06/26/01   Wayland, MA            --        45,000          --      42,152         --     42,152     10.5%    10.5%
 05/18/99     06/22/01   Irvine, CA             --        15,557          --      15,306         --     15,306     10.0%    12.0%
 07/29/99     02/01/01   Lexington, MA          --         5,213          --       4,443         --      4,443     11.7%    14.7%
                                          --------      --------    --------    --------   --------  ---------
Total mortgage loans                      $ 14,700      $ 92,270    $ 14,700    $ 88,401   $ 10,300  $  88,401
                                          ========      ========    ========    ========   ========  =========
</Table>

During the year ended December 31, 2001, three of the Company's loans were fully
repaid. Additionally, on June 26, 2001, the Company received $42.382 million in
complete satisfaction of its Wayland (Massachusetts) loan. At the time of the
settlement, amounts outstanding under the Wayland loan totaled $42.882 million.
A summary of mortgage loan activity for the year ended December 31, 2001 is as
follows (in thousands):

<Table>
<S>                                                <C>
Balance, beginning of year .....................   $   88,401
Investments in loans ...........................          730
Collections of principal .......................      (73,931)
Loss on disposition of loan ....................         (500)
Change in estimated net realizable value of
   remaining loan ..............................       (4,400)
                                                   ----------
Balance, end of year ...........................   $   10,300
                                                   ==========
</Table>

As of December 31, 2001, the Company held one mortgage loan investment. As
described in Note 17, this second lien loan was sold on March 21, 2002 for
$10,300,000. Prior to its sale, payments of interest only were due monthly at
the interest pay rate. All principal and all remaining accrued and unpaid
interest were due (from the borrower) on March 31, 2003, the scheduled maturity
of the loan. The loan had also provided the Company with the opportunity for
profit participation in excess of the contractual interest accrual rate. During
the year ended December 31, 2001, the Company reduced the carrying value of this
loan and the related accrual rate interest receivable by $4,400,000 and
$673,000, respectively. At December 31, 2001, the carrying value of the accrual
rate interest receivable was $0.



                                      F-14
<PAGE>


At September 25, 2000 (the date immediately prior to the adoption of liquidation
basis accounting), the Company's loan investments were classified as follows (in
thousands):

<Table>
<Caption>
                                                               Loan           Balance
                                                              Amount           Sheet
                                                            Outstanding       Amount
                                                           ------------    ------------

<S>                                                        <C>             <C>
Mortgage loans held for investment, net ................   $     94,819    $     94,246

Real estate, net .......................................         22,924          21,090
Investment in real estate ventures .....................          8,569           6,978
                                                           ------------    ------------
   Total ADC loan arrangements .........................         31,493          28,068
                                                           ------------    ------------

Total loan investments .................................   $    126,312         122,314
                                                           ============

Allowance for loan losses ..............................                         (5,978)
                                                                           ------------

Total loan investments, net of allowance for losses ....                   $    116,336
                                                                           ============
</Table>

The differences between the outstanding loan amounts and the balance sheet
amounts were due primarily to loan commitment fees, interest fundings, minority
interests, capitalized interest and accumulated depreciation.

ADC loan arrangements accounted for as real estate consisted of the following at
September 25, 2000 (in thousands):

<Table>
<S>                                                  <C>
Land  ............................................   $    2,490
Buildings and improvements .......................       19,093
                                                     ----------
  Total ..........................................       21,583
Less: Accumulated depreciation ...................         (493)
                                                     ----------

                                                     $   21,090
                                                     ==========
</Table>

A summary of activity for mortgage loans and ADC loan arrangements accounted for
as real estate or investments in joint ventures for the period from January 1,
2000 through September 25, 2000 and the year ended December 31, 1999 is as
follows (in thousands):

<Table>
<Caption>
                                                          2000                                         1999
                                      ----------------------------------------------  ---------------------------------------------
                                                            ADC                                           ADC
                                         Mortgage          Loan                         Mortgage          Loan
                                           Loans       Arrangements       Total          Loans         Arrangements       Total
                                      --------------  --------------  --------------  --------------  --------------  -------------

<S>                                   <C>             <C>             <C>             <C>             <C>             <C>
Balance, beginning of period ......      $  96,737       $  46,907       $ 143,644       $  98,303       $  38,488      $ 136,791
Investments in loans ..............          8,480           1,662          10,142          44,622          26,617         71,239
Collections of principal ..........        (10,398)        (17,076)        (27,474)        (26,252)        (11,359)       (37,611)
Cost of mortgages sold ............             --              --              --         (19,936)             --        (19,936)
Foreclosure (partnership
   interests) .....................             --              --              --              --          (6,839)        (6,839)
                                         ---------       ---------       ---------       ---------       ---------      ---------

Balance, end of period ............      $  94,819       $  31,493       $ 126,312       $  96,737       $  46,907      $ 143,644
                                         =========       =========       =========       =========       =========      =========
</Table>



                                      F-15
<PAGE>


During the period from January 1, 2000 through September 25, 2000 and the year
ended December 31, 1999, the activity in the allowance for loan losses was as
follows (in thousands):

<Table>
<Caption>
                                              2000           1999
                                            -------         -------

<S>                                        <C>            <C>
Balance, beginning of period .........      $ 4,190         $ 1,368
Provision for losses .................        1,788           3,322
Charge-offs ..........................           --            (500)
Recoveries ...........................           --              --
                                            -------         -------

Balance, end of period ...............      $ 5,978         $ 4,190
                                            =======         =======
</Table>

A summary of the adjustments to the Company's loan investments (and the
reclassifications thereof) resulting from the adoption of liquidation basis
accounting is as follows (in thousands):

<Table>
<Caption>
                                                                                          Activity During the Period
                                                                                           from September 26, 2000
                                                                                                    through             Estimated
                                                        Adjustments                            December 31, 2000      Net Realizable
                                        Balance Sheet        to                           --------------------------     Value at
                                          Amount at    Net Realizable                                   Collections    December 31,
                                        Sept 25, 2000       Value      Reclassifications  Investments   of Principal       2000
                                        -------------  --------------  -----------------  -----------   ------------  -------------

<S>                                     <C>            <C>             <C>                <C>           <C>           <C>
Mortgage loans .........................  $  94,246      $     574          $  23,347     $   2,187       $ (31,953)    $  88,401

Real estate, net .......................     21,090          1,257            (22,347)           --              --            --
Investment in real estate venture ......      6,978         (5,978)            (1,000)           --              --            --
                                          ---------      ---------          ---------     ---------       ---------     ---------
 Total ADC loan arrangements ...........     28,068         (4,721)           (23,347)           --              --            --
                                          ---------      ---------          ---------     ---------       ---------     ---------

Total loan investments .................    122,314         (4,147)                --         2,187         (31,953)       88,401
Allowance for loan losses ..............     (5,978)         5,978                 --            --              --            --
                                          ---------      ---------          ---------     ---------       ---------     ---------

Total loan investments, net
of allowance for loan losses ...........  $ 116,336      $   1,831          $      --     $   2,187       $ (31,953)    $  88,401
                                          =========      =========          =========     =========       =========     =========
</Table>

An ADC loan arrangement with a recorded investment of $7,191,000 was deemed to
be impaired on December 31, 1999. The allowance for loan losses related to this
investment totaled $4,190,000 at December 31, 1999. At December 31, 1999, the
amount outstanding under this loan totaled $8,262,000. During the period from
January 1, 2000 through September 25, 2000, investments in this loan totaled
$37,000 and the allowance for loan losses related to this investment was
increased by $1,788,000 to $5,978,000. The average recorded investment in this
loan was $7,100,000 during the period from January 1, 2000 through October 31,
2000 (the disposition date). On May 31, 2000 and October 31, 2000, the Company
received $250,000 and $1,000,000, respectively, in complete satisfaction of all
amounts owed to it by the borrower. No income was recognized on this loan
investment after it was deemed to be impaired.

5. COMMERCIAL MORTGAGE-BACKED SECURITIES

On January 18, 2001, the Company sold three commercial mortgage-backed
securities (its "Remaining Securities") to an unaffiliated third party (the
"Buyer"). At the time of the sale, the Company received net cash proceeds
totaling $16,555,000 plus accrued interest of $266,000, of which $170,000 was
accrued as of December 31, 2000. Concurrently, AMRESCO Investments, Inc.
("AMRESCO Investments"), a member of the AMRESCO Group, sold (to the Buyer) its
unrated bonds which had been issued from the same securitization. As the former
owner of the unrated class, AMRESCO Investments had had the right to grant
special servicing rights with respect to all of the subject securities. Under
the terms of an earlier agreement, AMRESCO Investments is obligated to pay the
designated special servicer a termination fee in the event that such servicer's
rights are terminated on or before March 17, 2003. The simultaneous sale of the
Company's Remaining Securities and AMRESCO Investments' securities was a
condition precedent to the Buyer's acquisition of either party's securities. In
order to induce AMRESCO Investments to sell its unrated securities, the Company
agreed to reimburse the affiliate in an amount equal to the termination fee if
the Buyer elects to terminate AMRESCO Investments' appointee on or before March
17, 2003. Alternatively, if a termination has not occurred prior to the time
that the Company intends to declare its final liquidating distribution, then the
Company can satisfy this obligation by paying to AMRESCO Investments an amount
equal to one-half of the termination fee that would have been payable had an
actual



                                      F-16
<PAGE>

termination occurred at that time. Under the terms of the agreement
between AMRESCO Investments and the special servicer, the termination fee is
based, in part, on the number of months remaining until March 17, 2003 and
therefore the amount of such fee declines each month. If a termination had
occurred at the time the bonds were sold, the Company would have been obligated
to reimburse AMRESCO Investments approximately $300,000 (the estimated maximum
reimbursement obligation). When recording the sale, the Company accrued the
amount at which it expects to settle this obligation. These additional selling
expenses, totaling $114,000, are included in accounts payable and other
liabilities at December 31, 2001.

As of December 31, 2000, the Company's CMBS available for sale were carried at
estimated net realizable value which approximated estimated fair value. At
December 31, 2000, the amortized cost and carrying value of CMBS, by underlying
credit rating, were as follows (in thousands):

<Table>
<Caption>
                                                                                                  Estimated
                                                                                                    Net
                    Security        Acquisition     Amortized     Unrealized      Unrealized      Realizable
                     Rating            Price          Cost           Gains          Losses          Value
                 ---------------   ------------   ------------   ------------    ------------    ------------

<S>                                <C>            <C>            <C>             <C>             <C>
                       BB-         $      4,186   $      4,305   $         --    $     (1,131)   $      3,174
                        B                15,367         15,880             --          (4,812)         11,068
                        B-                3,045          3,167             --            (798)          2,369
                                   ------------   ------------   ------------    ------------    ------------

                                   $     22,598   $     23,352   $         --    $     (6,741)   $     16,611
                                   ============   ============   ============    ============    ============
</Table>

During the year ended December 31, 2000, the Company sold two of its CMBS
holdings (the "B-2A" and "G-2" securities). Additionally, on March 21, 2000, the
Company's unconsolidated taxable subsidiary sold its only CMBS (the "B-3A"
security). The total disposition proceeds and the gross realized loss for each
bond were as follows (in thousands):

<Table>
<Caption>
                                                           Total                              Gross
                                                        Disposition         Amortized        Realized
                    Security          Sale Date           Proceeds            Cost             Loss
                ----------------- ------------------ ------------------- ---------------- ----------------

<S>                               <C>                <C>                  <C>             <C>
                      B-2A         January 11, 2000        $3,784             $3,914           $ (130)

                      B-3A         March 21, 2000          $3,341             $3,481           $ (140)

                       G-2         August 23, 2000         $4,030             $8,167           $(4,137)
</Table>

In computing the gross realized loss for each security, the amortized cost was
determined using a specific identification method. The Company's share of the
gross realized loss from the sale of the B-3A security is included in equity in
losses from unconsolidated subsidiary, partnerships and other real estate
ventures during the period from January 1, 2000 through September 25, 2000.

6. DEBT AND FINANCING FACILITIES

Previously, the Company was a party to a line of credit agreement and a
repurchase agreement. Borrowings under the line of credit, which was provided by
Prudential Securities Credit Corporation, LLC (PSCC), could be used to finance a
portion of the Company's structured loan and equity real estate investments. The
repurchase agreement was provided by Prudential-Bache International, Ltd., an
affiliate of PSCC; borrowings under this facility could be used to finance a
portion of the Company's portfolio of mortgage-backed securities. Both of the
Company's credit facilities bore interest at variable rates based on a spread
over LIBOR. The repurchase agreement and the line of credit agreement matured on
June 30, 2000 and April 30, 2001, respectively. All amounts then outstanding
under these facilities were fully repaid on June 16, 2000 and November 14, 2000,
respectively.

To reduce the impact that rising interest rates would have on its floating rate
indebtedness, the Company periodically entered into interest rate cap agreements
with a major international financial institution. These interest rate cap



                                      F-17
<PAGE>


agreements entitled the Company to receive from the counterparty the amounts, if
any, by which one-month LIBOR exceeded certain thresholds. The premiums paid for
these caps were amortized on a straight-line basis as an adjustment of interest
incurred.

Five consolidated title-holding partnerships were indebted under the terms of
five non-recourse loan agreements with Jackson National Life Insurance Company.
All five loans, which were secured by grocery-anchored shopping centers in the
Dallas/Fort Worth (Texas) area, bore interest at 6.83% per annum. The interest
rates on the first four loans were adjusted in connection with the placement of
the fifth loan on August 25, 1999. Prior to that time, a $7.5 million loan bore
interest at 7.28% per annum while three loans aggregating $19.5 million bore
interest at 6.68% per annum. On June 14, 2000, the Company sold its ownership
interests in the consolidated partnerships; in connection therewith, the five
non-recourse loans aggregating $34,600,000 were assumed by the buyer.

In connection with a previous amendment and extension of its line of credit, the
Company granted warrants to Prudential Securities Incorporated, an affiliate of
PSCC, to purchase 250,002 common shares of beneficial interest at $9.83 per
share. The exercise price represented the average closing market price of the
Company's common shares for the ten-day period ending on May 3, 1999. The
warrants were issued in lieu of a commitment fee or other cash compensation. The
estimated fair value of the warrants, totaling $400,000, was measured at the
grant date and was amortized to interest expense through September 25, 2000
using the straight-line method. Amortization was calculated based upon the
18-month term of the facility. The unamortized balance of the warrants at
September 25, 2000, approximating $22,000, was discharged on September 26, 2000
in connection with the Company's adoption of liquidation basis accounting.

Total interest incurred during the period from September 26, 2000 through
December 31, 2000, the period from January 1, 2000 through September 25, 2000
and the year ended December 31, 1999 was $226,000, $4,396,000 and $6,186,000, of
which $0, $0 and $593,000, respectively, was capitalized. Interest paid (net of
amounts capitalized) during these periods totaled $395,000, $4,438,000 and
$4,980,000, respectively.

7. RELATED PARTY TRANSACTIONS

The Company's day-to-day operations are managed by the Manager, a member of the
AMRESCO Group. During the years ended December 31, 2001, 2000 and 1999, fees and
reimbursements charged to the Company were as follows (in thousands):

<Table>
<Caption>
                                                                                        2000
                                                                    -------------------------------------------
                                                                    Period from     Period from       Total
                                                                     January 1,    September 26,   for the Year
                                                     Year Ended     2000 through   2000 through        Ended         Year Ended
                                                    December 31,    September 25,   December 31,    December 31,    December 31,
                                                        2001             2000           2000            2000            1999
                                                    ------------    -------------  -------------   -------------    ------------

<S>                                                   <C>             <C>             <C>             <C>              <C>
Base management fees ........................         $   575         $ 1,401         $   361         $ 1,762          $ 2,066
Incentive compensation ......................              --              --              --              --               --
Reimbursable expenses .......................              --              20              --              20              192
Operating deficit reimbursements ............           1,286              --             243             243               --
                                                      -------         -------         -------         -------          -------

                                                      $ 1,861         $ 1,421         $   604         $ 2,025          $ 2,258
                                                      =======         =======         =======         =======          =======
</Table>

During the year ended December 31, 2001, operating deficit reimbursements
totaled $1,286,000, of which $884,000 was attributable to termination benefits
which were paid to departing employees of the Manager during the year. Amounts
approximating these termination benefits ($874,000), and amounts approximating
those paid to the remaining employees of the Manager in January 2002 ($616,000),
were charged to management fee expense during the period from September 26, 2000
through December 31, 2000. During the period from September 26, 2000 through
December 31, 2000, operating deficit reimbursements totaled $243,000, of which
$192,000 was related to termination benefits which were paid to departing
employees of the Manager on December 31, 2000. Reimbursable expenses are
included in general and administrative expenses while operating deficit
reimbursements are included in management fees for the periods indicated. As of
December 31, 2001 and 2000, base management fees due to the Manager totaled
$47,000 and $338,000,



                                      F-18
<PAGE>

respectively. Operating deficit reimbursements due to the Manager totaled
$150,000 and $243,000 at December 31, 2001 and 2000, respectively. At December
31, 2001 and 2000, amounts due to manager included $616,000 and $1,490,000,
respectively, relating to termination benefit costs expected to be borne by the
Company (as of each of these financial reporting dates) through future operating
deficit reimbursements.

8. STOCK-BASED COMPENSATION

On May 12, 1998, the Company granted to its trust managers and officers
non-qualified options to purchase 352,000 common shares at an exercise price of
$15.00 per share (the IPO price). The options vest ratably over a four-year
period beginning one year after the date of grant. Through September 25, 2000
(the date immediately prior to the adoption of liquidation basis accounting),
the Company applied APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for these awards. As the
awards had no intrinsic value at the grant date, no compensation cost was ever
recognized. Had the Company determined compensation cost associated with these
options consistent with the fair value methodology of SFAS No. 123, the
Company's net income and earnings per common share for the period from January
1, 2000 through September 25, 2000 and the year ended December 31, 1999 would
have been reduced to the following pro forma amounts (in thousands, except per
share data):

<Table>
<Caption>
                                                            Period from
                                                          January 1, 2000
                                                               through                 Year Ended
                                                         September 25, 2000         December 31, 1999
                                                         ------------------         -----------------

<S>                                                      <C>                        <C>
          Net income:
              As reported ........................            $5,948                     $7,320
              Pro forma ..........................            $5,827                     $7,138

          Basic earnings per common share:
              As reported .......................             $ 0.59                     $ 0.73
              Pro forma .........................             $ 0.58                     $ 0.71

          Diluted earnings per common share:
              As reported .......................             $ 0.59                     $ 0.73
              Pro forma .........................             $ 0.58                     $ 0.71
</Table>

The estimated fair value of the options granted to the Company's officers and
trust managers, approximating $2.20 per share, was measured at the grant date
using the Cox-Ross-Rubinstein option pricing model with the following
assumptions: risk free interest rate of 5.64%; expected life of four years;
expected volatility of 25%; and dividend yield of 8%. Subsequent to the grant
date, the fair value of the options was not adjusted for changes in these
assumptions nor for changes in the price of the Company's stock.

On May 12, 1998, the Company granted to the Manager and certain employees of the
AMRESCO Group non-qualified options to purchase 1,000,011 and 141,500 common
shares, respectively. Seventy percent of the Manager's options and those options
awarded to the other members of the AMRESCO Group are exercisable at $15.00 per
share (the IPO price); the remaining thirty percent of the Manager's options are
exercisable at an option price of $18.75 per share. The options vest in four
equal installments on May 12, 1999, May 12, 2000, May 12, 2001 and May 12, 2002.
On November 3, 1998 and February 25, 1999, the Company granted to certain
employees of the AMRESCO Group non-qualified options to purchase 4,000 and 2,000
common shares, respectively; the options vest ratably over a four-year period
beginning one year after the date of grant. Prior to September 26, 2000, the
Company accounted for these options under SFAS No. 123 and the interpretation
thereof provided by EITF 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services"; accordingly, compensation cost was being recognized over the
four-year vesting period. For purposes of recognizing compensation costs during
the financial reporting periods prior to the measurement (or vesting) date, the
share option awards were measured as of each financial reporting date at their
then-current fair value. Changes in those fair values between reporting dates
were attributed in accordance with the provisions of FASB Interpretation No. 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans". As of June 30, 2000 (the last financial reporting date for which
the historical cost [or going concern] basis of accounting was appropriate),
December 31, 1999 and December 31, 1998, the estimated




                                      F-19
<PAGE>

fair value of the options granted to the Manager and certain employees of the
AMRESCO Group approximated $0.07 per share, $0.71 per share and $1.10 per share,
respectively. The fair value of the options was estimated using the
Cox-Ross-Rubinstein option pricing model with the following assumptions:

<Table>
<Caption>
                                                  2000                1999                1998
                                             --------------      --------------     --------------

<S>                                          <C>                 <C>                <C>
Risk free interest rate ................               6.35%     5.97% to 6.17%     4.54% to 4.59%
Expected life ..........................            3 years        4 to 7 years       4 to 7 years
Expected volatility ....................                 20%               35%                  40%
Dividend yield .........................                 12%               12%                  10%
</Table>

During the six months ended June 30, 2000, compensation cost associated with
those options that had not previously vested was adjusted to reflect the decline
in fair value (from December 31, 1999) of approximately $0.64 per share. During
the year ended December 31, 1999, compensation cost associated with all of the
options was adjusted to reflect the decline in estimated fair value (from
December 31, 1998) of approximately $0.39 per share. During the period from
January 1, 2000 through September 25, 2000 and the year ended December 31, 1999,
compensatory option charges (credits) included in management fees and general
and administrative expenses were as follows (in thousands):

<Table>
<Caption>
                                                Period from
                                              January 1, 2000
                                                   through        Year Ended
                                                September 25,    December 31,
                                                    2000             1999
                                              ---------------    ------------
<S>                                            <C>               <C>
Management fees ..........................     $       (261)     $        140
General and administrative expenses ......              (27)               (8)
                                               ------------      ------------

                                               $       (288)     $        132
                                               ============      ============
</Table>

A summary of the status of the Company's stock options as of December 31, 2001,
2000 and 1999 and the changes during the years then ended is as follows:

<Table>
<Caption>
                                                       Compensatory                        Non-compensatory
                                                         Options                               Options
                                             --------------------------------      ---------------------------------
                                                                  Weighted                              Weighted
                                               Number of           Average           Number of           Average
                                                Shares          Exercise Price         Shares         Exercise Price
                                             -------------      --------------     -------------      --------------
<S>                                          <C>                <C>                <C>                <C>
Options outstanding at January 1, 1999           1,124,011      $       15.98            352,000      $       15.00

Granted on February 25, 1999                         2,000               8.75                 --                 --
Exercised                                               --                 --                 --                 --
Forfeited                                           (4,250)            (12.06)           (13,500)            (15.00)
Expired                                                 --                 --                 --                 --
                                             -------------      -------------      -------------      -------------

Options outstanding at December 31, 1999         1,121,761              15.98            338,500              15.00

Exercised on September 26, 2000                     (4,000)             (7.88)                --                 --
Forfeited                                               --                 --            (45,000)            (15.00)
Expired                                                 --                 --                 --                 --
                                             -------------      -------------      -------------      -------------

Options outstanding at December 31, 2000         1,117,761              16.01            293,500              15.00

Exercised                                               --                 --                 --                 --
Forfeited                                               --                 --                 --                 --
Expired                                                 --                 --                 --                 --
                                             -------------      -------------      -------------      -------------

Options outstanding at December 31, 2001         1,117,761      $       16.01            293,500      $       15.00
                                             =============      =============      =============      =============
</Table>


                                      F-20
<PAGE>

As of December 31, 2001, the 1,411,261 options outstanding have a weighted
average exercise price of $15.80 and a weighted average remaining contractual
life of 6.38 years; 1,111,258 options have an exercise price of $15.00 per share
while 300,003 options have an exercise price of $18.75 per share. At December
31, 2001, 1,115,758 options were exercisable at a weighted average exercise
price of $15.17 per share. At December 31, 2000, 807,256 options were
exercisable at a weighted average exercise price of $15.00 per share. At
December 31, 1999, 405,378 options were exercisable at a weighted average
exercise price of $14.98 per share.

In lieu of cash compensation for their services and participation at regularly
scheduled meetings of the Board of Trust Managers, the Company granted 2,250 and
1,500 restricted common shares to each of its four independent trust managers on
May 11, 1999 and May 12, 1998, respectively. The grant-date fair value of these
restricted common shares was $10.13 and $15.00 per share, respectively. The
associated compensation cost was recognized over the one-year service period.

At December 31, 2001, 573,485 shares were available for grant in the form of
restricted common shares or options to purchase common shares under the
Company's 1998 Share Option and Award Plan, as amended.

On February 25, 1999, the Board of Trust Managers approved the payment of
dividend equivalents on all vested and unexercised share options excluding those
held by the Manager. Dividend equivalents were equal to the dividends paid on
the Company's common shares from time to time, excluding those distributions
that were characterized as a non-taxable return of capital for tax purposes.
During the year ended December 31, 1999, dividend equivalent costs totaled
$114,000 and were included in general and administrative expenses in the
consolidated statement of income. The dividend equivalents program was
terminated by the Board of Trust Managers on February 24, 2000; as a result, no
dividend equivalent costs were incurred during the years ended December 31, 2001
and 2000.

As described in Note 6, the Company granted warrants to Prudential Securities
Incorporated to purchase 250,002 common shares of beneficial interest at $9.83
per share. The estimated fair value of the warrants, totaling $400,000, was
measured at the grant date (May 4, 1999) using the Cox-Ross-Rubinstein option
pricing model with the following assumptions: risk free interest rate of 5.23%;
expected life of three years (the warrants had a 7-year term); expected
volatility of 35%; and dividend yield of 12%. During the period from January 1,
2000 through September 25, 2000 and the year ended December 31, 1999, $200,000
and $178,000, respectively, of warrant costs were amortized to interest expense.

9. COMMON STOCK

On July 5, 2000, AMRESCO, INC. and AMREIT Holdings, Inc. (a wholly-owned
subsidiary of AMRESCO, INC.) sold 1,500,111 shares of the Company's outstanding
common stock to affiliates of Farallon Capital Management, L.L.C. for
$12,521,000, net of an illiquidity discount of $230,000. As additional
consideration for these shares, the sellers are entitled to receive 90% of
future distributions paid on or with respect to these shares, but only after the
purchasers have received $12,751,000 and a return on this amount, as adjusted,
equal to 16% per annum. As a result of this sale, AMRESCO, INC. and AMREIT
Holdings, Inc. no longer own any of the Company's outstanding common shares.
AMRESCO, INC. and AMREIT Holdings, Inc. had owned such shares since the
Company's inception.

On September 25, 2000, Prudential Securities Incorporated, an affiliate of PSCC,
purchased 20,863 of the Company's common shares by tendering 250,002 warrants
with an exercise price of $9.83 per share. No cash was received by the Company
in connection with this issuance of common shares. The Company has no other
warrants outstanding.

On September 26, 2000, an executive officer of the Company exercised options to
purchase 4,000 shares of common stock at $7.88 per share.



                                      F-21
<PAGE>

10. EARNINGS PER SHARE

A reconciliation of the numerator and denominator used in computing basic
earnings per share and diluted earnings per share for the period from January 1,
2000 through September 25, 2000 and the year ended December 31, 1999 is as
follows (in thousands, except per share data):

<Table>
<Caption>
                                                        Period from
                                                         January 1,
                                                            2000
                                                           through         Year Ended
                                                        September 25,      December 31,
                                                            2000              1999
                                                        -------------     -------------
<S>                                                     <C>               <C>
Net income available to common shareholders             $       5,948     $       7,320
                                                        =============     =============
Weighted average common shares outstanding                     10,000            10,000
                                                        =============     =============

Basic earnings per common share                         $        0.59     $        0.73
                                                        =============     =============

Weighted average common shares outstanding                     10,000            10,000
Effect of dilutive securities:
    Restricted shares                                              15                12
    Net effect of assumed exercise of warrants                     13                --
    Net effect of assumed exercise of stock options                 1                --
                                                        -------------     -------------
Adjusted weighted average shares outstanding                   10,029            10,012
                                                        =============     =============

Diluted earnings per common share                       $        0.59     $        0.73
                                                        =============     =============
</Table>

At September 25, 2000, options to purchase 1,415,261 common shares were
outstanding. During the period from January 1, 2000 through September 24, 2000,
warrants to purchase 250,002 common shares were outstanding; these warrants were
exercised on September 25, 2000 (Note 9). For the period from January 1, 2000
through September 25, 2000, options related to 1,411,261 shares were not
included in the computation of diluted earnings per share because the exercise
prices related thereto were greater than the average market price of the
Company's common shares.

During the year ended December 31, 1999, options to purchase 1,460,261 common
shares and warrants to purchase 250,002 common shares were outstanding. The
options related to 1,456,261 shares and the warrants were not included in the
computation of diluted earnings per share because the exercise prices related
thereto were greater than the average market price of the Company's common
shares.

11. DISTRIBUTIONS

During the years ended December 31, 2001, 2000 and 1999, the Company declared
distributions totaling $96,384,000 (or $9.60 per share), $13,445,000 (or $1.34
per share) and $15,921,000 (or $1.59 per share), respectively. All 2001
distributions were reported as liquidating distributions (for federal income tax
purposes) to the Company's shareholders. For the year ended December 31, 2000,
$0.34 per share was reported to the Company's shareholders (for federal income
tax purposes) as ordinary income; $1.00 per share was reported for federal
income tax purposes as liquidating distributions. For federal income tax
purposes, $1.42 per share and $0.17 per share were reported to the Company's
shareholders as ordinary income and non-taxable return of capital, respectively,
for the year ended December 31, 1999. Information regarding the declaration of
distributions by the Company during the years ended December 31, 2001, 2000 and
1999 is as follows (in thousands, except per share data):



                                      F-22
<PAGE>


<Table>
<Caption>
                                                                                                                   Distribution
                                  Declaration             Record                Payment            Distribution     per Common
                                     Date                  Date                   Date                 Paid           Share
                               ------------------     ------------------     ------------------    ------------    ------------
<S>                            <C>                    <C>                    <C>                   <C>             <C>
1999

First Quarter                  April 22, 1999         April 30, 1999         May 17, 1999           $     3,602     $      0.36
Second Quarter                 July 22, 1999          July 31, 1999          August 16, 1999              3,906            0.39
Third Quarter                  October 21, 1999       October 31, 1999       November 15, 1999            4,006            0.40
Fourth Quarter                 December 15, 1999      December 31, 1999      January 27, 2000             4,407            0.44
                                                                                                    -----------     -----------

                                                                                                    $    15,921     $      1.59
                                                                                                    ===========     ===========

2000

First Quarter                  April 25, 2000         May 4, 2000            May 15, 2000           $     3,405     $      0.34

Liquidating Distributions:
  First                        September 27, 2000     October 6, 2000        October 19, 2000             3,012            0.30
  Second                       October 31, 2000       November 9, 2000       November 21, 2000            3,514            0.35
  Third                        December 21, 2000      December 31, 2000      January 17, 2001             3,514            0.35
                                                                                                    -----------     -----------

                                                                                                    $    13,445     $      1.34
                                                                                                    ===========     ===========
2001

Liquidating Distributions:
  Fourth                       March 8, 2001          March 19, 2001         March 30, 2001         $    26,104     $      2.60
  Fifth                        July 19, 2001          July 30, 2001          August 9, 2001              70,280            7.00
                                                                                                    -----------     -----------

                                                                                                    $    96,384     $      9.60
                                                                                                    ===========     ===========
</Table>

12. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

No non-cash investing and/or financing activities were recorded during the year
ended December 31, 2001 or the period from September 26, 2000 through December
31, 2000. A summary of the non-cash investing and financing activities which
occurred during the period from January 1, 2000 through September 25, 2000 and
the year ended December 31, 1999 is as follows (in thousands):

<Table>
<Caption>
                                                                                      Period from
                                                                                       January 1,
                                                                                         2000
                                                                                        through          Year Ended
                                                                                      September 25,     December 31,
                                                                                         2000              1999
                                                                                      -------------     ------------
<S>                                                                                    <C>              <C>
Minority interest distributions associated with ADC loan arrangements                  $        350     $      2,111
                                                                                       ============     ============

Debt and other liabilities assumed by buyer in connection with sale of real
  estate                                                                               $     35,156     $         --
                                                                                       ============     ============

Receivables and other assets transferred to buyer in connection with sale
  of real estate                                                                       $      1,380     $         --
                                                                                       ============     ============

Receivables transferred in satisfaction of amounts due to affiliate                    $         --     $      1,238
                                                                                       ============     ============

Amounts due to affiliate discharged in connection with sales of mortgage
  loans                                                                                $         --     $      6,597
                                                                                       ============     ============

Issuance of warrants in connection with line of credit                                 $         --     $        400
                                                                                       ============     ============
</Table>

While not resulting in cash receipts or cash payments, these activities affected
recognized assets and liabilities during the periods indicated.



                                      F-23
<PAGE>

13. RECONCILIATION OF FINANCIAL STATEMENT OPERATING RESULTS TO TAX BASIS INCOME

A reconciliation of the Company's financial statement operating results to its
tax basis income for the years ended December 31, 2001, 2000 and 1999 is as
follows (in thousands):

<Table>
<Caption>
                                                                            2001             2000              1999
                                                                        ------------      ------------      ------------

<S>                                                                     <C>               <C>               <C>
Consolidated financial statement net income .......................     $         --      $      5,948      $      7,320
Decrease in net assets in liquidation from operating activities ...           (1,491)           (1,531)               --
                                                                        ------------      ------------      ------------


                                                                              (1,491)            4,417             7,320

Difference attributable to differences in methods of
   accounting for ADC loan arrangements ...........................               --              (268)            3,598
Equity in losses from unconsolidated subsidiary ...................               --             1,149               223
Dividends received from unconsolidated subsidiary .................               --                --                45
Interest capitalized under SFAS No. 34 ............................               --                --              (593)
Adjustments for restricted stock and compensatory options .........               --              (254)              223
Adjustment for management fees ....................................             (874)            1,490                --
Adjustment for insurance costs ....................................              455                --                --
Adjustment for differences in methods of accounting for
    loan fees and line of credit costs ............................              268               195                --
Provision for loan losses .........................................               --             1,788             3,322
Net capital loss carryforward .....................................              500             2,108                --
Changes in estimated net realizable value of certain assets .......            4,890             2,807                --
Other .............................................................              154              (289)               21
                                                                        ------------      ------------      ------------

Tax basis income ..................................................     $      3,902      $     13,143      $     14,159
                                                                        ============      ============      ============

</Table>

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS No.
107"), requires disclosure of the estimated fair values of financial instruments
whether or not such financial instruments are recognizable in a balance sheet
prepared under the historical cost (or going concern) basis of accounting. For
purposes of the statement, fair value is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale. With the exception of the Company's
investment in its unconsolidated subsidiary, substantially all of the Company's
assets and liabilities are considered financial instruments for purposes of SFAS
No. 107. At December 31, 2001 and 2000, all of the Company's financial
instruments were carried at either their estimated net realizable values or
their expected settlement amounts, which approximated their estimated fair
values as of those dates.

15. SEGMENT INFORMATION

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), requires enterprises to report certain financial
and descriptive information about their reportable operating segments. SFAS No.
131 also requires certain enterprise-wide disclosures regarding products and
services, geographic areas and major customers.

The Company, as an investor in real estate related assets, operated in only one
reportable segment. Historically, the Company made asset allocation decisions
within this segment based upon its diversification strategies and changes in
market conditions. The Company has not had, nor does it rely upon, any major
customers. All of the Company's investments were secured directly or indirectly
by real estate properties located in the United States; accordingly, all of its
revenues were derived from U.S. operations.



                                      F-24
<PAGE>

16. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

At December 31, 2001 and 2000, investment in unconsolidated subsidiary was
comprised of the Company's investment in AMREIT II, Inc., its taxable
subsidiary. Prior to September 26, 2000, the Company accounted for its
investment in AMREIT II, Inc. using the equity method of accounting, and thus
reported its share of income or loss based on its ownership interest. From and
after September 26, 2000, the Company accounted for its investment in AMREIT II,
Inc. using the cost method of accounting, and thus reported income only when
cash was received. During the period from January 1, 2000 through September 25,
2000, the Company recognized losses of $1,080,000 from its investment in AMREIT
II, Inc. During the year ended December 31, 2001 and the period from September
26, 2000 through December 31, 2000, the Company recognized no income from this
investment. On December 31, 2000, the Company reduced the carrying value of its
investment in AMREIT II, Inc. by $3,114,000, from $5,114,000 to $2,000,000.
During the year ended December 31, 2001, the Company increased the carrying
value of its investment in AMREIT II, Inc. by $183,000; additionally, the
Company received distributions totaling $2,155,000 from this unconsolidated
subsidiary. On March 6, 2002, the Company received a final distribution of
$28,000 from AMREIT II, Inc. During the period from January 1, 2002 through
March 6, 2002, the Company recognized no income from its investment in AMREIT
II, Inc.

Summarized financial information for AMREIT II, Inc. as of December 31, 2000 and
for the year then ended is set forth below. The consolidated financial
information is presented under the historical cost (or going concern) basis of
accounting and includes the accounts of AMREIT II, Inc., its wholly-owned
subsidiaries and a partnership which was owned by AMREIT II, Inc. (through its
wholly-owned subsidiaries). All significant intercompany balances and
transactions have been eliminated from the summarized financial information,
including the Company's mezzanine (second lien) loan to the partnership.

<Table>
<S>                                                                      <C>
CONSOLIDATED BALANCE SHEET:
Real estate held for sale, at estimated net realizable value .......     $ 17,882
Cash and other assets ..............................................     $  2,528
Non-recourse debt on real estate ...................................     $ 17,000
Accounts payable and other liabilities .............................     $  1,327

CONSOLIDATED STATEMENT OF OPERATIONS:
Net operating income ...............................................     $  1,499
Income from CMBS ...................................................     $     99
Interest expense ...................................................     $  1,898
Depreciation .......................................................     $    631
Loss on sale of CMBS ...............................................     $    140
Impairment of real estate ..........................................     $  4,557
Net loss ...........................................................     $ (5,788)
</Table>

On March 5, 2001, the partnership controlled by AMREIT II, Inc. sold a mixed-use
property at a gross sales price of $18,250,000; in connection therewith, the
non-recourse debt on real estate, which had been provided by an unaffiliated
third party, was fully extinguished.

17. SUBSEQUENT EVENT

On March 21, 2002, the Company sold its remaining mortgage loan to an
unaffiliated third party for $10,300,000.



                                      F-25
<PAGE>

18. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of unaudited quarterly operating results (under the
liquidation basis of accounting) for the year ended December 31, 2001 and the
period from September 26, 2000 through December 31, 2000 (in thousands):

<Table>
<Caption>

                                                                        Year Ended December 31, 2001
                                                         ----------------------------------------------------------------
                                                            First            Second           Third            Fourth
                                                           Quarter           Quarter          Quarter         Quarter
                                                         ------------     ------------      ------------     ------------
<S>                                                      <C>              <C>               <C>              <C>
Revenues ...........................................     $      2,877     $      1,982      $        721     $        419
Expenses ...........................................     $        494     $        489      $        284     $        833
Loss on disposition of mortgage loan ...............     $         --     $       (500)     $         --     $         --
Changes in estimated net realizable value
   of certain assets ...............................     $         --     $     (3,710)     $         --     $     (1,180)
Increase (decrease) in net assets in liquidation
   from operating activities .......................     $      2,383     $     (2,717)     $        437     $     (1,594)
</Table>


<Table>
<Caption>
                                                                     Period from September 26, 2000 through
                                                                                December 31, 2000
                                                                  -------------------------------------------
                                                                     Period from
                                                                  September 26, 2000
                                                                       through                      Fourth
                                                                  September 30, 2000               Quarter
                                                                  ------------------             ------------
<S>                                                              <C>                          <C>
Revenues ......................................................     $        184                 $      3,574
Expenses ......................................................     $      1,734                 $        748
Changes in estimated net realizable
   value of certain assets ....................................     $         --                 $     (2,807)
Increase (decrease) in net assets in
   liquidation from operating activities.......................     $     (1,550)                $         19
</Table>

The following is a summary of unaudited quarterly results (under the historical
cost [or going concern] basis of accounting) for the period from January 1, 2000
through September 25, 2000 (in thousands, except per share data):

<Table>
<Caption>
                                                                                       Period from
                                                                                      July 1, 2000
                                                       First            Second           through
                                                      Quarter           Quarter     September 25, 2000
                                                   ------------      ------------   ------------------
<S>                                                <C>               <C>              <C>
Revenues .....................................     $      5,840      $      5,500     $      4,368
Gain (loss) on sale of assets ................     $       (130)     $      2,159     $     (4,137)
Gain associated with repayment of ADC loan
   arrangements ..............................     $        637      $         --     $      1,293
Net income ...................................     $      1,237      $      4,702     $          9
Earnings per common share:
   Basic .....................................     $       0.12      $       0.47     $         --
   Diluted ...................................     $       0.12      $       0.47     $         --
</Table>



                                      F-26
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
NUMBER                  DESCRIPTION
------                  -----------
<S>                     <C>
   11                   Computation of Per Share Earnings.

   21                   Subsidiaries of the Registrant.
</Table>