AEGIS INVESTMENT TRUST, S-11, 1997-09-12

AEGIS INVESTMENT TRUST
S-11, 1997-09-12

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

AEGIS INVESTMENT TRUST

(Exact name of registrant as specified in governing instruments)

2500 CITYWEST BOULEVARD, SUITE 1200
HOUSTON, TEXAS 77042

(Address of principal executive offices)
------------------------

PATRICK A. WALDEN
AEGIS INVESTMENT TRUST
2500 CITYWEST BOULEVARD, SUITE 1200
HOUSTON, TEXAS 77042
(713) 787-0100

(Name and address of agent for service)

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

COPIES TO:

<TABLE>
<S> <C>
EDWARD L. DOUMA, ESQ. CARY K. HYDEN, ESQ.
Hunton & Williams WILLIAM J. CERNIUS, ESQ.
951 East Byrd Street Latham & Watkins
Richmond, Virginia 23219 650 Town Center Drive
(804) 788-8200 Costa Mesa, California 92626
(714) 540-1235
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

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

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Shares of beneficial interest, $0.01
par value per share...................... 11,500,000 shares $20.00 $230,000,000 $69,697.00
</TABLE>

(1) Includes 1,500,000 Common Shares issuable upon exercise of the underwriters'
overallotment option.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1997

PROSPECTUS

10,000,000 SHARES

AEGIS INVESTMENT TRUST

COMMON SHARES OF BENEFICIAL INTEREST
--------------

AEGIS INVESTMENT TRUST (TOGETHER WITH ITS SUBSIDIARIES, THE "COMPANY") IS A
SELF-MANAGED, SELF-ADMINISTERED REAL ESTATE INVESTMENT TRUST THAT HAS BEEN
FORMED TO INVEST IN MORTGAGE-RELATED ASSETS AND IN MORTGAGE BANKING AND LOAN
TRADING OPERATIONS THROUGH THE ACQUISITION OF AEGIS MORTGAGE CORPORATION
("AMC"). THE FIVE MEMBERS OF THE COMPANY'S SENIOR MANAGEMENT TEAM EACH HAVE IN
EXCESS OF 13 YEARS OF EXPERIENCE IN THE AREAS OF ACQUISITION OF MORTGAGE LOANS
AND MORTGAGE-BACKED SECURITY PORTFOLIOS, THE DESIGN AND IMPLEMENTATION OF
MORTGAGE LOAN AND MORTGAGE-BACKED SECURITY PORTFOLIO STRATEGIES AND THE
OPERATION OF A RETAIL AND WHOLESALE MORTGAGE BANK.

ALL OF THE SHARES OF BENEFICIAL INTEREST ("COMMON SHARES") OFFERED HEREBY
ARE BEING OFFERED BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON SHARES. IT IS CURRENTLY ANTICIPATED THAT THE
INITIAL PUBLIC OFFERING PRICE FOR THE COMMON SHARES OFFERED HEREBY WILL BE
BETWEEN $18.00 AND $20.00. SEE "UNDERWRITING" FOR INFORMATION RELATING TO THE
FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE COMPANY
INTENDS TO APPLY TO HAVE THE COMMON SHARES LISTED ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL " ."
---------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON SHARES INCLUDING, AMONG OTHERS:
---------------------

- The Company will borrow on a short-term basis to finance a majority of its
long-term investments.

- The Company's investments will be sensitive to interest rate changes.

- The Company and AMC must manage substantial growth.

- The Company will be dependent on key personnel for investment management
and operating experience, none of whom have previous experience managing a
REIT.

- The Company is a newly organized entity with no history of Portfolio
Operations.

- Although the Company anticipates that it will invest approximately 85% of
the net proceeds of this Offering in Agency Certificates, no specific
Mortgage Assets have been identified for acquisition for the Company's
investment portfolio.

- The Company's net income will depend on the Company's ability to acquire
Mortgage Assets at favorable spreads to net borrowing costs.

- The Company will be taxed as a corporation if it fails to qualify as a
REIT.

- The Company must invest in qualifying real estate in order to maintain its
exempt status under the Investment Company Act.

- The Company's Declaration of Trust prohibits any shareholder from owning
more than 9.8% of the Company's Common Shares, which could make it more
difficult to effect a change in control of the Company.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
------------------- ------------------- -------------------
<S> <C> <C> <C>
PER SHARE................................................... $ $ $
TOTAL(3).................................................... $ $ $
</TABLE>

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

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated to be
approximately $ .

(3) The Company has granted the several Underwriters a 30-day option to purchase
up to an aggregate of additional Common Shares solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------

THE COMMON SHARES ARE OFFERED BY THE UNDERWRITERS, SUBJECT TO PRIOR SALE
WHEN, AS AND IF ISSUED TO AND ACCEPTED, BY THE UNDERWRITERS. THE UNDERWRITERS
RESERVE THE RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT
DELIVERY OF THE COMMON SHARES OFFERED HEREBY WILL BE MADE AGAINST PAYMENT
THEREFOR IN NEW YORK, NEW YORK ON OR ABOUT , 1997.
---------------------

JEFFERIES & COMPANY, INC.

, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

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

CAUTIONARY STATEMENT

INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR
THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
CAUTIONARY STATEMENTS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE
IN THE PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD-LOOKING STATEMENTS.

ii
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PROSPECTUS SUMMARY................ 1
<S> <C>
The Company..................... 1
Risk Factors.................... 6
The Offering.................... 7
Tax Status of the Company....... 7
Dividend Policy and
Distributions................. 7

RISK FACTORS...................... 8
General Operating Risks......... 8
Risks of Substantial Leverage
and Potential Net Interest and
Operating Losses in Connection
with Borrowings............... 8
Risk of Failing to Hedge Against
Interest Rate Changes
Effectively; Risk of Losses
Associated with Hedging;
Counterparty Risks............ 10
Risk of Decrease in Net Interest
Income Due to Interest Rate
Fluctuations; Prepayment Risks
of Mortgage Assets............ 11
Dependence on Key Personnel..... 11
Newly-Organized Entity With No
History of Portfolio
Operations or Specified
Mortgage Assets............... 11
Ability to Acquire Mortgage
Assets at Yields which are
Favorable Relative to
Borrowing Costs; Competition
and Supply.................... 11
Risk of Loss on Mortgage
Assets........................ 12
Mortgage Loan Enforcement
Risks......................... 13
Tax Risks....................... 13
Failure to Qualify as a
REIT........................ 13
REIT Minimum Distribution
Requirements; Possible
Incurrence of Additional
Debt........................ 14
Potential Characterization of
Distributions as UBTI;
Taxation of Tax-Exempt
Investors................... 14
Taxable Mortgage Pool Risk;
Increased Taxation.......... 14
ERISA Risks..................... 15
Investment Company Act Risks.... 15
Future Revisions in Policies and
Strategies at the Discretion
of the Board of Trustees...... 16
Adverse Consequences of Lack of
Control Over the Business of
AMC........................... 16
Mortgage Banking and Loan
Trading Operations Risks...... 16
Effect of Future Offerings on
Market Price of Common
Shares........................ 19
Shares Eligible for Future
Sale.......................... 19
Lack of Established Market; Risk
of Fluctuation in Market Price
of Common Shares.............. 19
Anti-takeover Effect of
Ownership Limit, Staggered
Board and Power to Issue
Additional Shares............. 20

THE COMPANY....................... 22

USE OF PROCEEDS................... 22

DISTRIBUTION POLICY............... 22

CAPITALIZATION.................... 23

DILUTION.......................... 24

SELECTED FINANCIAL DATA........... 25

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....... 27
General......................... 27
AMC............................. 27
Loan Origination................ 28
Loan Trading.................... 28
Results of Operations........... 28
Financial Condition............. 31
Liquidity and Capital
Resources..................... 31
Cash Flows...................... 32
Inflation....................... 32

BUSINESS.......................... 33
General......................... 33
Business Strategy............... 33
Management...................... 34
Portfolio Operations............ 34
Mortgage Banking and Loan
Trading Operations............ 39

MANAGEMENT........................ 45
Trustees and Executive
Officers...................... 45
Board of Trustees............... 45
Committees of the Board of
Trustees...................... 46
Compensation of Trustees........ 46
Executive Compensation.......... 46
Employment Agreements........... 46
1997 Share Incentive Plan....... 47
</TABLE>

iii
<PAGE>
<TABLE>
<S> <C>
The Trustees' Plan.............. 47
Indemnification................. 48
AMC............................. 48

CERTAIN RELATIONSHIPS AND
TRANSACTIONS.................... 49
Contribution Transaction........ 49

PRINCIPAL AND MANAGEMENT
SHAREHOLDERS.................... 49

DESCRIPTION OF SHARES OF
BENEFICIAL INTEREST............. 49
General......................... 50
Common Shares................... 50
Preferred Shares................ 51
Classification or
Reclassification of Common
Shares or Preferred Shares.... 51
Restrictions on Transfer........ 51

CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S DECLARATION
OF TRUST AND BYLAWS............. 54
Classification of the Board of
Trustees...................... 54
Removal of Trustees............. 54
Business Combinations........... 54
Control Share Acquisitions...... 55
Amendment....................... 56
Limitation of Liability and
Indemnification............... 56
Operations...................... 57
Dissolution of the Company...... 57
Advance Notice of Trustees
Nominations and New
Business...................... 57
Anti-takeover Effect of Certain
Provisions of Maryland Law and
of the Declaration of Trust
and Bylaws.................... 58
Maryland Asset Requirements..... 58
Transfer Agent.................. 58

SHARES AVAILABLE FOR FUTURE
SALE............................ 58

OPERATING PARTNERSHIP AGREEMENT... 59
Management...................... 59
Transferability of Interests.... 60
Capital Contribution............ 60
Redemption Rights............... 60
Registration Rights............. 61
Operations...................... 61
Distributions................... 61
Allocations..................... 62
Term............................ 62
Fiduciary Duty.................. 62
Tax Matters..................... 62

FEDERAL INCOME TAX
CONSIDERATIONS.................. 62
Taxation of the Company......... 63
Requirements for
Qualification................. 64
Failure to Qualify.............. 71
Taxation of Taxable U.S.
Shareholders.................. 71
Taxation of Shareholders on the
Disposition of the Common
Shares........................ 73
Capital Gains and Losses........ 74
Information Reporting
Requirements and Backup
Withholding................... 74
Taxation of Tax-Exempt
Shareholders.................. 74
Taxation of Non-U.S.
Shareholders.................. 75
Other Tax Consequences.......... 76
Tax Aspects of the Operating
Partnership................... 77
Sale of the Company's
Property...................... 79
Taxation of AMC................. 80

ERISA CONSIDERATIONS.............. 81
Employee Benefit Plans,
Tax-Qualified Retirement
Plans, and IRAs............... 81
Status of the Company and the
Operating Partnership under
ERISA......................... 82

UNDERWRITING...................... 84

LEGAL MATTERS..................... 85

EXPERTS........................... 85

ADDITIONAL INFORMATION............ 86

GLOSSARY.......................... 87
</TABLE>

iv
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. CAPITALIZED AND CERTAIN
OTHER TERMS USED HEREIN SHALL HAVE THE MEANINGS ASSIGNED TO THEM IN THE
GLOSSARY. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES
THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND AN INITIAL
PUBLIC OFFERING PRICE OF $19.00 (THE "OFFERING PRICE"). UNLESS THE CONTEXT
REQUIRES OTHERWISE, REFERENCES HEREIN TO THE "COMPANY" INCLUDE AEGIS INVESTMENT
TRUST, AEGIS MORTGAGE CORPORATION ("AMC") AND AEGIS OPERATING PARTNERSHIP, L.P.
(THE "OPERATING PARTNERSHIP").

THE COMPANY

The Company, which intends to operate as a self-managed, self-administered
real estate investment trust ("REIT"), has been formed to invest in
mortgage-related assets, with an emphasis on mortgage-backed securities
representing interests in pools of single family residential mortgage loans and
the acquisition and origination of mortgage loans. The Company will acquire a
97% economic interest in AMC, a full-service mortgage banking and loan trading
business that will provide the Company with a source of mortgage-related assets.
The Company will seek to generate Cash Available for Distribution to
shareholders by managing the financing of its mortgage asset acquisitions,
investing in higher yielding mortgage assets, generating operating profits of
AMC and distributing them as dividends to the Company and imposing strict
operational cost controls.

The Company's principal objectives are (i) to provide investors with
attractive returns on equity by purchasing Mortgage Assets for investment and
leveraging available returns with short-term financings, and by hedging a
significant portion of the interest rate risk associated with such financings
through the use of interest rate caps, swaps and similar hedging instruments,
(ii) to identify market opportunities that allow the Company to acquire Mortgage
Assets with high yields relative to the applicable asset groups and risks
involved, and (iii) to a lesser extent, benefit from the expansion of the
mortgage origination, servicing and trading businesses of AMC by providing AMC
with credit support and a well-financed, affiliated investor for its Mortgage
Asset originations and acquisitions.

The Company's principal sources of income will be from its Portfolio
Operations. The Company will also receive income from dividends paid to it by
AMC. The principal source of income from its Portfolio Operations will be net
interest income, which is the spread between interest income earned on Mortgage
Assets held for investment and the net interest expense and hedging costs
associated with the borrowings used to finance the acquisition of such Mortgage
Assets. AMC's principal sources of income will be gains recognized on the sale
of Mortgage Loans and mortgage-backed securities, net interest income earned on
Mortgage Loans purchased by AMC pending their resale, servicing fees and other
origination and trading fee income. AMC will be fully subject to federal and
state income taxes with respect to its income.

The Company will acquire the majority of its assets from nationally
recognized primary dealers, mortgage brokers and through the Loan Trading and
Mortgage Banking Operations of AMC. The Company anticipates that the majority of
its investments in Mortgage Assets will be in Agency Certificates and initially
expects that substantially all of its Mortgage Assets will be comprised of
Agency Certificates. The Company also will seek to acquire or originate through
AMC additional types of Mortgage Assets such as Owner-Financed Mortgage Loans,
Seasoned Mortgage Loans and Non-Conforming Mortgage Loans with yields that are
attractive on a risk-adjusted basis.

Management believes Owner-Financed Mortgage Loans are available for
investment at attractive risk-adjusted yields because they are generally sold on
a loan-by-loan basis by individual brokers with the pricing of each loan
individually negotiated. This results in a secondary market for such loans that
is private and relatively inefficient when compared with the market for
Conforming Mortgage Loans. In addition, the documentation and underwriting of
such loans typically do not meet the standards of the established secondary
mortgage market. These market and loan characteristics tend to limit the number
of

1
<PAGE>
institutional buyers actively participating in this market, resulting in
non-competitive pricing for this type of Mortgage Loan. The Company believes
that through AMC it has the experience, market presence and servicing
capabilities to effectively acquire Owner-Financed Mortgage Loans at attractive
risk-adjusted yields. Further, the Company believes that through AMC it has the
experience and operating capabilities to increase the market value of the
Owner-Financed Mortgage Loans it acquires by correcting deficiencies in
collateral documentation, providing experienced loan servicing, using a
consistent approach to evaluating and re-underwriting and consolidating them
into pools suitable for the broader secondary market.

Similarly, the secondary market for Seasoned Mortgage Loans is fragmented
and such Mortgage Loans are available at attractive risk-adjusted yields;
however, at yields somewhat less than those expected for Owner-Financed Mortgage
Loans. Seasoned Mortgage Loans are generally offered on a pool rather than on a
loan-by-loan basis by thrifts, banks, insurance companies and other financial
institutions. Often the pools of Seasoned Mortgage Loans are unable to be sold
in traditional secondary mortgage markets due to the limited size of a pool or
because the Mortgage Loans within a pool differ in certain respects including
documentation quality, underwriting standards, loan-to-value ratio, loan type,
property type or payment history. Similar to Owner-Financed Mortgage Loans, the
Company believes that it can acquire Seasoned Mortgage Loans at attractive
risk-adjusted yields and enhance the value of such Mortgage Loans by correcting
deficiencies, if necessary, and pooling them by similar attributes whereby the
Company may either hold such pools for investment or sell such pools in the
established secondary mortgage market to government sponsored agencies or
nationwide mortgage conduits.

The Company also intends to acquire Non-Conforming Mortgage Loans from AMC.
As described more fully herein, the Company expects that the Non-Conforming
Mortgage Loans originated by AMC (or originated by others in conformity with its
underwriting criteria) will provide the Company with a viable source of higher
yielding Mortgage Loans.

Management believes that the Company provides a more attractive vehicle for
investing in Mortgage Assets than regulated financial institutions because the
Company is not currently subject to any of the federal and state regulations
imposed upon insured financial institutions and therefore does not incur the
related costs of compliance.

PORTFOLIO OPERATIONS

The Company's primary business (the "Portfolio Operations") will be the
acquisition and management of a portfolio comprised of (i) pass-through
certificates issued or guaranteed by the U.S. government or government-sponsored
agencies, which represent interests in underlying pools of mortgage loans
("Agency Certificates"), (ii) mortgage loans, including, but not limited to,
owner-financed single family residential, small multi-family and commercial
mortgage loans ("Owner-Financed Mortgage Loans") and seasoned single family
residential and small multi-family and commercial mortgage loans not originated
by AMC ("Seasoned Mortgage Loans") acquired primarily through the Loan Trading
Operations of AMC, (iii) higher yielding mortgage loans which do not comply with
requirements for inclusion in credit support programs sponsored by GNMA, FHLMC
or FNMA, originated through the Loan Origination Operations of AMC or sourced by
AMC's Loan Trading Operations ("Non-Conforming Mortgage Loans," and collectively
with the Owner-Financed Mortgage Loans and the Seasoned Mortgage Loans, the
"Mortgage Loans") and (iv) other mortgage-related assets consistent with the
Company's investment objectives and policies and its REIT status (collectively
with the Agency Certificates and the Mortgage Loans, the "Mortgage Assets").

Initially, substantially all of the Company's Mortgage Assets will consist
of Agency Certificates. Management currently contemplates that a substantial
majority of the Mortgage Assets will carry fixed rates of interest, although
assets with adjustable interest rates may be purchased from time to time
depending upon market conditions. The Company intends to finance a majority of
its Mortgage Asset

2
<PAGE>
acquisitions through reverse repurchase and, to a lesser extent, dollar reverse
repurchase agreements and through bank warehouse financing.

MORTGAGE BANKING AND LOAN TRADING OPERATIONS

AMC's businesses (collectively, the "Mortgage Banking and Loan Trading
Operations") consist of (i) the origination of Mortgage Loans through a network
of mortgage brokers and retail branches for sale to permanent investors (the
"Loan Origination Operations"), (ii) the acquisition of Mortgage Loans for
investment and trading (the "Loan Trading Operations"), and (iii) the servicing
of Mortgage Loans (the "Loan Servicing Operations"). AMC has engaged in the
Mortgage Banking and Loan Trading Operations since 1993, and through its
predecessor corporations, and has operated on a more limited basis as a mortgage
banking corporation since 1981. Upon completion of the Offering, the Company
will own non-voting common stock representing a 97% economic interest in AMC.
See "Formation Transactions."

AMC's Loan Trading Operations consist of the acquisition of Mortgage Loans
for investment or trading from a nationwide network of financial institutions
and brokers. AMC historically has focused its Loan Trading Operations on the
acquisition and trading of Seasoned Mortgage Loans. A majority of the Seasoned
Mortgage Loans acquired by AMC are secured primarily by residential, and to a
lesser extent by commercial, real estate. AMC intends to continue to acquire
Seasoned Mortgage Loans and to identify market opportunities that allow it to
acquire other types of higher yielding Mortgage Loans. AMC has recently expanded
its acquisition of Owner-Financed Mortgage Loans.

AMC's Loan Origination Operations consist primarily of the origination of
Conforming Mortgage Loans (defined below) and Non-Conforming Mortgage Loans for
sale to permanent investors. AMC has relationships with over 800 approved,
unaffiliated wholesale mortgage brokers in 20 states. Since January 1, 1996, AMC
has funded loans originated by over 300 of such mortgage brokers. AMC also
originates Mortgage Loans directly through its six retail branch offices in
Texas. AMC originates a broad range of mortgage loan products, including
mortgage loans eligible for sale to GNMA, FNMA or FHLMC ("Conforming Mortgage
Loans") and Non-Conforming Mortgage Loans. AMC has recently begun originating a
limited number of Non-Conforming Mortgage Loans to borrowers with "B" or "C"
risk characteristics.

AMC's Loan Servicing Operations support its Loan Origination and Loan
Trading Operations. AMC may acquire servicing rights for investment in the
future, subject to meeting the investment criteria of AMC.

BUSINESS STRATEGY

Management believes that the investment focus of the Portfolio Operations
and the asset generating, operating, management and servicing capabilities of
AMC are complementary and will provide the Company with the flexibility and
infrastructure to create a mortgage investment vehicle that delivers attractive,
risk adjusted total returns to investors. Substantially all of the initial
investments of the Portfolio Operations will be Agency Certificates which will
allow the Company to deploy capital quickly, with expected returns on equity
consistent with its principal objectives. Upon completion of the Offering, the
Company intends to immediately begin acquiring and originating Mortgage Loans
for investment by the Portfolio Operations through the Loan Trading Operations
and Loan Origination Operations of AMC.

The Loan Trading and Loan Origination Operations of AMC will identify or
directly acquire or originate Mortgage Loans for purchase by the Company. These
capabilities complement the investment objectives of the Portfolio Operations by
allowing the Company to diversify its Mortgage Loan investments and acquisition
channels. The Company expects to further benefit by acquiring Non-Conforming
Mortgage Loans originated by AMC at prices which generally are favorable to the
pricing levels for Non-Conforming Mortgage Loans acquired in the secondary
market. The Company can also benefit from acquiring portions of pools of
Mortgage Loans it might not otherwise be able to acquire on an attractive, risk
adjusted basis

3
<PAGE>
due to AMC's ability to acquire entire pools of Mortgage Loans and then
subsequently resell the portions that do not meet the Company's investment
objectives.

The Company will provide credit support and, through the Portfolio
Operations, an investment capability which will support and enhance the
operations and profitability of the Loan Trading Operations of AMC by allowing
it to acquire larger and more diverse Seasoned Mortgage Loan portfolios.
Management also believes that the Company's credit support and investment
capabilities will strengthen the Loan Origination Operations and improve
profitability by allowing AMC to increase its production and diversify the types
of Mortgage Loans it offers through its mortgage broker and retail networks.

The Servicing Operations allow the Company the flexibility to originate and
purchase a diverse mix of Mortgage Loans and then to effectively service the
Mortgage Loans for the Portfolio Operations or accumulate and sell the Mortgage
Loans to unrelated investors.

The primary components of the Company's business objectives and strategy are
summarized as follows:

- Create a high-growth mortgage investment vehicle that delivers attractive,
risk adjusted total returns to investors.

- Structure a tax-advantaged mortgage investment operation by using a REIT
structure.

- Capitalize upon the capabilities of an experienced management team and
maintain a focus on selected assets types and the financing and hedging
strategies with which management has substantial expertise.

- Increase returns on equity through an appropriate use of leverage for each
asset group, while employing hedging strategies designed to manage the
associated interest rate risk.

- Utilize AMC's Mortgage Banking and Loan Trading Operations as a source of
assets for the Portfolio Operations.

- Employ increased capital to expand AMC's Mortgage Banking and Loan Trading
Operations to generate dividend income to the Company from AMC's net
income.

- Diversify the Company's asset base and asset acquisition sources.

MANAGEMENT

The Company's senior management team includes five members and is headed by
James E. Day and Patrick A. Walden, each of whom serves as Managing Director and
Co-Chairman of the Board of Trustees of the Company. The Company's senior
management team has extensive experience in acquiring and managing a broad range
of Mortgage Assets for investment and trading, managing credit risk and
utilizing hedging techniques to manage interest rate risk in a variety of
interest rate environments. The members of the Company's senior management team
have served in various executive management positions in the mortgage banking
and banking industries and have between 13 and 29 years of experience.

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FORMATION TRANSACTIONS

[CHART]

(1) AEGIS Investment Trust will issue 10,000,000 Common Shares to the public.

(2) AEGIS Investment Trust will contribute the proceeds of the Offering to the
Operating Partnership. After the formation transactions, AEGIS Investment
Trust will own a % interest in, and will be the sole general
partner of, the Operating Partnership. Messrs. Day and Walden will continue
to own and , respectively, units of limited
partnership in the Operating Partnership ("Units"), for which they paid
nominal consideration.

(3) The current owners of AMC (including Mr. Walden) will contribute 98.5% of
the common stock of AMC to the Operating Partnership in exchange for Units
(based on the Offering Price) having a value of $11,335,250 and cash in the
amount of $2,356,250 (the "Contribution Transaction").

(4) AMC will be recapitalized (the "Recapitalization") pursuant to which the
Operating Partnership will exchange its shares of AMC voting common stock
for shares of AMC non-voting common stock. AMC will issue voting common
stock representing 50% of such class (and 1.5% of the value of its total
outstanding equity securities) to Mr. Day in exchange for a note bearing
interest at an annual rate of % and requiring equal quarterly
payments over five years (the "AMC Stock Purchase"). After the
Recapitalization and the AMC Stock Purchase, AMC's voting common stock,
representing a 3% economic interest therein, will be held by Messrs. Day and
Walden, and AMC's non-voting common stock, representing a 97% economic
interest therein, will be held by the Operating Partnership.

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RISK FACTORS

An investment in Common Shares involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others:

- The Company intends to increase the size of its Mortgage Asset investment
portfolio by employing a leveraging strategy of borrowing against its
total assets to finance the acquisition of additional Mortgage Assets. The
Company will be unable to achieve its investment objectives if it cannot
establish and maintain adequate sources of credit and liquidity and such
failure could result in lower yields, or net losses, for the Company.

- The Company's operations will be affected substantially by prevailing
market interest rates and borrowing costs, which are determined in large
part by market conditions and governmental policies beyond the control of
the Company. The Company will experience negative cash flow and incur
losses if net borrowing costs exceed the income on Mortgage Assets.

- The Company's and AMC's business strategy will require each of them to
manage substantial growth. Failure to manage such growth could have a
material adverse effect on the Company.

- The Company will be dependent on certain key personnel for investment
management and operating experience, none of whom have previous experience
in managing a REIT.

- The Company is a newly organized entity with no history of Portfolio
Operations.

- The Company's net income will depend on the Company's ability to acquire
Mortgage Assets at favorable spreads to net borrowing costs. The Company
will be dependent on third party mortgage originators and suppliers to
provide Mortgage Assets suitable for investment by the Company. Increased
competition for the acquisition of eligible Mortgage Assets or a
diminution in the available supply could result in higher prices and thus
lower yields on such Mortgage Assets which could further narrow or
eliminate the yield spread over net borrowing costs.

- If the Company fails to qualify as a REIT it would be treated as a regular
corporation and would be subject to federal and state income tax which
would result in a substantial reduction of income available for dividend
payments to shareholders.

- The Company must at all times conduct its business and maintain
substantially all its investments in qualifying interests in real estate
in order to maintain its exempt status under the Investment Company Act of
1940, as amended (the "Investment Company Act"). Failure to remain exempt
would severely limit the Company's ability to use leverage and conduct its
business as described herein.

- The Company's Declaration of Trust prohibits any person from owning,
directly or indirectly, more than 9.8% of the Company's outstanding Common
Shares, which could make it more difficult to effect a change in control
of the Company even when it is in the best interests of the Company's
shareholders.

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<PAGE>
THE OFFERING

<TABLE>
<CAPTION>
<S> <C>
Common Shares Offered by the Company....................... 10,000,000 Shares

Common Shares to be Outstanding after the Offering(1)...... Shares

Use of Proceeds............................................ To provide funding for the Company's Portfolio
Operations, to acquire a portion of the shares of AMC
(from persons other than Messrs. Day and Walden) and
for general corporate purposes.

New York Stock Exchange Symbol............................. " "
</TABLE>

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

(1) Includes Units. Does not include 1,000,000 shares reserved for
issuance pursuant to the Company's 1997 Share Incentive Plan (the "1997
Plan"). Options to acquire shares were granted to the executive
officers, Trustees, and employees of the Company prior to this Offering at a
per share exercise price equal to the Offering Price. Options to acquire
shares will be granted to Independent Trustees of the Company at
the effective date of this Offering at a per share exercise price equal to
the Offering Price. See "Capitalization," "Management--1997 Share Incentive
Plan" and "Description of Shares of Beneficial Interest."

TAX STATUS OF THE COMPANY

The Company will elect to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its taxable year ending December 31, 1997, and believes its organization and
proposed manner of operation will enable it to meet the requirements for
qualification as a REIT. To maintain REIT status, an entity must meet a number
of organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its taxable income (determined without
regard to the dividends paid deduction and excluding net capital gains) to its
shareholders. As a REIT, the Company generally will not be subject to federal
income tax on net income it distributes currently to its shareholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax at regular corporate rates. See "Federal Income Tax
Considerations" and "Risk Factors--Tax Risks--Failure to Qualify as a REIT."
Even if the Company qualifies for taxation as a REIT, the Company may be subject
to certain federal, state and local taxes on its income. In addition, AMC is
subject to federal and state income tax at regular corporate rates on its net
income.

DIVIDEND POLICY AND DISTRIBUTIONS

The Company is required to distribute 95% or more of its annual taxable
income (which does not necessarily equal net income as calculated in accordance
with GAAP) to its shareholders each year so as to comply with the REIT
provisions of the Code. The Company intends to declare regular quarterly
dividend distributions. The Company intends to declare its initial dividend for
the partial quarterly period beginning on the closing of this Offering. The
dividend policy is subject to revision at the discretion of the Board of
Trustees. All distributions in excess of those required for the Company to
maintain REIT status will be made by the Company at the discretion of the Board
of Trustees and will depend on the taxable earnings of the Company, the
financial condition of the Company and such other factors as the Board of
Trustees deems relevant. See "Federal Income Tax Considerations."

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<PAGE>
RISK FACTORS

Before investing in the Common Shares offered hereby, prospective investors
should give special consideration to the information set forth below, in
addition to the information set forth elsewhere in this Prospectus. The
following risk factors are interrelated and, consequently, investors should
treat such risk factors as a whole.

This Prospectus contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and
elsewhere in this Prospectus.

GENERAL OPERATING RISKS

The results of the Company's operations will be affected by various factors,
many of which will be beyond the control of the Company. The results of the
Company's operations will depend on, among other things, the level of net
interest income generated by the Company's Mortgage Assets, the market value of
such Mortgage Assets and the supply of and demand for such Mortgage Assets. The
Company's net interest income will vary primarily as a result of changes in
short-term interest rates, borrowing costs and prepayment rates, the behavior of
which involve various risks and uncertainties as set forth below. Prepayment
rates, interest rates, borrowing costs and credit losses depend upon the nature
and terms of the Mortgage Assets, the geographic location of the properties
securing the Mortgage Loans included in or underlying the Mortgage Assets,
conditions in financial markets, the fiscal and monetary policies of the United
States government and the Board of Governors of the Federal Reserve System,
international economic and financial conditions, competition and other factors,
none of which can be predicted with any certainty. Because changes in interest
rates may significantly affect the Company's activities, the operating results
of the Company will depend, in large part, upon the ability of the Company to
effectively manage its interest rate and prepayment risks while maintaining its
status as a REIT.

RISKS OF SUBSTANTIAL LEVERAGE AND POTENTIAL NET INTEREST AND OPERATING LOSSES IN
CONNECTION WITH BORROWINGS

GENERAL

The Company intends to employ its financing strategy to increase the size of
its Mortgage Asset investment portfolio by borrowing a substantial portion
(which may vary depending upon the mix of the Mortgage Assets in the Company's
portfolio) of the market value of its Mortgage Assets. The Company expects
generally to maintain a ratio of its total book capital base (book value of
capital accounts, retained earnings and subordinated debt deemed by management
to qualify as capital for this purpose, taking into account valuation
adjustments) to book value of total assets of between 10% and 20%, although the
percentage may vary from time to time depending upon market conditions and other
factors deemed relevant by management. However, the Company is not limited under
its Bylaws in respect of the amount of its borrowings, whether secured or
unsecured, and the aggregate percentage of total equity capital could at times
be lower than 10%. If the returns on the Mortgage Assets purchased with borrowed
funds fail to cover the cost of the borrowings, the Company will experience net
interest losses and may experience net losses. In addition, through increases in
collateralization requirements, decreases in the market value of the Company's
Mortgage Assets, increases in interest rate volatility, availability of
financing in the market, circumstances then applicable in the lending market and
other factors, the Company may not be able to achieve the degree of leverage it
believes to be optimal, which may adversely affect the Company's operating
results.

8
<PAGE>
RISK OF FAILURE TO REFINANCE OUTSTANDING BORROWINGS

The ability of the Company to achieve its investment objectives depends on
its ability to borrow money in sufficient amounts on favorable terms and to
replace on a continuing basis its maturing short-term borrowings. In the event
the Company is not able to renew or replace maturing borrowings in sufficient
amounts, the Company could be required to sell Mortgage Assets under adverse
market conditions and could incur losses as a result. In addition, in such
event, the Company may be required to terminate hedge positions, which could
result in further costs to the Company. An event or development such as a sharp
rise in interest rates or increasing market concern about the value or liquidity
of a type or types of Mortgage Loans or Agency Certificates in which the
Company's portfolio is concentrated likely would reduce the market value of the
Mortgage Assets, which may cause lenders to require additional collateral. At
the same time, the market value of the assets in which the Company's liquidity
capital is invested may have decreased. A number of such factors in combination
may cause difficulties for the Company, including a possible liquidation of a
major portion of the Company's Mortgage Assets at disadvantageous prices with
consequent losses, which could have a material adverse effect on the Company and
its solvency.

A majority of the Company's borrowings are, and are expected to continue to
be, collateralized borrowings, primarily in the form of reverse repurchase and,
to a lesser extent, dollar reverse repurchase agreements and similar borrowings,
the availability of which is based on the market value of the Mortgage Assets
pledged to secure the specific borrowings, availability of such financing in the
market, circumstances then applicable in the lending market and other factors.
Additional borrowings may be obtained through loan agreements, lines of credit,
and other credit facilities with institutional lenders or the issuance of debt
securities. The cost of borrowings under reverse repurchase and dollar reverse
repurchase agreements generally corresponds to LIBOR plus or minus a margin,
although most of such agreements do not expressly incorporate a LIBOR index. The
cost of borrowings under other sources of funding which the Company may use may
refer or correspond to other short-term indices, plus or minus a margin. The
margins on such borrowings over or under LIBOR or such other short-term indices
vary depending upon the lender, the nature and liquidity of the underlying
collateral, the movement of interest rates, the availability of financing in the
market and other factors. If the actual cash flow characteristics are other than
as expected, the Company may experience reduced net interest income or a net
loss may occur.

RISK OF DECLINE IN MARKET VALUE OF MORTGAGE ASSETS; MARGIN CALLS

Certain of the Company's Mortgage Assets may be cross-collateralized to
secure multiple borrowing obligations of the Company to a single lender. A
decline in the market value of such assets may limit the Company's ability to
borrow or result in lenders initiating margin calls (i.e., requiring a pledge of
cash or additional Mortgage Assets to re-establish the ratio of the amount of
the borrowing to the value of the collateral). Fixed-rate Mortgage Assets of the
type expected to be acquired by the Company, may be more susceptible to margin
calls as increases in interest rates tend to more negatively affect the market
value of fixed-rate Mortgage Assets than Mortgage Assets bearing an adjustable
rate. This remains true despite effective hedging against such fluctuations as
the hedging instruments normally will not be part of the collateral securing the
collateralized borrowings. The Company could be required to sell Mortgage Assets
under adverse market conditions in order to maintain liquidity. Such sales may
be effected by management when deemed necessary by it in order to preserve the
capital base of the Company. If these sales were made at prices lower than the
amortized cost of the Mortgage Assets, the Company would experience losses. A
default by the Company under its collateralized borrowings also could result in
a liquidation of the collateral, including any cross-collateralized assets, and
a resulting loss of the difference between the value of the collateral and the
amounts borrowed. Additionally, in the event of a bankruptcy of the Company,
certain reverse repurchase and dollar reverse repurchase agreements may qualify
for special treatment under the Bankruptcy Code, the effect of which is, among
other things, to allow the creditors under such agreements to avoid the
automatic stay provisions of the Bankruptcy Code and to liquidate the

9
<PAGE>
collateral under such agreements without delay. Conversely, in the event of the
bankruptcy of a party with whom the Company had entered into a reverse
repurchase or dollar reverse repurchase agreement, the Company might experience
difficulty recovering the collateral under such agreement if it were to be
repudiated and the Company's claim against the bankruptcy lender for damages
resulting therefrom were to be treated simply as one of an unsecured creditor.
Should this occur, the Company's claims would be subject to significant delay
and recoveries, if and when received, may be substantially less than the damages
actually suffered by the Company. Although the Company has, and intends to
continue to enter into reverse repurchase and dollar reverse repurchase
agreements with several different parties and has developed policies to reduce
its exposure to such risks, no assurance can be given that the Company will be
able to avoid such third party risks. To the extent the Company is compelled to
liquidate Mortgage Assets to repay borrowings, the Company may be unable to
comply with one or more of the income and asset tests for REIT status under the
Code.

Certain of the Company's investments, in particular, its investments in
Seasoned Mortgage Loans and Owner-Financed Mortgage Loans may lack a regular
trading market and be illiquid. In addition, during turbulent market conditions,
the liquidity of all of the Company's Mortgage Assets may be adversely impacted.
There is no limit to the percentage of the Company's investments that may be
invested in illiquid Mortgage Loans. In the event the Company requires
additional cash as a result of a margin call pursuant to its financing
agreements or otherwise, the Company may be required to liquidate Mortgage Loans
on unfavorable terms. The Company's inability to liquidate Mortgage Loans could
render it insolvent.

RISK OF ESTABLISHING CREDIT LINES AND HEDGING AGREEMENTS WITH APPROVED
COUNTERPARTIES

In order to achieve its investment plan and implement its hedging program,
the Company must be able to establish and maintain business relationships with
approved counterparties which will include primary and secondary securities
dealers and commercial banks. Since the Company will effectively be in a
start-up status, there can be no assurance that such firms will enter into
transactions with the Company in the size or form contemplated by the Company.
This could cause growth in the Company's Mortgage Assets to occur over a longer
period of time than forecasted, which could result in a lower yield to the
shareholders.

RISK OF FAILING TO HEDGE AGAINST INTEREST RATE CHANGES EFFECTIVELY; RISK OF
LOSSES ASSOCIATED WITH HEDGING; COUNTERPARTY RISKS

The Company's operating strategy subjects it to interest rate risks as
described under "--Risk of Decrease in Net Interest Income Due to Interest Rate
Fluctuations; Prepayment Risks of Mortgage Assets" below. The Company has
established an asset/liability management program intended to protect against
interest rate changes and prepayments. See "Business--Portfolio
Operations--Financing Strategies." Nevertheless, developing an effective
asset/liability management strategy is complex and no strategy can completely
insulate the Company from risks associated with interest rate changes and
prepayments. In addition, there can be no assurance that the Company's hedging
activities will have the desired beneficial impact on the Company's results of
operations or financial condition. Hedging typically involves costs, including
transaction costs, which increase dramatically as the period covered by the
hedge increases and which also increase during periods of rising and volatile
interest rates. The Company may increase its hedging activity, and thus increase
its hedging costs, during such periods when interest rates are volatile or
rising and hedging costs have increased.

The Company intends to purchase from time to time interest rate caps,
interest rate swaps and similar instruments to attempt to mitigate certain of
the risks of increases in the cost of its variable rate liabilities. In this
way, the Company intends generally to hedge as much of the interest rate risk as
management determines is in the best interests of the shareholders of the
Company given the cost of such hedging transactions and the need to maintain the
Company's status as a REIT.

10
<PAGE>
In the event that the Company purchases interest rate caps or enters into
other interest rate agreements and the provider of interest rate agreements
becomes financially unsound or insolvent, the Company may be forced to unwind
its interest rate agreements with such provider and may take a loss on such
interest rate agreements. Although the Company intends to purchase interest rate
agreements only from financially sound institutions and to monitor the financial
strength of such institutions on a periodic basis, no assurance can be given
that the Company can avoid such third party risks.

RISK OF DECREASE IN NET INTEREST INCOME DUE TO INTEREST RATE FLUCTUATIONS;
PREPAYMENT RISKS OF MORTGAGE ASSETS

The Company expects that a substantial portion of its Mortgage Assets will
bear fixed interest or pass-through rates, and substantially all of the
Company's borrowings will bear interest at short-term rates and will have
maturities of less than one year. Consequently, changes in short-term interest
rates may significantly influence the Company's net interest income. Rising
short-term rates will increase the costs of borrowings by the Company which will
be utilized to fund the Mortgage Assets and the Company's net interest income
may be reduced or a net loss may result. No assurance can be given as to the
amount or timing of changes in interest rates or their effect on the Company's
Mortgage Assets or net interest income.

DEPENDENCE ON KEY PERSONNEL

The success of the Company's operations depends, to a large extent, upon the
management, trading, hedging and risk analysis, lending and credit analysis and
business skills of the senior level management of the Company. If members of
senior management were for some reason unable to perform their duties or were,
for any reason, to leave the Company, there can be no assurance that the Company
would be able to find capable replacements. The Company intends to enter into
employment agreements with certain key members of senior management. The Company
is also dependent on other key personnel and on its ability to continue to
attract, retain and motivate qualified personnel. The loss of any key person
could have a material adverse effect on the Company's business, financial
condition and results of operations.

NEWLY-ORGANIZED ENTITY WITH NO HISTORY OF PORTFOLIO OPERATIONS OR SPECIFIED
MORTGAGE ASSETS

The Company is a newly-organized entity with no history of Portfolio
Operations. Additionally, although Management has considerable expertise in the
acquisition and management of Mortgage Assets, mortgage finance, asset/liability
management and the management of real estate lending businesses, Management has
no experience in managing a REIT. There can be no assurance that the past
experience of the Management will be appropriate to the business of the Company.

Although the Company expects to invest a substantial majority of the net
proceeds of this Offering in Agency Certificates, the Company has not yet
purchased or entered into any commitments to purchase any Mortgage Assets nor
does the Company have any commitments from lenders or brokers sufficient to
obtain and hold the Mortgage Assets. In addition, a portion of the Company's
business strategy depends on AMC's ability to implement its growth strategy
(see, "--Mortgage Banking and Loan Trading Operations Risks--INABILITY OF AMC TO
IMPLEMENT ITS GROWTH STRATEGY"). There can be no assurance that the Company will
be able to successfully obtain appropriate Mortgage Assets or otherwise operate
its business as described in this Prospectus.

ABILITY TO ACQUIRE MORTGAGE ASSETS AT YIELDS WHICH ARE FAVORABLE RELATIVE TO
BORROWING COSTS;
COMPETITION AND SUPPLY

The Company's net income will depend, in large part, on the Company's
ability to acquire Mortgage Assets at favorable spreads over the Company's
borrowing costs. In acquiring Mortgage Assets, the Company will compete with
other REITs, investment banking firms, savings and loan associations, conduit

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programs, banks, mortgage bankers, insurance companies, mutual funds, other
lenders, GNMA, FNMA, FHLMC and other entities purchasing Mortgage Assets, many
of which have greater financial resources than the Company. In addition, there
are several mortgage REITs similar to the Company, and others may be organized
in the future. The effect of the existence of additional REITs may be to
increase competition for the available supply of Mortgage Assets suitable for
purchase by the Company.

The availability for acquisition of Mortgage Loans meeting the Company's
criteria will be dependent upon, among other things, the size and level of
activity in the residential real estate lending market. This activity depends on
various factors including the level of interest rates, regional and national
economic conditions and inflation and deflation in residential property values
as well as the general regulatory, accounting and tax environment as it relates
to mortgage lending. Whether the Company can acquire the projected levels of
Seasoned Mortgage Loans and Owner-Financed Mortgage Loans is also dependent upon
its ability to identify such loans and loan packages available for sale, because
the market is fragmented. To the extent the Company is unable to obtain
sufficient Mortgage Loans meeting its criteria, the Company's business may be
adversely affected.

There can be no assurance that the Company will be able to acquire
sufficient Mortgage Assets from mortgage suppliers at sufficient spreads above
the Company's cost of funds. The Company also will face competition for
financing sources, and the effect of the existence of additional mortgage REITs
may be to deny the Company access to sufficient funds to carry out its business
strategy and/or to increase the cost of funds to the Company.

RISK OF LOSS ON MORTGAGE ASSETS

GENERAL

The Company intends to acquire Owner-Financed Mortgage Loans, Seasoned
Mortgage Loans, Non-Conforming Mortgage Loans and other types of Mortgage Loans
for its investment portfolio. Some of these may be insured or guaranteed by VA,
FHA, or some other third party while others will not have any insurance,
guarantee or credit enhancement. During the time it holds Mortgage Loans for
which third party insurance is not obtained, the Company will be subject to
risks of borrower defaults and bankruptcies and special hazard losses not
covered by standard hazard insurance. In the event of default on any Mortgage
Loan held by the Company, it would bear the risk of loss of principal to the
extent of any deficiency between the value of the related mortgage property and
the amount owing on the Mortgage Loan. A defaulted Mortgage Loan may no longer
be eligible as collateral for borrowings and may have to be financed by the
Company out of other funds until it is liquidated. In addition, the Company will
be dependent upon AMC and other third parties to service its Mortgage Loans. To
the extent that such servicer or servicers improperly administer their servicing
duties, the Company may experience delays in collections or foreclosures, which
may adversely affect the operations of the Company.

AGENCY CERTIFICATES

The Company also may purchase Mortgage Assets issued by GNMA, FNMA or FHLMC.
Each of these entities provides guarantees against risk of loss for securities
issued by it. In the case of GNMA, the timely payment of principal and interest
on its certificates is guaranteed by the full faith and credit of the United
States government. FNMA guarantees the scheduled payments of interest and
principal and the full principal amount of any mortgage loan foreclosed or
liquidated. FHLMC guarantees the timely payment of interest and ultimate
collection of principal on its obligations. For FNMA and FHLMC, payment of
principal and interest on its certificates are guaranteed only by the respective
entity and not by the full faith and credit of the United States government.

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MORTGAGE LOANS

The Mortgage Loans targeted for acquisition by the Company may have greater
risk of default than Conforming Mortgage Loans. For example, Owner-Financed
Mortgage Loans are originated by the seller in connection with the sale of real
estate and the Company would not typically obtain borrower applications,
complete appraisals of the underlying property or verify income or employment
and may not perform other investigations into the credit quality of the
borrower. Additionally, Seasoned Mortgage Loans and Owner-Financed Mortgage
Loans generally will not contain the documentation which would be typical for a
mortgage loan originated in accordance with FNMA, FHLMC or GNMA guidelines.
Moreover, in the event that such Mortgage Loan files contain any borrower
information or appraisals on the underlying properties, such information may be
outdated. In connection with proposed acquisitions, it is unlikely that the
Company will obtain additional or updated credit information concerning the
borrowers and current appraisals may be limited to drive-by appraisals in which
the appraiser does not have access to the interior of the property. Similarly,
the underwriting standards with respect to Non-Conforming Mortgage Loans are
less stringent than the standards required for Conforming Mortgage Loans.

MORTGAGE LOAN ENFORCEMENT RISKS

The enforcement of Mortgage Loans, whether secured by mortgages, deeds of
trust or land sale contracts, is generally subject to equitable principles under
foreclosure or other proceedings. These equitable principles are generally
designed to relieve the obligor from the legal effect of his or her default
under loan documents or land sale contracts. In other situations, statutes limit
the right of a mortgagee to obtain a deficiency judgment against the mortgagor
following foreclosure or sale under a deed of trust. The application of such
principles or statutes with respect to any Mortgage Loan may result in a loss to
the Company or a delay in the receipt of funds to which it is otherwise
entitled.

TAX RISKS

FAILURE TO QUALIFY AS A REIT

The Company intends to operate so as to qualify as a REIT for federal income
tax purposes. Although the Company has not requested, and does not expect to
request, a ruling from the U.S. Internal Revenue Service (the "Service") that it
qualifies as a REIT, it will receive at the closing of the Offering an opinion
of its counsel that, based on certain assumptions and representations, it so
qualifies. Investors should be aware, however, that opinions of counsel are not
binding on the Service or any court. The REIT qualification opinion only
represents the view of counsel to the Company based on counsel's review and
analysis of existing law, which includes no controlling precedent with respect
to REITs that are organized and operated in the same manner as the Company will
be organized and operated. Furthermore, both the validity of the opinion and the
qualification of the Company as a REIT will depend on the Company's continuing
ability to meet various requirements concerning, among other things, the
ownership of its outstanding shares, the nature of its assets, the sources of
its income, and the amount of its distributions to its shareholders. See
"Federal Income Tax Considerations--Taxation of the Company."

If the Company were to fail to qualify as a REIT for any taxable year, the
Company would not be allowed a deduction for distributions to its shareholders
in computing its taxable income and would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, funds available to make required payments on indebtedness and cash
available for distribution would be reduced for each of the years involved.
Although the Company intends to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Board of Trustees, with the consent of shareholders
holding at least

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<PAGE>
two-thirds of all the outstanding Common Shares, to revoke the REIT election.
See "Federal Income Tax Considerations."

REIT MINIMUM DISTRIBUTION REQUIREMENTS; POSSIBLE INCURRENCE OF ADDITIONAL
DEBT

In order to qualify as a REIT, the Company generally will be required each
year to distribute to its shareholders at least 95% of its REIT taxable income
(excluding any net capital gain). In addition, the Company will be subject to a
4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain
net income for that year, and (iii) 100% of its undistributed taxable income
from prior years.

The Company intends to make distributions to its shareholders to comply with
the 95% distribution requirement and to avoid the nondeductible excise tax. The
Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company to
its shareholders will consist primarily of its share of cash distributions from
the Operating Partnership. The Company may invest in residual interests in real
estate mortgage investment conduits ("REMICs"), which may generate taxable
income in excess of cash flow or economic income. Certain taxable income
produced by a REMIC residual interest (i.e., excess inclusion income) also may
cause the Company's shareholders to suffer certain adverse tax consequences. See
"Federal Income Tax Considerations." Differences in timing between the
recognition of taxable income and the actual receipt of cash could require the
Company, through the Operating Partnership, to borrow funds on a short-term
basis or sell assets to meet the 95% distribution requirement and to avoid the
nondeductible excise tax. The requirement to distribute a substantial portion of
the Company's net taxable income could cause the Company to distribute amounts
that otherwise would be spent on additional Mortgage Assets.

POTENTIAL CHARACTERIZATION OF DISTRIBUTIONS AS UBTI; TAXATION OF TAX-EXEMPT
INVESTORS

In the event that (i) the Company is subject to the rules relating to
taxable mortgage pools (discussed below), (ii) the Company is a "pension-held
REIT," (iii) a tax-exempt shareholder has incurred indebtedness to purchase or
hold Common Shares or is exempt from federal income taxation under paragraph
(7), (9), (17) or (20) of Code section 501(c), or (iv) the Company owns REMIC
residual interests, distributions to and, in the case of a shareholder described
in clause (iii), gains realized on the sale of Common Shares by, a tax-exempt
shareholder may be subject to federal income tax as unrelated business taxable
income ("UBTI"), as defined in section 512 of the Code. See "Federal Income Tax
Considerations--Taxation of Tax-Exempt Shareholders."

TAXABLE MORTGAGE POOL RISK; INCREASED TAXATION

If a REIT issues debt obligations with two or more maturities collateralized
by assets such as the Mortgage Assets and does not make a REMIC election with
respect to the assets securing the debt obligations ("Non-REMIC Transactions"),
such assets may be treated as a "taxable mortgage pool" under the Code if
payments required to be made on such debt obligations bear a relationship to the
payments received on such assets. If the Company were to be subject to the
taxable mortgage pool rules with respect to a pool of its Mortgage Assets, the
Company's status as a REIT would not be impaired but a portion or all of the
taxable income generated by such Mortgage Assets (after deducting interest and
other expenses associated with financing the Mortgage Assets) may, under
regulations to be issued by the Treasury Department, be characterized as "excess
inclusion" income and be allocated pro rata to the Company's shareholders. Any
such excess inclusion income (i) would not be allowed to be offset by the net
operating losses of a shareholder, (ii) would be subject to tax as UBTI in the
hands of a tax-exempt shareholder and (iii) would not be eligible for exemption
from the 30% withholding tax on dividends paid to non-US shareholders or for any
reduced treaty rate. See "Federal Income Tax Considerations."

14
<PAGE>
If the Company issues debt obligations in Non-REMIC Transactions, it will do
so either directly or through a wholly-owned subsidiary, instead of through the
Operating Partnership in order to avoid certain adverse tax consequences under
the taxable mortgage pool rules. The Company also intends to enter into master
reverse repurchase agreements pursuant to which the Company may borrow funds
with differing maturity dates which are cross-collateralized by specific
Mortgage Assets. Although the Treasury Department has recently issued
regulations that adopt a broad view of what may constitute a taxable mortgage
pool, the Company does not believe that the use of master reverse repurchase
agreements, dollar reverse repurchase agreements or bank warehouse financing
arrangements should cause the related Mortgage Assets to be treated as a taxable
mortgage pool. No assurances can be given, however, that the Service might not
successfully maintain that the Mortgage Assets collateralizing such master
reverse repurchase agreements or other financing arrangements constitute a
taxable mortgage pool.

ERISA RISKS

The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and section 4975 of the Code prohibit certain transactions that involve (i)
certain pension, profit-sharing, employee benefit, or retirement plans or
individual retirement accounts (each, a "Plan") and (ii) the assets of a Plan. A
"party in interest" or "disqualified person" with respect to a Plan will be
subject to (x) an initial 5% excise tax on the amount involved in any prohibited
transaction involving the assets of the Plan and (y) an excise tax equal to 100%
of the amount involved if any prohibited transaction is not corrected.
Consequently, the fiduciary of a Plan contemplating an investment in the Common
Shares should consider whether the Company, any other person associated with the
issuance of the Common Shares, or any affiliate of the foregoing is or might
become a "party in interest" or "disqualified person" with respect to the Plan.
In such a case, the acquisition or holding of Common Shares by or on behalf of
the Plan could be considered to give rise to a prohibited transaction under
ERISA and the Code. See "ERISA Considerations-- Employee Benefit Plans, Tax
Qualified Retirement Plans, and IRA."

Regulations of the Department of Labor that define "plan assets" (the "Plan
Asset Regulations") provide that in some situations, when a Plan acquires an
equity interest in an entity, the Plan's assets include both the equity interest
and an undivided interest in each of the underlying assets of the entity, unless
one or more exceptions specified in the Plan Asset Regulations are satisfied. In
such a case, certain transactions that the Company might enter into in the
ordinary course of its business and operations might constitute "prohibited
transactions" under ERISA and the Code. The assets of the Company should not be
deemed to be "plan assets" of any Plan that invests in the Common Shares. See
"ERISA Considerations-- Status of the Company and the Operating Partnership
under ERISA."

INVESTMENT COMPANY ACT RISKS

The Company at all times intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act.
Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act exempts
entities that are "primarily engaged in the business of purchasing or otherwise
acquiring mortgages and other liens on and interests in real estate"
("Qualifying Interests"). Under the current interpretation of the staff of the
Commission, in order to qualify for this exemption, the Company must maintain at
least 55% of its assets directly in Mortgage Loans, qualifying pass-through
certificates and certain other Qualifying Interests in real estate. In addition,
unless certain mortgage securities represent all the certificates issued with
respect to an underlying pool of mortgages, such mortgage securities may be
treated as securities separate from the underlying Mortgage Loans and, thus, may
not qualify as Qualifying Interests for purposes of the 55% requirement. The
Company's ownership of certain Mortgage Assets therefore may be limited by the
provisions of the Investment Company Act. In addition, in meeting the 55%
requirement under the Investment Company Act, the Company may consider privately
issued certificates issued with respect to an underlying pool of Mortgage Assets
as to which the Company holds all

15
<PAGE>
issued certificates as Qualifying Interests. If the Commission, or its staff,
adopts a contrary interpretation with respect to such securities, the Company
could be required to restructure its activities to the extent its holdings of
such privately issued certificates did not comply with the interpretation. Such
a restructuring could require the sale of a substantial amount of privately
issued certificates held by the Company at a time it would not otherwise do so.
Further, in order to ensure that the Company at all times continues to qualify
for the above exemption from the Investment Company Act, the Company may be
required at times to adopt less efficient methods of financing certain of its
Mortgage Loans and investments in mortgage-backed securities than would
otherwise be the case and may be precluded from acquiring certain types of such
Mortgage Assets whose yields are somewhat higher than the yield on assets that
could be purchased in a manner consistent with the exemption. The net effect of
these factors will be to lower at times the Company's net interest income,
although the Company does not expect the effect to be material. If the Company
fails to qualify for exemption from registration as an investment company, its
ability to use leverage would be substantially reduced, and it would be unable
to conduct its business as described herein. Any such failure to qualify for
such exemption would have a material adverse effect on the Company.

FUTURE REVISIONS IN POLICIES AND STRATEGIES AT THE DISCRETION OF THE BOARD OF
TRUSTEES

The Board of Trustees has established the investment policies and operating
policies and strategies set forth in this Prospectus as the investment policies
and operating policies and strategies of the Company. With respect to other
matters, the Company may, in the future, but currently has no present plans to,
invest in the securities of other REITs for the purpose of exercising control,
offer securities in exchange for property or offer to repurchase or otherwise
reacquire its shares or other securities. However, any of the policies,
strategies and activities referenced above or described in this Prospectus may
be modified or waived by the Board of Trustees without shareholder consent.

ADVERSE CONSEQUENCES OF LACK OF CONTROL OVER THE BUSINESS OF AMC

The capital stock of AMC will be divided into two classes: voting common
stock, all of which will be owned by Messrs. Day and Walden, and nonvoting
common stock, all of which will be held by the Company, through the Operating
Partnership. The voting common stock and the nonvoting common stock represent 3%
and 97%, respectively, of the ownership interests in AMC. Messrs. Day and
Walden, as the holders of all of AMC's voting common stock, will have the
ability to elect the directors of AMC. The Company will not be able to elect
directors and, therefore, will not be able to influence the day-to-day
management decisions of such entity. As a result, the board of directors and
management of AMC may implement business policies or decisions that would not
have been implemented by persons controlled by the Company, that may be
inconsistent with the Company's operating policies and strategies and that are
adverse to the interests of the Company or that lead to adverse financial
results, which could adversely impact the Company's net operating income and
cash flow.

MORTGAGE BANKING AND LOAN TRADING OPERATIONS RISKS

RISKS OF COMPETITION

As an originator of Mortgage Loans, AMC faces intense competition, primarily
from mortgage banking companies, commercial banks, credit unions, thrift
institutions and finance companies. Many of these competitors are substantially
larger and have more capital and other resources than AMC and may have lower
costs of funds than AMC. In addition, increased competition may reduce AMC's
ability to charge its customary origination fees and interest rates. Mortgage
lending businesses may be operated through mortgage brokers and correspondents
requiring a substantially smaller commitment of capital and personnel resources
than a direct lending business. This relatively low barrier to entry permits new
competitors to enter this market quickly, particularly existing lenders that
directly lend to borrowers, as

16
<PAGE>
they can draw upon existing branch networks and personnel in seeking to sell
products through independent mortgage brokers. In addition, greater investor
acceptance of securities backed by non-conforming loans comparable to AMC's
Mortgage Loans and greater availability of information regarding the prepayment
and default experience of such loans creates greater efficiencies in the market
for such securities. Such efficiencies may create a desire among investors for
larger transactions giving companies with greater volumes of originations or
acquisitions than AMC a competitive advantage.

Increased competition could have the possible effects of lowering yields or
gains that may be realized on AMC's loan sales (and securitizations) and
reducing the volume of AMC's loan acquisitions, originations and subsequent loan
sales. There can be no assurance that AMC will be able to continue to compete
successfully in the markets it serves or expand to other markets. Inability to
compete successfully would have a material adverse effect on AMC's results of
operations, which in turn may adversely affect the Company's Cash Available for
Distribution.

ECONOMIC SLOWDOWN AND DECLINE IN REAL ESTATE VALUES MAY ADVERSELY AFFECT
VOLUME OF LOANS

Periods of economic slowdown may reduce the demand for Mortgage Loans as
people elect not to purchase new homes due to economic uncertainty and also may
adversely affect the financial condition of potential borrowers so that they do
not meet AMC's underwriting criteria. In addition, economic slowdowns may cause
a decline in real estate values. Any material decline in real estate values
increases the loan-to-value ratios of Mortgage Loans held by AMC, thereby
weakening collateral coverage and increasing the possibility of a loss or
liquidation of a Mortgage Loan in the event of a borrower default. Further,
delinquencies, foreclosures and losses generally occur with greater frequency
during economic slowdowns or recessions. Any sustained period of such increased
delinquencies, foreclosures or losses could adversely affect AMC's results of
operations and negatively impact the financial condition of the Company.

EFFECT OF LAWS AND REGULATIONS AFFECTING LENDING OPERATIONS

AMC's Loan Origination Operations are subject to extensive regulation,
supervision and licensing by federal, state and local governmental authorities
and are subject to various laws and judicial and administrative decisions
imposing requirements and restrictions on a substantial portion of its
operations. AMC's consumer lending activities are subject to the Federal
Truth-in-Lending Act and Regulation Z (including the Home Ownership and Equity
Protection Act of 1994), the Federal Equal Credit Opportunity Act and Regulation
B, as amended, the Fair Credit Reporting Act of 1970, as amended, the Federal
Real Estate Settlement Procedures Act of 1974, as amended ("RESPA"), and the
Department of Housing and Urban Development's Regulation X, the Fair Housing
Act, the Home Mortgage Disclosure Act and Regulation C and the Federal Fair Debt
Collection Practices Act, as well as other federal and state statutes and
regulations affecting AMC's activities. AMC is also subject to the rules and
regulations of and examinations by HUD and state regulatory authorities with
respect to originating, processing, underwriting, selling and servicing Mortgage
Loans.

These rules and regulations, among other things, impose licensing
obligations on AMC, prohibit discrimination, provide for inspections and
appraisals of properties, regulate assessment, collection, foreclosure and
claims handling, investment and interest payments on escrow balances and payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with any of the foregoing state or federal requirements can lead to loss
of approved status, termination or suspension of servicing contracts without
compensation to the servicer, demands for indemnifications or mortgage loan
repurchases, certain rights of rescission for borrowers, usury claims for
damages or other relief, class action lawsuits and administrative enforcement
actions.

17
<PAGE>
Recent federal legislation, the Riegle Community Development and Regulatory
Improvement Act (the "Riegle Act"), has imposed additional regulation on
mortgage loans, like some of those to be made by AMC, bearing relatively higher
origination fees and interest rates than other mortgage loans (including
conforming mortgage loans). AMC expects this aspect of its business to be the
focus of additional federal and state legislation, regulation and possible
enforcement in the future.

The laws and regulations described above are subject to legislative,
administrative and judicial interpretation, and certain of these laws and
regulations may be ambiguous with respect to permitted conduct. Any such
ambiguity may lead to regulatory investigations, enforcement actions or private
causes of action, such as class action lawsuits, calling into question AMC's
compliance with the applicable laws and regulations. As a mortgage lender, AMC
may be subject to regulatory enforcement actions and private causes of action
from time to time challenging its compliance with applicable laws and
regulations.

DEPENDENCE UPON BROKERS AND CORRESPONDENTS

AMC depends on independent mortgage brokers and correspondents for a
substantial majority of its originations and acquisitions of Mortgage Loans.
Substantially all of the mortgage brokers and correspondents with whom AMC does
business deal with multiple loan originators for each prospective borrower. Such
originators, including AMC, compete for business based upon pricing, service,
loan fees and costs and other factors. AMC's competitors also seek to establish
relationships with the same mortgage brokers and correspondents with whom AMC
deals, none of whom is obligated by contract or otherwise to continue to do
business with AMC. Accordingly, there can be no assurance that AMC will be
successful in maintaining its existing relationships or expanding its mortgage
broker and correspondent networks.

INABILITY OF AMC TO IMPLEMENT ITS GROWTH STRATEGY

AMC's growth strategy involves the increased acquisition of Seasoned and
Owner-Financed Mortgage Loans and origination of Non-Conforming Loans.
Implementation of this strategy will depend in large part on AMC's ability to
(i) expand its network of mortgage brokers and correspondents, (ii) establish
direct lending origination activities in markets with a sufficient concentration
of borrowers meeting AMC's underwriting criteria, (iii) hire, train and retain
skilled employees, (iv) continue to expand in the face of increasing competition
from other mortgage lenders and (v) identify and acquire portfolios of Mortgage
Loans.

AMC's continued growth and expansion will place additional pressures on
AMC's personnel and systems. Any future growth may be limited by, among other
things, AMC's need for continued funding sources, access to capital markets,
ability to retain and attract qualified personnel, sensitivity to economic
slowdowns, fluctuations in interest rates and competition from other consumer
finance companies and from new market entrants. There can be no assurance that
AMC will successfully obtain or apply the human, operational and financial
resources needed to manage a developing and expanding business. Failure by AMC
to manage its growth effectively, or to sustain its historical levels of
performance in credit analysis and transaction structuring with respect to the
increased loan origination and purchase volume, could have a material adverse
effect on AMC's results of operations and the Company's Cash Available for
Distribution.

REPURCHASE OBLIGATIONS OF AMC

AMC's business plan requires AMC to sell, in most instances, all of its
production of Conforming Mortgage Loans and a portion of its production of
Non-Conforming Mortgage Loans to various third parties. In connection with such
sales, it is expected that AMC with provide the buyers with certain
representations and warranties, the breach of which may require AMC to
repurchase some or all of the sold Mortgage Loans. To the extent that AMC has no
effective recourse to any other party, AMC's results of operations may be
adversely effected.

18
<PAGE>
EFFECT OF FUTURE OFFERINGS ON MARKET PRICE OF COMMON SHARES

The Company in the future may increase its capital resources by making
additional private or public offerings of its Common Shares, securities
convertible into its Common Shares, preferred shares or debt securities. The
actual or perceived effect of such offerings, the timing of which cannot be
predicted, may be the dilution of the book value or earnings per share of the
Common Shares outstanding, which may result in the reduction of the market price
of the Common Shares.

SHARES ELIGIBLE FOR FUTURE SALE

Sale of substantial amounts of the Company's Common Shares in the public
market or the prospect of such sales could materially and adversely affect the
market price of the Common Shares. In addition, the Company has issued
Units in connection with the formation of the Company and the Contribution
Transaction, which are redeemable for cash or, at the option of the Company,
Common Shares on a one-for-one basis. The Company has agreed that it will not,
without the prior written consent of Jefferies & Company, Inc., offer for sale,
contract to sell any Common Shares (other than shares issued pursuant to the
1997 Share Incentive Plan and certain other agreements) or any securities
convertible or exchangeable into Common Shares or sell or grant options, rights
or warrants with respect to any Common Shares, for a period of 180 days after
the consummation of the Offering. In addition, each of the executive officers
and Trustees of the Company who have acquired Units in connection with the
organization of the Company and the Contribution Transaction has entered into
agreements with the Underwriters providing that, subject to certain exceptions,
such holders of Units generally will not sell, transfer, hypothecate, redeem,
exchange or otherwise dispose of, directly or indirectly, any Units prior to the
second anniversary of the Closing Date, without the consent of Jefferies &
Company, Inc. Further, approximately 424,671 Units (based on the Offering Price)
issued in connection with the Contribution Transaction are subject to similar
restrictions for a period of one year from the Closing Date. See "Shares
Eligible for Future Sale" and "Underwriting." Additionally, there are
outstanding share options for [ ] Common Shares, which have been granted
at a per share exercise price of $[ ] per share, to Trustees, executive
officers and employees of the Company, none of which, except in the event of a
change of control of the Company, are exercisable until [ ] 19[ ];
share options for an additional [ ] Common Shares have been granted to
Independent Trustees of the Company at a per share exercise price equal to the
Offering Price, none of which, except in the event of a change of control of the
Company, are exercisable until [ ] 19[ ][; and an additional [ ]
Common Shares are reserved for future issuance pursuant to the 1997 Plan. The
Company intends to register under the Securities Act shares reserved for
issuance pursuant to the 1997 Plan. See "Management--1997 Share Incentive Plan."

LACK OF ESTABLISHED MARKET; RISK OF FLUCTUATION IN MARKET PRICE OF COMMON SHARES

Prior to this Offering, there has not been a public market for the Common
Shares, and there can be no assurance that a regular trading market for the
Common Shares offered hereby will develop or, if developed, that any such market
will be sustained. In the absence of a public trading market, an investor may be
unable to liquidate his investment in the Company. The initial public offering
price will be determined by the Company and the representatives of the
Underwriters. There can be no assurance that the price at which the Common
Shares will sell in the public market after the Offering will not be lower than
the price at which they are sold by the Underwriters. While there can be no
assurance that a market for the Company's Common Shares will develop the Company
has applied to list the Common Shares on the New York Stock Exchange under the
symbol " ."

In the event that a public market for the Common Shares develops, it is
likely that the market price of the Common Shares will be influenced by any
variation between the net yield on the Company's investments in Mortgage Assets
and prevailing market interest rates. The Company's earnings will be derived
primarily from net interest income earned on its investment portfolio of
Mortgage Assets and gains recognized on the sale of Mortgage Assets. Such
earnings will not necessarily be greater or lesser in

19
<PAGE>
high interest rate environments than in low interest rate environments.
Moreover, in periods of high interest rates, the net income of the Company, and
therefore the dividend yield on the Common Shares, may be less attractive
compared with alternative investments, which could negatively impact the price
of the Common Shares. If the anticipated or actual net yield on the Company's
investments in Mortgage Assets declines or if prevailing market interest rates
rise, thereby decreasing the positive spread between the net yield on such
investments and the net cost of the Company's borrowings, the market price of
the Common Shares may be adversely affected.

ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT, STAGGERED BOARD AND POWER TO ISSUE
ADDITIONAL SHARES

OWNERSHIP LIMITATION

For the Company to maintain its qualification as a REIT under the Code, not
more than 50% in value of the outstanding shares of beneficial interest of the
Company may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) at any time during the last
half of the Company's taxable year (other than the first taxable year for which
the election to be treated as a REIT has been made).

To ensure that the Company will not fail to qualify as a REIT under this and
other share ownership tests under the Code, the Company's Declaration of Trust,
subject to certain exceptions, authorizes the trustees to take such actions as
are necessary and desirable to preserve its qualification as a REIT and limits
direct or indirect ownership by any person to (i) no more than 9.8% of the
number of outstanding Common Shares and (ii) no more than 9.8% of the number of
outstanding Preferred Shares of any class or series of Preferred Shares (the
"Ownership Limit"). The Company's Board of Trustees, upon receipt of a ruling
from the Service, an opinion of counsel or other evidence satisfactory to the
Board and upon such other conditions as the Board may establish, may exempt a
proposed transferee from the Ownership Limit. However, the Board may not grant
an exemption from the Ownership Limit to any proposed transferee whose
ownership, direct or indirect, of shares in excess of the Ownership Limit would
result in the termination of the Company's status as a REIT. See "Description of
Shares of Beneficial Interest-- Restrictions on Transfer." These restrictions on
transferability and ownership will not apply if the Board of Trustees and no
less than two-thirds of the shareholders of the Company determine that it is no
longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT.

The Ownership Limit may have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a premium
price for the Common Shares or otherwise be in the best interest of the
shareholders. See "Description of Shares of Beneficial Interest-- Restrictions
on Transfer."

STAGGERED BOARD

The Company's Board of Trustees is divided into three classes of Trustees.
The initial terms of the first, second and third classes will expire in 1998,
1999, and 2000, respectively. Beginning in 1997, trustees of each class will be
chosen for three-year terms upon the expiration of their current terms and each
year one class of trustees will be elected by the shareholders. The staggered
terms of trustees may reduce the possibility of a tender offer or an attempt to
change control of the Company, even though a tender offer or change in control
might be in the best interest of the shareholders. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and
Bylaws--Classification of the Board of Trustees."

ISSUANCE OF ADDITIONAL SHARES

The Company's Declaration of Trust authorizes the Board of Trustees to (i)
amend the Declaration of Trust to increase or decrease the aggregate number of
shares of beneficial interest or the number of shares of beneficial interest of
any class that the Company has the authority to issue, (ii) cause the Company to
issue additional authorized but unissued Common or Preferred Shares and (iii)
classify or reclassify any

20
<PAGE>
unissued Common Shares and Preferred Shares and to set the preferences, rights
and other terms of such classified or unclassified shares. See "Description of
Shares of Beneficial Interest--Preferred Shares." Although the Board of Trustees
has no such intention at the present time, it could establish a series of
Preferred Shares that could, depending on the terms of such series, delay, defer
or prevent a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders. The Declaration of Trust and Bylaws of the Company
also contain other provisions that may have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders. See "Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws--Removal of Trustees," "--Control
Share Acquisitions" and "--Advance Notice of Trustee Nominations and New
Business."

21
<PAGE>
THE COMPANY

The Company was organized as a Maryland real estate investment trust on
August 13, 1997. The Company intends to operate in a manner that permits it to
qualify, and it intends to elect to be taxed, as a REIT for federal income tax
purposes. The Company expects to generate income for distribution to its
stockholders primarily from the net interest income derived from its Mortgage
Assets and from dividends paid by AMC. As a result of its REIT status, the
Company will be permitted to deduct dividend distributions to shareholders in
calculating its taxable income, thereby effectively eliminating the "double
taxation" that generally results when a corporation earns income and distributes
that income to shareholders in the form of dividends. The Company generally will
not be subject to federal income tax to the extent that certain REIT
requirements under the Code are met. AMC, which is not a qualified REIT
subsidiary, will not be consolidated with the Company for accounting purposes,
because, following the Recapitalization, the Company will not own any of AMC's
voting common stock and will not control AMC. All taxable income of AMC is
subject to federal and state income taxes, where applicable. See "Federal Income
Tax Considerations--Taxation of AMC."

The principal executive offices of the Company are located at 2500 CityWest
Boulevard, Suite 1200, Houston, Texas 77042, telephone (713) 787-0100.

USE OF PROCEEDS

The net proceeds of this Offering are estimated to be $ million (or
$ million if the Underwriters' over-allotment option is exercised in full
at the Offering Price). It is expected that approximately 95% of such proceeds
will be used to provide funding for the Company's Portfolio Operations and
approximately 1 1/4% of such proceeds will be used to acquire a portion of the
shares of AMC (from persons other than Messrs. Day and Walden). The balance of
such proceeds will be used for working capital and general corporate purposes.
Pending these uses, the proceeds may be invested temporarily to the extent
consistent with the REIT provisions of the Code. Such investments may include
warehouse loans to AMC, but only to the extent that the Company's ownership of
such loans does not jeopardize its REIT status.

The Company anticipates that it will invest approximately 85% of the net
proceeds of this Offering in Agency Certificates immediately after completion of
this Offering. The Company anticipates that it will initially purchase newly
issued Agency Certificates guaranteed or issued by GNMA or FNMA at then-current
market prices; however, it has not specifically identified any Mortgage Assets
in which to invest the net proceeds of this Offering.

DISTRIBUTION POLICY

The Company is required to distribute 95% or more of its annual taxable
income (which may not necessarily equal net income as calculated in accordance
with GAAP) to its shareholders so as to comply with the REIT provisions of the
Code. The Company intends to declare regular quarterly dividend distributions.
The Company intends to declare its initial dividend for the partial quarterly
period beginning on the closing of this Offering. The Company's dividend policy
is subject to revision at the discretion of the Board of Trustees. All
distributions in excess of those required for the Company to maintain REIT
status will be made by the Company at the discretion of the Board of Trustees
and will depend on the taxable earnings of the Company, the financial condition
of the Company and such other factors as the Board of Trustees deems relevant.
The Board of Trustees has not established a minimum distribution level. See
"Federal Income Tax Considerations."

Distributions to shareholders generally will be taxable as ordinary income,
although a portion of such distributions may be designated by the Company as
capital gain or may constitute a tax-free return of capital. The Company will
furnish annually to each of its shareholders and to the Service a statement
setting forth distributions paid during the preceding year and their
characterization as ordinary income, capital gains or return of capital. For a
discussion of the federal income tax treatment of distributions by the Company,
see "Federal Income Tax Considerations--Requirements for
Qualification--Distribution Requirements."

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<PAGE>
CAPITALIZATION

The capitalization of the Company (i) pro forma to reflect the Contribution
Transaction and (ii) as adjusted to reflect the sale of the shares of Common
Shares offered hereby, is as follows:

<TABLE>
<CAPTION>
PRO AS
FORMA ADJUSTED(1)
----------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Minority interest.................................................................... $ $
Shareholders' equity:
Preferred Shares, $.01 par value per share,
10,000,000 shares authorized; no shares issued and outstanding(2)................ -- --
Common Shares, $.01 par value per share,
100,000,000 shares authorized; no shares (pro forma) and 10,000,000 shares (as
adjusted) issued and outstanding(2).............................................. --
Additional paid-in capital...........................................................
--- ---
Total capitalization........................................................... $ $
--- ---
--- ---
</TABLE>

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

(1) After deducting estimated underwriting discount and commissions and
estimated offering expenses of $ payable by the Company.

(2) Does not include Common Shares reserved for issuance (i) upon the
redemption of
Units issued and outstanding as of the closing of the Offering and (ii)
pursuant to the 1997 Plan. Options to acquire Common Shares were
granted to the Trustees, executive officers and employees of the Company
prior to this Offering at a per share exercise price equal to the Offering
Price. Options to acquire Common Shares will be granted to
Independent Trustees of the Company at the effective date of this Offering
at a per share exercise price equal to the Offering Price. See
"Management--1997 Share Incentive Plan."

23
<PAGE>
DILUTION

The initial price per share to the public of the Common Shares offered
hereby exceeds the net tangible book value per share immediately following
consummation of the Offering and the Contribution Transaction. Therefore, the
investors and holders of Units issued in connection with the Contribution
Transaction (Messrs. Walden and Day, directly or indirectly, and other
management members) will realize an immediate increase in the net tangible book
value of their Common Shares and Units, respectively, while purchasers of the
Common Shares in the Offering will realize an immediate dilution in the net
tangible book value of their shares. Pro forma net tangible book value per share
is determined by subtracting the Company's total liabilities from its total
tangible assets and dividing the remainder by the number of Common Shares and
Units that will be outstanding after the Offering. The following table
illustrates the dilution to purchasers of shares sold in the Offering, based on
the Offering Price.

<TABLE>
<S> <C> <C>
Initial price per share to the public..................................... $
---------
Pro forma net tangible book value per share as of June 30, 1997
prior to the Offering, attributable to Units issued to Messrs. Walden
and Day (other than in connection with the Contribution
Transaction).......................................................... $
---------
Pro forma net tangible book value per share as of June 30, 1997
prior to the Offering, attributable to Common Shares issued to current
owners of AMC pursuant to Contribution Transaction....................
---------
Decrease in net tangible book value per share attributable to payments
by purchasers of Common Shares in the Offering........................
---------
Pro forma net tangible book value per share as of June 30, 1997 after the
Offering(1).............................................................
---------
Dilution per share sold in the Offering................................... $
---------
---------
</TABLE>

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

(1) Based on pro forma shareholders' equity of $ and minority interests in
the Operating Partnership of $ , net of intangible assets of $ ,
divided by Common Shares outstanding. This assumes all Units have
been converted into Common Shares.

24
<PAGE>
SELECTED FINANCIAL DATA

The following selected statement of operations and balance sheet data for
each of the years in the three-year period ended December 31, 1996, and as of
December 31, 1994, 1995 and 1996, have been derived from AMC's financial
statements audited by KPMG Peat Marwick LLP, independent certified public
accountants, whose reports with respect thereto appear elsewhere herein. Such
selected financial data should be read in conjunction with those financial
statements and the notes thereto and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" also included elsewhere
herein. The following selected financial data for the six-month periods ended
June 30, 1996 and 1997 and as of June 30, 1997 have been derived from the
financial statements of AMC and include adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of such financial information for those periods. Results for the
six months ended June 30, 1997 are not necessarily indicative of results for the
year ending December 31, 1997.

25
<PAGE>
AEGIS MORTGAGE CORPORATION

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Loan administration................................ $ 1,905 $ 2,016 $ 940 $ 782 $ 365
Loan origination................................... 636 1,440 2,424 1,143 1,145
Interest income.................................... 1,390 2,616 3,902 1,608 2,234
Interest expense................................... 861 2,177 2,963 1,345 1,789
---------- ---------- ---------- ---------- ----------
Net interest income.............................. 529 439 939 263 445
Loan brokerage fees................................ 533 1,390 -- -- --
Gain on sales of mortgage loans.................... 2,161 2,933 4,652 2,170 2,896
Gain on sale of servicing rights................... -- -- 2,498 2,526 --
Other.............................................. 119 258 59 -- 1
---------- ---------- ---------- ---------- ----------
Total revenue.................................... 5,883 8,476 11,512 6,884 4,852
Expenses:
General and administrative......................... 4,610 6,415 8,848 4,423 4,004
Depreciation and amortization...................... 376 824 288 145 149
Provision for losses on foreclosure................ 1 8 20 -- --
Other.............................................. 244 585 1,111 484 419
---------- ---------- ---------- ---------- ----------
Total expenses................................... 5,231 7,832 10,267 5,052 4,572
---------- ---------- ---------- ---------- ----------
Net income....................................... $ 652 $ 644 $ 1,245 $ 1,832 $ 280
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OPERATING DATA:
Mortgage loan acquisitions (volume).................. $ 109,949 $ 281,547 $ 447,309 $ 217,779 $ 214,462
Servicing portfolio.................................. 403,041 405,006 123,152 118,999 155,198
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ---------- AT JUNE 30,
-----------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................................ $ 57 $ 286 $ 375 $ 1,900
Accounts receivable, net........................................ 896 1,033 1,000 1,222
Real estate held for investment................................. 99 500 403 284
Mortgage Loans held for sale, net of discounts of $485, $394,
$2,447 and $401 at December 31, 1994, 1995 and 1996 and June
30, 1997, respectively........................................ 11,165 39,747 52,058 65,563
Mortgage servicing rights, at cost, net of accumulated
amortization.................................................. 1,031 618 721 117
Other assets.................................................. 717 555 431 435
---------- ---------- ---------- -----------
Total assets.................................................... 13,965 42,739 54,988 69,521
Total liabilities............................................... 12,136 40,548 52,339 66,592
Total stockholders' equity...................................... $ 1,829 $ 2,191 $ 2,649 $ 2,929
</TABLE>

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is a newly formed Maryland real estate investment trust.
Pursuant to this Offering, the Company will issue 10,000,000 Common Shares to
the public, the net proceeds from which will be contributed to the Operating
Partnership. After such contribution, the Company will own a % interest in,
and will be the sole general partner of, the Operating Partnership and Messrs.
Day and Walden will continue to own and Units, respectively, for which
they paid nominal consideration.

Concurrent with the closing of this Offering, the Contribution Transaction
will occur, pursuant to which the current owners of AMC (including Mr. Walden)
will contribute 98.5% of the common stock of AMC to the Operating Partnership in
exchange for Units (based on the Offering Price) having a value of
$11,335,250 and cash in the amount of $2,356,250. Immediately therewith, the
Recapitalization of AMC will occur pursuant to which the Operating Partnership
will exchange its shares of AMC voting common stock for shares of AMC non-voting
common stock. This will be followed by the AMC Stock Purchase whereby AMC will
issue voting common stock representing 50% of such class (and approximately 1.5%
of the value of its total outstanding stock) to Mr. Day in exchange for a note
bearing interest at an annual rate of % and requiring equal quarterly payments
over 5 years. After the Recapitalization and the AMC Stock Purchase, AMC's
voting common stock, representing a 3% economic interest therein, will be held
by Messrs. Day and Walden, and AMC's non-voting common stock, representing a 97%
economic interest therein, will be held by the Operating Partnership.

AMC

AMC has engaged in the Mortgage Banking and Loan Trading Operations since
1993, and through its predecessor corporation Eastland Mortgage Company, has
operated as a mortgage banking corporation since 1981. In 1990, Liberty
Resources, Inc. acquired the common stock of Eastland Mortgage Company and
renamed it EMC Financial, Inc. ("EMC"). In February 1994, EMC was renamed Aegis
Mortgage Corporation.

AMC's initial strategy was to acquire servicing at discounted prices from
the Resolution Trust Corporation ("RTC"). The servicing portfolio grew to over
14,000 loans, most of which were acquired in bulk servicing acquisitions from
the RTC. AMC began a loan trading operation in 1993, focusing on seasoned whole
loans and participations in residential mortgages. AMC has purchased mortgage
products from both financial institutions and the RTC while reselling has been
through agency securitizations, agency cash-window sales, and whole loan
transactions. During 1994, AMC began wholesale and retail production businesses.
The wholesale loan production business is conducted through a network of
unaffiliated mortgage brokers who provide loans to AMC for sale to permanent
investors. AMC has relationships with over 800 approved mortgage brokers in 20
states and since January 1, 1996, AMC has funded loans originated by over 300 of
such mortgage brokers. The retail production business is conducted through six
retail offices located throughout Texas. During 1996, AMC sold a substantial
portion of its servicing portfolio and redeployed the proceeds from the sale
into the loan production and loan trading activities.

27
<PAGE>
LOAN ORIGINATION

AMC originates Mortgage Loans through its wholesale division's network of
mortgage brokers and through its retail branch system. A summary of loan
production by source for the periods indicated is set forth below:

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loan Production:
Wholesale Division....................... $ 29,100 $ 212,868 $ 352,954 $ 185,363 170,364
Retail Division.......................... 29,969 40,828 60,205 27,439 37,310
---------- ---------- ---------- ---------- ----------
Total...................................... $ 59,069 $ 253,696 $ 413,159 $ 212,802 $ 207,674
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

LOAN TRADING

AMC acquires Seasoned Mortgage Loans and participations in residential
Seasoned Mortgage Loans for its Loan Trading Operations. A summary of purchases
for the periods indicated is set forth below:

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Purchases(1)................................. $ 50,880 $ 27,851 $ 34,150 $ 17,423 $ 6,788
</TABLE>

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

(1) Amounts indicate the outstanding principal balance purchased.

RESULTS OF OPERATIONS

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996:

For the six months ended June 30, 1997, revenue decreased to $4.9 million
from $6.9 million for the six months ended June 30, 1996. The decrease was a
result of the gain on sale of servicing rights of $2.5 million during the six
month period ending June 30, 1996 while there was not any gain on sale of
servicing rights during the six months ended June 30, 1997. During 1996, AMC
sold a substantial portion of its loan servicing portfolio. This sale also
resulted in loan administration fee income declining from $0.8 million in the
six months ended June 30, 1996 to $0.4 million in the six months ended June 30,
1997.

Gain on sale of mortgage loans increased 33% to $2.9 million for the six
months ended June 30, 1997 from $2.2 million for the six months ended June 30,
1996. The gain on the sale of mortgage loans arises from two sources. The first
is from the loan origination process whereby new loans are originated and sold
to investors and the difference in price is recorded as a gain or loss. The
second source is from the loan trading operations whereby seasoned loans are
purchased from other holders and held for resale at a profit. The increase of
$0.7 million in gain on sale of mortgage loans was attributable to an increase
in gains on sale from the loan trading operations.

Loan origination fees were $1.1 million for the six months ended June 30,
1997 and June 30, 1996. Loan originations decreased 2% to $207.7 million in the
first six months of 1997 from $212.8 million for the same period in 1996.
Although originations were down 2% in the first six months of 1997, this was due
primarily to a decline in originations during the first quarter of 1997. Loan
originations increased to $135.2 million in the second quarter of 1997 from
$72.5 million in the first quarter of 1997.

Net interest income increased 69% to $0.4 million for the six months ended
June 30, 1997 from $0.3 million for the six months ended June 30, 1996. The
increase in net interest income is attributable to a 34%

28
<PAGE>
increase in the average volume of mortgages held for sale during the first six
months of 1997 versus the first six months of 1996. AMC's mortgages are
generally sold and replaced within 30 days. AMC generally borrows at rates based
upon short-term indices, while its asset yields are primarily based on long-term
mortgage rates.

A summary of gains on sale of mortgage loans for the periods indicated is
set forth below:

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
----------------------------
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Gross proceeds on sale of mortgage loans........................ $ 223,855 $ 201,739
Net basis of mortgage loans sold................................ 221,685 198,843
------------- -------------
Net gain on mortgage loans sold................................. $ 2,170 $ 2,896
------------- -------------
------------- -------------
</TABLE>

Expenses decreased 9% to $4.6 million for the six months ended June 30, 1997
from $5.1 million for the prior year period. The $0.5 million decrease was
primarily attributable to a decrease in personnel costs to $3.1 million for the
first six months of 1997 from $3.5 million for the first six months of 1996.
During the first six months of 1996, bonuses and other additional compensation
were paid to executive officers. There was no comparable payment made during
1997.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31,
1995:

During 1996, revenue increased 36% to $11.5 million for the year ended
December 31, 1996 from $8.5 million for the year ended December 31, 1995,
primarily as a result of concentrating AMC's efforts more on loan production and
trading and less on loan servicing.

During 1996, AMC sold a substantial portion of its loan servicing portfolio,
which resulted in a 53% decrease in revenue from loan administration to $0.9
million and an increase in gain on sale of servicing rights to $2.5 million for
the year ended December 31, 1996 from $2.0 million and $0, respectively, for the
year ended December 31, 1995. The impact of AMC's reduced focus on servicing was
a net increase in fees and gain on sale of $1.4 million.

Loan origination fees increased 68% to $2.4 million for the year ended
December 31, 1996 from $1.4 million for the year ended December 31, 1995,
primarily due to an increase in mortgage loans originated in 1996 from 1995.
During 1996, AMC originated $413.2 million in loans, an increase of 63% from
1995. The increased mortgage loan originations were primarily due to an increase
in approved third party brokers included in AMC's network from 544 at December
31, 1995 to 856 at December 31, 1996.

Net interest income increased 113% to $0.9 million for the year ended
December 31, 1996 compared to $0.4 million for the year ended December 31, 1995.
The increase in net interest income is primarily attributable to the 80%
increase in the average volume of mortgages held for sale for 1996 from that of
1995.

Loan brokerage fees decreased to $0 for the year ended December 31, 1996
from $1.4 million for the year ended December 31, 1995. During 1995, AMC
received fees for negotiating the acquisition of a mortgage operation for a
third party. This acquisition was completed in 1995 and since that time AMC has
focused its efforts on production and loan trading.

The gain on sale of mortgage loans increased 59% to $4.7 million for the
year ended December 31, 1996 from $2.9 million for the year ended December 31,
1995. Gains on sale of mortgage loans are

29
<PAGE>
generated from the trading operation and the production operation. A summary of
gains on sale of mortgage loans for the periods indicated is set forth below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Gross proceeds on sale of mortgage loans.............................. $ 259,182 $ 445,956
Net basis of mortgage loans sold...................................... 256,249 441,304
---------- ----------
Net gain on mortgage loans sold....................................... $ 2,933 $ 4,652
---------- ----------
---------- ----------
</TABLE>

Expenses increased 31% to $10.3 million for the year ended December 31, 1996
as compared to $7.8 million for the year ended December 31, 1995. The increase
was primarily attributable to the $2.2 million increase in personnel costs in
1996. The expansion of the wholesale production operation resulted in an
increase in the number of employees at AMC. Total employees increased from 111
at December 31, 1995 to 130 at December 31, 1996. Personnel costs also increased
due to bonuses and other additional compensation paid to executive officers.
Other operating expenses increased 90% to $1.1 million for the year ended
December 31, 1996 due primarily to an increase in the accrual for loan losses on
repurchases. Depreciation and amortization decreased 65% to $0.3 million for the
year ended December 31, 1996 from $0.8 million for the year ended December 31,
1995. The decrease was due to a reduction in amortization of mortgage servicing
rights in 1996 from 1995 due to the sale in 1996 of a substantial portion of the
servicing portfolio.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31,
1994:

Revenue increased 44% for the year ended December 31, 1995 to $8.5 million
as compared to $5.9 million for the year ended December 31, 1994. The increase
was attributable to increases in loan origination fees, loan brokerage fees and
gain on sale of mortgage loans. Loan origination fees increased to $1.4 million
for the year ended December 31, 1995 from $0.6 million for the year ended
December 31, 1994 as a result of a substantial increase in originations. Retail
originations rose to $40.8 million for the year ended December 31, 1995 from
$30.0 million for the year ended December 31, 1994. The predominant rise in
originations came from the wholesale operations which increased 632% from $29.1
million in 1994 to $212.9 million in 1995. AMC's first year of wholesale
operations was 1994 and the rapid expansion of this operation continued in 1995.
Monthly wholesale originations rose from $4.2 million in January 1995 to $31.1
million in December 1995.

Loan brokerage fees increased to $1.4 million for the year ended December
31, 1995 from $0.5 million for the year ended December 31, 1994. During 1994 and
1995, AMC received fees for negotiating the acquisition of a mortgage operation
for a third party. The engagement began in 1994 and was completed in 1995. The
majority of the fees were received in 1995.

The gain on sale of mortgage loans increased to $2.9 million for the year
ended December 31, 1995 from $2.2 million for the year ended December 31, 1994.
A summary of gains on sale of mortgage loans for the periods indicated is set
forth below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1994 1995
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Gross proceeds on sale of mortgage loans............................... $ 73,079 $ 259,182
Net basis of mortgage loans sold....................................... 70,918 256,249
--------- ----------
Net gain on mortgage loans sold........................................ $ 2,161 $ 2,933
--------- ----------
--------- ----------
</TABLE>

30
<PAGE>
Expenses increased 50% to $7.8 million for the year ended December 31, 1995
as compared to $5.2 million for the year ended December 31, 1994. The increase
was due to an increase in personnel costs of $1.5 million, office supplies and
expense of $0.4 million and depreciation and amortization of $0.4 million.
Personnel costs and office supplies and expense increased due to the increase in
the size of the wholesale production operations which began in 1994 but had its
first full year of operation in 1995. The increase in depreciation and
amortization of mortgage servicing rights was due to a larger servicing
portfolio in 1995 versus 1994 and increased depreciation on property and
equipment from the wholesale production operation.

FINANCIAL CONDITION

JUNE 30, 1997 COMPARED TO DECEMBER 31, 1996

Mortgage loans held for sale consist of loans originated in the Loan
Origination Operations that are committed to be sold to investors and loans
acquired by the Loan Trading Operations that will be resold through agency
securitizations, agency cash window sales and in whole loan transactions.
Mortgage loans originated in the Loan Origination Operations remain on the
balance sheet for approximately 30 days until they are sold. The balance in
mortgage loans held for sale generally is equal to the current month's
originations plus loans acquired by Loan Trading Operations that have not been
sold. The balance at June 30, 1997 was $65.6 million, an increase of 26% from
the $52.1 million balance at December 31, 1996. The $13.5 million increase is
attributable to a $19.8 million increase in the balance of originated loans held
for sale and a $6.3 million decrease in loans acquired through Loan Trading
Operations held for sale. The increase in the balance of originated loans was
due to an increase in production to $50.1 million in June 1997 versus $34.6
million in December 1996.

Notes payable represent loans from banks to finance the acquisition of
seasoned loan product, the warehouse line for loan origination and to provide
working capital. The amount of notes payable outstanding is based on the balance
of mortgage loans held for sale. At June 30, 1997 notes payable were $65.5
million versus $51.6 million at December 31, 1996. This $13.9 million increase
was a result of the $17.3 million increase in mortgage loans held for sale
during the same period.

DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995

During 1996, AMC experienced a 63% increase in mortgage loan originations
compared to 1995. Mortgage loan production increased to $413.2 million during
1996 from $253.7 million during 1995. At December 31, 1996, AMC had $27.0
million in mortgage loan commitments outstanding. In addition, loans purchased
by AMC's Loan Trading Operations increased 23% to $34.2 million during 1996 from
$27.9 million during 1995.

As a result of the increased activity in these areas, mortgage loans held
for sale increased 31% to $52.1 million at December 31, 1996 as compared to
$39.7 million at December 31, 1995. AMC's servicing portfolio decreased to
$123.0 million at December 31, 1996 as compared to $405.0 million at December
31, 1995. The 70% decrease was due to the sale of a substantial portion of the
servicing portfolio in 1996.

Short-term borrowings, which are AMC's primary source of funds, totalled
$51.6 million at December 31, 1996, as compared to $39.9 million at December 31,
1995, an increase of 29%. This $11.7 million increase was a result of an
increase in mortgage loans held for sale.

LIQUIDITY AND CAPITAL RESOURCES

AMC's primary cash requirements include the funding of mortgage loans for
the loan origination and trading operations, which are met primarily through
short-term borrowings from external sources. AMC has entered into a one year,
$87.0 million warehouse line of credit provided by an unaffiliated bank that
expires in September 1997. The credit agreement includes covenants requiring AMC
to maintain (i) a

31
<PAGE>
minimum adjusted tangible net worth of $4.0 million, (ii) a maximum debt to
adjusted tangible net worth ratio of 15 to 1, (iii) a minimum current ratio of
1.05 to 1.00, and (iv) a minimum servicing portfolio of $100.0 million. In
addition, AMC has a $4.0 million warehouse line of credit with another lender
that contains similar restrictive covenants.

AMC was in compliance with the above-mentioned debt covenants at June 30,
1997. AMC does not believe that its existing financial covenants will restrict
its operations or growth. Continued availability of funds under these agreements
is subject to AMC's compliance with such covenants.

AMC has begun discussions with its lender and believes that it will be able
to extend its warehouse line of credit and that, together with available cash
flow from the operations of the Company, will be sufficient to meet AMC's
short-term liquidity needs for the foreseeable future.

CASH FLOWS

In the six months ended June 30, 1997, AMC's operating activities used cash
of $13.0 million primarily for the increase in its mortgage loans held for sale.
Investing activities provided cash of $0.6 million primarily from the proceeds
from the sale of mortgage servicing rights. Net cash provided by financing
activities was $13.9 million as a result of increases in notes payable.

In the six months ended June 30, 1996, AMC's operating activities used cash
of $6.4 million primarily for the increase in its mortgage loans held for sale.
Investing activities provided cash of $0.4 million primarily from the sale of
mortgage servicing rights. Net cash provided by financing activities was $6.4
million as a result of increases in notes payable.

In fiscal 1996, AMC's operating activities used cash of $13.2 million
primarily for the increase in its mortgage loans held for sale. Investing
activities provided cash of $2.4 million primarily from the proceeds from the
sale of mortgage servicing rights of $3.1 million. Cash was used in investing
activities to purchase $0.7 million in mortgage servicing rights. Net cash
provided by financing activities was $10.9 million as a result of increases in
notes payable of $11.7 million. Cash was used in financing activities to pay
dividends totalling $0.8 million.

In fiscal 1995, AMC's operating activities used cash of $27.2 million
primarily for the increase in its mortgage loans held for sale. The primary
investing activity for which cash was used was for the purchase of real estate
held for investment. Net cash provided by financing activities was $28.0 million
as a result of increases in notes payable.

In fiscal 1994, AMC's operating activities used cash of $8.3 million
primarily for the increase in its mortgage loans held for sale. Investing
activities provided cash of $6.9 million from a decrease in short-term
investments of $7.7 million due to the maturity of a certificate of deposit.
Cash used in investing activities was for the purchase of $0.5 million of
property and equipment and $0.2 million of mortgage servicing rights. Net cash
provided by financing activities was $0.8 million as a result of increases in
notes payable.

INFLATION

The consolidated financial statements of AMC and notes thereto presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
costs of AMC's operations. Unlike industrial companies, nearly all of the assets
and liabilities of AMC's operations are monetary in nature. As a result,
interest rates have a greater impact on AMC's performance than do the effects of
general levels of inflation. Inflation affects AMC's operations primarily
through its effects on interest rates, since interest rates normally increase
during periods of high inflation and decrease during periods of low inflation.
During periods of increasing interest rates, demand for mortgage loans and a
borrower's ability to qualify for mortgage financing in a purchase transaction
may be adversely affected.

32
<PAGE>
BUSINESS

GENERAL

The Company is a self-managed, self-administered REIT, which has been
recently formed to invest in Mortgage Assets. Through AMC the Company will also
engage in Mortgage Banking and Loan Trading Operations. Management believes that
the Company's mortgage investments and mortgage banking operations will be
complementary and allow for enhanced performance by both operations.

The Company's principal objectives are (i) to provide investors with
attractive returns on equity by purchasing Mortgage Assets for investment and
leveraging available returns with short-term financings, and by hedging a
significant portion of the interest rate risk associated with such financings
through the use of interest rate caps, swaps and similar hedging instruments,
(ii) to identify market opportunities that allow the Company to acquire Mortgage
Assets with attractive, risk adjusted yields, and (iii) to a lesser extent
benefit from the expansion of the mortgage origination, servicing and trading
businesses of AMC by providing AMC with credit support and a well-financed,
affiliated investor for its Mortgage Asset originations and acquisitions.

BUSINESS STRATEGY

Management believes that the investment focus of the Portfolio Operations
and the asset generating, operating, management and servicing capabilities of
AMC are complementary and will provide the Company with the flexibility and
infrastructure to create a mortgage investment vehicle that delivers attractive,
risk adjusted total returns to investors. Substantially all of the initial
investments for the Portfolio Operations will be Agency Certificates which will
allow the Company to deploy capital quickly, with expected returns on equity
consistent with its principal objectives. Upon completion of the Offering, the
Company intends to immediately begin acquiring and originating Mortgage Loans
for investment by the Portfolio Operations through the Loan Trading Operations
and Loan Origination Operations of AMC.

33
<PAGE>
The primary components of the Company's business objectives and strategy are
summarized as follows:

- Create a high-growth mortgage investment vehicle that delivers attractive,
risk adjusted total returns to investors.

- Structure a tax-advantaged mortgage investment operation by using a REIT
structure.

- Increase returns on equity through an appropriate use of leverage for each
asset group, while employing hedging strategies designed to manage the
associated interest rate risk.

- Utilize AMC's Mortgage Banking and Loan Trading Operations as a source of
assets for the Portfolio Operations.

- Employ increased capital to expand the Mortgage Banking and Loan Trading
Operations to generate dividend income to the Company from AMC's net
income.

- Diversify the Company's asset base and asset acquisition sources.

MANAGEMENT

PORTFOLIO OPERATIONS

GENERAL

The Company's Portfolio Operations will consist of the acquisition of
Mortgage Assets for long-term investment. It is expected that these Mortgage
Assets will be principally fixed-rate Mortgage Loans and Agency Certificates
backed by fixed-rate single family mortgage loans. Cash flow from the Portfolio
Operations will be generated from the difference between (i) the interest income
received by the Company on the Agency Certificates and other Mortgage Assets
acquired and held in its portfolio and (ii) the net interest paid by the
Company, on borrowings used to purchase Agency Certificates and other Mortgage
Assets, net of associated hedging costs and credit losses where applicable.
Mortgage Asset investments will be financed with a portion of the Company's
capital, as well as with borrowings provided through reverse repurchase and
dollar reverse repurchase agreements, bank warehouse financings, other
short-term borrowings and securitizations.

AGENCY CERTIFICATES

A substantial majority of the Company's investments in Mortgage Assets are
expected to be comprised of Agency Certificates primarily issued by GNMA, and to
a lesser extent FNMA and FHLMC. The Agency Certificates to be acquired by the
Company generally will represent interests in fixed-rate mortgage loans secured
primarily by first priority liens on single-family (one-to-four units)
residential properties. The Company also may invest in Agency Certificates that
represent interests in adjustable rate Mortgage Loans ("ARMs") secured by liens
on single-family residential properties or Agency Certificates

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representing interests in Mortgage Loans secured by liens on other types of
properties and second priority liens on residential properties. The Company
expects that GNMA Certificates will comprise a substantial majority of its
Agency Certificate investments.

GNMA CERTIFICATES. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development ("HUD").
Section 306(g) of Title III of the National Housing Act of 1934, as amended (the
"Housing Act"), authorizes GNMA to guarantee the timely payment of the principal
of and interest on certificates that represent a pool of mortgage loans insured
by the FHA under the Housing Act or Title V of the Housing Act of 1949, or
partially guaranteed by the VA under the IRS's Readjustment Act of 1944, as
amended, or Chapter 37 of Title 38, United States Code and other loans eligible
for inclusion in mortgage pools underlying GNMA Certificates. Section 306(g) of
the Housing Act provides that "the full faith and credit of the United States is
pledged to the payment of all amounts which may be required to be paid under any
guaranty under this subsection." To meet its obligations under its guaranties,
GNMA is authorized under Section 306(d) of the Housing Act, to borrow from the
United States Treasury with no limitation as to amount. An opinion, dated
December 1, 1969, of an Assistant Attorney General of the United States provides
that such guarantees under Section 306(g) of GNMA Certificates of the type that
may be purchased or received in exchange by the Company are authorized to be
made by GNMA and "would constitute general obligations of the United States
backed by its full faith and credit."

It is expected that substantially all of the GNMA Certificates to be
acquired by Company will be recently issued and backed by pools of fixed rate
residential Mortgage Loans. To the extent deemed appropriate by management, the
Company may acquire GNMA Certificates backed by pools of ARM's.

FNMA CERTIFICATES. FNMA is a privately owned, federally chartered
corporation organized and existing under the Federal National Mortgage
Association Charter Act (12 U.S.C. Section 1716 et. seq.). FNMA provides funds
to the mortgage market primarily by purchasing home mortgage loans from local
lenders, thereby replenishing their funds for additional lending. FNMA
guarantees to the registered holder of a FNMA Certificate that it will
distribute amounts representing scheduled principal and interest (at the rate
provided by the FNMA Certificate) on the mortgage loans in the pool underlying
the FNMA Certificate, whether or not received, and the full principal amount of
any such mortgage loan foreclosed or otherwise finally liquidated, whether or
not the principal amount is actually received. The obligations of FNMA under its
guarantees are solely those of FNMA and are not backed by the full faith and
credit of the United States. If FNMA were unable to satisfy such obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.

It is expected that any FNMA Certificates to be acquired by the Company will
be backed by pools of single-family residential mortgage loans. The original
terms to maturity of the underlying mortgage loans generally will not exceed 40
years. The Company expects to invest primarily in FNMA Certificates that pay
interest at a fixed rate, although FNMA Certificates backed by ARMs also may be
purchased.

FHLMC CERTIFICATES. FHLMC is a privately-owned government-sponsored
enterprise created pursuant to an Act of Congress (Title III of the Emergency
Home Finance Act of 1970, as amended, 12 U.S.C. Sections 1451-1459), on July 24,
1970. The principal activity of FHLMC currently consists of the purchase of
conventional conforming mortgage loans or participation interests therein and
the resale of the loans and participations so purchased in the form of
guaranteed mortgage securities. FHLMC guarantees to each holder of FHLMC
Certificates the timely payment of interest at the applicable pass-through rate
and ultimate collection of all principal on the holder's pro rata share of the
unpaid principal balance of the related mortgage loans, but does not guarantee
the timely payment of scheduled principal of the underlying mortgage loans. The
obligations of FHLMC under its guarantees are solely those of FHLMC and are not
backed by the full faith and credit of the United States. If FHLMC were unable
to satisfy such

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obligations, distributions to holders of FHLMC Certificates would consist solely
of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.

It is expected that any FHLMC Certificates to be acquired by the Company
will be backed by pools of single-family residential mortgage loans. Such
underlying mortgage loans generally will have original terms to maturity of up
to 40 years. FHLMC Certificates may be issued under Cash Programs (comprised of
mortgage loans purchased from a number of sellers) or Guarantor Programs
(comprised of mortgage loans purchased from one seller in exchange for
participation certificates representing interests in the Mortgage Loans
purchased). Any FHLMC Certificates to be acquired by the Company generally will
pay interest at a fixed rate, although FHLMC Certificates backed by ARMs also
may be purchased.

MORTGAGE LOAN INVESTMENTS

The Company plans to originate or acquire, through AMC's network of mortgage
brokers and retail branches or in the secondary market, and invest substantially
all of its Mortgage Loan portfolio in (i) Owner-Financed Mortgage Loans, (ii)
Seasoned Mortgage Loans, and (iii) Non-Conforming Mortgage Loans.

Owner-Financed Mortgage Loans are available for investment at attractive
risk-adjusted yields because they are generally sold on a loan-by-loan basis by
individual brokers with the pricing of each loan individually negotiated. This
results in a secondary market for such loans that is private and relatively
inefficient when compared with the market for Conforming Mortgage Loans. In
addition, the documentation and underwriting of such loans typically do not meet
the standards of the established secondary mortgage market. These market and
loan characteristics tend to limit the number of institutional buyers actively
participating in this market, resulting in non-competitive pricing for this type
of Mortgage Loan. The Company believes that through AMC it has the experience,
market presence and servicing capabilities to effectively acquire Owner-Financed
Mortgage Loans at attractive risk-adjusted yields. Further, the Company believes
that through AMC it has the experience and operating capabilities to increase
the market value of the Owner-Financed Mortgage Loans it acquires by correcting
deficiencies in collateral documentation, providing experienced loan servicing,
using a consistent approach to evaluating and re-underwriting and consolidating
them into pools suitable for the broader secondary market than the market from
which they were acquired.

Similarly, the secondary market for Seasoned Mortgage Loans is fragmented
and such Mortgage Loans are available at attractive risk-adjusted yields;
however, at yields somewhat less than expected for Owner-Financed Mortgage
Loans. Seasoned Mortgage Loans are generally offered on a pool rather than on a
loan-by-loan basis by thrifts, banks, insurance companies and other financial
institutions. Often the pools of Seasoned Mortgage Loans are unable to be sold
in traditional secondary mortgage markets due to the limited size of a pool or
because the Mortgage Loans within a pool differ in certain respects including
documentation quality, underwriting standards, loan-to-value ratio, loan type,
property type or payment history. Similar to Owner-Financed Mortgage Loans, the
Company believes that it can acquire Seasoned Mortgage Loans at attractive
risk-adjusted yields and enhance the value of such Mortgage Loans by correcting
deficiencies, if necessary, and pooling them by similar attributes whereby the
Company may either sell such pools in the established secondary mortgage market
to government sponsored agencies or nationwide mortgage conduits or hold such
pools for investment.

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OTHER MORTGAGE ASSETS

Subject to the approval of the Board of Trustees and consistent with its
REIT status, the Company may invest in other Mortgage Assets. Such other
Mortgage Assets may include larger commercial Mortgage Loans, mortgage
derivative securities, such as interest only and principal only securities,
mortgage-backed securities that represent subordinated interests in pools of
Mortgage Loans, whole-loan participations, collateralized mortgage obligations
and any other Mortgage Assets the Board of Trustees deems appropriate.

AFFILIATE PURCHASES POLICY

The Company expects that substantially all of its Mortgage Assets will be
acquired either directly from AMC or indirectly from sources identified by AMC.
The Company's Board of Trustees has adopted a policy pursuant to which certain
purchases of Mortgage Assets directly from AMC must be approved by the
Independent Trustees. In deciding whether to approve such a transaction, the
Independent Trustees will consider whether the terms and conditions of such
transaction are no less favorable than the Company would obtain in arms length
negotiations with an unrelated similarly situated party.

FINANCING STRATEGIES

The Company intends to employ a leveraging strategy to increase its
investment assets by borrowing against existing Mortgage Assets and using the
proceeds to acquire additional Mortgage Assets. By leveraging its Mortgage Asset
investments in this manner, the Company expects initially that approximately 85%
of the Company's total Mortgage Assets may be financed with borrowed funds. The
Company set this level of borrowing to provide it with a reasonable capital base
as a hedge against interest rate environments in which the Company's net
borrowing costs, net of associated hedging costs and credit losses, might exceed
its interest income from Mortgage Assets. These conditions could occur when the
weighted interest rate of the Company's variable rate borrowings exceeds the
weighted interest rate of the Company's Mortgage Assets. See "Risk Factors--Risk
of Substantial Leverage and Potential Net Interest and Operating Losses in
Connection with Borrowings." The Company intends to enter into the
collateralized borrowings described herein only with institutions it believes
meet credit standards approved by the Company's Board of Trustees.

The Company's Mortgage Asset acquisitions will be financed primarily at
short-term borrowing rates through reverse repurchase agreements and, to a
lesser extent, dollar reverse repurchase agreements, bank warehouse financing
and borrowings under lines of credit and other collateralized financings which
the Company may establish with approved institutional lenders. It is expected
that reverse repurchase agreements and, to a lesser extent, dollar reverse
repurchase agreements will be the principal financing devices utilized by the
Company to leverage its portfolio of Mortgage Assets. The Company anticipates
that upon repayment of each reverse repurchase agreement or dollar reverse
repurchase agreement, the underlying collateral normally will be pledged
immediately to secure a new reverse repurchase agreement or will be sold
pursuant to a new dollar reverse repurchase agreement.

A reverse repurchase agreement, although structured as a sale and repurchase
obligation, is treated as a financing transaction for tax and GAAP purposes,
pursuant to which the Company will pledge the Mortgage Assets it purchases as
collateral to secure a short-term loan. Generally, the other party to the
agreement will make the loan in an amount equal to a percentage of the market
value of the pledged collateral. At the maturity of the reverse repurchase
agreement, the Company is required to repay the loan and correspondingly
receives back its collateral. The Company continues to receive the principal and
interest paid on the Mortgage Assets while pledged. The Company intends to enter
into reverse repurchase agreements primarily with national broker/dealers,
commercial banks and other lenders which typically offer such financing. The
Company believes that the firms selected to provide such financing will be
financially sound institutions meeting the Company's approved credit standards.

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Similar to a reverse repurchase agreement as a method of financing Mortgage
Assets, a dollar reverse repurchase agreement is a transaction in which the
Company sells mortgage securities for delivery on a specified future date and
simultaneously contracts to repurchase the same or substantially the same type
of security on a specified future date. During the roll period, the Company
forgoes the principal and interest payments on the security. The Company,
however, is compensated by the interest earned on the cash proceeds of the
initial sale and by the typically lower repurchase price of the security at the
future date. Because such agreement provides funds to the Company for the period
of the agreement, its value can be expressed in terms of an "implied financing
rate." This method of financing is favorable to the Company when the repurchase
price is low enough in comparison to the initial sale price so that the implied
financing rate is below other alternative short-term borrowing rates (e.g., the
rate for reverse repurchase agreements or other short-term borrowings). Because
dollar reverse repurchase agreements generally are treated as sales and
repurchases, rather than as borrowings, for federal income tax purposes, the
Company's ability to enter into dollar reverse repurchase agreements may be
limited in order to enable the Company to satisfy the 75% asset test. In
addition, the Company's ability to enter into dollar reverse repurchase
agreements may be limited in order to avoid being treated as an investment
company for purposes of the Investment Company Act. See "Federal Income Tax
Considerations--Requirements for Qualification--Asset Tests" and "--Taxation of
AMC" and "Risk Factors--Investment Company Act Risks."

HEDGING

The Company intends to enter into hedging transactions against the
variable-rate indebtedness incurred by the Company to finance its acquisition of
Mortgage Assets to provide protection from interest rate fluctuations or other
market movements. The Company does not intend to hedge for speculative purposes.
With respect to indebtedness, hedging can be used to limit, fix, or cap the
interest rate on variable interest rate indebtedness. The Company also intends
to utilize asset-liability management techniques to mitigate the effects of
interest rate fluctuations on its interest income.

The Company's hedging activities may include interest rate swaps, the
purchase of interest rate caps or floors (or options to purchase such
instruments), futures contracts, and the purchase of REMIC interests ("Mortgage
Derivative Securities"). The Company intends to hedge against interest rate
increases primarily by purchasing Qualified Hedges. A "Qualified Hedge" for this
purpose is a bona fide interest rate swap or cap agreement, option, futures
contract, forward rate agreement, or any similar financial instrument entered
into by the Company to hedge any variable rate indebtedness that the Company
incurs to acquire or carry assets that are "real estate assets" for purposes of
Code section 856(c)(6). Income and gain from Qualified Hedges are qualifying
income for purposes of the 95%, but not the 75% gross income test. See "Federal
Income Tax Considerations--Requirements for Qualification--Income Tests."

In a typical interest rate cap (or floor) agreement, the cap (or floor)
purchaser makes an initial lump sum cash payment to the cap (or floor) seller in
exchange for the seller's promise to make cash payments to the purchaser on
fixed dates during the contract term if prevailing interest rates exceed (or are
less than) the rate specified in the contract. Financial futures contracts
typically involve such instruments as Treasury Bills or Eurodollar contracts. A
futures contract creates the obligation to receive or deliver a specific
financial instrument at a specified future date and price or pay the cash
settlement price with respect to those instruments which are settled in cash.
Options on financial futures contracts are similar to options on securities
except that a futures option gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract and obligates the
seller to deliver that position. Financial futures contracts and options on
financial futures contracts are classified as "commodities" under the U.S.
Commodity Exchange Act and may also be classified as "securities" for securities
law purposes. The Company does not intend to invest in any other types of
commodities and will not engage in commodities trading. The Company will not
invest in futures contracts, options on futures contracts or options on
commodities unless the Company is exempt from the registration requirements of
the Commodities

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Exchange Act or otherwise complies with the provisions of that Act. The purchase
of Mortgage Derivative Securities can be an effective hedging strategy in
certain situations, as these investments tend to increase in value and their
yields tend to increase as interest rates rise. The Company intends to limit its
purchases of Mortgage Derivative Securities to those investments qualifying as
real estate assets. Income from such investments generally is qualifying income
for purposes of the 95% and 75% gross income tests. See "Federal Income Tax
Considerations--Requirements for Qualification--Income Tests."

These hedging transactions are designed to preserve the value of the
Company's portfolio in changing interest rate environments. However, no hedging
strategy can completely insulate the Company from such risks. The Company
intends to carefully monitor and may have to limit its hedging strategies to
assure that it does not realize excessive hedging income, or hold hedging assets
having excess value in relation to total assets, which could result in the
Company's disqualification as a REIT or, in the case of excess hedging income,
the payment of a penalty tax for failure to satisfy certain REIT income tests
under the Code, provided such failure was due to reasonable cause. See "Federal
Income Tax Considerations--Requirements for Qualification Income Tests."

In addition, hedging involves transaction costs, and such costs increase
dramatically as the period covered by the hedging protection increases.
Therefore, the Company may be prevented from effectively hedging its
variable-rate indebtedness incurred to acquire Mortgage Assets. Certain losses
incurred in connection with hedging activities may be capital losses that would
not be deductible to offset ordinary REIT income. In such a situation, the
Company would have incurred an economic loss of capital that would not be
deductible to offset the ordinary income from which dividends must be paid. See
"Federal Income Tax Considerations--Requirements for Qualification--Distribution
Requirements."

The Company also intends to manage its assets and liabilities in a manner
designed to mitigate the effects of interest rate fluctuations on its interest
income from Mortgage Assets. For example, the Company may acquire principal-only
mortgage related securities as a means of mitigating the effects of Mortgage
Loan prepayments, which generally increase during periods of declining interest
rates.

MORTGAGE BANKING AND LOAN TRADING OPERATIONS

BUSINESS

AMC is a full-service mortgage banking firm that was formed in 1981. AMC's
three primary businesses are its (i) Loan Trading Operations, (ii) Loan
Origination Operations, and (iii) Loan Servicing Operations. AMC historically
has focused its origination, investment, trading and servicing operations on the
residential mortgage loan market.

LOAN TRADING OPERATIONS. In 1993, AMC established its Loan Trading
Operations. To date, such operations have focused on acquiring, for trade and
investment, Seasoned Mortgage Loans and participations in residential Seasoned
Mortgage Loans. Since inception, AMC has traded Mortgage Loans and
participations with a principal amount in excess of $120.0 million. AMC has
recently expanded its acquisition of Owner-Financed Mortgage Loans.

AMC generally acquires Seasoned Mortgage Loans in bulk or in portfolio
sales. The majority of AMC's Seasoned Mortgage Loan acquisitions are secured by
first priority liens on one-to-four unit single family residential properties
with values at origination of less than $250,000. A portfolio typically includes
both fixed and adjustable rate Mortgage Loans, but with a strong concentration
of fixed rate loans. Seasoned Mortgage Loan portfolios are purchased from
various sellers who, in some cases, have originated the loans; but in many cases
such sellers have acquired the loan portfolios in bulk purchases or as the
result of company acquisitions or mergers.

Typically a seller offers a Seasoned Mortgage Loan portfolio for sale in
order to provide liquidity, to meet regulatory requirements, to liquidate
assets, to restructure its portfolio, or for other business reasons. AMC
actively solicits brokers and lenders for Seasoned Mortgage Loans, and over the
years has built

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relationships with several brokers and lenders who provide a regular flow of
potential acquisitions to the Loan Trading Operations. AMC generates other
potential acquisitions of Seasoned Mortgage Loans from investor contact through
its Servicing Operations or through its direct marketing operations that contact
lending institutions located throughout the United States.

AMC considers several factors in evaluating and pricing Mortgage Loans and
performs comprehensive due diligence on each Mortgage Loan portfolio that it
purchases. These procedures consist of reviewing and analyzing all, or in cases
of larger portfolios a representative sample, of the Mortgage Loans in the
portfolio and are typically performed by AMC employees. The underwriter takes
into account many factors in analyzing the Mortgage Loans in the subject
portfolio, including the general economic conditions in the geographic area or
areas in which the underlying properties are situated, the original
loan-to-value ratios, the payment histories of the borrowers, and other
pertinent statistics. In addition, the underwriter attempts to verify the extent
to which the mortgage loan documentation conforms to the standards for loan
documentation set by FNMA and FHLMC. In cases where a significant portion of the
portfolio Mortgage Loan contains non-conforming documentation, AMC assesses the
additional risk involved in purchasing such Mortgage Loans. Once the
underwriting and due diligence process is complete, AMC determines whether the
Mortgage Loan portfolio meets its acquisition criteria and, if it does, the
range of appropriate pricing.

In many cases, the Seasoned Mortgage Loan portfolios that AMC acquires are
purchased at a discount to the outstanding principal balance thereof. In a
typical portfolio, most of the Mortgage Loans are performing, with the majority
being of Conforming Mortgage Loan quality. Some Mortgage Loans may have had
payment problems and/or document deficiencies in the past. Document deficiencies
are identified in the due diligence process and, to the extent practical, are
cured by AMC prior to reselling the loans. Ineffective servicing or several
servicing transfers of the loans over a short period of time may result in
payment deficiencies. Because many considerations may impact pricing or yield,
each Mortgage Loan package evaluated is priced based on the specific underlying
loan characteristics. Management believes that such discount portfolios afford
AMC an attractive arbitrage opportunity to the extent that the aggregate value
of Mortgage Loans, after the appropriate evaluation, re-underwriting or
servicing, exceeds the discounted purchase price.

Owner-Financed Mortgage Loans represent obligations of a purchaser of real
estate and are created by the seller thereof to finance the purchaser's
acquisition. The substantial majority of Owner-Financed Mortgage Loans are first
lien priority, fixed rate and fully amortizing. These Owner-Financed Mortgage
Loans are secured by residential, multi-family, commercial and retail property
as well as unimproved land. It is expected that the majority of the
Owner-Financed Mortgage Loans AMC will identify or acquire will be secured by
residential real estate. Owner-Financed Mortgage Loans are generally purchased
at a discount from their outstanding balance to achieve a desired yield to
maturity. A purchaser may acquire the entire Owner-Financed Mortgage Loan, or
instead may acquire a partial stream of the remaining payments where the
seller's right to the unsold portion of the Owner-Financed Mortgage Loan balance
is subordinate to the stream of payments purchased.

Due to the non-uniform characteristics applicable to the Owner-Financed
Mortgage Loans, the secondary market for such Mortgage Loans is largely private
in nature with only a few major participants. As a consequence, there is no
widely accepted information or data base on the total size of the market for any
specific period or the aggregate number of Owner-Financed Mortgage Loans
available for sale at any time. The Company believes that the current management
team has developed a sufficient network of sources of Owner-Financed Mortgage
Loans to successfully implement its business strategy relating to Owner-Financed
Mortgage Loans.

AMC intends to acquire Owner-Financed Mortgage Loans through a multi-channel
acquisition program which will be conducted on a nationwide basis and primarily
focused on acquisitions from independent mortgage brokers, that currently are
the predominant source of Owner-Financed Mortgage

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Loans. This source of Owner-Financed Mortgage Loans will be identified from
AMC's existing database of such mortgage brokers, or solicited through
advertisements in trade publications, or from attendance at trade shows. AMC
also will utilize its wholesale Loan Origination Operations network of over 800
approved mortgage brokers to solicit for Owner-Financed Mortgage Loans. AMC also
may acquire directly from sellers of property, or through contacts with
developers, accountants, probate attorneys, bank trust officers and others. AMC
believes its efficient underwriting guidelines and the ability to close
transactions in a timely manner will allow it to effectively acquire
Owner-Financed Mortgage Loans.

Because Owner-Financed Mortgage Loans are originated by the seller of a
property, they typically are subject to terms and conditions negotiated to
satisfy the unique needs of a particular private transaction and the particular
requirements of the buyer and seller. Therefore, the underwriting of these loans
requires careful evaluation of the related loan documentation and terms. AMC's
acquisition of Owner-Financed Mortgage Loans is distinguishable from the
origination or acquisition of Conforming Mortgage Loans which involves
standardized documentation and terms, substantial contact by lenders with each
borrower and the ability to perform extensive property evaluation prior to
granting a loan.

Once AMC identifies an Owner-Financed Mortgage Loan through its marketing
channels, it gives the information to one of AMC's contract buyers. The contract
buyer makes an initial evaluation of the Owner-Financed Mortgage Loan's
characteristics to verify that it satisfies the requirements for the particular
type of submission and submits it to its underwriting department. The
underwriters evaluate the available information concerning the Owner-Financed
Mortgage Loans including proposed loan amount to collateral value, the property
type, the proposed discount factor, the payor's credit and payment history, the
interest rate, the demographics of the region where the collateral is located,
and the potential for environmental risks. Currently, the ratio of the total
investment in an Owner-Financed Mortgage Loan compared to the value of the
property which collateralized the Owner-Financed Mortgage Loan generally will
not exceed 70% to 80% on Owner-Financed Mortgage Loans collateralized by single
family residences; 30% to 70% on Owner-Financed Mortgage Loan's collateralized
by other types of improved property such as commercial property; and 55% on
unimproved land. Management believes such collateral ratio requirements
generally provide a higher level of collateral protection in the event of a
default on an Owner-Financed Mortgage Loan when compared with Conforming
Mortgage Loans.

Based upon AMC's underwriting guidelines, the underwriters may approve the
acquisition or change the terms of the acquisition, such as limiting the
acquisition to a partial purchase in order to decrease its total investment risk
and improve the related collateral ratio. Once the Owner-Financed Mortgage Loan
is approved in principle, a current market valuation of the collateral is
determined. These valuations generally consist of (i) an appraisal by an
approved licensed appraiser or brokers price opinion, or (ii) review of the
county tax property value assessment records or (iii) a review of comparable
sales data in the area. When traditional appraisals are obtained, they are
generally based on a drive-by inspection of the collateral and comparative sales
analysis. The appraiser generally does not have access to the property for an
interior inspection.

The approved Owner-Financed Mortgage Loan is provided to AMC's closing
department where the property title is evaluated and the legal documents and the
valuation of collateral are reviewed. Upon completion of the underwriting
process and review, appropriate closing and transfer documents are executed by
the seller and/or mortgage broker, transfer documents are recorded, and the
transaction is closed.

LOAN ORIGINATION OPERATIONS. AMC commenced its Loan Origination Operations
in 1993. AMC originates loans on both the wholesale and retail level. AMC's
wholesale Loan Origination Operations are conducted in over 20 states through a
network of over 800 approved mortgage brokers who provide Conforming and
Non-Conforming Mortgage Loans to AMC for sale to permanent investors, who
generally service the loans. Since January 1, 1996, AMC has funded loans from
over 300 of such mortgage brokers. AMC also originates primarily Conforming
Mortgage Loans through a network of six retail sales

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offices throughout Texas for sale to permanent investors, who generally service
the loans. Retail Mortgage Loans historically have accounted for approximately
15% of AMC's total loan production. The majority of the Mortgage Loans
originated by AMC will be Conforming Mortgage Loans, although AMC recently has
begun to originate Non-Conforming Mortgage Loans.

Conforming Mortgage Loans comply with the requirements for inclusion in a
loan guarantee program sponsored by either FHLMC or FNMA. AMC also may originate
or acquire FHA Loans or VA Loans, which qualify for inclusion in a pool of
Mortgage Loans guaranteed by GNMA. Under current regulations, the maximum
principal balance allowed on conforming Mortgage Loans ranges from $207,000
($310,500 for loans secured by properties located in either Alaska or Hawaii)
for one-unit to $397,800 ($596,700 for Mortgage Loans secured by properties
located in either Alaska or Hawaii) for four-unit residential loans.
Nonconforming Mortgage Loans are single or multi-family Mortgage Loans that do
not qualify in one or more respects for purchase by FNMA or FHLMC.

Non-Conforming Mortgage Loans are primarily originated through AMC's
wholesale operations and AMC has recently begun to originate Mortgage Loans for
borrowers with "B" or "C" risk characteristics. Loan applications received from
potential borrowers are classified according to certain characteristics,
including, but not limited to, the condition of the underlying property, credit
history of the applicant, ability to pay, loan-to-value ratio and general
stability of the applicant in terms of employment history and time in residence.
AMC has adopted classifications with respect to the credit profile of an
applicant that are in conformity with the requirements of a national mortgage
conduit specializing in the purchase of "subprime" mortgage loans. Each loan is
placed into one of five rating categories, each denominated by a letter: "A-1,"
"A-2," "B," "C" or "D". The classification grades denote the relative status of
an applicant as a sub-prime borrowing candidate in accordance with AMC's
criteria; accordingly an "A-1" or "A-2" classification does not mean that the
applicant is a candidate for a Conforming Mortgage Loan. Terms of loans, as well
as maximum loan-to-value ratios and debt-to-income ratios, vary depending on the
applicant's classification. Loan applicants with less favorable credit
classifications are generally offered loans with higher interest rates and lower
loan-to-value ratios than applicants with more favorable credit classifications.
AMC uses the foregoing categories and characteristics as guidelines only and may
modify or change them in the future. On a case-by-case basis, AMC may determine
that a prospective borrower warrants an exception, if sufficient compensating
factors exist. Examples of such compensating factors are: low loan-to-value
ratio, low debt ratio, long-term stability of employment and/or residence,
excellent payment history on past mortgages, or a significant reduction in
monthly housing expenses.

Prior to originating or purchasing Mortgage Loans, AMC obtains a purchase
commitment from an institutional purchaser. AMC generally delivers loans and
receives payments for the loans shortly after funding. The Company currently
sells most of its Mortgage Loans to national mortgage banks such as Norwest
Mortgage, Inc. Following the completion of the offering, the Company is expected
to be the permanent investor for a substantial portion of AMC's Non-Conforming
Mortgage Loans. The presence of the Company, as a well-financed investor for a
portion of AMC's Mortgage Loan originations, will enable AMC to increase its
Mortgage Loan production and to achieve certain operating efficiencies. For the
year ended December 31, 1996, AMC funded Mortgage Loans in an aggregate
principal amount of $413 million.

LOAN SERVICING OPERATIONS. Upon acquisition by Liberty Resources, Inc. in
1990, AMC's primary business was its Loan Servicing Operations, which consisted
of the acquisition of servicing portfolios from the Resolution Trust
Corporation. By 1993, AMC was servicing over 14,000 loans with an aggregate
unpaid principal balance of approximately $425 million. In 1996, AMC sold a
substantial portion of its servicing portfolio because of the premium valuations
being placed on servicing portfolios and AMC's desire to focus its investment
activities on loan production and trading. Currently, AMC's servicing operations
are utilized primarily as support for its production and investment operations.
While the Company believes that the current returns on newly-originated
servicing are not attractive, AMC may in the future selectively

42
<PAGE>
invest in servicing portfolios where management believes that the returns are
consistent with the Company's return thresholds, operating policies and
strategies.

At June 30, 1997, AMC serviced approximately 4,800 mortgage loans with an
aggregate principal balance of approximately $155 million, which included
approximately 1,900 mortgage loans with an aggregate principal balance of $21
million for its own account.

Servicing mortgage loans involves an agreement with the owner of a mortgage
loan, the investor, to receive a fee for processing and administering loan
payments. This processing involves collecting monthly mortgage payments on
behalf of investors, reporting information to those investors on a monthly
basis, and maintaining custodial escrow accounts for the payment of principal
and interest to investors and property taxes and insurance premiums on behalf of
borrowers. Servicing mortgage loans also involves foreclosure or workouts with
the borrower on behalf of investors for defaulted loans.

As compensation for its mortgage servicing activities, AMC receives
servicing fees, typically ranging from 0.25% to 0.75% per annum of the loan
balances serviced, plus any late charges collected from delinquent borrowers and
other fees incidental to the services provided. In the event of a default in
payment by the borrower, AMC receives no servicing fees until the default is
cured.

Mortgage Loan servicing is provided on a nonrecourse or recourse basis. To
the extent that servicing is done on a recourse basis, the servicer is exposed
to credit risk with respect to the underlying loan in the event of default.
AMC's policy is to accept only a limited number of servicing assets on a
recourse basis and currently has virtually no recourse servicing. Additionally,
many of the nonrecourse mortgage servicing contracts owned by AMC require it to
advance all or part of the scheduled payments to the related investor in the
event of a default in payment by the borrower. Certain investors also require
AMC to advance insurance premiums and tax payments on a scheduled basis out of
its own funds. AMC, therefore, bears the funding costs associated with making
such advances. If the delinquent mortgage loan does not become current, these
advances are typically not recovered until foreclosure or final liquidation of
the mortgage loan.

Mortgage servicing rights represent a contract right to service a mortgage
loan and not a beneficial ownership interest in such mortgage loan. Servicing
rights are generally terminable at the option of the investor and failure to
service the loans in accordance with contract requirements may lead to the
termination of the servicing rights and the loss of future servicing fees in
addition to any other liability that may result from such failure. To date,
AMC's mortgage servicing rights have not been terminated by any related investor
due to any failure by AMC to service the loans in accordance with its
contractual obligations.

AMC utilizes an internal data processing system licensed by FICS, one of the
most widely used personal computer based mortgage banking servicing systems in
the United States, to administer its servicing portfolio. Management believes
that this system provides AMC with sufficient capacity to support expansion of
its residential mortgage loans servicing portfolio to 50,000 loans.

EMPLOYEES

AMC currently has 130 employees and believes that its relationships with its
employees are good. AMC is not a party to any collective bargaining agreement.
It is expected that a majority of the employees of AMC will also be employees of
the Company.

FACILITIES

The Company's executive offices and administrative facilities are located
within AMC's 22,500 square feet of office space in Houston, Texas. The Company
subleases its facilities from AMC pursuant to a Sublease Agreement expiring in
February 1998. The aggregate monthly rental of the facility is $13,074. AMC
conducts its servicing operations in Oklahoma City, Oklahoma, subleasing a 7,427
square feet facility

43
<PAGE>
for a base rent of $5,106 pursuant to a Sublease Agreement expiring November 30,
1998. AMC's retail operations are located in six branch offices throughout Texas
with lease expiration terms ranging from November 25, 1997 to January 31, 2000,
and one lease with a month to month renewal option. The aggregate base rent
under such leases is $9,103 per month. Finally, AMC conducts its wholesale
operations from six branch offices located throughout the United States with an
aggregate monthly rent of $7,556. Management believes that the terms of the
sublease are as least as favorable as could have been obtained from an
unaffiliated third party. Management believes that these facilities are adequate
for the Company's and AMC's foreseeable needs, and that alternate space at
comparable rental rates is available, if necessary.

LEGAL PROCEEDINGS

Neither the Company nor AMC is a party to any material legal proceedings.

44
<PAGE>
MANAGEMENT

TRUSTEES AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
Trustees, Trustee nominees and executive officers of the Company immediately
after the closing of the Offering:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- -----------------------------------------------------------
<S> <C> <C>
James E. Day 41 Managing Director, Co-Chairman of the Board of Trustees
(Term will expire in 2000)
Patrick A. Walden 43 Managing Director, Co-Chairman of the Board of Trustees
(Term will expire in 2000)
* Independent Trustee (Term will expire in 1999)
* Independent Trustee (Term will expire in 1999)
* Independent Trustee (Term will expire in 1998)
</TABLE>

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

* Has agreed to be nominated as a Trustee, but is not expected to become a
Trustee until immediately after the consummation of the Offering.

The following are biographical summaries of the Trustees, Trustee nominees
and executive officers of the Company:

JAMES E. DAY has served as a Managing Director, Trustee and Co-Chairman of
the Board of Trustees of the Company since its formation. Mr. Day is also a
Managing Director and director of AMC. From 1985 through 1996, Mr. Day was the
Executive Vice President and Chief Financial Officer of Guardian Savings and
Loan Association, a Houston, Texas based savings and loan association. Mr. Day's
responsibilities at Guardian included management of its $3 billion mortgage
backed securities portfolio. From 1984 to 1985, Mr. Day served as the Senior
Vice President--Finance of First South Savings Association. Previously, he was
an accountant with Arthur Young and Company in Houston. Mr. Day holds B.A. and
M.A. degrees from Rice University.

PATRICK A. WALDEN has served as a Managing Director, Trustee and Co-Chairman
of the Board of Trustees of the Company since its formation. Mr. Walden also
serves as a Managing Director and Chief Executive Officer and Director of AMC
and has been involved with AMC since 1993. From 1983 to 1993, Mr. Walden served
in various executive positions in the mortgage banking and residential loan
operations for First Gibraltar Bank, FSB and its subsidiaries and predecessors.
Most recently, Mr. Walden served as Executive Vice President and Chief Portfolio
Acquisition and Management Officer of First Gibraltar Mortgage Corporation
responsible for residential loan and servicing acquisitions and sales, and
management of its $2 billion residential mortgage loan portfolio. Previously, he
was an accountant for Arthur Young & Company in Houston. Mr. Walden has a B.S.
degree from Indiana State University and served four years in the U.S. Air
Force.

BOARD OF TRUSTEES

The business and affairs of the Company will be managed by a Board of
Trustees which will initially have five members, three of whom will be
Independent Trustees. Messrs. Day and Walden presently serve as Co-Chairman of
the Board of Trustees of the Company. Immediately following the closing of the
offering, Messrs. , and will become Trustees.

Pursuant to the terms of the Company's Declaration of Trust, the Trustees
are divided into three classes. One class will hold office initially for a term
expiring at the annual meeting of shareholders to be held in 1998, a second
class will hold office initially for a term expiring at the annual meeting of
shareholders to be held in 1999, and a third class will hold office initially
for a term expiring at the annual meeting of shareholders to be held in 2000. At
each annual meeting of the shareholders of the Company,

45
<PAGE>
the successors to the class of Trustees whose terms expire at that meeting will
be elected to hold office for a term continuing until the annual meeting of
shareholders held in the third year following the year of their election and the
election and qualification of their successors. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws."

COMMITTEES OF THE BOARD OF TRUSTEES

AUDIT COMMITTEE. Within 30 days following consummation of the Offering, the
Board of Trustees of the Company will establish an Audit Committee that will
consist of two Independent Trustees. The Audit Committee will make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.

EXECUTIVE COMPENSATION COMMITTEE. The Board of Trustees will also establish
a Compensation Committee (the "Compensation Committee") comprised of two or more
of the Independent Trustees to determine compensation for the Company's
executive officers and to implement the 1997 Plan.

The Board of Trustees does not have a standing nominating committee. The
full Board of Trustees performs the functions of such a committee.

COMPENSATION OF TRUSTEES

The Company intends to pay its Trustees who are not officers of the Company
fees for their services as trustees. Each such Trustee will receive annual
compensation of $20,000, payable quarterly, plus expenses for attendance in
person at each meeting of the Board of Trustees. In addition, each such Trustee
will receive options under the 1997 Trustees' Share Incentive Plan (the
"Trustees' Plan") to purchase 5,000 Common Shares at an exercise price equal to
the Offering Price, which options will vest in equal installments over a
four-year period on the anniversary of the date of grant. Officers of the
Company who are Trustees will not be paid any trustee fees.

EXECUTIVE COMPENSATION

The Company was organized as a Maryland real estate investment trust in
August 1997, and paid no cash compensation to its executive officers for the
year ended December 31, 1996.

The following table sets forth the base compensation to be awarded to the
executive officers of the Company during the fiscal year ending December 31,
1997.

<TABLE>
<CAPTION>
ANNUAL SHARES
COMPENSATION SUBJECT TO
NAME AND PRINCIPAL POSITION SALARY(1) OPTIONS
- ------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
James E. Day ....................................................................... $ 225,000 200,000
Managing Director, Co-Chairman of the Board of Trustees

Patrick A. Walden .................................................................. $ 225,000 200,000
Managing Director, Co-Chairman of the Board of Trustees
</TABLE>

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

(1) Amounts given are annualized projections for fiscal year 1997, which ends
December 31, 1997. Does not include bonuses that may be paid to the above
individuals. See "Employment Agreements."

EMPLOYMENT AGREEMENTS

The Company will enter into employment agreements with each of Messrs.
Walden and Day. Each such agreement will provide for an initial term of four
years, which will be automatically renewed for successive one year periods
unless otherwise terminated. Each agreement will provide for initial annual

46
<PAGE>
base compensation of $225,000, subject to adjustment by the Compensation
Committee. Each agreement also will provide for quarterly incentive compensation
equal to 7.5% of the amount by which the Company's return on average outstanding
book common equity exceeds the average yield on the 10-year Treasury Note for
the applicable period plus 200 basis points. Each agreement provides that upon
termination other than for cause, the terminated officer will be entitled to
receive severance benefits in an amount equal to two times such officer's
combined base salary and bonus for the preceding fiscal year.

1997 SHARE INCENTIVE PLAN

Prior to the Offering, the Board of Trustees will adopt, and the sole
shareholder of the Company will approve, the 1997 Plan. The 1997 Plan will be
administered by the Compensation Committee, or its delegate. The Compensation
Committee may not delegate its authority with respect to individuals subject to
Section 16 of the Securities Exchange Act of 1934, as amended. As used in this
summary, the term "Administrator" means the Compensation Committee or its
delegate, as appropriate.

Officers and other employees of the Company and "parent" and "subsidiary"
corporations (within the meaning of Code Section 424) of the Company, will be
eligible to participate in the 1997 Plan. The Administrator will select the
individuals who will participate in the 1997 Plan ("Participants").

The 1997 Plan authorizes the issuance of up to 1,000,000 Common Shares[, no
more than of which may be issued pursuant to Share Awards and in settlement
of Performance Shares.] The Plan provides for the grant of (i) share options
intended to qualify as incentive share options under Section 422 of the Code
("ISOs") and options not so qualifying ("nonqualified options"), (ii)
Performance Shares, (iii) SARs, issued alone or in tandem with options, (iv)
Share Awards, including awards of restricted Common Shares ("Restricted Shares")
the vesting of which is contingent upon the attainment of performance goals, or
subject to employment or other requirements, and (v) cash incentive awards. The
Administrator shall prescribe terms and conditions of all awards under the Plan
including the conditions which must occur for Restricted Shares to vest and for
Performance Shares and cash incentive awards to be earned. No Participant who
receives an award of Restricted Shares will be permitted to make an election to
recognize income upon issuance of the Restricted Shares under Section 83(b) of
the Code.

On the effective date of the Offering, options for 200,000 Common Shares
will be granted to each of Messrs. Walden and Day at an exercise price equal to
the Offering Price. The options will become exercisable in three annual
installments beginning on the first anniversary of the date grant and will have
a term of ten years. The options will be granted as incentive share options to
the extent permitted by the Code.

THE TRUSTEES' PLAN

Prior to the Offering, the Board of Trustees will also adopt, and the
Company's sole shareholder will approve, the Trustees' Plan to provide
incentives to attract and retain non-employee Trustees.

The Trustees' Plan provides for the grant of nonqualified options and the
award of Common Shares to each eligible Trustee of the Company. No Trustee who
is an employee of the Company or a "parent" or "subsidiary" corporation (within
the meaning of Code Section 424) of the Company is eligible to participate in
the Trustees' Plan.

The Trustees' Plan provides that each eligible Trustee who is a member of
the Board of Trustees on the effective date of the Offering (a "Founding
Trustee") will be granted an option for 5,000 Common Shares at an exercise price
equal to the Offering Price. Each eligible Trustee who is not a Founding Trustee
will receive an option for 5,000 Common Shares on the earlier of (i) the date of
the first Board of Trustees meeting following the annual meeting of shareholders
(each such date, an "Award Date") at which the Trustee is first elected to the
Board of Trustees or (ii) the date the Trustee is first elected or appointed to
the Board. An option granted under the Trustees' Plan shall become exercisable
for 1,250 shares on each

47
<PAGE>
of the first through fourth Award Dates following the date of grant, provided
that Trustee is a member of the Board of Trustees on the applicable Award Date.
The exercise price of options granted in accordance with the preceding sentence
shall be the fair market value of a Common Share on the date of grant. Options
issued under the Trustees' Plan are exercisable for ten years from the date of
grant.

INDEMNIFICATION

For a description of the limitation of liability and indemnification rights
of the Company's officers and Trustees, see "Certain Provisions of Maryland Law
and of the Company's Declaration of Trust and Bylaws--Limitation of Liability
and Indemnification."

AMC

The following table sets forth information with respect to the executive
officers of AMC immediately after the closing of the Offering:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Patrick A. Walden (1) 43 Managing Director and Chief Executive Officer
James E. Day (1) 41 Managing Director
George E. Ford 57 Executive Vice President-Loan Servicing
Gary M. James 51 Executive Vice President-Retail Lending
Robert C. Ward 46 Executive Vice President-Wholesale Lending
</TABLE>

(1) See "Management--Trustees and Executive Officers."

GEORGE E. FORD has served as Executive Vice President-Loan Servicing of AMC
from May 1994 to the present. Mr. Ford is responsible for managing the Loan
Administration and Accounting departments of AMC. Mr. Ford was the President of
AMC from 1990 to 1994, and has served in managerial positions with AMC since
1987. From 1983 to 1987, Mr. Ford served in various management positions with
Midland Mortgage Company, specializing in marketing as well as the
administration of mortgage loans. Prior to 1983, Mr. Ford served for 21 years in
the U.S. Air Force and retired as a Lieutenant Colonel. Mr. Ford has a B.S.
degree in Chemistry from Rutgers University and an M.S. degree in Business
Administration and Logistics Management from the Air Force Institute of
Technology.

GARY M. JAMES has served as Executive Vice President-Retail Lending of AMC
from November, 1993 to the present. Mr. James is responsible for all retail
branch production operations. From May 1987 to November 1993, Mr. James acted as
President and Chief Executive Officer of Valley Mortgage Company, Inc., a
mortgage banking company based in McAllen, Texas. From 1985 to 1987, Mr. James
served as Senior Vice President-Real Estate Lending of Plains National Bank in
Lubbock, Texas. From 1968 to 1985, Mr. James served in various executive
positions in the mortgage banking and banking industries. Mr. James has a
bachelor's degree in Business Administration and Commercial Science from the
Oklahoma School of Accountancy and is a graduate of the Northwestern University
School of Mortgage Banking.

ROBERT C. WARD has served as Executive Vice President--Wholesale Lending of
AMC since 1994. Mr. Ward is responsible for AMC's nationwide wholesale lending
operations, loan processing and underwriting, loan delivery and secondary
marketing operations. From 1991 to 1994, Mr. Ward was a Vice President and
Branch Manager for Troy & Nichols, a nationwide mortgage banking firm. Prior to
that, Mr. Ward was President of American Security Mortgage Company from 1989 to
1991. From 1982 to 1989, Mr. Ward held two loan production management positions
with North American Mortgage Company. From 1987 to 1989 he was the manager in
charge of the wholesale and correspondent lending operations for the Western
region of the United States and from 1982 to 1987 he served as Regional Vice
President for Central Texas retail loan production. Mr. Ward has a B.S. degree
from the University of Texas at Austin.

48
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS

CONTRIBUTION TRANSACTION

The Contribution Transaction and this Offering will close concurrently. The
current owners of AMC (including Mr. Walden) will contribute 98.5% of the common
stock of AMC to the Operating Partnership in exchange for Units (based on the
Offering Price) having a value of $13,691,500. AMC will effect the
Recapitalization pursuant to which the Operating Partnership will exchange its
shares of AMC voting common stock for shares of AMC non-voting common stock.
This will be followed by the AMC Stock Purchase whereby AMC will issue voting
common stock representing 50% of such class and approximately 1.5% of the value
of its total outstanding stock to Mr. Day in exchange for a note bearing
interest at an annual rate of % and requiring equal quarterly payments over 5
years. After the Recapitalization and the AMC Stock Purchase, AMC's voting
common stock, representing a 3% economic interest, will be held by Messrs. Day
and Walden, and AMC's non-voting common stock, representing a 97% economic
interest, will be held by the Operating Partnership.

PRINCIPAL AND MANAGEMENT SHAREHOLDERS

The following table sets forth the beneficial ownership of Common Shares of
(i) each person who is a shareholder of the Company owning more than 5% of the
beneficial interest in the Company, (ii) each person who is a trustee, trustee
nominee or executive officer of the Company and (iii) the trustees, trustee
nominees and executive officers of the Company as a group. Unless otherwise
indicated in the footnotes, all of such interests are owned directly, and the
indicated person or entity has sole voting and investment power. The number of
shares represents the number of Common Shares the person is expected to hold
plus the number of shares for which Units expected to be held by the person are
redeemable (if the Company elects to issue Common Shares rather than pay cash
upon such redemption). The extent to which the persons will hold Common Shares
as opposed to Units is set forth in the notes.

<TABLE>
<CAPTION>
NUMBER OF SHARES AND
UNITS BENEFICIALLY OWNED PERCENT OF ALL COMMON PERCENT OF ALL COMMON
NAME OF BENEFICIAL OWNER AFTER THE OFFERING SHARES AND UNITS(1) SHARES(1)
- ------------------------------------------------ ------------------------- -------------------------- -----------------------
<S> <C> <C> <C>
James E. Day.................................... % %
Patrick A. Walden (2)...........................
All Trustees and executive officers
(5 persons)...................................
</TABLE>

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

* Less than 1%.

(1) Assumes that all Units held by the person are redeemed for Common Shares.
The total number of Common Shares outstanding used in calculating the
percentage of all Common Shares and Units assumes that all of the Units held
by other persons are redeemed for Common Shares. The total number of Common
Shares outstanding used in calculating the percentage of all Common Shares
assumes that none of the Units held by other persons are redeemed for Common
Shares.

(2) The Units issued to Mr. Walden in connection with the Contribution
Transaction were issued at the Offering Price.

DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

The following summary of the terms of the shares of beneficial interest of
the Company does not purport to be complete and is subject to and qualified in
its entirety by reference to the Declaration of Trust and Bylaws of the Company,
copies of which are exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."

49
<PAGE>
GENERAL

The Declaration of Trust of the Company provides that the Company may issue
up to 100,000,000 Common Shares of beneficial interest, $0.01 par value per
share ("Common Shares"), and 20,000,000 preferred shares of beneficial interest,
$0.01 par value per share ("Preferred Shares"). Upon completion of this
Offering, 10,000,000 Common Shares will be issued and outstanding (11,500,000
shares if the Underwriters' overallotment option is exercised in full) and no
Preferred Shares will be issued and outstanding. As permitted by Maryland REIT
Law, the Declaration of Trust contains a provision permitting the Board of
Trustees, without any action by the shareholders of the Company, to amend the
Declaration of Trust to increase or decrease the aggregate number of shares of
beneficial interest or the number of shares of any class of shares of beneficial
interest that the Trust has authority to issue.

Both the Maryland REIT Law and the Company's Declaration of Trust provide
that no shareholder of the Company will be personally liable for any obligation
of the Company solely as a result of his status as a shareholder of the Company.
The Company's Bylaws further provide that the Company shall indemnify each
shareholder against any claim or liability to which the shareholder may become
subject by reason of his being or having been a shareholder or former
shareholder and that the Company shall pay or reimburse each shareholder or
former shareholder for all legal and other expenses reasonably incurred by him
in connection with any claim or liability. Inasmuch as the Company carries
public liability insurance which it considers adequate, any risk of personal
liability to shareholders is limited to situations in which the Company's assets
plus its insurance coverage would be insufficient to satisfy the claims against
the Company and its shareholders.

COMMON SHARES

All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of beneficial interest and to the provisions of the Company's Declaration of
Trust regarding the restriction of the transfer of shares of beneficial
interest, holders of Common Shares are entitled to receive dividends on shares
if, as and when authorized and declared by the Board of Trustees of the Company
out of assets legally available therefor and to share ratably in the assets of
the Company legally available for distribution to its shareholders in the event
of its liquidation, dissolution or winding-up after payment of, or adequate
provision for, all known debts and liabilities of the Company.

Subject to the provisions of the Declaration of Trust regarding the
restriction of the transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder to one vote on all matters submitted to a vote
of shareholders, including the election of trustees, and, except as provided
with respect to any other class or series of shares, the holders of such Common
Shares will possess the exclusive voting power. There is no cumulative voting in
the election of trustees, which means that the holders of a majority of the
outstanding Common Shares can elect all of the trustees then standing for
election and the holders of the remaining shares will not be able to elect any
trustees.

Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of shares of beneficial interest,
Common Shares have equal dividend, distribution, liquidation and other rights.

Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge unless
approved by the affirmative vote of shareholders holding at least two-thirds of
the shares entitled to vote on the matter unless a lesser percentage (but not
less than a majority of all the votes entitled to be cast on the matter) is set
forth in the real estate investment trust's declaration of trust. The Company's
Declaration of Trust provides for a lesser percentage in such situations except
with respect to: (a) the intentional disqualification of the Company as a real
estate investment trust or revocation of its election to be taxed as a real
estate investment trust (which requires the affirmative

50
<PAGE>
vote of the holders of two-thirds of the number of Common Shares entitled to
vote on such matter at a meeting of the Shareholders of the Company); (b) the
election of trustees (which requires a plurality of all the votes cast at a
meeting of shareholders of the Company at which a quorum is present); (c) the
removal of trustees (which requires the affirmative vote of the holders of 75%
of the outstanding voting shares of the Company); (d) the amendment or repeal of
the Independent Trustee provision in the Declaration of Trust (which requires
the affirmative vote of 85% of the Trustees or two-thirds of the outstanding
shares entitled to vote on the matter); (e) the amendment of the Declaration of
Trust by shareholders (which requires the affirmative vote of a majority of
votes entitled to be cast on the matter, except under certain circumstances
specified in the Declaration of Trust which require the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter); and (f) the
dissolution of the Company (which requires the affirmative vote of two-thirds of
all the votes entitled to be cast on the matter). Under the Maryland REIT Law, a
declaration of trust may permit the trustees by a two-thirds vote to amend the
declaration of trust from time to time to qualify as a real estate investment
trust under the Code or the Maryland REIT Law without the affirmative vote or
written consent of the shareholders. The Company's Declaration of Trust permits
such action by the Board of Trustees.

PREFERRED SHARES

The Declaration of Trust authorizes the Board of Trustees to classify any
unissued Preferred Shares and to reclassify any previously classified but
unissued Preferred Shares of any series from time to time in one or more series,
as authorized by the Board of Trustees. Prior to issuance of shares of each
series, the Board of Trustees is required by the Maryland REIT Law and the
Company's Declaration of Trust to set, subject to the provisions of the
Company's Declaration of Trust regarding the restriction on transfer of shares
of beneficial interest, the terms, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series. Thus,
the Board of Trustees could authorize the issuance of Preferred Shares with
terms and conditions which could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for holders of Common Shares or otherwise might be in
their best interest. As of the date hereof, no Preferred Shares are outstanding
and the Company has no present plans to issue any Preferred Shares.

CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES

The Company's Declaration of Trust authorizes the Trustees to classify or
reclassify any unissued Common Shares or Preferred Shares into one or more
classes or series of shares of beneficial interest by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications or terms or
conditions of redemption of such new class or series of shares of beneficial
interest.

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of beneficial
interest. Specifically, not more than 50% in value of the Company's outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year, and the Company must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations--Requirements for Qualification."

Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust provides that no person
may own, or be deemed to own by virtue of the attribution provisions of sections
318 and 544 of the Code, more than 9.8% of (i) the number of outstanding Common
Shares or (ii) the number of outstanding Preferred Shares of any class or series
of

51
<PAGE>
Preferred Shares (the "Ownership Limitation"). Any transfer of Common or
Preferred Shares that would (i) result in any person owning, directly or
indirectly, Common or Preferred Shares in excess of the Ownership Limitation,
(ii) result in the Common and Preferred Shares being owned by fewer than 100
persons (determined without reference to any rules of attribution), or (iii)
result in the Company being "closely held" within the meaning of Section 856(h)
of the Code, shall be null and void, and the intended transferee will acquire no
rights in such Common or Preferred Shares.

If any purported transfer of Common or Preferred Shares would (i) result in
the Common and Preferred Shares being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (ii) result in any
person owning, directly or indirectly, Common or Preferred Shares in excess of
the Ownership Limitation or (iii) result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, the Common or Preferred Shares
will be designated as "Shares-in-Trust" and transferred automatically to a trust
(the "Share Trust") effective on the day before the purported transfer of such
Common or Preferred Shares. The record holder of the Common or Preferred Shares
that are designated as Shares-in-Trust (the "Prohibited Owner") will be required
to submit such number of Common or Preferred Shares to the Company for
registration in the name of the Share Trust. The Share Trustee will be
designated by the Company, but will not be affiliated with the Company. The
beneficiary of the Share Trust (the "Beneficiary") will be one or more
charitable organizations that are named by the Company.

Shares-in-Trust will remain issued and outstanding Common or Preferred
Shares and will be entitled to the same rights and privileges as all other
shares of the same class or series. The Share Trust will receive all dividends
and distributions on the Shares-in-Trust and will hold such dividends and
distributions in trust for the benefit of the Beneficiary. The Share Trustee
will vote all Shares-in-Trust. The Share Trustee will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in a transfer to another
Share Trust and resulting in the redesignation of such Common or Preferred
Shares as Shares-in-Trust.

The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Share Trust the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) the record date of which was on or after the date that such shares became
Shares-in-Trust. The Prohibited Owner generally will receive from the Share
Trustee the lesser of (i) the price per share such Prohibited Owner paid for the
Common or Preferred Shares that were designated as Shares-in-Trust (or, in the
case of a gift devise, or other event not involving the purchase or sale of the
Common or Preferred Shares that were designated as Shares-in-Trust, the Market
Price (as defined below) per share on the date of such transfer) and (ii) the
price per share received by the Share Trustee from the sale of such
Shares-in-Trust. Any amounts received by the Share Trustee in excess of the
amounts to be paid to the Prohibited Owner will be distributed to the
Beneficiary.

The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift, devise or other event, the Market Price per share on the date of
such transfer) or (ii) the Market Price per share on the date that the Company,
or its designee, accepts such offer. The Company will have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust and (ii) the date the
Company determines in good faith that a transfer resulting in such
Shares-in-Trust occurred.

"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if the

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Common or Preferred Shares are not listed or admitted to trading on the NYSE, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Common or Preferred Shares are listed or admitted to trading or, if the Common
or Preferred Shares are not listed or admitted to trading on any national
securities exchange, the last quoted price, or if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal automated quotations
system that may then be in use or, if the Common or Preferred Shares are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Common or
Preferred Shares selected by the Board of Trustees. "Trading Day" shall mean a
day on which the principal national securities exchange on which the Common or
Preferred Shares are listed or admitted to trading is open for the transaction
of business or, if the Common or Preferred Shares are not listed or admitted to
trading on any national securities exchange, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.

Any person who acquires or attempts to acquire Common or Preferred Shares in
violation, of the foregoing restrictions, or any person who owned Common or
Preferred Shares that were transferred to a Share Trust, will be required (i) to
give immediately written notice to the Company of such event and (ii) to provide
to the Company such other information as the Company may request in order to
determine the effect, if any, of such transfer on the Company's status as a
REIT.

The Declaration of Trust requires all persons who own, directly or
indirectly, more than 5% (or such lower percentages as required pursuant to
regulations under the Code) of the outstanding Common and Preferred Shares,
within 30 days after January 1 of each year, to provide to the Company a written
statement or affidavit stating the name and address of such direct or indirect
owner, the number of Common and Preferred Shares owned directly or indirectly,
and a description of how such shares are held. In addition, each direct or
indirect shareholder shall provide to the Company such additional information as
the Company may request in order to determine the effect, if any, of such
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limitation.

The Ownership Limitation generally will not apply to the acquisition of
Common or Preferred Shares by an underwriter that participates in a public
offering of such shares. In addition, the Board of Trustees, upon receipt of a
ruling from the Service or an opinion of counsel and upon such other conditions
as the Board of Trustees may direct, may exempt a person from the Ownership
Limitation under certain circumstances. The foregoing restrictions will continue
to apply until the Board of Trustees determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT.

The Ownership Limitation could delay, defer or prevent a transaction or a
change in control of the Company that might involve a premium price for the
Common Shares or otherwise be in the best interest of the shareholders of the
Company.

All certificates representing Common or Preferred Shares will bear a legend
referring to the restrictions described above.

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CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S
DECLARATION OF TRUST AND BYLAWS

The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company is subject to and qualified in
its entirety by reference to Maryland law and to the Declaration of Trust and
Bylaws of the Company.

CLASSIFICATION OF THE BOARD OF TRUSTEES

The Bylaws provide that the number of trustees of the Company may be
established by the Board of Trustees but may not be fewer than three nor more
than nine. At the closing of the Offering, there will be five Trustees. The
Trustees may increase or decrease the number of Trustees by a vote of at least
80% of the members of the Board of Trustees, provided that the number of
Trustees shall never be less than the number required by Maryland law and that
the tenure of office of a Trustee shall not be affected by any decrease in the
number of Trustees. Any vacancy will be filled at any regular meeting or at any
special meeting called for that purpose, by a majority of the remaining Trustees
except that a vacancy resulting from an increase in the number of trustees must
be filled by a majority of the entire Board of Trustees.

Pursuant to the Declaration of Trust, the Board of Trustees is divided into
three classes of trustees. The initial terms of the first, second and third
class will expire in 1998, 1999 and 2000, respectively. Beginning in 1998,
Trustees of each class are chosen for three-year terms upon the expiration of
their current terms and each year one class of trustees will be elected by the
shareholders. The Company believes that classification of the Board of Trustees
will help to assure the continuity and stability of the Company's business
strategies and policies as determined by the Board of Trustees. Holders of
Common Shares will have no right to cumulative voting in the election of
Trustees. Consequently, at each annual meeting of shareholders, the holders of a
majority of the Common Shares will be able to elect all of the successors of the
class of trustees whose terms expire at that meeting.

The classified board provision could have the effect of making the
replacement of incumbent trustees more time consuming and difficult. At least
two annual meetings of shareholders, instead of one, will generally be required
to effect a change in a majority of the Board of Trustees. Thus, the classified
board provision could increase the likelihood that incumbent trustees will
retain their position. The staggered terms of Trustees may delay, defer or
prevent a tender offer or an attempt to change control of the Company or other
transaction that might involve a premium price for holders of Common Shares,
even though a tender offer, change of control or other transaction might be in
the best interest of the shareholders.

REMOVAL OF TRUSTEES

The Declaration of Trust provides that a Trustee may be removed, only for
cause, upon the affirmative vote of at least 75% the votes entitled to be cast
in the election of Trustees. This provision, when coupled with the provision in
the Bylaws authorizing the Board of Trustees to fill vacant trusteeships,
precludes shareholders from removing incumbent Trustees, except upon a
substantial affirmative vote, and filling the vacancies created by such removal
with their own nominees.

BUSINESS COMBINATIONS

Under the MGCL, as applicable to Maryland real estate investment trusts,
certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland real estate investment
trust and any person who beneficially owns ten percent or more of the voting
power of the trust's shares or an affiliate of the trust who, at any time within
the two-year period prior to the date in question, was the beneficial owner of
ten percent or more of the voting power of the then outstanding voting shares of
beneficial interest of the Trust (an "Interested Shareholder") or an affiliate
of the Interested Shareholder are prohibited for five

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years after the most recent date on which the Interested Shareholder becomes an
Interested Shareholder. Thereafter, any such business combination must be
recommended by the board of trustees of such trust and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of beneficial interest of the trust and (b)
two-thirds of the votes entitled to be cast by holders of voting shares of the
trust other than shares held by the Interested Shareholder with whom (or with
whose affiliate) the business combination is to be effected, unless, among other
conditions, the trust's common shareholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or in
the same form as previously paid by the Interested Shareholder for its shares.
These provisions of Maryland law do not apply, however, to business combinations
that are approved or exempted by the board of trustees of the trust prior to the
time that the Interested Shareholder becomes an Interested Shareholder.

The Declaration of Trust contains a provision exempting from the business
combination statute any and all acquisitions by any person of the Company's
Common or Preferred Shares and the Declaration of Trust further provides that
this provision may not be amended without approval of a majority of the
Company's shareholders.

CONTROL SHARE ACQUISITIONS

The MGCL, as applicable to Maryland real estate investment trusts, provides
that control shares (as defined below) of a Maryland real estate investment
trust acquired in a "control share acquisition" have no voting rights except to
the extent approved by a vote of two-thirds of the votes entitled to be cast on
the matter, excluding shares of beneficial interest owned by the acquiror, by
officers or by trustees who are employees of the trust. "Control Shares" are
voting shares of beneficial interest which, if aggregated with all other such
shares of beneficial interest previously acquired by the acquiror or in respect
of which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power: (i) one-fifth or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority or more of all voting power.
Control Shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained shareholder approval. A "control
share acquisition" means the acquisition of Control Shares, subject to certain
exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the Control Shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the Control Shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.

The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust.

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The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's Common or Preferred Shares and the Bylaws further provide that this
provision may not be amended without approval of a majority of the Company's
shareholders.

AMENDMENT

The Declaration of Trust may be amended with the approval of at least a
majority of all of the votes entitled to be cast on the matter with the
exception of certain provisions of the Declaration of Trust regarding: (i) the
intentional disqualification of the Company as a real estate investment trust or
revocation of its election to be taxed as a real estate investment trust (which
requires the affirmative vote of the holders of two-thirds of the number of
Common Shares entitled to vote on such matter at a meeting of the shareholders
of the Company); (ii) the election of Trustees (which requires a plurality of
all the votes cast at a meeting of shareholders of the Company at which a quorum
is present); (iii) the removal of Trustees (which requires the affirmative vote
of the holders of 75% of the outstanding voting shares of the Company); (iv) the
amendment or repeal of the Independent Trustee provision in the Declaration of
Trust (which requires the affirmative vote of 85% of the Trustees or two-thirds
of the outstanding shares entitled to vote on the matter); (v) the amendment of
the Declaration of Trust by shareholders (which requires the affirmative vote of
a majority of votes entitled to be cast on the matter, except under certain
circumstances specified in the Declaration of Trust which require the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter); and (vi) the dissolution of the Company (which requires the affirmative
vote of two-thirds of all the votes entitled to be cast on the matter). In
addition, the Declaration of Trust may be amended by the Board of Trustees,
without shareholder approval to conform the Declaration of Trust to the Maryland
REIT law. Except as otherwise expressly provided, the Company's Bylaws may be
amended or altered exclusively by the Board of Trustees.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by Maryland law.

The Declaration of Trust of the Company authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former Trustee or officer or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a trustee, director, officer or partner of such real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her status as
a present or former Trustee or officer of the Company. The Bylaws of the Company
obligate it, to the maximum extent permitted by Maryland law, to indemnify and
to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any present or former Trustee or officer who is made a party
to the proceeding by reason of his service in that capacity or (b) any
individual who, while a Trustee of the Company and at the request of the
Company, serves or has served another real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a trustee, director, officer or partner of such real estate investment trust,
corporation, partnership, joint venture,

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trust, employee benefit plan or any other enterprise and who is made a party to
the proceeding by reason of his service in that capacity against any claim or
liability to which he may become subject by reason of such status. The
Declaration of Trust and Bylaws also permit the Company to indemnify and advance
expenses to any person who served a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company. The Bylaws require the Company to indemnify a
Trustee or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity.

The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In accordance with the MGCL, the
Bylaws of the Company permit it to advance reasonable expenses to a Trustee or
officer upon the Company's receipt of (a) a written affirmation by the Trustee
or officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Company and (b) a written statement by or
on his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.

OPERATIONS

The Company is generally prohibited from engaging in certain activities,
including acquiring or holding property or engaging in any activity that would
cause the Company to fail to qualify as a real estate investment trust.

DISSOLUTION OF THE COMPANY

Pursuant to the Company's Declaration of Trust, the dissolution of the
Company must be approved by the affirmative vote of the holders of not less than
two-thirds of all of the votes entitled to be cast on the matter.

ADVANCE NOTICE OF TRUSTEES NOMINATIONS AND NEW BUSINESS

The Bylaws of the Company provide that (a) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Trustees
and the proposal of business to be considered by shareholders may be made only
(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Trustees or (iii) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and (b)
with respect to special meetings of Shareholders, only the business specified in
the Company's notice of meeting may be brought before the meeting of
shareholders and nominations of persons for election to the Board of Trustees
may be made only (i) pursuant to the Company's notice of the meeting, (ii) by
the Board of Trustees or, (iii) provided that the Board of Trustees has
determined that Trustees shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.

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ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS

If the applicable provision in the Declaration of Trust (as to certain
business combinations) and the Bylaws (as to control share acquisitions) are
rescinded, the business combination and control share acquisition provisions of
the MGCL, the provisions of the Declaration of Trust on classification of the
Board of Trustees, the removal of Trustees and the advance notice provisions of
the Bylaws could delay, defer or prevent a change in control of the Company or
other transaction that might involve a premium price for holders of Common
Shares or otherwise be in their best interest.

MARYLAND ASSET REQUIREMENTS

To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage-related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.

TRANSFER AGENT

The transfer agent and registrar for the Company's Common Shares is
.

SHARES AVAILABLE FOR FUTURE SALE

Upon the closing of the Offering and the Contribution Transaction, the
Company will have 10,000,000 Common Shares issued and outstanding (11,500,000
Common Shares if the Underwriters' overallotment option is exercised in full),
1,000,000 Common Shares will be reserved for issuance upon redemption of Units
and Common Shares will be reserved for issuance under the 1997
Share Incentive Plan. The Common Shares issued in the Offering will be freely
tradeable by persons other than "Affiliates" of the Company without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), subject to
certain limitations on ownership set forth in the Declaration of Trust. See
"Description of Shares of Beneficial Interest--Restrictions on Transfer."

Pursuant to the Operating Partnership Agreement, the Limited Partners (other
than the Company) have Redemption Rights which enable them to cause the
Operating Partnership to redeem their Units for cash or, at the option of the
Company, Common Shares on a one-for-one basis, provided, however, that the Units
may not be exchanged for cash or Common Shares until at least one year after the
date of issuance of the Units.

The Common Shares that will be issuable to holders of Units upon exercise of
the Redemption Rights will be "restricted" securities under the meaning of Rule
144 promulgated under the Securities Act ("Rule 144") and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including exemptions contained in Rule 144. As
described below, the Company has granted the holders registration rights with
respect to such Common Shares.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "Affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding Common Shares or the average weekly trading volume of the
Common Shares during the four calendar weeks preceding the date on which notice
of the sale is filed with the Securities and Exchange Commission (the
"Commission"). Sales under Rule 144 also are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the date of
acquisition of restricted shares from the Company or from any Affiliate of the

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Company, and the acquiror or subsequent holder thereof is deemed not to have
been an Affiliate of the Company at any time during the three months preceding a
sale, such person would be entitled to sell such shares in the public market
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.

The Company has agreed to file, as soon as practicable after the second
anniversary of the Closing Date, a registration statement with the Commission
for the purpose of registering the sale of Common Shares to be
issuable upon redemption of the Units held by Messrs. Walden and Day. The
Company will use its best efforts to have the registration statement declared
effective and to keep it effective for a period of two years. Upon effectiveness
of the registration statement, those persons holding Common Shares upon
redemption of the applicable Units other than "Affiliates" of the Company, as
that term is defined under the Securities Act may sell such shares in the
secondary market without being subject to the volume limitations or other
requirements of Rule 144. The Operating Partnership will bear expenses incident
to the registration requirements, except that such expenses shall not include
any underwriting discounts or commissions, Commission or state securities
registration fees, transfer taxes or certain other fees or taxes relating to
such shares.

Prior to the Offering there has been no public market for the Common Shares.
The Company intends to apply to list the Common Shares on the New York Stock
Exchange.

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Shares prevailing from time to time. Sales of substantial
amounts of Common Shares, or the perception that such sales could occur, may
affect adversely prevailing market prices of the Common Shares. See "Risk
Factors--Effect of Future Offerings on Market Price of Common Shares" and
"Operating Partnership Agreement--Transferability of Interests."

For a description of certain restrictions on transfers of Common Shares held
by certain shareholders of the Company, see "Underwriting."

OPERATING PARTNERSHIP AGREEMENT

The following summary of the Operating Partnership Agreement, and the
descriptions of certain provisions thereof set forth elsewhere in this
Prospectus, is qualified in its entirety by reference to the Operating
Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

MANAGEMENT

The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the First Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Operating Partnership
Agreement"). Pursuant to the Operating Partnership Agreement, the Company, as
the sole general partner of the Partnership, has full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, and the Limited Partners have no authority in their capacity as
Limited Partners to transact business for, or participate in the management
activities or decisions of, the Operating Partnership except as required by
applicable law. However, any amendment to the Operating Partnership Agreement
that would (i) adversely affect the Redemption Rights, (ii) adversely affect the
Limited Partners' rights to receive cash distributions, (iii) alter the
Operating Partnership's allocations of income or loss, or (iv) impose on the
Limited Partners any obligations to make additional contributions to the capital
of the Operating Partnership, requires the consent of Limited Partners holding
more than two-thirds of the Units held by such partners.

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TRANSFERABILITY OF INTERESTS

The Company may not voluntarily withdraw from the Operating Partnership or
transfer or assign its interest in the Operating Partnership unless the
transaction in which such withdrawal or transfer occurs results in the Limited
Partners receiving property in an amount equal to the amount they would have
received had they exercised their Redemption Rights immediately prior to such
transaction, or unless the successor to the Company contributes substantially
all of its assets to the Operating Partnership in return for an interest in the
Operating Partnership. With certain limited exceptions, the Limited Partners may
not transfer their interests in the Operating Partnership, in whole or in part,
without the written consent of the Company, which consent the Company may
withhold in its sole discretion. The Company may not consent to any transfer
that would cause the Operating Partnership to be treated as a corporation for
federal income tax purposes.

CAPITAL CONTRIBUTION

The Company will contribute to the Operating Partnership substantially all
of the net proceeds of the Offering in exchange for a % partnership interest
in the Operating Partnership based on the Offering Price. After the completion
of the Offering, the Company will have issued a total of 10,000,000 Common
Shares and will own 10,000,000 Units. Although the Operating Partnership will
receive the net proceeds of the Offering, the Company will be deemed to have
made a capital contribution to the Operating Partnership in the amount of the
gross proceeds of the Offering and the Operating Partnership will be deemed
simultaneously to have paid the underwriters' discount and other expenses paid
or incurred in connection with the Offering. Following the closing of the
Offering, the Limited Partners (other than the Company), will collectively own
approximately % of the outstanding Units based on the Offering Price. The
Operating Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowing or capital contributions,
the Company may borrow such funds from a financial institution or other lender
and lend such funds to the Operating Partnership on the same terms and
conditions as are applicable to the Company's borrowing of such funds. Moreover,
the Company is authorized to cause the Operating Partnership to issue
partnership interests for less than fair market value if (i) it has concluded in
good faith that such issuance is in the best interest of the Company and the
Operating Partnership and (ii) the Company makes a capital contribution in an
amount equal to the proceeds of such issuance. Under the Operating Partnership
Agreement, the Company generally is obligated to contribute the proceeds of a
share offering by the Company as additional capital to the Operating
Partnership. Upon such contribution, the Company, as applicable, will receive
additional Units and the Company's percentage interest in the Operating
Partnership will be increased on a proportionate basis based upon the amount of
such additional capital contributions. Conversely, the percentage interests of
the Limited Partners will be decreased on a proportionate basis in the event of
additional capital contributions by the Company. In addition, if the Company
contributes additional capital to the Operating Partnership, the Company will
revalue the property of the Operating Partnership to its fair market value (as
determined by the Company) and the capital accounts of the partners will be
adjusted to reflect the manner in which the unrealized gain or loss inherent in
such property (that has not been reflected in the capital accounts previously)
would be allocated among the partners under the terms of the Operating
Partnership Agreement if there were a taxable disposition of such property for
such fair market value on the date of the revaluation.

REDEMPTION RIGHTS

Pursuant to the Operating Partnership Agreement, the Limited Partners (other
than the Company) have redemption rights ("Redemption Rights") that enable them
to cause the Operating Partnership to redeem their Units for cash, or at the
option of the Company, Common Shares on a one-for-one basis. The redemption
price will be paid in cash in the event that the issuance of Common Shares to
the redeeming Limited Partner would (i) result in any person owning, directly or
indirectly, Common Shares in excess of

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the Ownership Limitation, (ii) result in shares of beneficial interest of the
Company being owned by fewer than 100 persons (determined without reference to
any rules of attribution), (iii) result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, or (iv) cause the acquisition
of Common Shares by such redeeming Limited Partner to be "integrated" with any
other distribution of Common Shares for purposes of complying with the
Securities Act. The Redemption Rights may be exercised by the Limited Partners
at any time beginning one year after the date of the closing of the Offering,
provided that not more than two redemptions may occur during each calendar year
and each Limited Partner may not exercise the Redemption Right for less than
1,000 Units or, if such Limited Partner holds less than 1,000 Units, all of the
Units held by such Limited Partner. After the closing of the Offering, the
aggregate number of Common Shares issuable upon exercise of the Redemption
Rights will be approximately . The number of Common Shares
issuable upon exercise of the Redemption Rights will be adjusted upon the
occurrence of share splits, mergers, consolidations or similar pro rata share
transactions, which otherwise would have the effect of diluting the ownership
interests of the Limited Partners or the shareholders of the Company.

If the Company decides to securitize some or all of its Mortgage Assets
through the issuance of non-REMIC collateralized mortgage obligations with
multiple maturities ("CMOs"), it is anticipated that the Mortgage Assets will be
distributed to AEGIS Investment Trust in order to prevent the Mortgage Assets
from being treated as a taxable mortgage pool for federal income tax purposes
upon the issuance of the CMOs. Accordingly, it is anticipated that AEGIS
Investment Trust will have the right to redeem a portion of its partnership
interest in the Operating Partnership in exchange for Mortgage Assets to the
extent necessary to facilitate such a securitization transaction. The portion of
AEGIS Investment Trust's partnership interest that is redeemed will be based on
the fair market value of the Mortgage Assets distributed, as determined by AEGIS
Investment Trust, but subject to review by the Independent Trustee.

REGISTRATION RIGHTS

For a description of certain registration rights held by the Limited
Partners, see "Shares Available for Future Sale."

OPERATIONS

The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT for federal tax purposes, to avoid any federal
income or excise tax liability imposed by the Code, and to ensure that the
Operating Partnership will not be classified as a "publicly traded partnership"
for purposes of Section 7704 of the Code.

In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, the Operating Partnership will pay all
administrative costs and expenses of the Company (collectively, the "Company
Expenses") and the Company Expenses will be treated as expenses of the Operating
Partnership. The Company Expenses generally will include (i) all expenses
relating to the formation and continuity of existence of the Company and, (ii)
all expenses relating to the public offering and registration of securities by
the Company, (iii) all expenses associated with the preparation and filing of
any periodic reports by the Company under federal, state or local laws or
regulations, (iv) all expenses associated with compliance by the Company with
laws, rules and regulations promulgated by any regulatory body and (v) all other
operating or administrative costs of the Company incurred in the ordinary course
of its business on behalf of the Operating Partnership.

DISTRIBUTIONS

The Operating Partnership Agreement provides that the Operating Partnership
shall distribute cash from operations (including net sale or refinancing
proceeds, but excluding net proceeds from the sale of

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the Operating Partnership's property in connection with the liquidation of the
Operating Partnership) on a quarterly (or, at the election of the Company, more
frequent) basis, in amounts determined by the Company in its sole discretion, to
the partners in accordance with their respective percentage interests in the
Operating Partnership. Upon liquidation of the Operating Partnership, after
payment of, or adequate provision for, debts and obligations of the Operating
Partnership, including any partner loans, any remaining assets of the Operating
Partnership will be distributed to all partners with positive capital accounts
in accordance with their respective positive capital account balances. If the
Company has a negative balance in its capital account following a liquidation of
the Operating Partnership, it will be obligated to contribute cash to the
Operating Partnership equal to the negative balance in its capital account.

ALLOCATIONS

Income, gain and loss of the Operating Partnership for each fiscal year
generally is allocated among the partners in accordance with their respective
interests in the Operating Partnership, subject to compliance with the
provisions of Code Sections 704(b) and 704(c) and Treasury Regulations
promulgated thereunder.

TERM

The Operating Partnership shall continue until December 31, 2050, or until
sooner dissolved upon (i) the sale or other disposition of all or substantially
all the assets of the Operating Partnership, (ii) the redemption of all limited
partnership interests in the Operating Partnership (other than those held by the
Company, if any), or (iii) the election by the Company.

FIDUCIARY DUTY

The Limited Partners have agreed that in the event of any conflict in the
fiduciary duties owed by the Company to its shareholders and to such Limited
Partners, the Company will fulfill its fiduciary duties to such Limited Partners
by acting in the best interests of the Company's shareholders.

TAX MATTERS

Pursuant to the Operating Partnership Agreement, the Company is the tax
matters partner of the Operating Partnership and, as such, has authority to
handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.

FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of material federal income tax considerations
that may be relevant to a prospective holder of the Common Shares. Hunton &
Williams has acted as counsel to the Company and has reviewed this summary and
has rendered an opinion that the descriptions of the law and the legal
conclusions contained herein are correct in all material respects, and the
discussions hereunder fairly summarize the federal income tax considerations
that are likely to be material to the Company and a holder of the Common Shares.
The discussion contained herein does not address all aspects of taxation that
may be relevant to particular shareholders in light of their personal investment
or tax circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
and, except to the extent discussed below, foreign corporations and persons who
are not citizens or residents of the United States) subject to special treatment
under the federal income tax laws.

The statements in this discussion and the opinion of Hunton & Williams are
based on current provisions of the Code, existing, temporary, and currently
proposed Treasury Regulations promulgated under the Code ("Treasury
Regulations"), the legislative history of the Code, existing administrative

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rulings and practices of the Service, and judicial decisions. No assurance can
be given that future legislative, judicial, or administrative actions or
decisions, which may be retroactive in effect, will not affect the accuracy of
any statements in this Prospectus with respect to the transactions entered into
or contemplated prior to the effective date of such changes.

EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND SALE OF THE
COMMON SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

The Company currently has in effect an election to be taxed as a
pass-through entity under subchapter S of the Code, but intends to revoke its S
election on the day prior to the closing of the Offering. In addition, the
Company's current shareholders intend to elect on the day prior to the closing
of the Offering to close the Company's books upon the revocation of the S
election. The Company plans to make an election to be taxed as a REIT under
sections 856 through 860 of the Code, commencing with its short taxable year
beginning on the day prior to the closing and ending on December 31, 1997.

The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.

Hunton & Williams has acted as counsel to the Company in connection with the
Offering and the Company's election to be taxed as a REIT. In the opinion of
Hunton & Williams, assuming that the elections and other procedural steps
described in this discussion of "Federal Income Tax Considerations" are
completed by the Company in a timely fashion, commencing with the Company's
short taxable year beginning the day prior to the closing of the Offering and
ending December 31, 1997, the Company will qualify to be taxed as a REIT
pursuant to sections 856 through 860 of the Code, and the Company's organization
and proposed method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code. Investors
should be aware, however, that opinions of counsel are not binding upon the
Service or any court. It must be emphasized that Hunton & Williams' opinion is
based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters, including representations regarding
the nature of the Company's assets and the future conduct of its business. Such
factual assumptions and representations are described below in this discussion
of "Federal Income Tax Considerations" and are set out in the federal income tax
opinion that will be delivered by Hunton & Williams at the closing of the
Offering. Moreover, such qualification and taxation as a REIT depends upon the
Company's ability to meet on a continuing basis, through actual annual operating
results, distribution levels, and share ownership, the various qualification
tests imposed under the Code discussed below. Hunton & Williams will not review
the Company's compliance with those tests on a continuing basis. Accordingly, no
assurance can be given that the actual results of the Company's operations for
any particular taxable year will satisfy such requirements. For a discussion of
the tax consequences of failure to qualify as a REIT, see "Federal Income Tax
Considerations--Failure to Qualify."

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to its shareholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and shareholder levels)
that generally results from an investment in a corporation. However, the Company
will be subject to federal income tax in

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the following circumstances. First, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its undistributed
items of tax preference, if any. Third, if the Company has (i) net income from
the sale or other disposition of "foreclosure property" that is held primarily
for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if the Company has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and
nonetheless has maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount equal
to (i) the gross income attributable to the greater of the amount by which the
Company fails the 75% or 95% gross income test, multiplied by (ii) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, as described in
"--Taxation of Taxable U.S. Shareholders," the Company may elect to retain and
pay income tax on its net long-term capital gain. Finally, if the Company
acquires any asset from a C corporation (i.e., a corporation generally subject
to full corporate-level tax) in a merger or other transaction in which the basis
of the asset in the Company's hands is determined by reference to the basis of
the asset (or any other asset) in the hands of the C corporation and the Company
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which it acquired such asset, then to the extent of
such asset's "built-in-gain" (i.e., the excess of the fair market value of such
asset at the time of acquisition by the Company over the adjusted basis in such
asset at such time), the Company will be subject to tax at the highest regular
corporate rate applicable (as provided in Treasury Regulations that have not yet
been promulgated). The results described above with respect to the tax on
"built-in-gain" assume that the Company will elect pursuant to IRS Notice 88-19
to be subject to the rules described in the preceding sentence if it were to
make any such acquisition. Finally, the Company will be subject to tax at the
highest marginal corporate rate on the portion of any excess inclusion income
derived by the Company from REMIC residual interests equal to the percentage of
the shares of the Company held by the United States, any state or political
subdivision thereof, any foreign government, any international organization, any
agency or instrumentality of any of the foregoing, any other tax-exempt
organization (other than a farmer's cooperative described in section 521 of the
Code) that is exempt from taxation under the UBTI provisions of the Code, or any
rural electrical or telephone cooperative (each, a "Disqualified Organization").
Any such tax on the portion of any excess inclusion income allocable to shares
of the Company held by a Disqualified Organization would reduce the cash
available for distribution from the Company to all shareholders.

REQUIREMENTS FOR QUALIFICATION

The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met in order
to elect and maintain REIT status; (viii) that uses a calendar year for

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federal income tax purposes and complies with the recordkeeping requirements of
the Code and Treasury Regulations; and (ix) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Conditions (v) and (vi) will not apply until after the
first taxable year for which an election is made by the Company to be taxed as a
REIT. A REIT that complies with all the requirements for ascertaining the
ownership of its outstanding shares in a taxable year and does not have reason
to know that it violated the 5/50 Rule will be deemed to have satisfied the 5/50
Rule for such taxable year. For purposes of determining share ownership under
the 5/50 Rule, a supplemental unemployment compensation benefits plan, a private
foundation, or a portion of a trust permanently set aside or used exclusively
for charitable purposes generally is considered an individual. A trust that is a
qualified trust under Code section 401(a), however, generally is not considered
an individual and beneficiaries of such trust are treated as holding shares of a
REIT in proportion to their actuarial interests in such trust for purposes of
the 5/50 Rule.

Prior to the consummation of the Offering, the Company did not satisfy
conditions (v) and (vi) in the preceding paragraph. The Company anticipates
issuing sufficient Common Shares with sufficient diversity of ownership pursuant
to the Offering to allow it to satisfy requirements (v) and (vi). In addition,
the Company's Declaration of Trust provides for restrictions regarding the
transfer of the Common Shares that are intended to assist the Company in
continuing to satisfy the share ownership requirements described in clauses (v)
and (vi) above. Such transfer restrictions are described in "Description of
Shares of Beneficial Interest--Restrictions on Transfer."

The Company currently does not have any corporate subsidiaries, but may have
corporate subsidiaries in the future. Code section 856(i) provides that a
corporation that is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is owned by the REIT. Thus, in applying the requirements described herein, any
"qualified REIT subsidiaries" of the Company will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiaries
will be treated as assets, liabilities, and items of income, deduction, and
credit of the Company.

In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. Thus, the Company's proportionate
share of the assets and gross income of the Operating Partnership will be
treated as assets and gross income of the Company for purposes of applying the
requirements described herein.

INCOME TESTS

In order for the Company to qualify and to maintain its qualification as a
REIT, two requirements relating to the Company's gross income must be satisfied
annually. First, at least 75% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must consist of
defined types of income derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and interest on obligations secured by mortgages on real property or
on interests in real property) or temporary investment income. Second, at least
95% of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property,
interests in mortgages on real property, or temporary investments, and from
dividends, other types of interest, and gain from the sale or disposition of
stock or

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securities, or from any combination of the foregoing. The specific application
of these tests to the Company is discussed below.

The term "interest," as defined for purposes of the 75% and 95% gross income
tests, generally does not include any amount received or accrued (directly or
indirectly) if the determination of such amount depends in whole or in part on
the income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "interest" solely by reason of
being based on a fixed percentage or percentages of receipts or sales. In
addition, an amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based on the income or profits of a
debtor if the debtor derives substantially all of its gross income from the
related property through the leasing of substantially all of its interests in
the property, to the extent the amounts received by the debtor would be
characterized as "rents from real property" if received by a REIT. Furthermore,
to the extent that interest from a loan that is based on the cash proceeds from
the sale of the property securing the loan constitutes a "shared appreciation
provision" (as defined in the Code), income attributable to such participation
feature will be treated as gain from the sale of the secured property, which
generally is qualifying income for purposes of the 75% and 95% gross income
tests.

Interest on obligations secured by mortgages on real property or on
interests in real property generally is qualifying income for purposes of the
75% gross income test. However, if the Company receives interest income with
respect to a Mortgage Loan that is secured by both real property and other
property and the highest principal amount of the loan outstanding during a
taxable year exceeds the fair market value of the real property on the date the
Company purchased the Mortgage Loan, the interest income from the loan will be
apportioned between the real property and the other property, which
apportionment may cause the Company to recognize income that is not qualifying
income for purposes of the 75% gross income test.

Hunton & Williams is of the opinion that the interest, original issue
discount ("OID"), and market discount income that the Company derives from its
Mortgage Assets generally will be qualifying interest income for purposes of
both the 75% and the 95% gross income tests. In some cases, however, the loan
amount of a Mortgage Loan may exceed the value of the real property securing the
loan, which will result in a portion of the income from the loan being
classified as qualifying income for purposes of the 95% gross income test, but
not for purposes of the 75% gross income test. It is also possible that, in some
instances, the interest income from a Mortgage Loan may be based in part on the
borrower's profits or net income, which generally will disqualify the income
from the loan for purposes of both the 75% and the 95% gross income tests. The
Company also will receive dividend income from AMC, which will be qualifying
income for purposes of the 95% gross income test, but not the 75% gross income
test. The Company may receive income not described above that is not qualifying
income for purposes of the gross income tests. The Company will monitor the
amount of nonqualifying income produced by its assets and has represented that
it will manage its portfolio in order to comply at all times with the gross
income tests.

If the Company acquires any real property and leases such property to
tenants, the rent the Company receives will qualify as "rents from real
property" in satisfying the 75% and 95% gross income tests only if several
conditions are met. First, the amount of rent must not be based, in whole or in
part, on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Second, the rent received from a tenant will not qualify as "rents
from real property" in satisfying the gross income tests if the Company, or a
direct or indirect owner of 10% or more of the Company, owns 10% or more of such
tenant (a "Related Party Tenant"), taking into account both direct and
constructive ownership. Third, if rent attributable to personal property leased
in connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." Finally, for
the rent to qualify as "rents from real property," the Company generally must
not operate or manage the real property or furnish or render services to the
tenants of such real property, other than through an "independent contractor"
who is adequately compensated and from whom the Company derives no

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revenue. The "independent contractor" requirement, however, does not apply to
the extent the services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant." In addition, the Company may
render a de minimis amount of non-customary services to its tenants, or manage
or operate property, as long as the amount received with respect to the services
or management does not exceed 1% of the Company's income from the property. The
Company has represented that, to the extent that it acquires and leases real
property, it will manage such property so that the rent it receives from the
property qualifies as "rents from real property."

REITs generally are subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test), less expenses directly
connected with the production of such income. "Foreclosure property" is defined
as any real property (including interests in real property) and any personal
property incident to such real property (i) that is acquired by a REIT as the
result of such REIT having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by agreement or
process of law, after there was a default (or default was imminent) on a lease
of such property or on an indebtedness owed to the REIT that such property
secured, (ii) for which the related loan was acquired by the REIT at a time when
default was not imminent or anticipated, and (iii) for which such REIT makes a
proper election to treat such property as foreclosure property. The Company does
not anticipate that it will receive any income from foreclosure property that is
not qualifying income for purposes of the 75% gross income test, but, if the
Company does receive any such income, the Company will make an election to treat
the related property as foreclosure property.

If property is not eligible for the election to be treated as foreclosure
property ("Ineligible Property") because the related loan was acquired by the
REIT at a time when default was imminent or anticipated, income received with
respect to such Ineligible Property may not be qualifying income for purposes of
the 75% or 95% gross income test. The Company anticipates that any income it
receives with respect to Ineligible Property will be qualifying income for
purposes of the 75% and 95% gross income tests.

The net income derived from a prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held primarily
for sale to customers in the ordinary course of a trade or business. The Company
believes that no asset owned by the Company or the Operating Partnership will be
held for sale to customers and that a sale of any such asset will not be in the
ordinary course of the Company's or the Operating Partnership's business.
Whether an asset is held "primarily for sale to customers in the ordinary course
of a trade or business" depends, however, on the facts and circumstances in
effect from time to time, including those related to a particular asset.
Nevertheless, the Company will attempt to comply with the terms of safe-harbor
provisions in the Code prescribing when asset sales will not be characterized as
prohibited transactions. Complete assurance cannot be given, however, that the
Company can comply with the safe-harbor provisions of the Code or avoid owning
property that may be characterized as property held "primarily for sale to
customers in the ordinary course of a trade or business."

From time to time, the Company will enter into hedging transactions with
respect to one or more of its assets or liabilities. The Company's hedging
activities may include interest rate swaps, caps, and floors (or options to
purchase such items), and futures and forward contracts. To the extent that the
Company enters into an interest rate swap or cap contract, option, futures
contract, forward rate agreement, or any similar financial instrument to hedge
the Company's indebtedness incurred or to be incurred, any periodic income or
gain from the disposition of such contract should be qualifying income for
purposes of the 95% gross income test, but not the 75% gross income test. To the
extent that the Company hedges with other types of financial instruments, or in
other situations, it may not be entirely clear how the income from those
transactions will be treated for purposes of the various income tests that apply
to REITs under the Code. The Company intends to structure any hedging
transactions in a manner that does not jeopardize its status as a REIT.

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If the Company fails to satisfy one or both of the 75% and 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if the Company's failure to meet such
tests is due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of those relief provisions. As
discussed above in "Federal Income Tax Considerations-- Taxation of the
Company," even if those relief provisions apply, a 100% tax would be imposed on
an amount equal to (i) the gross income attributable to the greater of the
amount by which the Company fails the 75% or 95% gross income test, multiplied
by (ii) a fraction intended to reflect the Company's profitability.

ASSET TESTS

The Company, at the close of each quarter of each taxable year, also must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets," or, in cases where the Company raises new capital through equity or
long-term (at least five-year) debt offerings, temporary investments in stock or
debt instruments during the one-year period following the Company's receipt of
such capital. The term "real estate assets" includes interests in real property,
interests in mortgages on real property, regular or residual interests in a
REMIC (except that, if less than 95% of the assets of a REMIC consists of "real
estate assets" (determined as if the Company held such assets), the Company will
be treated as holding directly its proportionate share of the assets of such
REMIC), and shares of other REITs. For purposes of the 75% asset test, the term
"interest in real property" includes an interest in mortgage loans or land and
improvements thereon, such as buildings or other inherently permanent structures
(including items that are structural components of such buildings or
structures), a leasehold of real property, and an option to acquire real
property (or a leasehold of real property). To the extent that the fair market
value of the real property securing a loan equals or exceeds the outstanding
principal balance of the loan, the loan will qualify as a real estate asset.
However, if the outstanding principal balance of a loan exceeds the fair market
value of the real property securing the loan, such loan may not be a qualifying
"real estate asset" to the extent that the loan amount exceeds the value of the
associated real property, although the matter is not free from doubt. Second, of
the investments not included in the 75% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the value of the
Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities (except for its interests in the
Operating Partnership and any qualified REIT subsidiary).

The Company's Mortgage Assets generally will be qualifying assets for
purposes of the 75% asset test. However, if the outstanding principal balance of
a Mortgage Loan exceeds the fair market value of the real property securing the
loan, such Mortgage Loan will not be a qualifying "real estate asset" to the
extent that the loan amount exceeds the value of the associated real property.
To the extent that the Company pledges Mortgage Assets to another party in
connection with a reverse repurchase agreement, the Mortgage Assets will
continue to be qualifying assets for purposes of the 75% asset test because such
transaction will be treated as a borrowing for federal income tax purposes.
However, to the extent that the Company transfers Mortgage Assets to another
party in connection with a dollar reverse repurchase agreement, the Mortgage
Assets may not be considered an asset of the Company because such transaction
most likely would be treated as a sale of the Mortgage Assets for federal income
tax purposes. The margin account (and any cash or investments held in such
account) associated with a dollar reverse repurchase agreement, however, will be
considered an asset of the Company. Accordingly, the Company will monitor its
participation in dollar reverse repurchase agreements and the types of assets
held in the related margin accounts to ensure that its REIT status will not be
jeopardized thereby.

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The Operating Partnership will own 100% of the nonvoting common stock of
AMC, representing in the aggregate a 97% economic interest therein. By virtue of
its ownership of the Operating Partnership, the Company will be considered to
own its pro rata share of such stock. After the Recapitalization, the Company
will not own, directly or through the Operating Partnership, any of the voting
common stock of AMC. In addition, the Company believes that its proportionate
share of the value of the stock of AMC held by the Operating Partnership will
not exceed 5% of the total value of the Company's assets. Any hedging
instruments owned by the Company generally will not be qualifying assets for
purposes of the 75% asset test. In addition, because hedging instruments may be
considered securities of the entity issuing such instruments, the Company's
ownership of hedging instruments may be subject to the 5% asset test. The
Company anticipates that the value of its hedging instruments issued by any one
entity will not exceed 5% of the value of its total assets. To the extent,
however, that such hedging activities could cause REIT qualification problems,
the Company may conduct some or all of its hedging activities through AMC or
another corporate subsidiary that is fully subject to federal corporate income
tax. The Company will monitor the status of the assets that it acquires for
purposes of the various asset tests and has represented that it will manage its
portfolio in order to comply at all times with such tests.

If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar quarter
and (ii) the discrepancy between the value of the Company's assets and the asset
test requirements arose from changes in the market values of its assets and was
not wholly or partly caused by the acquisition of one or more non-qualifying
assets. If the condition described in clause (ii) of the preceding sentence were
not satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.

DISTRIBUTION REQUIREMENTS

The Company, in order to avoid corporate income taxation of the earnings
that it distributes, is required to distribute with respect to each taxable year
dividends (other than capital gain dividends) to its shareholders in an
aggregate amount at least equal to (i) the sum of (A) 95% of its "REIT taxable
income" (computed without regard to the dividends paid deduction and its net
capital gain or loss) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its
federal income tax return for such year and if paid on or before the first
regular dividend payment date after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gains corporate tax
rates. Furthermore, if the Company should fail to distribute during each
calendar year (or, in the case of distributions with declaration and record
dates falling in the last three months of the calendar year, by the end of
January immediately following such year) at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain income for such
year, and (iii) any undistributed taxable income from prior periods, the Company
would be subject to a 4% nondeductible excise tax on the excess of such required
distribution over the amounts actually distributed. The Company may elect to
retain and pay income tax on the net long-term capital gain it receives in a
taxable year. In that case, the Company's shareholders would include in income
their proportionate share of the Company's undistributed long-term capital gain.
In addition, the shareholders would be deemed to have paid their proportionate
share of the tax paid by the Company, which would be credited or refunded to the
shareholders. Each shareholder's basis in his shares would be increased by the
amount of the undistributed long-term capital gain included in the shareholder's
income, less the shareholder's share of the tax paid by the Company. Such amount
would be treated as having been distributed for purposes of the 4% excise tax
described above. The Company intends to make timely distributions sufficient to
satisfy the annual distribution requirements.

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It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. For example, capital losses
recognized by the Company may not be deducted from its "REIT taxable income." In
addition, the Company will recognize taxable income in advance of the related
cash flow if its Mortgage Assets are deemed to have OID. OID generally will be
accrued using a constant yield methodology that takes into account projected
prepayments but that does not allow credit losses to be reflected until they are
actually incurred. For example, pursuant to Treasury Regulations, the Company
may be required to recognize the amount of any payment projected to be made
pursuant to a shared appreciation provision over the term of the related
Mortgage Loan using the constant yield method. The Company also may recognize
taxable market discount income upon the receipt of proceeds from the disposition
of, or principal payments on, Mortgage Assets that are "market discount bonds"
(i.e., obligations with a stated redemption price at maturity that is greater
than the Company's tax basis in such obligations), although such proceeds often
will be used to make non-deductible principal payments on related borrowings.
The Company also may recognize excess inclusion or other "phantom" taxable
income from REMIC residual interests and issuances of multiple-class,
multiple-maturity collateralized mortgage obligations for which no REMIC
election is made ("Non-REMIC Transactions"). Finally, the Company may recognize
taxable income without receiving a corresponding cash distribution if it
forecloses on or makes a "significant modification" (as defined in Treasury
Regulations section 1.1001-3) to a Mortgage Loan, to the extent that the fair
market value of the underlying property or the principal amount of the modified
loan, as applicable, exceeds the Company's basis in the original loan.
Therefore, the Company may have less cash than is necessary to meet its annual
95% distribution requirement or to avoid corporate income tax or the excise tax
imposed on certain undistributed income. In such a situation, the Company may
find it necessary to arrange for short-term (or possibly long-term) borrowings
or to raise funds through the issuance of Preferred Shares or additional Common
Shares.

Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to its shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Although the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends, it
will be required to pay to the Service interest based upon the amount of any
deduction taken for deficiency dividends.

RECORDKEEPING REQUIREMENTS

Pursuant to applicable Treasury Regulations, in order to be able to elect to
be taxed as a REIT, the Company must maintain certain records. In addition, in
order to avoid a penalty, the Company must request on an annual basis certain
information from its shareholders designed to disclose the actual ownership of
its outstanding shares. The Company intends to comply with such requirements.

PARTNERSHIP ANTI-ABUSE RULE

The U.S. Department of the Treasury has issued a final regulation (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions") that authorizes the Service, in certain abusive
transactions involving partnerships, to disregard the form of the transaction
and recast it for federal tax purposes as the Service deems appropriate. The
Anti-Abuse Rule applies where a partnership is formed or utilized in connection
with a transaction (or series of related transactions) with a principal purpose
of substantially reducing the present value of the partners' aggregate federal
tax liability in a manner inconsistent with the intent of the Partnership
Provisions. The Anti-Abuse Rule states that the Partnership Provisions are
intended to permit taxpayers to conduct joint business (including investment)
activities though a flexible arrangement that accurately reflects the partners'
economic agreement and clearly reflects the partners' income without incurring
any entity-level tax. The purposes for structuring a transaction involving a
partnership are determined based on all of the facts and circumstances,
including a

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comparison of the purported business purpose for a transaction and the claimed
tax benefits resulting from the transaction. A reduction in the present value of
the partners' aggregate federal tax liability through the use of a partnership
does not, by itself, establish inconsistency with the intent of the Partnership
Provisions.

The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partnership interest.
The limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, some of the limited partners have the right,
beginning two years after the formation of the partnership, to require the
redemption of their limited partnership interests in exchange for cash or REIT
stock (at the REIT's option) equal to the fair market value of their respective
interests in the partnership at the time of the redemption. The example
concludes that the use of the partnership is not inconsistent with the intent of
the Partnership Provisions and, thus, cannot be recast by the Service. However,
the Redemption Rights associated with the Units will not conform in all respects
to the redemption rights contained in the foregoing example. Moreover, the
Anti-Abuse Rule is extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances. As a result, there can be no
assurance that the Service will not attempt to apply the Anti-Abuse Rule to the
Company. If the conditions of the Anti-Abuse Rule are met, the Service is
authorized to take appropriate enforcement action, including disregarding the
Operating Partnership for federal tax purposes or treating one or more of the
partners as nonpartners. Any such action potentially could jeopardize the
Company's status as a REIT because the partners of the Operating Partnership
(other than the Company) could be treated as shareholders of the Company, which
could cause the Company to fail to satisfy the share ownership requirements for
REIT status.

FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to the Company's shareholders in any year
in which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of the Company's
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which the Company ceased to qualify as a REIT.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.

TAXATION OF TAXABLE U.S. SHAREHOLDERS

As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends or retained long-term
capital gains) will be taken into account by such U.S. shareholders as ordinary
income and will not be eligible for the dividends received deduction generally
available to corporations. As used herein, the term "U.S. shareholder" means a
holder of Common Shares that for U.S. federal income tax purposes is (i) a
citizen or resident of the U.S., (ii) a corporation, partnership, or other
entity created or organized in or under the laws of the U.S. or of an political
subdivision thereof, (iii) an estate whose income from sources without the
United States is includible in gross income for U.S. federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States, or (iv) any trust with respect to which (A) a U.S. court is able
to exercise primary supervision over the administration of such trust and (B)
one or more U.S. fiduciaries have the authority to control all substantial
decisions of the trust. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held his Common Shares.

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However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. The Company also may elect to retain
and pay income tax on the net long-term capital gain that it receives in a
taxable year. In that case, the Company's shareholders would include in income
as long-term capital gain their proportionate share of the Company's
undistributed long-term capital gain. In addition, the shareholders would be
deemed to have paid their proportionate share of the tax paid by the Company,
which would be credited or refunded to the shareholders. Each shareholder's
basis in his shares would be increased by the amount of the undistributed
long-term capital gain included in the shareholder's income, less the
shareholder's share of the tax paid by the Company.

Distributions in excess of current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common Shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions in excess
of current and accumulated earnings and profits exceed the adjusted basis of a
shareholder's Common Shares, such distributions will be included in income as
long-term capital gain (or short-term capital gain if the Common Shares had been
held for one year or less), assuming the Common Shares are a capital asset in
the hands of the shareholder. In addition, any distribution declared by the
Company in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the shareholder on December 31 of such
year, provided that the distribution is actually paid by the Company during
January of the following calendar year.

Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would be
carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Common Shares will not be treated as passive
activity income and, therefore, shareholders generally will not be able to apply
any "passive activity losses" (such as losses from certain types of limited
partnerships in which a shareholder is a limited partner) against such income.
In addition, taxable distributions from the Company generally will be treated as
investment income for purposes of the investment interest limitations. Capital
gains from the disposition of Common Shares (or distributions treated as such),
however, will be treated as investment income only if the shareholder so elects,
in which case such capital gains will be taxed at ordinary income rates. The
Company will notify shareholders after the close of the Company's taxable year
as to the portions of the distributions attributable to that year that
constitute ordinary income or capital gain dividends.

The Company's investment in Mortgage Assets may cause it under certain
circumstances to recognize taxable income in excess of its economic income
("phantom income") and to experience an offsetting excess of economic income
over its taxable income in later years. As a result, shareholders may from time
to time be required to pay federal income tax on distributions that economically
represent a return of capital, rather than a dividend. Such distributions would
be offset in later years by distributions representing economic income that
would be treated as returns of capital for federal income tax purposes.
Accordingly, if the Company receives phantom income, its shareholders may be
required to pay federal income tax with respect to such income on an accelerated
basis (i.e., before such income is realized by the shareholders in an economic
sense). Taking into account the time value of money, such an acceleration of
federal income tax liabilities would cause shareholders to receive an after-tax
rate of return on an investment in the Company that would be less than the
after-tax rate of return on an investment with an identical before-tax rate of
return that did not generate phantom income. For example, if an investor subject
to an effective income tax rate of 30% purchased a bond (other than a tax-exempt
bond) with an annual interest rate of 10% for its face value, his before-tax
return on his investment would be 10%, and his after-tax return would be 7%.
However, if the same investor purchased shares of the Company at a time when the
before-tax rate of return was 10%, his after-tax rate of return on his shares
might be somewhat less than 7% as a result of the Company's phantom income. In
general, as the ratio of the Company's phantom income to its total income
increases, the after-tax rate of return received by a taxable

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shareholder of the Company will decrease. The Company will consider the
potential effects of phantom income on its taxable shareholders in managing its
investments.

To the extent that the Company acquires REMIC residual interests, pursuant
to Treasury Regulations to be issued in the future, the Company's shareholders
would not be permitted to offset certain portions of the dividend income they
derive from the Company with their current deductions or net operating loss
carryovers or carrybacks. The portion of a shareholder's dividends that would be
subject to this limitation would equal his allocable share of any excess
inclusion income derived by the Company with respect to its REMIC residual
interests. The Company's excess inclusion income for any calendar quarter will
equal the excess of its income from REMIC residual interests over its "daily
accruals" with respect to such interests for the calendar quarter. Daily
accruals for a calendar quarter are computed by allocating to each day on which
a REMIC residual interest is owned a ratable portion of the product of (i) the
"adjusted issue price" of the REMIC residual interest at the beginning of the
quarter and (ii) 120% of the long-term federal interest rate (adjusted for
quarterly compounding) on the date of issuance of the REMIC residual interest.
The adjusted issue price of a REMIC residual interest at the beginning of a
calendar quarter equals the original issue price of the interest, increased by
the amount of daily accruals for prior quarters and decreased by all prior
distributions to the Company with respect to the REMIC residual interest. To the
extent provided in future Treasury Regulations, if the Company owns REMIC
residual interests that do not have significant value, the excess inclusion
income that the Company derives from such REMIC residual interests will be
deemed to be equal to the entire amount of income derived by the Company from
such REMIC residual interests.

To the extent that the Company (or a qualified REIT subsidiary) acquires
Mortgage Assets and issues debt obligations secured by those assets in Non-REMIC
Transactions, the Company or such Mortgage Assets may be treated as a "taxable
mortgage pool" under the Code if the payments on the debt obligations bear a
relationship to the payments on the underlying Mortgage Assets. In such a case,
the Company's REIT status would not be jeopardized, but to the extent provided
in future Treasury Regulations, a portion or all of the taxable income generated
by the Company's Mortgage Assets constituting a taxable mortgage pool may be
characterized as excess inclusion income and allocated pro rata among the
Company's shareholders. Shareholders would not be permitted to offset certain
portions of the dividend income from the Company that are attributable to the
Non-REMIC Transactions with their current deductions or net operating loss
carryovers or carrybacks. Although no applicable Treasury Regulations have yet
been issued, no assurance can be provided that such regulations will not be
issued in the future or that, if issued, that such regulations will not be
retroactive and will not prevent the Company's shareholders from offsetting some
portion of their dividend income with deductions or losses from other sources.

The Company may enter into master reverse repurchase agreements or other
secured borrowings pursuant to which the Company may borrow funds with differing
maturity dates, all of which are cross-collateralized. The Company does not
believe that the master reverse repurchase agreements or its other financing
arrangements should cause the Company or the related Mortgage Assets to be
treated as a taxable mortgage pool. However, because the Treasury Department has
issued regulations that adopt a broad view of what may constitute a taxable
mortgage pool, no assurances can be given that the Service might not maintain
successfully that the Company or the Mortgage Assets collateralizing such master
reverse repurchase agreements constitute a taxable mortgage pool.

TAXATION OF SHAREHOLDERS ON THE DISPOSITION OF THE COMMON SHARES

In general, any gain or loss realized upon a taxable disposition of the
Common Shares by a shareholder who is not a dealer in securities will be treated
as long-term capital gain or loss if the Common Shares has been held for more
than one year and otherwise as short-term capital gain or loss. However, any
loss upon a sale or exchange of Common Shares by a shareholder who has held such
shares for six months or less (after applying certain holding period rules) will
be treated as a long-term capital loss to the extent of distributions from the
Company required to be treated by such shareholder as long-term capital

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gain. All or a portion of any loss realized upon a taxable disposition of the
Common Shares may be disallowed if other shares of Common Shares are purchased
within 30 days before or after the disposition.

CAPITAL GAINS AND LOSSES

A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%.
The maximum tax rate on long-term capital gains applicable to individuals is 28%
for sales and exchanges of assets held for more than one year, but not more than
18 months, and 20% for sales and exchanges of assets held for more than 18
months. Thus, the tax rate differential between capital gain and ordinary income
for individuals may be significant. In addition, the characterization of income
as capital gain or ordinary income may affect the deductibility of capital
losses. Capital losses not offset by capital gains may be deducted against an
individual's ordinary income only up to a maximum annual amount of $3,000.
Unused capital losses may be carried forward indefinitely by individuals. All
net capital gain of a corporate taxpayer is subject to tax at ordinary corporate
rates. A corporate taxpayer can deduct capital losses only to the extent of
capital gains, with unused losses being carried back three years and forward
five years.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

The Company will report to its U.S. shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A shareholder who does not provide the Company with
his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any shareholders
who fail to certify their nonforeign status to the Company. The Treasury
Department issued proposed regulations in April 1996 regarding the backup
withholding rules as applied to Non-U.S. Shareholders. The proposed regulations
would alter the current system of backup withholding compliance and are proposed
to be effective for distributions made after December 31, 1997. See "--Taxation
of Non-U.S. Shareholders."

TAXATION OF TAX-EXEMPT SHAREHOLDERS

Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their UBTI. While many investments in real estate generate UBTI, the Service
has issued a published ruling that dividend distributions from a REIT to an
exempt employee pension trust do not constitute UBTI, provided that the shares
of the REIT are not otherwise used in an unrelated trade or business of the
exempt employee pension trust. Based on that ruling, amounts distributed by the
Company to Exempt Organizations generally should not constitute UBTI. However,
if an Exempt Organization were to finance its acquisition of the Common Shares
with debt, a portion of its income from the Company would constitute UBTI
pursuant to the "debt-financed property" rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under paragraphs (7), (9), (17), and (20), respectively, of Code section 501(c)
are subject to different UBTI rules, which generally will require them to
characterize distributions from the Company as UBTI. Finally, in certain
circumstances, a pension trust that owns more than 10% of the Company's shares
is required to treat a percentage of the dividends from the Company as UBTI (the
"UBTI Percentage"). The UBTI Percentage

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is the gross income derived by the Company from an unrelated trade or business
(determined as if the Company were a pension trust) divided by the gross income
of the Company for the year in which the dividends are paid. The UBTI rule
applies to a pension trust holding more than 10% of the Company's shares only if
(i) the UBTI Percentage is at least 5%, (ii) the Company qualifies as a REIT by
reason of the modification of the 5/50 Rule that allows the beneficiaries of the
pension trust to be treated as holding shares of the Company in proportion to
their actuarial interests in the pension trust, and (iii) the Company is a
"pension-held REIT" (i.e., either (A) one pension trust owns more than 25% of
the value of the Company's shares or (B) a group of pension trusts individually
holding more than 10% of the value of the Company's shares collectively owns
more than 50% of the value of the Company's shares.) Because the Ownership
Limitation prohibits any shareholder from owning more than 9.8% of (i) the
number of outstanding Common Shares or (ii) the number of outstanding Preferred
Shares of any class or series, the Company should not be a pension-held REIT
and, accordingly, no pension trust should be required to treat a percentage of
the dividends from the Company as UBTI.

Dividends received by an Exempt Organization that are allocable to excess
inclusion income derived by the Company from REMIC residual interests may be
treated as UBTI. In addition, the Company will be subject to tax at the highest
marginal corporate rate on the portion of any such excess inclusion income that
is allocable to shares of the Company held by Disqualified Organizations. Any
such tax would be deductible by the Company against its income that is not
excess inclusion income. If the Company derives excess inclusion income from
REMIC residual interests, a tax similar to the tax on the Company described
above in this paragraph may be imposed on shareholders who are (i) pass-through
entities (i.e., partnerships, estates, trusts, regulated investment companies,
REITs, common trust funds, and certain types of cooperatives (including farmers'
cooperatives described in Code section 521)) in which a Disqualified
Organization is a record holder of shares or interests and (ii) nominees who
hold Common Shares on behalf of Disqualified Organizations. Consequently, a
brokerage firm that holds Common Shares in a "street name" account for a
Disqualified Organization may be subject to federal income tax on the excess
inclusion income derived from those shares.

The U.S. Treasury Department has been authorized to issue regulations
regarding issuances by a REIT of debt obligations in Non-REMIC Transactions. If
such Treasury Regulations are issued in the future preventing taxable
shareholders from offsetting some percentage of the dividends paid by the
Company with deductions or losses from other sources, that same percentage of
the Company's dividends would be treated as UBTI for shareholders that are
Exempt Organizations. See "--Taxation of Taxable U.S. Shareholders."

TAXATION OF NON-U.S. SHAREHOLDERS

The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON SHARES, INCLUDING ANY REPORTING REQUIREMENTS.

Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends or retained long-term
capital gains will be treated as dividends of ordinary income to the extent that
they are made out of the Company's current or accumulated earnings and profits.
Such distributions ordinarily will be subject to a withholding tax equal to 30%
of the gross amount of the distribution unless an applicable tax treaty reduces
or eliminates that tax. However, if income from the investment in the Common
Shares is treated as effectively connected with the Non-U.S. Shareholder's
conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will be
subject to federal income tax at graduated

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rates, in the same manner as U.S. shareholders are taxed with respect to such
distributions (and also may be subject to the 30% branch profits tax in the case
of a Non-U.S. Shareholder that is a non-U.S. corporation). The Company expects
to withhold U.S. income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Shareholder unless (i) a lower treaty rate
applies and any required form evidencing eligibility for that reduced rate is
filed with the Company or (ii) the Non-U.S. Shareholder files an IRS Form 4224
with the Company claiming that the distribution is effectively connected income.
The U.S. Treasury Department issued proposed regulations in April 1996 that
would modify the manner in which the Company complies with the withholding
requirements.

If the Company derives excess inclusion income from REMIC residual
interests, the portion of the dividends paid to Non-U.S. Shareholders that is
allocable to the excess inclusion income may not be eligible for exemption from
the 30% withholding tax or a reduced treaty rate. In addition, the U.S. Treasury
Department has been authorized to issue regulations regarding issuances by a
REIT of debt obligations in Non-REMIC Transactions. If Treasury Regulations are
issued in the future preventing taxable shareholders from offsetting some
percentage of the dividends paid by the Company with deductions or losses from
other sources, that same percentage of the Company's dividends would not be
eligible for exemption from the 30% withholding tax or a reduced treaty rate.
See "--Taxation of Taxable U.S. Shareholders."

Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's Common
Shares, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Shareholder's Common Shares, such
distributions will give rise to tax liability if the Non-U.S. Shareholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Common Shares, as described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. However, amounts so withheld are refundable to the extent it is
determined subsequently that such distribution was, in fact, in excess of the
current and accumulated earnings and profits of the Company.

In August 1996, the U.S. Congress passed the Small Business Job Protection
Act of 1996, which requires the Company to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution, to the extent that the Company does not do
so, any portion of a distribution not subject to withholding at a rate of 30%
will be subject to withholding at a rate of 10%.

OTHER TAX CONSEQUENCES

The Company, the Operating Partnership, or the Company's shareholders may be
subject to state and local tax in various states and localities, including those
states and localities in which it or they transact business, own property, or
reside. The state and local tax treatment of the Company and its shareholders in
such jurisdictions may differ from the federal income tax treatment described
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws upon an investment in
the Common Shares.

In particular, the State of Texas imposes a franchise tax upon corporations
and limited liability companies that do business in Texas, including REITs that
are organized as corporations. Entities organized as trusts or partnerships,
however, currently are not subject to the Texas franchise tax. Accordingly,
neither the Company nor the Operating Partnership should be subject to the Texas
franchise tax. There can be no assurance, however, that the Texas legislature
will not expand the scope of the Texas franchise tax to apply to trusts such as
the Company or entities that are organized as partnerships such as the Operating
Partnership.

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AMC is organized as a corporation, conducts business in Texas, and has
registered in the State of Texas as a foreign corporation qualified to transact
business in Texas. Accordingly, AMC is subject to the Texas franchise tax. Such
tax will reduce the amount available for distribution from AMC to the Company,
which, in turn, will reduce the amount available for distribution from the
Company to its shareholders. The Texas franchise tax imposed on a corporation
doing business in Texas generally is equal to the greater of (i) .25% of
"taxable capital" (generally, financial accounting net worth with certain
adjustments) apportioned to Texas, or (ii) 4.5% of "taxable earned surplus"
(generally, federal taxable income with certain adjustments) apportioned to
Texas. A corporation's taxable capital and taxable earned surplus are
apportioned to Texas based upon a fraction, the numerator of which is the
corporation's gross receipts from business transacted in Texas and the
denominator of which is the corporation's gross receipts from all sources.

TAX ASPECTS OF THE OPERATING PARTNERSHIP

The following discussion summarizes certain federal income tax
considerations applicable to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.

CLASSIFICATION AS A PARTNERSHIP

The Company will be entitled to include in its income its distributive share
of the Operating Partnership's income and to deduct its distributive share of
the Operating Partnership's losses only if the Operating Partnership is
classified for federal income tax purposes as a partnership rather than as a
corporation or an association taxable as a corporation. An entity will be
classified as a partnership rather than as a corporation or an association
taxable as a corporation for federal income tax purposes if the entity (i) is
treated as a partnership under Treasury Regulations, effective January 1, 1997,
relating to entity classification (the "Check-the-Box Regulations") and (ii) is
not a "publicly traded" partnership.

In general, under the Check-the-Box Regulations, an unincorporated entity
with at least two members may elect to be classified either as an association
taxable as a corporation or as a partnership. If such an entity fails to make an
election, it generally will be treated as a partnership for federal income tax
purposes. The Operating Partnership intends to be treated as a partnership under
the Check-the-Box Regulations and the Company has represented that the Operating
Partnership will not elect to be treated as an association taxable as a
corporation under the Check-the-Box Regulations.

A "publicly traded" partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). A publicly traded partnership
will be treated as a corporation for federal income tax purposes unless at least
90% of such partnership's gross income for a taxable year consists of
"qualifying income" under section 7704(d) of the Code, which generally includes
any income that is qualifying income for purposes of the 95% gross income test
applicable to REITs (the "90% Passive-Type Income Exception"). See "Federal
Income Tax Considerations-Requirements for Qualification--Income Tests." The
U.S. Treasury Department has issued regulations effective for taxable years
beginning after December 31, 1995 (the "PTP Regulations") that provide limited
safe harbors from the definition of a publicly traded partnership. Pursuant to
one of those safe harbors (the "Private Placement Exclusion"), interests in a
partnership will not be treated as readily tradable on a secondary market or the
substantial equivalent thereof if (i) all interests in the partnership were
issued in a transaction (or transactions) that was not required to be registered
under the Securities Act of 1933, as amended, and (ii) the partnership does not
have more than 100 partners at any time during the partnership's taxable year.
In determining the number of partners in a partnership, a person owning an
interest in a flow-through entity (i.e., a partnership, grantor trust, or S
corporation) that owns an interest in the partnership is treated as a partner in
such partnership only if (a) substantially all of the value of the owner's
interest in the flow-through entity is attributable to the flow-through entity's
interest (direct or indirect) in the partnership and (b) a principal purpose of
the use of the

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flow-through entity is to permit the partnership to satisfy the 100-partner
limitation. The Operating Partnership qualifies for the Private Placement
Exclusion. If, however, the Operating Partnership is considered a publicly
traded partnership under the PTP Regulations for some reason (e.g. because it is
deemed to have more than 100 partners), the Operating Partnership should not be
treated as a corporation because it should be eligible for the 90% Passive-Type
Income Exception.

The Company has not requested, and does not intend to request, a ruling from
the Service that the Operating Partnership will be classified as a partnership
for federal income tax purposes. However, Hunton & Williams is of the opinion
that, based on certain factual assumptions and representations, the Operating
Partnership will be treated for federal income tax purposes as a partnership and
not as a corporation or an association taxable as a corporation or as a publicly
traded partnership. Unlike a tax ruling, an opinion of counsel is not binding
upon the Service, and no assurance can be given that the Service will not
challenge the status of the Operating Partnership as a partnership for federal
income tax purposes. If such challenge were sustained by a court, the Operating
Partnership would be treated as a corporation for federal income tax purposes,
as described below. In addition, the opinion of Hunton & Williams is based on
existing law, which is to a great extent the result of administrative and
judicial interpretation. No assurance can be given that administrative or
judicial changes would not modify the conclusions expressed in the opinion.

If for any reason the Operating Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company would
not be able to qualify as a REIT. See "Federal Income Tax
Considerations--Requirements for Qualification--Income Tests" and
"--Requirements for Qualification--Asset Tests." In addition, any change in the
Operating Partnership's status for tax purposes might be treated as a taxable
event, in which case the Company might incur a tax liability without any related
cash distribution. See "Federal Income Tax Considerations--Requirements for
Qualification-- Distribution Requirements." Further, items of income and
deduction of the Operating Partnership would not pass through to its partners,
and its partners would be treated as shareholders for tax purposes.
Consequently, the Operating Partnership would be required to pay income tax at
corporate tax rates on its net income, and distributions to its partners would
constitute dividends that would not be deductible in computing the Operating
Partnership's taxable income.

INCOME TAXATION OF THE OPERATING PARTNERSHIP AND ITS PARTNERS

PARTNERS, NOT THE OPERATING PARTNERSHIP, SUBJECT TO TAX. A partnership is
not a taxable entity for federal income tax purposes. Rather, the Company will
be required to take into account its allocable share of the Operating
Partnership's income, gains, losses, deductions, and credits for any taxable
year of the Operating Partnership ending within or with the taxable year of the
Company, without regard to whether the Company has received or will receive any
distribution from the Operating Partnership.

PARTNERSHIP ALLOCATIONS. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under section 704(b) of the Code if they do
not comply with the provisions of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder. If an allocation is not recognized for
federal income tax purposes, the item subject to the allocation will be
reallocated in accordance with the partners' interests in the partnership, which
will be determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such item.
The Operating Partnership's allocations of taxable income and loss are intended
to comply with the requirements of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.

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TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner such that the contributor is charged with, or benefits
from, the unrealized gain or unrealized loss associated with the property at the
time of the contribution. The amount of such unrealized gain or unrealized loss
generally is equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution. The Treasury Department has issued
regulations requiring partnerships to use a "reasonable method" for allocating
items affected by section 704(c) of the Code and outlining several reasonable
allocation methods. The Operating Partnership generally will elect to use the
traditional method for allocating Code section 704(c) items with respect to
assets that it acquires in exchange for Units.

BASIS IN PARTNERSHIP INTEREST. The Company's adjusted tax basis in its
partnership interest in the Operating Partnership generally is equal to (i) the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) increased by (A) its allocable share of the
Operating Partnership's income and (B) its allocable share of indebtedness of
the Operating Partnership, and (iii) reduced, but not below zero, by (A) the
Company's allocable share of the Operating Partnership's loss and (B) the amount
of cash distributed to the Company, including constructive cash distributions
resulting from a reduction in the Company's share of indebtedness of the
Operating Partnership.

If the allocation of the Company's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition of
such loss will be deferred until such time as the recognition of such loss would
not reduce the Company's adjusted tax basis below zero. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating Partnership (such decrease being considered a
constructive cash distribution to the partners), would reduce the Company's
adjusted tax basis below zero, such distributions (including such constructive
distributions) will constitute taxable income to the Company. Such distributions
and constructive distributions normally will be characterized as capital gain,
and if the Company's partnership interest in the Operating Partnership has been
held for longer than the long-term capital gain holding period (currently one
year), the distributions and constructive distributions will constitute
long-term capital gain.

SALE OF THE COMPANY'S PROPERTY

Generally, any gain realized by the Company or the Operating Partnership on
the sale of property held for more than one year will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. Any gain recognized by the Operating Partnership on the
disposition of any assets contributed by the Limited Partners will be allocated
first to the contributing Limited Partners under section 704(c) of the Code to
the extent of their "built-in gain" on those assets for federal income tax
purposes. The Limited Partners' "built-in gain" on the assets sold will equal
the excess of the Limited Partners' proportionate share of the book value of
those assets over the Limited Partners' tax basis allocable to those assets at
the time of the sale. Any remaining gain recognized by the Operating Partnership
on the disposition of the assets will be allocated among the partners in
accordance with the Partnership Agreement.

Gain on the sale of any property held by the Company or the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Company's or the Operating Partnership's trade or
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. Such prohibited transaction income also may have an
adverse effect upon the Company's ability to satisfy the income tests for REIT
status. See "Federal Income Tax Considerations--Requirements For Qualification--
Income Tests" above. The Company, however, does not presently intend to acquire
or hold or to allow the Operating Partnership to acquire or hold any property
that

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represents inventory or other property held primarily for sale to customers in
the ordinary course of the Company's or the Operating Partnership's trade or
business.

TAXATION OF AMC

The Operating Partnership will own 100% of the nonvoting common stock of AMC
representing a 97% economic interest in AMC. By virtue of its ownership of the
Operating Partnership, the Company will be considered to own its pro rata share
of such stock. As noted above, for the Company to qualify as a REIT, its
proportionate share of the value of the stock of AMC held by the Operating
Partnership may not exceed 5% of the total value of the Company's assets. In
addition, the Company may not own more than 10% of the voting stock of AMC.
After the Recapitalization, the Company will not own, directly or through the
Operating Partnership, any of the voting stock of AMC. In addition, the Company
believes that its proportionate share of the value of the stock of AMC held by
the Operating Partnership will not exceed 5% of the total value of the Company's
assets. If the Service were to successfully challenge that determination,
however, the Company likely would fail to qualify as a REIT.

AMC is organized as a corporation and will pay federal, state, and local
income taxes on its taxable income at normal corporate rates. Any such taxes
will reduce amounts available for distribution by AMC which, in turn, will
reduce amounts available for distribution to the Company's shareholders.

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ERISA CONSIDERATIONS

The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of section 4975 of the Code that may be
relevant to a prospective purchaser (including, with respect to the discussion
contained in "--Status of the Company and the Operating Partnership under
ERISA," to a prospective purchaser that is not an employee benefit plan, another
tax-qualified retirement plan, or an individual retirement account or an
individual retirement annuity ("IRAs")). The discussion does not purport to deal
with all aspects of ERISA or section 4975 of the Code or, to the extent not
preempted, state law that may be relevant to particular employee benefit plan
shareholders (including plans subject to Title I of ERISA, other retirement
plans and IRAs subject to the prohibited transaction provisions of section 4975
of the Code, and governmental plans or church plans that are exempt from ERISA
and section 4975 of the Code but that may be subject to state law requirements)
in light of their particular circumstances.

The discussion is based on current provisions of ERISA and the Code,
existing and currently proposed regulations under ERISA and the Code, the
legislative history of ERISA and the Code, existing administrative rulings of
the Department of Labor ("DOL") and reported judicial decisions. No assurance
can be given that legislative, judicial, or administrative changes will not
affect the accuracy of any statements herein with respect to transactions
entered into or contemplated prior to the effective date of such changes.

THE FOLLOWING IS INTENDED TO BE A SUMMARY ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL PLANNING WITH A PROFESSIONAL.

A FIDUCIARY MAKING THE DECISION TO INVEST IN THE COMMON SHARES ON BEHALF OF
A PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE BENEFIT PLAN, A TAX-QUALIFIED
RETIREMENT PLAN, OR AN IRA SHOULD CONSULT ITS OWN LEGAL ADVISOR REGARDING THE
SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE CODE, AND STATE
LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE COMMON SHARES BY
SUCH PLAN OR IRA. A FIDUCIARY SHOULD ALSO CONSIDER THE ENTIRE DISCUSSION UNDER
THE HEADING "FEDERAL INCOME TAX CONSIDERATIONS," AS MATERIAL CONTAINED THEREIN
IS RELEVANT TO ANY DECISION BY AN EMPLOYEE BENEFIT PLAN OR IRA TO PURCHASE THE
COMMON SHARES.

EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS, AND IRAS

Each fiduciary of a pension, profit-sharing, or other employee benefit plan
(a "Plan") subject to Title I of ERISA should consider carefully whether an
investment in the Common Shares is consistent with his or her fiduciary
responsibilities under ERISA. In particular, the fiduciary requirements of Part
4 of Title I of ERISA require an Plan's investment to be (i) prudent and in the
best interests of the Plan, its participants, and its beneficiaries, (ii)
diversified in order to minimize the risk of large losses, unless it is clearly
prudent not to do so, and (iii) authorized under the terms of the Plan's
governing documents (provided the documents are consistent with ERISA). In
determining whether an investment in the Common Shares is prudent for purposes
of ERISA, the appropriate fiduciary of a Plan should consider all of the facts
and circumstances, including whether the investment is reasonably designed, as a
part of the Plan's portfolio for which the fiduciary has investment
responsibility, to meet the objectives of the Plan, taking into consideration
the risk of loss and opportunity for gain (or other return) from the investment,
the diversification, cash flow, and funding requirements of the Plan's
portfolio. A fiduciary also should take into account the nature of the Company's
business, the management of the Company, the length of the Company's operating
history, the fact that certain investment assets may not have been identified
yet, the possibility of the recognition of UBTI, and other matters described
under "Risk Factors."

The fiduciary of an IRA or of a qualified retirement plan not subject to
Title I of ERISA because it is a governmental or church plan or because it does
not cover common law employees (a "Non-ERISA

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Plan") should consider that such an IRA or Non-ERISA Plan may only make
investments that are authorized by the appropriate governing documents and under
applicable state law.

Fiduciaries of Plans and persons making the investment decision for an IRA
or other Non-ERISA Plan should consider the application of the prohibited
transaction provisions of ERISA and the Code in making their investment
decision. A "party in interest" or "disqualified person" with respect to an Plan
or with respect to a Plan or IRA subject to Code section 4975 is subject to (i)
an initial 15% excise tax on the amount involved in any prohibited transaction
involving the assets of the plan or IRA and (ii) an excise tax equal to 100% of
the amount involved if any prohibited transaction is not corrected. If the
disqualified person who engages in the transaction is the individual on behalf
of whom an IRA is maintained (or his beneficiary), the IRA will lose its
tax-exempt status and its assets will be deemed to have been distributed to such
individual in a taxable distribution (and no excise tax will be imposed) on
account of the prohibited transaction. In addition, a fiduciary who permits a
Plan to engage in a transaction that the fiduciary knows or should know is a
prohibited transaction may be liable to the Plan for any loss the Plan incurs as
a result of the transaction or for any profits earned by the fiduciary in the
transaction.

STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER ERISA

The following section discusses certain principles that apply in determining
whether the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and the Code apply to an entity because one or more
investors in the equity interests in the entity is a Plan or is a Non-ERISA Plan
or IRA subject to section 4975 of the Code. A Plan fiduciary also should
consider the relevance of those principles to ERISA's prohibition on improper
delegation of control over or responsibility for "plan assets" and ERISA's
imposition of co-fiduciary liability on a fiduciary who participates in, permits
(by action or inaction) the occurrence of, or fails to remedy a known breach by
another fiduciary.

If the assets of the Company are deemed to be "plan assets" under ERISA, (i)
the prudence standards and other provisions of Part 4 of Title I of ERISA would
be applicable to any transaction involving the Company's assets, (ii) persons
who exercise any authority over the Company's assets, or who provide investment
advice to the Company, would (for purposes of the fiduciary responsibility
provisions of ERISA) be fiduciaries of each Plan that acquires Common Shares,
and transactions involving the Company's assets undertaken at their direction or
pursuant to their advice might violate their fiduciary responsibilities under
ERISA, especially with regard to conflicts of interest, (iii) a fiduciary
exercising his investment discretion over the assets of a Plan to cause it to
acquire or hold the Common Shares could be liable under Part 4 of Title I of
ERISA for transactions entered into by the Company that do not conform to ERISA
standards of prudence and fiduciary responsibility, and (iv) certain
transactions that the Company might enter into in the ordinary course of its
business and operations might constitute "prohibited transactions" under ERISA
and the Code.

Regulations of the DOL defining "plan assets" (the "Plan Asset Regulations")
generally provide that when a Plan, Non-ERISA Plan or IRA acquires a security
that is an equity interest in an entity and the security is neither a
"publicly-offered security" nor a security issued by an investment company
registered under the Investment Company Act of 1940, the Plan's, Non-ERISA
Plan's, or IRA's assets include both the equity interest and an undivided
interest in each of the underlying assets of the issuer of such equity interest,
unless one or more exceptions specified in the Plan Asset Regulations are
satisfied.

The Plan Asset Regulations define a publicly-offered security as a security
that is "widely-held," "freely transferable," and either part of a class of
securities registered under sections 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or sold pursuant to an effective
registration statement under the Securities Act (provided the securities are
registered under the Exchange Act within 120 days after the end of the fiscal
year of the issuer during which the offering occurred, or such longer period as
may be allowed by the Commission). The Common Shares are being sold in an
offering registered under the Securities Act and will be registered under the
Exchange Act. The Plan Asset

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Regulations provide that a security is "widely held" only if it is part of a
class of securities that is owned by 100 or more investors independent of the
issuer and of one another. A security will not fail to be widely held because
the number of independent investors falls below 100 subsequent to the initial
public offering as a result of events beyond the issuer's control. The Company
anticipates that upon completion of this offering, the Common Shares will be
"widely held."

The Plan Asset Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The Plan Asset Regulations further provide
that where a security is part of an offering in which the minimum investment is
$10,000 or less (as is the case with this offering), certain restrictions
ordinarily will not, alone or in combination, affect a finding that such
securities are freely transferable. The restrictions on transfer enumerated in
the Plan Asset Regulations as not affecting that finding include: (i) any
restriction on or prohibition against any transfer or assignment that would
result in the termination or reclassification of an entity for federal or state
tax purposes, or that otherwise would violate any federal or state law or court
order, (ii) any requirement that advance notice of a transfer or assignment be
given to the issuer, (iii) any administrative procedure that establishes an
effective date, or an event (such as completion of an offering), prior to which
a transfer or assignment will not be effective, and (iv) any limitation or
restriction on transfer or assignment that is not imposed by the issuer or a
person acting on behalf of the issuer. The Company believes that the
restrictions imposed under the Declaration of Trust on the transfer of its
shares will not result in the failure of the Common Shares to be "freely
transferable." The Company also is not aware of any other facts or circumstances
limiting the transferability of the Common Shares that are not enumerated in the
Plan Asset Regulations as those not affecting free transferability, but no
assurance can be given that the DOL or the Treasury Department will not reach a
contrary conclusion.

Assuming that the Common Shares will be "widely held" and that no other
facts and circumstances other than those referred to in the preceding paragraph
exist that restrict transferability of the Common Shares, the shares of Common
Shares should be publicly offered securities and the assets of the Company
should not be deemed to be "plan assets" of any Plan, IRA, or Non-ERISA Plan
that invests in the Common Shares.

The Plan Asset Regulations also will apply in determining whether the assets
of the Operating Partnership will be deemed to be "plan assets." The partnership
interests in the Operating Partnership will not be publicly-offered securities.
Nevertheless, if the Common Shares constitute publicly-offered securities, the
indirect investment in the Operating Partnership by ERISA Plans, IRAs, or
Non-ERISA Plans subject to section 4975 of the Code through their ownership of
Common Shares will not cause the assets of the Operating Partnership to be
treated as "plan assets" of such shareholders.

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UNDERWRITING

Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), for whom Jefferies & Company,
Inc. is acting as the representative (the "Representative") and each of the
Underwriters has severally agreed to purchase, the respective number of Common
Shares set forth below opposite their respective names.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Jefferies & Company, Inc.......................................................................
-----------------
Total...................................................................................... 10,000,000
-----------------
-----------------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Common Shares are subject to certain conditions precedent and
that if any of the foregoing Common Shares are purchased by the Underwriters
pursuant to the Underwriting Agreement, all such Common Shares must be so
purchased.

The Company has been advised by the Underwriters that they propose to offer
the Common Shares directly to the public at the initial public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
public offering price less a concession not in excess of $. per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $. per share to certain other underwriters or to certain other brokers or
dealers. After the initial public offering, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the Representative.

The Company has granted to the Underwriters an option to purchase up to an
additional 1,500,000 Common Shares at the initial public offering price less
underwriting discounts and commissions, solely to cover overallotments, if any.
The Underwriters may exercise this option at any time up to 30 days after the
date of this Prospectus. To the extent that the Underwriters exercise this
option, each of the Underwriters will be obligated, subject to certain
conditions, to purchase a number of additional Common Shares proportionate to
such Underwriter's initial commitment reflected in the foregoing table.

The Company has agreed that it will not, without the prior written consent
of Jefferies & Company, Inc., offer for sale, contract to sell any Common Shares
(other than shares issued pursuant to the 1997 Share Incentive Plan and certain
other agreements) or any securities convertible or exchangeable into Common
Shares or sell or grant options, rights or warrants with respect to any Common
Shares, for a period of 180 days after the consummation of the Offering. Each of
the executive officers and Trustees of the Company who have acquired Units in
connection with the organization of the Company and the Contribution Transaction
has entered into agreements with the Underwriters providing that, subject to
certain exceptions, such holders of Units generally will not sell, transfer,
hypothecate, redeem, exchange or otherwise dispose of, directly or indirectly,
any Units prior to the second anniversary of the Closing Date, without the
consent of Jefferies & Company, Inc. Further, approximately 424,671 Units (based
on the Offering Price) issued in connection with the Contribution Transaction
are subject to similar restrictions for a period of one year from the Closing
Date.

The Company has agreed to pay Jefferies & Company, Inc. an advisory fee
equal to 0.5% of the gross proceeds of the Offering for the structural and
advisory services rendered in connection with this Offering.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.

Until the distribution of the Common Shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and

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purchase Common Shares. As an exception to these rules, the Representative is
permitted to engage in certain transactions to stabilize the price of the Common
Shares. Such transactions may consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Shares.

In addition, if the Representative over-allots (i.e., if it sells more
Common Shares that are set forth on the cover page of this Prospectus) and
thereby creates a short position in the Common Shares in connection with the
Offering, the Representative may reduce that short position by purchasing Common
Shares in the open market. The Representative also may reduce that short
position by exercising all or part of the over-allotment option described
herein.

The Representative also may impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representative purchases Common
Shares in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Shares, it may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.

The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Prior to the Offering, there has been no public market for the Common
Shares. Consequently, the offering price was determined by negotiations between
the Company and the Representative. Among the principal factors considered in
such negotiations were prevailing market and general economic conditions and
estimates of the business potential and earnings prospects of the Company.
Additionally, consideration was given to the general status of the securities
market, the market conditions for new issues of securities and the demand for
securities of comparable companies at the times the offerings are made.

The Company intends to apply to have the Common Shares listed on the NYSE
under the symbol " ".

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Hunton &
Williams, Richmond, Virginia, and for the Underwriters by Latham & Watkins,
Costa Mesa, California. Hunton & Williams and Latham & Watkins will rely on
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland as to certain matters of
Maryland law.

EXPERTS

The balance sheet of the Company as of August 28, 1997 and the financial
statements of AMC as of December 31, 1995 and 1996, and for each of the years in
the three-year period ended December 31, 1996, have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in accounting and auditing.

85
<PAGE>
ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Shares offered pursuant to this
Prospectus. This Prospectus, which is part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and financial statement schedules thereto. For further information
with respect to the Company and the Common Shares, reference is made to the
Registration Statement and such exhibits and financial statement schedules,
copies of which may be examined without charge at or obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 13th Floor, 7 World Trade Center, New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commission
maintains a website at http:// www.sec.gov, and reports, proxy and information
statements that file electronically with the Commission (including the Company)
can be obtained from that site.

Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement are
not necessarily complete, and each such statement is qualified in its entirety
by reference to the full text of such contract or document.

The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934. In addition to
applicable legal or NYSE requirements, if any, holders of Common Shares will
receive annual reports containing audited financial statements with a report
thereon by the Company's independent certified public accounts.

86
<PAGE>
GLOSSARY

Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus.

"5/50 RULE" means the tax rule that no more than 50% in value of the
Company's outstanding shares may be owned, directly or indirectly, by five or
fewer individuals during the last half of each taxable year.

"90% PASSIVE-TYPE INCOME EXCEPTION" means the exception from treatment as a
publicly traded partnership for partnerships at least 90% of whose income for a
taxable year consists of certain passive-type income.

"AFFILIATE" means (i) any person that, directly or indirectly, controls or
is controlled by or is under common control with such person, (ii) any other
person that owns, beneficially, directly or indirectly, five percent (5%) or
more of the outstanding capital stock, shares or equity interests of such
person, or (iii) any officer, director, employee, partner or trustee of such
person or any person controlling, controlled by or under common control with
such person (excluding trustees and persons serving in similar capacities who
are not otherwise an Affiliate of such person). The term "person" means and
includes individuals, corporations, general and limited partnerships, limited
liability companies, limited liability partnerships, stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof. For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.

"AGENCY" means FNMA, FHLMC or GNMA.

"AGENCY CERTIFICATES" means Pass-Through Certificates guaranteed by FNMA,
FHLMC or GNMA.

"AMC" means AEGIS Mortgage Corporation.

"AMC'S LOAN TRADING OPERATIONS" means AMC's acquisition of Mortgage Loans
for investment or trading from a nationwide network of financial institutions
and brokers.

"ANTI-ABUSE RULE" means a final regulation issued by the United States
Treasury Department under the Partnership Provisions that authorizes the
Service, in certain "abusive" transactions involving partnerships, to disregard
the form of the transaction and recast it for federal tax purposes as the
Service deems appropriate.

"ARM" means a Mortgage Loan that features adjustments of the underlying
interest rate at predetermined times based on an agreed margin to an established
index. An ARM is usually subject to periodic interest rate and/or payment caps
and a lifetime interest rate cap.

"BENEFICIARY" means the beneficiary of the Share Trust.

"BYLAWS" means the Company's Bylaws.

"CASH AVAILABLE FOR DISTRIBUTION" means net income (loss) (computed in
accordance with generally accepted accounting principles) of the Company plus
depreciation and amoritization and minority interest minus capital expenditures
and principal payments on indebtness.

"CLOSING DATE" means the date of the closing of the Offering.

87
<PAGE>
"CLOSING PRICE" means the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common or Preferred Shares are
not listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Common or Preferred Shares are listed or admitted to trading or, if the Common
or Preferred Shares are not listed or admitted to trading on any national
securities exchange, the last quoted price, or if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if the Common or Preferred Shares are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Common or
Preferred Shares selected by the Board of Trustees.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COMMISSION" means the Securities and Exchange Commission.

"COMMON SHARES" means common shares of beneficial interest, par value $.01
per share, of the Company.

"COMPANY" means AEGIS Investment Trust and its subsidiaries on a
consolidated basis.

"COMPANY EXPENSES" means administrative costs and expenses of the Company.

"COMPENSATION COMMITTEE" means the committee comprised of two or more of
the Independent Trustees established by the Board of Trustees to determine
compensation for the Company's executive officers and to implement the Company's
1997 Plan.

"CONFORMING MORTGAGE LOANS" means Mortgage Loans that comply with
requirements for inclusion in credit support programs sponsored by GNMA, FHLMC
or FNMA.

"CONTRIBUTION TRANSACTION" means the transaction pursuant to which AMC was
contributed to the Company.

"CONTROL SHARE ACQUISITION" means the acquisition of Control Shares,
subject to certain exceptions.

"CONTROL SHARES" means shares of beneficial interest that, if aggregated
with all other such shares of beneficial interest of the Company previously
acquired by the acquiror, would entitle the acquiror to exercise voting power in
electing trustees within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority of all voting power, but does not include shares
which the acquiring person is then entitled to vote as a result of having
previously obtained shareholder approval.

"DECLARATION OF TRUST" means the amended and restated Declaration of Trust
of the Company.

"DOLLAR REVERSE REPURCHASE AGREEMENT" means a reverse repurchase
arrangement whereby the third party purchaser agrees to deliver and the seller
agrees to purchase a specified amount of securities, which do not necessarily
need to be the same securities sold by the seller.

"EXEMPT ORGANIZATIONS" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.

"FHA" means the United States Federal Housing Administration.

88
<PAGE>
"FHLMC" means the Federal Home Loan Mortgage Corporation.

"FNMA" means the Federal National Mortgage Association.

"GNMA" means the Government National Mortgage Association.

"GAAP" means generally accepted accounting principles consistently applied.

"HUD" means the United States Department of Housing and Urban Development.

"INDEPENDENT TRUSTEES" means a trustee of the Company that is not an
officer or employee of the Company, any affiliate of an officer or employee or
any affiliate of (i) any advisor to the Company under
an advisory agreement, (ii) any lessee of any property of the Company, (iii) any
subsidiary of the Company or (iv) any partnership that is an affiliate of the
Company.

"INTERESTED SHAREHOLDER" means a beneficial owner of ten percent or more of
the voting power of the then outstanding voting shares of beneficial interest of
a trust or an affiliate thereof.

"INVESTMENT COMPANY ACT." means the Investment Company Act of 1940, as
amended.

"LIBOR" means the London Interbank Offered Rate.

"LIMITED PARTNERS" means the limited partners of the Operating Partnership
after the completion of the Contribution Transaction.

"LOAN ORIGINATION OPERATIONS" means the origination of Mortgage Loans
through a network of mortgage brokers and retail branches for sale to permanent
investors by AMC.

"MARKET PRICE" means the average of the Closing Price for the five
consecutive Trading Days.

"MARYLAND REIT LAW" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended.

"MGCL" means the Maryland General Corporation Law, as amended.

"MORTGAGE ASSETS" means Mortgage Loans, Agency Certificates and other
mortgage-related assets.

"MORTGAGE LOANS" means loans secured by liens on real property or other
real estate-related assets.

"NON-CONFORMING MORTGAGE LOANS" means mortgage loans which do not comply
with requirements for inclusion in credit support programs sponsored by GNMA,
FHLMC or FNMA.

"NON-U.S. SHAREHOLDERS" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.

"NYSE" means the New York Stock Exchange.

"OFFERING" means the offering of Common Shares hereby.

"OFFERING PRICE" means the mid point of the range set forth on the cover of
this Prospectus.

"OPERATING PARTNERSHIP" means AEGIS Operating Partnership, L.P., a Delaware
limited partnership.

"OPERATING PARTNERSHIP AGREEMENT" means the partnership agreement of the
Operating Partnership.

"OWNER-FINANCED MORTGAGE LOANS" means Mortgage Loans originated by the
seller of a property.

"OWNERSHIP LIMITATION" means the ownership of not more than 9.8% of shares
of beneficial interest in the Company.

89
<PAGE>
"PARTNERSHIP PROVISIONS" means partnership provisions of the Code.

"PASS-THROUGH CERTIFICATES" means securities (or interests therein) that
evidence undivided ownership interests in a pool of mortgage loans, the holders
of which receive "pass-through" of the principal and interest paid in connection
with the underlying mortgage loans in accordance with the holders' respective,
undivided interests in the pool. Pass-Through Certificates evidence interests in
mortgage loans secured by single family real estate properties.

"PORTFOLIO OPERATIONS" means the Company's primary business of acquiring
and managing its portfolio of Mortgage Assets.

"PREFERRED SHARES" means the preferred shares of beneficial interest, par
value $0.01 per share, of the Company.

"PRIVATE PLACEMENT EXCLUSION" means the safe harbor from the definition of
a publicly traded partnership as provided for in the PTP Regulations.

"PROHIBITED OWNER" means the record holder of the Common or Preferred
Shares that are designated as Shares-in-Trust.

"PTP REGULATIONS" means regulations recently issued by the United States
Treasury Department effective for taxable years beginning after December 31,
1995 that provide limited safe harbors from the definition of a publicly traded
partnership.

"REDEMPTION RIGHTS" means the rights of the Limited Partners to redeem all
or a portion of their Units for cash or Common Shares on a one-for-one basis
pursuant to the terms of the Operating Partnership Agreement.

"REIT" means real estate investment trust.

"RESTRICTED SHARES" means restricted Common Shares of the Company.

"REVERSE REPURCHASE AGREEMENT" means a borrowing device whereby securities
are sold to a third party, and the seller simultaneously agrees to repurchase
such securities at a specified future date and price, the price difference
representing the financing cost of the borrowing.

"RULE 144" means Rule 144 promulgated under the Securities Act.

"SEASONED MORTGAGE LOANS" means existing residential and commercial
mortgage loans acquired from third parties.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SERVICE" means the U.S. Internal Revenue Service.

"SHARE TRUST" means a trust which holds Common or Preferred Shares of the
Company which have been designated as Shares-in-Trust.

"SHARES-IN-TRUST" means Common or Preferred Shares which are transferred
automatically to the Share Trust.

"TRADING DAY" means a day on which the principal national securities
exchange on which the Common or Preferred Shares are listed or admitted to
trading is open for the transaction of business or, if the Common or Preferred
Shares are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.

90
<PAGE>
"TRUSTEES" means trustees of the Company.

"UBTI" means unrelated business taxable income.

"UBTI PERCENTAGE" means the percentage of dividends treated as UBTI in
certain circumstances where a pension trust owns more than 10% of the Company's
shares.

"UNDERWRITERS" means the Underwriters named in this Prospectus.

"UNITS" means units of limited partnership interest in the Operating
Partnership.

"VA" means the United States Department of Veterans Affairs.

91
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS

AEGIS INVESTMENT TRUST

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2

Balance Sheet--August 28, 1997............................................................................. F-3

Notes to Balance Sheet..................................................................................... F-4
</TABLE>

AEGIS MORTGAGE CORPORATION

<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-5

Balance Sheets--December 31, 1995 and 1996 and June 30, 1997......................... F-6

Statements of Income--Years Ended December 31, 1994, 1995 and 1996 and Six Months
Ended June 30, 1996 and 1997....................................................... F-7

Statements of Stockholders' Equity--Years Ended December 31, 1994, 1995 and 1996 and
Six Months Ended June 30, 1997..................................................... F-8

Statements of Cash Flows--Years Ended December 31, 1994, 1995 and 1996 and Six Months
Ended June 30, 1996 and 1997....................................................... F-9

Notes to Financial Statements........................................................ F-10
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
AEGIS Investment Trust

We have audited the accompanying balance sheet of AEGIS Investment Trust as
of August 28, 1997. The financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

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

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial portion of AEGIS Investment Trust as of August
28, 1997, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

August 28, 1997

F-2
<PAGE>
AEGIS INVESTMENT TRUST

BALANCE SHEET

AUGUST 28, 1997

ASSETS

<TABLE>
<S> <C>
Cash................................................................................ $ 1,900
---------
---------

LIABILITIES AND STOCKHOLDER'S EQUITY

Stockholder's Equity:
Common stock, par value $.01 per share; authorized 100,000,000 shares; issued and
outstanding 100 shares.......................................................... $ 1
Additional paid-in capital.......................................................... 1,899
---------
Total Stockholder's Equity.......................................................... $ 1,900
---------
---------
</TABLE>

F-3
<PAGE>
AEGIS INVESTMENT TRUST

NOTES TO BALANCE SHEET

AUGUST 28, 1997

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

AEGIS Investment Trust (the "Company") was organized as a Maryland real
estate investment trust on August 13, 1997, and was initially capitalized on
August 28, 1997 through the sale of 100 shares of Common Stock for $1,900. The
Company will seek to invest in mortgage-related assets, with an emphasis on
mortgage backed securities representing interests in pools of single family
residential mortgage loans, and the acquisition and origination of such mortgage
loans.

The Company's sole activity through August 28, 1997, consisted of the
organization and start-up of the Company. Accordingly, no statement of
operations is presented.

TAXES

The Company will elect to be taxed as a real estate investment trust under
the Internal Revenue Code. As a result, the Company will not be subject to
federal income taxation at the corporate level to the extent it distributes
annually its predistribution taxable income of at least 95% of its real estate
investment trust taxable income.

INCOME RECOGNITION

Income and expenses are to be recorded on the accrual basis of accounting.

(2) PUBLIC OFFERING OF COMMON STOCK

The Company is in the process of filing a Registration Statement for sale of
its common stock. Contingent upon the consummation of the public offering, the
Company will be liable for organization and offering expenses in connection with
the sale of the shares offered.

F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Aegis Mortgage Corporation:

We have audited the accompanying balance sheets of Aegis Mortgage Corporation
(the Corporation) as of December 31, 1995 and 1996, and the related statements
of income, stockholders' equity, and cash flows for each of the years in the
three year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aegis Mortgage Corporation as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1996 in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
March 6, 1997

F-5
<PAGE>
AEGIS MORTGAGE CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, -------------
---------------------------- 1997
ASSETS 1995 1996 -------------
------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
Cash................................................................ $ 286,191 $ 374,783 $ 1,899,514
Accounts receivable, net............................................ 1,033,407 1,000,403 1,222,354
Mortgage loans held for sale, net of discounts of $393,938,
$2,446,846 and $400,905 at December 31, 1995 and 1996, and June
30, 1997, respectively............................................ 39,746,886 52,058,032 65,563,329
Mortgage servicing rights, at cost, net of accumulated
amortization...................................................... 617,785 721,291 117,326
Real estate held for investment..................................... 499,655 403,136 284,198
Property and equipment, net......................................... 437,669 401,326 382,150
Other assets........................................................ 117,324 29,149 52,434
------------- ------------- -------------
$ 42,738,917 $ 54,988,120 $ 69,521,305
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Notes payable..................................................... $ 39,924,832 $ 51,634,654 $ 65,520,072
Accounts payable and accrued expenses............................. 623,461 704,865 1,072,446
------------- ------------- -------------
Total liabilities............................................... 40,548,293 52,339,519 66,592,518
------------- ------------- -------------
Stockholders' equity:
Common stock, par value $1 per share; authorized 2,000 shares;
issued and outstanding 500 shares............................... 500 500 500
Additional paid-in capital........................................ 587,939 587,939 587,939
Retained earnings................................................. 1,602,185 2,060,162 2,340,348
------------- ------------- -------------
Total stockholders' equity...................................... 2,190,624 2,648,601 2,928,787
Commitments (notes 4 and 8)
------------- ------------- -------------
$ 42,738,917 $ 54,988,120 $ 69,521,305
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>
AEGIS MORTGAGE CORPORATION
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997

<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Loan administration..................... $ 1,905,056 $ 2,015,946 $ 940,024 $ 781,839 $ 365,059
Loan origination........................ 635,931 1,439,779 2,423,845 1,142,832 1,145,313
Interest income......................... 1,389,315 2,616,139 3,901,877 1,608,559 2,233,914
Interest expense........................ 860,663 2,177,076 2,963,242 1,345,498 1,789,405
------------ ------------ ------------- ------------ ------------
Net interest income................... 528,652 439,063 938,635 263,061 444,509
Loan brokerage fees..................... 532,755 1,389,898 -- -- --
Gain on sales of mortgage loans......... 2,161,199 2,933,429 4,652,432 2,170,347 2,896,275
Gain on sale of servicing rights........ -- -- 2,498,078 2,526,344 --
Other................................... 119,409 258,015 59,403 -- 998
------------ ------------ ------------- ------------ ------------
........................................ $ 5,883,002 $ 8,476,130 $ 11,512,417 $ 6,884,423 $ 4,852,154
------------ ------------ ------------- ------------ ------------
Expenses:
Personnel............................... $ 3,382,248 $ 4,834,518 $ 7,010,239 $ 3,470,316 $ 3,081,072
Occupancy............................... 311,125 407,346 447,078 223,379 252,832
Office supplies and expense............. 584,956 965,906 1,092,769 572,425 538,409
Professional fees....................... 235,968 206,812 297,724 156,298 131,935
Depreciation and amortization........... 375,651 824,198 287,818 145,437 148,971
Provision for losses on foreclosures.... 772 8,091 20,837 -- --
Mortgage computer service fees.......... 96,697 -- -- -- --
Other................................... 243,633 585,493 1,111,308 483,907 418,749
------------ ------------ ------------- ------------ ------------
5,231,050 7,832,364 10,267,773 5,051,762 4,571,968
------------ ------------ ------------- ------------ ------------
Net income............................ $ 651,952 $ 643,766 $ 1,244,644 $ 1,832,661 $ 280,186
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
</TABLE>

See accompanying notes to financial statements.

F-7
<PAGE>
AEGIS MORTGAGE CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1997

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993................................... $ 500 $ 587,939 $ 788,944 $1,377,383

Net income..................................................... -- -- 651,952 651,952

Dividends paid................................................. -- -- (200,090) (200,090)
----- ---------- ------------ ------------

Balance at December 31, 1994................................... 500 587,939 1,240,806 1,829,245

Net income..................................................... -- -- 643,766 643,766

Dividends paid................................................. -- -- (282,387) (282,387)
----- ---------- ------------ ------------

Balance at December 31, 1995................................... 500 587,939 1,602,185 2,190,624

Net income..................................................... -- -- 1,244,644 1,244,644

Dividends paid................................................. -- -- (786,667) (786,667)
----- ---------- ------------ ------------

Balance at December 31, 1996................................... 500 587,939 2,060,162 2,648,601

Net income..................................................... -- -- 280,186 280,186
----- ---------- ------------ ------------

Balance at June 30, 1997 (unaudited)........................... $ 500 $ 587,939 $ 2,340,348 $2,928,787
----- ---------- ------------ ------------
----- ---------- ------------ ------------
</TABLE>

See accompanying notes to financial statements.

F-8
<PAGE>
AEGIS MORTGAGE CORPORATION

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1996 AND 1997

<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $651,952 $643,766 $1,244,644 $1,832,661 $280,186
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for depreciation and amortization.... 375,651 824,198 287,818 145,437 148,971
Gain on sale of mortgage servicing rights...... -- -- (2,498,078 ) -- --
Gain on sale of real estate held for
investment................................... -- (19,670 ) (21,117 ) -- --
Loss on sale of real estate acquired through
foreclosure.................................. -- 51,681 -- -- --
Increase in mortgage loans held for sale....... (8,630,817 ) (28,637,621 ) (12,311,146 ) (8,550,581) (13,505,297)
Gain on sale of common stock included in other
assets....................................... -- (60,132 ) (16,741 ) -- --
(Increase) decrease in accounts receivable..... (333,284 ) (137,215 ) 33,004 17,784 (221,951)
(Decrease) increase in accounts payable and
accrued expenses............................. (289,149 ) 175,712 81,404 161,875 367,581
(Increase) decrease in other assets............ (79,999 ) (15,194 ) (84 ) 11,552 (23,285)
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities........ (8,305,646 ) (27,174,475 ) (13,200,296 ) (6,381,272) (12,953,795)
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Decrease in short-term investments............... 7,650,000 -- -- -- --
Purchase of mortgage servicing rights............ (209,204 ) (173,024 ) (721,291 ) -- --
Purchase of property and equipment............... (488,408 ) (236,010 ) (204,522 ) (64,000) (87,555)
Proceeds from sale of mortgage servicing
rights......................................... -- 3,068,910 570,832 561,725
Proceeds from sale of property and equipment..... 9,416 -- -- -- --
Proceeds from sale of real estate held for
investment..................................... -- 278,645 237,992 -- 118,938
Proceeds from sale of real estate acquired
through foreclosure............................ -- 142,281 -- -- --
Proceeds from sale of common stock included in
other assets................................... -- 97,632 105,000 -- --
Cash paid for real estate held for investment.... (98,790 ) (659,840 ) (120,356 ) (93,658) --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities................................. 6,863,014 (550,316 ) 2,365,733 413,174 593,108
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Decrease in notes payable secured by certificate
of deposit..................................... (7,500,000 ) -- -- -- --
Proceeds from notes payable...................... 70,576,545 340,488,226 558,725,947 224,719,845 238,175,030
Repayment of notes payable....................... (62,084,838 ) (312,251,401) (547,016,125) (218,040,118) (224,289,612)
Dividends paid................................... (200,090 ) (282,387 ) (786,667 ) (266,666) --
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities.... 791,617 27,954,438 10,923,155 6,413,061 13,885,418
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash.................... (651,015 ) 229,647 88,592 444,963 1,524,731
Cash, beginning of year............................ 707,559 56,544 286,191 286,191 374,783
------------ ------------ ------------ ------------ ------------
Cash, end of year.................................. $ 56,544 $ 286,191 $ 374,783 $ 731,154 $ 1,899,514
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Supplemental disclosure of noncash investing
activity:
Transfer of mortgage loans held for sale to real
estate acquired through foreclosure............ $ 137,969 $ 55,993 $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>

See accompanying notes to financial statements.

F-9
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS

YEARS DECEMBER 31, 1995 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1996 AND 1997

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND OPERATIONS

Aegis Mortgage Corporation ("the Corporation") conducts mortgage banking
activities. The principal activities include mortgage loan origination,
principally in Texas, Georgia, Ohio, Florida, and Arizona, trading activities,
and servicing operations.

The accounting and reporting policies of the Corporation conform to
generally accepted accounting principles and reflect industry practices. The
following represents the more significant of those policies and practices. The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
which are particularly sensitive to change in the near term are the valuations
of mortgage loans held for sale and mortgage servicing rights.

INTERIM FINANCIAL DATA (UNAUDITED)

The accompanying balance sheet and statement of stockholders' equity as of
June 30, 1997 and the accompanying statements of earnings and cash flows for the
six months ended June 30, 1996 and 1997 have been prepared by the Corporation
without an audit. In the opinion of management, all adjustments consisting only
of normal recurring adjustments, considered necessary for a fair presentation
for such periods have been made. Results for interim periods should not be
considered as indicative of results for a full year.

Footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted herein with respect to the interim financial data. The interim
information herein should be read in conjunction with the annual financial
information presented herein.

MORTGAGE LOANS HELD FOR SALE

Mortgage loans held for sale are valued at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements calculated on the aggregate loan basis, net of purchase discounts,
after giving effect to any gains or losses resulting from mortgage loan
commitments and forward sales commitments. The remaining purchase discount is
recognized in income at the time of loan sale or payoff. Gains and losses from
sales of mortgage loans are recognized upon settlement with investors.

LOAN ORIGINATION FEES AND COSTS

Loan origination fees and costs are recognized at the time of sale in the
gain or loss determination. Discounts on mortgage loans are recognized when the
loans are sold.

F-10
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MORTGAGE SERVICING RIGHTS

Effective January 1, 1996, the Corporation adopted the provisions of
Statement of Financial Accounting Standards (Statement) No. 122, "Accounting for
Mortgage Servicing Rights, an amendment of FASB Statement No. 65, amended
effective January 1, 1997 by FASB Statement No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." Statements
No. 122 and 125 amend Statement No. 65 to require the Corporation to recognize
as separate assets the rights to service mortgage loans for others, however
those servicing rights are acquired, eliminating the accounting distinction
between servicing rights acquired through purchase transactions and those
acquired through loan originations. Statement No. 122 also requires the
assessment of mortgage servicing rights for impairment to be based on the
current fair value of those rights stratified by significant risk
characteristics. The impact of adoption was not material to the financial
statements.

Mortgage servicing rights are stated at cost and amortized over the
estimated life of the related mortgage loans in proportion to, and over the
period of, estimated net servicing income.

REAL ESTATE ACQUIRED THROUGH FORECLOSURE AND REAL ESTATE HELD FOR INVESTMENT

Real estate acquired through foreclosure and real estate held for investment
are valued at fair value less selling costs. Advances for foreclosure expenses
made by the Corporation in connection with servicing real estate mortgage loans
owned by institutional investors are stated at cost, net of related allowance
for uncollectible advances, and are included in accounts receivable in the
accompanying balance sheets.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over the estimated
useful lives of the respective assets (principally 3 to 7 years) using the
sum-of-the-years-digits method.

FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") STOCK

The Corporation's investment in FNMA stock is carried at cost of $41 in
other assets at December 31, 1995 and 1996. The Corporation is required to own
shares of FNMA stock in order to be in compliance with the FNMA servicing
agreement. Accordingly, such stock is considered to be restricted in the
accompanying balance sheets, since sale of this stock would be in violation of
the servicing agreement.

INCOME TAXES

The Corporation is an S corporation and does not provide for federal income
taxes. Taxable income or loss is passed through to the stockholders. The
Corporation has elected to pay Oklahoma state income taxes in lieu of its
stockholders filing Oklahoma income tax returns. State income taxes are not
material.

LOAN ADMINISTRATION INCOME

Loan administration income represents fees earned for servicing real estate
mortgage loans owned by institutional investors. The fees are generally
calculated on the outstanding principal balances of the loans serviced and are
recorded as income when earned.

F-11
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOAN BROKERAGE FEES

Loan brokerage fees represent fees received by the Corporation for
negotiating the sale of loans or servicing rights between a buyer and seller
whereby no further obligations exist. The fee is recognized when the fee has
been earned.

GAIN ON SALES OF MORTGAGE LOANS

Gains or losses resulting from financial instruments used to hedge market
risk associated with outstanding mortgage loan commitments and mortgage loans
held for sale are recognized on the dates gains or losses on loan sales are
recognized.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the 1996
presentation.

FINANCIAL STATEMENT PRESENTATION

The Corporation prepares its financial statements using an unclassified
balance sheet presentation as is customary in the mortgage banking industry. A
classified balance sheet presentation would have aggregated current assets,
current liabilities, and net working capital as follows:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Current assets................................................. $ 42,301,248 $ 54,586,794
Current liabilities............................................ 40,548,293 52,339,519
------------- -------------
Net working capital............................................ $ 1,752,955 $ 2,247,275
------------- -------------
------------- -------------
</TABLE>

(2) FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates, methods, and assumptions at December 31, are set forth
below for the Corporation's financial instruments:

<TABLE>
<CAPTION>
1995 1996
---------------------------- ----------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash.............................................. $ 286,191 $ 286,191 $ 374,783 $ 374,783
Accounts receivable, net.......................... 1,033,407 1,033,407 1,000,403 1,000,403
Mortgage loans held for sale...................... 39,746,886 40,838,647 52,058,032 53,509,949
Financial liabilities:
Notes payable..................................... 39,924,832 39,924,832 51,634,654 51,634,654
Accounts payable and accrued expenses............. 623,461 623,461 704,865 704,865
Off-balance sheet financial instruments:
Mortgage loan commitments......................... -- -- -- --
Forward commitments............................... -- (311,491) -- (41,000)
</TABLE>

F-12
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(2) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amount for cash, accounts receivable, notes payable, and
accounts payable and accrued expenses approximates fair value due to the short
maturity of these financial instruments. In addition, the majority of the notes
payable have variable interest rates.

The fair values for mortgage loans held for sale are based on the December
31, 1995 and 1996 market values determined as described in note 1.

The carrying value of mortgage loan commitments approximates fair value.

The fair value of forward sales commitments is estimated by obtaining quoted
market prices. This value represents the estimated amount the Corporation would
receive or pay to terminate such agreements, taking into account current
interest rates.

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Corporation's entire holdings of a particular financial
instrument. They also do not reflect income tax considerations.

F-13
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(3) PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31, is as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ------------
<S> <C> <C>
Furniture and fixtures.............................................. $ 248,661 $ 301,099
Office and data processing equipment................................ 490,524 610,643
Automobiles......................................................... 60,655 60,655
Leasehold improvements.............................................. 129,964 129,964
---------- ------------
929,804 1,102,361
Less accumulated depreciation and amortization...................... 492,135 701,035
---------- ------------
$ 437,669 $ 401,326
---------- ------------
---------- ------------
</TABLE>

(4) MORTGAGE LOANS HELD FOR SALE

Mortgage loans held for sale consist primarily of mortgages on single family
residences and total approximately $39,747,000 and $52,058,000 at December 31,
1995 and 1996, respectively. The estimated market value of such loans exceeds
cost at December 31, 1995 and 1996; accordingly, no valuation allowance was
recorded at December 31, 1995 and 1996. The Corporation is exposed to credit
risk on these mortgage loans in the event of nonperformance by the mortgagors;
however, this risk is mitigated by collateral consisting of single family
residences. The Corporation requires such collateral on all of its mortgage
loans.

Outstanding mortgage loan commitments were approximately $31,971,000 and
$27,044,000 at December 31, 1995 and 1996, respectively. Such commitments are
usually made for periods of approximately sixty to ninety days. Since some of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Corporation evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary by the Corporation upon
extension of credit is based on management's credit evaluation of the
counterparty.

The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to hedge its exposure to fluctuations in
interest rates on outstanding loan commitments with fixed interest rates. These
financial instruments consist of Government National Mortgage Association
("GNMA") and FNMA mortgage-backed security forward sales commitments. The
Corporation was exposed to market risk on approximately $25,500,000 and
$37,250,000 at December 31, 1995 and 1996, respectively, of such forward sales
commitments. Gains or losses associated with forward sales commitments, along
with the market risk of loan commitments discussed in the previous paragraph,
are considered in the Corporation's evaluation of its mortgage loans held for
sale.

F-14
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(5) MORTGAGE SERVICING RIGHTS

A summary of mortgage servicing rights at December 31, is as follows:

<TABLE>
<CAPTION>
1995 1996
------------ -----------
<S> <C> <C>
Balance at beginning of year, net of accumulated amortization of
$1,288,376 and $1,874,791, respectively.......................... $ 1,031,176 $ 617,785
Purchases.......................................................... 173,024 721,291
Sales.............................................................. -- (570,832)
Amortization....................................................... (586,415) (46,953)
------------ -----------
Balance at end of year, net of accumulated amortization of
$1,874,971 and $0, respectively.................................. $ 617,785 $ 721,291
------------ -----------
------------ -----------
</TABLE>

The estimated fair value of mortgage servicing rights, including rights on
loans for which the Corporation has no basis, at December 31, 1996, approximates
$2,800,000.

F-15
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(6) NOTES PAYABLE

Notes payable at December 31, consist of the following:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Note payable to an individual, interest due in monthly
installments through September 16, 1996, at 10%.............. $ 20,000 $ --
Note payable to an individual, interest due in monthly
installments through September 15, 1996, at 10%.............. 30,000 --
Notes payable to various individuals, interest due in monthly
installments at 10%, principal due on demand................. 323,015 574,358
Note payable to bank, interest due in monthly installments
through September 30, 1997, at LIBOR plus 1.00% (6.62% at
December 31, 1996), secured by mortgage loan inventory;
maximum borrowing is $38,500,000............................. -- 21,517,130
Note payable to bank, interest due in monthly installments
through September 30, 1997, at LIBOR plus 1.50% (7.12% at
December 31, 1996), secured by mortgage loan inventory;
maximum borrowing is $15,000,000............................. -- 4,808,038
Note payable to bank, interest due in monthly installments
through September 30, 1997, at LIBOR plus 2.50% (8.12% at
December 31, 1996), secured by mortgage loan inventory;
maximum borrowing is $20,000,000............................. -- 19,759,118
Note payable to bank, interest due in monthly installments
through September 30, 1997, at LIBOR plus 2.75% (8.37% at
December 31, 1996), secured by mortgage loan inventory;
maximum borrowing is $3,500,000.............................. -- 2,700,000
Notes payable to bank, interest due in monthly installments
through May 31, 1997, at prime rate plus 1% (9.25% at
December 31, 1996), secured by mortgage loan inventory;
maximum borrowing is $4,000,000.............................. -- 2,276,010
Various notes payable to banks................................. 39,551,817 --
------------- -------------
$ 39,924,832 $ 51,634,654
------------- -------------
------------- -------------
</TABLE>

The majority of notes payable to individuals are guaranteed by a stockholder
of the Corporation. In addition, notes payable to individuals are due to
stockholders, executive officers, or immediate relatives of stockholders and
executive officers of the Corporation at December 31, 1995 and 1996.

F-16
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(6) NOTES PAYABLE (CONTINUED)
The Corporation paid in cash approximately $771,000, $2,024,000 and
$2,898,000 during the years ended December 31, 1994, 1995, and 1996,
respectively, for interest on notes payable.

(7) LOAN ADMINISTRATION

The Corporation was servicing approximately 12,500 and 4,200 loans owned by
institutional investors aggregating approximately $405,000,000 and $123,000,000
at December 31, 1995 and 1996, respectively, including mortgages securing GNMA
mortgage-backed securities discussed in the subsequent paragraph. Related trust
funds of approximately $8,400,000 and $3,600,000 at December 31, 1995 and 1996,
respectively, on deposit in special bank accounts are not included in the
accompanying financial statements. The Company has fidelity bond and errors and
omissions insurance coverage in the amount of $1,000,000 and $500,000 at
December 31, 1995 and 1996, respectively.

The Corporation has issued mortgage-backed securities guaranteed by GNMA
under the provisions of the National Housing Act. At December 31, 1995 and 1996,
the principal amount of these securities outstanding was approximately
$38,100,000 and $1,400,000, respectively, which also represents the approximate
principal amount of the related mortgages that serve as collateral for the
security and are being serviced under this program.

Included in accounts receivable are advances made by the Corporation on
behalf of institutional investors for foreclosure costs. These advances totaled
approximately $257,000 and $136,000 at December 31, 1995 and 1996, respectively,
and are stated net of an allowance for uncollectible advances of $2,500 and
$4,000 at December 31, 1995 and 1996, respectively. Also included in accounts
receivable are advances on behalf of mortgagors for principal, interest, and
escrow payments totaling approximately $355,000 and $181,000 at December 31,
1995 and 1996, respectively.

(8) COMMITMENTS

The Corporation leases office space and equipment under various operating
leases. Rental expense for operating leases totaled approximately $307,000,
$358,000, and $337,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Future minimum lease payments required under operating leases are
as follows:

(9) RELATED PARTY TRANSACTION

The Corporation has notes receivable from stockholders and employees,
included in accounts receivable, totaling $57,328 and $67,140 at December 31,
1995 and 1996, respectively. At December 31, 1996, the notes are due on demand
with interest paid annually at 10%.

(10) SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

The mortgages that the Corporation services for investors are secured by
single family residences located primarily in Texas, Oklahoma, and Louisiana.
The portfolio of mortgages is comprised of approximately 14% FHA, 10% VA, and
76% conventional. Credit losses arise as mortgagors default on

F-17
<PAGE>
AEGIS MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(10) SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK (CONTINUED)
mortgages and FHA, VA, or other mortgage insurance claims do not cover costs
paid by the Corporation in foreclosing on and disposing of the properties
securing the mortgages.

(11) RETIREMENT PLAN

During 1995, the Corporation established a 401(k) retirement plan. Under the
plan, the Corporation contributes amounts not to exceed 1.5%, dependent on the
employee's level of participation, of the respective employee's base pay to
provide retirement benefits. Employees may contribute up to 15% of their base
pay to the plan. Participants vest at 20% per year with full vesting at the end
of five years. Benefits paid under the plan are limited to the sum of the
employee's and Corporation's contributions and investment earnings on those
contributions. The Corporation contributed approximately $5,260 and $54,467 to
the plan in 1995 and 1996, respectively.

F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------

SUMMARY TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 8
The Company............................................................... 22
Use of Proceeds........................................................... 22
Distribution Policy....................................................... 22
Capitalization............................................................ 23
Dilution.................................................................. 24
Selected Financial Information............................................ 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 27
Business.................................................................. 33
Management................................................................ 45
Certain Relationships and Transactions.................................... 49
Principal and Management Shareholders..................................... 49
Description of Shares of Beneficial Interest.............................. 49
Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws........................................................ 54
Shares Available for Future Sale.......................................... 58
Operating Partnership Agreement........................................... 59
Federal Income Tax Considerations......................................... 62
ERISA Considerations...................................................... 81
Underwriting.............................................................. 84
Legal Matters............................................................. 85
Experts................................................................... 85
Additional Information.................................................... 86
Glossary.................................................................. 87
Financial Statements...................................................... F-1
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE
COMMENCEMENT OF THIS OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE
SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF THE DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

10,000,000 SHARES

AEGIS
INVESTMENT TRUST

COMMON SHARES OF
BENEFICIAL INTEREST

PROSPECTUS

JEFFERIES & COMPANY, INC.

, 1997

ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Shares.

<TABLE>
<S> <C>
Securities and Exchange Commission, registration fee.................... $
NASD filing fee.........................................................
New York Stock Exchange listing fee.....................................
Printing and mailing....................................................
Financial Advisory fee..................................................
Accountant's fees and expenses..........................................
Blue Sky fees and expenses..............................................
Counsel fees and expenses...............................................
Miscellaneous...........................................................
---------
Total...............................................................
---------
---------
</TABLE>

ITEM 31. SALES TO SPECIAL PARTIES

See Item 32.

ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES

On August 28, 1997, the Company was capitalized with the issuance to Kyle
Longhofer of 100 Common Shares for a purchase price of $19.00 per share for an
aggregate purchase price of $1,900.00. The Common Shares were purchased for
investment and for the purpose of organizing the Company. The Company issued
these Common Shares in reliance on an exemption from registration under Section
4(2) of the Securities Act.

ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS

The Declaration of Trust of the Company authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former Trustee or officer or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his or her status as a present or
former Trustee or officer of the Company. The Bylaws of the Company obligate it,
to the maximum extent permitted by Maryland law, to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former Trustee or officer who is made a party to the
proceeding by reason of his service in that capacity or (b) any individual who,
while a

II-1
<PAGE>
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who is made a party to the proceeding by reason of his service in that capacity,
against any claim or liability to which he may become subject by reason of such
status. The Declaration of Trust and Bylaws also permit the Company to indemnify
and advance expenses to any person who served a predecessor of the Company in
any of the capacities described above and to any employee or agent of the
Company or a predecessor of the Company. The Bylaws require the Company to
indemnify a Trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.

The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnity its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In accordance with the MGCL, the Bylaws of the
Company permit it to advance reasonable expenses to a Trustee or officer upon
the Company's receipt of (a) a written affirmation by the Trustee or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the Company and (b) a written statement by or on his behalf
to repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met.

ITEM 34. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED

None.

ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS

INDEX TO FINANCIAL STATEMENTS

II-2
<PAGE>
ITEM 16. EXHIBITS

EXHIBITS

<TABLE>
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
3.1* -- Form of Amended and Restated Declaration of Trust of the Registrant
3.2* -- Bylaws of the Registrant
4.1* -- Form of Common Share certificate
5.1* -- Opinion of Hunton & Williams
8.1* -- Form of Opinion of Hunton & Williams as to Tax Matters
10.1* -- Form of First Amended and Restated Agreement of Limited Partnership of
AEGIS Operating Partnership, L.P.
10.2* -- 1997 Plan
10.3 -- Form of Stock Contribution Agreement
10.4* -- Trustees' Plan
21 * -- List of Subsidiaries of Registrant
23.1* -- Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1)
23.2 -- Consent of KPMG Peat Marwick LLP
23.3* -- Consent of to being named as a Trustee nominee
23.4* -- Consent of to being named as a Trustee nominee
23.5* -- Consent of to being named as a Trustee nominee
24.1 -- Powers of Attorney (included on signature page)
</TABLE>

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

* To be filed by amendment.

ITEM 36. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 33 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer, or controlling person of the Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question as to whether such indemnification by it is against public policy
as expressed in the Act, and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Houston, State of Texas, on the 12th day of September
1997.

<TABLE>
<S> <C> <C>
AEGIS INVESTMENT TRUST
A MARYLAND REAL ESTATE INVESTMENT TRUST
(REGISTRANT)

By: /s/ PATRICK A. WALDEN
-----------------------------------------
Patrick A. Walden
MANAGING DIRECTOR
</TABLE>

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints
Patrick A. Walden and James E. Day, or either of them, his true and lawful
attorney-in-fact, for him and in his name, place and stead, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
or any additional Registration Statement filed pursuant to Rule 462 and to cause
the same to be filed with the Securities and Exchange Commission, hereby
granting to said attorneys-in-fact full power and authority to do and perform
all and every act and thing whatsoever requisite or desirable to be done in and
about the premises as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all acts and things that
said attorneys-in-fact may do or cause to be done by virtue of these presents.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on the 12th day of September 1997
by the following persons in the capacities indicated.

SIGNATURE TITLE
- ------------------------------ --------------------------

Managing Director, Trustee
/s/ PATRICK A. WALDEN and Co-Chairman of Board
- ------------------------------ of Trustees (Principal
Patrick A. Walden Executive Officer)

Managing Director, Trustee
and Co-Chairman of Board
/s/ JAMES E. DAY of Trustees (Principal
- ------------------------------ Financial Officer and
James E. Day Principal Accounting
Officer)

II-4

<PAGE>
EXHIBIT 10.3

STOCK CONTRIBUTION AND EXCHANGE AGREEMENT

BY AND BETWEEN

AEGIS OPERATING PARTNERSHIP, L.P.

AND

[CONTRIBUTOR]

SEPTEMBER 1, 1997

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. ACCOUNTS AND NOTES OWNED. . . . . . . . . . . . . . . . . . . . 2
1.2. AFFILIATE.. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3. AGREEMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. CLOSING.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5. CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6. CODE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7. COMPANY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8. CONSIDERATION.. . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9. CONTRACTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10. CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.11. EMPLOYEE BENEFIT PLANS.. . . . . . . . . . . . . . . . . . . . 4
1.12. EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13. ESTIMATED INCOME TAX OBLIGATIONS.. . . . . . . . . . . . . . . 4
1.14. FINANCIAL STATEMENTS.. . . . . . . . . . . . . . . . . . . . . 5
1.15. GUARANTY.. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.16. IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.17. KNOWLEDGE OF CONTRIBUTOR.. . . . . . . . . . . . . . . . . . . 5
1.18. LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.19. LOCK-UP AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 6
1.20. OFFERING PRICE.. . . . . . . . . . . . . . . . . . . . . . . . 6
1.21. OPERATING PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . 6
1.22. OPINION OF OPERATING PARTNERSHIP COUNSEL.. . . . . . . . . . . 6
1.23. PERMITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.24. PERMITTED LIENS. . . . . . . . . . . . . . . . . . . . . . . . 7
1.25. PRICING DATE.. . . . . . . . . . . . . . . . . . . . . . . . . 9
1.26. REAL PROPERTY LEASES.. . . . . . . . . . . . . . . . . . . . . 9
1.27. RELATED AGREEMENTS.. . . . . . . . . . . . . . . . . . . . . . 9
1.28. RELEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.29. STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.30. STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.31. UNITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.32. WALDEN.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II CONTRIBUTION AND EXCHANGE . . . . . . . . . . . . . . . . . . 10
2.1. CONTRIBUTION AND EXCHANGE.. . . . . . . . . . . . . . . . . . . 10
2.2. CONDITIONS PRECEDENT TO CLOSING.. . . . . . . . . . . . . . . . 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR. . . . . . . . 15
3.1. INDIVIDUAL CAPACITY; ENFORCEABILITY.. . . . . . . . . . . . . . 15

(i)

<PAGE>

3.2. NO VIOLATION OR CONFLICT BY CONTRIBUTOR.. . . . . . . . . . . . 15
3.3. TITLE TO STOCK. . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4. ORGANIZATION AND AUTHORITY OF COMPANY.. . . . . . . . . . . . . 17
3.5. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . 17
3.6. NO VIOLATION OR CONFLICT BY COMPANY.. . . . . . . . . . . . . . 18
3.7. TITLE TO ASSETS.. . . . . . . . . . . . . . . . . . . . . . . . 19
3.8. NO LITIGATION.. . . . . . . . . . . . . . . . . . . . . . . . . 19
3.9. CONDITION OF EQUIPMENT. . . . . . . . . . . . . . . . . . . . . 19
3.10. COMPUTER PROGRAMS AND INTELLECTUAL PROPERTY. . . . . . . . . . 20
3.11. BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . 20
3.12. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.13. ACCOUNTS OR NOTES OWNED. . . . . . . . . . . . . . . . . . . . 22
3.14. FINANCIAL STATEMENTS.. . . . . . . . . . . . . . . . . . . . . 22
3.15. NO ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . . 23
3.16. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.17. EMPLOYEE AGREEMENTS AND BENEFIT PLANS. . . . . . . . . . . . . 26
3.18. COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . 30
3.19. LENDER APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . 31
3.20. INVESTMENT COMPANY.. . . . . . . . . . . . . . . . . . . . . . 31
3.21. TRANSACTIONS WITH AFFILIATES.. . . . . . . . . . . . . . . . . 31
3.22. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.23. REAL PROPERTY LEASES.. . . . . . . . . . . . . . . . . . . . . 32
3.24. NO BROKER. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.25. SUBSIDIARIES.. . . . . . . . . . . . . . . . . . . . . . . . . 33
3.26. DISCLOSURE.. . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.27. ACQUISITION FOR INVESTMENT.. . . . . . . . . . . . . . . . . . 34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF OPERATING
PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1. ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.2. AUTHORIZATION; ENFORCEABILITY.. . . . . . . . . . . . . . . . . 35
4.3. NO VIOLATION OR CONFLICT. . . . . . . . . . . . . . . . . . . . 36
4.4. ACQUISITION FOR INVESTMENT. . . . . . . . . . . . . . . . . . . 36
4.5. UNITS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.6. OPERATING PARTNERSHIP AGREEMENT . . . . . . . . . . . . . . . . 38
ARTICLE V COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . 38
5.1. BOOKS AND RECORDS.. . . . . . . . . . . . . . . . . . . . . . . 38
5.2. OPERATING AGREEMENTS, PRUDENT PRACTICES.. . . . . . . . . . . . 40
5.3 CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . . . . . 42
5.4. FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . 46
5.5. ESTIMATED TAX OBLIGATIONS.. . . . . . . . . . . . . . . . . . . 46
5.6. PREPARATION OF TAX RETURNS; TAX COVENANTS.. . . . . . . . . . . 48
5.7. ADDITIONAL AGREEMENTS OF OPERATING PARTNERSHIP. . . . . . . . . 53
5.8. RELEASE OF GUARANTY.. . . . . . . . . . . . . . . . . . . . . . 53

(ii)

<PAGE>

ARTICLE VI INDEMNITIES AND ADDITIONAL COVENANTS. . . . . . . . . . . . . 53
6.1. CONTRIBUTOR'S INDEMNITY.. . . . . . . . . . . . . . . . . . . . 53
6.2. OPERATING PARTNERSHIP'S INDEMNITY.. . . . . . . . . . . . . . . 58
[6.3. NONCOMPETITION AGREEMENT.. . . . . . . . . . . . . . . . . . . 61
[6.4. NON-SOLICITATION AGREEMENT.. . . . . . . . . . . . . . . . . . 62
[6.5. COPY OF CERTAIN SECTIONS.. . . . . . . . . . . . . . . . . . . 62
6.6. PURCHASE OF ADDITIONAL SHARES.. . . . . . . . . . . . . . . . . 62
6.7. SOLE REMEDY.. . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 63
7.1. ENTIRE AGREEMENT; AMENDMENT.. . . . . . . . . . . . . . . . . . 63
7.2. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.3. GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . . . . . . 65
7.4. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.5. NOTICES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.6. COUNTERPARTS; HEADINGS. . . . . . . . . . . . . . . . . . . . . 67
7.7. INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . 67
7.8. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.9. NO RELIANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . 68

(iii)

<PAGE>

EXHIBITS

Exhibit 1.11 Employee Agreements and Benefit Plans
Exhibit 1.14 Financial Statements
Exhibit 1.19 Lock-up Agreement
Exhibit 1.22 Opinion of Operating Partnership's Counsel
Exhibit 1.23 Permits
Exhibit 1.24 Permitted Liens
Exhibit 1.26 Real Property Leases
Exhibit 1.28 Release
Exhibit 1.31 Partnership Agreement
Exhibit 3.2 Conflicts
Exhibit 3.3 Stock Title
Exhibit 3.5 Capitalization
Exhibit 3.8 Litigation
Exhibit 3.10 Computer Programs and Intellectual Property
Exhibit 3.12 Contracts
Exhibit 3.15 Adverse Changes
Exhibit 3.16 Taxes
Exhibit 3.21 Transactions with Affiliates
Exhibit 3.22 Insurance
Exhibit 5.3(b) Confidential Information

(iv)

<PAGE>

STOCK CONTRIBUTION AND EXCHANGE AGREEMENT

STOCK CONTRIBUTION AND EXCHANGE AGREEMENT, made as of the 1st day of
September, 1997, by and between AEGIS OPERATING PARTNERSHIP, L.P., a Delaware
limited partnership, and [CONTRIBUTOR].

RECITALS

WHEREAS, Contributor owns the Stock; and

WHEREAS, Contributor desires to contribute the Stock to Operating
Partnership and Operating Partnership desires to acquire the Stock from
Contributor; and

WHEREAS, in reliance on the consummation of the transactions
contemplated herein, Operating Partnership is, simultaneously with Closing,
acquiring from Contributor and the other Stockholders, 98.5% of the outstanding
common stock of the Company.

NOW, THEREFORE, in consideration of the Recitals and of the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, it hereby is agreed that:

-1-

<PAGE>

ARTICLE I

DEFINITIONS

When used in this Agreement, the following terms shall have the
meanings specified:

1.1. ACCOUNTS AND NOTES OWNED.
"Accounts and Notes Owned" shall mean all accounts receivable, notes
receivable, mortgage notes and associated rights owned by the Company.

1.2. AFFILIATE.
"Affiliate" shall mean with respect to Contributor, any person,
entity, firm or corporation that is controlled by or is under common control
with Contributor, and with respect to the Company or Operating Partnership, any
employee of the Company or Operating Partnership, or any person, firm or
corporation that directly or indirectly controls, is controlled by or is under
common control with the Company or Operating Partnership.

1.3. AGREEMENT.
"Agreement" shall mean this Stock Contribution and Exchange Agreement,
together with the Exhibits attached hereto, as the same may be amended from time
to time in accordance with the terms hereof.

-2-

<PAGE>

1.4. CLOSING.
"Closing" shall mean the conference held at ___ a.m., local time, on
the Closing Date, at the offices of Operating Partnership.

1.5. CLOSING DATE.
"Closing Date" shall mean the date of the closing of the IPO but in no
event later than December 31, 1997.

1.6. CODE.
"Code" shall mean the Internal Revenue Code of 1986, as amended.

1.7. COMPANY.
"Company" shall mean AEGIS Mortgage Corporation, an Oklahoma
corporation.

1.8. CONSIDERATION.
"Consideration" shall mean the number of Units, valued at a "per-Unit"
price equal to the Offering Price, with an aggregate amount equal to
$[5,712,500.00] [4,712,500][3,266,500].

1.9. CONTRACTS.
"Contracts" shall mean all contracts, agreements, leases,
relationships and commitments, to which the Company is a

-3-

<PAGE>

party or by which the Company is bound that are listed on EXHIBIT 3.12 hereof.

1.10. CONTRIBUTOR.
"Contributor" shall mean [________], [a resident of the State of
Texas, residing at _____________________.]

1.11. EMPLOYEE BENEFIT PLANS.
"Employee Benefit Plans" shall mean the employee agreements and
benefit plans of the Company listed on EXHIBIT 1.11 attached hereto.

1.12. EQUIPMENT.
"Equipment" shall mean all machinery, vehicles, equipment, furniture,
fixtures, furnishings, parts, tools, engineering and other items of tangible
personal property owned or leased by the Company.

1.13. ESTIMATED INCOME TAX OBLIGATIONS.
"Estimated Income Tax Obligations" means the income tax obligations of
Contributor arising through ownership of the Company through and including the
day immediately preceding the Closing Date with respect to the Company's taxable
income for the partial 1997 year as determined by the Company in accordance with
SECTION 5.5 hereof.

-4-

<PAGE>

1.14. FINANCIAL STATEMENTS.
"Financial Statements" shall mean the audited balance sheet of the
Company as of December 31, 1996, and the related audited statements of income,
changes in stockholders' equity and cashflow of the Company for the fiscal year
then ended, which statements are attached hereto as EXHIBIT 1.14.

1.15. GUARANTY.
"Guaranty" shall mean either (i) the guaranty by Contributor of any
obligations of the Company to the Southwest Bank of Texas or (ii) the guaranty
by Contributor of any obligations of the Company to Bank United.

1.16. IPO.
"IPO" shall mean the initial public offering of common shares of beneficial
interest by AEGIS Investment Trust.

1.17. KNOWLEDGE OF CONTRIBUTOR.
"Knowledge of Contributor" shall mean the actual knowledge of
Contributor, after due investigation and inquiry.

1.18. LAW.

-5-

<PAGE>

"Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations and orders
promulgated thereunder.

1.19. LOCK-UP AGREEMENT.
"Lock-Up Agreement" means the agreement relating to a lock-up
arrangement between Contributor and Jefferies and Company, Inc. substantially in
the form of EXHIBIT 1.19 attached hereto.

1.20. OFFERING PRICE.
"Offering Price" means the initial offering price to the public of a
single common share of beneficial interest of AEGIS Investment Trust to be
issued in the IPO.

1.21. OPERATING PARTNERSHIP.
"Operating Partnership" shall mean AEGIS Operating Partnership, L.P.,
a Delaware limited partnership.

1.22. OPINION OF OPERATING PARTNERSHIP COUNSEL.
"Opinion of Operating Partnership Counsel" shall mean the opinion of
Hunton & Williams, in the form of EXHIBIT 1.22 attached hereto.

1.23. PERMITS.

-6-

<PAGE>

"Permits" shall mean all permits, licenses and governmental
authorizations, registrations and approvals used in the conduct of the Company's
business, including, but not limited to, those Permits listed on EXHIBIT 1.23
attached hereto.

1.24. PERMITTED LIENS.
"Permitted Liens" shall mean those liens, encumbrances, mortgages,
charges, claims, restrictions, pledges, security interests, impositions and
other matters affecting the assets that are either (i) listed on EXHIBIT 1.24
attached hereto or (ii) the following:

(a) Liens for taxes not yet due or which are being contested in good faith
and by appropriate proceedings, if adequate reserves with respect
thereto are maintained on the books of the Company, in accordance with
generally accepted accounting principles consistently applied
("GAAP");

(b) Liens relating to borrowings in the ordinary course of business
pursuant to credit facilities existing on the date hereof (or any
renewals or extensions thereof);

-7-

<PAGE>

liens arising in the ordinary course of business and which are not
overdue for a period of more than thirty (30) days or, if so overdue,
which are being contested in good faith and by appropriate proceedings
and against which the Company has provided adequate reserves in
accordance with GAAP;

(d) Pledges or deposits to secure the payment of workers compensation,
unemployment insurance and other social security benefits;

(e) Deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like
nature, in each case incurred in the ordinary course of business;

(f) Zoning restrictions, easements, licenses, restrictions on the use of
real property or minor irregularities in title thereto which do not
impair the use of such property in the operation of business of the
Company or the value of such property; and

(g) Liens, other than in favor of Pension Benefit Guaranty Corporation,
created by or resulting from any legal

-8-

<PAGE>

proceedings (including legal proceedings instituted by the Company)
which are being contested in good faith by appropriate proceedings,
including appeals of judgments as to which a stay of execution shall
have been issued and adequate reserves shall have been established.

1.25. PRICING DATE.
"Pricing Date" shall mean the date of pricing of the IPO.

1.26. REAL PROPERTY LEASES.
"Real Property Leases" shall mean the real property leases pursuant to
which the Company possesses all real property used in the conduct of its
business, which leases are listed on EXHIBIT 1.26 attached hereto.

1.27. RELATED AGREEMENTS.
"Related Agreements" shall mean the other contribution agreements
relating to the other Stockholders.

1.28. RELEASE.
"Release" shall mean the mutual release between the Contributor and
Operating Partnership and the Company, substantially in the form of EXHIBIT 1.28
hereof.

1.29. STOCK.

-9-

<PAGE>

"Stock" shall mean the [187.5] shares of the issued and outstanding
common stock of the Company, $1.00 par value, owned of record and beneficially
by Contributor.

1.30. STOCKHOLDERS.
"Stockholders" shall mean the owners of 100% of the outstanding stock
of the Company as of the date of this Agreement.

1.31. UNITS.
"Units" shall mean units of limited partnership interests in Operating
Partnership each unit of which will be redeemable for cash, or at the option of
AEGIS Investment Trust, a single common share of beneficial interest of AEGIS
Investment Trust, in the manner set forth in the Amended and Restated Agreement
of Limited Partnership of Operating Partnership, attached as EXHIBIT 1.31
hereto.

1.32. WALDEN.
"Walden" shall mean Mr. Patrick A. Walden, a resident of the State of
Texas.

ARTICLE II

CONTRIBUTION AND EXCHANGE

2.1. CONTRIBUTION AND EXCHANGE.

-10-

<PAGE>

Subject to the terms and conditions of this Agreement and in
consideration of Operating Partnership's agreement to issue the Units to
Contributor, Contributor hereby agrees to contribute, transfer, assign, convey
and deliver to Operating Partnership on the Closing Date, and Operating
Partnership hereby agrees to acquire and accept the Stock from Contributor.

2.2. CONDITIONS PRECEDENT TO CLOSING.
(a) The obligations of Operating Partnership to issue the Units in
exchange for the Stock on the Closing Date shall be subject to the satisfaction
of the following conditions:

(i) Contributor will contribute and deliver, or will cause to be
contributed and delivered, stock certificates representing the Stock,
duly endorsed in blank or accompanied by stock powers duly executed in
blank, in proper form for transfer;

(ii) Contributor delivers, or causes to be delivered, the Lock-Up
Agreement and the Amended and Restated Agreement of Limited
Partnership of Operating Partnership, attached as EXHIBIT 1.31 hereto;

(iii)all requisite consents and approvals of third parties to the
consummation of the transactions are obtained;

-11-

<PAGE>

(iv) the IPO is consummated;

(v) the representations and warranties contained in Article III
hereof, the Exhibits attached hereto and in all certificates and other
documents to be delivered by Contributor pursuant to this Agreement
shall be true, complete and accurate as of the date hereof and at and
as of the Closing Date as though such representations and warranties
were made at and as of such date;

(vi) the Contributor performs, in all material respects, each
covenant and agreement set forth in Article V hereto required to be
performed prior to Closing;

(vii) Contributor delivers to Operating Partnership such
certificates as it may reasonably request on or prior to the Pricing
Date to evidence compliance with the conditions set forth in this
Section 2.2;

(viii)Contributor delivers the Release; and

(ix) each Related Agreement shall have been executed and
delivered by each of the other Stockholders, and each condition
precedent required by

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the Related Agreements shall have been completed or waived.

(b) The obligations of Contributor to contribute the Stock in exchange for
the Units on the Closing Date shall be subject to the satisfaction of the
following conditions:

(i) the Company distributes to Contributor cash in amount
sufficient to allow Contributor to meet his Estimated Income Tax
Obligations up to the Closing Date, determined in accordance with
SECTION 5.5 hereof;

(ii) Operating Partnership delivers, or causes to be issued to
Contributor, the Units in accordance with the terms of this Agreement;

(iii) the IPO is consummated;

(iv) the representations and warranties contained in Article IV
hereof and in all certificates to be delivered by Operating
Partnership pursuant to this Agreement shall be true and accurate as
of the date hereof and at and as of the Closing Date as though such
representations and warranties were made at and as of such date;

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(v) Operating Partnership delivers to Contributor the Release
and such certificates as he may reasonably request on or prior to the
Pricing Date to evidence compliance with the conditions set forth in
this Section 2.2; and

(vi) Operating Partnership delivers, or causes to be delivered,
the Opinion of Operating Partnership's counsel.

(c) On the Pricing Date, Contributor agrees to deliver or cause to be
delivered, in escrow, to Hunton & Williams, counsel to Operating Partnership,
the items described in subparagraphs 2.2(a)(i), (ii), (iii) and (vii), and
Operating Partnership agrees to deliver or cause to be delivered, in escrow, to
Hunton & Williams the items in subparagraphs 2.2(b)(ii), (v) and (vi). Unless
otherwise directed by Contributor and Operating Partnership, if the closing is
canceled, postponed or otherwise fails to occur on or before the seventh (7th)
business day following the Pricing Date, Hunton & Williams shall return to
Contributor or Operating Partnership, as the case may be, all items delivered to
them by the end of such day.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
Contributor hereby represents and warrants to Operating Partnership as
of the date hereof and as of the Closing Date that:

3.1. INDIVIDUAL CAPACITY; ENFORCEABILITY.
Contributor has full power, legal right and capacity to enter into
this Agreement and to perform his obligations hereunder. This Agreement is, and
the other documents and instruments required hereby will be, when executed and
delivered by the parties hereto, the valid and binding obligations of
Contributor, enforceable against Contributor in accordance with their respective
terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium, and
other laws now or hereafter in effect relating to creditor's rights and (ii)
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

3.2. NO VIOLATION OR CONFLICT BY CONTRIBUTOR.
The execution, delivery and performance of this Agreement by
Contributor and the consummation of the other transactions contemplated in the
Recitals hereto do not and will

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not conflict with or violate any Law, judgment, order or decree binding on
Contributor or any contract or agreement to which Contributor is a party or by
which it is bound, the breach of which could have a material adverse effect on
Contributor's ability to consummate the transactions contemplated hereby other
than as set forth in EXHIBIT 3.2 hereof. No notice to, filing or registration
with, or authorization, consent or approval of, any governmental, regulatory or
self-regulatory agency is necessary or is required to be made or obtained by
Contributor in connection with the execution and delivery of this Agreement by
Contributor or the consummation by Contributor of the transactions contemplated
hereby or in the Recitals hereto.

3.3. TITLE TO STOCK.
Immediately prior to the contribution and exchange contemplated in
Section 2.1 hereof, Contributor owned good, valid and marketable title to the
Stock, free and clear of any and all mortgages, liens, encumbrances, charges,
claims, restrictions, pledges, security interests or impositions of any kind or
character other than as set forth on EXHIBIT 3.3. Upon delivery of the Stock to
Operating Partnership at the Closing and upon Operating Partnership's payment of
the Consideration therefor, good and marketable title to the Stock, free and
clear of all

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mortgages, liens, encumbrances, charges, claims, restrictions, pledges, security
interests or impositions of any kind or character, will pass to Operating
Partnership.

3.4. ORGANIZATION AND AUTHORITY OF COMPANY.
The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Oklahoma. The Company has full
corporate power to carry on its business as it is now being conducted and to
own, operate and hold under lease its assets and properties as, and in the
places where, such properties and assets now are owned, operated or held. The
Company is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the failure to be so qualified would
have a material adverse effect on the business, financial condition or results
of operations of the Company.

3.5. CAPITALIZATION.
EXHIBIT 3.5 sets forth the ownership of all of the issued and
outstanding capital stock of the Company and securities convertible into such
capital stock. The Stock has been duly and validly issued and is fully paid and
non-assessable, and constitutes all capital stock of the Company

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owned of record or beneficially by Contributor. Neither the Company nor
Contributor has issued, created or granted any options, warrants or other rights
to subscribe for or purchase any capital stock of the Company or securities
convertible into or exchangeable for, or which otherwise confer on the holder
any right to acquire, any capital stock of the Company, nor is the Company or
Contributor committed to issue any such option, warrant or other right.

3.6. NO VIOLATION OR CONFLICT BY COMPANY.
The execution, delivery and performance of this Agreement and the
consummation of the other transactions contemplated in the Recitals hereto do
not and will not conflict with or violate any Law, judgment, order or decree
binding on the Company, or the Articles of Incorporation or Bylaws of the
Company or any Contract to which the Company is a party or by which it is bound.
On the Closing Date, no notice to, filing or registration with, or
authorization, consent or approval of, any governmental, regulatory or
self-regulatory agency is necessary or is required to be made or obtained by the
Company in connection with the consummation of the transactions contemplated in
this Agreement or in the Recitals hereto other than as set

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forth in EXHIBIT 1.23 or that have otherwise been obtained in accordance with
subsection 2.2(a)(iii).

3.7. TITLE TO ASSETS.
The Company owns good and indefeasible title to all assets and
properties, both tangible and intangible, (a) that are used in the Company's
business, or (b) that are reflected in the Financial Statements (except as
disposed of in the ordinary course of business since the date thereof), free and
clear of any and all mortgages, liens, encumbrances, charges, claims,
restrictions, pledges, security interests or impositions, except for Permitted
Liens, liens securing liabilities disclosed in the Financial Statements and
leased assets and properties.

3.8. NO LITIGATION.
Except as listed in EXHIBIT 3.8 there is no litigation, arbitration
proceeding, governmental investigation, citation or action of any kind pending
or, to the Knowledge of Contributor, proposed or threatened, against the Company
or relating to the business, assets or properties of the Company.

3.9. CONDITION OF EQUIPMENT.

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The Equipment, taken as a whole, is in good operating condition and
repair, subject to ordinary wear and tear, and is substantially fit for the
purposes for which it is intended.

3.10. COMPUTER PROGRAMS AND INTELLECTUAL PROPERTY.
EXHIBIT 3.10 is a true and correct listing as of the date hereof of
all proprietary rights owned or used by the Company in connection with the
conduct of its business and all material computer programs or software owned,
used or licensed by the Company. Except as set forth in EXHIBIT 3.10, there are
no claims or assertions made or, to the Knowledge of Contributor, threatened by
any third party that the Company does not own all right, title and interest in
the intellectual property described in this Section 3.10, that any of the
Company's intellectual property rights are invalid or unenforceable, or that the
Company's use of such rights would infringe upon, impair, dilute or otherwise
damage the proprietary rights of any third party the effect of which would have
a material adverse effect on the business or financial condition of the Company.
To the Knowledge of Contributor, no third party is infringing upon any of the
intellectual property described in this Section 3.10.

3.11. BOOKS AND RECORDS.

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The books and records of Company, including, without limitation,
customer lists and wholesale broker information, are complete and correct in all
material respects.

3.12. CONTRACTS.
EXHIBIT 3.12 attached hereto is a true and complete list as of the
date hereof of all of the Contracts that constitute: (a) a lease of any
personal property with (i) aggregate annual rental payments in excess of
$50,000, or (ii) with a remaining term in excess of three years and which is
non-cancelable without penalty on notice of 90 days or less; (b) an agreement to
purchase or sell a capital asset for a price in excess of $100,000; (c) any
mortgage loan servicing agreements relating to the servicing of mortgage loans
having an aggregate balance as of the date hereof in excess of $2,000,000; (d)
any agreement for the purchase or sale of mortgage loans entered into or
performed after December 31, 1996 relating to the purchase of mortgage loans
having aggregate principal balances in excess of either (i) $500,000 with
respect to any single transaction or (ii) $1,000,000 with respect to any series
of transactions with the same counterparty; or (e) any other agreements
involving an amount in excess of $100,000 or otherwise material to the operation
of the Company that have been entered into or performed

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<PAGE>

after December 31, 1996. The Company has performed each material term, covenant
and condition of each of the Contracts which is to be performed by the Company
at or before the date hereof. No event has occurred that would, with the
passage of time or compliance with any applicable notice requirements,
constitute a default by the Company or, to the actual knowledge of Contributor,
any other party under any of the Contracts, and, to the actual knowledge of
Contributor, no party to any of the Contracts intends to cancel, terminate or
exercise any option under any of the Contracts, the result of which would have a
material adverse effect on the business or financial condition of the Company.

3.13. ACCOUNTS OR NOTES OWNED.
The Accounts or Notes Owned all have arisen from BONA FIDE
transactions in the ordinary course of business.

3.14. FINANCIAL STATEMENTS.
The Financial Statements, including the notes thereto, copies of which
are included in EXHIBIT 1.14 hereto, are true and correct in all material
respects, present fairly the financial condition of the Company as of December
31, 1996, and the results of its operations for the fiscal year then ended, and
were

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prepared, except as set forth therein, in accordance with GAAP, applied on a
basis consistent with the Company's past practice. Except as set forth in the
Financial Statements, the Company was not, as of the date thereof, subject to
any material liability of any nature, whether accrued, absolute, contingent or
otherwise and whether due or to become due of a type required to be reflected on
the Financial Statements in accordance with GAAP.

3.15. NO ADVERSE CHANGE.
Except as set forth in EXHIBIT 3.15, since December 31, 1996, there
has not been: (a) any material adverse change in the business, financial
condition or results of operations of the Company; (b) any loss, damage,
condemnation or destruction to the properties of the Company materially
adversely affecting the Company's business or properties; (c) any labor dispute
or disturbance, litigation or any event or condition of any character that could
materially adversely affect the Company's business; (d) any borrowings by the
Company other than borrowings under its existing bank credit facilities in the
ordinary course of business; (e) any mortgage, pledge, lien or encumbrance made
on any of the properties or assets of the Company, except for Permitted Liens;
or (f) any sale, transfer or other disposition

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<PAGE>

of assets of the Company other than in the ordinary course of business.

3.16. TAXES.
(a) The Company has filed or will cause to be filed all federal and
state tax returns and reports required to have been filed by or for it on or
before the Closing Date, and all information set forth in such returns or
reports is accurate and complete in all material respects. The Company has paid
or made adequate provision for all taxes, additions to tax, penalties, and
interest for all periods covered by those returns or reports required to be paid
by it. There are no unpaid and delinquent taxes, additions to tax, penalties,
or interest payable by the Company or by any other person that are or could
become a lien on any asset, or otherwise adversely affect the business,
properties, or financial condition, of the Company. The Company has collected
or withheld all amounts required to be collected or withheld by it for any taxes
or assessments, and all such amounts have been paid to the appropriate
governmental agencies or set aside in appropriate accounts for future payment
when due. The Company is in compliance with, and its records contain all
information and documents (including, without limitation, properly completed IRS
Forms W-9) necessary to comply with, all

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<PAGE>

information reporting and tax withholding requirements under federal, state, and
local laws, rules, and regulations, and such records identify with specificity
all accounts subject to backup withholding under Section 3406 of the Code. The
balance sheets contained in the Financial Statements of the Company fully and
properly reflect, as of the date thereof, the liabilities of the Company for all
accrued taxes, additions to tax, penalties and interest required to be paid by
it. Except as disclosed in EXHIBIT 3.16, the Company has not granted (nor is it
subject to) any waiver of the period of limitations for the assessment of tax
for any currently open taxable period, and no unpaid tax deficiency has been
asserted against or with respect to the Company by any taxing authority.
EXHIBIT 3.16 describes all tax elections and consents currently in effect with
respect to the Company. Contributor is not a "foreign person" for purposes of
Section 1445 of the Code.

(b) The Company has timely made all elections and taken all other
action required under the Code to qualify as an S corporation and has not taken
or omitted to take any action the taking or omission of which could result in a
challenge to its status as an S corporation. The Company has had in effect
since

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<PAGE>

January 1, 1991 a valid election to be taxed as an S corporation under the Code.

(c) Effective on the Closing Date, Contributor will consent to (i)
the revocation of the Company's election under Section 1362(a) of the Code to be
a small business corporation and (ii) the Company's election under Section
1362(e)(3) of the Code not to apply the pro rata allocation rules provided in
Section 1362(e)(2) of the Code for its S termination year.

(d) For income tax purposes, the Company's final tax year as an S
corporation will end on the day immediately preceding the Closing Date.

(e) Contributor represents and warrants that he has obtained from his
own counsel advice regarding the tax consequences of becoming a partner in the
Operating Partnership and of the other transactions contemplated by this
Agreement.

3.17. EMPLOYEE AGREEMENTS AND BENEFIT PLANS.
(a) Attached hereto as EXHIBIT 1.11 is a true and complete list as of
the date hereof of all agreements, written or oral, relating to the compensation
and other benefits of present and former directors, officers, employees,
consultants and other agents of the Company pursuant to which the Company has

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continuing obligations and sets forth a complete list of the employment
contracts, salaries and wages and commission schedules of all employees of the
Company, and the rates of pay of all consultants of the Company, as of the date
hereof. EXHIBIT 1.11 includes all collective bargaining agreements and all
pension, retirement, bonus, stock option, profit sharing, health, disability,
life insurance, hospitalization, education or other similar plans or
arrangements (whether or not subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), true and complete copies of which (or true
and complete descriptions of which, in the case of oral agreements) have been
made available to Operating Partnership. None of the agreements listed on
EXHIBIT 1.11 will be breached by Contributor's execution, delivery and
performance of this Agreement. To the Knowledge of Contributor, no employee or
consultant of the Company is in violation of any employment contract,
non-competition agreement or any other contract or agreement relating to the
relationship of any such employee or consultant with the Company.

(b) EXHIBIT 1.11 identifies each "pension plan" (as defined in
Section 3(2) of ERISA (the "Pension Plans") and each "welfare plan" (as defined
in ERISA Section 3(1)) (the "Welfare

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<PAGE>

Plans") maintained for the benefit of employees of the Company or to which the
Company contributes on behalf of its employees. True and complete copies of
each Employee Benefit Plan have been made available to Operating Partnership.
To the Knowledge of Contributor, each Employee Benefit Plan is enforceable in
accordance with its terms.

(c) EXHIBIT 1.11 identifies each Pension Plan that is intended to be
qualified under Section 401(a) of the Code. Each such Pension Plan complies in
all material respects with applicable Law as of the date hereof, and the
Internal Revenue Service (the "IRS") has issued favorable determination letters
to the effect that the forms of such Pension Plans (or predecessor plans)
satisfy the requirements of Section 401(a) and related Sections of the Code and
such Pension Plans (or predecessor plans) have been operated in reasonable good
faith compliance with the Code. To the Knowledge of Contributor, there are no
facts or circumstances that would jeopardize or adversely affect in any material
respect the qualification under Code Section 401(a) of any Pension Plan that is
intended to be so qualified.

(d) As of the Closing Date, full payment will be made to each
Employee Benefit Plan of all contributions that are required under the terms
thereof and under ERISA or the Code to

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be made on or prior to that date. No "accumulated funding deficiency" (as
defined in ERISA Section 302 or Code Section 412), whether or not waived, exists
with respect to any Pension Plan.

(e) To the Knowledge of Contributor, each Employee Benefit Plan has
been administered substantially in accordance with its terms. In addition, to
the Knowledge of Contributor, each Employee Benefit Plan complies, and has been
administered substantially in accordance with, any applicable provisions of
ERISA and the rulings and regulations promulgated thereunder (including the
continuation coverage requirements of group health plans under the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA")), and all other applicable
Law, and all reports, returns and other documentation that are required to have
been filed with the IRS, the Department of Labor, the Pension Benefit Guaranty
Corporation (the "PBGC") or any other governmental agency (federal, state or
local) have been filed on a timely basis, in each instance in which the failure
to file such reports, returns and other documents would result in any material
liability or obligation to Contributor or the Company. Except as set forth in
EXHIBIT 3.8, no lawsuits or complaints to or by any person or governmental
entity have been filed or, to the

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Knowledge of Contributor, are contemplated or threatened, with respect to any
Employee Benefit Plan.

(f) Except as described on EXHIBIT 1.11, the Company has not received
a notice of, or incurred, any withdrawal liability with respect to a
"multiemployer plan" (as defined in ERISA Section 3(37)).

The Company has not incurred any material liability with respect to
any Welfare Plan or for "welfare benefits" (as defined in Code Section 419) that
is not fully reflected in the Financial Statements. Except as set forth in
EXHIBIT 1.11, or under COBRA, or under the term of a Pension Plan, the Company
is not obligated to provide or to pay any benefits to former employees or to
their dependents or beneficiaries.

3.18. COMPLIANCE WITH LAW.
(a) The conduct of the Company's business and its use of its assets
does not violate or conflict with any Law with respect to the origination and
servicing of mortgage loans.

(b) Nor does the conduct of the Company's business and its use of its
assets violate or conflict with any other Law which violation or conflict would
cause a material adverse change in the assets or properties of the Company or a
material impairment of the business of the Company.

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(c) All governmental approvals, authorizations, Permits and licenses,
including those relating to environmental quality, required by the Company to
conduct its business have been obtained, are in full force and effect and are
being complied with in all material respects.

3.19. LENDER APPROVAL.
The Company is a lender or seller/servicer approved by FNMA, GNMA,
FHLMC, VA and FHA.

3.20. INVESTMENT COMPANY.
The Company is not an investment company as defined by the Investment
Company Act of 1940.

3.21. TRANSACTIONS WITH AFFILIATES.
Except as set forth in EXHIBIT 3.21 or EXHIBIT 1.11, since December
31, 1996, the Company has not, in the ordinary course of business or otherwise,
purchased, leased or otherwise acquired any material property or assets or
obtained any material services from, or sold, leased or otherwise disposed of
any material property or assets or provided any material services to (except
with respect to remuneration for services rendered as a director, officer or
employee of the Company), Contributor, any employee of the Company or any
Affiliate of either of them.

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Except as set forth in EXHIBIT 3.21 or EXHIBIT 1.11, (a) the Contracts do not
include any obligation or commitment between the Company and any Affiliate, and
(b) the assets of the Company do not include any receivable or other obligation
or commitment from an Affiliate to the Company.

3.22. INSURANCE.
EXHIBIT 3.22 contains a list of major policies for property, casualty
and key person life insurance maintained by the Company as of the date hereof.
All such policies are in full force and effect, and no breach or default by the
Company exists under any of such policies to the Knowledge of Contributor and no
event has occurred, that, with the giving of notice or lapse of time, would
constitute a breach or default thereunder.

3.23. REAL PROPERTY LEASES.
EXHIBIT 1.26 contains a list of all Real Property Leases to which the
Company is a party as of the date hereof. Each Real Property Lease is valid,
binding, enforceable and in full force and effect. No breach or default by the
Company or, to the Knowledge of Contributor, any other party, exists under any
of the Real Property Leases, and no event has occurred, that, with the giving of
notice or lapse of time, would constitute a

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breach or default thereunder. Except for the Permitted Liens, the Company has
not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in any Real Property Lease.

3.24. NO BROKER.
Neither the Company nor Contributor has had any dealings, negotiations
or communications with any broker or other intermediary in connection with the
transactions contemplated by this Agreement, and neither is committed to any
liability for any brokers' or finders' fees or any similar fees in connection
with the transactions contemplated herein.

3.25. SUBSIDIARIES.
The Company does not own any class of capital stock of any
corporation, or have the right or obligation to acquire any ownership interest
in, any corporation, partnership or other business.

3.26. DISCLOSURE.
Neither this Agreement nor any representations made by Contributor in
any other document delivered in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact or
omits to state a

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material fact necessary to make the statements contained herein or therein not
misleading.

3.27. ACQUISITION FOR INVESTMENT.
Contributor acknowledges that (i) he is an "accredited investor"
within the meaning of Section 501 of the Securities Act of 1933, as amended (the
"Act"), and (ii) the contribution and exchange of the Stock for the Units
contemplated herein has not been registered under the Act, or under any state
securities laws. Contributor represents that he is acquiring the Units (and any
securities exchangeable therefor) for investment and not with a view for the
distribution thereof except in accordance with applicable securities laws.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF OPERATING PARTNERSHIP

Operating Partnership hereby represents and warrants to Contributor
that:

4.1. ORGANIZATION.
(a) Operating Partnership is a limited partnership duly formed and
validly existing under the laws of the State of Delaware and has full power to
enter into this Agreement and to perform its obligations hereunder. Operating
Partnership will be

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as of the Closing Date, duly qualified as a foreign limited partnership to do
business, and will be as of the Closing Date, in good standing in each
jurisdiction where the failure to be so qualified would have a material adverse
effect on the business, financial condition or results of operations of
Operating Partnership.

(b) AEGIS Investment Trust is a Maryland real estate investment trust,
duly formed and validly existing under the laws of the State of Maryland. AEGIS
Investment Trust has full power to own the assets it currently owns. AEGIS
Investment Trust will be as of the Closing Date, duly qualified to do business,
and will be as of the Closing Date in good standing, in each jurisdiction where
the failure to be so qualified would have a material adverse effect on the
business, financial condition or results of operations of AEGIS Investment Trust
or Operating Partnership.

4.2. AUTHORIZATION; ENFORCEABILITY.
The execution, delivery and performance by Operating Partnership of
this Agreement and of all of the documents and instruments required hereby from
Operating Partnership are within the power of Operating Partnership and have
been duly authorized

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by all necessary partnership and other action of Operating Partnership. This
Agreement is, and the other documents and instruments required hereby will be,
when executed and delivered by the parties hereto, the valid and binding
obligations of Operating Partnership, enforceable against Operating Partnership
in accordance with their respective terms.

4.3. NO VIOLATION OR CONFLICT.
The execution, delivery and performance of this Agreement by Operating
Partnership do not and will not conflict with or violate any Law, judgment,
order or decree binding on Operating Partnership or the Certificate of formation
or Partnership Agreement of Operating Partnership or any contract or agreement
to which Operating Partnership is a party or by which it is bound. No notice
to, filing or registration with, or authorization, consent or approval of, any
governmental, regulatory or self-regulatory agency is necessary or is required
to be made or obtained by Operating Partnership in connection with the execution
and delivery of this Agreement by Operating Partnership or the consummation by
Operating Partnership of the transactions contemplated hereby or in the Recitals
hereto.

4.4. ACQUISITION FOR INVESTMENT.

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Operating Partnership acknowledges that the transfer of the Stock
contemplated herein has not been registered under the Securities Act of 1933, as
amended, or under any state securities laws. Operating Partnership represents
that it is acquiring the Stock for investment and not with a view for the
distribution thereof except in accordance with applicable securities laws.

4.5. UNITS.
Upon issuance of the Units by Operating Partnership on the Closing
Date in accordance with this Agreement, the Units will be validly issued, free
and clear of any mortgage, pledge, lien, encumbrance, security interest, claim
or rights of interest of any third party whatsoever due to the actions of
Operating Partnership or any Affiliate thereof, and each Unit will be redeemable
for cash, or at the option of AEGIS Investment Trust, a single common share of
beneficial interest of AEGIS Investment Trust, in the manner expressly set forth
in Section 8.05 of the Amended and Restated Agreement of Limited Partnership of
Operating Partnership, attached as EXHIBIT 1.31 hereto.

In the event common shares of beneficial interest of AEGIS Investment
Trust are so issued in redemption of the Units, such common shares of beneficial
interest of AEGIS Investment

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Trust will be validly issued, fully paid and non-assessable, and will be free
and clear of any mortgage, pledge, lien, encumbrance, security interest, claim
or rights of interest of any third party of any nature whatsoever due to the
actions of Operating Partnership or any Affiliate thereof.

4.6. OPERATING PARTNERSHIP AGREEMENT.
As of the Closing Date, the Amended and Restated Agreement of Limited
Partnership of Operating Partnership will contain Sections 2.04(a)(iii), 4.02,
5.01, 5.02, 5.03, 8.05, 8.06 and 9.02 and Article XI, as such Sections and
Article are set forth in the form of Partnership Agreement attached as EXHIBIT
1.31 hereto. further, as of the Closing Date, the Amended and Restated
Agreement of Limited Partnership of Operating Partnership will be in full force
and effect and shall not provide for additional capital contributions on behalf
of the Contributor.

ARTICLE V

COVENANTS AND AGREEMENTS

5.1. BOOKS AND RECORDS.
Each party agrees that it will cooperate with and make available to
the other party, during normal business hours, all

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books, records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing Date and
relating to the conduct of the business of the Company (the "Information") which
are necessary or useful in connection with any tax inquiry, audit, investigation
or dispute, or any litigation or investigation. The party requesting any such
Information shall bear all of the out-of-pocket costs and expenses (including,
without limitation, attorneys' fees, but excluding reimbursement for salaries
and employee benefits) reasonably incurred in connection with providing such
Information. Except with respect to Information that is generally available to
the public or required to be disclosed in connection with the IPO, the party
requesting such Information shall (i) hold all such Information in the strictest
confidence, except as required by applicable Law, (ii) shall disseminate such
Information only to its officers, directors, employees and representatives who
have a need to know such information and who have been advised of the
confidential nature of such Information, (iii) shall, upon request of the other
party, return promptly or destroy all copies of the Information received by it
and all documents created from or incorporating portions of the Information, and
(iv) shall take all steps

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necessary to cause its officers, directors, employees and representatives to
comply with the terms and conditions of this Section 5.1.

5.2. OPERATING AGREEMENTS, PRUDENT PRACTICES.

After the date hereof, Contributor shall cause the Company to conduct
its business consistent with prudent mortgage banking and business practices
until the Closing Date. In addition, Contributor agrees to prohibit the Company
from taking any of the following actions without the prior unanimous consent of
the Stockholders:

(i) Increasing the salary or other compensation of any employee
of the Company by more than 10%;

(ii) entering into any new employment contract providing for
annual salary and other compensation in excess of $75,000;

(iii) entering into any agreement or contract to acquire assets
in excess of $10 million dollars for any single transaction;

(iv) entering into any agreement, contract or arrangement, or the
modification of any existing agreement, contract or arrangement, whether written
or oral, including, but

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not limited to any loans, guaranties or other extensions of credit or credit
support, to which Contributor, or any member of Contributor's family or any
entity controlled by such person, is a party;

(v) entering into any other contract, policy, lease or other
arrangement which would have been required to be listed on EXHIBITS 1.26, 3.12
or 3.22 had such contract, policy, lease or other arrangement been in existence
on the date hereof;

(vi) issuing any equity or debt securities (other than any
indebtedness to banks under credit facilities existing on the date hereof); or

(vii) paying or declaring of any bonuses; PROVIDED, HOWEVER, that
the Company may pay to any Stockholder, on or prior to the Pricing Date, a bonus
for the current year in an amount not to exceed $120,000 per annum; provided
that any such amount is pro-rated for the period from January 1, 1997 to the
Closing Date.

5.3. CONFIDENTIAL INFORMATION.

(a) Except as specifically authorized by the Company in writing, from
the date hereof and continuing forever (except as expressly limited in this
section), Contributor agrees that he

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shall not, directly or indirectly, (i) disclose any Confidential Information to
any individual or entity, or otherwise permit any person or entity to obtain or
disclose any Confidential Information, or (ii) use any Confidential Information
for Contributor's financial gain, whether individually or on behalf of another
individual or entity (whether or not such other individual or entity is any way
employed by or affiliated with the Company). While not in any way limiting the
generality of the foregoing, the prohibitions contained herein shall extend to
any and all financial statements, reports and other documents submitted by the
Company or its agents or representatives to Contributor that constitute
Confidential Information and to any Confidential Information obtained by
Contributor pursuant to any visitation or right of inspection previously granted
to Contributor. Nothing contained herein shall prohibit Contributor from
disclosing or using Confidential Information if and only to the extent required
by Law or a valid order or subpoena issued by a court or administrative agency
of competent jurisdiction, provided that in such event Contributor promptly
notifies the Company or any Affiliate of the Company to which such Confidential
Information relates, to afford the Company or its Affiliate the opportunity to
protect its interests in such

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Confidential Information. Nothing contained in this Section 5.3 shall be
construed as prohibiting Contributor from disclosing or using Confidential
Information that is or has become a matter of public record or known to the
public or members of the mortgage banking industry generally, other than as a
result of improper disclosure.

(b) For the purposes hereof, the term "Confidential Information"
means the following information and compilations of information, in whatever
form or medium (including any copies thereof, relating to any part of the
business of the Company or the business of any Affiliate of the Company provided
to Contributor or any Affiliate thereof or to which Contributor or any Affiliate
thereof had access or which either obtained or compiled or had obtained or
compiled on either's behalf, which information or compilations of information
are not a matter of public record or generally known to the public or members of
the mortgage banking industry: (i) financial information regarding the Company
or any Affiliate of the Company; (ii) for a period of one year from and after
the Closing Date, personnel data, including compensation arrangements, relating
to any employee of the Company as of the Closing Date; (iii) written internal
plans,

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<PAGE>

practices, and procedures of the Company; (iv) the identities, addresses, or
requirements of any customers or clients of the Company[; PROVIDED, HOWEVER,
that nothing contained herein shall prevent Contributor or his Affiliates from
competing with the Company at any time or from soliciting business from any
customers of clients of the Company]; and (v) the information contained on
EXHIBIT 5.3(b), which the parties agree shall be deemed confidential for the
purposes hereof.

(c) Contributor acknowledges that a violation of Section 5.3(e) of
this Agreement by Contributor may cause irreparable harm to the Company and
Operating Partnership. Accordingly, Contributor hereby grants the Company and
Operating Partnership the right to seek and be granted injunctive relief for any
such violation, in addition to any other legal remedies that may be available to
the Company and Operating Partnership.

(d) Operating Partnership acknowledges that a violation of Section
5.3(e) of this Agreement by Operating Partnership may cause irreparable harm to
Contributor. Accordingly, Operating Partnership hereby grants Contributor the
right to seek and be granted injunctive relief for any such

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violation, in addition to any other legal remedies that may be available to
Contributor.

(e) No party hereto or any Affiliate thereof shall make any
statements regarding the indemnity provided pursuant to Section 6.1(a) hereof,
or the circumstances regarding the same, whether through the medium of a press
release, public statement or otherwise, without the prior written consent of the
other parties, and the parties shall be in agreement as to the content of such
statement; PROVIDED, HOWEVER, that (i) Operating Partnership or its partners may
make such disclosure of the transaction as, in the reasonable opinion of their
counsel, is required in connection with the IPO, (ii) Operating Partnership or
its partners may make such disclosure as it deems necessary to prospective
officers and directors of the Company, provided that such persons enter into
confidentiality agreements with respect to such information, and (iii) Operating
Partnership or its partners may make such disclosures as necessary in connection
with legal proceedings relating to such matters or to collect amounts owing
under such indemnity. In addition, each of the parties hereto understands and
acknowledges that this Agreement is confidential in nature and each agrees to
engage in all

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reasonable efforts to protect its confidentiality and not to disclose the terms
of this Agreement or the substance of any negotiations between the parties
hereto to any other person or entity except as set forth above.

5.4. FURTHER ASSURANCES.

After the date hereof, each party will cooperate in good faith with
the other and will take all appropriate action and execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder.

5.5. ESTIMATED TAX OBLIGATIONS.

Contributor agrees to cause the Company to declare and pay to the
Stockholders prior to the Closing Date dividends in cash totaling in the
aggregate not more than the amount (the "Permitted Distribution") equal to (i)
39.6% of the reasonably estimated total taxable income of the Company allocable
to the Stockholders under the Code after provision for state and local taxes
(the "Interim Earnings") for the period commencing on January 1, 1997 and ending
on the date reflected in the last internal earnings statement (the "Interim
Period"), minus (ii) the aggregate amount of all dividends declared and paid to

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Stockholders since January 1, 1997. The Interim Earnings shall be determined as
follows:

(i) Not later than three business days prior to the Closing
Date, the Company shall deliver to Operating Partnership an income statement of
the Company for the Interim Period, which shall include the Company's good faith
and reasonable estimate of the Company's net income calculated in accordance
with generally accepted accounting principles applied on a basis consistent with
financial statements for the Interim Period ("Interim GAAP Earnings") together
with a schedule showing adjustments to Company's Interim GAAP Earnings to
determine the Interim Earnings.

(ii) Together with such financial statements, the Company shall
deliver to Operating Partnership a certificate of an executive Officer of the
Company (A) showing the amount of the Permitted Distribution and (B) stating
that to the best of his knowledge such financial statements fairly present, in
all material respects, the results of operations of the Company for the Interim
Period, including adjustments necessary for such fair presentation, and
reasonably estimate in good faith the Interim GAAP Earnings, all in accordance
with GAAP applied on a basis consistent with the Financial Statements and the
adjustments

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<PAGE>

necessary to determine the Interim Earnings consistent with the Company's prior
Income Tax Returns (as defined below).

(b) Operating Partnership agrees to cause the Company to pay to the
Stockholders an amount, in cash, totaling in the aggregate not more than the
amount (the "Final Payment") equal to (i) 39.6% of the total taxable income of
the Company allocable to the Stockholders under the Code after provision for
state and local taxes (the "Final Earnings") for the period commencing on
January 1, 1997 and ending on the day immediately preceding the Closing Date
(the "Final Period"), minus (ii) the aggregate amount of all dividends declared
and paid to Stockholders during the Final Period, including the Permitted
Distribution. The Final Earnings shall be determined not later than 60 days
after the Closing Date, in the same manner that the Interim Earnings were
determined, and the Final Payment shall be made not later than 60 days after the
Closing Date.

5.6. PREPARATION OF TAX RETURNS; TAX COVENANTS.

(a) Contributor, together with the other Stockholders, shall be
responsible for preparing and filing, at the Company's expense, within the times
and in the manner prescribed by Law (subject, however, to filing under any
extension), all federal or state income tax returns of the Company as an S
corporation

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(E.G., IRS Form 1120S, Schedule K-1(1120S), and similar state returns) for the
tax year ending on the day immediately preceding the Closing Date, as well as
for any prior tax year of the Company that are required to be filed after the
Closing Date (each an "Income Tax Return"). Contributor covenants that (i) any
Income Tax Returns of the Company for any period ending on or before the day
before the Closing Date that are filed after the Closing Date will be complete,
correct and filed consistently with the Company's prior Income Tax Returns and
shall be based on the same tax accounting methods and elections as used for the
Company's tax year immediately preceding the period of such Income Tax Return,
except as otherwise required by law or as agreed upon by Operating Partnership,
on the one hand, and Contributor and the other Stockholders, on the other hand
and (ii) such Income Tax Returns will not be subject to penalties under Sections
6662 and 6663 of the Code relating to accuracy and fraud-related penalties (or
their predecessor provisions of the Code or any corresponding or similar
provision of federal, state, local, foreign, or territorial income tax law).
Contributor and the other Stockholders shall send Operating Partnership a draft
of each such Income Tax Return at least 30 days before the due date of such
Income Tax Return in order to give Operating

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Partnership an opportunity to comment on such Income Tax Return. All Income Tax
Returns that are required to be filed pursuant to this Section 5.6(a) shall not
be unreasonably withheld.

(b) Contributor and Operating Partnership shall cooperate fully as
and to the extent reasonably requested by the other party in connection with the
preparation and filing of any Income Tax Return (including, causing the Company
to execute the Income Tax Return), and the defense of any claim, audit,
litigation or other proceeding, with respect to taxes of the Company or any of
the Stockholders for any period ending on or prior to the day immediately
preceding the Closing Date. Operating Partnership shall cause the Company, at
its expense, to conduct an audit of the Company by an independent certified
public accountant for the period from January 1, 1997 to the day prior to the
Closing Date. Operating Partnership and Contributor agree to abide by all
record retention requirements of, or record retention agreements entered into
with, any taxing authority. To the extent that action by Operating Partnership
or companies controlled by it or Contributor is required by applicable laws,
regulations or administrative pronouncements in order to extend any statute of
limitation for any Income Tax Return, claim, audit, litigation or other
proceeding described above in this

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<PAGE>

Section 5.6(b), such party shall take such action as is necessary to extend a
statute of limitations where such extension is reasonably requested by the other
party of such Income Tax Return or defense by such other party of such claim,
audit, litigation or other proceeding. To the extent that neither the Company
nor Operating Partnership is potentially liable under any such claim, audit,
litigation or other proceeding (or to the extent that Contributor admits in
writing to the Company or Operating Partnership that he and not the Company or
Operating Partnership is potentially liable under any such claim, audit,
litigation or other proceeding), Operating Partnership agrees not to take, or
allow the Company to take, any action to extend the statute of limitations for
such actions unless requested or approved by a Stockholder.

(c) Operating Partnership shall cause the Company to provide the
Stockholders with prompt notice of any inquiries, audits, examinations or
proposed adjustments by the IRS or any other similar authorities, which relate
to any period ending on or before the day before the Closing Date. The
Stockholders shall have the sole right to represent the interests of the Company
in any income tax audit or administrative proceeding relating to any period
ending on or before the day before

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the Closing Date, to employ counsel of their choice at their expense, and to
settle any issues and to take any other actions in connection with such
proceedings relating to such periods; PROVIDED, that the Stockholders shall use
reasonable efforts to inform Operating Partnership of the status of any such
proceedings, shall provide Operating Partnership with copies of any pleadings,
correspondence, and other documents as Operating Partnership may reasonably
request, and shall consult with Operating Partnership prior to the settlement of
any such proceedings.

5.7. ADDITIONAL AGREEMENTS OF OPERATING PARTNERSHIP.

(a) Operating Partnership agrees that, for a period of 13 months following
the Closing Date, Operating Partnership will not dispose of the Stock in a
transaction that would result in the allocation of taxable income or gain by
Operating Partnership to Contributor under Section 704(c) of the Code.

(b) Operating Partnership will consent to the Company's election under
Section 1362(e)(3) of the Code not to apply the pro rata allocation rules
provided in Section 1362(e)(2) of the Code for its S termination year.

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<PAGE>

5.8. RELEASE OF GUARANTY.

Operating Partnership agrees that, on or before three business days
after the Closing Date, Operating Partnership shall take all necessary action to
cause Contributor to be released from liability under each Guaranty.

ARTICLE VI

INDEMNITIES AND ADDITIONAL COVENANTS

6.1. CONTRIBUTOR'S INDEMNITY.

(a) Contributor, jointly and severally with [ ], hereby agrees to
indemnify and hold harmless Operating Partnership, the Company or any of their
Affiliates from and against, and agrees to defend promptly Operating
Partnership, the Company and any of their Affiliates from and to reimburse
Operating Partnership, the Company and any of their Affiliates for, any and all
losses, damages, costs, expenses, liabilities, obligations and claims of any
kind, including, without limitation, reasonable attorneys' fees and other legal
costs and

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<PAGE>

expenses (hereinafter referred to collectively as "Losses"), that either
Operating Partnership, the Company or any of their Affiliates may at any time
suffer or incur, or become subject to, as a result of, arising out of or in
connection with any violation by the Company of any laws of the United States
relating to the trading of securities prior to the Closing Date (other than the
trading of mortgages or securities backed by mortgages).

(b) In addition to the indemnification provided in subparagraph (a)
above, Contributor jointly and severally with each of the other Stockholders of
the Company, hereby agrees to indemnify and hold harmless Operating Partnership,
the Company and any of their Affiliates from and against, and agrees to defend
promptly Operating Partnership, the Company and any of their Affiliates from and
to reimburse Operating Partnership, the Company and any of their Affiliates for,
any and all Losses, that either Operating Partnership, the Company or any of
their Affiliates may at any time suffer or incur, or become subject to, as a
result of or in connection with (i) any breach or inaccuracy of any of the
representations and warranties made by Contributor in this Agreement, and (ii)
any failure by Contributor to perform

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<PAGE>

any of his covenants and obligations set forth in this Agreement or in any
document or instrument delivered pursuant hereto or any other breach of this
Agreement; PROVIDED, HOWEVER, that Operating Partnership and the Company shall
have no right to be indemnified, held harmless, defended or reimbursed pursuant
to this Section 6.1(b) unless such right is first asserted (whether or not
Losses have been incurred) by written notice to Contributor delivered (x) with
respect to claims relating to Losses arising out of matters covered in Section
3.18(a), prior to the expiration of the third anniversary of Closing or (y) for
claims relating to any other Losses, prior to March 31, 1999.

(c) The amounts for which Contributor shall be liable under Section
6.1(a) and (b) shall be net of any insurance proceeds or any other recoveries
received by Operating Partnership or the Company in connection with the facts
giving rise to the right of indemnification. In addition, Contributor's
liability for the matters described in Section 6.1(b) shall be limited to
$[2,856,250][$4,712,500][$3,266,500]. There is no limit for a Contributor's
liability under Section 6.1(a).

(d) Contributor shall not be required to indemnify Operating
Partnership, its Affiliates or the Company until the

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<PAGE>

aggregate losses incurred by Operating Partnership, its Affiliates or the
Company under this Agreement and the Related Agreements equal or exceed $50,000,
at which time each of the Stockholders shall be jointly and severally liable for
all losses back to the first dollar.

(e) In the event a claim against Operating Partnership or the Company
arises that is covered by the indemnity provisions of Section 6.1(a) or (b),
notice shall be given by the party seeking indemnification to Contributor within
thirty (30) days; provided, however, that the failure to provide any such notice
shall not relieve Contributor from any portion of any liability not caused by
the failure to timely deliver such notice, it being understood and agreed that
this proviso shall not affect the obligations of Operating Partnership or the
Company to deliver a notice of claim in the time frames set forth in Section
6.1(b); PROVIDED, that if Contributor admits in writing to the party seeking
indemnification that such claim, if valid, is covered by the indemnity
provisions of Section 6.1(a) or (b), Contributor shall have the right to contest
and defend by all appropriate legal proceedings such claim and to control all
settlements (unless the indemnified party agrees to assume the cost of

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settlement and to forgo such indemnity) and to select lead counsel to defend any
and all such claims at the sole cost and expense of Contributor notwithstanding
the validity of such claim; PROVIDED, HOWEVER, that Contributor may not effect
any settlement that could result in any cost, expense, liability or harm to the
business or reputation of any indemnified party unless such party consents in
writing to such settlement and Contributor agrees to indemnify such party
therefor. Any indemnified party may select counsel to participate in any
defense at its own cost and expense. In connection with any such claim, action
or proceeding, the parties shall cooperate with each other and provide each
other with access to relevant books and records in their possession.

(f) Contributor's representations and warranties shall survive the
Closing to the extent and for such time as is necessary to enable Operating
Partnership and the Company to enforce their rights to indemnification under
this Section, at which time they will expire.

(g) Notwithstanding the forgoing, Operating Partnership hereby agrees
that for so long as Walden is employed by it or any of its Affiliates, it will
collect any amounts owing with respect

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to any such indemnity obligations proportionally from each of the
Stockholders other than Walden, on the one hand, and Walden, on the other
hand, on a several and not joint basis, based on the maximum liability amount
for Contributor of $[ ], and a maximum liability amount of $[ ] and
$[ ] for the other Stockholders, respectively.

(h) To the extent Contributor is obligated to indemnify Operating
Partnership for any Losses pursuant to this Section 6.1, Contributor shall make
any indemnification payments promptly; PROVIDED, HOWEVER, that Contributor shall
not be required to make any payments prior to the date thirteen months following
the Closing Date.

6.2. OPERATING PARTNERSHIP'S INDEMNITY.

(a) Operating Partnership hereby agrees to indemnify and hold
Contributor harmless from and against, and agrees to defend promptly Contributor
from and to reimburse Contributor for, any and all Losses that Contributor may
at any time suffer or incur, or become subject to, as a result of or in
connection with (i) any breach or inaccuracy of any of the representations and
warranties made by Operating Partnership in or pursuant to this Agreement or
(ii) any failure by Contributor to perform any

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of its covenants and obligations set forth in this Agreement or any other breach
of this Agreement; PROVIDED, HOWEVER, that Contributor shall have no right to be
indemnified, held harmless, defended or reimbursed pursuant to this Section
6.2(a) unless such right is first asserted (whether or not Losses have been
incurred) by written notice to Operating Partnership no later than March 31,
1999.

(b) The amounts for which Operating Partnership shall be liable under
Section 6.2(a) shall be net of any insurance proceeds received by Contributor in
connection with the facts giving rise to the right of indemnification and shall
be limited to $[ ]. Operating Partnership will not be required to
indemnify any of the Stockholders until the aggregate losses incurred by the
Stockholders under this Agreement and the Related Agreements equal or exceed
$50,000, at which time Operating Partnership shall be liable for all losses back
to the first dollar.

(c) In the event a claim against Contributor arises that is covered
by the indemnity provisions of Section 6.2(a), notice shall be given by
Contributor to Operating Partnership and to each of the other Stockholders
within thirty (30) days; PROVIDED, HOWEVER, that the failure to provide any such
notice

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shall not relieve Operating Partnership from any portion of any liability not
caused by the failure to timely deliver such notice, it being understood and
agreed that this proviso shall not affect the obligations of Contributor to
deliver a notice of claim in the time frame set forth in Section 6.2(a).
Provided that Operating Partnership admits in writing to Contributor that such
claim is covered by the indemnity provisions of Section 6.2(a), Operating
Partnership shall have the right to contest and defend by all appropriate legal
proceedings to such claim and to control all settlements (unless Contributor
agrees to assume the cost of settlement and to forgo such indemnity) and to
select lead counsel to defend any and all such claims at the sole cost and
expense of Operating Partnership; PROVIDED, HOWEVER, that Operating Partnership
may not effect any settlement that could result in any cost, expense, liability
or harm to the business or reputation of Contributor unless Contributor consents
in writing to such settlement and Operating Partnership agrees to indemnify
Contributor therefor. Contributor may select counsel to participate in any
defense at its sole cost and expense. In connection with any such claim, action
or proceeding, the parties shall cooperate with each other and provide each
other with access to relevant books and records in their possession.

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(d) Operating Partnership's representations and warranties shall
survive the Closing to the extent and for such time as is necessary to enable
Contributor to enforce its rights to indemnification under this Section.

[6.3. NONCOMPETITION AGREEMENT.

Contributor agrees that for a period of two years following the
Closing Date he will not, nor will he permit any of his Affiliates to, (a)
directly or indirectly engage in the business of acquiring or trading
owner-financed commercial and residential mortgage loans or (b) solicit the
acquisition of or acquire seasoned mortgage loans from parties to or from whom
the Company has previously sold or purchased seasoned mortgage loans; PROVIDED,
HOWEVER, that this Section 6.3 shall not be construed to prohibit Contributor
and his Affiliates from owning less than an aggregate of 5.0% of the voting
securities of any corporation that is traded on a national securities exchange
or inter-dealer quotation system. Contributor acknowledges that a violation of
this Section may cause irreparable harm to the Company and Operating
Partnership. Accordingly, Contributor hereby grants the Company and Operating
Partnership the right to seek and be granted injunctive relief for any such
violation, in addition to

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any other legal remedies that may be available to the Company and Operating
Partnership.

[6.4. NON-SOLICITATION AGREEMENT.

Beginning on the date of the execution of this Agreement and
continuing until the date that is [one] [two] year[s] following the Closing
Date, Contributor agrees that he will not, nor will he, directly or indirectly,
permit any Affiliate to, solicit for employment or employ any employee of the
Company.]

[6.5. COPY OF CERTAIN SECTIONS.

Contributor agrees that Operating Partnership may provide a copy of
Section 6.3 [and 6.4] to any business or enterprise which he may directly or
indirectly control (whether through the ownership, membership, operation,
financing or otherwise, or through the serving as an officer, director,
employee, partner, principal, agent, representative, consultant, lender or
otherwise, or with which he may use his name or permit his name to be used).

6.6. PURCHASE OF ADDITIONAL SHARES.

Contributor agrees that at no time shall he (in combination with any
of his Affiliates) purchase additional

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common shares of beneficial interest of AEGIS Investment Trust, which purchase
would result in him owning more than 4.8% of the outstanding common shares of
beneficial interest of AEGIS Investment Trust.

6.7. SOLE REMEDY.

The provisions of this Article VI represent the sole remedy available to
any party hereto for a misstatement or omission from any representation, or a
breach of any warranty or covenant or agreement contained in this Agreement or
any of the documents executed and delivered in connection with the consummation
of the transaction contemplated hereby, and each party hereby unconditionally
waives any other rights that they may have at law or in equity for a
misstatement or omission from any representation, or a breach of any warranty or
covenant or agreement contained in this Agreement or any of the documents
executed and delivered in connection with the consummation of the transaction
contemplated hereby.

ARTICLE VII
MISCELLANEOUS
7.1. ENTIRE AGREEMENT; AMENDMENT.

This Agreement and the documents referred to herein and to be
delivered pursuant hereto constitute the entire agreement

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<PAGE>

between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations and
discussions of the parties, whether oral or written, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein or therein. No amendment, supplement, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided. The representations and warranties
of each party hereto shall be deemed to be material and to have been relied upon
by the other party, notwithstanding any investigation heretofore or hereafter
made by the other party.

7.2. EXPENSES.

Whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay the fees and expenses of their
respective counsel, accountants and other experts and the other expenses
incident to the

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negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby; PROVIDED, HOWEVER, that in the event that such
transactions are effected, Operating Partnership shall pay the legal expenses
incurred by Contributor in respect of the transactions contemplated hereby.

7.3. GOVERNING LAW.

This Agreement shall be construed and interpreted according to the
laws of the State of Texas without regard to the conflicts of law rules thereof.

7.4. ASSIGNMENT.

This Agreement and each party's respective rights hereunder may not be
assigned at any time except as expressly set forth herein without the prior
written consent of the other party.

7.5. NOTICES.

All communications, notices and disclosures required or permitted by
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally or by messenger or by overnight delivery service, or three
days after mailing by registered or certified United States mail, postage
prepaid, return receipt requested, or when received via telecopy,

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telex or other electronic transmission, in all cases addressed to the person for
whom it is intended at his address set forth below or to such other address as a
party shall have designated by notice in writing to the other party in the
manner provided by this Section:

If to Contributor:

[CONTRIBUTOR]

Telecopy no.

With a copy to each other Stockholder:

(1)

Telecopy no.

(2)

Telecopy no.

If to Operating Partnership:

AEGIS Operating Partnership, L.P.
2500 CityWest Boulevard, Suite 1200
Houston, Texas 77042
Attention: Mr. James E. Day and
Mr. Patrick A. Walden
Telecopy no.

With a copy to: Hunton & Williams

951 E. Byrd Street
Riverfront Plaza, East Tower

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<PAGE>

Richmond, Virginia 23219
Attention: Edward L. Douma, Esquire
Telecopy no. 804/788-8218

7.6. COUNTERPARTS; HEADINGS.

This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but such counterparts shall together constitute but
one and the same Agreement. The Table of Contents and Article and Section
headings in this Agreement are inserted for convenience of reference only and
shall not constitute a part hereof.

7.7. INTERPRETATION.

Unless the context requires otherwise, all words used in this
Agreement in the singular number shall extend to and include the plural, all
words in the plural number shall extend to and include the singular and all
words in any gender shall extend to and include all genders. All references to
contracts, agreements, leases, Employee Benefit Plans or other understandings or
arrangements shall refer to oral as well as written matters.

7.8. SEVERABILITY.

If any provision, clause or part of this Agreement, or the application
thereof under certain circumstances, is held

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invalid, the remainder of this Agreement, or the application of such provision,
clause or part under other circumstances, shall not be affected thereby.

7.9. NO RELIANCE.

Except in the case of the Company with respect to the indemnification
provided pursuant to Section 6.1 hereof, no third party is entitled to rely on
any of the representations, warranties or agreements contained in this
Agreement. Operating Partnership, Contributor and the Company shall have no
liability to any third party because of any such reliance.

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IN WITNESS WHEREOF, the parties have caused this Stock Contribution
and Exchange Agreement to be duly executed as of the day and year first above
written.

AEGIS OPERATING PARTNERSHIP, L.P.
By: AEGIS INVESTMENT TRUST,
Its General Partner

By:
-----------------------------------------
James E. Day
Managing Director

CONTRIBUTOR

-69-

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use of our report dated August 28, 1997, included
herein related to the balance sheet of the Company as of August 28, 1997, and
our report dated March 6, 1997, included herein related to the balance sheets
of AEGIS Mortgage Corporation as of December 31, 1995 and 1996, and the
related statements of earnings, stockholders' equity, and cash flows for each
of the years in the three year period ended December 31, 1996. We also
consent to the references to us under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Houston, Texas
September 5, 1997