AMRESCO CAPITAL TRUST, PRER14A, 2000-07-07

AMRESCO CAPITAL TRUST
PRER14A, 2000-07-07
REAL ESTATE INVESTMENT TRUSTS

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SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

AMRESCO CAPITAL TRUST
(Name of Registrant as Specified in its Charter)

NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth amount on which
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offering fee was
paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of the filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:

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SUBJECT TO COMPLETION, DATED JULY 7, 2000

AMRESCO CAPITAL TRUST
700 NORTH PEARL STREET
SUITE 1900, LB 342
DALLAS, TEXAS 75201-7424

YOUR VOTE ON OUR PROPOSED LIQUIDATION AND DISSOLUTION IS VERY IMPORTANT.

Dear Shareholders:

AMRESCO Capital Trust's board of trust managers has approved a plan of
liquidation and dissolution. To complete the liquidation and dissolution, we
must obtain the approval of our shareholders. We believe that the liquidation
and dissolution will benefit our shareholders and the board recommends that you
vote for the proposals as described in the attached document. Also enclosed is
our Annual Report to Shareholders for the year ended December 31, 1999.

Our annual meeting will be held on August __, 2000, at 10:00 a.m., local
time, on the 17th Floor of the North Tower of the Plaza of the Americas, 700
North Pearl Street, Dallas, Texas. At the annual meeting, you will be voting on
the approval of the liquidation and dissolution, the election of two trust
managers and the appointment of Deloitte & Touche LLP as our independent public
accountants for the 2000 fiscal year.

YOUR VOTE IS IMPORTANT. PLEASE VOTE AS SOON AS POSSIBLE TO MAKE SURE THAT
YOUR SHARES ARE REPRESENTED AT THE MEETING. TO VOTE YOUR SHARES, PLEASE COMPLETE
AND RETURN THE ENCLOSED PROXY CARD. YOU MAY ALSO CAST YOUR VOTE IN PERSON AT THE
MEETING.

Sincerely,

Robert L. Adair III
Chairman of the Board of Trust Managers
and Chief Executive Officer

This proxy statement is dated July __, 2000 and is first being mailed to
shareholders on or about July __, 2000.

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AMRESCO CAPITAL TRUST
700 NORTH PEARL STREET
SUITE 1900, LB 342
DALLAS, TEXAS 75201-7424

----------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST__, 2000

----------

The 2000 annual meeting of shareholders of AMRESCO Capital Trust will be
held on the 17th floor of the North Tower of the Plaza of the Americas, 700
North Pearl Street, Dallas, Texas, on August __, 2000, at 10:00 a.m., local
time, for the following purposes:

1. To approve the complete liquidation and dissolution of AMRESCO
Capital Trust under the terms and conditions of the plan of
liquidation and dissolution. We have included a copy of the plan
of liquidation and dissolution as Annex A to the attached
document.

2. To elect two trust managers.

3. To ratify the appointment of Deloitte & Touche LLP as our
independent public accountants for 2000.

4. To adjourn the meeting, if necessary to permit further
solicitations of proxies if there are not sufficient votes at the
time of the meeting to approve or disapprove proposals 1, 2 or 3.

5. To transact such other business as may properly come before the
meeting or any adjournment or postponement of the meeting.

Only shareholders of record at the close of business on July ___, 2000 will
be entitled to vote at the meeting. To vote your shares, please complete and
return the enclosed proxy card. You also may cast your vote in person at the
meeting. Please vote promptly whether or not you expect to attend the meeting.

By Order of the Board of Trust Managers,

Michael L. McCoy
Secretary

Dallas, Texas
July __, 2000

PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON
THE ENCLOSED PROXY CARD.

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TABLE OF CONTENTS

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING..................................................................1

RISK FACTORS RELATING TO THE LIQUIDATION AND THE DISSOLUTION....................................................5
If we do not realize the estimated net proceeds from loan pay-offs
and asset sales, liquidating distributions to shareholders may be reduced or delayed...................5
Our trust managers, officers and affiliates may have interests in the liquidation and dissolution
that are different from or in addition to the interests of other shareholders..........................7
The liquidity and the market price of our shares could decrease.................................................8
Our public entity value may be jeopardized......................................................................8
No dissenters' rights for shareholders..........................................................................8
No further shareholder approval will be required................................................................9
The liquidation and dissolution may not result in greater returns to shareholders
than our continuing as a going concern.................................................................9
The board of trust managers may amend the plan or abandon the liquidation and dissolution
even if shareholders approve the liquidation and dissolution...........................................9

APPROVAL OF THE LIQUIDATION AND DISSOLUTION.....................................................................10
Overview of the company.........................................................................................10
Background of the liquidation and dissolution...................................................................10
Reasons for the liquidation and dissolution and recommendation of the board of trust managers...................14
Interests of some of our trust managers, executive officers and affiliates in the liquidation and dissolution...16
Summary of the plan of liquidation and dissolution..............................................................18
Expected distributions..........................................................................................20
Material federal income tax consequences of the liquidation and dissolution.....................................22
Summary of the agreement with affiliates of Farallon Capital Management, L.L.C. ................................27
Government approvals............................................................................................27
No dissenters' rights...........................................................................................28
Vote required...................................................................................................28

ELECTION OF TRUST MANAGERS......................................................................................28
The board of trust managers.....................................................................................28
Information concerning trust managers...........................................................................28
Required vote...................................................................................................30
Meetings of the board and committees............................................................................30
Committees of the board of trust managers.......................................................................30
Compensation of trust managers..................................................................................31

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.....................................................32

AUDIT COMMITTEE REPORT..........................................................................................33

EXECUTIVE OFFICERS..............................................................................................33

RELATIONSHIPS...................................................................................................35

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.........................................................35

EXECUTIVE COMPENSATION..........................................................................................35

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.........................................................37

SHAREHOLDER RETURN COMPARISON...................................................................................38
</TABLE>

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<TABLE>

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................................39

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................41
The manager.....................................................................................................41
Right of first refusal/correspondent agreement..................................................................42
Transactions with affiliates of AMRESCO, INC. ..................................................................42
Agreement with affiliates of Farallon Capital Management, L.L.C. ...............................................43

SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS.....................................................................43

SHAREHOLDER PROPOSALS...........................................................................................43

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...............................................................43

WHERE YOU CAN FIND MORE INFORMATION.............................................................................44

ANNEX A - PLAN OF LIQUIDATION AND DISSOLUTION..................................................................A-1
</TABLE>

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

Q: WHAT MAY I VOTE ON?

A: At the meeting, you will be voting on four proposals. Item numbers refer to
the numbers on the proxy card.

Item 1: Approval of our complete liquidation and dissolution under
the terms and conditions set forth in the plan of
liquidation and dissolution.

Item 2: Election of two trust managers.

Item 3: Ratification of the appointment of Deloitte & Touche LLP as
our independent public accountants for 2000.

Item 4: To adjourn the meeting, if necessary to permit further
solicitation of proxies if there are not sufficient votes at
the time of the meeting to approve or disapprove Items 1, 2
or 3.

Q: WHAT ARE THE KEY FEATURES OF THE LIQUIDATION AND DISSOLUTION?

If the liquidation and dissolution proposal is approved at the meeting, we
will cease conducting normal business operations, except as may be required
to wind-up our business and affairs. We intend to collect our outstanding
mortgage loans as they become due and sell our other assets, including our
equity interests in real estate and commercial mortgage-backed securities.
We then intend to satisfy our obligations and liabilities and distribute
our remaining assets to shareholders in proportion to their respective
holdings.

Q: WHAT DISTRIBUTIONS SHOULD I EXPECT TO RECEIVE IN THE LIQUIDATION AND
DISSOLUTION?

A: Although we cannot be sure of the amounts or the timing, we currently
expect that you will receive cash distributions in the total amount of
approximately $12.30 to $12.75 per share. This would result in total
distributions since our inception of about $14.95 to $15.40 per share,
including dividends paid to date. At a minimum, we anticipate making
distributions in amounts sufficient to allow us to remain qualified as a
REIT under the Internal Revenue Code throughout the period of the
liquidation of our assets. However, given the changes in the nature of our
assets and in our sources of income that could result from dispositions of
assets and the need to retain assets to meet liabilities, we cannot assure
you that we will continue to meet the REIT qualification tests.

Management derived the expected distribution amounts by estimating the
following amounts for the period from April 1, 2000 through the date of
dissolution:

o the net proceeds we expected to receive from the repayments of our
mortgage loans and the sales of our commercial mortgage-backed
securities and partnership investments and the income we expected to
receive from these investments, which we estimated to total between
$194.6 million and $198.9 million;

o the amount we expected to receive from Prudential Securities
Incorporated upon the assumed exercise of its warrants to purchase
250,002 common shares at $9.83 per share, which we estimated to be
$2.5 million;

o the amounts we expected to pay to pay-off our line of credit and
repurchase agreement, which we estimated to total $61.7 million; and

o the amounts we expected to pay to satisfy our expenses, which included
interest expense on our line of credit and repurchase agreement of
between $1.9 million and $2.3 million, fees payable to our manager of
$4.2 million and general and administrative costs of $2.7 million, or
a total of between $8.8 million and $9.2 million. These expenses
include amounts that were accrued but unpaid as of March 31, 2000.

The preparation of these estimates involved judgments and assumptions with
respect to the liquidation process that, although

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considered reasonable at the time by management, may not be realized. We
cannot assure you that actual results will not vary materially from the
estimates.

Q: WHEN SHOULD I EXPECT TO RECEIVE THE DISTRIBUTIONS?

A: We intend to first repay any amounts due on our outstanding credit
facilities with the net amounts we collect under our outstanding mortgage
loans and the net proceeds from the sales of our assets. We intend to then
distribute the remaining amounts, along with any additional amounts we
realize from collections on remaining mortgage loans and sales of remaining
assets, to holders of our common shares as soon as administratively
practical. We anticipate making the first distribution during the second
half of 2000.

Q: WHEN DO YOU EXPECT TO COMPLETE THE LIQUIDATION AND DISSOLUTION?

A: For the most part, we anticipate that the liquidation of our assets will
take place over the next 18 to 24 months through scheduled loan pay-offs in
accordance with the terms of the loan documents.

Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE LIQUIDATION AND
DISSOLUTION TO SHAREHOLDERS?

A: In general, if the liquidation and dissolution proposal is approved and we
are liquidated, shareholders will realize, for federal income tax purposes,
gain or loss equal to the difference between the cash distributed to them
from the liquidating distributions and their adjusted tax basis in their
shares. Tax consequences to shareholders may differ depending on their
circumstances. Shareholders are encouraged to consult with their own tax
advisors.

Q: DO I HAVE DISSENTERS' RIGHTS?

A: No. Under applicable law, dissenters' rights are not available in
connection with the liquidation and dissolution.

Q: HAS THE COMPENSATION PAYABLE TO OUR MANAGER CHANGED?

Yes. Subject to the direction and oversight of the board of trust managers,
our day-to-day operations and investment activities are currently managed
by AMREIT Managers, L.P., an affiliate of AMRESCO, INC., under the terms of
a management agreement. On March 29, 2000, the board of trust managers
approved modifications to AMREIT Managers' compensation in response to our
changed business strategy. Under the old fee structure, AMREIT Managers was
entitled to receive incentive compensation fees based on our quarterly
performance, which was based in part on gains from sales of property. The
board believed that this might result in significant fees being payable to
the manager in quarters in which we sold a number of assets, even if we
were to incur significant losses in other quarters. The new fee structure
eliminates all incentive fee compensation. It also eliminates the
termination fees that would have been payable upon a termination of the
management agreement without cause, including a termination resulting from
our liquidation and dissolution. Under the amended management agreement,
the base management fee was not changed, and we agreed to reimburse AMREIT
Managers for any of its quarterly operating deficits beginning April 1,
2000. Under the new fee structure, we will incur fees that are for the most
part equal to the actual costs of the services provided without mark-up.
The board believed that this should more closely align the manager's
interests with those of our shareholders. The fees under the old and new
structures are dependent upon a large number of variables. While the total
fees that we incur under the new structure could be more or less than those
that we would have incurred under the old structure, the board believed
that it was likely that the fees under the new structure would not differ
materially from the fees under the old structure.

Q: HAVE WE CHANGED THE INDEPENDENT TRUST MANAGERS' COMPENSATION?

Yes. In 1999, we granted to each independent trust manager 2,250 restricted
common shares. On March 29, 2000, the board determined to instead pay each
independent

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trust manager an annual fee of $20,000, payable quarterly in advance. The
board believed that this should be easier and less expensive to administer
and should be less dilutive to shareholders' distributions in a
liquidation. Accordingly, the board believed that this change in
compensation was in the best interests of our shareholders.

Q: HOW DOES THE BOARD RECOMMEND THAT I VOTE?

A: The board of trust managers recommends that you vote in favor of the
liquidation and dissolution, the election of trust managers, the
appointment of Deloitte & Touche LLP as our independent public accountants
for 2000 and the adjournment of the meeting.

Q: WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?

A: For the liquidation and dissolution to occur, holders of at least
two-thirds of our outstanding common shares entitled to vote at the meeting
must approve the liquidation and dissolution. For the other proposals to be
approved, holders of at least a majority of our common shares present in
person or represented by a proxy at the meeting must approve the particular
proposal.

Q: WHO IS ENTITLED TO VOTE?

A: All shareholders of record on the close of business on July __, 2000 are
entitled to vote at the meeting. On July __, 2000, we had 10,015,111 common
shares outstanding. Each share is entitled to one vote. As of July __,
2000, our affiliates, trust managers and executive officers owned and had
the right to vote a total of 140,200 shares or approximately 1.4% of the
outstanding shares entitled to vote at the meeting. Affiliates of Farallon
Capital Management, L.L.C., which as of July __, 2000 owned a total of
approximately 17.2% of our outstanding common shares, have entered into an
agreement with us pursuant to which each of them has agreed to vote all of
the shares it beneficially owns in favor of the liquidation and
dissolution.

Q: HOW DO I VOTE?

A: The board of trust managers is soliciting proxies from shareholders to be
used at the meeting. To cast your vote, please complete, date, sign and
mail the proxy card in the enclosed postage pre-paid envelope or fax it to
(214) 758-1373. By voting, you will authorize the individuals named on the
proxy card, referred to as proxies, to vote your shares according to your
instructions. You may specify on the proxy whether your shares should be
voted for all, some or none of the nominees for trust manager. You may also
specify whether you approve, disapprove or abstain from voting on the other
proposals.

If you leave Item 1, Item 3 or Item 4 blank, the proxies will vote FOR
approval of that proposal. If you abstain from voting on Item 1, Item 3 or
Item 4, your vote will not be counted in the tabulation of votes cast on
that proposal. If you do not indicate how you wish to vote for one or more
of the nominees for trust manager in Item 2, the proxies will vote FOR
election of all of the nominees for trust manager. If you "withhold" your
vote for any of the nominees, your vote will not be counted in the
tabulation of votes cast on that nominee.

The proxy card also confers discretionary authority on the persons named on
the proxy card to vote the shares represented by the proxy card on any
other matter that is properly presented for action at the meeting. This
discretionary authority will not be used to vote for adjournment of the
meeting to permit further solicitation of proxies if the shareholder votes
against any proposal.

Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD?

A: Yes. Just send a written revocation or a later dated, signed proxy card to
our secretary before the meeting or simply attend the meeting in person.

Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?

A: Your broker will vote your shares only if you provide instructions to your
broker on how to vote. You should follow the directions

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provided by your broker regarding how to instruct your broker to vote your
shares.

Q: HOW WILL VOTES BE COUNTED?

A: The meeting will be held if a quorum is represented in person or by proxy
at the meeting. A quorum is a majority of our outstanding common shares
entitled to vote. If you have returned a signed proxy card or attend the
meeting in person, your shares will be counted for the purpose of
determining whether there is a quorum, even if you do not vote. Failures to
vote, referred to as abstentions, are not counted as votes cast on a
proposal and have no effect on the result of the vote on that proposal. A
withheld vote is the same as an abstention.

Broker non-votes occur when proxies submitted by a broker, bank or other
nominee holding shares in "street" name do not indicate a vote for some or
all of the proposals because they do not have discretionary voting
authority and have not received instructions as to how to vote on those
proposals. We will treat broker non-votes as shares that are present and
entitled to vote for quorum purposes. However, broker non-votes will not be
counted as votes cast on a proposal and will have no effect on the result
of the vote on that proposal.

Q: WHO WILL PAY THE COSTS OF SOLICITING THE PROXIES?

A: We will pay all of the costs of soliciting proxies on the accompanying
form. Some of our trust managers, officers and other employees may solicit
proxies personally or by telephone, mail or facsimile. They will not be
specially compensated for these activities. We will also make arrangements
with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to beneficial owners. We will, upon request, reimburse
these institutions for their reasonable expenses. We have retained
Corporate Investor Communications, Inc. to aid in the solicitation of
proxies. Their fee is not expected to exceed $10,000 plus reimbursement of
reasonable out-of-pocket expenses.

Q: HOW WILL VOTING ON OTHER BUSINESS BE CONDUCTED?

A: We do not know of any matter to be presented or acted upon at the meeting,
other than the proposals described in this proxy statement. If any other
matter is presented at the meeting on which a vote may be properly taken,
the shares represented by proxies will be voted in accordance with the
judgment of the persons named as proxies on the accompanying proxy card.

Q: WHOM SHOULD I CALL IF I HAVE QUESTIONS?

A: You should call Thomas R. Lewis at (214) 953-7820 or Jonathan S. Pettee at
(214) 953-7942. You can also reach either of these individuals at
(800) 966-7887.

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RISK FACTORS RELATING TO THE LIQUIDATION AND THE DISSOLUTION

In addition to the other information included elsewhere in this document,
you should carefully consider the following factors in determining whether to
vote in favor of our liquidation and dissolution.

IF WE DO NOT REALIZE THE ESTIMATED NET PROCEEDS FROM LOAN PAY-OFFS AND ASSET
SALES, LIQUIDATING DISTRIBUTIONS TO SHAREHOLDERS MAY BE REDUCED OR DELAYED

We cannot assure you that our planned loan pay-offs or asset sales will
occur when and for the proceeds we estimated. These estimates are subject to
various and significant uncertainties, many of which are beyond our control.
This may result in the actual results being materially lower than our
expectations. Examples of these uncertainties include the following:

WE HAVE RECENTLY INCREASED OUR ALLOWANCE FOR LOAN LOSSES AND WE MAY HAVE
SIMILAR EXPERIENCES WITH OTHER BORROWERS UNDER OUR MORTGAGE LOANS WHO DO
NOT PAY-OFF THEIR LOANS IN ACCORDANCE WITH THEIR TERMS

In May 2000, we served a default notice to a borrower under one of our
mezzanine loans with an outstanding balance of $8,504,000 and a recorded
investment of $7,228,000. As a result, for the quarter ended March 31, 2000, we
recorded an additional loan loss provision of $1,788,000. The total allowance
for loan losses related to this investment totaled $5,978,000 at March 31, 2000,
which represented management's estimate at that time of the amount of the loss
we expected could result upon our disposition of this loan. Also, during the
first quarter of 1999, we charged-off $500,000 against our allowance for losses
related to another mezzanine loan, which had an outstanding balance of
$6,839,000 and a recorded investment of $6,659,000. This charge-off represented
management's estimate at that time of the amount of the loss we expected could
result upon our disposition of this second loan. Aside from these two loans, we
currently expect to collect all amounts owed to us by our other borrowers, which
totaled approximately $132 million at March 31, 2000. If, however, we have
similar experiences with other borrowers who fail to pay-off their loans in the
amounts and at the times specified in their respective loan documents, we will
not realize the full amounts of the estimated proceeds of the liquidation. This
could also increase our expenses. In any of these cases, the dissolution could
be delayed and distributions to shareholders could be less than or paid later
than estimated.

WE COULD EXPERIENCE UNANTICIPATED MORTGAGE LOAN DEFAULTS

As discussed above, some of our borrowers have been served with default
notices. If these or other borrowers under our mortgage loans default in the
payment of their debt, we will suffer delays in the collection of the
indebtedness and will incur additional costs and expenses in the exercise of our
remedies. Any of these events could delay the dissolution or result in
distributions to shareholders being less than or paid later than estimated.

WE MAY DECIDE TO SELL OUR LOANS TO THIRD PARTIES

Our mortgage loan investments have current maturity dates between June 2000
and August 2001. We currently intend to hold these loans until their maturity
dates, unless a borrower prepays its loan. However, we may determine that
obtaining cash proceeds from selling one or more of these loans to third parties
before these times could reduce our overall administrative costs or our risk of
continuing to hold the loans. In these cases, we may decide that it is in the
best interests of our shareholders to sell one or more loans to third parties
before these times. The consummation of these sales may be subject to numerous
conditions, including obtaining third party consents. This may delay the
dissolution, which could delay the payment of distributions to shareholders.

WE MAY NOT CONSUMMATE THE EXPECTED ASSET SALES OR THEY COULD BE DELAYED

Since January 2000, we have sold two of our commercial mortgage-backed
securities and a limited partner interest in a suburban office building. The
closing of each of these transactions was subject to numerous conditions,
including the satisfactory completion by the buyer of its due diligence
investigation and the receipt of consents from third parties. We expect that the
sales of our remaining commercial mortgage-backed securities and equity
investments will be subject to numerous and similar conditions. Accordingly, we
cannot assure you that, even if shareholders vote to approve the liquidation and
dissolution, any asset sales will be consummated. If we cannot sell our assets
on the terms and at the times we have targeted, the dissolution could be delayed
and distributions to shareholders could be less than or paid later than
estimated.

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THE ACTUAL COSTS AND EXPENSES OF THE LIQUIDATION AND DISSOLUTION COULD RISE

Our estimate of net distributable cash resulting from the asset sales and
loan pay-offs and the subsequent dissolution is based on estimates of the costs
and expenses of the liquidation and dissolution, which we have currently
estimated to be between $8.8 million and $9.2 million during the period from
April 2000 through the date of dissolution. We could incur additional expenses,
including additional interest expense on our credit facilities, if interest
rates continue to increase or borrowings under our credit facilities are
outstanding longer than we anticipate. We could also incur additional expenses
if the consummation of any of the asset sales, the receipt of any of the loan
pay-offs or the dissolution are delayed. If our actual costs and expenses exceed
the estimated amounts, distributions to shareholders as a result of the
liquidation and dissolution could be less than estimated or delayed.

WE COULD SELL ASSETS ON AN INSTALLMENT BASIS, WHICH COULD INCREASE OUR
COSTS

If we sell some or all of our assets on an installment basis and the
purchaser subsequently defaults in its payment on the related promissory note or
installment contract, our exercise of remedies, which may include foreclosure on
any property securing the promissory note, will likely result in our incurring
additional costs and expenses. This could in turn result in delays in effecting
the dissolution and reductions or delays in the payment of distributions to
shareholders.

EARLY ASSET SALES OR LOAN PAY-OFFS MAY DECREASE SHAREHOLDER DISTRIBUTIONS

In estimating shareholder distributions, we made a number of assumptions
regarding the timing of asset sales and loan pay-offs. These included the
assumption that we would hold our mortgage loan investments to their respective
currently scheduled maturity dates or, in some cases, to their extended maturity
dates in anticipation of some borrowers exercising their extension options.
However, we may sell one or more of our assets prior to these times if, for
example, the sales price exceeds the present value of the expected proceeds.
Also, a borrower may elect to pay-off its loan prior to its scheduled maturity
date. In these instances, our proceeds from these investments will be less than
our estimates. This could reduce distributions to shareholders.

INTEREST RATE INCREASES MAY ADVERSELY AFFECT NET PROCEEDS

The federal funds overnight bank lending rate was recently increased a half
a percentage point to 6.5%, and many sources are predicting that there will be
more increases in the months to come. Further increases in interest rates would
decrease the market value of our commercial mortgage-backed securities. Further
increases in interest rates would also impact our borrowers' ability to achieve
third party financing or property sales to pay off their loans. Except for an
existing interest rate cap agreement designed to protect against rate increases
that would increase our financing costs, we have not entered into hedging
transactions to protect against the effect of interest rate increases on the
value of our assets. Accordingly, further increases in interest rates could
result in distributions to shareholders being less than estimated.

INCREASES IN INTEREST RATE SPREADS MAY ADVERSELY AFFECT NET PROCEEDS

The fair values of our investments in non-investment grade commercial
mortgage-backed securities are dependent upon, and are sensitive to changes in,
comparable-term U.S. treasury rates and spreads over U.S. treasury rates in
effect from time to time. Spreads are influenced by a number of factors. These
include investor expectations with respect to future economic conditions,
interest rates and real estate market factors. All of these are beyond our
control and can impact the ability of borrowers to perform under the terms of
the mortgage loans underlying commercial mortgage-backed securities. As a
result, even if current U.S. treasury rates and commercial mortgage default
rates remain constant, the value of our commercial mortgage-backed securities
can be adversely impacted by increasing spreads. Accordingly, increased spreads
could result in distributions to shareholders being less than estimated.

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DECREASES IN REAL ESTATE VALUES MAY ADVERSELY AFFECT NET PROCEEDS

The underlying value of our real estate investments may be adversely
affected by a number of factors that are beyond our control, including the
following:

o adverse changes in economic conditions;

o changes in interest rates and in the availability, cost and terms of
mortgage funds;

o the ability of lessees to make lease payments;

o competition;

o changes in real estate tax rates and other operating expenses; and

o adverse changes in governmental rules and fiscal policies.

Any adverse change in the underlying value of our real estate investments
would make it more difficult for our borrowers to sell or refinance their
properties. This, in turn, could adversely impact the market value of our assets
or delay the pay-off of our loans. Accordingly, any decrease in the underlying
value of our real estate investments could decrease or delay the payment of
distributions to shareholders.

UNKNOWN OR CONTINGENT LIABILITIES COULD ARISE

If liabilities that were unknown or contingent at the time we mailed this
document later arise that we must satisfy or reserve for as part of the
liquidation and dissolution, actual distributions to shareholders as a result of
the liquidation and dissolution could be less than estimated or delayed.

OUR TRUST MANAGERS, OFFICERS AND AFFILIATES MAY HAVE INTERESTS IN THE
LIQUIDATION AND DISSOLUTION THAT ARE DIFFERENT FROM OR IN ADDITION TO THE
INTERESTS OF OTHER SHAREHOLDERS

In considering the recommendation of the board of trust managers with
respect to the liquidation and dissolution and deciding whether or not to
approve the proposal, you should be aware that some of our trust managers,
officers and affiliates have interests in the liquidation and dissolution that
are different from or in addition to those of other shareholders. In particular,
on February 15, 2000, David M. Striph, our Executive Vice President and Chief
Investment Officer, and Thomas R. Lewis II, our Senior Vice President and Chief
Financial and Accounting Officer, entered into retention and severance
arrangements with AMRESCO, INC. The arrangements provide for the following
retention payments:

<TABLE>
<CAPTION>
IF A FULL TIME EMPLOYEE ON 12/31/02 OR
IF A TERMINATION EVENT THERE IS A TERMINATION EVENT AFTER
OFFICER OCCURS BEFORE 1/1/01 (1) 12/31/00 AND BEFORE 1/1/03 (2)
------- ------------------------ ------------------------------
<S> <C> <C>
David M. Striph $200,000 $400,000
Thomas R. Lewis II 145,000 290,000
</TABLE>

----------

(1) This payment will also be made if the officer's employment is terminated
before January 1, 2001, other than a termination by the officer voluntarily
(except a termination related to a change of control or related to a
termination event described below) or a termination by AMRESCO, INC.
without cause.

(2) This payment will be made on the earlier of December 31, 2002 or the date
of the termination event. This payment will also be made if the officer's
employment is terminated after December 31, 2000 and before January 1,
2003, other than by the officer voluntarily (except a termination related
to a change of control or related to a termination event described below)
or a termination by AMRESCO, INC. without cause.

7
<PAGE> 13

For purposes of the retention and severance arrangements, a termination
event means any one of the following:

o a sale of all or substantially all of our assets to an unaffiliated
third party;

o our current trust managers no longer constitute a majority of our
board;

o we have been substantially liquidated; or

o the termination of our management contract with AMREIT Managers.

The retention and severance arrangements also provide that, in addition to
the retention payments described above, if either Messrs. Striph or Lewis is
terminated before January 1, 2001 without cause or the termination is related to
a change of control or to a termination event, the terminated officer will
receive a pro rated amount equal to two times the sum of his base salary and the
incentive compensation he was paid relating to services he provided to us during
1999. Alternatively, if either Messrs. Striph or Lewis is terminated after
December 31, 2000 and prior to January 1, 2003 without cause or if the
termination is related to a change of control or to a termination event, the
terminated officer will receive an amount equal to the sum of his base salary
and the incentive compensation he was paid relating to services he provides to
us during 2000. The maximum amount of the severance payments are estimated to be
as follows:

<TABLE>
<CAPTION>
TERMINATION AFTER 12/31/00
OFFICER TERMINATION BEFORE 1/1/01 (1) AND BEFORE 1/1/03 (2)
------- ----------------------------- ---------------------
<S> <C> <C>
David M. Striph $450,000 $350,000
Thomas R. Lewis II 225,000 278,000
</TABLE>

----------
(1) Assumes that the termination occurred on December 31, 2000.

(2) Based on the amounts we expect to pay to these officers in 2000.

These interests in the liquidation and dissolution are described in more
detail below under "Approval of the Liquidation and Dissolution - Interests of
some of our trust managers, executive officers and affiliates in the liquidation
and dissolution."

THE LIQUIDITY AND THE MARKET PRICE OF OUR SHARES COULD DECREASE

As we sell our assets and our loans are paid off and we distribute
liquidating distributions to shareholders, our market capitalization and "float"
may diminish. Market interest in our shares and in the investment community may
also diminish. This could reduce the market demand and liquidity for our shares,
which may adversely affect the market price of our shares. In addition, our
shares may become ineligible for listing on the Nasdaq Stock Market before the
dissolution is finalized. This will further decrease the market demand and
liquidity for and price of our shares.

OUR PUBLIC ENTITY VALUE MAY BE JEOPARDIZED

Once shareholders approve the liquidation and dissolution, we will be
committed to winding-up our operations. This jeopardizes any value that a
potential acquirer might place on the ability to acquire a publicly-held entity
with an indefinite life. It may also preclude other possible courses of action
not yet identified by the board.

NO DISSENTERS' RIGHTS FOR SHAREHOLDERS

Texas law does not provide a procedure for shareholders who dissent from
approval of the liquidation and termination to demand an appraisal for their
shares and payment of their fair cash value. As a result, shareholders who
object to the liquidation and dissolution do not have a right to demand a
different payment for their shares.

8
<PAGE> 14
NO FURTHER SHAREHOLDER APPROVAL WILL BE REQUIRED

If shareholders approve the liquidation and dissolution, we will be
authorized to dispose of our assets without further approval of our
shareholders. This will be the case even if we dispose of all or substantially
all of our assets.

THE LIQUIDATION AND DISSOLUTION MAY NOT RESULT IN GREATER RETURNS TO
SHAREHOLDERS THAN OUR CONTINUING AS A GOING CONCERN

If the liquidation and dissolution proposal is not approved at the meeting,
the board of trust managers intends to continue managing us and our assets
substantially as they are currently being managed. The board may continue to
entertain and consider indications of interest from third parties to engage in a
business combination with us. We cannot assure you that the liquidation and
dissolution will result in greater returns to shareholders than our continuing
as a going concern or through a business combination with a third party.

THE BOARD OF TRUST MANAGERS MAY AMEND THE PLAN OR ABANDON THE LIQUIDATION AND
DISSOLUTION EVEN IF SHAREHOLDERS APPROVE THE LIQUIDATION AND DISSOLUTION

Even if shareholders vote to approve the liquidation and dissolution
proposal at the meeting, the board of trust managers may amend the plan of
liquidation and dissolution without further shareholder approval, except as
required by Texas law. In addition, prior to the filing of articles of
dissolution, the board may abandon the liquidation and dissolution without
further shareholder action.

9
<PAGE> 15
APPROVAL OF THE LIQUIDATION AND DISSOLUTION
(ITEM 1 ON PROXY CARD)

OVERVIEW OF THE COMPANY

We were organized in January 1998 as a real estate investment trust, or
REIT, under the laws of the State of Texas. We were formed to take advantage of
lending and investment opportunities in real estate related assets, including
various types of commercial mortgage loans, commercial mortgage-backed
securities, commercial real estate, equity investments in joint ventures and/or
partnerships and other real estate related assets. Our day-to-day operations
commenced on May 12, 1998, concurrent with the closing of our initial public
offering, and are managed by AMREIT Managers, L.P., an affiliate of AMRESCO,
INC.

Our common shares are traded on the Nasdaq Stock Market under the symbol
"AMCT." The closing sale price of our common shares on the Nasdaq Stock Market
on March 29, 2000, the last trading day prior to the announcement of the signing
of the plan of liquidation and dissolution, was $9.25 per share. The closing
sale price of our common shares on the Nasdaq Stock Market on July __, 2000, the
last trading day prior to the date of this document, was $__ per share.

Our principal executive offices are located at 700 North Pearl Street,
Suite 1900, Dallas, Texas 75201. The telephone number at those offices is
(214) 953-7700 or (800) 966-7887.

BACKGROUND OF THE LIQUIDATION AND DISSOLUTION

Since our formation, we have maintained our business plan of originating
and acquiring high-yield first mortgage loans, mezzanine loans, equity
investments in real estate and subordinated commercial mortgage-backed
securities. We have aimed to maximize total return to our shareholders by
producing cash flow for distribution to shareholders through our investments.
Beginning in mid 1998, market prices for publicly traded real estate investment
trusts began a significant decline and, during the third and fourth quarters of
1998, the commercial mortgage-backed securitization market deteriorated. Because
of these developments, we, like many other REITs, became limited in our ability
to obtain financing and to achieve our business strategy.

It had also became apparent that the market was pricing our equity at
severely discounted values relative to our book value. Accordingly, in late
1998, our board of trust managers began discussions of ways to strengthen our
balance sheet, gain access to additional sources of capital and provide
liquidity to use for future investments and operations.

On February 25, 1999, Prudential Securities Incorporated made a
presentation to the board regarding potential strategic alternatives, including
remaining an independent entity, converting from a REIT to a C corporation or
entering into a business combination. The purpose of the presentation was to
assist the board in identifying the best alternative, or combination of
alternatives, for us and our shareholders. During the course of this
presentation and the discussion of the alternatives, the board also expressed an
interest in evaluating the acquisition of other companies as an additional
strategic alternative. At the conclusion of the presentation, the board
authorized the engagement of Prudential Securities as our financial advisor for
the purposes of further reviewing and evaluating the strategic alternatives that
might be available to us, contacting third parties that might be interested in
potential transactions with us and advising us in connection with any proposals
or inquiries that we might receive from third parties.

During the following several weeks, Prudential Securities identified and
contacted various third parties in connection with a potential transaction.
Prudential Securities and management also began preparing public and non-public
information for distribution to interested parties after they entered into
confidentiality agreements with us. On April 6, 1999, we signed an engagement
letter with Prudential Securities relating to the provision of financial
advisory services and the rendering of a fairness opinion in connection with a
potential transaction.

In late April and May, we entered into confidentiality agreements covering
six third parties, under which each agreed to keep discussions with us and
materials provided by us confidential. Prudential Securities then distributed to
these parties a letter on our behalf soliciting written, preliminary non-binding
proposals for a business combination with us.

10
<PAGE> 16

During the first week of May, Prudential Securities received four
indications of interest in response to its letters, one of which was on behalf
of Impac Commercial Holdings, Inc. Impac's indication of interest was for a
stock-for-stock merger and contemplated a separate purchase of our current
management agreement and all of the common shares owned by AMRESCO, INC. and its
affiliates for cash.

On June 11, 1999, the board met telephonically with Prudential Securities
to review the terms and the relative merits of the proposals. The board decided
against converting from a REIT to a C corporation due to the fact that our
income would be taxed, we had no assurance that our access to capital would be
greater and investors had not reacted positively to other mortgage REITs
converting to C corporations. The board also rejected the possibility of
remaining a stand-alone entity because it believed that we required an infusion
of capital and faced increasing exposure to credit risk from our relatively
small balance sheet.

On June 22, 1999, the board again met telephonically with Prudential
Securities to review the terms and relative merits of the proposals. Based upon
the information gathered by Prudential Securities and management and an
assessment of the business and prospects that would be available under each
alternative, the board determined that the Impac proposal was superior and
authorized negotiations with representatives of Impac and FIC Management, Inc.,
its external manager, and a merger with Impac.

By August 4, 1999, both Impac and AMRESCO, advised by their legal and
financial advisors, had negotiated a merger agreement under which Impac would be
merged into us. The terms of this agreement included an exchange ratio of .66094
of our common shares for each share of Impac common stock. On August 5, 1999,
both companies executed the merger agreement and issued press releases
announcing the merger. The merger agreement provided that it would be terminated
if the merger was not consummated prior to December 31, 1999. Also, FIC
Management Inc., AMRESCO, INC., AMREIT Managers, L.P., AMREIT Holdings, Inc. and
MLM Holdings, Inc. executed a purchase agreement. Under this agreement, FIC
Management agreed that it or one of its designees would purchase from AMRESCO,
INC. and its affiliates specified assets, including our existing management
agreement, 1,500,111 of our common shares and options to purchase 1,000,011
shares.

Several events subsequently occurred that made the merger less attractive.
First, the market price of our common shares did not increase when and after the
time that we announced the merger. Also, Impac received a merger proposal from
Apex Mortgage Capital, Inc. under which Impac stockholders would receive Apex
Mortgage common stock in the merger. On October 28, 1999, Impac announced that
its board had unanimously determined that it was unable to conclude that Apex
Mortgage's proposal was a superior proposal, as "superior proposal" was defined
in the AMRESCO/Impac merger agreement, and that Impac was therefore
contractually bound to proceed with the merger with us. Shortly after this time,
two class action lawsuits were filed against Impac and some of its directors and
officers alleging that the defendants had breached duties to Impac's
stockholders by failing to give due deliberation to, and failing to accept, Apex
Mortgage's proposal.

During the fourth quarter of 1999, the market prices of our and Impac's
common shares did not rise and the commercial mortgage-backed securities market
continued to deteriorate.

Our board met on December 16, 1999 with its legal and financial advisors to
discuss the fact that the merger agreement with Impac could be terminated after
December 31, 1999 without the payment of any termination fees. It also discussed
current market conditions and the events that had recently arisen relating to
the merger with Impac, including the increased uncertainties created by the
litigation commenced against Impac. The board believed that, as a result of
these factors, the merger was now less attractive than originally anticipated
and that it was in our shareholders' best interests to terminate the merger
agreement in accordance with its terms on December 31. The board also reviewed
an analysis prepared by management of the cash flows that management projected
could be achieved from an orderly liquidation of our loan portfolio from
pay-offs and sales of our commercial mortgage-backed securities and partnership
interests. The board directed management and our financial advisors to continue
to analyze strategic alternatives to maximize shareholder value, including
continuing to operate as a going concern, merging or combining with other
entities and selling our assets. The board also directed management to continue
to analyze an orderly liquidation of our assets.

On January 4, 2000, we announced that we had mutually agreed with Impac to
terminate the merger agreement. The parties to the purchase agreement also
agreed to terminate that agreement effective January 4, 2000. Neither party paid
any termination fees as a result of these actions.

11
<PAGE> 17

During the following several weeks, Prudential Securities and management
continued to analyze our strategic alternatives. Also during this period,
Prudential Securities identified 42 third parties that it believed might have an
interest in acquiring us or our assets or otherwise engaging in a transaction
with us. Prudential Securities began to contact these parties to determine their
level of interest in a potential transaction with us. Prudential Securities had
preliminary discussions regarding a possible transaction with 16 of the parties
contacted. Discussions with three parties focused on acquisitions of us for
consideration consisting primarily of securities of the bidder. Discussions with
twelve parties focused on acquisitions of us for consideration consisting
primarily of cash. The remaining discussion was with Arbor National Commercial
Mortgage, LLC, which verbally offered to acquire us for $12 per share, $10 of
which would be in cash and $2 of which would be in equity in the merged entity.
None of these discussions progressed beyond the preliminary stage, other than
those with Arbor National.

On January 24, 2000, the board met telephonically with Prudential
Securities to review our strategic alternatives. The board reviewed an analysis
prepared by management that showed that estimated cash distributions in a
liquidation to be between $12.50 and $13.50 per share, while the market price of
our shares was then below $10 per share. Based on this review, the board
believed that the aggregate market value of our shares did not reflect the full
value of our portfolio. Management also reviewed with the board the difficulties
we faced as a result of the deterioration of the commercial mortgage-backed
securities market and the continuing decline in market prices for publicly
traded REITs, which resulted in our inability to obtain new financing or raise
new equity. The board determined that we would continue to encounter these
difficulties if we continued our existing business strategy. Based on the
experience of management and our trust managers in investing in real estate
related assets, the board believed that the real estate market had reached a
point in its cycle that made our investment strategy more risky given our
relatively small asset base. In addition, the board believed that shareholders
would be better served by receiving cash proceeds rather than shares in a merger
or other combination with another publicly-traded REIT, which would in effect be
a risky investment alternative with no guarantee of success. The board based
this belief on its observations that shares of publicly-traded REITs,
particularly those in the commercial mortgage and commercial mortgage-backed
securities markets, continued to trade at discounts to their net asset values.

Representatives of Prudential Securities informed the board they had
contacted, on a confidential basis, all of the entities that Prudential
Securities believed would reasonably be likely to engage in a transaction with
us. Representatives of Prudential Securities then reviewed with the board the
responses to the inquiries made to date. In light of the board's belief that a
transaction maximizing cash distributions to shareholders was in our
shareholders' best interests, the board focused on the indication of interest
from Arbor National. Prudential Securities informed the board that Arbor
National had requested that we enter into an "exclusivity" agreement under which
we would be prevented from initiating or encouraging proposals from third
parties.

The board considered Arbor National's proposal in comparison to a
liquidation. The principal factors considered by the board included the
following:

o the proposed price per share of $12, $10 of which would be in cash and
$2 of which would be in equity in the merged entity, as compared to
$12.50 to $13.50 in cash that was estimated to be paid in a
liquidation;

o the valuation of the equity;

o the relatively short time frame in which shares would be acquired by
Arbor National as compared to the lengthier pay-off in a liquidation,
estimated to be an 18 to 24 month process; and

o the lower transaction costs of a merger as opposed to the expected
administrative costs under a liquidation plan.

The board determined that the positive aspects of the Arbor National
proposal seemed to outweigh the potentially negative aspects and authorized
management and Prudential Securities to commence the negotiation of an
exclusivity agreement.

On February 3, 2000, we entered into an exclusivity agreement with Arbor
National under which we agreed that until February 21, 2000 we would not
initiate or encourage proposals from third parties. We also agreed that during
this period we would not accept any offer to buy us unless the offer, if
consummated, would result in a

12
<PAGE> 18

transaction more favorable to our shareholders than the transaction with Arbor
National. If we determined to accept such a superior proposal, we agreed to
reimburse Arbor National for the expenses it incurred in connection with the
negotiation of a definitive agreement and its due diligence investigation up to
$300,000. This agreement expired by its terms on February 21, 2000 without the
parties entering into a definitive agreement or making any payments to the other
party.

By letter dated February 23, 2000, Arbor National reduced the cash
component of its offer to $8 per share. Arbor National's offer also included $2
in common shares of the merged entity and up to $2 per share in the form of a
liquidating security of the merged entity. Payments on the liquidating security
would be made depending on the performance of some of our mortgage loans as
specified in Arbor National's offer.

On February 24, 2000, the board met telephonically with its financial and
legal advisors to consider Arbor National's revised proposal. The board again
considered the proposal in comparison to a liquidation. Management and
Prudential Securities reviewed with the board the relative merits of a
transaction with Arbor National and a liquidation. Prudential Securities based
its review on analyses prepared by management. These analyses included estimates
by management as to potential sales prices and pay-off amounts based on
capitalization rates that were considered reasonable by management based on
their experience in the industry for owned real estate assets, and estimates of
proceeds from pay-offs of loans and sales of our commercial mortgage-backed
securities and partnership investments. The board then determined that the value
for our assets through the sale of some assets over a period of time and the
winding down of our operations through the pay-off of our other assets should be
higher than the value that Arbor National placed on our assets in the amended
proposal. Representatives of Prudential Securities also informed the board that
they believed that it was unlikely that we would be successful in generating any
cash equivalent offers in excess of $11 per share. Based on these factors, the
board determined that a liquidation was more likely to provide shareholders with
greater return on their investment than they would receive in Arbor National's
proposal and authorized management to commence the preparation of a plan of
liquidation and dissolution. The board also authorized Prudential Securities to
continue to discuss a possible transaction to maximize shareholder return with
Arbor National and another third party who had indicated that it may be
interested in such a transaction. Also at this meeting, the board of trust
managers approved the marketing and sale of our non-core assets, including our
commercial mortgage-backed securities and our equity investments in real estate.

Over the next several weeks, management and our legal advisors prepared a
plan of liquidation and dissolution. In addition, management provided to the
board and Prudential Securities a further analysis of potential proceeds from a
liquidation, which indicated liquidation proceeds to shareholders of between
$12.60 and $13.10 per share. Since that time, we paid a dividend of $0.34 per
share, which reduces this estimate to $12.30 to $12.75 per share.

On March 29, 2000, the board met with its financial and legal advisors.
Prudential Securities reported that no further discussions had resulted in
existing bidders increasing their original proposals to or above $11 per share
on a cash equivalent basis. The board reviewed the terms of the plan of
liquidation and dissolution and discussed various aspects of the trust managers'
fiduciary duties in the context of a liquidation. Following further discussion,
the board unanimously approved the complete liquidation and dissolution under
the terms and conditions set forth in the plan of liquidation.

On July 5, 2000, affiliates of Farallon Capital Management, L.L.C.
purchased a total of 1,500,111 of our common shares from AMRESCO, INC. and one
of its wholly-owned subsidiaries. At the same time, the purchasers entered into
an agreement with us under which each of them agreed to vote all of our shares
that it beneficially owns in favor of the liquidation and dissolution. As of
July __, 2000, they beneficially owned a total of 1,722,011 common shares, which
represented approximately 17.2% of our outstanding common shares.

13
<PAGE> 19

REASONS FOR THE LIQUIDATION AND DISSOLUTION AND RECOMMENDATION OF THE BOARD OF
TRUST MANAGERS

THE BOARD OF TRUST MANAGERS HAS UNANIMOUSLY DETERMINED THAT THE LIQUIDATION
AND DISSOLUTION IS IN OUR AND OUR SHAREHOLDERS' BEST INTERESTS, HAS APPROVED AND
ADOPTED THE PLAN OF LIQUIDATION AND DISSOLUTION AND UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS VOTE FOR APPROVAL OF THE LIQUIDATION AND DISSOLUTION.

Our board and management have from time to time reviewed our strategic
position and our short-term and long-term prospects. In particular, adverse
developments in the markets for commercial mortgage-backed securities, REIT
stocks in general and our shares in particular have made it more difficult for
us to enhance shareholder value by growing our business as an independent
entity. The board also believes that we will continue to experience difficulties
in obtaining new debt or equity financing at a reasonable cost. Therefore, our
board and senior management believe that the liquidation and dissolution is the
best alternative available to maximize shareholder value.

In deciding whether to approve the plan of liquidation and dissolution, the
board considered a number of factors, including the following:

1. The board does not believe that our original business strategy of
taking advantage of mid- to high-yield investments in real estate
related assets is a viable option for a number of reasons, including
the following:

o The board believes that the continued weakness in the equity
markets for REITs forecloses any reasonable possibility of
raising additional equity without significantly reducing returns
to current shareholders and diluting shareholder value.

o We would require additional credit if we were to pursue our
original business strategy of taking advantage of mid- to
high-yield investments in real estate related assets. In the
current market environment, obtaining additional credit
facilities appears to be more difficult and expensive than we
contemplated at the time we developed our business strategy. An
increase in our borrowing costs would adversely affect our
ability to maintain attractive spreads between our cost of
capital and our return on investments.

o The board believes that the market opportunities that led to our
formation in January 1998 have diminished to a point that
continuing our original business plan would carry substantially
increased risks with substantially diminished prospective
returns. Market demand for our assets has failed to return to the
levels seen prior to the unexpected and severe widening of
mortgage-related credit spreads in the third quarter of 1998.
Even if market conditions improve, we would continue to face the
risk that a repeat occurrence of widening spreads could cause
losses and further erode shareholder value.

o The board does not believe that we have been able to attract
substantial interest from the investment community. The board
bases this belief principally on the fact that the average daily
trading volume for our shares during 1999 and the first two
months of 2000 was 30,110 shares.

o The board also believes that the modest public float for our
shares limits the attractiveness of our shares to investors,
particularly institutional investors that prefer to invest in
large increments in a float that presents greater liquidity.

o As a result of our being a small capitalization, externally
managed mortgage REIT with credit sensitive investments, the
board does not believe that our shares are likely to trade at a
significant premium to the book value of our assets. The board
also does not believe that the aggregate market value of our
shares of approximately $95 million at March 29, 2000 reflects
the full value of our portfolio. The disparity between our market
value and the net value of our portfolio has persisted despite
our paying a growing dividend stream and our other attempts to
improve shareholder value. The board believes that we would
continue to face the same difficulties we currently face if we
were to continue our current business

14
<PAGE> 20

strategy, and that the dichotomy between our share price and the
value of our net assets would continue.

2. The board also does not believe that retaining our current assets and
operating under a modified business strategy is an acceptable
alternative. The board believes that a publicly-traded REIT is no
longer an efficient and attractive vehicle with which to pursue the
opportunities in the commercial mortgage and commercial
mortgage-backed securities markets. The additional equity and debt
capital necessary to pursue this strategy is not available to
publicly-traded REITs, the shares of which continue to trade at
discounts to their net asset values. For the reasons discussed above,
without additional equity capital, the board believes that it would be
difficult and expensive for us to support a revised strategy.

3. The board believes that a merger in which our shareholders receive
shares in another company is not an attractive option. This would
require you to accept the acquirer's investment strategy. This would
also subject you to risks associated with the valuation of an
acquirer's shares. Based on the results of the solicitation process
conducted by Prudential Securities on our behalf and our experience in
evaluating and negotiating potential merger transactions, the board
believes that any potential merger transaction, whether you were to
receive shares in another company and/or cash, would not provide you
with a meaningful premium over our net asset value and therefore
offers few advantages over the liquidation and dissolution.

4. We currently anticipate that you will receive total distributions of
between $12.30 to $12.75 per share as a result of the liquidation. The
board believes that this exceeds the value of the consideration to be
offered to you in any of the proposals we have received from third
parties.

5. The board has retained the right to abandon the liquidation and has
the flexibility to entertain business combination offers. The board
intends to do so if it believes that such a transaction would maximize
shareholder value. Such a transaction would require shareholder
approval.

In addition to these factors, the board also considered the potential
adverse impact of other factors on the proposed liquidation and dissolution.
These included the following:

1. There could be no assurance that we would be successful in disposing
of our assets for values equal to or exceeding those currently
estimated or that these dispositions would occur as early as we
expected.

2. It is possible that the liquidation may not yield distributions as
great as or greater than the recent market prices of our shares and
distributions may not be effected for a significant amount of time.

3. As opposed to a business combination with a relatively short time
frame during which a third party would acquire us, the liquidation
process would involve a longer pay-off process and would require us to
incur potentially larger administrative costs.

4. The receipt of liquidating distributions will be a taxable event for
shareholders.

5. It is likely that the liquidity and price of our shares will decrease
as we pay distributions to shareholders.

In connection with the board's consideration of the proposed liquidation
and dissolution, the board also considered several changes in the compensation
to our manager, independent trust managers and some of our executive officers.
These changes included the following:

1. On March 29, 2000, the board of trust managers approved modifications
to AMREIT Managers' compensation to more closely align the manager's
interests with those of our shareholders. The new fee structure
eliminates all incentive fee compensation and the termination fees
that we would be obligated to pay upon a termination of the management
agreement without cause, including a termination resulting from our
liquidation and dissolution. Under the new fee structure, the base
management fee is unchanged, and we agreed to reimburse AMREIT
Managers for any of its

15
<PAGE> 21

quarterly operating deficits beginning April 1, 2000. As discussed
below under "-- Interests of some of our trust managers, executive
officers and affiliates in the liquidation and dissolution --
Amendment of the management agreement," the board believed that it was
likely that the fees under the new structure would not differ
materially from the fees under the old structure.

2. In 1999, we granted to each independent trust manager 2,250 restricted
common shares. On March 29, 2000, the board determined to instead pay
each independent trust manager an annual fee of $20,000, payable
quarterly in advance. The board believed that this should be easier
and less expensive to administer and should be less dilutive to
shareholders' distributions in a liquidation.

3. On February 15, 2000, David M. Striph, our Executive Vice President
and Chief Investment Officer, and Thomas R. Lewis II, our Senior Vice
President and Chief Financial and Accounting Officer, entered into
retention and severance arrangements with AMRESCO, INC. that provide
these officers with retention payments that we estimate may be up to
$400,000 for Mr. Striph and up to $290,000 for Mr. Lewis and severance
payments that we estimate may be up to $350,000 for Mr. Striph and up
to $278,000 for Mr. Lewis. We and AMRESCO, INC. believed that the
continued employment of these officers is very important to help to
ensure that the plan of liquidation and dissolution is implemented
smoothly and in a manner that maximizes shareholder value. The purpose
of these arrangements is to incent each of Messrs. Striph and Lewis
not to terminate his employment during the period that the plan is
being implemented.

The foregoing discussion of the information and factors discussed by the
board is not meant to be exhaustive, but is believed to include all material
factors considered by the board. The board did not quantify or attach any
particular weight to the various factors that it considered in approving the
plan of liquidation and dissolution. Rather, the board viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it. In addition, individual members of the board may have
given different weights to different factors. However, in the view of the board,
the potentially negative factors considered by it did not outweigh the benefits
and advantages of the liquidation and dissolution.

If shareholders do not approve the liquidation and dissolution or the
dissolution is not consummated for any reason, we will either return to
executing our strategy of taking advantage of mid- to high-yield investment
opportunities in real estate related assets or such other business strategy as
the board then determines to be in the best interests of our shareholders. To
the extent opportunities are available, we may consider potential business
combinations with public or private entities or other alternative strategies
that our board and management believe are in our and our shareholders' best
interests.

INTERESTS OF SOME OF OUR TRUST MANAGERS, EXECUTIVE OFFICERS AND AFFILIATES IN
THE LIQUIDATION AND DISSOLUTION

In considering the recommendation of the board of trust managers with
respect to the liquidation and dissolution, you should be aware that some trust
managers, executive officers and affiliates have interests in the liquidation
and dissolution that are different from or in addition to your interests as
shareholders. Our board was aware of these interests and considered them, along
with other matters, in approving the plan of liquidation and dissolution.

AMENDMENT OF THE MANAGEMENT AGREEMENT

Subject to the direction and oversight of the board of trust managers, our
day-to-day operations and investment activities are currently managed by AMREIT
Managers, L.P., an affiliate of AMRESCO, INC., under the terms of a management
agreement. On March 29, 2000, the board of trust managers approved modifications
to AMREIT Managers' compensation in response to our changed business strategy.
Under the old fee structure, AMREIT Managers was entitled to receive incentive
compensation fees based on our quarterly performance, which was based in part on
gains from sales of property. The board believed that this might result in
significant fees being payable to the manager in quarters in which we sold a
number of assets, even if we were to incur significant losses in other quarters.
The new fee structure eliminates all incentive fee compensation. It also
eliminates the termination fees that would have been payable upon a termination
of the management agreement without cause, including a termination resulting
from our liquidation and dissolution. Under the amended management agreement,
AMREIT Managers' base management fee was not changed, and we agreed to reimburse
AMREIT Managers for any of its quarterly operating deficits beginning April 1,
2000. Under the new fee structure, we will incur fees that are for the most part
equal to the actual

16
<PAGE> 22

costs of the services provided without mark-up. The board believed that this
should more closely align the manager's interests with those of our
shareholders. The fees under the old and new structures are dependent upon a
large number of variables. While the total fees that we incur under the new
structure could be more or less than those that we would have incurred under the
old structure, the board believed that it was likely that the fees under the new
structure would not differ materially from the fees under the old structure.
Under the most likely liquidation scenario, the estimated fees for the period
from April 1, 2000 through the expected date of dissolution were as follows:

<TABLE>
<CAPTION>
OLD STRUCTURE NEW STRUCTURE
------------- -------------
<S> <C> <C>
Base management fees $1,000,000 $1,000,000
Incentive/termination fees 2,500,000 --
Reimbursable operating deficits -- 2,600,000
---------- ----------
Total $3,500,000 $3,600,000
========== ==========
</TABLE>

The following table summarizes the positions held by persons who also held
officer and/or director positions in AMRESCO Capital Trust and AMRESCO, INC.

NAME POSITION IN AMRESCO CAPITAL TRUST POSITION IN AMRESCO, INC.
---- --------------------------------- -------------------------
<S> <C> <C>
Robert L. Adair III Chairman of the Board of Trust Managers and Director, President and Chief Operating
Chief Executive Officer Officer until March 31, 2000
Robert H. Lutz, Jr. Trust Manager Chairman of the Board until March 31, 2000
and current President and Chief Executive
Officer
</TABLE>

BENEFITS TO EXECUTIVE OFFICERS

On February 15, 2000, David M. Striph, our Executive Vice President and
Chief Investment Officer, and Thomas R. Lewis II, our Senior Vice President,
Chief Financial and Accounting Officer, entered into retention and severance
arrangements with AMRESCO, INC. These arrangements are summarized below.

These arrangements provide for the following retention payments:

<TABLE>
<CAPTION>
IF A FULL TIME EMPLOYEE ON 12/31/02 OR
IF A TERMINATION EVENT THERE IS A TERMINATION EVENT AFTER
OFFICER OCCURS BEFORE 1/1/01 (1) 12/31/00 AND BEFORE 1/1/03 (2)
------- ------------------------ --------------------------------------
<S> <C> <C>
David M. Striph $200,000 $400,000
Thomas R. Lewis II 145,000 290,000
</TABLE>

----------
(1) This payment will also be made if the officer's employment is terminated
before January 1, 2001, other than a termination by the officer voluntarily
(except a termination related to a change of control or related to a
termination event described below) or a termination by AMRESCO, INC.
without cause.

For purposes of the retention and severance arrangements, a termination
event means any one of the following:

o a sale of all or substantially all of our assets to an unaffiliated
third party;

o our current trust managers no longer constitute a majority of our
board;

o we have been substantially liquidated; or

o the termination of our management contract with AMREIT Managers.

17
<PAGE> 23

----------

(1) Assumes that the termination occurred on December 31, 2000.

(2) Based on the amounts we expect to pay to these officers in 2000.

In addition, beginning as of January 1, 2000, Mr. Striph will be entitled
to receive incentive compensation using a formula that is based upon the
performance of all of our loans and real estate investments excluding commercial
mortgage-backed securities.

We and AMRESCO, INC. believed that the continued employment of these
officers is very important to help to ensure that the plan of liquidation and
dissolution is implemented smoothly and in a manner that maximizes shareholder
value. The purpose of these arrangements is to incent each of Messrs. Striph and
Lewis not to terminate his employment during the period that the plan is being
implemented.

SUMMARY OF THE PLAN OF LIQUIDATION AND DISSOLUTION

We believe that this summary describes the material terms of the plan of
liquidation and dissolution. However, we recommend that you read carefully the
complete plan for the precise legal terms of the plan and other information that
may be important to you. The plan of liquidation and dissolution is included in
this document as Annex A.

The plan of liquidation and dissolution provides for our complete
liquidation and dissolution in accordance with the requirements of the Texas
Real Estate Investment Trust Act and the Internal Revenue Code. Because the plan
contemplates the disposition of all of our assets and the distribution of the
net proceeds to shareholders, and because the terms of such dispositions have
not yet been determined, we do not believe that pro forma financial information
concerning the plan would be meaningful.

OPERATIONS

If the liquidation and dissolution proposal is approved at the meeting, we
will cease conducting normal business operations, except as may be required to
wind-up our business and affairs, and proceed with the liquidation and
dissolution. We will continue our existence, but solely for the purpose of
managing our investments, providing for the satisfaction of our obligations,
adjusting and winding-up our business and affairs and distributing our remaining
assets. One or more liquidating distributions from our assets will be
conditioned upon setting aside a sufficient amount of money to meet any residual
obligation or liability that we have not otherwise met. We will not obtain any
further approvals of shareholders. We will satisfy, or provide for the
satisfaction of, all of our legally enforceable claims, liabilities or
obligations in an orderly manner.

AMENDMENT AND TERMINATION OF THE PLAN

If the board determines that it is in our and our shareholders' best
interests, the board may amend or modify

18
<PAGE> 24

the plan without further shareholder approval, except as required by applicable
law. Also, if prior to the filing of the articles of dissolution, whether before
or after shareholder approval, the board determines that liquidation and
dissolution are not in our and our shareholders' best interests, the board may
abandon and revoke the dissolution without further shareholder action. If the
board so abandons the dissolution, we may, without further shareholder approval,
sell some of our remaining assets if the board determines that this action is in
our and our shareholders' best interests. However, we may not consummate the
sale of all or substantially all of our assets without shareholder approval as
required by the Texas Real Estate Investment Trust Act and our declaration of
trust.

TRUST MANAGERS AND OFFICERS

We anticipate that our current trust managers and officers will continue to
serve in these capacities after approval of the liquidation and dissolution
proposal. Trust managers remaining in office will continue to receive fees in
accordance with our compensation policies.

We will also reserve sufficient assets and/or obtain and maintain insurance
as may be necessary to provide for the continued indemnification of our trust
managers, officers and agents to the full extent provided in our declaration of
trust and bylaws, any existing indemnification agreements and applicable law. We
expect that such insurance will include coverage for periods after the
termination of any liquidating trust, and would include coverage for trustees,
employees and agents of such liquidating trust.

TERMINATION OF OUR MANAGEMENT AGREEMENT

Upon filing of the articles of dissolution, our management agreement with
AMREIT Managers, L.P. will be terminated. See "Certain Relationships and Related
Transactions -- The manager."

TERMINATION OF REIT STATUS

Under the plan, the trust managers are authorized, in their discretion, to
choose to maintain our existence as a real estate investment trust for the
purposes of winding up our affairs. Although we expect that we will continue to
be able to meet the REIT requirements, there can be no assurance that we will be
able to do so. See "Material federal income tax consequences of the dissolution
and liquidation."

CONTINGENCY RESERVE

Under Texas law, we are required, in connection with the dissolution, to
apply our assets, as far as such property will go, to the just and equitable
payment of all of our liabilities and obligations. If the liquidation and
dissolution proposal is approved at the meeting, the board of trust managers has
determined to establish a reserve for contingencies of approximately $2,000,000.
The board believes that this reserve, together with cash flow from operations
and other cash on hand, should enable us to operate until dissolution and to
satisfy our liabilities, expenses, and obligations not otherwise paid, provided
for or discharged as they become due and payable.

The amount of the contingency reserve is based upon our estimates derived
from consultations with our manager and outside advisors and a review of our
estimated expenses and actual and contingent liabilities and obligations. There
can be no assurance that the contingency reserve will be sufficient to cover
such expenses, liabilities and obligations. Subsequent to the establishment of
the contingency reserve, we may from time to time distribute to shareholders
such portions of the contingency reserve that the board deems to be no longer
required. After the expenses, liabilities and obligations for which the
contingency reserve has been established are believed by the board to have been
satisfied in full, we will distribute to our shareholders any remaining funds in
the contingency reserve.

LIQUIDATING TRUST

If all of our assets are not sold or distributed prior to the second
anniversary of the approval of the liquidation and dissolution by shareholders,
or if unpaid claims, liabilities and other obligations remain outstanding, we
may transfer any assets not sold or distributed, including any contingency
reserve or other cash on hand, to a liquidating trust. If we establish a
liquidating trust, we would distribute to the then holders of our common shares
beneficial interests in the liquidating trust in proportion to the number of
common shares owned by such holders. The sole purpose of the liquidating trust
will be to liquidate any remaining assets on terms satisfactory to the
liquidating trustees

19
<PAGE> 25

and, after paying any of our remaining liabilities, distribute the proceeds of
the sale of assets formerly owned by us to the holders of the interests in the
liquidating trust. The liquidating trust will be obligated to pay any of our
expenses and liabilities that remain unsatisfied. Approval of the liquidation
and dissolution will constitute the approval by shareholders of the
establishment of a liquidating trust, its appointment of one or more
individuals, who may or may not be former trust managers, or corporate persons
to act as trustee or trustees and the terms of any liquidating trust agreement
adopted by the board. We do not anticipate that interests in the liquidating
trust will be freely transferable. Therefore, the recipients of interests in the
liquidating trust will not realize any value from these interests unless and
until the liquidating trust distributes cash or other assets to them, which will
be solely in the discretion of the trustees.

Any plan to transfer assets to a liquidating trust is only a contingency
plan to provide for the possibility that all of our assets are not liquidated
during a two-year period. Therefore, the board has not determined the detailed
terms or structure for a liquidating trust. The characteristics of any
liquidating trust will be determined by the board at a future date depending on
factors such as the number and value of assets to be held by the liquidating
trust and the number of holders of interests in the liquidating trust.

DISSOLUTION

After all of our assets have been liquidated, all our known and contingent
debts, liabilities and obligations have been paid and discharged, or adequate
provision has been made for such amounts, and all net proceeds have been
distributed to or for the benefit of shareholders, we will file articles of
dissolution with the County Clerk of Dallas County, Texas. Upon the filing of
articles of dissolution, we will cease to exist as a legal entity and will be
dissolved and terminated. Our share record books will be closed as of the close
of business on the date the Dallas County Clerk accepts the filing of our
articles of dissolution. After this time, we will not record any assignment or
transfer of our common shares, except for those occurring by will, intestate
succession or operation of law.

TRANSFERABILITY OF SHARES; NASDAQ LISTING

Prior to the filing of the articles of dissolution, our common shares will
continue to be transferable, and shareholders will continue to have the rights
that applicable law and our declaration of trust confer on shareholders. We
anticipate that the market price of our common shares may decline as we make
liquidating distributions to shareholders. We currently intend to maintain the
listing of our common shares on the Nasdaq Stock Market until the shares are no
longer eligible for listing.

EXPECTED DISTRIBUTIONS

Under the terms of the plan of liquidation and dissolution and Texas law,
after the sale or other liquidation of our assets, and after applying such
property as far as it will go to the just and equitable payment of our
obligations and liabilities, we will distribute to shareholders our remaining
property and assets in cancellation of all of our outstanding capital shares.
All distributions will be paid pro rata in accordance with shareholders'
respective rights and interests to shareholders of record at the close of
business on the record dates to be determined by the board.

Immediately after the meeting, if shareholders approve the liquidation and
dissolution, we intend to proceed with the collection of our outstanding
mortgage loans and the sale of our other assets as expeditiously as possible.
For the most part, we anticipate that this will take place over the next 18 to
24 months through scheduled loan pay-offs in accordance with the loan documents.
We also anticipate selling our equity interests in real estate and commercial
mortgage-backed securities.

Although we cannot be sure of the amounts, we currently expect that you
will receive cash distributions in the total amount of about $12.30 to $12.75
per share. This would result in total distributions since our inception of
approximately $14.95 to $15.40 per share, including dividends paid to date.
Management derived the expected distribution amounts by estimating the following
amounts we expected to receive and pay during the period from April 1, 2000
through the date of dissolution:

20
<PAGE> 26

o the amounts we expected to pay to pay-off our line of credit and
repurchase agreement, which we estimated to total $61.7 million; and

These estimates were based on information originally collected by
management from time to time during the fourth quarter of 1999 and first half of
2000. These estimates were prepared solely for internal planning purposes.

The preparation of these estimates involved judgments and assumptions with
respect to the liquidation process that, although considered reasonable at the
time by management, may not be realized. We cannot assure you that actual
results will not vary materially from the estimates. These assumptions were as
follows:

o Some of our borrowers will prepay their loans.

o We will hold each of our mortgage loans until their scheduled or
extended maturity dates, unless the loan is prepaid by the borrower.

o Other than with respect to two loans for which we have previously
either established an allowance or charged-off amounts, each of our
borrowers will pay off their loans in accordance with their terms.

o We will not experience unanticipated mortgage loan defaults.

o We will sell each of our remaining commercial mortgage-backed
securities and equity investments at the time and for the amounts we
estimated.

o Our actual costs and expenses will not exceed the estimated amounts.

o We will not sell our assets on an installment basis.

o The debt against our portfolio of mortgage loans, equity investments
and commercial mortgage-backed securities will bear interest at
approximately 7.5% per year.

o Prudential Securities Incorporated will exercise their warrants to
purchase 250,002 common shares at $9.83 per share prior to the record
date of our next distribution.

We do not anticipate updating or otherwise publicly revising the estimates
presented in this document to reflect circumstances existing or developments
occurring after the preparation of these estimates or to reflect the occurrence
of anticipated events. The estimates are included in this document solely
because they were provided to the board. The inclusion of the estimates is not a
representation by any person that the results will be achieved. The estimates
were not prepared with a view toward public disclosure or complying with either
the published guidelines of the Securities and Exchange Commission regarding
projections or forecasts or any other guidelines. The estimates were not
prepared in accordance with generally accepted accounting principles and were
not audited or reviewed by independent auditors nor did any independent auditor
perform any other services with respect to such estimates.

At a minimum, we anticipate making distributions in amounts sufficient to
allow us to remain qualified as a REIT under the Internal Revenue Code
throughout the period of the liquidation of our assets. However, given the

21
<PAGE> 27

changes in the nature of our assets and in our sources of income that could
result from dispositions of assets and the need to retain assets to meet
liabilities, we cannot assure you that we will continue to meet the REIT
qualification tests.

We intend to first repay any amounts due on our outstanding credit
facilities with the net amounts we collect under our outstanding mortgage loans
and the net proceeds from the sales of our assets. We intend to then distribute
the remaining amounts, along with any additional amounts we realize from
collections on remaining mortgage loans and sales of remaining assets, to
holders of our common shares as soon as administratively practical. We
anticipate making the first distribution during the second half of 2000.

The amount and timing of the distributions represent our current estimates.
It is not possible to determine with certainty the aggregate net proceeds that
may ultimately be available for distribution to shareholders. The actual amount
and timing of, and record dates for, shareholder distributions will be
determined by the board of trust managers in its sole discretion and will depend
upon the timing and receipt of loan pay-offs and proceeds of the sale of our
remaining assets and the amounts deemed necessary by the board to pay or provide
for all of our liabilities and obligations.

We have established targeted amounts for the loan pay-offs and the sales
prices of our other assets. However, there can be no assurance that any or all
of the loans will be paid off for these amounts or at all or that any or all of
our other assets will be sold at the targeted sales prices or at all. The amount
of the proceeds we receive from the liquidation is dependent upon a number of
conditions, many of which are beyond our control, including market conditions
and actions by third parties. Therefore, loans may be paid off and other assets
may be sold at amounts that may not necessarily be equal to or greater than
their book value.

To estimate the amounts that may be available for distribution from the
liquidation proceeds, management estimated costs of the liquidation and
dissolution. Management also estimated general and administrative costs during
the liquidation process. Payment of the distributions is in each case subject to
the payment or provision for payment of our obligations, expenses to the extent
not assumed by any purchasers of our assets and any tax liabilities. We do not
plan to satisfy all of our liabilities and obligations prior to making
distributions to shareholders. Instead, we will reserve assets deemed to be
adequate to satisfy such liabilities and obligations. See "Contingency reserve"
and "Liquidating trust." We believe that we will have sufficient cash to pay all
of our current and accrued obligations as a result of cash flow from operations,
loan repayments and asset sales. However, if contingent or unknown liabilities
exist, distributions to shareholders may be reduced or delayed. Also, claims,
liabilities and expenses will continue to accrue following approval of the
liquidation and dissolution, and we anticipate that expenses for professional
fees and other expenses of liquidation will be significant. These expenses will
reduce the amount of cash available for ultimate distribution to shareholders.

The final distribution will be in complete redemption and cancellation of
our outstanding shares. Upon such final distribution, you may be required to
surrender your share certificates. If we cannot make distributions to a
shareholder because mail is not deliverable to the last known address of that
shareholder on the shareholder list we maintain, we will hold the funds subject
to unclaimed funds or escheat statutes of the state of such shareholder's last
known address. If such state does not have an escheat law, the law of Texas will
govern. If a shareholder does not claim such funds within the statutory period,
such funds may escheat to the state.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE LIQUIDATION AND DISSOLUTION

The following discussion is a summary of the material federal income tax
consequences to the shareholders relevant to the plan of liquidation and
dissolution. This discussion does not deal with all of the tax consequences of
the liquidation and dissolution that may be relevant to every shareholder and is
not intended as a substitute for careful tax planning. YOU SHOULD THEREFORE
CONSULT WITH YOUR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES ASSOCIATED WITH
IMPLEMENTATION OF THE LIQUIDATION AND DISSOLUTION UNDER APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS.

The discussion of tax consequences that follows is based on current
provisions of the Internal Revenue Code and its legislative history, existing,
temporary and currently proposed treasury regulations, existing administrative
rulings and practices of the Internal Revenue Service and judicial decisions in
effect on the date of this document. All of these are subject to change at any
time, and any such change may be applied retroactively. Thus, no assurance can
be given that legislative, judicial or administrative changes will not affect
the accuracy of this discussion, possibly on a retroactive basis. In addition,
we have not requested and do not plan to request any rulings from the Internal
Revenue

22
<PAGE> 28

Service with respect to the tax consequences of the plan of liquidation and
dissolution. Accordingly, no assurance can be given that the statements set
forth in this discussion, which do not bind the Internal Revenue Service or the
courts, will not be challenged by the Internal Revenue Service or sustained by
the courts if so challenged.

TAX CONSEQUENCES TO AMRESCO CAPITAL TRUST

For federal income tax purposes, we are taxed as a REIT under sections 856
through 860 of the Internal Revenue Code. As such, we generally are entitled to
a deduction for all dividends we pay to our shareholders for a taxable year. As
a result, as a practical matter we are not subject to federal income taxation
with respect to our distributed income. If the liquidation and dissolution is
adopted by the shareholders, we currently contemplate that we will continue to
qualify as a REIT prior to the final distribution of assets. However, in order
for us to continue to qualify as a REIT, we must satisfy a number of asset,
income and distribution tests, and there can be no assurances that we will be
able to satisfy these tests throughout the period during which we would
liquidate our assets.

Asset test. To qualify as a REIT for federal income tax purposes, at least
75% of the value of our assets at the close of each quarter of our taxable year
must be represented by real estate assets, cash, cash items, including
receivables arising in the ordinary course of our operations, and government
securities. We may not have more than 25% of our total assets represented by
non-government securities, except securities that constitute "real estate
assets" for this purpose. In connection with investments in non-government
securities, we may not do the following:

o under current law, invest more than 5% of the value of our total
assets in non-government securities of any one issuer and we may not
hold more than 10% of the voting securities of any one issuer;

o for the tax years beginning after December 31, 2000, invest more than
20% of the value of our total assets in one or more corporations,
other than a real estate investment trust, pursuant to which we and
such corporation(s) have jointly elected that such corporation(s) will
be treated as a taxable REIT subsidiary;

o for the tax years beginning after December 31, 2000, invest more than
5% of the value of our total assets in non-government securities of
any one issuer, unless the issuer is a taxable REIT subsidiary;

o for the tax years beginning after December 31, 2000, hold more than
10% of the outstanding voting securities, or 10% of the total value of
outstanding securities of any one issuer unless we hold all of the
securities of such issuer, unless the issuer is a taxable REIT
subsidiary.

Income tests. We must also meet two tests relating to the source of our
income. First, at least 75% of our gross income for each year must be derived
from rents from real property, interest on obligations secured by mortgages on
real property, and other sources directly related to real estate activities.
Second, at least 95% of our gross income must be derived from the sources
described in the preceding sentence and from dividends, interest and gains from
sales or dispositions of stock or securities.

Distributions. The REIT provisions of the Internal Revenue Code also
require that we distribute 95% of our REIT taxable income, determined without
regard to the dividends paid deduction, which is discussed below, and excluding
any net capital gain, to our shareholders each taxable year. This percentage
drops to 90% in tax years beginning after December 31, 2000.

Liquidation period. We anticipate that we would remain qualified under the
foregoing tests throughout the period of the liquidation of our assets. However,
given the changes in the nature of our assets and in our sources of income that
could result from dispositions of assets in the liquidation process and the need
to retain assets to meet liabilities, there can be no assurance that we will
continue to meet the qualification tests. If we cease to qualify as a REIT for
any taxable year, we would not be entitled to deduct dividends paid to our
shareholders from our taxable income. In this case, we would be liable for
federal income taxes with respect to our gains from sales of assets and our
income from operations for that year and for subsequent taxable years. These
federal income taxes would reduce the amounts otherwise distributable to our
shareholders.

To be entitled to a deduction for the amount distributed to our
shareholders for a tax year, referred to as a "dividends paid deduction," a
REIT's distributions must qualify as "dividends." Distributions in liquidation
of a corporation, however, are generally treated as being in full payment of a
shareholder's interest in the corporation, rather

23
<PAGE> 29

than as dividends. Nevertheless, in the context of the liquidation of a REIT,
section 562(b) of the Internal Revenue Code provides a special rule that
classifies liquidating distributions as dividends solely for purposes of the
dividends paid deduction if specified conditions are met. In particular, section
562(b) provides that, if a REIT is liquidated within the 24-month period
following the adoption of a plan of liquidation, distributions pursuant to such
plan will, to the extent of the distributing corporation's earnings and profits,
computed without regard to capital losses, for the year of the distribution, be
treated as dividends for purposes of computing the corporation's dividends paid
deduction.

Approval of the liquidation and dissolution proposal by shareholders would
constitute the adoption of a plan of liquidation for purposes of section 562(b)
of the Internal Revenue Code. We anticipate that we will completely liquidate
within 24 months of the approval of the liquidation and dissolution proposal so
as to take advantage of section 562(b), but no assurance can be provided that
this timetable will in fact be met. For instance, we may not be able to sell our
assets at acceptable prices during this period. As the end of the 24-month
period approaches, we intend to evaluate the then existing situation and
consider whether distribution of our remaining assets and liabilities to a
liquidating trust would be appropriate, or whether existing circumstances
indicate that the shareholders would be better served by a course of action that
might forego the benefits of section 562(b).

Although section 562(b) may treat liquidating distributions as dividends,
it only does so "to the extent of the earnings and profits (computed without
regard to capital losses) of the corporation for the taxable year of the
distribution." Section 562(e) of the Internal Revenue Code provides that, for
purposes of determining a REIT's dividends paid deduction, a REIT's earnings and
profits for a taxable year are to be increased by the total amount of gain
recognized on the sale or exchange of real property during that year. Thus, we
should have sufficient earnings and profits to allow distribution of such gain
on sale to qualify as a dividend. We intend to use our best efforts to
distribute sufficient amounts to shareholders each year during the liquidation
period so that we would remain qualified as a REIT under the rules described
above. In this case, we would not have any REIT taxable income as a result of
the proposed liquidation.

Prohibited transactions. REITs also are subject to a 100% excise tax on any
gain from "prohibited transactions." The term "prohibited transaction" means the
sale or other disposition of property that would properly be included in
inventory or is held primarily for sale to customers in the ordinary course of
the REIT's trade or business. The determination of whether property would
properly be included in inventory or is held primarily for sale to customers in
the ordinary course of the REIT's trade or business is inherently factual in
nature and thus cannot be predicted with certainty. Whether property is held as
inventory or held primarily for sale to customers in the ordinary course of a
trade or business depends on the facts and circumstances.

The Internal Revenue Code provides a "safe harbor" provision under which,
if all of its conditions are met, property sales would be protected from being
considered prohibited transactions. One of these conditions is that the seller
must have held the asset for at least four years. Since we have not held any of
our assets for at least four years, we do not expect to be able to satisfy the
safe harbor provisions with respect to the sales of our assets in the
liquidation. However, we believe that, based on the facts and circumstances, we
do not hold any of our assets as inventory or for sale to customers. We
therefore believe that a sale of any such asset pursuant to the plan of
liquidation and dissolution will not be considered a sale in the ordinary course
of our business. Accordingly, asset sales pursuant to the plan should not be
subject to the 100% "prohibited transactions" tax.

CONSEQUENCES TO SHAREHOLDERS

We believe that the distributions of proceeds of sales of properties, if
any, to shareholders pursuant to the plan would be treated as distributions in a
complete liquidation. In this case, distributions would not be treated as
dividends received by a shareholder, but rather as if the shareholder had sold
its shares. Also in this case, a shareholder would recognize gain or loss with
respect to each share held by the shareholder, measured by the difference
between:

o the total amount of cash and fair market value of other property, if
any, received by the shareholder with respect to such share pursuant
to the plan; and

o the shareholder's basis in that share.

The consequences to shareholders if we transfer assets to a liquidating
trust is discussed below under "Liquidating trust."

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<PAGE> 30

If a shareholder holds blocks of shares acquired at different times or at
different costs, each liquidating distribution would be allocated ratably among
the various blocks of shares, and gain or loss would be computed separately with
respect to each block of shares.

Gain or loss recognized by a shareholder would be capital gain or loss if
the shares are held by the shareholder as capital assets. Capital gain or loss
would be long-term if the shares were held for more than 12 months. Corporate
shareholders may deduct capital losses in the year recognized only to the extent
of capital gains recognized during such year. Unused capital losses of a
corporation may be carried back three years and forward for five years, but may
not be carried to any year in which they would create or increase a net
operating loss. Individual shareholders may deduct capital losses to the extent
of their capital gains, plus $3,000. Any unused capital loss may be carried
forward indefinitely by individual taxpayers until the individual recognizes
sufficient capital gains to absorb them or recognizes such losses at the rate of
up to $3,000 per year. Capital losses may not be carried back by an individual.

If approved, the liquidation and dissolution could result in more than one
liquidating distribution to the shareholders. Each liquidating distribution
would be first applied against the adjusted tax basis of each of a shareholder's
shares and gain would be recognized with respect to a share only after an amount
equal to the adjusted tax basis of such share has been fully recovered. Any
losses with respect to a share could be recognized by a shareholder only after
we have made our final distribution, if any, or after the last substantial
liquidating distribution was determinable with reasonable certainty. As a
consequence of the foregoing, shareholders that would realize losses under the
plan would likely be prevented from recognizing such losses until the receipt of
the final distribution.

LIQUIDATING TRUST

If we are not able to dispose of all of our assets within 24 months after
shareholder approval of the liquidation and dissolution, or if it is otherwise
advantageous or appropriate to do so, the board may establish a liquidating
trust to which we could distribute in kind our unsold assets. In any event, even
if we dispose of all of our assets within such 24-month period, it might be
necessary to establish a liquidating trust to retain cash reserves beyond such
24-month period to meet our contingent liabilities. Under the Internal Revenue
Code, a trust will be treated as a liquidating trust if it is organized for the
primary purpose of liquidating and distributing the assets transferred to it,
and if its activities are all reasonably necessary to and consistent with the
accomplishment of that purpose. However, if the liquidation is prolonged or if
the liquidation purpose becomes so obscured by business activities that the
declared purpose of the liquidation can be said to be lost or abandoned, it will
no longer be considered a liquidating trust. Although neither the Internal
Revenue Code nor the regulations thereunder provide any specific guidance as to
the length of time a liquidating trust may last, the Internal Revenue Service's
guidelines for issuing rulings with respect to liquidating trust status call for
a term not to exceed three years, which period may be extended to cover the
collection of installment obligations.

An entity classified as a liquidating trust may receive assets, including
cash, from the liquidating entity without incurring any tax. It will be treated
as a grantor trust, and accordingly will also not be subject to tax on any
income or gain recognized by it. Instead, each beneficiary will be treated as
the owner of its pro rata portion of each asset, including cash, received by and
held by the liquidating trust. Accordingly, if the proposal for liquidation and
dissolution is approved and if we ultimately employ a liquidating trust, each
shareholder would be treated as having received a liquidating distribution equal
to its share of the amount of cash and the fair market value of any asset
distributed to the liquidating trust and generally would recognize gain to the
extent such value was greater than its basis in its shares, notwithstanding that
it may not contemporaneously receive a distribution of cash or any other assets
with which to satisfy the resulting tax liability. In addition, each shareholder
would be required to take into account in computing its own taxable income its
pro rata share of each item of income, gain and loss of the liquidating trust.
Since shareholders would be treated as owning their respective shares of the
liquidating trust's assets, they would be treated as directly engaging in the
operations of the trust. As such, shareholders that are tax-exempt entities may
realize "unrelated business taxable income" with respect to the trust's
activities and foreign investors may be considered to receive income that is
"effectively connected" with a U.S. trade or business. A full discussion of the
consequences to tax-exempt and foreign shareholders of using a liquidating trust
is beyond the scope of this document and any such shareholder should consult its
own tax advisors.

An individual shareholder who itemizes deductions would be entitled to
deduct its pro rata share of fees and expenses of the liquidating trust only to
the extent that such amount, together with the shareholder's other miscellaneous
deductions, exceeded 2% of its adjusted gross income. A shareholder would also
recognize taxable gain or loss when all or part of its pro rata portion of an
asset is disposed of for an amount greater or less than its pro rata

25
<PAGE> 31

portion of the fair market value of such asset at the time it was transferred to
the liquidating trust. Any such gain or loss would be capital gain or loss so
long as the shareholder held its interest in the assets as a capital asset.

If a liquidating trust fails to qualify as such, its treatment will depend
upon, among other things, the reasons for its failure to so qualify. It most
likely would be taxable as a corporation. In such case, the liquidating trust
itself would be subject to tax, and shareholders could also be subject to tax
upon the receipt of certain distributions from the liquidating trust. If the
board determines to make use of a liquidating trust, it is anticipated that
every effort will be made to ensure that the trust will be classified as a
grantor trust for federal income tax purposes.

TAXATION OF NON-UNITED STATES SHAREHOLDERS

Because liquidating distributions pursuant to the plan would be treated as
paid in exchange for a shareholder's shares and not as dividends, no withholding
on liquidating distributions would generally be required because of the Foreign
Investment in Real Property Tax Act, commonly known as "FIRPTA."

However, if our shares were to constitute United States real property
interests in the hands of a non-U.S. shareholder, we would be required under
section 1445(e)(3) of the Internal Revenue Code to withhold 10% of the gross
amount of each liquidating distribution to such shareholder, even if the
shareholder recognizes a loss on the distribution. In addition, the non-U.S.
shareholder would be subject to regular U.S. income tax with respect to any gain
or loss realized on the deemed sale of such shares resulting from the receipt of
liquidating distributions, subject to any applicable alternative minimum tax, a
special alternative minimum tax in the case of nonresident alien individuals,
and the possible application of the 30% "branch profits" tax in the case of
entities treated as foreign corporations for U.S. federal income tax purposes.

If our shares are regularly traded on an established securities market at
any time during the calendar year, the shares will not constitute United States
real property interests with respect to any shareholder in such calendar year
unless such shareholder has owned, actually or constructively under attribution
rules, more than 5% of our outstanding shares at all times during the shorter of
the period during which the shareholder has held its shares or the five-year
period ending on the date that the liquidating distributions are received.
Shares that are owned by a non-U.S. shareholder whose actual or constructive
ownership of our outstanding shares has exceeded the 5% threshold described
above, or shares owned by any non-U.S. shareholder if the shares are not
regularly traded on an established securities market at any time during the
calendar year, will be treated as United States real property interests unless,
at all times during a prescribed testing period, either we have not been a
"United States real property holding corporation" or we have been a
"domestically controlled REIT." We will constitute a "United States real
property holding corporation" with respect to a particular non-U.S. shareholder
if, at any time during the five-year period preceding the distribution or
shorter period that the shareholder has held its shares, the fair market value
of our "United States real property interests" equals or exceeds 50% of the fair
market value of such United States real property interests, its interests in
real property located outside the United States, plus any other of its assets
that are used or held for use in a trade or business. For this purpose, the term
"United States real property interests" include any interest other than an
interest solely as a creditor in real estate located within the United States or
the Virgin Islands and in certain entities that own U.S. real estate. We will
constitute a "domestically controlled REIT" only if, at all times during the
five-year period preceding the distribution in question or shorter period that
we have been in existence, we remain qualified as a REIT and less than 50% of
the value of our shares is beneficially owned, directly or indirectly, by
non-U.S. persons (taking into account as beneficial owners for this purpose
those persons who are required to include dividends from us in taxable income
for U.S. federal income tax purposes). Although we believe that we are a
"domestically controlled REIT," no assurance can be given that we will remain a
"domestically controlled REIT" because our shares are publicly traded.

Although we will not be required to withhold against liquidating
distributions to any non-U.S. shareholder unless our shares constitute United
States real property interests with respect to such shareholder, a non-U.S.
shareholder who is not subject to withholding nevertheless will be subject to
U.S. federal income tax with respect to liquidating distributions under the
following circumstances. First, if a non-U.S. shareholder's investment in our
shares is effectively connected with the non-U.S. shareholder's U.S. trade or
business, the non-U.S. shareholder will be subject to the same treatment as U.S.
shareholders with respect to liquidating distributions, and if the non-U.S.
shareholder is a corporation, it may also be subject to the branch profits tax.
Second, if the non-U.S. shareholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable year in
which the liquidating distributions are received and certain other conditions
apply, the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. Finally, if we recognize gain from the disposition
of a United States real property

26
<PAGE> 32

interest and remain qualified as a REIT, all of our non-U.S. shareholders could
be subject to U.S. federal income tax on liquidating distributions under section
897(h)(1) of the Internal Revenue Code, which provides that any distribution by
a REIT to a non-U.S. shareholder, to the extent attributable to gain from sales
or exchanges by the REIT of United States real property interests, is treated as
gain recognized by such non-U.S. shareholder from the sale or exchange of a
United States real property interest.

Non-U.S. shareholders should consult their own tax advisors regarding the
U.S. federal income tax consequences of receiving liquidating distributions,
including the consequences that would apply if we were to contribute our assets
to a liquidating trust.

STATE AND LOCAL INCOME TAX

Shareholders may also be subject to state or local taxes with respect to
distributions they receive pursuant to the plan and should consult their tax
advisors regarding these taxes.

SUMMARY OF THE AGREEMENT WITH AFFILIATES OF FARALLON CAPITAL MANAGEMENT, L.L.C.

On July 5, 2000, affiliates of Farallon Capital Management, L.L.C.
purchased a total of 1,500,111 of our common shares from AMRESCO, INC. and
AMREIT Holdings, Inc. At the same time, the purchasers entered into an agreement
with us. The material terms of this agreement are summarized below.

Under the agreement, each of the purchasers agreed to vote all of the
shares it beneficially owns in favor of the liquidation and dissolution, as the
liquidation and dissolution are described in this proxy statement. Each
purchaser also agreed not to transfer any such shares to any third party if the
transfer would result in the third party owning in excess of 9.8% in value of
our shares. Also, until October 30, 2000, if the purchasers transfer more than
5% of the outstanding shares to one person, group or entity, that person, group
or entity must agree to be bound by the voting provisions in the agreement.

Each purchaser also agreed that until the earlier to occur of July 5, 2001
or the date on which the board of trust managers terminates or abandons the plan
of liquidation, that purchaser will not cause or permit any of its agents,
employees or controlled affiliates to, directly or indirectly:

o take specified actions relating to any business combination,
restructuring, recapitalization or similar transaction involving us or
any purchase of any of our securities or assets;

o seek representation on the board of trust managers or otherwise seek
to control our management, board or policies; or

o permit the purchasers to become a beneficial owner of more than
18.19262% of our outstanding common shares.

However, if shareholders do not approve the liquidation and dissolution
prior to October 30, 2000, the provisions of the agreement will not apply from
the earlier of the date on which the shareholders first vote on the liquidation
and dissolution or October 30, 2000. In addition, nothing in the agreement
prohibits the purchasers from exercising any and all rights and remedies that
they may have as shareholders or otherwise, including taking any or all of the
actions listed above, in the event of fraud, bad faith, willful misconduct,
breach of fiduciary duty or self-dealing on the part of any member of our board
or manager.

The agreement also contains provisions under which the purchasers are
prohibited from taking specified actions that may jeopardize our qualification
as a REIT under the Internal Revenue Code. 6. Exclusivity.

GOVERNMENT APPROVALS

Other than compliance with the provisions of the Texas Real Estate
Investment Trust Act to effect the dissolution and withdrawals from the states
in which we or our subsidiaries are registered to do business, we are not

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<PAGE> 33

required to obtain any federal or state approvals or comply with any federal or
state regulatory requirements in connection with the liquidation and
dissolution.

NO DISSENTERS' RIGHTS

Texas law does not provide dissenters' or appraisal rights with respect to
the liquidation and dissolution.

VOTE REQUIRED

The affirmative vote of the holders of at least two-thirds of our
outstanding common shares is required to approve the liquidation and
dissolution. Affiliates of Farallon Capital Management, L.L.C., which own a
total of approximately 17.2% of our outstanding common shares, have entered into
an agreement with us pursuant to which each of them has agreed to vote all of
the shares it beneficially owns in favor of the liquidation and dissolution.

THE BOARD RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE LIQUIDATION AND
DISSOLUTION.

ELECTION OF TRUST MANAGERS
(ITEM 2 ON PROXY CARD)

THE BOARD OF TRUST MANAGERS

There are currently six members of the board of trust managers, one of
which is affiliated with AMREIT Managers, L.P., our manager, one of which was so
affiliated until April 1, 2000, and four of whom are independent trust managers.
The board is divided into three classes. Each class consists of two trust
managers, at least one of whom is an independent trust manager. An independent
trust manager is defined in our bylaws as a person who is not one of our or our
affiliates' officers or employees, or an affiliate of any of our advisors or
managers. In addition, except for acting as a trust manager or as a director of
any entity controlled by us, an independent trust manager cannot have performed
more than a "de minimus" amount of service for us or had a material business
relationship with AMREIT Managers or any other of our advisors or managers.

The term of office of one class of trust managers expires each year at the
annual meeting of shareholders. The initial term of office of the Class II trust
managers will expire at this meeting and the initial term of the Class III trust
managers will expire at our 2001 annual meeting of shareholders. The term of
office of the Class I trust managers expires at the 2002 annual meeting of
shareholders. Each trust manager of the class elected at each annual meeting of
shareholders will hold office for a term of three years. However, if the
liquidation and dissolution proposal is approved, the term of each trust manager
will expire on the date that we file articles of dissolution.

INFORMATION CONCERNING TRUST MANAGERS

At the meeting, you will be asked to elect two Class II trust managers,
each to serve as a member of the board for a three-year term ending at the
annual meeting of shareholders in 2003, or until his successor is duly elected
or qualified, or until we file articles of dissolution. The board has selected
each of the two current Class II trust managers as a nominee for election at the
meeting. Unless you withhold authority to vote for one or more nominees, the
persons named as proxies intend to vote for election of the two nominees.

Each nominee has consented to serve as a trust manager. The board has no
reason to believe that either of the nominees will be unable to act as trust
manager. However, if a nominee is unable to stand for re-election, the board may
either reduce the size of the board or designate a substitute. If a substitute
nominee is named, the proxies will vote for the election of the substitute.

The following table sets forth certain information, as of April 1, 2000,
concerning each nominee for election as a Class II trust manager and each of our
other trust managers. All positions and offices with AMRESCO Capital Trust held
by each trust manager and executive officer, as well as the principal positions
held by each such person with AMRESCO, INC. and with AMREIT Managers, are
indicated.

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<PAGE> 34

<TABLE>
<CAPTION>
TRUST YEAR
MANAGER TERM BOARD
NAME (AGE) RECENT BUSINESS EXPERIENCE SINCE EXPIRES COMMITTEES
---------- -------------------------- ------- ------- ----------
<S> <C> <C> <C> <C>

CLASS I TRUST MANAGERS

Robert L. Adair III(56) Mr. Adair has served as our Chief Executive Officer 1998 2002 (a)(b)
since November 1998 and has served as our Chairman
of the Board since our inception in 1998. From 1994
until March 31, 2000, Mr. Adair also served as a
director, President and Chief Operating Officer of
AMRESCO, INC. Mr. Adair served AMRESCO, INC. and
its predecessors in various capacities since 1987.
Mr. Adair is also a director of Stratus Properties,
Inc.

John C. Deterding(67) Mr. Deterding served as Senior Vice President and 1998 2002 (a)(b)(d)
General Manager of the Commercial Real Estate
Division of General Electric Capital Corporation from
1975 to June 1993. From November 1989 to June 1993,
Mr. Deterding also served as Chairman of the General
Electric Real Estate Investment Company, a
privately-held REIT. From 1986 to 1993, Mr. Deterding
served as a director of GECC Financial Corporation.
Since retiring from General Electric Capital
Corporation in June 1993, Mr. Deterding has worked as
a private real estate consultant. He served as a
director of Patriot American Hospitality Inc./Wyndham
International, a publicly-held REIT (or its
predecessors), from September 1995 to June 1999, and
serves as a trustee of Fortress Investment Fund.

CLASS II TRUST MANAGERS

Bruce W. Duncan(48) Mr. Duncan was the Chairman, President and Chief 1998 2000 (a)(b)(c)
Executive Officer of Cadillac Fairview Corporation
Limited from 1995 until March 17, 2000. Prior to
joining Cadillac Fairview, Mr. Duncan worked for JMB
Realty Corporation from 1978 to 1992, where he served
as Executive Vice President and a member of the Board
of Directors. From 1992 to 1994, he was President and
Co-Chief Executive Officer of JMB Institutional
Realty Corporation. From 1994 to 1995, he was with
Blakely Capital, Inc. Mr. Duncan is a member of the
Board of Trustees of Starwood Hotels and Resorts
Worldwide, Inc. and is a member of the Board of
Trustees of Kenyon College. He is also a member of
the Board of Directors of the Canadian Institute of
Public Real Estate Companies.

Robert H. Lutz, Jr.(50) From May 1994, Mr. Lutz has served as Chief 1998 2000 (a)
Executive Officer of AMRESCO, INC. From May 1994
until March 31, 2000, Mr. Lutz also served as
Chairman of the Board of AMRESCO,
</TABLE>

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<PAGE> 35

<TABLE>
<CAPTION>
TRUST YEAR
MANAGER TERM BOARD
NAME (AGE) RECENT BUSINESS EXPERIENCE SINCE EXPIRES COMMITTEES
---------- -------------------------- ------- ------- ----------
<S> <C> <C> <C> <C>
INC. Mr. Lutz also is a director of Felcor Lodging
Trust, a publicly-traded REIT.

CLASS III TRUST MANAGERS

Christopher B. Leinberger Mr. Leinberger has been Managing Director and 1998 2001 (a)(c)(d)
(49) co-owner of Robert Charles Lesser & Co. since 1982.
Mr. Leinberger is also a partner in Arcadia Land
Company. Mr. Leinberger is the Chair of the Board of
the College of Santa Fe.

James C. Leslie(44) Mr. Leslie has served as President and Chief 1998 2001 (b)(c)(d)
Operating Officer of The Staubach Company since 1996,
and as a director of The Staubach Company since 1988.
Mr. Leslie was President of Staubach Financial
Services from January 1992 until February 1996. Mr.
Leslie is also President and a board member of
Wolverine Holding Company, and serves on the boards
of Stratus Properties, Inc. and the North Texas
Chapter of the Arthritis Foundation.
</TABLE>

----------

(a) Member of the Executive Committee
(b) Member of the Investment Committee
(c) Member of the Audit Committee
(d) Member of the Compensation Committee

REQUIRED VOTE

Each nominee must be reelected by the affirmative vote of the holders
of at least a majority of the shares present in person or represented by proxy
at the meeting.

THE BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES.

MEETINGS OF THE BOARD AND COMMITTEES

Our business is managed under the direction of the board of trust
managers. The board meets on a regularly scheduled basis to review significant
developments affecting us and to act upon matters requiring board approval. It
holds special meetings when an important matter requires board action between
scheduled meetings. The board held ten meetings during 1999. All trust managers
attended at least 75% of the meetings of the board and committees on which they
served during 1999.

COMMITTEES OF THE BOARD OF TRUST MANAGERS

The board has an executive committee, an audit committee, a
compensation committee and an investment committee. Members of these committees
generally are elected annually at the regular meeting of the board immediately
following the annual meeting of shareholders.

The executive committee consists of Messrs. Adair (Chairman),
Deterding, Duncan, Leinberger and Lutz. Subject to various limitations specified
by our declaration of trust or bylaws and the Texas Real Estate Investment Trust
Act, the executive committee is authorized to exercise the powers of the board
when the board is not in session. The executive committee did not hold any
meetings during 1999.

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<PAGE> 36

The audit committee consists of Messrs. Leinberger, Leslie (Chairman)
and Duncan. The functions of the audit committee include the following:

o reviewing the independence and performance of the independent
public accountants;

o recommending to the board the appointment or termination of
the independent public accountants;

o consulting with the independent public accountants concerning
their audits of our financial statements;

o reviewing the presentation of our financial statements,
reviewing and considering the observations of the independent
public accountants concerning internal control and accounting
matters during their annual audit;

o reviewing the range of services provided by the independent
public accountants; and

o approving the types of professional services rendered by the
independent public accountants and considering the possible
effects of such services on the independence of the public
accountants.

The audit committee is required by our bylaws to have at least two
members and each member must be an independent trust manager. All of the current
members of the audit committee are independent trust managers. The audit
committee held two meetings during 1999.

The compensation committee consists of Messrs. Deterding, Leinberger
(Chairman) and Leslie. The functions of the compensation committee include
making recommendations to the board regarding compensation for our executive
officers and administering our 1998 Share Option and Award Plan. The
compensation committee must be comprised of two or more members, each of whom
must be an independent trust manager. All of the current members of the
compensation committee are independent trust managers. The compensation
committee held one meeting during 1999.

The investment committee consists of Messrs. Adair, Deterding
(Chairman), Duncan and Leslie. The functions of the investment committee are to
review, approve and authorize all investments that we make, which, in accordance
with our guidelines, require approval of the board, and to review, modify and
approve modifications to our investment guidelines. In addition, the investment
committee is required to review and approve any acquisition of investments from,
or coinvestments with, AMRESCO, INC. or any of its affiliates that is not
otherwise submitted to the full board for consideration. The investment
committee did not hold any meetings during 1999.

We do not have a nominating or other standing committee. The entire
board performs the functions customarily attributable to a nominating committee.

COMPENSATION OF TRUST MANAGERS

In lieu of the cash payment of fees to independent trust managers for
attendance at the regularly scheduled board meetings, in May 1999, we granted to
each independent trust manager 2,250 restricted common shares. In addition, in
1999, we paid each independent trust manager $1,000 for each special meeting of
the board he attended.

During the period from February 1999 to February 2000, we granted
dividend equivalent rights to the trust managers. During this period, each trust
manager received quarterly cash payments equal to our per share dividend,
excluding that portion of a declared dividend that represented a return of
capital to shareholders, multiplied by the number of common shares such trust
manager was eligible to purchase under options that were vested at the time the
dividend payment was declared. A total of $60,950 has been paid to trust
managers under this program. On February 24, 2000, the board terminated this
program. As a result, no dividend equivalent payments will be made on vested
options after January 27, 2000, the date that we made the dividend equivalent
payment relating to our 1999 fourth quarter dividend.

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<PAGE> 37

The following summarizes the grants and payments to each trust manager
for his service in 1999:

<TABLE>
<CAPTION>
RESTRICTED SHARES DIVIDEND EQUIVALENT
TRUST MANAGER GRANTED FEES PAID RIGHTS PAID
------------- ----------------- --------- -------------------
<S> <C> <C> <C>
Robert L. Adair III -- -- $11,925
John C. Deterding 2,250 $6,000 $ 5,300
Bruce W. Duncan 2,250 $5,000 $ 5,300
Mark D. Gibson -- -- $15,900
Christopher B. Leinberger 2,250 $6,000 $ 5,300
James C. Leslie 2,250 $6,000 $ 5,300
Robert H. Lutz, Jr. -- -- $11,925
</TABLE>

On March 29, 2000, the board determined to instead pay each independent
trust manager an annual fee of $20,000, payable quarterly in advance, plus
$1,000 for each special meeting of the board he attends. The board believed that
this should be easier and less expensive to administer and should be less
dilutive to shareholders' distributions in the liquidation. Accordingly, the
board believed that this change in compensation was in the best interests of our
shareholders.

As of March 31, 2000, Robert L. Adair III, our Chairman of the Board
and Chief Executive Officer, was no longer affiliated with either AMRESCO, INC.
or AMREIT Managers. As a result, on March 29, 2000, the board approved the
payment to Mr. Adair of an annual fee of $60,000, payable quarterly in advance
beginning April 1, 2000, for his services as our Chairman of the Board of Trust
Managers and Chief Executive Officer.

The following summarizes the expected payments to each independent
trust manager and Mr. Adair for his service in 2000:

<TABLE>
<CAPTION>
TRUST MANAGER ANNUAL BOARD FEES MEETING FEES OTHER FEES
------------- ----------------- ------------ ----------
<S> <C> <C> <C>
Robert L. Adair III n/a n/a $60,000
John C. Deterding $20,000 $1,000 per special meeting attended n/a
Bruce W. Duncan $20,000 $1,000 per special meeting attended n/a
Christopher B. Leinberger $20,000 $1,000 per special meeting attended n/a
James C. Leslie $20,000 $1,000 per special meeting attended n/a
</TABLE>

We do not separately compensate trust managers who are affiliated with
us or AMREIT Managers, other than through our 1998 Share Option and Award Plan
and, from February 1999 to February 2000, through dividend equivalent payments
relating to vested options. We reimburse all trust managers for their costs and
expenses in attending board and committee meetings.

Immediately after the closing of our initial public offering, we
granted each independent trust manager options to purchase 20,000 common shares
at $15.00 per share, which was the initial public offering price. We granted
each of Messrs. Adair and Lutz, who were affiliated with us, options to purchase
45,000 common shares at $15.00 per share. These options vest 25% on each of the
four anniversaries following the date of grant.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No trust manager who served on the compensation committee during 1999
was:

o one of our or our affiliates' officers or employees during
1999;

o one of our or our affiliates' former officers; or

o a party to any material transaction described below under
"Certain Relationships and Related Transactions."

None of our or our affiliates' officers served as a member of the
compensation committee or similar committee or board of directors of any entity
whose members served on our compensation committee.

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<PAGE> 38

AUDIT COMMITTEE REPORT

The board of trust managers has adopted a written charter for the audit
committee.

The members of the audit committee are independent, as independence is
defined in Rule 4200(a) of the National Association of Securities Dealers'
listing standards.

The audit committee has reviewed and discussed the audited financial
statements with management. The audit committee has discussed with the
independent auditors the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU Section 380). The audit
committee has received the Written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
and has discussed with the independent auditors the independent auditors'
independence. Based upon the reviews and discussions, the audit committee
recommended to the board of trust managers that the audited financial statements
be included in our Annual Report on Form 10-K for the fiscal year ended December
31, 1999 for filing with the SEC.

This section of the proxy statement is not deemed "filed" with the SEC
and is not incorporated by reference into our Annual Report on Form 10-K.

This audit committee report is given by the following members of the
audit committee:

Christopher B. Leinberger
James C. Leslie
Bruce W. Duncan

EXECUTIVE OFFICERS

Our executive officers serve at the discretion of the board and are
elected annually by the board at a meeting held following each annual meeting of
shareholders, or as soon thereafter as necessary and convenient in order to fill
vacancies or newly created offices. Each officer holds office until his
successor is duly elected and qualified or until death, resignation or removal,
if earlier.

The following table lists the names and ages of our executive officers
and the position held by and recent business experience of each individual.

<TABLE>
<CAPTION>
NAME AGE POSITION RECENT BUSINESS EXPERIENCE
---- --- -------- --------------------------
<S> <C> <C> <C>
Robert L. Adair III 56 Chairman of the Board of Trust See "Election of Trust Managers -- Information
Managers and Chief Executive concerning trust managers" above.
Officer (November 1998 to present)

Jonathan S. Pettee 41 President and Chief Operating Prior to November 1998, Mr. Pettee served as our
Officer of AMRESCO Capital Trust and AMREIT Managers' Executive Vice President and
and AMREIT Managers, L.P. (November Chief Operating Officer. From 1996 to March 1998,
1998 to present) Mr. Pettee was responsible for mortgage product
development, capital raising and management of a
non-investment grade portfolio of commercial
mortgage-backed securities for our affiliates.
Effective April 1, 2000, Mr. Pettee also became
the Executive Vice President and Chief Financial
Officer of AMRESCO, INC. Mr. Pettee has over
fourteen years of experience in corporate finance,
fixed income and real estate. From 1995 to 1996,
Mr. Pettee was Managing Director for BBC
Investment Advisors, a joint venture between Back
Bay Advisors and Copley Real Estate Advisors. At
BBC, Mr. Pettee managed an investment grade
</TABLE>

33
<PAGE> 39

<TABLE>
<CAPTION>
NAME AGE POSITION RECENT BUSINESS EXPERIENCE
---- --- -------- --------------------------
<S> <C> <C> <C>
portfolio of commercial mortgage-backed
securities. Mr. Pettee has held previous positions
as Managing Director at Copley Real Estate
Advisors (1992 to 1994), where he was responsible
for managing the external financing activities for
Copley's institutional funds, and as Senior
Associate at Morgan Stanley Realty (1986 to 1992),
where he executed sale, financing and investment
banking transactions for the firm's clients. Mr.
Pettee has a B.S. degree in Mechanical Engineering
from Cornell University and a M.B.A. degree from
the Harvard Business School.

David M. Striph 41 Executive Vice President and Chief Mr. Striph is responsible for the day-to-day
Investment Officer of AMRESCO management of our investments, other than
Capital Trust (February 2000 to commercial mortgage-backed securities, and will be
present) primarily responsible for the liquidation of our
mortgage loan assets and our equity investments in
real estate. Mr. Striph has served as one of our
executive officers since November 1998. His
primary responsibilities have included nationwide
business development and management of the staff
responsible for the origination, underwriting and
portfolio management of high-yield commercial real
estate mortgages and equity investments. Mr.
Striph was the Western Division Manager for
AMRESCO, INC.'s Real Estate Structured Finance
Group from December 1996 until August 1998. Mr.
Striph has been employed by AMRESCO, INC. since
1994 serving in various positions within the Asset
Management/Loan Workout division. Mr. Striph has
over 15 years of real estate lending/banking
experience including owning a commercial mortgage
brokerage company for five years.

Michael L. McCoy 44 Senior Vice President, General From February 1996 to March 31, 2000, Mr. McCoy
Counsel and Secretary of AMRESCO also served as Assistant General Counsel of
Capital Trust (January 1998 to AMRESCO, INC. Mr. McCoy was employed by AMRESCO,
present) INC. in 1989 and is now with the law firm of Akin,
Gump, Strauss, Hauer & Feld, L.L.P.

Thomas R. Lewis II 37 Senior Vice President, Chief From our inception until February 2000, Mr. Lewis
Financial and Accounting Officer served as our and AMREIT Managers' Vice President
and Controller of AMRESCO Capital and Controller. Mr. Lewis has been employed by
Trust and AMREIT Managers, L.P. AMRESCO, INC. since November 1995. From 1993 to
(February 2000 to present) 1995, Mr. Lewis was Vice President-Finance for
Acacia Realty Advisors, Inc.
</TABLE>

34
<PAGE> 40

RELATIONSHIPS

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

Based solely on a review of the copies of such reports furnished to us
and representations from the officers and trust managers, we believe that all
Section 16(a) filing requirements with respect to fiscal 1999 applicable to our
officers, trust managers and greater than 10% beneficial owners were satisfied
by such persons.

EXECUTIVE COMPENSATION

We do not pay a salary or bonus to our executive officers, nor do we
provide any other compensation or incentive programs to our executive officers,
other than grants from time to time of share options under our option plan and
related dividend equivalent payments.

During the period from February 1999 to February 2000, we granted
dividend equivalent rights to persons employed by us or by AMREIT Managers or
otherwise involved in our business, excluding those options held by AMREIT
Managers. During this period, each such person received quarterly cash payments
equal to our per share dividend, excluding that portion of a declared dividend
that represented a return of capital to shareholders, multiplied by the number
of common shares such person was eligible to purchase under options that were
vested at the time the dividend payment was declared. On February 24, 2000, the
board terminated this program. As a result, no dividend equivalent payments will
be made on vested options after January 27, 2000, the date that we made the
dividend equivalent payment relating to our 1999 fourth quarter dividend.

AMREIT Managers, at its expense, provides all personnel necessary to
conduct our regular business. AMREIT Managers receives various fees and cost
reimbursements for advisory and other services it provides to us under the terms
of the management agreement. Excluding compensation associated with share option
awards and related dividend equivalent payments, AMREIT Managers pays all
salaries, bonuses and other compensation to our executive officers. For a
description of the management agreement, see "Certain Relationships and Related
Transactions -- The manager" below.

Since the only forms of compensation we have provided to our executive
officers are awards of share options and related dividend equivalent rights, the
named executive officers in the following tables were determined based upon the
number of share options granted. We have not granted any share appreciation
rights.

35
<PAGE> 41

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- -----------------------------------------------
Number of Long-Term
Other Restricted Securities Incentive
Name Annual Stock Underlying Plan All Other
and Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($) ($) Granted ($) ($)(1)
------------------------------------- ---- ------ ----- ------------ ---------- ------------ --------- ------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Adair III, Chairman of the 1999 -- -- -- -- -- -- 11,925
Board of Trust Managers and Chief
Executive Officer 1998 -- -- -- -- 45,000 -- --

Jonathan S. Pettee, President and 1999 -- -- -- -- -- -- 7,950
Chief Operating Officer 1998 -- -- -- -- 30,000 -- --

Michael L. McCoy, Senior Vice President, 1999 -- -- -- -- -- -- 3,975
General Counsel and Secretary 1998 -- -- -- -- 15,000 -- --

David M. Striph, Executive Vice President 1999 -- -- -- -- -- -- 1,860
and Chief Investment Officer 1998 -- -- -- -- 10,000 -- --

Thomas R. Lewis II, Senior Vice 1999 -- -- -- -- -- -- 1,590
President, Chief Financial and
Accounting Officer and Controller 1998 -- -- -- -- 6,000 -- --
</TABLE>

(1) All other compensation is comprised solely of non-preferential dividend
equivalents earned by the executive officers. Dividend equivalents were
paid to the executive officers on August 16, 1999, November 15, 1999
and January 27, 2000. The payments made on these dates totaled the
amounts shown above.

SHARE OPTION/SAR GRANTS IN FISCAL 1999

During fiscal 1999, we did not grant any share options or share
appreciation rights to our executive officers.

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

None of the named executive officers has exercised any options.

<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
December 31, 1999 at December 31, 1999 ($)
------------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert L. Adair III 11,250 33,750 -- --
Jonathan S. Pettee 7,500 22,500 -- --
Michael L. McCoy 3,750 11,250 -- --
David M. Striph 2,500 7,500 620 1,860
Thomas R. Lewis II 1,500 4,500 -- --
</TABLE>

36
<PAGE> 42

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

During 1999, the compensation committee generally determined the
compensation of our executive officers. When appropriate, the compensation
committee seeks advice and considers recommendations from executive compensation
consultants.

AMREIT Managers pays our executive officers' salaries and bonuses.
Accordingly, the compensation committee's responsibilities have been limited to
those involving share-based compensation matters.

The 1998 Share Option and Award Plan was designed to provide a means of
competitive, long-term performance-based compensation, which closely aligns our
shareholders' interests with those of our executive officers. Share option
awards are intended to attract, retain and reward experienced, highly motivated
executive officers who are capable of effective leadership. The number of share
options granted to each executive officer is based upon corporate performance
and the level of responsibility, contribution and performance of the particular
officer.

During 1999, we did not grant any share options to any executive
officer.

Options granted under the share option plan generally have an exercise
price equal to the market price of our common shares on the date that the option
is granted. Option grants typically vest 25% on each of the four anniversaries
following the date of grant.

During the period from February 1999 to February 2000, we granted
dividend equivalent rights to persons employed by us or by AMREIT Managers or
otherwise involved in our business, excluding those options held by AMREIT
Managers. During this period, each such person received quarterly cash payments
equal to our per share dividend, excluding the portion of a declared dividend
that represented a return of capital to shareholders, multiplied by the number
of common shares such person was eligible to purchase under options that were
vested at the time the dividend payment was declared. On February 24, 2000, the
board terminated this program. As a result, no dividend equivalent payments will
be made on vested options after January 27, 2000, the date that we made the
dividend equivalent payment relating to our 1999 fourth quarter dividend.

This section of the proxy statement is not deemed "filed" with the SEC
and is not incorporated by reference into our Annual Report on Form 10-K.

Compensation Committee

John C. Deterding
Christopher B. Leinberger
James C. Leslie

37
<PAGE> 43

SHAREHOLDER RETURN COMPARISON

Our common shares commenced trading on the Nasdaq Stock Market on May
7, 1998. Set forth below is a line graph comparing, for the period from May 7,
1998 through December 31, 1999, total shareholder return on our common shares
with that of the Nasdaq Composite Index and a "mortgage" REIT index provided by
the National Association of Real Estate Investment Trusts. At December 31, 1999
and 1998, the mortgage REIT index was comprised of 26 and 24 mortgage REITs,
respectively. We were one of the companies included in the mortgage REIT index
in both 1999 and 1998. Upon request, we will provide to any shareholder the
names of the companies comprising the mortgage REIT index.

The graph assumes that the common shares were acquired at the initial
public offering price of $15.00 per share and that the value of the investment
in each of the common shares and the indices was $100 at the beginning of the
period. The graph further assumes the reinvestment of dividends. The share price
performance reflected in the graph below is not necessarily indicative of future
performance.

AMRESCO CAPITAL TRUST
Total Return Performance

[GRAPH]

<TABLE>
<CAPTION>
May December December
1998 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
AMRESCO Capital Trust $ 100.00 $ 68.31 $ 72.25
Nasdaq Composite Index $ 100.00 $ 120.35 $ 218.07
NAREIT Mortgage REIT Index $ 100.00 $ 69.99 $ 46.74
</TABLE>

38
<PAGE> 44

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

On July __, 2000, there were 10,015,111 of our common shares
outstanding. The following table sets forth, as of July __, 2000, the ownership
of our common shares for the following:

o each person known by us to be the beneficial owner of more
than 5% of our common shares;

o each trust manager;

o each named executive officer; and

o all trust managers and executive officers as a group.

Unless otherwise indicated in the footnotes, all such common shares are
owned directly and the indicated person has sole voting and investment power
with respect to the shares.

Unless otherwise noted, the mailing address for each person identified
below is c/o AMRESCO Capital Trust, 700 North Pearl Street, Suite 1900, Dallas,
Texas 75201.

<TABLE>
<CAPTION>
Percentage of
Amount and Nature of Common Shares
Name of Beneficial Owner (1) Beneficial Ownership Beneficially Owned
---------------------------- -------------------- ------------------
<S> <C> <C>
Farallon Capital Management, L.L.C................ 1,722,011(2) 17.2%
FMR Corp. ........................................ 1,273,394(3) 12.7%
John C. Deterding ................................ 13,750(4) *
Bruce W. Duncan .................................. 27,450(4) *
Christopher B. Leinberger ........................ 19,000(4) *
James C. Leslie .................................. 18,750(4) *
Robert H. Lutz, Jr................................ 32,500(5) *
Robert L. Adair III .............................. 102,500(6) 1.0%
Jonathan S. Pettee ............................... 22,000(7) *
Michael L. McCoy ................................. 10,500(8) *
David M. Striph .................................. 4,250(9) *
Thomas R. Lewis II ............................... 4,000(10) *
All trust managers and executive officers as
a group (10 persons) ......................... 254,700(11) 2.5%
</TABLE>

----------

* Less than 1%.

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

(2) [TO COME]

(3) The information set forth above is based solely on the Schedule 13G
filed by FMR Corp. with the SEC on February 14, 2000. FMR Corp.
reported that, through its subsidiaries, it had sole dispositive power
with respect to all such shares and sole voting power with respect to
348,494 of such shares. FMR Corp. is the parent holding company of an
investment management company registered under Section 203 of the
Investment Advisers Act of 1940 that provides investment advisory and
management services to its clients. FMR Corp. disclaims investment
power or voting power over any of the securities referenced above.
However, it may be deemed to "beneficially own" such securities by
virtue of Rule 13d-3 under the Securities Exchange Act of 1934. FMR
Corp.'s address is 82 Devonshire Street, Boston, Massachusetts 02109.

39
<PAGE> 45

(4) Includes options to purchase 10,000 common shares.

(5) Includes options to purchase 22,500 common shares. Excludes 5,000
shares that are owned by Mr. Lutz's spouse as to which Mr. Lutz
disclaims ownership.

(6) Includes options to purchase 22,500 common shares.

(7) Includes options to purchase 15,000 common shares.

(8) Includes options to purchase 7,500 common shares.

(9) Includes options to purchase 4,000 common shares.

(10) Includes options to purchase 3,000 common shares.

(11) Includes options to purchase 114,500 common shares.

40
<PAGE> 46

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

THE MANAGER

Under the terms of a management agreement dated as of May 12, 1998 and
subject to the direction and oversight of our board of trust managers, our
day-to-day operations are managed by AMREIT Managers, L.P., an affiliate of
AMRESCO, INC. For its services, AMREIT Managers has been entitled to receive the
following:

o a base management fee equal to 1% per year of our average
invested non-investment grade assets and 0.5% per year of our
average invested investment grade assets, payable quarterly in
arrears;

o incentive compensation in an amount equal to 25% of the dollar
amount by which our funds from operations (as defined by the
National Association of Real Estate Investment Trusts) plus
gains and minus losses from debt restructurings and sales of
property, as adjusted, exceeds the 10-year U.S. treasury rate
plus 3.5%, payable quarterly in arrears; and

o reimbursement for the manager's costs of providing specified
due diligence and professional services to us.

The following table summarizes the amounts charged to us by AMREIT
Managers since May 12, 1998:

<TABLE>
<CAPTION>
Period from May 12, 1998
Quarter ended Year ended through
March 31, 2000 December 31, 1999 December 31, 1998
-------------- ----------------- -----------------
<S> <C> <C> <C>
Base management fees $ 513,000 $2,066,000 $835,000
Incentive compensation -- -- --
Reimbursable expenses 20,000 192,000 140,000
--------- ---------- --------
Total $ 533,000 $2,258,000 $975,000
========= ========== ========
</TABLE>

AMREIT Managers has options to purchase 1,000,011 common shares, 70% of
which are exercisable at $15.00 per share and the remaining 30% of which are
exercisable at $18.75 per share. The options vest ratably over a four-year
period commencing on the first anniversary of the date of grant.

The current term of the management agreement expires on May 12, 2001.
The management agreement may be renewed at the end of each term for a period of
one year, upon review and approval by a majority of our independent trust
managers. If the independent trust managers do not vote to terminate or renew
the management agreement at least 90 days prior to the end of the then current
period, the management agreement will automatically renew for a one-year period.
The manager has the right to terminate the management agreement upon 180 days
prior written notice to us. We have the right to terminate the management
agreement upon 90 days prior written notice to the manager. Prior to the
amendment described below, upon a termination of the management agreement
without cause, we were obligated to pay the manager a termination fee equal to
the sum of the base management fee plus any incentive compensation earned by the
manager during the four calendar quarters immediately preceding the termination.

On March 29, 2000, the board of trust managers approved modifications
to AMREIT Managers' compensation in response to our changed business strategy.
The new fee structure eliminates both incentive fee compensation and termination
fees if the management agreement is terminated. In addition to its base
management fee, AMREIT Managers will receive reimbursement for any of its
quarterly operating deficits beginning on April 1, 2000. These reimbursements
will be equal to any excess of AMREIT Managers' operating costs, which
principally include personnel and general and administrative expenses, over the
sum of its base management fees and any other fees that AMREIT Managers receives
from sources other than us. Currently, AMRESCO, INC., through AMREIT Managers,
employs seven people who are fully dedicated to us. Additionally, one of
AMRESCO, INC.'s executive officers allocates his time, as necessary, to us. As
part of the modification, AMREIT Managers is no longer entitled to receive
incentive compensation. Also as part of the modifications, AMREIT Managers is no
longer entitled to receive a termination fee if we terminate the management
agreement without cause, including a termination resulting from our liquidation
and dissolution. During the period from January 1, 2000 through March 31, 2000,
AMREIT Managers was entitled to receive the fees and reimbursements provided for
under the original terms of the management agreement.

41
<PAGE> 47

RIGHT OF FIRST REFUSAL/CORRESPONDENT AGREEMENT

We and AMRESCO, INC. have entered into a right of first refusal
agreement under which AMRESCO, INC. agreed, subject to limited exceptions, not
to and not to permit any of its affiliates to invest in the following:

o the first $100 million of mortgage loans that meet our
investment criteria and objectives that are identified by or
to AMRESCO, INC. or any of its affiliates during any calendar
quarter;

o all mortgage-backed securities, other than mortgage-backed
securities issued in securitizations sponsored in whole or in
part by AMRESCO, INC. or any of its affiliates.

Additionally, we have entered into a correspondent agreement with
Holliday Fenoglio Fowler, L.P., which was an affiliate of AMRESCO, INC. until
March 17, 2000, at which time its assets and several of AMRESCO, INC.'s other
business platforms were purchased by Lend Lease (US) Services, Inc. At the
closing, Lend Lease established a new limited partnership and transferred all of
Holliday Fenoglio Fowler's assets into the new partnership. The correspondent
agreement was assigned to the new partnership in this transaction. Under the
correspondent agreement, Holliday Fenoglio Fowler endeavors to present to us
investment opportunities that meet our investment criteria and objectives. We
are not obligated to pay any fees or commissions, or reimbursement of expenses,
to Holliday Fenoglio Fowler in connection with any investment opportunity
presented to us under this agreement. This agreement is non-exclusive. Either we
or Holliday Fenoglio Fowler may enter into similar agreements with other
parties, including those that are competitors of the other.

TRANSACTIONS WITH AFFILIATES OF AMRESCO, INC.

Until July 5, 2000, AMREIT Holdings, Inc., a wholly-owned subsidiary of
AMRESCO, INC., owned 1,500,011 of our common shares, or approximately 15% of the
outstanding shares. AMREIT Holdings, Inc. acquired 1,000,011 shares at $15.00
per share in a private placement and acquired the remaining 500,000 shares
through our initial public offering. Until July 5, 2000, AMRESCO, INC. owned 100
common shares. It acquired these shares on February 2, 1998 in connection with
our initial capitalization. On July 5, 2000, AMREIT Holdings and AMRESCO, INC.
sold all of these shares to affiliates of Farallon Capital Management, L.L.C.

At the commencement of our operations on May 12, 1998, we acquired two
loans from AMRESCO Funding Corporation, a wholly-owned subsidiary of AMRESCO,
INC. These loans had been originated by AMRESCO Funding on February 20, 1998 and
March 30, 1998. The purchase price was $5.4 million and equated to the
following:

o the outstanding principal balance of the loans as of the date
of purchase, plus

o accrued and unpaid interest to the date of purchase, less

o the unamortized portion of the related loan commitment fees.

On September 30, 1998, we acquired eight loans from AMRESCO Commercial
Finance, Inc., a wholly-owned subsidiary of AMRESCO, INC., for an aggregate cash
purchase price of $34.3 million. The eight loans were acquired at a price that
equated to the outstanding principal balance of the loans as of the date of
purchase, plus accrued and unpaid interest to the date of purchase. Immediately
following the purchase, we sold to AMRESCO Commercial Finance a contractual
right to collect from us an amount equal to the economic equivalent of all
amounts collected from five of the loans in excess of the following:

o $17.9 million; and

o a return on this amount, or so much of it as was outstanding
from time to time, equal to 12% per year.

The aggregate cash sales price for these contractual rights was $5
million.

On January 14, 1999, and in accordance with the terms of its contract
with us, AMRESCO Commercial Finance purchased one of the loans that it had
previously sold to us that was more than 30 days past due. The proceeds,
totaling $4.6 million, were applied as a reduction of the amount upon which we
earned a 12% return, as

42
<PAGE> 48

described above. The sales price equated to our net investment in the loan at
the sale date under the terms of the originally negotiated agreement. On
November 1, 1999, in accordance with the terms of its contract with us, AMRESCO
Commercial Finance acquired the then remaining loans pursuant to the terms of
the originally negotiated agreement. In connection with this most recent sale,
amounts due to AMRESCO Commercial Finance totaling $5.8 million were fully
extinguished. Additionally, AMRESCO Commercial Finance's contingent
reimbursement obligations were satisfied.

Holliday Fenoglio Fowler, through the correspondent agreement described
above, presents to AMRESCO on a non-exclusive basis investment opportunities
meeting specified criteria. Mark D. Gibson, who was a member of our board
through February 24, 2000 is also an executive managing director of Holliday
Fenoglio Fowler. Mr. Gibson also served on the executive committee of AMRESCO,
INC. until March 2000. During 1999, Holliday Fenoglio Fowler represented two of
our borrowers and four of our subsidiary partnerships in the closing of
transactions with us. In each case, the borrower or the subsidiary partnership
in the specific transaction paid a fee to Holliday Fenoglio Fowler for its
services in accordance with the terms of a separate agreement with Holliday
Fenoglio Fowler. Other than as described above, we had no obligation, agreement
or understanding with Holliday Fenoglio Fowler to pay it any fee or other
compensation in connection with any transaction involving us. However, in the
borrower transactions, some or all of the fees may have been paid out of the
loan proceeds advanced to the borrower by us. In the subsidiary partnership
transactions, some or all of the fees may have been paid out of the proceeds
from the capital contributions made to the partnerships by us. In connection
with transactions we closed, Holliday Fenoglio Fowler received a total of
$531,823 in fees in 1999. Mr. Gibson did not receive any compensation in
connection with these closings.

AGREEMENT WITH AFFILIATES OF FARALLON CAPITAL MANAGEMENT, L.L.C.

On July 5, 2000, we entered into an agreement with affiliates of
Farallon Capital Management, L.L.C. The material terms of this agreement are
summarized above under "Approval of the Liquidation and Dissolution - Summary of
the agreement with affiliates of Farallon Capital Management, L.L.C."

SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 3 ON PROXY CARD)

The board has selected Deloitte & Touche LLP as our independent public
accountants for 2000.

Representatives of Deloitte & Touche LLP will be present at the meeting
and will have the opportunity to make a statement if they desire to do so. These
representatives will also be available to respond to appropriate questions.

The affirmative vote of the holders of a majority of our common shares
represented in person or by proxy at the meeting is required to approve this
proposal.

THE BOARD RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE APPOINTMENT OF
DELOITTE &TOUCHE LLP.

SHAREHOLDER PROPOSALS

If the proposal for our liquidation and dissolution is approved at the
meeting, we do not intend to hold another annual shareholder meeting. If we hold
an annual meeting in 2001, and if a shareholder desires to present any proposal
for consideration at that meeting, the shareholder must, in addition to meeting
other applicable requirements, mail such proposal to us so that it is received
at our executive offices not later than December 10, 2000.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make "forward-looking" statements in this document and in the
documents incorporated by reference into this document within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements are usually identified by the use of
words such as "believes," "will," "anticipates," "estimates," "expects,"
"projects," "plans," "intends," "should" or similar expressions. These
forward-looking statements reflect our current views about our plans, strategies
and prospects, which are based on the information currently available to us and
on assumptions that we have made.

43
<PAGE> 49

Although we believe that our plans, intentions and expectations as
reflected in or suggested by those forward-looking statements are reasonable, we
can give no assurance that we will achieve the plans, intentions or
expectations. We have discussed elsewhere in this document some important risks,
uncertainties and contingencies that could cause our actual results to be
materially different from the forward-looking statements we make in this
document and in the documents we incorporate by reference into this document.

Except for our ongoing obligations to disclose material information as
required by federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances occurring after the date of this document or to reflect the
occurrence of unanticipated events.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the reporting requirements of the Securities Exchange
Act of 1934 and file reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any material we file
with the Securities and Exchange Commission at its public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference rooms. Our public filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC at http://www.sec.gov. You may also inspect all reports, proxy
statements and other information we filed with the Nasdaq Stock Market at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.

The SEC allows us to "incorporate by reference" into this document.
This means that we can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this document, except for any information
superseded by information in this document. This document incorporates by
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about us and our finances.

<TABLE>

<S> <C>
SEC FILING (FILE NO. 1-14029) PERIOD
---------------------------- ------

Annual Report on Form 10-K, as amended Year ended December 31, 1999
by Amendment No. 1
Quarterly Report on Form 10-Q Quarter ended March 31, 2000
Current Reports on Form 8-K Filed on January 6, 2000, March 30, 2000 and July
6, 2000
</TABLE>

We are also incorporating by reference additional documents that we may
file with the SEC between the date of this document and the date of the meeting
of shareholders.

We are sending you along with this proxy statement our 1999 Annual
Report to Shareholders, which report comprises our Annual Report on Form 10-K,
as amended, for the year ended December 31, 1999. You can obtain any of the
incorporated documents by contacting us. We will send you the documents
incorporated by reference without charge, excluding exhibits to the information
that is incorporated by reference, unless we have specifically incorporated by
reference the exhibit in this document.

Shareholders may obtain documents incorporated by reference in this
document by requesting them in writing or by telephone from the following:

Michael L. McCoy
AMRESCO Capital Trust
700 North Pearl Street, Suite 1900
LB 342
Dallas, Texas 75201
Telephone: (214) 953-7700
(800) 966-7887
Facsimile: (214) 758-1373

44
<PAGE> 50

If you would like to request documents from us, including any documents
we may subsequently file with the SEC before the meeting, please do so by
__________, 2000 so that you will receive them before the meeting.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE ON THE PROPOSALS. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED
IN THIS DOCUMENT. THIS DOCUMENT IS DATED JULY __, 2000. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY OTHER
DATE, AND THE MAILING OF THIS DOCUMENT TO SHAREHOLDERS SHALL NOT CREATE ANY
IMPLICATION TO THE CONTRARY.

By Order of the Board of Trust Managers,

Michael L. McCoy
Secretary

45
<PAGE> 51

ANNEX A

AMRESCO CAPITAL TRUST

PLAN OF LIQUIDATION AND DISSOLUTION

This Plan of Liquidation and Dissolution (hereinafter called the
"Plan") is for the purpose of effecting the complete liquidation and dissolution
of AMRESCO Capital Trust, a Texas real estate investment trust (the "Company"),
pursuant to the following steps:

1. The Plan shall become effective upon the approval of the
liquidation and dissolution of the Company pursuant to this
Plan (the "Dissolution") by the shareholders of the Company,
or as soon thereafter as practicable (the date that this Plan
becomes effective, the "Effective Date". Upon the Effective
Date, the Company will cease conducting normal business
operations pursuant to this Plan except insofar as may be
necessary for the winding up of the business and affairs of
the Company, and proceed to a complete liquidation and
dissolution of the Company in accordance with the requirements
of the Texas Real Estate Investment Trust Act and the Internal
Revenue Code of 1986, as amended.

2. The officers of the Company are hereby authorized to sell and
otherwise to liquidate any and all of the assets and
properties of the Company and to pay, discharge or make
adequate provision for the payment of all of the known debts,
liabilities and obligations of the Company.

3. Liquidating distributions may be made to shareholders in
accordance with the Declaration of Trust in amounts and as
determined by the Board of Trust Managers, provided that the
Board of Trust Managers believes at that time that any
contingency reserve and the remaining assets of the Company
are adequate to provide for the Company's remaining
liabilities (actual and contingent) and expenses. The Board of
Trust Managers is authorized to determine the amount of any
contingency reserve and may, in their sole discretion,
increase or decrease the amount of the contingency reserve as
the Board of Trust Managers determines to be adequate to
provide for the just and equitable payment of liabilities and
obligations of the Company. The officers of the Company shall
place such funds in an account of the Company as the Board of
Trust Managers has determined should be maintained as a
contingency reserve.

4. After the sale of such of the assets and properties of the
Company as the officers shall deem in the best interest of the
Company, and after applying such property as far as it will go
to the just and equitable payment of obligations and
liabilities of the Company, the remaining property and assets
of the Company shall be distributed to the shareholders of the
Company in cancellation of all of the outstanding capital
shares of the Company and in accordance with such
shareholders' respective rights and interests.

5. The Board of Trust Managers of the Company is hereby
authorized, in its discretion, to choose to maintain existence
of the Company as a real estate investment trust for the
purposes of winding up the affairs contemplated herein.
Alternatively, the Board of Trust Managers of the Company is
hereby authorized, in its discretion, to elect to terminate
the Company's status as a real estate investment trust. The
Board of Trust Managers is authorized to establish a
Liquidating Trust (as defined below) for the benefit of the
shareholders of the Company to distribute the remaining
proceeds.

6. The officers of the Company are hereby authorized and directed
to file such documents as are necessary to effect the
Dissolution of the Company under the Texas Real Estate
Investment Trust Act.

7. The officers of the Company are hereby authorized to complete
and file any and all necessary or appropriate forms with the
Internal Revenue Service. As soon as practicable after the

A-1
<PAGE> 52

Dissolution, the officers shall execute and file the final
federal and state income tax returns of the Company, if any,
and all other returns, documents and information required to
be filed by reason of the Dissolution.

8. The members of the Board of Trust Managers shall continue to
receive compensation for as long as they remain members of the
Board until the final distribution of assets of the Company.

9. Implementation of the Plan shall be under the direction of the
members of the Board of Trust Managers or the trustees of the
Liquidating Trust, who shall have full authority to carry out
the provisions of the Plan or such other actions as they deem
appropriate without further shareholder action. The Board
shall have the authority to amend or modify the Plan without
the further approval of the shareholders of the Company,
except as required by the Texas Real Estate Investment Trust
Act.

10. Prior to the filing of articles of dissolution, the Board of
Trust Managers shall have full authority to abandon and revoke
the Dissolution as the Board deems appropriate without further
shareholder action.

11. The actions provided for in this Plan shall be commenced as
soon as practicable after the Effective Date, and such
proceeds shall be distributed and the Dissolution shall be
completed as soon as practicable after the Effective Date.

12. The officers and Trust Managers of the Company or the trustees
of the Liquidating Trust are authorized to perform, and shall
perform, such acts and take such steps as may be necessary or
convenient to carry out this Plan, including, but not limited
to, the execution and delivery, on behalf of the Company and
in its name, of any and all documents and instruments as may
be required to collect and distribute the property and assets
of the Company in accordance with the provisions of this Plan,
and all such other and further instruments as may be necessary
to vest title to the assets of the Company in its shareholders
in accordance with this Plan, and wind up its affairs in
dissolution in accordance with this Plan.

13. After adoption of the Dissolution by the shareholders, the
shareholders shall have no right to approve or disapprove the
terms of the sale of the Company's assets.

14. At any time, the Board of Trust Managers may, if the Board of
Trust Managers deems such action to be in the best interests
of the Company and the shareholders, cause the common shares
of beneficial interest of the Company to be delisted from any
securities exchange on which they are traded or to no longer
be traded or completely prohibit the trading or other transfer
of such common shares if and to the extent permitted by law.

15. If, in the judgment of the Board of Trust Managers,
it appears that the Company will be unable to satisfy its
legally enforceable obligations within 24 months after the
Effective Date, or if, at any time, the Company will no longer
qualify as a real estate investment trust, the Board of Trust
Managers may cause the Company to create a liquidating trust
(the "Liquidating Trust") and to distribute beneficial
interests in the Liquidating Trust to the shareholders as part
of the liquidation process. The Liquidating Trust shall be
constituted pursuant to a liquidating trust agreement in such
form as the Board may approve, it being intended that the
transfer and assignment to the Liquidating Trust pursuant
hereto and the distribution to shareholders of the beneficial
interests therein shall constitute a part of the final
liquidating distribution by the Company to the shareholders of
their interests in the remaining amount of cash and other
property held by or for the account of the Company. From and
after the date of the Company's transfer of cash and property
to the Liquidating Trust, the Company shall have no interest
of any character in and to any such cash and property and all
of such cash and property shall thereafter be held by the
Liquidating Trust solely for the benefit of and ultimate
distribution to the shareholders, subject to any unsatisfied
debts, liabilities and expenses.

A-2
<PAGE> 53

16. The Company shall reserve sufficient assets and/or obtain or
maintain such insurance as shall be necessary to provide the
continued indemnification of the Board of Trust Managers,
officers and agents of the Company, and other parties whom the
Company has agreed to indemnify, to the full extent provided
by the declaration of trust and the bylaws of the Company, any
existing indemnification agreement and applicable law. At the
discretion of the Board of Trust Managers, such insurance may
include coverage for periods after the Dissolution, including
periods after the termination of any Liquidating Trust, and
may include coverage for trustees, employees and agents of
such Liquidating Trust.

IN WITNESS WHEREOF, this Plan is executed to be effective as of the
29th day of March, 2000.

AMRESCO Capital Trust,
a Texas real estate investment trust

By: /s/ Jonathan S. Pettee
------------------------
Name: Jonathan S. Pettee
Title: President and Chief Operating Officer

A-3
<PAGE> 54

AMRESCO CAPITAL TRUST
700 NORTH PEARL STREET,
SUITE 1900, LB 342
DALLAS, TEXAS 75201

P R O X Y

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUST MANAGERS

The undersigned hereby appoints each of Robert L. Adair III and
Jonathan S. Pettee, or either of them, as Proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote, as
designated below, all the common shares of beneficial interest of AMRESCO
Capital Trust held of record by the undersigned on July __, 2000 at the annual
meeting of shareholders to be held on August __, 2000 or any adjournment
thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.

THE BOARD OF TRUST MANAGERS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
PROPOSALS 1, 3 AND 4 AND FOR BOTH NOMINEES LISTED IN PROPOSAL 2. PLEASE REVIEW
CAREFULLY THE PROXY STATEMENT DELIVERED WITH THIS PROXY.

(Continued and to be dated and signed on the reverse side.)

<PAGE> 55

[X] Please mark your votes as in this example.

<TABLE>

<S> <C> <C> <C> <C>
1. Approval of our complete liquidation and FOR AGAINST ABSTAIN
dissolution under the terms and conditions of [ ] [ ] [ ]
the plan of liquidation.

2. Election of Trust Managers FOR WITHHOLD AUTHORITY ABSTAIN
Instruction: To withhold authority for any [ ] FOR BOTH NOMINEES [ ]
individual nominee, write that nominee's name [ ]
on the lines below.

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

3. Ratification of the appointment of Deloitte & FOR AGAINST ABSTAIN
Touche LLP as our independent public [ ] [ ] [ ]
accountants for 2000.

4. Adjournment of the meeting, if necessary to FOR AGAINST ABSTAIN
permit further solicitation of proxies if [ ] [ ] [ ]
there are not sufficient votes at the time of
the meeting to approve or disapprove proposals
1, 2 or 3.
</TABLE>

In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting or any adjournment or
postponement thereof.

This Proxy, when properly executed, will be
voted in the manner directed herein by the
undersigned shareholder. If no direction is
made, this Proxy will be voted FOR Proposals
1, 3 and 4 and FOR both nominees listed in
Proposal 2.

Please sign exactly as name appears. When
shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such. If
a corporation, please sign in full corporate
name by the President or other authorized
officer. If a partnership, please sign in
partnership name by an authorized person.

DATED: ____________________, 2000

-----------------------------------------
Signature

-----------------------------------------
Signature, if held jointly

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE OR BY FACSIMILE TO (214) 758-1373.