AMRESCO INC, 424B4, 1996-01-30

AMRESCO INC
424B4, 1996-01-30
INVESTMENT ADVICE

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<PAGE>
FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 33-65329

PROSPECTUS
DATED JANUARY 30, 1996
$50,000,000

[LOGO]

10% SENIOR SUBORDINATED NOTES DUE 2003
------------------------

The 10% Senior Subordinated Notes due 2003 (the "Notes") offered hereby are
senior subordinated obligations of AMRESCO, INC. (the "Company"). Interest on
the Notes is payable on the fifteenth day of each month, commencing March 15,
1996 and will accrue at the rate of 10% per annum until maturity or earlier
redemption. The Notes mature on January 15, 2003. The Notes are not redeemable
prior to January 15, 2001. However, the Notes are redeemable thereafter at the
option of the Company at par plus accrued interest upon not less than 30 nor
more than 60 days' notice to the holders thereof. The Notes will be issued only
in fully registered form and in denominations of $1,000 and integral multiples
thereof. The Notes will be unsecured general obligations of the Company and will
be subordinated to all existing and future "Senior Indebtedness," as defined, of
the Company. As of December 31, 1995, Senior Indebtedness of the Company and its
subsidiaries totaled approximately $281.0 million (including $135.6 million of
borrowings under a mortgage warehouse facility that were repaid on January 26,
1996). The Notes will also be structurally subordinated in right of payment to
all other liabilities of the Company's subsidiaries, which at December 31, 1995,
totaled approximately $28.6 million. The shares of capital stock, the Company's
8% Convertible Subordinated Debentures due 2005, and any other indebtedness that
the Company may issue which is subordinated to the Notes by its terms will be
junior to the Notes. The Company will redeem, at par plus accrued interest to
the date of redemption, Notes tendered by the personal representative or
surviving joint tenant or tenant by the entirety of a deceased holder, after
presentation of necessary documents, up to an annual maximum of $30,000 per
holder and subject to a maximum aggregate of $300,000 during any twelve month
period. The Notes have been approved for listing on the New York Stock Exchange,
subject to notice of issuance. See "Description of the Notes."

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY.
------------------------

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

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Note.................................. 100% 4.0% 96.0%
Total (3)................................. $50,000,000 $2,000,000 $48,000,000
</TABLE>

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

(2) Before deducting offering expenses payable by the Company estimated at
$300,000.

(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to purchase up to an additional
$7,500,000 aggregate principal amount of Notes, at the Price to Public less
Underwriting Discount, solely for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $57,500,000,
$2,300,000 and $55,200,000, respectively. See "Underwriting."
------------------------

The Notes are offered by the Underwriters named herein, subject to prior sale
and when, as and if delivered to and accepted by the Underwriters. It is
expected that delivery of certificates for the Notes will be made at the offices
of Piper Jaffray Inc. in Minneapolis, Minnesota on or about February 2, 1996.

PIPER JAFFRAY INC.
J.C. BRADFORD & CO
MORGAN KEEGAN & COMPANY, INC.
<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information can be inspected and copied at the public
reference facilities that the Commission maintains at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of these materials can be obtained at prescribed rates
from the Public Reference Section of the Commission at the principal offices of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company's
Common Stock is listed on the Nasdaq National Market and reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006. The Notes will be listed on the New York Stock Exchange and reports,
proxy statements and other information concerning the Company (filed after the
date hereof) may be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.

The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Notes. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements made in the
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description, and each such statement shall be deemed
qualified in its entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus: (i) Annual Report on Form 10-K for the year ended December 31,
1994, (ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1995,
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, (iv)
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, as
amended by its Form 10-Q/A No. 1 dated October 25, 1995, (v) Current Report on
Form 8-K dated November 22, 1995 and (vi) Current Report on Form 8-K dated
December 13, 1995.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
herein. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed superseded or modified for
purposes of this Prospectus to the extent that a statement contained herein (or
in any other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference (other than exhibits to such documents which are not specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Company, 1845 Woodall Rodgers Freeway, Suite 1700,
Dallas, Texas 75201, Attention: L. Keith Blackwell, General Counsel and
Secretary. Telephone requests may be directed to L. Keith Blackwell, General
Counsel and Secretary of the Company at (214) 953-7700.

2
<PAGE>
[Map of the United States showing the locations of the Company's Asset
Acquisition and Resolution offices, Mortgage Banking offices, Real Estate
Pension Advisory office and Corporate Headquarters, and a listing of
International Offices in Toronto and London.]

The Company intends to furnish holders of the Notes with (i) annual reports
containing audited financial statements and (ii) quarterly reports for each of
the first three quarters of each fiscal year, which will contain unaudited
summary financial information.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

3
<PAGE>
CERTAIN DEFINITIONS

The following are certain defined terms used in this Prospectus:

<TABLE>
<S> <C>
"ACACIA" means Acacia Realty Advisors, Inc.

"ACACIA ACQUISITION" means the acquisition by the Company of the real estate
pension advisory business of Acacia Realty Advisors, Inc.

"ACC" means AMRESCO Capital Corporation, a subsidiary of the Company.

"AMRESCO RESIDENTIAL" means, collectively, ARMC and AMRESCO Residential Credit
Corporation, subsidiaries of the Company.

"ARMC" means, AMRESCO Residential Mortgage Corporation, a subsidiary of the
Company.

"ASSET PORTFOLIO" means a pool or portfolio of performing, non-performing or
underperforming commercial, industrial, agricultural and/or real estate
loans.

"BEI" means BEI Holdings, Ltd.

"BEI MERGER" means the merger of Holdings with and into a subsidiary of BEI on
December 31, 1993.

"CKSRS" means CKSRS Housing Group, Ltd., a Florida limited partnership.

"COMPANY" means, unless otherwise stated in this Prospectus or unless the
context otherwise requires, the Company and each of its subsidiaries.

"CONDUIT PURCHASERS" means investment bankers and other financial intermediaries
who purchase or otherwise accumulate pools or portfolios of loans having
common features (E.G., real estate mortgages, etc.), with the intent of
securitizing such loan assets and selling them to a trust that secures its
funds by selling ownership interests in the trust to public or private
investors.

"CONVERTIBLE SUBORDINATED DEBENTURES" means the Company's 8% Convertible
Subordinated Debentures due 2005.

"CONVERTIBLE SUBORDINATED DEBENTURE INDENTURE" means that certain Indenture
dated November 27, 1995, governing the Convertible Subordinated Debentures.

"CREDIT AGREEMENTS" means the Revolving Loan Agreement and the Warehouse
Agreements.

"EQS" means, collectively, EQ Services, Inc. and Equitable Real Estate
Investment Management, Inc.

"EQS ACQUISITION" means the acquisition by the Company of the third-party
securitized, commercial mortgage loan Master Servicer and Special Servicer
business of EQS.

"FACE VALUE" means, with respect to any loan or Asset Portfolio, the aggregate
unpaid principal balance of a loan or loans.

"FANNIE MAE" means the Federal National Mortgage Association.

"FDIC" means the Federal Deposit Insurance Corporation.

"FREDDIE MAC" means the Federal Home Loan Mortgage Corporation.

"HOLDINGS" means AMRESCO Holdings, Inc.

"HOLLIDAY FENOGLIO" means Holliday Fenoglio, Inc., a subsidiary of the Company.

"MASTER SERVICER" means an entity which provides administrative services to
securitized pools of mortgage-backed securities.
</TABLE>

4
<PAGE>
<TABLE>
<S> <C>
"NATIONSBANK CONTRACT" means the asset management contract, as amended,
originally dated July 1, 1992, among the Company, NationsBank Corporation
and certain of its bank subsidiaries.

"NATIONSBANK OF TEXAS" means NationsBank of Texas, N.A.

"PRIMARY SERVICER" means an entity which provides various administrative
services for loans such as collecting monthly mortgage payments, maintaining
escrow accounts for the payment of ad valorem taxes and insurance premiums
on behalf of borrowers, remitting payments of principal and interest
promptly to investors in mortgages or the Master Servicer of a pool and
reporting to those investors or the Master Servicer on financial
transactions related to such mortgages.

"OFFERING" means the offering of Notes made hereby.

"REVOLVING LOAN AGREEMENT" means the Revolving Loan Agreement dated as of
September 29, 1995 and as subsequently amended, among the Company,
NationsBank of Texas, as Agent, and the Banks which are parties thereto from
time to time.

"RTC" means the Resolution Trust Corporation.

"SECURITIZATION" and "SECURITIZED" mean a transaction in which loans originated
or purchased by an entity are sold to special purpose entities organized for
the purpose of issuing asset-backed securities.

"SPECIAL SERVICER" means an entity which provides asset management and
resolution services for non-performing or under-performing loans within a
pool of performing loans and/or mortgages.

"WAREHOUSE" means a type of lending arrangement whereby loans funded and held
for sale are financed by financial institutions or institutional lenders on
a short-term basis.

"WAREHOUSE AGREEMENTS" means, collectively, (i) the $25.0 million credit
facility dated as of April 28, 1995, among ACC, the Company and NationsBank
of Texas and (ii) the credit facility dated as of August 15, 1995, between
ACC and Residential Funding Corporation.
</TABLE>

5
<PAGE>
SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN
THIS PROSPECTUS DOES NOT GIVE EFFECT TO THE EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IN RESPECT OF THE NOTES.

THE COMPANY

GENERAL. The Company is a leading specialty financial services company
engaged primarily in Asset Portfolio acquisition and resolution and mortgage
banking. The Asset Portfolio acquisition and resolution business involves
acquiring at a substantial discount to Face Value and managing and resolving
Asset Portfolios to maximize cash recoveries. The Company manages and resolves
Asset Portfolios acquired by the Company alone, acquired by the Company with
co-investors and owned by third-parties. The Company's mortgage banking business
involves the origination, placement and servicing of commercial real estate
mortgages. In addition, the Company has formed a residential mortgage banking
business through which the Company purchases and securitizes portfolios of
residential mortgages of borrowers who do not qualify for conventional loans and
whose borrowing needs are not being met by traditional financial institutions.
The Company has also entered the real estate pension advisory business through
the purchase of substantially all of the advisory contracts of Acacia.

HISTORY. The Company is the product of the December 1993 merger of two
Asset Portfolio management and resolution service companies: BEI and Holdings.
Holdings was the former Asset Portfolio management and resolution unit of
NationsBank of Texas, which was created in 1988 in connection with NationsBank
Corporation's acquisition from the FDIC of certain assets and liabilities of the
collapsed First RepublicBank. BEI, a publicly-held company that was in the real
estate and asset management services businesses, began providing asset
management and resolution services to the RTC in 1990. BEI also participated in
certain non-real estate service businesses, which were not retained after the
BEI Merger. The BEI Merger created one of the largest Asset Portfolio management
and resolution service companies in the United States. Since 1987, the Company
and its predecessors have managed approximately $30.0 billion (Face Value) of
Asset Portfolios.

DEVELOPMENT OF BUSINESS STRATEGY. The Company's original business of
managing and resolving Asset Portfolios for third parties developed as a result
of the takeover of failed thrifts and banks by the federal government's deposit
insurance agencies in the late 1980s. Due to the substantial volume of
under-performing and non-performing loans and foreclosed assets (much of it
commercial real estate loans and properties) and a lack of sufficient internal
staffing, the RTC and FDIC turned to private contractors to assist in the
management and resolution of Asset Portfolios.

In early 1994, the Company made the strategic decision to diversify its
business lines and to reduce the Company's dependence on asset management and
resolution contracts with governmental agencies and certain other entities. As a
result, the Company shifted its strategic focus in order to take advantage of
business opportunities in the specialty finance markets that capitalize on the
Company's competitive strengths and reputation within its core business.

ASSET ACQUISITION AND RESOLUTION BUSINESS. The Company manages and resolves
Asset Portfolios acquired at a substantial discount to Face Value by the Company
alone and by the Company with co-investors. The Company also resolves Asset
Portfolios owned by third parties. Asset Portfolios generally include secured
loans of varying qualities and collateral types. The resolution of an Asset
Portfolio typically involves either (i) negotiating with debtors a discounted
payoff, which may be accomplished through a refinancing by the obligor with a
lender other than the Company or (ii) foreclosure and sale of the collateral.
Since the Company's objective is to resolve an Asset Portfolio as quickly as
practicable, the Company's policy is to not extend credit to debtors by
advancing cash or by renewing and extending their obligations. As of September
30, 1995, the Company's management and resolution service contracts with
third-parties (including Asset Portfolios owned by the Company with
co-investors) covered Asset Portfolios having an aggregate

6
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Face Value of $2.7 billion of which $411.3 million was represented by
securitized commercial mortgage pools with respect to which the Company is the
named Special Servicer. At September 30, 1995, the Company's total investment in
Asset Portfolios was $175.8 million compared to $70.9 million at December 31,
1994 and $48.8 million at September 30, 1994. For the nine month period ended
September 30, 1995 and the fiscal year ended December 31, 1994, $54.3 million
(78%) and $139.1 million (88%) respectively of the Company's gross revenues were
attributable to its Asset Portfolio acquisition and resolution business.

MORTGAGE BANKING BUSINESS. The Company performs a wide range of commercial
mortgage banking services, including originating, underwriting, placing, selling
and servicing of commercial real estate loans through its Holliday Fenoglio and
ACC mortgage banking units. Holliday Fenoglio was one of the largest mortgage
bankers in the United States in 1994 (based on origination volume) and primarily
serves commercial real estate developers and owners by originating commercial
real estate loans. Holliday Fenoglio primarily targets developers and owners of
higher-quality commercial and multi-family real estate properties. Holliday
Fenoglio originates prospective borrowers through its own commission-based
mortgage bankers in its offices located in Atlanta, Boca Raton, Buffalo, Dallas,
Houston, New York City and Orlando. The loans originated by Holliday Fenoglio
generally are funded by institutional lenders, primarily insurance companies,
with Holliday Fenoglio retaining the Primary Servicer rights on approximately
20% of such loans. The Company believes that Holliday Fenoglio's relationship
and credibility with the institutional lender network provide the Company a
competitive advantage in the commercial mortgage banking industry.

ACC, which originated approximately $260.7 million of commercial real estate
mortgages during the nine months ended September 30, 1995, is a mortgage banker
that originates and underwrites commercial real estate loans that are funded
primarily by Conduit Purchasers rather than by institutional lenders such as
insurance companies. ACC, therefore, makes certain representations and
warranties concerning the loans it originates. These representations cover such
matters as title to the property, lien priority, environmental reviews and
certain other matters. ACC primarily targets originators of commercial mortgage
loans for commercial real estate properties that are suitable for sale to
Conduit Purchasers accumulating loans for securitization programs. ACC markets
its services directly through ACC's offices located in Dallas, Miami and
Washington, D.C., as well as through a network of approximately 20 independent
mortgage brokers located throughout the United States. ACC recently established
a relationship with the 22 office commercial real estate finance unit of a major
insurance company whereby the insurance company has agreed to refer prospective
borrowers to the Company in instances where the prospective borrower does not
meet the insurer's requirements (typically borrowers for medium-quality
commercial properties). Since ACC commenced its underwriting activities and
through September 30, 1995, Holliday Fenoglio has originated approximately 31%
of the loans underwritten by ACC, with Holliday Fenoglio and ACC each receiving
fees for their respective services.

As of September 30, 1995, the Company was the servicer for approximately
$3.1 billion of commercial mortgages of which $117.0 million was as a Master
Servicer and $3.0 billion was as a Primary Servicer. On October 27, 1995, the
Company acquired additional servicing business in the EQS Acquisition. See
"Recent Developments -- Acquisition of EQS." The Company has formed a
residential mortgage banking business through which the Company purchases and
securitizes portfolios of non-conforming residential mortgages. For the
nine-month period ended September 30, 1995, $14.1 million (20.2%) of the
Company's gross revenues were attributable to the Company's mortgage banking
business.

BUSINESS STRATEGY. The Company seeks to continue to increase its market
share in its existing business lines and to enter related businesses through
both internal growth and acquisitions. See "Recent Developments." Key elements
of this strategy include:

- increasing the amount that the Company invests for its own account in
Asset Portfolios by capitalizing on its expertise in managing and
resolving Asset Portfolios for third parties;

- continuing to provide high quality management and resolution services to
co-investors and other third-party owners of Asset Portfolios;

7
<PAGE>
- expanding its presence in the traditional mortgage banking market through
greater market penetration and by participating in the expanding market
for securitization of commercial and residential real estate mortgages;
and

- developing its new real estate pension advisory business to complement the
Company's existing business lines.

The Company is a Delaware corporation. The Company's principal executive
offices and mailing address are 1845 Woodall Rodgers Freeway, Suite 1700,
Dallas, Texas 75201 and its telephone number is (214) 953-7700.

THE OFFERING

<TABLE>
<S> <C>
Notes offered..................... $50,000,000 principal amount of 10% Senior Subordinated
Notes due 2003. See "Description of the Notes --
General."
Denomination...................... $1,000 and integral multiples thereof.
Maturity.......................... January 15, 2003.
Interest payment dates............ Monthly, commencing March 15, 1996, and on the fifteenth
day of each month thereafter. The first interest payment
will represent interest from the date of issuance of the
Notes through March 14, 1996.
Redemption at option of the
Company.......................... The Notes may not be redeemed prior to January 15, 2001.
Thereafter, the Notes may be redeemed in whole or in
part at any time at the option of the Company, upon not
less than 30 nor more than 60 days' written notice, at
par plus accrued interest to the date of redemption. See
"Description of the Notes -- Redemption at Option of the
Company."
Repayment option upon death....... Upon the death of any holder of Notes, the Company will
redeem, at par plus accrued interest, such holder's
Notes upon request up to $30,000 in principal amount per
holder per year subject to an aggregate limit for all
holders of $300,000 in principal amount in any twelve
month period and certain conditions being met, including
the condition that the Company would not be in default
on any Senior Indebtedness as a result of such
redemption. See "Description of the Notes -- Repayment
Option Upon Death."
Subordination..................... The Notes are subordinated to the prior payment of all
existing and future Senior Indebtedness. See
"Description of the Notes -- Subordination." The Notes
will also be structurally subordinated to all
liabilities of and the rights of holders of preferred
stock, if any, of the Company's subsidiaries. The Notes
are not secured by any collateral. Upon consummation of
the Offering, only the capital stock and the Convertible
Subordinated Debentures of the Company will be junior to
the Notes. At December 31, 1995, Senior Indebtedness of
the Company and its subsidiaries totaled approximately
$281.0 million (including $135.6 million of borrowings
under a mortgage warehouse facility that were repaid on
January 26, 1996). At December 31, 1995, other
liabilities of the Company's subsidiaries totaled
approximately $28.6 million. Following the Offering, the
Company will have the ability to incur
</TABLE>

8
<PAGE>

<TABLE>
<S> <C>
a significant amount of additional indebtedness,
including indebtedness which may have rights that are
senior to or equivalent to those of the Notes in respect
of payments and distributions on liquidation. See
"Description of the Notes -- Covenants -- Restrictions
on Additional Indebtedness and Interest Coverage Ratio."
Limited rights of acceleration or
repurchase....................... Payment of principal on the Notes may be accelerated
upon the occurrence of Events of Default (as defined)
only upon the action of the Trustee or the holders of at
least 25% in aggregate principal amount of outstanding
Notes, and such acceleration may be rescinded by the
holders of a majority of the aggregate principal amount
of the outstanding Notes if all Events of Default are
remedied and all payments due are made before a judgment
or decree for payment of money due is obtained. See
"Description of the Notes -- Events of Default."
Covenants......................... The indenture under which the Notes will be issued (the
"Indenture") will contain certain covenants that, among
other things, will limit (i) the Company's ability to
incur Indebtedness for Money Borrowed (as defined), (ii)
the payment of dividends or distributions to holders of
the Company's equity securities and (iii)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. All of these
covenants, however, are subject to a number of important
qualifications. See "Description of the Notes --
Covenants."
Listing........................... The Notes have been approved for listing on the New York
Stock Exchange under the symbol "AMMB03," subject to
notice of issuance.
Trustee........................... Bank One, Columbus, N.A.
</TABLE>

USE OF PROCEEDS

The net proceeds from the sale of the Notes offered hereby by the Company
will be used to reduce the Company's outstanding borrowings under the Revolving
Loan Agreement. After application of the net proceeds, approximately $54.7
million will be available as of January 29, 1996 for borrowing under the
Revolving Loan Agreement to be used for general corporate purposes, which may
include funding investments in Asset Portfolios, acquiring new businesses or
making strategic investments in companies that complement the Company's business
lines and strategies. See "Use of Proceeds."

RISK FACTORS

Prior to making an investment decision, prospective purchasers of the Notes
should consider all of the information set forth in this Prospectus and should
evaluate the considerations set forth in "Risk Factors."

9
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA

The summary data presented below under the captions "Summary Income
Statement" and "Summary Balance Sheet Data" for and as of the end of each of the
fiscal years in the three-year period ended December 31, 1994, are derived from
the Consolidated Financial Statements of the Company and its predecessors
audited by Deloitte & Touche LLP and included herein. In the opinion of
management of the Company, the data presented for the nine months ended
September 30, 1994 and 1995, which are derived from the Company's unaudited
consolidated financial statements, reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations for such periods. Results for the nine months
ended September 30, 1995, are not necessarily indicative of results for the
entire fiscal year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements and
the Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------------
1992(1) 1993 1994(2) 1994(2) 1995
------------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Revenues:
Asset management and resolution fees............ $166,857 $168,313 $120,640 $101,221 $27,278
Asset Portfolio income.......................... -- 2,642 13,089 8,433 23,662
Mortgage banking fees........................... -- -- 6,176 1,967 14,077
Other revenues.................................. 1,273 1,207 17,279 16,184 4,585
------------- ----------- ----------- ----------- -----------
Total revenues................................ 168,130 172,162 157,184 127,805 69,602
Operating expenses................................ 134,085 127,731 119,730 92,579 46,860
------------- ----------- ----------- ----------- -----------
Operating income.................................. 34,045 44,431 37,454 35,226 22,742
Interest expense.................................. 19 754 1,768 1,696 2,771
------------- ----------- ----------- ----------- -----------
Income from continuing operations before taxes.... 34,026 43,677 35,686 33,530 19,971
Income tax expense................................ 10,730 17,371 14,753 13,874 7,541
------------- ----------- ----------- ----------- -----------
Income from continuing operations................. 23,296 26,306 20,933 19,656 12,430
Gain (loss) from discontinued operations.......... (1,063) (2,088) (2,185) (976) 2,425
------------- ----------- ----------- ----------- -----------
Net income........................................ $22,233 $24,218 $18,748 $18,680 $14,855
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
Earnings per share from continuing operations..... $2.04 $2.33 $0.88 $0.83 $0.51
Earnings per share................................ 1.95 2.15 0.79 0.79 0.61
Weighted average number of shares outstanding..... 11,419,536 11,288,688 23,679,239 23,515,800 24,429,822
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
--------------------------------------------- -----------------------------
1992 1993 1994 1994 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents......................... $4,228 $43,442 $20,446 $41,733 $12,720
Investment securities............................. -- -- -- -- 27,222
Investment in Asset Portfolios:
Loans........................................... -- 33,795 30,920 17,272 114,676
Partnerships and joint ventures................. -- 2,503 22,491 14,157 30,052
Real estate..................................... -- 2,504 14,054 14,201 11,046
Asset-backed securities......................... -- -- 3,481 3,481 19,982
Total assets...................................... 44,238 163,653 172,340 162,582 291,082
Notes payable..................................... 4,656 22,113 15,500 4,406 104,222
Mortgage warehouse debt........................... -- -- -- -- 5,693
Nonrecourse debt.................................. -- 6,000 959 4,761 30,605
Total indebtedness................................ 4,656 28,113 16,459 9,167 140,520
Shareholders' equity.............................. 18,735 91,699 113,586 114,558 129,024

OTHER DATA:
Ratio of earnings to fixed charges (3)............ N/A(4) 58.9x 21.2x 20.8x 8.2x
EBITDA (5)........................................ $40,294(1) $45,668 $43,177 $37,325 $25,436
Interest coverage ratio (6)....................... N/A(4) 60.6x 24.4x 22.0x 9.2x
Face Value of assets under management............. $8,060,400 $5,756,900 $3,088,700 $2,436,800 $3,040,700
Commercial mortgage loans originated (for the
period ended):
Face Value...................................... -- -- $610,000 $185,200 $1,585,000
Number of loans................................. -- -- 106 28 255
Commercial mortgage loans serviced:
Face Value...................................... -- -- $2,555,000 $2,592,000 $2,970,000
Number of loans................................. -- -- 592 559 749
</TABLE>

10
<PAGE>
- ------------------------------
(1) Includes the Company's operations for the two months ended December 31,
1992, and the combined operations of its predecessor entities for the ten
months ended October 31, 1992.

(2) Summary Income Statement and Other Data for the fiscal year ended December
31, 1994, and the nine months ended September 30, 1994, reflect data for
Holliday Fenoglio effective August 1, 1994, the effective date of its
acquisition by the Company.

(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of operating income before income taxes and fixed charges. Fixed
charges consist of interest expense.

(4) The Company or its predecessors had no or nominal interest expense in 1990,
1991 and 1992 and it was not meaningful, therefore, to calculate these
ratios for the years ended December 31, 1990, 1991 and 1992.

(5) EBITDA is calculated as operating income (excluding gain (loss) from
discontinued operations) before interest, income taxes, depreciation and
amortization. The Company has included information concerning EBITDA because
EBITDA is one measure of an issuer's historical ability to service its debt.
EBITDA should not be considered as an alternative to, or more meaningful
than, net income as an indicator of the Company's operating performance or
to cash flows as a measure of liquidity.

(6) Interest coverage ratio means the ratio of EBITDA to cash interest expense.

11
<PAGE>
RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE
FOLLOWING FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING
THE NOTES OFFERED HEREBY.

UNCERTAIN NATURE OF THE ASSET ACQUISITION AND RESOLUTION BUSINESS

The outsourcing of the management and resolution of Asset Portfolios has
grown rapidly since the late 1980s; accordingly, the asset acquisition and
resolution business is relatively young and still evolving. This business is
affected by long-term cycles in the general economy. In addition, the Asset
Portfolios available for purchase by investors and/or management by third party
servicers such as the Company has declined since 1993. The Company cannot
predict what will be a normal annual volume of Asset Portfolios to be sold or
outsourced for management and resolution. Moreover, there cannot be any
assurance that Asset Portfolio purchasers/owners for whom the Company provides
Asset Portfolio management services will not build their own management and
resolution staffs and reduce or eliminate their outsourcing of these services.
As a result of these factors, it is difficult to predict the long-term future of
this business.

STRATEGIC SHIFT IN BUSINESS LINES

In early 1994, the Company made the strategic decision to diversify its
business lines and to reduce the Company's dependence on asset management and
resolution contracts with governmental agencies and certain other entities. The
Company has substantially increased its investments in Asset Portfolios. The
Company also pursues private sector Asset Portfolio management contracts,
generally through co-investing in Asset Portfolios. Since 1993, the Company has
also entered the commercial and residential mortgage banking businesses and has
purchased a pension advisory business.

As a result, the Company must simultaneously manage (i) a significant change
in its customer mix, (ii) the investment of the Company's own capital in Asset
Portfolios and (iii) the development of new business lines in which the Company
has not previously participated. All of these activities will require the
investment of additional capital and the significant involvement of senior
management to achieve a successful outcome. There is no assurance that the
Company will successfully execute this strategic transition.

GENERAL ECONOMIC CONDITIONS

Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate may adversely affect certain segments of the
Company's business. Although such economic conditions may increase the number of
non-performing loans available for sale to or for management by the Company,
such conditions could adversely affect the resolution of Asset Portfolios held
by the Company for its own account or managed for others by the Company, lead to
a decline in prices or demand for collateral underlying Asset Portfolios or, in
the case of Asset Portfolios held for the Company's own account, increase the
cost of capital invested by the Company and the length of time that capital is
invested in a particular portfolio, thereby negatively impacting the rate of
return upon resolution of the portfolio. Economic downturns and rising interest
rates also may reduce the number of mortgage loan originations by the Company's
mortgage banking business and thereby may adversely affect the Company's
mortgage banking business.

FINANCIAL LEVERAGE

Following the Offering, the Company will have substantial indebtedness and,
as a result, significant debt service obligations. As of September 30, 1995,
after giving effect to all the adjustments described in "Capitalization"
(including the Offering), the Company would have had approximately $141.1
million aggregate amount of indebtedness outstanding, representing approximately
48% of its total capitalization. See "Use of Proceeds" and "Capitalization."

The ratio of the Company's debt to equity could have important consequences
to purchasers of the Notes, including: (i) limiting the Company's ability to
obtain necessary additional financing to fund future working capital
requirements, Asset Portfolio investments, capital expenditures, acquisitions or
other general corporate requirements, (ii) requiring a significant portion of
the Company's cash flow from operations to be dedicated to debt service
requirements, thereby reducing the funds available for operations and future
business opportunities, (iii) requiring all of the indebtedness incurred under
the Revolving Loan Agreement

12
<PAGE>
to be repaid prior to the time any principal payments are required on the Notes,
thereby potentially impairing the Company's ability to make payments on the
Notes, and (iv) increasing the Company's vulnerability to adverse economic and
industry conditions. In addition, since certain of the Company's borrowings,
including borrowings under the Revolving Loan Agreement, will be at variable
rates of interest, the Company will be vulnerable to increases in interest
rates. The Company may incur additional indebtedness in the future, although its
ability to do so will be restricted by the Indenture and the Credit Agreements.
The ability of the Company to make scheduled payments under its present and
future indebtedness, or to refinance such indebtedness, will depend on, among
other things, the future operating performance of the Company, changes in
interest rates, general economic conditions, and the perception in the capital
markets of the Company's business, results of operations, leverage, financial
condition and business prospects. Each of these factors is to a large extent
subject to economic, financial, competitive and other factors beyond the
Company's control. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

The Credit Agreements contain numerous financial and operating covenants
that will limit the discretion of the Company's management with respect to
certain business matters. These covenants will place significant restrictions
on, among other things, the ability of the Company to make certain payments and
investments, and to sell or otherwise dispose of assets and merge or consolidate
with other entities. See "Description of Other Indebtedness." The Credit
Agreements also require the Company to meet certain financial ratios and tests.
A failure to comply with the obligations contained in the Credit Agreements
could result in an event of default under any of the Credit Agreements, the
Convertible Subordinated Debenture Indenture or the Indenture, which could
permit acceleration of the related indebtedness and acceleration of indebtedness
under other instruments that may contain cross-acceleration or cross-default
provisions. See "Description of Other Indebtedness."

SUBORDINATION OF THE NOTES

The Notes will be subordinated in right of payment in full to all existing
and future Senior Indebtedness of the Company, which includes all indebtedness
under the Revolving Loan Agreement. As of December 31, 1995, after giving effect
to the Offering and the application of the net proceeds therefrom, the Company
and its subsidiaries would have had Senior Indebtedness aggregating
approximately $233.3 million (including $135.6 million of borrowings under a
mortgage warehouse facility that were repaid on January 26, 1996) and would have
had up to $85.2 million available under the Revolving Loan Agreement which, if
borrowed, would be included as Senior Indebtedness. In the event of the
liquidation, dissolution, reorganization or any similar proceeding regarding the
Company, the assets of the Company will be available to pay obligations on the
Notes only after Senior Indebtedness of the Company has been paid in full.
Accordingly, there may not be sufficient assets remaining to pay amounts due on
all or any of the Notes. See "Description of the Notes -- Subordination."

The Notes will be effectively subordinated to indebtedness, preferred stock
(if any) and liabilities of the Company's subsidiaries. As of December 31, 1995,
the aggregate amount of these liabilities of the Company's subsidiaries was
approximately $220.1 million (excluding $118.8 million representing intercompany
notes of subsidiaries payable to the Company, but including $135.6 million of
borrowings under a mortgage warehouse facility that were repaid on January 26,
1996). The Company's operations are conducted principally through its
wholly-owned subsidiaries. Accordingly, the Company will be dependent upon the
cash flow of, and receipt of dividends or advances from, its subsidiaries in
order to meet its debt obligations, including the Company's obligations under
the Notes. Since the Notes are obligations of the parent company only, the
Company's subsidiaries are not obligated or required to pay any amounts pursuant
to the Notes or to make funds available therefor in the form of dividends or
advances to the Company. In addition, since the Company is a holding company,
its principal assets consist of its equity ownership position in its wholly-
owned subsidiaries. The claims of holders of the Notes effectively will be
subordinated to the prior claims of holders of preferred stock, if any, and
creditors, including trade creditors, of the Company's subsidiaries.

13
<PAGE>
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes will not be secured by any of the
Company's assets. The Revolving Loan Agreement is secured by substantially all
of the assets of the Company not pledged under other credit facilities,
including stock of a majority of the Company's subsidiaries. If the Company
becomes insolvent or is liquidated, or if payment under the Revolving Loan
Agreement is accelerated, the lenders under the Revolving Loan Agreement would
be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the Revolving Loan Agreement. Accordingly,
such lenders will have a prior claim with respect to such assets and subsidiary
capital stock.

LIMITED COVENANTS

The covenants in the Indenture are limited and are not designed to protect
holders of the Notes in the event of a material adverse change in the Company's
financial condition or results of operations. The provisions of the Indenture
should not be a significant factor in evaluating whether the Company will be
able to comply with its obligations under the Notes. See "Description of the
Notes."

NEED FOR ADDITIONAL FINANCING

The Company's ability to execute its business strategy depends to a
significant degree on its ability to obtain additional indebtedness and equity
capital. Other than as described in this Prospectus, the Company has no
commitments for additional borrowings or sales of equity and there can be no
assurance that the Company will be successful in consummating any such future
financing transactions on terms satisfactory to the Company, if at all. Factors
which could affect the Company's access to the capital markets, or the costs of
such capital, include changes in interest rates, general economic conditions,
and the perception in the capital markets of the Company's business, results of
operations, leverage, financial condition and business prospects. Each of these
factors is to a large extent subject to economic, financial, competitive and
other factors beyond the Company's control. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

DEPENDENCE ON SECURITIZATION PROGRAM

The Company likely will become more dependent upon its ability to pool and
sell loans in the secondary market in order to generate cash proceeds for new
originations and purchases. Accordingly, adverse changes in the secondary
mortgage market could impair the Company's ability to originate, purchase and
sell mortgage loans on a favorable or timely basis. Any such impairment could
have a material adverse effect upon the Company's business and results of
operations. In addition, in order to gain access to the secondary market, the
Company may rely on monoline insurance companies to provide, in exchange for
premiums, a guarantee on outstanding senior interests in the related
securitization trusts to enable it to obtain a "AAA/ Aaa" rating for such
interests. Any substantial reductions in the size or availability of the
secondary market for the Company's loans, or the unwillingness of monoline
insurance companies to guarantee the senior interests in the Company's loan
pools, could have a material adverse effect on the Company's financial position
and results of operations.

RISKS OF HEDGING TRANSACTIONS

The Company has in the past and may in the future enter into interest rate
or foreign currency financial instruments used for hedging purposes. While
intended to reduce the effects of volatility in interest rate or foreign
currency price movements, such transactions could cause the Company to recognize
losses depending on the terms of the instrument and the interest rate or foreign
currency price movement.

COMPETITION

The Asset Portfolio management and other financial services industries in
which the Company operates are highly competitive. Some of the Company's
principal competitors in certain business lines are substantially larger and
better capitalized than the Company. Because of these resources, these companies
may be better able than the Company to obtain new customers, to acquire Asset
Portfolios, to pursue new business opportunities, or to survive periods of
industry consolidation. See "Business -- Competition."

14
<PAGE>
The Company believes that its ability to acquire Asset Portfolios for its
own account will be important to its future growth. Acquisitions of Asset
Portfolios are often based on competitive bidding, where there are dangers of
bidding too low (which generates no business), as well as of bidding too high
(which could win the portfolio at an economically unattractive price). Asset
Portfolio acquisitions also require significant capital. There currently is
substantial competition for Asset Portfolio acquisitions and such competition
could increase in the future. See "Business -- Asset Acquisition and Resolution
Business -- Asset Portfolio Investment."

LIMITED MARKET FOR THE NOTES

The Notes have been approved for listing on the New York Stock Exchange,
subject to notice of issuance. However, no assurance can be given that an active
trading market for the Notes will develop or that the Notes will not trade at a
discount to their principal amount.

15
<PAGE>
RECENT DEVELOPMENTS

ACQUISITION OF CKSRS. Effective June 30, 1995, the Company acquired for
approximately $1.3 million substantially all of the assets of CKSRS, a
Miami-based commercial mortgage banking limited partnership specializing in the
origination, sale and servicing of mortgages on multi-family properties in
Florida.

ACQUISITION OF EQS. On October 27, 1995, the Company completed the
acquisition of the third-party securitized, commercial mortgage loan Master
Servicer and Special Servicer businesses of EQS. The purchase price was
approximately $16.9 million. At September 30, 1995, the EQS businesses acquired
by the Company had contracts to service approximately $6.0 billion of
securitized commercial mortgage loans. The Company believes that it is now one
of the largest servicers of securitized commercial mortgages in the United
States.

ACQUISITION OF ACACIA. Effective November 20, 1995, the Company completed
the purchase for approximately $4.5 million of substantially all of the pension
fund advisory contracts and certain other assets of Acacia. Acacia provides real
estate investment advisory services to pension and other institutional investors
in respect of investments in office, industrial and distressed real estate
properties. Through these contracts, approximately 35 clients have invested over
$970.0 million in commercial real estate representing approximately 63
properties with over 13.5 million square feet of commercial space and
approximately 670 apartment units. Acacia is based in Boston.

CONVERTIBLE SUBORDINATED DEBENTURE OFFERING. On November 27, 1995, the
Company completed an offering conducted in Europe (the "Convertible Subordinated
Debenture Offering"), pursuant to Regulation S promulgated under the Securities
Act, of $45.0 million aggregate principal amount of Convertible Subordinated
Debentures. The net proceeds (aggregating approximately $43.0 million) from such
offering were used to repay borrowings under the Revolving Loan Agreement. The
Convertible Subordinated Debentures bear interest at 8% per annum and will
mature on December 15, 2005. There is no sinking fund or amortization of
principal prior to maturity. The Convertible Subordinated Debentures are not
redeemable prior to December 15, 1996. The Convertible Subordinated Debentures
are convertible at the option of the holders into shares of Common Stock at a
conversion price of $12.50 per share (equivalent to a conversion rate of 80
shares of Common Stock per $1,000 principal amount of Convertible Subordinated
Debentures), subject to adjustment in certain events. The Convertible
Subordinated Debentures are unsecured obligations of the Company and
subordinated to all existing and future Senior Indebtedness (as defined in the
Convertible Subordinated Debenture Indenture) of the Company. The Convertible
Subordinated Debentures contain certain rights of the holder to require the
repurchase of the Convertible Subordinated Debentures (i) upon a Fundamental
Change (as defined in the Convertible Subordinated Debenture Indenture) and (ii)
if the Company is not able to maintain a Net Worth (as defined in the
Convertible Subordinated Debenture Indenture) of approximately $141.0 million
(which includes the net proceeds to the Company from the Common Stock offering
described below) plus the net proceeds to the Company from any other offering of
Common Stock by the Company subsequent to the date hereof. There are certain
other covenants restricting dividends on and redemptions of capital stock. See
"Description of Other Indebtedness -- Convertible Subordinated Debentures."

The Convertible Subordinated Debentures have not been registered under the
Securities Act and may not be offered or sold in the United States without
registration under the Securities Act or absent an applicable exemption from the
registration requirements of the Securities Act. On January 11, 1996, the
Company filed with the Commission a registration statement on Form S-3 to
register the resale by Debentureholders of shares of Common Stock issuable to
such holders upon conversion of the Convertible Subordinated Debentures.

COMMON STOCK OFFERING. On December 13, 1995, the Company completed a
registered public offering of 2,000,000 shares of Common Stock (the "Common
Stock Offering"). Subsequent thereto, the Company sold an additional 300,000
shares of Common Stock upon exercise of the Underwriters' over-allotment option.
The net proceeds from such offering, including the over-allotment shares,
aggregated approximately $25.1 million and were used to repay borrowings under
the Revolving Loan Agreement. The price to the public was $11.75 per share and
the price to the Company per share was $11.10 (after an underwriting discount of
$ .65 per share). In addition to the offering of shares of Common Stock by the
Company, two institutional shareholders sold an aggregate of 2,300,000 shares of
Common Stock (including 300,000 shares sold pursuant to the exercise of the
underwriters' over-allotment option). The Company did not receive any proceeds
from the sale of these shares.

16
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Notes offered hereby
(after deducting underwriting discounts and estimated expenses of the Offering)
will be approximately $47.7 million ($54.9 million if the Underwriters'
over-allotment option is exercised in full).

The Company intends to use the net proceeds to reduce the Company's
outstanding borrowings under the Revolving Loan Agreement (which had an
outstanding balance of approximately $67.5 million at December 31, 1995 and
approximately $98.0 million as of January 29, 1996). For the year ended December
31, 1995, the weighted average interest rate on indebtedness under the Company's
bank credit agreement (which was replaced on September 29, 1995 by the Revolving
Loan Agreement) was 8 3/10% per annum. The indebtedness under the predecessor
credit agreement and the Revolving Loan Agreement was incurred primarily in
connection with investments in Asset Portfolios, the acquisition of CKSRS, the
EQS Acquisition, the Acacia Acquisition and other general corporate purposes.
After application of the net proceeds to the Company of the Offering, $54.7
million would be available as of January 29, 1996 for reborrowing under the
Revolving Loan Agreement to be used for general corporate purposes, which may
include funding investments in Asset Portfolios, acquiring new businesses or
making strategic investments in companies that complement the Company's business
lines and strategies. The Company has no understandings or agreements in respect
of any material acquisition. See "Description of Other Indebtedness -- Revolving
Loan Agreement" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

17
<PAGE>
CAPITALIZATION

The following table presents the capitalization of the Company at September
30, 1995, and (i) as adjusted to reflect the EQS Acquisition, the Acacia
Acquisition, completion of the Convertible Subordinated Debenture Offering and
completion of the Common Stock Offering, and (ii) as further adjusted to reflect
the application of the estimated net proceeds from the sale of the Notes offered
hereby as described under "Use of Proceeds." The table should be read in
conjunction with the Consolidated Financial Statements of the Company, the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1995
------------------------------------
AS AS FURTHER
ACTUAL ADJUSTED (2) ADJUSTED (3)
---------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt(1):
Notes payable........................................................... $ 104,222 $ 57,476 $ 9,776
Mortgage warehouse debt................................................. 5,693 5,693 5,693
Nonrecourse debt........................................................ 30,605 30,605 30,605
Senior Subordinated Notes............................................... -- -- 50,000
Convertible Subordinated Debentures..................................... -- 45,000 45,000
---------- ----------- -----------
Total debt............................................................ 140,520 138,774 141,074
---------- ----------- -----------
Shareholders' equity:
Common Stock, par value $0.05 per share; 50,000,000 authorized shares
and 24,193,464 issued shares, 26,493,464 shares as adjusted(4)......... 1,210 1,325 1,325
Capital in excess of par................................................ 78,790 103,785 103,785
Reductions for employee stock........................................... (620) (620) (620)
Treasury stock, 24,339 shares........................................... (160) (160) (160)
Retained earnings....................................................... 49,804 49,804 49,804
---------- ----------- -----------
Total shareholders' equity............................................ 129,024 154,134 154,134
---------- ----------- -----------
Total capitalization.................................................. $ 269,544 $ 292,908 $ 295,208
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

- ------------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," "Description of
Other Indebtedness" and Note 5 of Notes to Consolidated Financial
Statements for a description of this indebtedness.

(2) Gives effect to the EQS Acquisition, the Acacia Acquisition and completion
of the Convertible Subordinated Debenture Offering and the Common Stock
Offering.

(3) Gives effect to the offering of Notes by the Company hereby and the
application of the net proceeds therefrom as described in "Use of
Proceeds."

(4) Does not include an aggregate of 1,775,948 shares (2,283,718 shares at
January 29, 1996) of Common Stock reserved for issuance at September 30,
1995, upon the exercise of outstanding stock options and 2,405,665 shares
(1,687,958 shares at January 29, 1996) available for future grants of
options and shares of restricted stock under the Company's Stock Option and
Award Plan. Since September 30, 1995, options for an aggregate of 57,530
shares have been exercised and 152,407 shares of restricted stock have been
issued under the Company's Stock Option and Award Plan. See Note 11 of
Notes to Consolidated Financial Statements.

18
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------- -------------------------
1992 1993 1994 1994 1995
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents......................... $4,228 $43,442 $20,446 $41,733 $12,720
Investment securities............................. -- -- -- -- 27,222
Investment in Asset Portfolios:
Loans........................................... -- 33,795 30,920 17,272 114,676
Partnerships and joint ventures................. -- 2,503 22,491 14,157 30,052
Real estate..................................... -- 2,504 14,054 14,201 11,046
Asset-backed securities......................... -- -- 3,481 3,481 19,982
Total assets...................................... 44,238 163,653 172,340 162,582 291,082
Notes payable..................................... 4,656 22,113 15,500 4,406 104,222
Mortgage warehouse debt........................... -- -- -- -- 5,693
Nonrecourse debt.................................. -- 6,000 959 4,761 30,605
Total indebtedness................................ 4,656 28,113 16,459 9,167 140,520
Shareholders' equity.............................. 18,735 91,699 113,586 114,558 129,024

19
<PAGE>
- ------------------------------
(1) Includes the Company's operations for the two months ended December 31,
1992, and the combined operations of its predecessor entities for the ten
months ended October 31, 1992.

(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of operating income before income taxes and fixed charges. Fixed
charges consist of interest expense.

(6) Interest coverage ratio means the ratio of EBITDA to cash interest expense.

20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW
On December 31, 1993, BEI merged with Holdings. The BEI Merger was accounted
for as a "reverse acquisition" whereby Holdings was deemed to have acquired BEI
for financial reporting purposes. However, BEI, renamed AMRESCO, INC., remains
the continuing legal entity and registrant for Commission filing purposes.
Consistent with the reverse acquisition accounting treatment, the historical
financial statements of AMRESCO, INC. presented for the year ended December 31,
1993, and the two months ended December 31, 1992, are the consolidated financial
statements of Holdings and differ from the consolidated financial statements of
BEI as previously reported. The results of operations of BEI have been included
in the Company's financial statements from the date of acquisition.

The Company's business originally consisted almost entirely of providing
Asset Portfolio management and resolution services for government agencies and
certain financial institutions. In 1994, the Company concluded all its
significant business relationships with government agencies and the NationsBank
Contract and also began to shift its focus toward Asset Portfolio investing by
the Company and the development of new lines of financial service businesses.
Since the BEI Merger, the Company has extended its business lines to offer a
full range of mortgage banking services, has increased its interests in Asset
Portfolios and has disposed of certain non-core business lines. These
significant changes in the composition of the Company's business are reflected
in the Company's results of operations and may limit the comparability of the
Company's results from period to period.

The following discussion and analysis presents the significant changes in
the financial condition and results of continuing operations of the Company for
the years ended December 31, 1992, 1993 and 1994, and the nine month periods
ended September 30, 1994 and 1995. The historical data for 1992 is presented on
a pro forma basis with Holdings' predecessor businesses as if their acquisition
had occurred on January 1, 1992. Such information may not be comparable to the
Company's current operations. The results of operations of acquired businesses
are included in the Consolidated Financial Statements from the date of
acquisition. This discussion should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Management fees......................................... $ 40,222 $ 30,521 $ 27,991 $ 23,468 $ 15,136
Resolution fees......................................... 66,288 88,031 65,773 58,287 11,615
Asset Portfolio income.................................. -- 2,642 13,089 8,433 23,662
Mortgage banking fees................................... -- -- 6,176 1,967 14,077
Other revenues.......................................... 1,273 1,207 17,279 16,184 4,585
--------- --------- --------- --------- ---------
Total revenues before assistance revenue.............. 107,783 122,401 130,308 108,339 69,075
Assistance revenue...................................... 60,347 49,761 26,876 19,466 527
--------- --------- --------- --------- ---------
Total revenues........................................ 168,130 172,162 157,184 127,805 69,602
Expenses:
Personnel............................................... 49,556 63,618 65,585 52,268 35,961
Other general and administrative........................ 16,130 11,315 27,194 20,910 9,926
Interest................................................ 19 754 1,768 1,696 2,771
Profit participations................................... 8,052 3,037 75 (65) 446
--------- --------- --------- --------- ---------
Total expenses before reimbursable costs.............. 73,757 78,724 94,622 74,809 49,104
Reimbursable costs...................................... 60,347 49,761 26,876 19,466 527
--------- --------- --------- --------- ---------
Total expenses........................................ 134,104 128,485 121,498 94,275 49,631
Income from continuing operations before
taxes.................................................... 34,026 43,677 35,686 33,530 19,971
Income tax expense on continuing operations............... 10,730 17,371 14,753 13,874 7,541
--------- --------- --------- --------- ---------
Income from continuing operations......................... 23,296 26,306 20,933 19,656 12,430
Gain (loss) from discontinued operations.................. (1,063) (2,088) (2,185) (976) 2,425
--------- --------- --------- --------- ---------
Net Income................................................ $ 22,233 $ 24,218 $ 18,748 $ 18,680 $ 14,855
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

21
<PAGE>
RESULTS OF OPERATIONS

Revenues from the Company's asset management and resolution services include
fees charged for the management of Asset Portfolios and for the successful
resolution of the assets within such Asset Portfolios. The asset base of each
Asset Portfolio declines over the life of the portfolio, thus reducing asset
management fees as assets within that Asset Portfolio are resolved. Resolution
fees are earned as individual assets within an Asset Portfolio are resolved.
These fees, therefore, are subject to fluctuation based on the consideration
received, timing of the sale or collection of the managed assets and reaching
specified earnings levels on behalf of investors or investment partners. Certain
direct costs incurred, primarily through 1994, in the management of assets for
the FDIC were paid by the Company and billed to the FDIC. Such costs were
included in reimbursable costs and the related payment by the FDIC was included
in assistance revenue. Such costs did not affect net income, other than the
costs of such advanced funds, but at times required sizable capital resources
until reimbursed by the FDIC.

The Company classifies its investments in Asset Portfolios as loans,
partnerships and joint ventures, real estate, and asset-backed securities. The
original cost of an Asset Portfolio is allocated to individual assets within
that Asset Portfolio based on their relative fair value to the total purchase
price. The difference between gross estimated cash flows from loans and
asset-backed securities and their present value is accrued using the level yield
method of accounting. The Company accounts for its investments in partnerships
and joint ventures using the equity method of accounting, generally resulting in
the pass-through of the Company's pro rata share of the earnings of the
partnership or joint venture. Real estate is accounted for at the lower of cost
or estimated fair value. Gains and losses on the sale or collection of specific
assets are recognized on a specific identification basis. Loans, partnerships
and joint ventures, and real estate are carried at the lower of cost or
estimated fair value. The Company's investments in asset-backed securities are
classified as available for sale and are carried at estimated fair value
determined by discounting estimated cash flows at current market rates. Any
unrealized gains (losses) on asset-backed securities are excluded from earnings
and reported as a separate component of shareholders' equity, net of tax
effects.

Revenues from the Company's commercial mortgage banking activities are
earned from the origination and underwriting of commercial mortgage loans, the
placement of such loans with permanent investors and the subsequent servicing of
loans. Loan placement and servicing fees, commitment fees and real estate
brokerage commissions are recognized as earned. Placement and servicing expenses
are charged to expense as incurred.

Other revenues consist of interest on the Company's investments in cash
equivalents, consulting revenues earned on due diligence, interest and fees on
loans net of loan participations, and other miscellaneous income. Additionally,
the third quarter of 1994 includes the $10.0 million NationsBank Contract
conclusion fee.

In December 1994, the Company elected to dispose of the operations of
AMRESCO Services, Inc., its data processing and home banking subsidiary, in
order to concentrate efforts in the Company's primary lines of business. The
loss from such discontinued operations totaled approximately $1.1 million, $2.1
million, $2.2 million, and $1.0 million for years ended December 31, 1992, 1993,
and 1994 and the nine months ended September 30, 1994, respectively. This
subsidiary was sold on June 16, 1995 for a net gain of $2.4 million or $0.10 per
share.

NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1994

REVENUES. Revenues before assistance revenue for the nine months ended
September 30, 1995 compared to the corresponding period of 1994 decreased $39.3
million, or 36.2%. This decrease was due, in part, to an $8.3 million, or 35.5%,
decrease in management fees and a $46.7 million, or 80.1%, decrease in
resolution fees. In addition, other revenues decreased $11.6 million from 1994
to 1995, for a 71.7% decrease, primarily as a result of the NationsBank Contract
that concluded during the third quarter of 1994 for which the Company received
an early conclusion fee of $10.0 million in August 1994. The decreases also
resulted from reduced revenues from government sector contracts as these
contracts concluded. These decreases were partially offset by Asset Portfolio
income, which increased $15.2 million, due to a significant increase in
investments in Asset Portfolios, and a $12.1 million increase in mortgage
banking revenue, primarily due to the inclusion of Holliday Fenoglio, which was
purchased in August 1994, and ACC, which commenced underwriting activities in
the fourth quarter of 1994.

22
<PAGE>
EXPENSES. Total expenses before reimbursable costs decreased $25.7 million,
or 34.4%, for the first nine months of 1995 compared to the corresponding period
in 1994. The first nine months of 1994 included expenses of $20.7 million as
compared to none in the corresponding period in 1995 for the NationsBank
Contract that concluded in the third quarter of 1994 and for government sector
contracts that were concluding during 1994. Additionally, during the nine months
ended September 30, 1995, general and administrative expenses were reduced by a
$3.7 million change in estimate of accounts receivable bad debt reserve and
other accrued expenses related to concluded asset management contracts,
particularly the FDIC and RTC contracts. Receivables related to these contracts
declined $16.7 million between December 31, 1994 and September 30, 1995. Also,
the decrease in expenses for the nine months ended September 30, 1995, compared
to the nine months ended September 30, 1994, reflected the corporate downsizing
initiatives that began in the second half of 1994. The decline in expenses
related to concluding contracts was partially offset by increased operating
expenses related to the addition of the mortgage banking line of business and
the growth in the asset acquisition and resolution operations. The $1.1 million,
or 63.4%, increase in interest expense in 1995 reflects greater borrowing
related to increased investments in Asset Portfolios.

INCOME TAXES. The Company must have future taxable income to realize
recorded deferred tax assets, including net operating loss carryforward tax
benefits obtained in the BEI Merger. Certain of these benefits expire beginning
in 1995 and are subject to annual utilization limitations. Management believes
that recorded deferred tax assets will be realized in the normal course of
business. The decrease in the effective income tax rate for the nine months
ended September 30, 1995 was primarily due to permanent tax differences related
to mortgages sold by a partnership in which the Company owns an interest for
which the acquired tax basis exceeded the book basis.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

REVENUES. Revenues before assistance revenue for 1994 totaled $130.3
million compared to $122.4 million for 1993, an increase of $7.9 million, or
6.5%. Management fees decreased $2.5 million, or 8.3%, and resolution fees
declined $22.3 million, or 25.3%, during 1994, principally due to only eight
months of operations under the NationsBank Contract, as well as reduced revenues
from the government sector contracts as the contracts continued to conclude.
These declines were offset by a $10.4 million increase in Asset Portfolio
income, a $6.2 million increase in mortgage banking revenue due to the
acquisition of Holliday Fenoglio and the commencement of business by ACC. In
addition, there was an increase in other revenues of $16.1 million primarily due
to the $10.0 million conclusion fee from the NationsBank Contract and $3.8
million in revenue relating to the inclusion in 1994 of BEI operations,
primarily from the operations of a subsidiary for the period prior to its sale
in the first quarter of 1994 and its resulting sale.

EXPENSES. Total expenses before reimbursable costs increased by $15.9
million, or 20.2%, in 1994 primarily due to an increase in personnel costs of
$2.0 million and an increase in other general and administrative expenses of
$15.9 million. These increases were partially offset by a decrease in the profit
participations of $3.0 million. The increase in personnel costs was due to the
addition of personnel costs for BEI, Holliday and ACC, which was partially
offset by reductions in full time employees associated with concluded asset
management contracts. Other general and administrative expenses increased $15.9
million over 1993, primarily due to the inclusion of BEI and Holliday Fenoglio
in 1994 and the $2.8 million intangible write-off related to the conclusion of
the NationsBank Contract in 1994. The decrease of the profit participations of
$3.0 million, or 97.5%, was primarily due to the modification of the NationsBank
Contract effective April 1, 1993, that effected an exchange of NationsBank's
profit participation in the Company's income before taxes for a rebate of fees.
See "-- Year Ended December 31, 1993 Compared to Pro Forma Year Ended December
31, 1992 -- Profit Participation."

PRO FORMA INCOME SUMMARY. Revenues before assistance revenue for 1994
totaled $130.3 million compared to pro forma combined revenues before assistance
revenue of approximately $160.3 million, assuming the BEI Merger had been
consummated as of January 1, 1993. The $30.0 million, or 18.7%, decrease is
primarily due to a decrease in BEI revenues of $15.3 million and a decrease in
Holdings revenues of $14.7 million. The decline in revenues is primarily related
to the conclusion of certain asset management contracts during 1994 and the sale
of certain Company subsidiaries in the first quarter of 1994. Income from

23
<PAGE>
continuing operations for 1994 totaled $20.9 million when compared to pro forma
net income of $28.3 million for 1993, after removing the impact of merger
expenses, net gain on sales of subsidiaries and discontinued operations for a
decrease of $7.4 million, or 26.1%. Earnings per share for income from
continuing operations was $0.88 for 1994, compared to $1.34 for the previous
year for a decrease of $0.46, or 34.3%.

YEAR ENDED DECEMBER 31, 1993 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1992

REVENUES. Revenues before assistance revenue for 1993 totaled $122.4
million compared to $107.8 million in 1992, an increase of $14.6 million, or
13.5%. During 1993, management and resolution fees from private contracts
increased approximately $25.1 million, or 33.4%, primarily due to the Company
reaching the highest incentive fee rate due to the level of collections on the
NationsBank Contract. Resolution fees from the FDIC contract increased
approximately $7.8 million, or 105.0%, primarily due to reaching a higher
resolution fee rate due to the level of cumulative collections. The increases in
resolution fees from the private and FDIC contracts were partially offset by
decreases of approximately $6.7 million, or 68.4%, and approximately $6.8
million, or 47.6%, in management and resolution fees, respectively, from the RTC
contracts. The decrease in fees on the RTC contracts was primarily due to the
lower volume of assets managed. Effective April 1, 1993, the NationsBank
Contract was renegotiated to reduce fees by providing for a 12.25% rebate of
fees earned on such contract. Rebated fees totaled $7.3 million for the last
nine months of 1993. Income from an Asset Portfolio purchased in August 1993
were $2.6 million.

EXPENSES. Total personnel and other general and administrative expenses
were $75.7 million for 1993 compared to $65.7 million for 1992 for an increase
of $10.0 million, or 15.2%. Personnel expense increased $14.1 million to $63.6
million in 1993 from $49.5 million in 1992. The majority of this increase was
due to 1993 being the first full year of operations of Holdings as a separate
entity, resulting in increases in employee benefit programs, additional
corporate personnel as well as staff additions for the private contracts.
Additionally, the incentive compensation and severance compensation plans were
expanded in 1993. Other general and administrative expenses decreased in 1993 to
$12.1 million from $16.1 million in 1992.

PROFIT PARTICIPATION. The profit participation by NationsBank Corporation
began with the acquisition of Holdings by private investors, effective October
31, 1992. The profit participation would have been $6.5 million higher, or $8.1
million on a pro forma basis, if the profit participation had been effective as
of January 1, 1992. Effective April 1, 1993, a rebate of fees on the NationsBank
Contract was granted in exchange for the termination of NationsBank
Corporation's profit participation in Holdings' income before taxes.

PRO FORMA INCOME SUMMARY. Pro forma combined revenue before assistance
revenues, assuming the BEI Merger had been consummated as of January 1, 1992,
were approximately $160.3 million for 1993 compared to approximately $140.3
million for 1992. The $20.0 million, or 14.3%, increase in revenues was due to
an increase of Holdings' revenues of $14.6 million which has been previously
discussed and an increase of $5.4 million for BEI. The $5.4 million increase in
revenues for BEI was primarily due to new private asset management and
resolution contracts. Pro forma net income, after removing the impact of BEI's
merger expenses, net gain on sales of subsidiaries and discontinued operations,
resulted in net income of $28.3 million, up $4.5 million, or 18.9%, from $23.8
million for 1992. Earnings per share was $1.34 for 1993, compared to $1.14 for
the previous year, for an increase of $0.20, or 17.5%.

LIQUIDITY AND CAPITAL RESOURCES

Cash for investment in Asset Portfolios, originating/underwriting loans,
acquiring loans for securitization, general operating expenses and business
acquisitions is primarily obtained through cash flow and credit facilities,
including: advances on the corporate and portfolio credit lines, mortgage
warehouse lines and nonrecourse debt, retained earnings and cash flow from the
resolution of Asset Portfolios in which the Company invests.

On September 29, 1995, the Company entered into the $150.0 million Revolving
Loan Agreement which matures and is payable in full on September 29, 1997. (The
Revolving Loan Agreement initially included a $25.0 temporary bridge facility
that was permanently repaid with a portion of the net proceeds of the
Convertible Subordinated Debenture Offering.) By its terms, the Revolving Loan
Agreement has two primary components: (i) a $50.0 million revolving credit
facility (the "Corporate Facility") to be used for (A) general working capital
purposes, (B) acquisitions of equity interests in other persons, (C) certain
permitted investments, and (D) other business needs approved by the Banks that
constitute at least 50% of the lenders in number and have loaned 51% or more of
the amount then outstanding under the Revolving Loan Agreement

24
<PAGE>
and (ii) a $100.0 million revolving credit facility (the "Portfolio Facility")
to be used to (A) refinance indebtedness incurred in connection with the
purchase of certain Asset Portfolios acquired prior to execution and delivery of
the Revolving Loan Agreement, (B) finance future acquisitions of Asset
Portfolios, and (C) finance acquisitions of entities for the purpose of
resolving Asset Portfolios owned by such entities. The banks' current commitment
under the Revolving Loan Agreement is limited to a total of $105.0 million,
$35.0 million under the Corporate Facility and $70.0 million under the Portfolio
Facility. The additional amounts under the Revolving Loan Agreement would become
available to the Company upon the participation by additional financial
institutions in the syndicate for the loan and upon an increase in the Company's
borrowing base under this agreement. There can be no assurance that such events
will occur. The borrowing terms, including interest, may be selected by the
Company and tied to either the NationsBank of Texas' variable rate (8 3/4% at
September 30, 1995) or, for advances on a term basis up to approximately 180
days, a rate equal to an adjusted LIBOR rate (7 5/8% at September 30, 1995 for a
term of 30 days). At September 30, 1995, there was a balance of $33.0 million at
7 5/8% outstanding under the Corporate Facility and $39.0 million at 7 5/8% and
$5.0 million at 8 3/4% for a total of $44.0 million outstanding under the
Portfolio Facility. The combined balance outstanding under the Revolving Loan
Agreement was $77.0 million at September 30, 1995. At December 31, 1995, the
balance outstanding under the Corporate Facility was $6.5 million at 8 1/2%, and
the balance outstanding under the Portfolio Facility was $61.0 million,
including $21.0 million at 7 3/4%, $20.0 million at 7 5/8%, $15.0 million at
7 61/98% and $5.0 million at 7 11/16%. The combined balance outstanding under
the Revolving Loan Agreement was approximately $67.5 million at December 31,
1995 and approximately $98.0 million at January 29, 1996.

The Revolving Loan Agreement is secured by substantially all of the assets
of the Company not pledged under other credit facilities, including stock of a
majority of the Company's subsidiaries held by the Company. The Revolving Loan
Agreement requires the Company to meet certain financial tests, including
minimum consolidated tangible net worth, maximum consolidated funded debt to
consolidated capitalization ratio, minimum fixed charge coverage ratio, minimum
interest coverage ratio, maximum consolidated funded debt to consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
and maximum corporate facility outstanding to consolidated EBITDA ratio. The
Revolving Loan Agreement contains covenants that, among other things, will limit
the incurrence of additional indebtedness, investments, asset sales, loans to
shareholders, dividends, transactions with affiliates, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements.

Prior to entering into the Revolving Loan Agreement, Holdings maintained a
$75.0 million line of credit with NationsBank of Texas which bore interest at
NationsBank of Texas' floating prime rate or an adjusted LIBOR rate plus 1 1/2%.
This line of credit was terminated with the execution of the Revolving Loan
Agreement.

During July 1995, two wholly-owned subsidiaries of the Company jointly
entered into a nonrecourse debt agreement for $27.5 million to support
wholly-owned Asset Portfolio purchases. This nonrecourse facility is secured by
all wholly-owned Asset Portfolios purchased with borrowings under this debt and
bears interest at the financing company's prime rate plus 1 1/2% or LIBOR plus
3%. There was a balance outstanding at September 30, 1995, of $21.9 million
under this nonrecourse debt agreement, $3.4 million at 10 1/4% and $18.5 million
at 8 15/16%. At December 31, 1995, the balance outstanding under this debt
agreement was $17.8 million, $1.3 million at 10 1/4% and $16.5 million at
9 1/32%. This facility matures on July 31, 1998.

On April 28, 1995, ACC, a wholly-owned subsidiary of the Company, entered
into a $25.0 million warehouse line of credit agreement with NationsBank of
Texas (the "NationsBank Warehouse Facility") to support its commercial mortgage
financing. This facility is secured by loans originated through borrowings under
this facility and bears interest at either the prime rate announced from
time-to-time by NationsBank of Texas or an Adjusted LIBOR Rate (as defined in
the facility) plus 2%. The Company is a guarantor of certain of ACC's
obligations under this facility. A total of $2.7 million at 7 13/16% and $9.0
million at 7 3/4% was outstanding at September 30, 1995 and December 31, 1995,
respectively. The NationsBank Warehouse Facility matures on January 25, 1997.

On August 15, 1995, ACC, a wholly-owned subsidiary of the Company, entered
into a warehouse line of credit agreement with Residential Funding Corporation
(the "RFC Warehouse Facility") to facilitate multi-family mortgage loan
underwriting and origination. This facility is secured by the loans originated
through borrowings under this facility and the stated interest rate for this
line is an adjusted 30-day LIBOR rate plus

25
<PAGE>
3% (8 33/50% at September 30, 1995). At September 30, 1995, an advance of $3.0
million was outstanding at an interest rate of 8 33/50%. At December 31, 1995,
$8.6 million was outstanding, including $5.0 million at 7 13/20% and $3.6
million at 7 10/27%. Each borrowing under the RFC Warehouse Facility is due 60
days after funding.

On September 27, 1995, a wholly-owned subsidiary of the Company entered into
a Global Master Repurchase Agreement to support the purchase of certain
commercial mortgage pass-through certificates. A total of $8.7 million was
outstanding under this facility at September 30, 1995 and was repaid in full on
December 15, 1995. This facility bore interest at 7 3/8%. This facility was
secured by the Company's investments in certain asset-backed securities.

Effective November 1, 1995, ARMC, a wholly-owned subsidiary of the Company,
entered into a $100.0 million warehouse line of credit (the "Prudential
Warehouse Facility"), increased to $150.0 million on November 30, 1995, with
Prudential Securities Realty Funding Corporation to finance the acquisition and
warehousing of residential mortgage loans. This facility was secured by the
loans purchased through borrowings under this facility and held for sale. The
stated interest rate for this line was LIBOR (as defined in the facility) plus
7/8% (which can be adjusted retroactively under certain circumstances to LIBOR
plus 2 2/5%). At December 31, 1995, $135.6 million was outstanding under this
facility. On January 26, 1996, the mortgages purchased with borrowings under
this facility were securitized and such borrowings were repaid in their entirety
and the facility was terminated. The Company anticipates that it will incur
additional borrowings under similar facilities in connection with loans
purchased for securitization in the future.

On November 27, 1995, the Company completed the sale of $45.0 million
principal amount of Convertible Subordinated Debentures. The net proceeds
(approximately $43.0 million) were used to repay indebtedness under the
Revolving Credit Agreement. See "Recent Developments."

On December 13, 1995, the Company completed a public offering of 2,000,000
shares of Common Stock. An additional 300,000 shares of Common Stock were sold
on December 19, 1995, upon exercise of the underwriters' over-allotment option.
The aggregate net proceeds to the Company (estimated to be approximately $25.1
million) were used to repay indebtedness under the Revolving Credit Agreement.
See "Recent Developments."

On December 19, 1995, a wholly-owned subsidiary of the Company entered into
a Global Master Repurchase Agreement to support the purchase of certain
commercial mortgage pass-through certificates. A total of $20.6 million was
outstanding under this facility at December 31, 1995. This facility bears
interest at a rate of 30 day LIBOR plus 1 2/5% (7 1/3% at December 31, 1995).
This facility is secured by the Company's investments in certain asset-backed
securities.

Accounts receivable decreased from $20.7 million at December 31, 1994, to
$7.7 million at September 30, 1995, due to the conclusion and expiration of
certain asset management contracts.

In 1996, the Company intends to pursue (i) additional Asset Portfolio
acquisition opportunities, by acquiring Asset Portfolios both for its own
account and as an investor with various capital partners who acquire such Asset
Portfolios, (ii) acquisitions of new businesses and (iii) expansion of current
businesses. The funds for such acquisitions and investments are anticipated to
be provided in 1996 by cash flows and borrowings under the Company's Revolving
Loan Agreement and the Notes offered hereby. As a result, interest expense in
1996 will be higher than the interest expense in 1995.

The Company believes that its funds on hand of $16.1 million at December 31,
1995, cash flow from operations, its unused borrowing capacity under its credit
lines, the anticipated net proceeds from this Offering, and its continuing
ability to obtain financing should be sufficient to meet its anticipated
operating needs and capital expenditures, as well as planned new acquisitions
and investments, for at least the next twelve months. The magnitude of the
Company's acquisition and investment program will be governed to some extent by
the availability of capital.

INFLATION

The Company has generally been able to offset cost increases with increases
in revenues. Accordingly, management does not believe that inflation has had a
material effect on its results of operations to date. However, there can be no
assurance that the Company's business will not be adversely affected by
inflation in the future.

26
<PAGE>
BUSINESS

GENERAL

The Company is a leading specialty financial services company engaged
primarily in Asset Portfolio acquisition and resolution and mortgage banking.
The Asset Portfolio acquisition and resolution business involves acquiring at a
substantial discount to Face Value and managing and resolving Asset Portfolios
to maximize cash recoveries. The Company manages and resolves Asset Portfolios
acquired by the Company alone, acquired by the Company with co-investors and
owned by third parties. The Company's mortgage banking business involves the
origination, placement and servicing of commercial real estate mortgages. In
addition, the Company has formed a residential mortgage banking business through
which the Company purchases and securitizes portfolios of residential mortgages
of borrowers who do not qualify for conventional loans and whose borrowing needs
are not being met by traditional financial institutions. The Company has also
entered the real estate pension advisory business through the purchase of
substantially all of the advisory contracts of Acacia.

BACKGROUND

- increasing the amount that the Company invests for its own account in
Asset Portfolios by capitalizing on its expertise in managing and
resolving Asset Portfolios for third parties;

- continuing to provide high quality management and resolution services to
co-investors and other third-party owners of Asset Portfolios;

- expanding its presence in the traditional mortgage banking market through
greater market penetration and by participating in the expanding market
for securitization of commercial and residential real estate mortgages;
and

- developing its new real estate pension advisory business to complement the
Company's existing business lines.

27
<PAGE>
ASSET ACQUISITION AND RESOLUTION BUSINESS

GENERAL. The Company manages and resolves Asset Portfolios acquired at a
substantial discount to Face Value by the Company alone and by the Company with
co-investors. The Company also manages and resolves Asset Portfolios owned by
third parties. Asset Portfolios generally include secured loans of varying
qualities and collateral types. The Company estimates that typically
approximately 85% of the loans in the Asset Portfolios in which the Company
invests are in payment default at the time of acquisition. Although some Asset
Portfolios include foreclosed real estate and other collateral, the Company
generally seeks Asset Portfolios that do not include such assets. Some Asset
Portfolio loans are loans for which resolution is tied primarily to the real
estate securing the loan. Other loans, however, are collateralized business
loans, the resolution of which may be based either on cash flow of a business or
on real estate and other collateral securing the loan. Collateralized business
loans generally have smaller Face Values and often are more quickly resolved
than more traditional real estate loans. The Company intends to focus to a
greater extent on collateralized business loans.

The Company obtains information on available Asset Portfolios from many
sources. Repeat business and referrals from Asset Portfolio sellers with whom
the Company previously has transacted business are an important and frequent
source of Asset Portfolios. The Company has developed relationships in which it
is a preferred Asset Portfolio purchaser for certain sellers. The Company
believes that it receives many Asset Portfolio solicitations that result
primarily from the Company's reputation as an active portfolio purchaser. Other
important sources of business include referrals from co-investors who seek the
Company's participation in Asset Portfolio purchases, focused contacts initiated
by senior management, public advertising of Asset Portfolios for sale and the
Company's nationwide presence.

Although the need for asset management and resolution services by
governmental agencies has substantially declined in recent years, the Company
believes that a permanent market for Asset Portfolio acquisition, management and
resolution services has emerged within the private sector. Whether because a
financial institution desires to reduce overhead costs, is not staffed to handle
large volumes of Asset Portfolios or simply does not want to distract management
and personnel with the intensive and time-consuming job of resolving Asset
Portfolios, many financial institutions now recognize that outside contractors
often are better staffed to manage and resolve Asset Portfolios. These financial
institutions include multi-national, money center, super-regional and regional
banking institutions nationwide and in Canada, as well as insurance companies.
Moreover, financial institutions have embraced the concept of packaging and
selling Asset Portfolios to investors as a means of disposing of non-performing
and under-performing loans and improving the financial institution's balance
sheet. Consolidations within the banking industry have reinforced this trend.
Insurance companies, which historically have avoided outsourcing Asset Portfolio
management or selling Asset Portfolios, also are emerging as sellers of Asset
Portfolios due in part to the implementation of risk-based capital rules for
insurance companies. Additionally, there is a market for management and
resolution services for delinquent or non-performing loans within performing
securitized loan pools. The Company believes that the significant volume of
annual performing loan securitizations makes this an attractive market in which
to participate.

The Company believes that opportunities for the acquisition, management and
resolution of Asset Portfolios are becoming increasingly evident in certain
international markets and that lenders in these markets are adopting many of the
Asset Portfolio management and resolution outsourcing techniques currently
utilized in the United States. Accordingly, the Company has opened offices in
Toronto (August 1994) and London (October 1995) in order to take advantage of
opportunities in Canada, the United Kingdom and certain other Western European
nations. The Company had $53.2 million (US$ Face Value) in Canadian Asset
Portfolios under management as of September 30, 1995, and subsequently was
designated as the Special Servicer for a Canadian Asset Portfolio of
approximately $370.0 million (US$ Face Value).

Because of the significant decline in Asset Portfolio management and
resolution services required by governmental agencies and the trend toward
outright sales of Asset Portfolios, the Company shifted its strategic focus to
becoming an active Asset Portfolio investor for its own account and a
co-investor with other Asset Portfolio buyers. The Company believes that as a
direct investor in Asset Portfolios it has a significant

28
<PAGE>
competitive advantage relative to the Company's competitors in the management
and resolution business. Moreover, the Company believes that direct investment
permits the Company to take advantage of the profit opportunities of Asset
Portfolio investing. The Company believes that it can gain market share in the
Asset Portfolio acquisition, management and resolution business due to its
financial strength; experience in managing and resolving Asset Portfolios;
national reputation; and strategic relationships with sellers and purchasers of
Asset Portfolios, including financial institutions, large corporate buyers,
investment banking firms and sophisticated private investors.

For the nine months ended September 30, 1995, $54.3 million (78.0%) of the
Company's gross revenues were attributable to its Asset Portfolio acquisition
and resolution business. The following table reflects the ownership composition
of the Asset Portfolios (based on their Face Value) under management by the
Company as of the dates indicated and further reflects the decline in the
management of Asset Portfolios for governmental agencies and the increase in the
Company's investment in Asset Portfolios since December 31, 1993:

<TABLE>
<CAPTION>
AT DECEMBER 31, 1993 AT DECEMBER 31, 1994 AT SEPTEMBER 30,
1995
---------------------- ---------------------- -------------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
--------- ----------- --------- ----------- ------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Wholly-owned by the Company (1)........... $ 92.9 1.6% $ 143.3 4.6% $ 310.0 10.2%
Owned by the Company with co-investors
(2)...................................... 392.4 6.8 1,729.9 56.0 1,507.4 49.6
Owned by third parties:
Securitized mortgage pools.............. 268.8 4.7 315.0 10.2 411.3(3) 13.5
Government and other owners............. 5,002.8 86.9 900.5 29.2 812.0 26.7
--------- ----- --------- ----- ------------ -----
Total under management................ $ 5,756.9 100.0% $ 3,088.7 100.0% $ 3,040.7 100.0%
--------- ----- --------- ----- ------------ -----
--------- ----- --------- ----- ------------ -----
</TABLE>

-----------------------------
(1) Includes $0.0, $13.9 million and $44.0 million, respectively, of
asset-backed securities, and $2.5 million, $3.5 million and $5.2
million of real estate, respectively, at December 31, 1993 and 1994,
and at September 30, 1995.

(2) Includes the securitized Asset Portfolios managed by the Company as
Special Servicer in which the Company has invested, which aggregated
$354.3 million, $973.8 million and $790.7 million, respectively, at
December 31, 1993 and 1994, and at September 30, 1995.

(3) Does not include approximately $300.0 million of securitized
commercial mortgages for which EQS served as Special Servicer. See
"Recent Developments -- Acquisition of EQS."

The following table reflects, by ownership category, the number of Asset
Portfolios managed by the Company at September 30, 1995 and the number of assets
included in such portfolios:

<TABLE>
<CAPTION>
NUMBER OF ASSET NUMBER OF
PORTFOLIOS ASSETS
----------------- -----------
<S> <C> <C>
Wholly-owned by the Company.................................................. 35 1,124
Owned by the Company with co-investors....................................... 28 1,740
Owned by third parties:
Securitized mortgage pools (1)............................................. 3 426
Government and other owners................................................ 10 2,146
--- -----
Total under management................................................... 76 5,436
--- -----
--- -----
</TABLE>

-----------------------------
(1) Does not include Asset Portfolios for which EQS served as Special
Servicer. See "Recent Developments -- Acquisition of EQS."

29
<PAGE>
The following table reflects the Company's investment (at carrying value) in
Asset Portfolios as of the dates indicated below:

<TABLE>
<CAPTION>
AT DECEMBER 31, AT
SEPTEMBER 30,
1993 1994 1995
--------- --------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Wholly-owned by the Company (1)............................... $ 36.3 $ 37.9 $ 139.9
Owned by the Company with co-investors (2).................... 2.5 33.0 35.9
--------- --------- ------
Total..................................................... $ 38.8 $ 70.9 $ 175.8
--------- --------- ------
--------- --------- ------
</TABLE>

-------------------------------
(1) Includes $0.0, $3.5 million and $20.0 million, respectively, of
asset-backed securities, and $2.5 million, $3.5 million and $5.2
million of real estate, respectively, at December 31, 1993 and
1994, and at September 30, 1995.

(2) Includes the securitized Asset Portfolios managed by the Company as
Special Servicer in which the Company has invested, which
aggregated $1.7 million, $7.9 million and $8.6 million,
respectively, at December 31, 1993 and 1994, and at September 30,
1995.

ASSET PORTFOLIO INVESTMENT. The Company's business of investing in Asset
Portfolios is conducted either through the Company owning the Asset Portfolio
alone or with co-investors. At September 30, 1995, the Company's weighted
average investment in all Asset Portfolios in which it was a co-investor was 6%
of the aggregate purchase price of such portfolios. Consistent with the
Company's strategy of increasing its investment in Asset Portfolios in which it
is a co-investor, the Company's weighted average investment in such Asset
Portfolios purchased during the nine months ended September 30, 1995 was 20% of
the aggregate purchase price. Asset Portfolios acquired solely by the Company
have ranged up to $36.9 million (Face Value), whereas Asset Portfolios owned by
the Company with co-investors have ranged up to $405.5 million (Face Value). The
Company generally funds its share of any investment with a combination of
borrowings under its existing credit lines and internal cash flow. Future Asset
Portfolio purchases will depend on the availability of Asset Portfolios offered
for sale, the availability of capital and the Company's ability to submit
successful offers to purchase Asset Portfolios. As a result, Asset Portfolio
purchases can vary significantly from quarter to quarter. The following table
reflects the Company's total purchases (at cost) by fiscal quarter in Asset
Portfolios over the past seven quarters:

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1994 1994 1994 1995 1995 1995
----------- ------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Wholly-owned by
the Company (1)......... $ 6,761 $ 6,941 $ -- $ 21,014 $ 15,539 $ 62,499 $ 45,987
Owned by the Company with
co-investors (2)........ 5,125 8,948 11,306 7,900 6,294 8,480 325
----------- ------------- ------------- ------------- ------------- ------------- -------------
Total................ $ 11,886 $ 15,889 $ 11,306 $ 28,914 $ 21,833 $ 70,979 $ 46,312
----------- ------------- ------------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>

- ------------------------------
(1) Includes $3,497, $2,875 and $13,248 in the quarters ended June 30, 1994,
June 30, 1995 and September 30, 1995, respectively, for purchases of
asset-backed securities, but does not include any real estate assets.

(2) Includes $2,000, $1,601 and $4,000 of investments in securitized mortgage
pools purchased in the quarters ended March 31, 1994, June 30, 1994 and
December 31, 1994, respectively.

Prior to making an offer to purchase an Asset Portfolio, the Company
conducts an extensive investigation and evaluation of the individual loans
comprising 95% to 100% of the aggregate Face Value of all the loans in the
portfolio. This examination typically consists of analyzing the information made
available by the Asset Portfolio seller (generally, the respective credit and
collateral files for the loans), reviewing other relevant material that may be
available (including tax and judgment records), and analyzing the underlying
collateral (including conducting site inspections, obtaining value opinions from
third parties and consulting with any of the Company's asset managers who have
experience with the local market for such assets). The Company also reviews
information on the local economy and real estate markets in the area in which
the loan collateral is located. Because of its broad, nationwide experience in
managing assets, the Company often is able to draw on its asset management
experience in the specific market in which an asset is located.

30
<PAGE>
Unlike the original lender, the Company values Asset Portfolio loans based on
the present value of estimated total cash flow from resolution, with the
expectation that the loans will be resolved prior to scheduled maturity. The
Company's policy is to not refinance or renew purchased loans or grant new
credit.

Asset Portfolio evaluations are conducted almost exclusively by the
Company's employees who specialize in analysis of non-performing and
under-performing loans, often with further specialization based on geographic or
collateral-specific factors. Most of these employees have previously served the
Company (and some continue to serve) as asset managers with responsibility for
resolving such loans. Their asset management experience aids these individuals,
working together in teams, in making informed judgments about the status of each
loan and the underlying collateral, the probable cash flows from the loan, the
likely resolution of the loan and the time and expense required for such
resolution. The Company's personnel document these evaluations in standardized
Company formats.

Upon completion of evaluation forms, the Company compiles a database of
information about the loans in the Asset Portfolio. The primary focus of the
database is the anticipated recovery amount, timing and cost of the resolution
of the Asset Portfolio. Using its proprietary modeling system and loan
information database, the Company then determines the amount it will offer. The
offer is structured to achieve certain minimum rates of return. As of September
30, 1995, the Company had paid an average purchase price of 46% of the aggregate
Face Value on all of its wholly-owned Asset Portfolios and an average purchase
price of 56% of the aggregate Face Value on all of the Asset Portfolios owned by
the Company with co-investors.

When an Asset Portfolio is acquired (whether for the Company's own account
or with co-investors), the Company assumes the management of the loans in the
portfolio. Management includes responsibility both for servicing and for
resolving such loans. The Company's asset managers are given the supporting due
diligence information and projections relating to each newly-acquired loan for
which the manager assumes management responsibility. Because asset managers are
actively involved in the Asset Portfolio evaluation process, it is not unusual
for an asset manager to be given management responsibility for the specific
loans that the asset manager assisted in evaluating in the due diligence or
pricing processes. The Company believes that by combining the resolution and
evaluation activities, the Company achieves efficiency in loan resolution and
accuracy in loan evaluations.

Resolutions typically are accomplished through (i) negotiating with debtors
a discounted payoff, which may be accomplished through a refinancing by the
obligor with a lender other than the Company or (ii) foreclosure and sale of the
collateral. The Company generally seeks consensual resolution of each loan,
having found that a negotiated resolution usually maximizes the Company's or
investor's rate of return. The Company resolves most assets within an Asset
Portfolio within 18 months. The goal of the Company's asset resolution process
is to maximize in a timely manner cash recovery on each loan in an Asset
Portfolio.

In evaluating Asset Portfolios, the Company takes into account
concentrations of collateral located in specific regions of the United States
and Canada. As of September 30, 1995, the geographic dispersion of each primary
asset securing the loans in the Asset Portfolios in which the Company had
invested (whether for its own account or with co-investors) was as follows:

<TABLE>
<CAPTION>
FACE NUMBER OF
VALUE % OF TOTAL ASSETS % OF TOTAL
--------- ------------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Northeast..................................... $ 477.5 26.3% 1,228 42.9%
West.......................................... 716.6 39.4 766 26.8
Southwest..................................... 200.7 11.1 434 15.1
Midwest....................................... 109.1 6.0 96 3.3
Southeast..................................... 260.3 14.3 220 7.7
Canada........................................ 53.2 2.9 120 4.2
--------- ----- ----- -----
Total....................................... $ 1,817.4 100.0% 2,864 100.0%
--------- ----- ----- -----
--------- ----- ----- -----
</TABLE>

31
<PAGE>
The Company invests in both Asset Portfolios composed of collateralized
business loans and in Asset Portfolios composed of real estate collateralized
loans. Asset Portfolios purchased by the Company alone have tended to be
primarily composed of collateralized business loans, because many such Asset
Portfolios are within the size range generally sought by the Company. Asset
Portfolios composed primarily of real estate loans typically are larger and the
Company's investments in such portfolios usually are made with co-investors. At
September 30, 1995, the Company's total investment in wholly-owned Asset
Portfolios aggregated $310.0 million (Face Value), which was composed of $223.3
million (Face Value) (72.0%) of collateralized business loans, $37.5 million
(12.1%) of real estate loans, $44.0 million (14.2%) of asset-backed securities,
and $5.2 million (1.7%) of real estate.

In addition, as of September 30, 1995, the Asset Portfolios in which the
Company had invested (whether for its own account or with co-investors) included
approximately 2,900 individual assets. The Company has found that the market for
smaller portfolios is less competitive, because larger Asset Portfolio buyers
often elect not to consider these portfolios. In a recent industry trend, some
Asset Portfolio sellers are soliciting bids on portfolios consisting of small
groups of loans.

ASSET MANAGEMENT AND RESOLUTION SERVICES. The Company provides asset
management and resolution services to third parties pursuant to contracts with
the owner of an Asset Portfolio or a purchaser (including a partnership, joint
venture or other group in which the Company is a co-investor) of an Asset
Portfolio. Management of Asset Portfolios includes both loan resolution and
providing routine accounting services, monitoring collections of interest and
principal (if any), confirming (or advancing) insurance premium and tax payments
due on collateral, and generally overseeing and managing, if necessary,
collateral condition and performance.

Asset management and resolution contracts relating to Asset Portfolios
managed by the Company for third parties have a finite duration, typically three
to five years, and at September 30, 1995 covered Asset Portfolios that ranged up
to $429.8 million (Face Value). These contracts generally provide for the
payment of (i) a fixed annual management fee (generally between 50 and 75 basis
points based on the Face Value or original purchase price of the loans) with
revenues declining as assets under management decrease, (ii) a resolution fee
(generally between 50 and 150 basis points based on the net cash collections on
loans and assets) and (iii) a negotiated incentive fee for the successful
resolution of loans or assets, which is earned after a predetermined rate of
return for the portfolio owner or co-investor is achieved.

As part of its third-party asset management and resolution business, the
Company is aggressively pursuing contracts to serve as the designated Special
Servicer for pools of securitized mortgages. After a loan within a securitized
pool of performing loans becomes delinquent or non-performing, the Master
Servicer or Primary Servicer of the pool will contractually transfer
responsibility for resolution of that loan to the pool's designated Special
Servicer. Special Servicers earn an annual fee (typically approximately 50 basis
points of the Face Amount of the delinquent or non-performing loans subject to
Special Servicing), plus a 75 to 100 basis points resolution fee based on the
total cash flow from resolution of each such loan as it is received. As of
September 30, 1995 (pro forma with EQS), the Company was the designated Special
Servicer for securitized pools holding over $4.3 billion (Face Value) of loans,
$772.2 million (Face Value) of which had been assigned to the Company for
resolution in its capacity as Special Servicer.

The Company believes that its willingness to purchase participating
interests in the delinquent or non-performing portion of a securitized portfolio
provides the Company a significant competitive advantage in pursuing Special
Servicer contracts. The Company believes that acceptance of this risk is similar
to its Asset Portfolio acquisition business, and that the risk is acceptable
because the Company understands the loan valuations and will manage the loan
resolutions.

32
<PAGE>
MORTGAGE BANKING BUSINESS

GENERAL. The Company performs a wide range of commercial mortgage banking
services, including originating, underwriting, placement, selling and servicing
of commercial real estate loans through its Holliday Fenoglio and ACC mortgage
banking units. The Company also formed AMRESCO Residential Credit Corporation, a
residential mortgage banking business, through which the Company purchases and
securitizes portfolios composed of residential mortgages of borrowers who do not
qualify for conventional loans and whose borrowing needs are not met by
traditional financial institutions. For the nine month period ended September
30, 1995, $14.1 million (20%) of the Company's gross revenues were attributable
to the Company's mortgage banking business.

The Company believes that the real estate mortgage banking business offers
significant growth opportunities. There are an estimated $1.0 trillion of
commercial real estate mortgages outstanding and the Company estimates that
$125.0 billion to $150.0 billion in commercial real estate mortgages are
refinanced each year in addition to mortgage financing of new construction.
Originations of loans for new construction projects are cyclical and are
influenced by various factors including interest rates, general economic
conditions and demand patterns in individual real estate markets. The commercial
mortgage banking industry is fragmented, composed primarily of small local or
regional firms. The Company anticipates that expensive technological demands,
increasingly standardized underwriting requirements, more demanding borrowers
and lenders, and the emergence of a market for securitized commercial real
estate mortgage pools will likely push the commercial mortgage banking industry
toward greater consolidation. The Company believes that well-capitalized, full
service mortgage banking firms offering a variety of mortgage banking and loan
management services nationwide will emerge from this consolidation. The
Company's objective is to improve its position as a major nationwide full
service mortgage banker to the commercial real estate industry. The Company
intends to achieve this goal through the internal development of its mortgage
banking group and through strategic acquisitions of mortgage bankers which
either serve key real estate markets in the United States or provide niche or
specialized services that enhance the Company's product line.

COMMERCIAL MORTGAGE BANKING BUSINESS. As a leading full service commercial
mortgage broker and banker with offices in key markets throughout the United
States, the Company provides a wide range of real estate capital markets
services to owners and developers of the full range of commercial real estate
properties. The typical consumers of commercial real estate mortgage banking
services are both real estate developers and owners (as borrowers) and
investor/lenders (as funding sources). Due to the more specialized nature of
commercial mortgage lending and the smaller universe of lenders serving this
market (in each case relative to the residential mortgage market), borrowers
rely on commercial mortgage brokers and bankers to find competitive lenders, and
these lenders (particularly insurance companies and pension plans, which do not
generally have origination staffs located in multiple branches) rely on mortgage
brokers and bankers to source potential borrowers. Lenders generally include
banks, pension funds and insurance companies. In originating loans, Holliday
Fenoglio and ACC each work closely with both the borrower and potential lenders
from the time a loan prospect is first contacted, through the application and
proposal process, and throughout the documentation of the loan to final funding.
Holliday Fenoglio and ACC each typically perform extensive due diligence and
market analysis for the lenders in this process.

Holliday Fenoglio was one of the largest commercial mortgage bankers in the
United States in 1994 (based on origination volume) and primarily serves
commercial real estate developers and owners by originating commercial real
estate loans. Holliday Fenoglio primarily targets developers and owners of
higher-quality commercial and multi-family real estate properties. Holliday
Fenoglio originates prospective borrowers through its own commission-based
mortgage bankers in its offices located in Atlanta, Boca Raton, Buffalo, Dallas,
Houston, New York City and Orlando. The loans originated by Holliday Fenoglio
generally are funded by institutional lenders, primarily insurance companies,
with Holliday Fenoglio retaining the Primary Servicer rights on approximately
20% of such loans. The Company believes that Holliday Fenoglio's relationship
and credibility with the institutional lender network provide the Company a
competitive advantage in the commercial mortgage banking industry.

33
<PAGE>
ACC, which originated approximately $260.7 million of commercial real estate
mortgages during the nine months ended September 30, 1995, is a mortgage banker
that originates and underwrites commercial real estate loans that are funded
primarily by Conduit Purchasers rather than by institutional lenders such as
insurance companies. ACC, therefore, makes certain representations and
warranties concerning the loans it originates. These representations cover such
matters as title to the property, lien priority, environmental reviews and
certain other matters. ACC primarily targets originators of commercial mortgage
loans for commercial real estate properties that are suitable for sale to
Conduit Purchasers accumulating loans for securitization programs directly
through ACC's offices located in Dallas, Miami and Washington, D.C., as well as
through a network of approximately 20 independent mortgage brokers located
throughout the United States. ACC recently established a relationship with the
22 office commercial real estate finance unit of a major insurance company
whereby the insurance company has agreed to refer prospective borrowers to the
Company in instances where the prospective loan does not meet the insurer's
requirements (typically borrowers for medium-quality commercial properties).
Since ACC commenced underwriting activities and through September 30, 1995,
Holliday Fenoglio originated approximately 31% of the loans underwritten by ACC,
with Holliday Fenoglio and ACC each receiving fees for their respective
services.

The Company believes that through ACC, the Company has certain additional
significant advantages in the mortgage banking marketplace. First, through its
relationships with certain institutional investors, the Company is able to
underwrite and sell commercial mortgage loans, particularly in instances where
the borrower needs relatively quick access to funding for a particular project.
Through a warehouse credit facility arranged in early 1995, the Company is able
to underwrite and fund a loan and hold that loan for resale to a buyer. Second,
because of the Company's extensive experience in real estate markets, the
Company believes it can carefully evaluate the risks of such underwriting
transactions in order to minimize financial exposure to the Company in
underwriting and/or warehousing a loan.

In July 1995, the Company, through ACC, acquired CKSRS, whose primary
business is the origination, sale to Freddie Mac and servicing of multi-family
apartment mortgages in the state of Florida. Through CKSRS, the Company became a
member of the Freddie Mac multi-family seller/servicer program in Florida.
Through this acquisition, the Company will obtain access to a significant source
of funding for multi-family mortgages. The Company intends to expand its Freddie
Mac authorization to operate in other states. The Company through ACC has been
approved by Fannie Mae to participate in its DUS program. The Company expects
Freddie Mac and Fannie Mae loan originations to become a significant part of its
mortgage banking activities. Holliday Fenoglio is expected to be a significant
source of such loan originations. See "Recent Developments -- Acquisition of
CKSRS."

The Company generally earns a fee of between 75 and 100 basis points of the
loan amount for originated or underwritten loans, plus certain additional
processing fees. From time to time, the Company also originates non-traditional
financing involving hybrid forms of debt, equity participations and other
creative financing structures. Fees for equity or joint venture structures are
typically higher. The table that follows reflects the loan origination activity
and loan origination and underwriting fee revenue for the nine months ended
September 30, 1995:

<TABLE>
<S> <C>
Origination:
Dollar volume................................................... $1,585.0
Number of loans................................................. 255
Origination and underwriting fees earned.......................... $12.2
Number of offices................................................. 10
</TABLE>

34
<PAGE>
After the evaluation of a loan prospect and the project financing needs, and
depending upon the type of property involved and its location, the Company
approaches institutional lenders that the Company believes would be interested
in funding the loan. The Company has established relationships with over 200
institutional lenders that include insurance companies, pension plans and
Conduit Purchasers. In 1994, the Company placed 289 loans with over 80 different
lenders. Twenty-six institutional lenders have retained the Company as their
respective exclusive or semi-exclusive loan originator in selected cities and
regions.

COMMERCIAL LOAN SERVICING BUSINESS. The Company serves as a Primary
Servicer for whole loans and as a Master Servicer for securitized pools of
commercial mortgages. For the nine months ended September 30, 1995, $1.9 million
(2.7%) of the Company's gross revenues were generated by its loan servicing
business (excluding Special Servicing). See "-- Asset Acquisition and Resolution
Business -- Asset Management and Resolution Services." The dominant users of
loan servicers are mortgage-backed bond trusts and similar securitized
asset-backed loan portfolios made up of numerous passive investors. Other
lenders often contract with the originating mortgage banker or other third-party
servicer to manage collection, accounting and other activities with respect to
the loan. The revenue stream from servicing contracts on commercial mortgages is
relatively predictable as prepayment penalties in commercial mortgages
discourage early loan payoffs, a risk that is more significant to servicers of
residential mortgage portfolios.

Primary Servicing involves collecting monthly mortgage payments, maintaining
escrow accounts for the payment of ad valorem taxes and insurance premiums on
behalf of borrowers, remitting payments of principal and interest promptly to
investors in the underlying mortgages, reporting to those investors on financial
transactions related to such mortgages, and generally administering the loans.
The Primary Servicer also must cause properties to be inspected periodically,
determine the adequacy of insurance coverage on each property, monitor
delinquent accounts for payment, and, in cases of extreme delinquency, institute
and complete either appropriate forbearance arrangements or foreclosure
proceedings on behalf of investors. Primary Servicers are typically paid an
annual fee ranging between 6 and 20 basis points of Face Value of the loans
under management. At September 30, 1995, the Company's Primary Servicing
portfolio totaled approximately $3.0 billion (Face Value).

Master Servicing involves providing administrative and reporting services to
securitized pools of mortgage-backed securities. Typically, mortgages underlying
mortgage-backed securities are serviced by a number of Primary Servicers. Under
most master servicing arrangements, the Primary Servicers retain principal
responsibility for administering the mortgage loans and the Master Servicer acts
as an intermediary in overseeing the work of the Primary Servicers, monitoring
their compliance with the issuer's standards, and consolidating their respective
periodic accounting reports for transmission to the issuer of the related
securities. The Company occasionally is designated as the full servicer for a
pool of mortgages, in which case the Company acts as Master, Primary and Special
Servicer for the pool. Master Servicers are typically paid an annual fee ranging
between 4 and 10 basis points of Face Value of the loans under management. The
average life of these securitized pools is expected to be approximately eight
years. At September 30, 1995, the Company's Master Servicing portfolio totaled
approximately $117.0 million (Face Value).

The market for servicing performing loan pools constitutes a much larger
potential market than the market for servicing non-performing and
under-performing assets. The Company believes that by gaining access to these
pools in a servicer capacity, opportunities exist for the Company to originate
loan refinancings as outstanding loans mature. In addition, the Company's
ability to also act as Special Servicer is a competitive advantage. The Company,
therefore, has targeted the market for performing loan management services as a
growth area for the Company. The Company has previously participated in this
market as a Primary Servicer of commercial real estate loans for loans
originated by the Company's mortgage banking unit and for loans owned by
investor clients.

On October 27, 1995, the Company acquired a substantial portion of the
assets of EQS, consisting exclusively of EQS' third-party loan pool servicing
contracts. See "Recent Developments." Management estimates that at September 30,
1995, EQS was Master Servicer on approximately $5.9 billion (Face Value),
including approximately $1.6 billion (Face Value) as full servicer, in loans
under the servicing contracts purchased in the EQS Acquisition.

35
<PAGE>
RESIDENTIAL MORTGAGE SECURITIZATION. Through AMRESCO Residential, the
Company purchases (in bulk from independent originators), warehouses, and
securitizes or may sell portfolios of residential mortgages of borrowers who do
not qualify for conventional loans and whose borrowing needs are not met by
traditional financial institutions. Such borrowers may not satisfy the more
rigid underwriting standards of the traditional residential mortgage lending
market for a number of reasons, such as blemished credit histories (from past
loan delinquencies or bankruptcy), inability to provide income verification
data, or lack of established credit history. Because this market is underserved
by traditional lenders, credit is less available, there is less competition, and
interest rates are higher than for higher credit quality mortgage borrowers. The
Company believes that the higher risk-adjusted profit opportunities offered by
this market are attractive. As of December 31, 1995, AMRESCO Residential held
mortgage portfolios aggregating approximately $142.7 million, which (together
with mortages purchased after December 31, 1995) were securitized on January 26,
1996.

The Company intends to securitize loans through the sale of mortgage-backed
securities in the public capital markets. The Company will seek to utilize
securitization structures that minimize the Company's capital requirements,
while still providing income to the Company. For example, the Company may sell
certificates for senior interests in a securitization, but retain subordinated
and/or interest-only certificates. The Company then would have limited capital
at risk, but would retain a portion of the cash flow from the securitization.
The Company also may seek to place bundled residential mortgages through private
securitization transactions such as joint ventures with insurance companies and
pension funds.

To lead the Company's entry into this market, the Company recently hired an
experienced team of individuals from a major national consumer finance company.
This group managed their former employer's comparable residential mortgage
business. This group has estimated that between 1991 and 1995, it managed the
acquisition of over $2.0 billion of mortgage assets.

PENSION ADVISORY SERVICES

The Company believes that a market exists for quality real estate advisory
services to pension plans and other institutional investors in commercial real
estate. The Company believes that through the targeted hiring of high quality
personnel with proven track records and the purchase of advisory contracts from
other advisors, the Company can become a major provider of real estate advisory
services to institutional real estate investors such as pension plans. The
Company's acquisition of substantially all of the advisory contracts and the
hiring of pension advisory personnel of Acacia is the first step in the
implementation of this strategy. See "Recent Developments." Acacia principally
provides real estate investment advice to various institutional investors
(primarily pension funds) seeking to invest a portion of their funds in real
estate. The investors establish certain investment parameters with Acacia (E.G.,
amount of funds available for investment, type of property, geographic mix, form
of investment (loan, partnership, direct ownership), target rate of return and
investment term). Acacia then seeks investment opportunities it believes meet
the investors' parameters. The investors exercise varying degrees of control
over Acacia's investment decisions. Depending on the amount of discretion
granted by the client, Acacia also will make a recommendation, or the final
decision, concerning whether to sell a particular property and will direct the
work necessary to complete the sale. Although Acacia is paid acquisition and
disposition fees by some of its clients, its principal source of revenue is
asset management fees, which are based on the cash flow of the investments under
management or are negotiated at the time of the client's investment in a
property.

COMPETITION

The Company's competition varies by business line and geographic market.
Generally, competition within each of the business lines within which the
Company competes is fragmented, with national, local and regional competitors,
none of which dominates a particular business line. Certain of the Company's
competitors within each of its business lines are larger and have greater
financial resources than the Company.

36
<PAGE>
LEGAL PROCEEDINGS

The Company is involved from time to time in various legal proceedings
arising in the ordinary course of business. In connection with the Company's
loan servicing, asset management and resolution activities, the Company
generally is indemnified by the party on whose behalf the Company is acting. The
Company also maintains insurance that management believes is adequate for the
Company's operations. None of the matters in which the Company is currently
involved, either individually or in the aggregate (and after consideration of
available indemnities and insurance), is expected to have a material adverse
effect on the Company's business or financial condition.

EMPLOYEES

At December 31, 1995, the Company and its subsidiaries employed 810
employees. Approximately 357 persons are employed in the Company's asset
management and resolution group, 300 persons are employed in the Company's
commercial real estate mortgage banking and services group, 9 persons are
employed in its residential mortgage group, 21 persons are employed in its
pension advisory services business, and 123 persons work in general corporate
administration. The Company believes that its employee relations are generally
good.

PROPERTIES

The Company leases approximately 65,000 square feet in the Woodall Rodgers
Tower in Dallas, Texas for its centralized corporate functions including
executive, business development and marketing, accounting, legal, human
resources and support. The lease provides for annual rent of $693,000 and has an
initial termination date of August 14, 1997. The Company also leases
approximately 197,000 square feet of space for an operations office and branch
offices pursuant to leases with varying terms.

37
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the names, ages, and a brief account of the business
experience of each person who is a director or executive officer of the Company.

<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME (AGE) OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
Robert L. Adair III Mr. Adair serves as director, President and Chief Operating Officer of the Company
(52) (since December 1993). Mr. Adair previously served as Executive Vice President and
director of BEI (1989 to December 1993). His term as a director expires in 1997.

L. Keith Blackwell Mr. Blackwell serves as General Counsel and Secretary of the Company (since January
(54) 1994) and previously served as General Counsel and Secretary of Holdings (December
1993). Mr. Blackwell previously was an investor and consultant (May 1992 to December
1993) and served as Executive Vice President, General Counsel and Secretary of First
Gibraltar Bank, FSB (December 1988 to May 1992).

Randolph E. Brown Mr. Brown serves as Senior Vice President -- Commercial Group of the Company (since
(35) June 1995). Mr. Brown previously served as Director -- Business Development and
Acquisitions of the Company (1993 to June 1995), Director, Department Manager of
NationsBank of Texas (1991 to 1993) and Senior Vice President, Department Manager of
NationsBank of Texas (1990 to 1991).

James P. Cotton, Jr. Mr. Cotton serves as a director of the Company (since December 1993). His term expires
(56) in 1998. Mr. Cotton previously served as Chairman of the Board of BEI (1986 to
December 1993). Mr. Cotton also serves as Chairman of the Board and Chief Executive
Officer of USBA Holdings, Ltd., a provider of products and services to financial
institutions (since 1990).

Richard L. Cravey Mr. Cravey serves as a director of the Company. His term expires in 1996. Mr. Cravey
(51) previously served in the following positions: Chairman of the Board and Chief
Executive Officer of the Company (December 1993 to May 1994) and Chairman of the Board
of Holdings (1992 to December 1993). Mr. Cravey also holds the following positions:
Founder and Managing Director of Cravey, Green & Wahlen Incorporated, a private risk
capital investment firm (since 1985), its investment management affiliate, CGW
Southeast Management Company (since 1991) and its affiliates, CGW Southeast I, Inc.
(the general partner of CGW Southeast Partners I, L.P.) and CGW Southeast II, Inc.
(the general partner of CGW Southeast Partners II, L.P.) (since 1991); Director of
Commercial Bancorp of Georgia (since 1988); Director of Commercial Bancorp of Gwinnett
(since 1990); and Director of Cameron Ashley Inc., a national distributor of home
building products (since 1994).

Barry L. Edwards Mr. Edwards serves as Executive Vice President and Chief Financial Officer of the
(48) Company (since November 1994). Mr. Edwards previously served as Vice President and
Treasurer of Liberty Corporation, an insurance holding company (1979 to November
1994).

Gerald E. Eickhoff Mr. Eickhoff serves as a director of the Company. His term expires in 1996. Mr.
(49) Eickhoff also is a private investor (since December 1993). He previously served as
President, Chief Executive Officer and director of BEI (1986 to December 1993).
</TABLE>

38
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME (AGE) OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
William S. Green Mr. Green serves as a director of the Company (since December 1993). His term expires
(53) in 1998. Mr. Green also holds the following positions: Managing Director of Cravey,
Green & Wahlen Incorporated, a private risk capital investment firm (since 1985), its
investment management affiliate, CGW Southeast Management Company (since 1991) and its
affiliates, CGW Southeast I, Inc. (the general partner of CGW Southeast Partners I,
L.P.) (since 1991) and CGW Southeast II, Inc. (the general partner of CGW Southeast
Partners II, L.P.) (since 1991); Director of DENTSPLY International, Inc., a
manufacturer of dental supplies, dental equipment and medical x-ray products (since
1987); and Director of Cameron Ashley Inc., a national distributor of home building
products (since 1994).

Harold E. Holliday, Jr. Mr. Holliday serves as Chairman of the Board and Chief Executive Officer of Holliday
(48) Fenoglio (since August 1994). Mr. Holliday previously served as President of Holliday,
Fenoglio, Dockerty & Gibson, Inc., a mortgage banking company (for more than five
years prior to August 1994).

Amy J. Jorgensen Ms. Jorgensen serves as a director of the Company. Her term expires in 1998. Ms.
(42) Jorgensen also serves as Managing Director of Greenbriar Associates LLC, which
provides advice and executes transactions relating to real estate assets and companies
(since 1995). Ms. Jorgensen previously served as President of the Jorgensen Company, a
consultant for real estate strategy and finance (April 1992 to September 1995) and as
Managing Director in the Real Estate Department of Morgan Stanley & Co. Incorporated
(1986 to February 1992).

Ronald B. Kirkland Mr. Kirkland serves as Vice President (since January 1994) and Chief Accounting
(51) Officer (since January 1995) of the Company. Mr. Kirkland previously served as
Controller of the Company (December 1993 to January 1995) and Holdings (December 1992
to December 1993) and as Senior Vice President and Controller of the Special Asset
Division of NationsBank of Texas (August 1988 to December 1992).

Robert H. Lutz, Jr. Mr. Lutz serves as Chairman of the Board and Chief Executive Officer of the Company
(46) (since May 1994). Mr. Lutz previously served as President of Allegiance Realty, a real
estate management company (November 1991 to May 1994); Executive Vice President of
Cousins Properties (February 1990 to October 1991); and President or Senior Vice
President of The Landmark Group (1980 to February 1990). His term as a director
expires in 1996.

Michael N. Maberry Mr. Maberry serves as President of ACC (since April 1994). Mr. Maberry previously was
(52) a Shareholder of the law firm of Winstead, Secrest & Minick (April 1989 to April
1994).
</TABLE>

39
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME (AGE) OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
John J. McDonough Mr. McDonough serves as a director of the Company. His term expires in 1997. Mr.
(59) McDonough also serves or has served in the following positions: President and Chief
Executive Officer of McDonough Capital Company LLC, a company through which Mr.
McDonough conducts personal and family investments (since February 1995); Chairman of
the Board of SoftNet Systems, Inc., a company that develops, markets, installs and
services information and document management systems (since June 1995); Vice Chairman
(since 1993) and Chief Executive Officer (1993 to February 1995) of DENTSPLY
International, Inc., a manufacturer of dental supplies, dental equipment and medical
x-ray products; Chairman of the Board (1992 to 1993), Director (1983 to 1992), Chief
Executive Officer (1983 to 1993), President (1983 to 1991) and Treasurer (1983 to
1989) of GENDEX Corporation, a manufacturer of dental equipment and medical x-ray
products, which merged with DENTSPLY in June 1993; and Senior Vice President, Finance
(1981 to 1983) and Director (since 1992) of Newell Co., a New York Stock
Exchange-listed manufacturer of products for the do-it-yourself hardware and
housewares market.

Scott J. Reading Mr. Reading serves as President of AMRESCO Residential Credit Corporation (since
(51) August 1995). Mr. Reading previously served as Managing Director of Household
Financial Services, Inc., a division of Household International, Inc., a diversified
financial services company (June 1991 to August 1995), and Senior Vice President --
Human Resources of Household Finance Corporation, a subsidiary of Household
International, Inc., for more than one year prior thereto.

Bruce W. Schnitzer Mr. Schnitzer serves as a director of the Company. His term expires in 1997. Mr.
(51) Schnitzer previously served as Vice Chairman of the Board of BEI (1986 to December
1993). Mr. Schnitzer also serves as Chairman of Wand Partners Inc., an investment
advisory company (since 1987); Director of Life Partners Group, Inc., a life insurance
holding company (since 1990); and Director of Penncorp Financial Group, Inc. (since
1990).

Douglas R. Urquhart Mr. Urquhart serves as Senior Vice President -- Real Estate Group or Business
(50) Development (since June 1995). Mr. Urquhart previously served as Senior Vice President
-- Portfolio Acquisitions of the Company (January 1994 to June 1995); President of BEI
Real Estate Services, Inc. and BEI Management, Inc., a subsidiary of BEI (December
1992 to January 1994); and President of BEI Asset Managers, Inc., a subsidiary of BEI
(January 1989 to January 1994).
</TABLE>

40
<PAGE>
DESCRIPTION OF THE NOTES

The Notes are to be issued under the Indenture, dated as of January 15,
1996, between the Company and Bank One, Columbus, N.A., as trustee (the
"Trustee"). The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the provisions of the Indenture (including the definition of
certain terms in the Indenture), the form of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Wherever
particular provisions and definitions of the Indenture are referred to, such
provisions and definitions are incorporated by reference as part of the
statements made, and the statements are qualified in their entirety by such
reference. Article and Section references are to Articles and Sections of the
Indenture.

GENERAL

The Notes offered by this Prospectus will be limited to $50.0 million
aggregate principal amount, plus up to an additional $7.5 million aggregate
principal amount if the Underwriters' over-allotment option is exercised in
full. The Notes will be issued in global or registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof. Interest
on the Notes will accrue from the date of original issuance and will be payable
on the 15th day of each month, commencing March 15, 1996, at the rate per annum
stated on the cover page of this Prospectus. Interest will be payable to the
person in whose name the Note is registered at the close of business on the 10th
day of the month of such Interest Payment Date. (Sections 201, 202, 301, 302,
307, 308 and 311) The Notes will mature on January 15, 2003, unless redeemed
earlier at the option of the Company or repaid earlier upon the death of a
Holder or upon the exercise of the conditional repayment option, each as set
forth below. Except as set forth below under "-- Repayment Option Upon Death"
and "-- Conditional Repayment Option," the Company is not required to make
mandatory redemption or sinking fund payments with respect to the Notes. See "--
Redemption at Option of the Company," "-- Repayment Option Upon Death" and "--
Conditional Repayment Option."

Principal and interest will be payable at an office or agency to be
maintained by the Company in New York, New York and Columbus, Ohio, except that,
at the option of the Company, interest may be paid by check mailed to the person
entitled thereto. (Sections 301, 307 and 1002) The Notes may be presented for
registration of transfer or exchange at an office or agency to be maintained by
the Company in New York, New York and Columbus, Ohio. (Section 305) The Notes
will be exchangeable without service charge but the Company may require payment
to cover taxes or other government charges. (Section 305) The Notes will not be
secured by the assets of the Company or any of its subsidiaries or Affiliates or
otherwise. In addition, the rights of the Company to participate in any
distribution of assets of any subsidiary, including Holliday Fenoglio, ACC,
AMRESCO Advisors, Inc. (a subsidiary of the Company formed in connection with
the Acacia Acquisition) and AMRESCO Residential, upon its liquidation or
reorganization or otherwise (and thus the ability of the Holders of the Notes to
benefit indirectly from such distribution) are subject to the prior claims of
creditors of the subsidiary.

So long as the Company is a reporting company under the Exchange Act, the
Company will furnish to Holders of the Notes annual reports of the Company
containing audited consolidated financial statements and interim reports with
unaudited consolidated summary financial data on a quarterly basis. If the
Company ceases to be a reporting company under the Exchange Act, the Company
will furnish to Holders of the Notes annual audited consolidated financial
statements and quarterly unaudited consolidated summary financial statements.
(Section 704)

REDEMPTION AT OPTION OF THE COMPANY

The Notes may not be redeemed prior to January 15, 2001. The Notes are
subject to redemption at 100% of the principal amount thereof plus accrued
interest, at the option of the Company in whole at any time or in part from time
to time, commencing on January 15, 2001, upon not less than 30 nor more than 60
days' notice mailed to the registered Holders thereof. The redemption price will
be paid with interest accrued to the date fixed for redemption. If the Company
elects to redeem less than all of the Notes, the Trustee will select which Notes
to redeem by lot or such other method as it shall deem fair and appropriate,

41
<PAGE>
including the selection for redemption of a portion of the principal amount of
any Note but not less than $1,000. On and after the redemption date, interest
will cease to accrue on the Notes or portions thereof called for redemption.
(Article Eleven)

REPAYMENT OPTION UPON DEATH

Upon the death of any Holder of Notes, the Company will purchase such
Holder's Notes on request, if (i) the Notes have been registered in the Holder's
name since their date of issuance or for a period of six months prior to the
date of such Holder's death, whichever is less, (ii) the redemption payments
with respect to such Holder's Notes will not exceed $30,000 in principal amount
in any calendar year, (iii) the Company will not, after giving effect to such
payment, have made redemption payments on Notes of deceased Holders in an
aggregate amount exceeding $300,000 in principal amount in any twelve month
period (if such aggregate principal amount exceeds $300,000, then the Trustee
will repay such Notes up to $300,000 in principal amount in the order in which
such requests for repayment were received), (iv) either the Company or the
Trustee has been notified in writing of the request for redemption within one
year after the Holder's death, and if less than all of such Holder's Notes are
redeemed pursuant to such initial request, either the Company or the Trustee has
been notified in writing of subsequent requests for redemption of additional
Notes of such Holder within one year after any such preceding notice, (v) the
Company is not, after giving effect to such payment, in default under any Senior
Indebtedness, and (vi) the Company is not subject to any law, regulation,
agreement or administrative directive preventing such repayment. Notes for which
such repayment is requested shall, subject to the limitations described above,
be repaid at 100% of the principal amount thereof, together with interest
accrued to the repayment date, within 30 days following receipt by the Company
of the following: (i) a written request for payment signed by a duly authorized
representative of the Holder, which shall indicate the name of the deceased
Holder, the date of death of the deceased Holder and the principal amount of
Notes to be repaid, (ii) the certificates representing the Notes to be repaid
and (iii) evidence satisfactory to the Company and the Trustee of the death of
the Holder and evidence of authority of the representative to the extent
required by the Trustee. Authorized representatives of a Holder shall include
executors, administrators or other legal representatives of an estate, trustees
of a trust, joint owners of Notes owned in joint tenancy or tenancy by the
entirety, custodians, conservators, guardians, attorneys-in-fact and other
persons generally recognized as having legal authority to act on behalf of
others. (Section 1201)

The death of a person owning a Note in joint tenancy or tenancy by the
entirety with another or others shall be deemed the death of the Holder of the
Note, and the entire principal amount of the Note so held shall be subject to
repayment, together with interest accrued thereon to the repayment date. The
death of a person owning a Note by tenancy in common shall be deemed the death
of a Holder of a Note only with respect to the deceased Holder's interest in the
Note so held by tenancy in common; except that in the event a Note is held by
husband and wife as tenants in common, the death of either shall be deemed the
death of the Holder of the Note, and the entire principal amount of the Note so
held shall be subject to repayment. The death of a person who, during his or her
lifetime, was entitled to substantially all of the beneficial interests of
ownership of a Note, will be deemed the death of the Holder thereof for purposes
of this provision, regardless of the registered Holder, if such beneficial
interest can be established to the satisfaction of the Trustee. Such beneficial
interest will be deemed to exist in typical cases of nominee ownership,
ownership under the Uniform Transfers (or Gifts) to Minors Act, community
property or other joint ownership arrangements between a husband and wife and
trust arrangements where one person has substantially all of the beneficial
ownership interests in the Note during his or her lifetime. (Section 1201)

CONDITIONAL REPAYMENT OPTION

The Indenture provides that each Holder shall have the right to require the
Company to repurchase the Notes at a purchase price equal to 100% of the
principal amount, plus accrued and unpaid interest, upon the occurrence of any
event requiring that the Company repurchase, or make an offer to repurchase, any
Subordinated Indebtedness other than the Notes. In the event such a requirement
is effected with respect to Junior Indebtedness, the Holders of the Notes
requiring the Company to repurchase Notes must be paid in full prior to any
payment to the holders of Junior Indebtedness. In the event such a requirement
is effected with respect to Subordinated Indebtedness that is pari passu with
the Notes, the Holders of the Notes requiring the Company to repurchase Notes
must be paid concurrently with the holders of the pari passu

42
<PAGE>
Subordinated Indebtedness. The Convertible Subordinated Debenture Indenture
contains such a repurchase requirement (i) in the event of any Fundamental
Change (as defined in the Convertible Subordinated Debenture Indenture) or (ii)
if the Company's Net Worth (as defined in the Convertible Subordinated Debenture
Indenture) at the end of each of any two consecutive fiscal quarters is less
than the Minimum Net Worth (defined in the Convertible Subordinated Debenture
Indenture as approximately $141.0 million (which includes the net proceeds to
the Company from the Common Stock Offering) plus the net proceeds to the Company
from any other offering of Common Stock by the Company subsequent to the date
hereof). See "-- Convertible Subordinated Debentures." (Article Fourteen)

SUBORDINATION

The Notes are subordinated, in the manner and to the extent hereinafter
described to the prior payment of all "Senior Indebtedness" of the Company.
Senior Indebtedness is defined as any Indebtedness for Money Borrowed (see
"Covenants -- Restrictions on Additional Indebtedness and Interest Coverage
Ratio") whether outstanding on the date of execution of the Indenture or
thereafter created or incurred, unless it is provided in the appropriate
instrument that such Indebtedness for Money Borrowed is subordinated to any
other Indebtedness for Money Borrowed. (Sections 101 and 1301) Indebtedness for
Money Borrowed is defined in the Indenture as any of the following obligations
of the Company or any subsidiary which by its terms matures at or is extendable
or renewable at the sole option of the obligor without requiring the consent of
the obligee to a date more than 360 days after the date of the creation or
incurrence of such obligation: (i) any obligations, contingent or otherwise, for
borrowed money or for the deferred purchase price of property, assets,
securities or services (including, without limitation, any interest accruing
subsequent to an event of default), (ii) all obligations (including the Notes)
evidenced by bonds, notes, debentures or other similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired (even though the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), except any such
obligation that constitutes a trade payable and an accrued liability arising in
the ordinary course of business, if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet prepared in
accordance with generally accepted accounting principles, (iv) all Capitalized
Lease Obligations, (v) liabilities of the Company actually due and payable under
banker's acceptances or letters of credit, (vi) all indebtedness of the type
referred to in clause (i), (ii), (iii), (iv) and (v) above secured by (or for
which the holder of such indebtedness has an existing right, content or
otherwise, to be secured by) any lien upon or security interest in property of
the Company or any subsidiary (including, without limitation, accounts and
contract rights), even though the Company or any subsidiary has not assumed or
become liable for the payment of such indebtedness and (vii) any guarantee or
endorsement (other than for collection or deposit in the ordinary course of
business) or discount with recourse of, or other agreement, contingent or
otherwise, to purchase, repurchase, or otherwise acquire, to supply, or advance
funds or become liable with respect to, any indebtedness or any obligation of
the type referred to in any of the foregoing clauses (i) through (vi),
regardless of whether such obligation would appear on a balance sheet. As of
December 31, 1995, the Company and its subsidiaries had an aggregate of $281.0
million in outstanding Senior Indebtedness and an aggregate of $326.0 million in
Indebtedness for Money Borrowed (in each case, including $135.6 million of
borrowings under a mortgage warehouse facility that were repaid on January 26,
1996).

The Indenture contains certain standstill provisions, which provide that no
payments of principal of, or interest on, the Notes may be made and no Notes may
be accelerated if at the time thereof the Trustee has received a written notice
(a "Default Notice") from the holder or holders of not less than 51% in
principal amount of the outstanding Senior Indebtedness or any agent therefor (a
"Senior Agent") specifying that an event of default (a "Senior Event of
Default") under any Senior Indebtedness has occurred. Such standstill provisions
remain in effect until the first to occur of the following: (i) the Senior Event
of Default is cured, (ii) the Senior Event of Default is waived by the holders
of such Senior Indebtedness or the Senior Agent or (iii) the expiration of 180
days after the date the Default Notice is received by the Trustee if the
maturity of such Senior Indebtedness has not been accelerated at such time. Upon
a distribution of assets, dissolution,

43
<PAGE>
winding up, total liquidation or reorganization of the Company, all Senior
Indebtedness must be paid in full before any payment of principal or interest on
the Notes can be made. (Section 1301) Any subordination will not prevent the
occurrence of an "Event of Default" (as defined below) under the Indenture.

By reason of the subordination of the Notes, in the event of liquidation of
the Company, the Holders of the Notes will not receive payment until the Holders
of Senior Indebtedness have been satisfied and in such event Holders of Senior
Indebtedness may recover more than Holders of the Notes. Senior Indebtedness may
also be issued or incurred in the future, subject only to certain limitations on
the ratio of Senior Recourse Indebtedness to Consolidated Capitalization. See
"-- Covenants -- Restrictions on Additional Indebtedness and Interest Coverage
Ratio."

COVENANTS

The Indenture will contain a number of covenants relating to the Company and
its operations, including the following:

RESTRICTIONS ON ADDITIONAL INDEBTEDNESS AND INTEREST COVERAGE RATIO. The
Indenture limits the amount of Indebtedness for Money Borrowed of the Company on
a consolidated basis and contains a minimum Interest Coverage Ratio. The Company
may not create, incur, assume, guarantee or otherwise be liable for any
Indebtedness for Money Borrowed if, immediately after giving effect thereto: (i)
the aggregate amount of the Senior Recourse Indebtedness outstanding would
exceed 450% of the Company's Consolidated Capitalization or (ii) the aggregate
amount of Subordinated Indebtedness outstanding would exceed 100% of the
Company's Consolidated Net Worth. In addition, the Company may not permit the
Interest Coverage Ratio to be less than 1.25 to 1. "Consolidated Capitalization"
is defined as the sum of the Company's Subordinated Indebtedness plus its
Consolidated Net Worth. "Subordinated Indebtedness" is defined as all
Indebtedness for Money Borrowed except Senior Indebtedness (including the Notes,
any indebtedness issued on a pari passu basis with the Notes and any Junior
Indebtedness). "Junior Indebtedness" is defined as any Indebtedness for Money
Borrowed of the Company, whether outstanding on the date of execution of the
Indenture or thereafter created, incurred, assumed or guaranteed, if, in the
instrument creating or evidencing such Indebtedness for Money Borrowed or
pursuant to which such Indebtedness for Money Borrowed is outstanding, it is
provided that (i) such indebtedness is junior in right of payment to the Notes,
(ii) no payments with respect to such indebtedness may be made at any time that
an Event of Default shall have occurred and be continuing and (iii) no payments
other than the payment of interest may be made with respect to such indebtedness
at any time the Notes are outstanding. "Consolidated Net Worth" is defined as
the excess, as determined in accordance with generally accepted accounting
principles, after appropriate deduction for minority interests in the net worth
of consolidated subsidiaries, of the Company's assets over its liabilities.
(Sections 101 and 1007) "Senior Recourse Indebtedness" is defined as Senior
Indebtedness minus any Indebtedness for Money Borrowed of the Company or any of
its subsidiaries that is (A)(i) specifically advanced to finance the acquisition
of assets classified on the Company's balance sheet as "assets held for sale"
and (ii) either (a) secured by the assets to which such indebtedness relates
without recourse to the Company or any of its subsidiaries or (b) issued under a
loan agreement that requires each advance to be repaid upon sale of the assets
to which such advance relates within no more than one year from the date of such
advance or (B) advanced to a subsidiary or group of subsidiaries formed for the
sole purpose of acquiring or holding a portfolio of assets (i) against which a
loan is obtained that is made without recourse to, and with no
cross-collateralization against the assets of, the Company or any other
subsidiary, and (ii) upon complete or partial liquidation of which the loan must
be correspondingly completely or partially repaid, as the case may be. The
Interest Coverage Ratio is defined to mean, for any date of determination, the
ratio of Consolidated EBITDA for the immediately preceding twelve calendar
months to Consolidated Interest Expense for the immediately preceding twelve
calendar months. Consolidated EBITDA is defined as the sum of consolidated net
income of the Company and its subsidiaries before taxes and non-recurring gains
or losses, plus depreciation, amortization and interest expense. Consolidated
Interest Expense is defined as the interest expense required to be shown as such
on the financial statements of the Company and its subsidiaries, on a
consolidated basis. As of December 31, 1995 the Company's Consolidated
Capitalization (as defined above) was approximately $205.8 million, including
Consolidated Net Worth in the amount of approximately $160.8 million and $45.0
million of Subordinated Indebtedness on a consolidated basis. As

44
<PAGE>
of December 31, 1995 and after giving effect to the sale of $50.0 million
principal amount of the Notes hereby (assuming the $7.5 million over-allotment
option is not exercised), the Company could have incurred approximately $606.7
million of additional Senior Recourse Indebtedness and approximately $115.8
million of additional Subordinated Indebtedness. (Sections 101, 1007 and 1016)

RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS. The Indenture
provides that the Company cannot (i) declare or pay any dividend, either in cash
or property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of the Company), (ii)
purchase, redeem or retire any shares of its capital stock or any warrants,
rights or options to purchase or acquire any shares of its capital stock or
(iii) make any other payment or distribution, either directly or indirectly
through any subsidiary, in respect of its capital stock (such dividends,
purchases, redemptions, retirements, payments and distributions being herein
collectively called "Restricted Payments") if, after giving effect thereto,

(1) an Event of Default would have occurred; or

(2) (A) the sum of (i) such Restricted Payments plus (ii) the aggregate
amount of all Restricted Payments made during the period after December 31,
1995 would exceed (B) the sum of (i) $10 million plus (ii) 50% of the
Company's Consolidated Net Income for each fiscal year commencing subsequent
to December 31, 1995 (with 100% reduction for a loss in any fiscal year),
plus (iii) the cumulative net proceeds received by the Company from the
issuance or sale after December 31, 1995 of capital stock of the Company
(including in such proceeds, the face amount of indebtedness, including the
Convertible Subordinated Debentures, that has been converted to Common Stock
after December 31, 1995).

Notwithstanding the foregoing, the Company may make a previously-declared
Restricted Payment if the declaration of such Restricted Payment was permitted
when made. The amount of any Restricted Payment payable in property shall be
deemed to be the fair market value of such property as determined by the Board
of Directors of the Company. (Section 1006)

CONSOLIDATION, MERGER OR TRANSFER. The Company may not consolidate with,
merge with, or transfer all or substantially all of its assets to another entity
where the Company is not the surviving corporation unless (i) such other entity
assumes the Company's obligations under the Indenture, and (ii) after giving
effect thereto, no event shall have occurred and be continuing which, after
notice or lapse of time, would become an Event of Default. (Section 801)

LIMITATION ON RANKING OF FUTURE INDEBTEDNESS. The Indenture provides that
the Company will not, directly or indirectly, incur, create, assume or guarantee
any Indebtedness for Money Borrowed which is expressly subordinate in right of
payment to any Senior Indebtedness, other than Junior Indebtedness or
indebtedness that is pari passu with the Notes in right of payment. The
incurrence of Senior Indebtedness which is unsecured shall not, because of its
unsecured status, be deemed to be subordinate in right of payment to Senior
Indebtedness which is secured. (Section 1013)

LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS. The Indenture provides
that neither the Company nor its subsidiaries may create or otherwise cause to
become effective any consensual encumbrance or restriction of any kind on the
ability of any subsidiary of the Company to (i) pay dividends or make any other
distribution on its capital stock, (ii) pay any indebtedness owed to the Company
or any other subsidiary of the Company or (iii) make loans, advances or capital
contributions to the Company or any other subsidiary of the Company except in
certain specified circumstances. (Section 1014)

LIMITATION ON TRANSACTIONS WITH AFFILIATES. Neither the Company nor any of
its Material Subsidiaries may enter into any transactions with any Affiliate on
terms and conditions less favorable to the Company or such Material Subsidiary,
as the case may be, than would be available at such time in a comparable
transaction in arm's length dealings with an unrelated Person as determined by
the Company's Board of Directors. These provisions do not apply to Restricted
Payments otherwise permitted under the Indenture, fees and compensation paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any subsidiary, as determined by the Company's
Board of Directors or its senior management in the exercise of their reasonable
business judgment or payments for goods and services purchased in the ordinary
course of business on an arm's length basis. (Section 1015)

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<PAGE>
EVENTS OF DEFAULT

An Event of Default includes: (i) failure to pay the principal on the Notes
when due at Maturity, upon redemption or upon repayment, as provided in the
Indenture, whether or not prohibited by the subordination provisions of the
Indenture, (ii) failure to pay any interest on the Notes for 10 days, whether or
not prohibited by the subordination provisions of the Indenture, (iii) failure
to perform, or a breach of, any covenant or warranty set forth in the Indenture
for 30 days after receipt of written notice from the Trustee or Holders of at
least 25% in principal amount of the outstanding Notes specifying the default
and requiring the Company to remedy such default, (iv) default in the payment at
stated maturity of indebtedness of the Company or any subsidiary for money
borrowed having an outstanding principal amount due at stated maturity greater
than $1 million and such default having continued for a period of 30 days beyond
any applicable grace period, (v) an event of default as defined in any mortgage,
indenture or instrument of the Company shall have happened and resulted in
acceleration of indebtedness which, together with the principal amount of any
other indebtedness so accelerated, exceeds $1 million or more at any time, and
such default shall not be cured or waived and such acceleration shall not have
been rescinded or annulled, (vi) certain events of insolvency, receivership or
reorganization of the Company or any subsidiary and (vii) entry of a final
judgment, decree or order against the Company or any subsidiary for the payment
of money in excess of $5 million and such judgment, decree or order continues
unsatisfied for 30 days without a stay of execution. (Section 501)

The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a "default" (meaning, for this purpose, the events specified above
without grace periods), give the Holders of the Notes notice of all defaults
known to it which have occurred and remained uncured; provided that, except in
the case of a default in the payment of principal or interest on any of the
Notes, the Trustee shall be protected in withholding such notice if and so long
as it in good faith determines that the withholding of such notice is in the
interest of the Holders. (Section 602)

If an Event of Default shall occur and be continuing, the Trustee, in its
discretion may, and, at the written request of Holders of a majority in
aggregate principal amount of the outstanding Notes shall, proceed to protect
and enforce its rights and the rights of the Holders. If an Event of Default
shall occur and be continuing, either the Trustee or the Holders of at least 25%
in aggregate principal amount of outstanding Notes may accelerate the maturity
of all such outstanding Notes. If any Event of Default has occurred and a
declaration of acceleration made, before a judgment or decree for payment of
money due is obtained Holders of a majority of the outstanding Notes may rescind
the acceleration of the Notes if all Events of Default have been remedied and
all payments due, other than those due as a result of acceleration, have been
made. The Holders of a majority in aggregate principal amount of outstanding
Notes may waive a default, except a default in the payment of principal of or
interest on any Note. (Sections 502, 503, 512 and 513)

The Company must furnish quarterly to the Trustee an Officers Certificate
stating whether to the best knowledge of the signers, the Company is in default
under any of the provisions of the Indenture, and specifying all such defaults
and the nature thereof, of which they have knowledge. (Section 1011)

A Holder will not have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless (i) such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default,
(ii) the Holders of at least 25% in aggregate principal amount of the
outstanding Notes shall have made a written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, (iii) the
Trustee shall have failed to institute such proceeding within 60 days and (iv)
the Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request. (Section 507) However, the Holder of any Note will have an absolute
right to receive payment of the principal of and interest on such Note on or
after the respective due dates and to institute suit for the enforcement of any
such payment. (Section 508)

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MODIFICATION AND WAIVER

With certain limited exceptions which permit modifications of the Indenture
by the Company and the Trustee only, the Indenture may be modified by the
Company with the consent of Holders of not less than a majority in aggregate
principal amount of outstanding Notes; provided, however, that no such changes
shall without the consent of the Holder of each Note affected thereby (i) change
the maturity date of the principal of, or the due date of any installment of
interest on, any Note, (ii) reduce the principal of, or the rate of interest on,
any note, (iii) change the place of payment or the currency in which any portion
of the principal of, or interest on, any Note is payable, (iv) impair the right
on institute suit for the enforcement of any such payment, (v) reduce the
above-stated percentage of Holders of the outstanding Notes necessary to modify
the Indenture, (vi) modify the foregoing requirements or reduce the percentage
of outstanding Notes necessary to waive any past default or certain covenants or
(vii) impair the optional right to repayment provided the Holders. (Sections 513
and 902)

The Holders of a majority in aggregate principal amount of outstanding Notes
may waive compliance by the Company with certain restrictive provisions of the
Indenture. (Section 1012)

SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE

The Indenture provides that the Company may terminate its obligations under
the Indenture with respect to all the Notes by delivering to the Trustee, in
trust for such purpose, money, Government Obligations or both which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide on the due dates of any payment of principal and interest,
or a combination thereof, money in an amount sufficient to discharge the entire
indebtedness of the Notes. (Sections 401 and 402)

GOVERNING LAW

The Indenture and the Notes will be governed and construed in accordance
with the laws of the State of Minnesota, without giving effect to such State's
conflict of laws principles. (Section 113)

CONCERNING THE TRUSTEE

Bank One, Columbus, N.A. is Trustee under the Indenture and is also the Note
Registrar.

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<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS

THE FOLLOWING SUMMARIES OF THE PRINCIPAL TERMS OF THE VARIOUS CREDIT
FACILITIES AND THE CONVERTIBLE SUBORDINATED DEBENTURE INDENTURE DO NOT PURPORT
TO BE COMPLETE AND ARE SUBJECT TO THE DETAILED PROVISIONS OF, AND QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO, SUCH AGREEMENTS. THE COMPANY WILL PROVIDE
WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED,
UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AGREEMENT
DESCRIBED IN THIS SECTION. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."

REVOLVING LOAN AGREEMENT

GENERAL. On September 29, 1995, the Company and certain of its subsidiaries
entered into the Revolving Loan Agreement with NationsBank of Texas, as agent
(the "Agent"), and other lending institutions party thereto (the "Banks"), which
replaced the Company's previous revolving line of credit with NationsBank. A
total of $77.0 million, $67.5 million and $98.0 million was outstanding under
such facility at September 30, 1995, December 31, 1995 and January 29, 1996,
respectively. The Company had no outstanding letters of credit at September 30,
1995. At December 31, 1995, the Company had outstanding $239,000 in face amount
of letters of credit.

The Revolving Loan Agreement provides for (i) a $50.0 million Corporate
Facility to be used for (A) general working capital purposes, (B) acquisitions
of equity interests in other persons, (C) certain permitted investments, and (D)
other business needs approved by the Banks that constitute at least 50% of the
lenders in number and have loaned 51% or more of the amount then outstanding
under the Revolving Loan Agreement; (ii) a $100.0 million Portfolio Facility to
be used to (A) refinance indebtedness incurred in connection with the purchase
of certain Asset Portfolios acquired prior to execution and delivery of the
Revolving Loan Agreement, (B) finance future acquisitions of Asset Portfolios,
and (C) finance acquisitions of entities for the purpose of resolving Asset
Portfolios owned by such entities; and (iii) a sublimit of $10.0 million for
letters of credit. (The Revolving Loan Agreement initially included a $25.0
million temporary bridge facility that was permanently repaid with a portion of
the net proceeds of the Convertible Subordinated Debenture Offering.) The Banks'
current commitment under the Revolving Loan Agreement is limited to a total of
$105.0 million, $35.0 million under the Corporate Facility and $70.0 million
under the Portfolio Facility. The additional amounts under the Revolving Loan
Agreement would become available to the Company upon the participation by
additional financial institutions in the syndicate for the loan and upon an
increase in the Company's borrowing base under this agreement. There can be no
assurance that such events will occur.

The Company uses the Corporate Facility for general corporate purposes
including acquisitions and investments in asset portfolios, partnerships and
joint ventures and the Portfolio Facility to support investments in wholly-owned
asset portfolios.

RANKING. Indebtedness under the Revolving Loan Agreement constitutes Senior
Indebtedness.

SECURITY. Indebtedness under the Revolving Loan Agreement is secured by
substantially all the assets of the Company not pledged under other facilities,
including stock of a majority of the Company's subsidiaries.

INTEREST. Indebtedness under the Corporate Facility and the Portfolio
Facility generally bears interest at a rate based (at the Company's option) upon
the lesser of (i) the Variable Rate (defined as the greater of the Agent's prime
rate, as announced from time to time, and the Federal Funds Rate (as defined in
the Revolving Loan Agreement) plus 1/2%) or (ii) the Adjusted LIBOR Rate (as
defined in the Revolving Loan Agreement).

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<PAGE>
MATURITY. The Corporate Facility will mature on September 29, 1997. The
Portfolio Facility will mature on September 27, 1996, subject to the Company's
right to extend the maturity date for the outstanding balance of the Portfolio
Facility for one additional year. Loans made pursuant to the Corporate Facility
and the Portfolio Facility may be borrowed, repaid and reborrowed from time to
time until the respective maturity thereof, subject to the satisfaction of
certain conditions on the date of any such borrowing.

FEES. The Company paid to the Banks, upon execution and delivery of the
Revolving Loan Agreement, an aggregate commitment fee equal to $770,000. The
Company also will be required to pay to the Banks a facility fee (ranging from
20 to 37.5 basis points) per annum, payable in arrears on a quarterly basis, on
the committed undrawn amount of the Corporate Facility and the Portfolio
Facility, after adjustment for any letters of credit issued by the Banks under
the Revolving Loan Agreement. In addition, the Company will be required to pay
to the Agent (for the account of each Bank) certain fees in respect of letters
of credit issued under the Revolving Loan Agreement. The Company also will pay
to the Agent certain other fees for the Agent's role in structuring and
administering the Revolving Loan Agreement.

CONDITIONS TO FUNDING EXTENSIONS OF CREDIT. The obligation of the Banks to
make loans or extend letters of credit will be subject to the satisfaction of
certain customary conditions, including, without limitation, the absence of any
default under the Revolving Loan Agreement and all representations and
warranties under the Revolving Loan Agreement being true and correct in all
material respects.

COVENANTS. The Revolving Loan Agreement requires the Company to meet
certain financial tests, including minimum consolidated tangible net worth,
maximum consolidated funded debt to consolidated capitalization ratio, minimum
fixed charge coverage ratio, minimum interest coverage ratio, maximum
consolidated funded debt to consolidated EBITDA ratio and maximum Corporate
Facility outstanding to consolidated EBITDA ratio. The Revolving Loan Agreement
contains covenants that, among other things, will limit the incurrence of
additional indebtedness, investments, asset sales, loans to stockholders,
dividends, transactions with affiliates, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements. The Revolving Loan Agreement also contains additional
covenants that require the Company to maintain its properties and those of its
subsidiaries (including corporate franchises), together with insurance thereon,
to provide certain information to the Agent, including financial statements,
notices and reports, to permit inspections of the books and records of the
Company and its subsidiaries by the Agent, to comply with applicable laws,
including environmental laws and ERISA, to pay taxes, and to use the proceeds of
the loans solely for certain specified purposes.

EVENTS OF DEFAULT. The Revolving Loan Agreement contains customary events
of default, including payment defaults, covenant defaults (subject to certain
cure periods to be mutually agreed upon by the Company and the Agent), breaches
of representations and warranties, cross-defaults to certain other indebtedness,
certain events of bankruptcy and insolvency, judgment defaults in excess of
$500,000, failure of any guaranty or security agreement supporting the Revolving
Loan Agreement to be in full force and effect and change of control of the
Company.

INDEMNIFICATION. Under the Revolving Loan Agreement, the Company has agreed
to indemnify the Agent and the Banks from and against any and all liabilities,
losses, damages, costs and expenses of any kind (including, without limitations,
reasonable fees and disbursements of counsel for Agent and the Banks) that may
be incurred by Agent or any Bank relating to or arising out of the Revolving
Loan Agreement, provided that the Company is not liable for any such
liabilities, losses, damages, costs or expenses resulting from such indemnified
party's own gross negligence or willful misconduct. In addition, the Company has
agreed to indemnify the Agent and the Banks against any and all present and
future claims related to tax payments (excluding income taxes of the Agent and
any Bank) in connection with the loans made under the Revolving Loan Agreement.

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<PAGE>
ACC WAREHOUSE FACILITIES

NATIONSBANK

GENERAL. On April 28, 1995, ACC entered into the $25.0 million NationsBank
Warehouse Facility, which ACC uses to finance the origination and warehousing of
certain mortgage loans. See "Business -- Mortgage Banking Business." The Company
has guaranteed certain of ACC's obligations under the NationsBank Warehouse
Facility. A total of $2.7 million and $9.0 million was outstanding under the
NationsBank Warehouse Facility at September 30, 1995 and December 31, 1995,
respectively.

RANKING. The NationsBank Warehouse Facility constitutes Senior Indebtedness
of the Company.

SECURITY. ACC's indebtedness under the NationsBank Warehouse Facility is
secured by all mortgage loans originated by ACC using funds obtained under the
NationsBank Warehouse Facility and related collection accounts.

INTEREST. Indebtedness under the NationsBank Warehouse Facility generally
bears interest at a rate based (at ACC's option) upon either (i) the prime rate
established by NationsBank of Texas, as announced from time to time or (ii) the
Adjusted LIBOR Rate (as defined in the NationsBank Warehouse Facility) plus 2%.

MATURITY. The original maturity date of the NationsBank Warehouse Facility
is January 25, 1997, subject to certain limitations. Under certain
circumstances, ACC may extend the maturity date to January 25, 1998.

CONDITIONS TO EXTENSIONS OF CREDIT. The obligation of NationsBank of Texas
to make loans to ACC under the NationsBank Warehouse Facility is subject to
certain customary conditions including, without limitation, the delivery of
certain documents, instruments and applications by ACC, approval by NationsBank
of Texas of the mortgage loan to be originated by ACC, the absence of any
default under the NationsBank Warehouse Facility and all representations and
warranties under the NationsBank Warehouse Facility being true and correct.

COVENANTS. The NationsBank Warehouse Facility requires ACC to meet certain
financial tests, including minimum liquidity, maximum ratio of total liabilities
to tangible net worth and minimum tangible net worth. The NationsBank Warehouse
Facility also contains covenants that, among other things, limit the incurrence
of additional indebtedness, investments, asset sales, distributions,
transactions with affiliates, mergers and consolidations, liens and encumbrances
and other matters customarily restricted in such agreements. The NationsBank
Warehouse Facility also contains additional covenants that require ACC to
provide certain information to NationsBank of Texas, including financial
statements, notices and reports, to permit inspections of the books and records
of the Company and its subsidiaries by NationsBank of Texas and to comply with
applicable laws and to pay taxes.

EVENTS OF DEFAULT. The NationsBank Warehouse Facility contains customary
events of default, including payment defaults, covenant defaults, breaches of
representations and warranties, cross-defaults to certain other indebtedness,
certain events of bankruptcy and insolvency, judgment defaults in excess of
certain amounts, failure of any guarantee or security agreement supporting the
NationsBank Warehouse Facility to be in full force and effect, a change in
control of ACC, changes in the basic business of ACC and changes in the
individuals holding certain offices with ACC.

INDEMNIFICATION. Under the NationsBank Warehouse Facility, ACC has agreed
to indemnify NationsBank of Texas and certain related parties from and against
any and all losses, liabilities, claims, damages, deficiencies, interest,
judgments, costs and expenses (including, without limitation, reasonable fees
and disbursements of counsel for NationsBank of Texas) that arise out of certain
matters described in the NationsBank Warehouse Facility, provided that ACC is
not liable for such matters resulting from the gross negligence or willful
misconduct of an indemnitee thereunder.

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<PAGE>
RESIDENTIAL FUNDING CORPORATION

GENERAL. On August 15, 1995, ACC entered into the RFC Warehouse Facility,
which ACC uses to facilitate multi-family mortgage loan underwriting and
origination. See "Business -- Mortgage Banking Business." A total of $3.0
million and $8.6 million was outstanding under the RFC Warehouse Facility at
September 30, 1995 and December 31, 1995, respectively. The RFC Warehouse
Facility is non-recourse to the Company.

SECURITY. ACC's indebtedness under the RFC Warehouse Facility is secured by
all mortgage loans originated by ACC using funds obtained under the RFC
Warehouse Facility.

INTEREST. Indebtedness under the RFC Warehouse Facility generally bears
interest at a rate based upon LIBOR (as defined in the RFC Warehouse Facility)
plus 3%.

MATURITY. The stated maturity date will be provided in each note related to
each borrowing under the RFC Warehouse Facility and is expected to be
approximately 60 days from the date of each such borrowing.

CONDITIONS TO EXTENSIONS OF CREDIT. The obligation of Residential Funding
Corporation to make loans to ACC under the RFC Warehouse Facility is subject to
certain customary conditions including, without limitation, the delivery of
certain documents, instruments and applications by ACC, approval by Residential
Funding Corporation of the mortgage loans to be originated by ACC, the absence
of any default under the RFC Warehouse Facility, and all representations and
warranties under the RFC Warehouse Facility being true and correct.

COVENANTS. The RFC Warehouse Facility requires ACC to meet certain
financial tests, including a maximum ratio of debt to tangible net worth,
minimum tangible net worth and minimum Servicing Portfolio (as defined in the
RFC Warehouse Facility). The RFC Warehouse Facility also contains covenants
that, among other things, limit ACC's ability to liquidate, dissolve,
consolidate or merge or sell any substantial part of its assets, or acquire any
substantial part of the assets of another business. The RFC Warehouse Facility
also contains additional covenants that require ACC to provide certain
information to Residential Funding Corporation, including financial statements,
notices and reports, permit inspections of the books and records of ACC by
Residential Funding Corporation and to comply with applicable laws and to pay
taxes.

EVENTS OF DEFAULT. The RFC Warehouse Facility contains customary events of
default, including payment defaults (subject to certain cure periods), breaches
of covenants or representations and warranties, cross-defaults to certain other
indebtedness, certain events of bankruptcy and insolvency (including of the
Company) and judgment defaults in excess of certain amounts.

INDEMNIFICATION. Under the RFC Warehouse Facility, ACC has agreed to
indemnify Residential Funding Corporation and certain related parties from and
against any and all losses, liabilities, claims, damages, deficiencies,
interest, judgments, costs and expenses (including, without limitation,
reasonable fees and disbursements of counsel for Residential Funding
Corporation) that arise out of certain matters described in the RFC Warehouse
Facility, provided that ACC is not liable for such matters resulting from the
gross negligence or willful misconduct of an indemnitee thereunder.

AMBS REPURCHASE TRANSACTION

GENERAL. On December 19, 1995, AMRESCO MBS I, INC., a wholly-owned
subsidiary of the Company ("AMBS"), entered into a Repurchase Transaction (the
"Repurchase Transaction") which supplements, forms part of and is subject to a
Global Master Repurchase Agreement (the "Repurchase Agreement") with Nomura
Grand Cayman, Ltd. ("Nomura") to support the purchase on margin of certain
commercial mortgage pass-through certificates (the "Purchased Securities"). As
of December 31, 1995, $20.6 million was outstanding under the Repurchase
Transaction.

SECURITY. Indebtedness under the Repurchase Transaction is secured by a
first priority security interest in the Purchased Securities.

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<PAGE>
INTEREST. Indebtedness under the Repurchase Transaction bears interest at a
rate of 30 day LIBOR plus 1 2/5% (7 1/3% at December 31, 1995).

REPURCHASE DATE. The repurchase date for the Repurchase Transaction is
December 18, 1996, with a six month extension at the option of Nomura.

EVENTS OF ACCELERATION. Upon the occurrence of (i) a material adverse
impact on (A) the creditworthiness of AMBS, (B) the ability of AMBS to perform
its obligations under the Repurchase Agreement, (C) the marketability or value
of the Purchased Securities or (D) the economic, political or financial
stability of the issuing or domicile country or (ii) governmental changes in
taxation or exchange controls which affect the Purchased Securities or relevant
financial markets, Nomura may immediately accelerate the repurchase date.

EVENTS OF DEFAULT. The Repurchase Transaction contains certain events of
default, including, among others, payment defaults, failure to maintain a
minimum margin, insolvency, breaches of representations and warranties,
suspension from a securities exchange or association, failure to maintain a
first priority security interest in the Purchased Securities, judgment defaults
in excess of $1.0 million and cross-defaults in excess of certain amounts.

CONVERTIBLE SUBORDINATED DEBENTURES

GENERAL. On November 27, 1995, the Company entered into the Convertible
Subordinated Debenture Indenture with First Interstate Bank of Texas, National
Association, as trustee. Pursuant to the terms of the Convertible Subordinated
Debenture Indenture, an aggregate of $45.0 million of Convertible Subordinated
Debentures were issued. All of the net proceeds from the sale of the Convertible
Subordinated Debentures were applied to pay down indebtedness under the
Company's Revolving Loan Agreement.

RANKING. Indebtedness under the Convertible Subordinated Debenture
Indenture does not constitute Senior Indebtedness and will be subordinated to
the Notes.

SECURITY. Indebtedness under the Convertible Subordinated Debenture
Indenture is unsecured.

INTEREST. Indebtedness under the Convertible Subordinated Debenture
Indenture bears interest at the rate of 8% per annum.

MATURITY. The Convertible Subordinated Debenture Indenture will mature on
December 15, 2005.

CONVERSION RIGHTS. The Convertible Subordinated Debentures are convertible
into Common Stock at the option of holders thereof at any time and from time to
time prior to and including maturity. The initial conversion price is $12.50 per
share, subject to adjustment in certain events.

CERTAIN RIGHTS TO REQUIRE REPURCHASE OF CONVERTIBLE SUBORDINATED
DEBENTURES. In the event of any Fundamental Change (as described below)
affecting the Company which constitutes a Repurchase Event (as described below)
occurring after the date of issuance of the Convertible Subordinated Debentures
and on or prior to maturity, each holder of Convertible Subordinated Debentures
will have the right, at the holder's option, to require the Company to
repurchase all or any part of the holder's Convertible Subordinated Debentures
at a price (the "Repurchase Price") equal to 101% of the principal amount
thereof, together with accrued and unpaid interest to the repurchase date.

The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Stock
shall be exchanged for, converted into, acquired for or constitute the right to
receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved for quotation on the Nasdaq Stock Market or any similar system of
automated dissemination of quotations of securities prices. For purposes of the
definition of a "Fundamental Change," (i) "substantially all of the Common
Stock" shall mean at least 85% of the Common Stock outstanding immediately prior
to the transaction or event giving rise to a Fundamental Change and (ii)
consideration shall be "substantially all common stock" if at least 80% of the

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fair value (as determined in good faith by the Board of Directors) of the total
consideration is attributable to common stock. A Fundamental Change would not
include an acquisition of Common Stock by any person or group so long as it does
not result in termination of such listing or approval for quotation.

A Repurchase Event is a right to require the Company to repurchase the
Convertible Subordinated Debentures and a Repurchase Event shall have occurred
if a Fundamental Change shall have occurred unless (i) the current market price
of the Common Stock is at least equal to the conversion price of the Convertible
Subordinated Debentures in effect immediately preceding the time of such
Fundamental Change or (ii) the consideration in the transaction or event giving
rise to such Fundamental Change to the holders of Common Stock consists of cash,
securities that are, or immediately upon issuance will be, listed on a national
securities exchange or quoted on the Nasdaq National Market (or any similar
system of automated dissemination of quotations of securities prices), or a
combination of cash and such securities, and the aggregate fair market value of
such consideration (which, in the case of such securities, shall be equal to the
average of the daily closing prices of such securities during the 10 consecutive
trading days commencing with the sixth trading day following consummation of
such transaction or event) is at least 105% of the conversion price of the
Convertible Subordinated Debentures in effect on the date immediately preceding
the closing date of such transaction or event.

OPTIONAL REDEMPTION. The Convertible Subordinated Debentures are not
redeemable prior to December 15, 1996. Thereafter the Convertible Subordinated
Debentures will be redeemable, at the Company's option, in whole and not in
part, at various redemption prices (expressed as a percentage of principal
amount). The Convertible Subordinated Debentures may not be redeemed, however,
after December 15, 1996, and prior to December 15, 1998, unless, for twenty
consecutive trading days ending on the day immediately preceding the fifth day
prior to notice of redemption, the Closing Price (as defined) equals or exceeds
145% of the conversion price.

COVENANTS. The Convertible Subordinated Debenture Indenture contains
covenants limiting dividends and redemptions, limiting restrictions on
subsidiary dividends and requiring that certain conditions be met prior to any
consolidation, merger or sale of assets of the Company.

In addition, the Convertible Subordinated Debenture Indenture provides that
if the Company's Net Worth (as defined below) at the end of each of any two
consecutive fiscal quarters (the last day of such second fiscal quarter being
referred to as the "Acceleration Date"), respectively, is less than the Minimum
Net Worth (as defined below), then the Company shall make an irrevocable,
unconditional offer to all holders (an "Offer") to acquire, on a PRO RATA basis,
on or before the last day of the next following fiscal quarter or, if the
Acceleration Date is the last day of the Company's fiscal year, the 45th day
after the last day of the next following fiscal quarter (the "Accelerated
Payment Date"), $20.0 million aggregate principal amount of Convertible
Subordinated Debentures (or if less than such amount of Convertible Subordinated
Debentures are then outstanding, all of the Convertible Subordinated Debentures
outstanding at the time) at a purchase price equal to 100% of the principal
amount, plus accrued and unpaid interest, if any, to and including such
Accelerated Payment Date, which amounts or portion thereof upon acceptance of
such Offer by tender shall thereupon become due and payable.

"Minimum Net Worth" means approximately $141.0 million (which includes the
net proceeds to the Company from the Common Stock Offering) plus the net
proceeds to the Company from any other offering of Common Stock by the Company
subsequent to the date hereof. "Net Worth" of the Company as of any date means
the amount of equity of the holders of capital stock of the Company which would
appear on the balance sheet of the Company as of such date, determined in
accordance with generally accepted accounting principles.

EVENTS OF DEFAULTS. The Convertible Subordinated Debenture Indenture
contains certain customary events of default, including payment defaults,
covenant defaults (subject to certain cure periods), defaults of certain other
indebtedness, certain events of bankruptcy and insolvency and judgment defaults
in excess of $1.0 million.

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UNDERWRITING

Subject to the terms and conditions of the Purchase Agreement between the
Company and the Underwriters and to the receipt of certain legal opinions and
other closing conditions contemplated thereby, the Underwriters named below have
severally agreed to purchase from the Company the respective principal amount of
the Notes set forth opposite their names in the table below:

<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
Piper Jaffray Inc...................................................................... $ 25,000,000
J.C. Bradford & Co. ................................................................... 12,500,000
Morgan Keegan & Company, Inc. ......................................................... 12,500,000
---------------
$ 50,000,000
---------------
---------------
</TABLE>

The nature of the obligations of the Underwriters is such that if any of the
Notes are purchased, all of them must be purchased.

The Underwriters have advised the Company that they propose to offer the
Notes to the public at the Price to Public and to selected dealers at such price
less a concession of not more than 2.0% of the principal amount of the Notes.
The Underwriters may allow, and such dealers may re-allow, concessions not in
excess of 0.5% of the principal amount of the Notes to certain other brokers and
dealers. After the initial public offering, the Price to Public and other
selling terms may be changed by the Underwriters.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional $7.5
million in aggregate principal amount of the Notes at the Price to Public less
the Underwriting Discount. The Underwriters may exercise such option to purchase
solely for the purpose of covering over-allotments, if any, incurred in the sale
of the Notes offered hereby. To the extent that the Underwriters exercise the
option, each of the Underwriters will be committed, subject to certain
exceptions, to purchase a principal amount of the Notes approximately
proportionate to the Underwriter's initial commitment, and the Company will be
obligated, pursuant to the option, to sell such Notes to the Underwriters.

The Notes have been approved for listing on the New York Stock Exchange
under the symbol "AMMB03," subject to notice of issuance. However, there can be
no assurance that an active trading market in the Notes will develop or that the
Notes will not trade at a discount to their principal amount.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments which the Underwriters may be required to make in respect thereto.

LEGAL MATTERS

The validity of the Notes offered hereby will be passed upon for the Company
by L. Keith Blackwell, General Counsel of the Company. Certain other legal
matters will be passed upon for the Company by Haynes and Boone, L.L.P., Dallas,
Texas. Certain legal matters relating to the Notes offered hereby will be passed
upon for the Underwriters by Lindquist & Vennum P.L.L.P., Minneapolis,
Minnesota. Lindquist & Vennum P.L.L.P. has represented the Company in certain
litigation matters.

INDEPENDENT ACCOUNTANTS

The consolidated balance sheets of the Company as of December 31, 1993 and
1994, and the related statements of income, shareholders' equity and cash flows
for the period from November 1, 1992 through December 31, 1992 and the years
ended December 31, 1993 and 1994 and the combined statements of income and cash
flows of Asset Management Resolution Company and AMRESCO Holdings, Inc. and
subsidiaries (predecessors of the Company) for the period January 1, 1992
through October 31, 1992 have been audited by Deloitte & Touche LLP, independent
accountants, as stated in their reports appearing herein.

54
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements of AMRESCO, INC.
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets, December 31, 1993 and 1994, and September 30, 1995 (Unaudited).............. F-3
Consolidated Statements of Income for the Two Months Ended December 31, 1992, the Years Ended December
31, 1993 and 1994, and the Nine Months Ended September 30, 1994 and 1995 (Unaudited).................... F-4
Consolidated Statements of Shareholders' Equity for the Two Months Ended December 31, 1992, the Years
Ended December 31, 1993 and 1994, and the Nine Months Ended September 30, 1995 (Unaudited).............. F-5
Consolidated Statements of Cash Flows for the Two Months Ended December 31, 1992, the Years Ended
December 31, 1993 and 1994, and the Nine Months Ended September 30, 1994 and 1995 (Unaudited)........... F-6
Notes to Consolidated Financial Statements............................................................... F-7

Combined Financial Statements of Predecessor Businesses
Independent Auditors' Report............................................................................. F-22
Combined Statement of Income for the Ten Months Ended October 31, 1992................................... F-23
Combined Statement of Cash Flows for the Ten Months Ended October 31, 1992............................... F-23
Notes to Combined Financial Statements................................................................... F-24
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors of AMRESCO, INC.:

We have audited the accompanying consolidated balance sheets of AMRESCO,
INC. and subsidiaries as of December 31, 1993 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for the
two months ended December 31, 1992, and the years ended December 31, 1993 and
1994. These financial statements are the responsibility of AMRESCO, INC.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of AMRESCO, INC. and subsidiaries
as of December 31, 1993 and 1994, and the results of their operations and their
cash flows for the two months ended December 31, 1992, and the years ended
December 31, 1993 and 1994, in conformity with generally accepted accounting
principles.

/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 6, 1995

F-2
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1993 1994 1995
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents....................................................... $ 43,442 $ 20,446 $ 12,720
Investment securities (Note 5).................................................. 27,222
Accounts receivable, net of reserves of $826, $4,929 and $2,641, respectively... 39,399 20,682 7,657
Mortgage loans held for sale (Note 5)........................................... 6,042
Investments in asset portfolios (Notes 5 and 14):
Loans......................................................................... 33,795 30,920 114,676
Partnerships and joint ventures............................................... 2,503 22,491 30,052
Real estate................................................................... 2,504 14,054 11,046
Asset backed securities....................................................... 3,481 19,982
Deferred income taxes (Note 6).................................................. 18,173 17,207 12,810
Premises and equipment, net of accumulated depreciation of $2,108, $1,082 and
$1,781, respectively........................................................... 3,422 4,301 5,119
Intangible assets, net of accumulated amortization of $1,170, $1,226 and $3,056,
respectively (Notes 2 and 3)................................................... 10,209 30,668 30,377
Other assets (Notes 4, 10 and 14)............................................... 10,206 8,090 13,379
-------- -------- -------------
TOTAL ASSETS.................................................................... $163,653 $172,340 $291,082
-------- -------- -------------
-------- -------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable.............................................................. $ 9,830 $ 4,891 $ 4,307
Accrued employee compensation and benefits (Notes 3, 11 and 12)............... 23,419 18,460 8,524
Notes payable (Note 5)........................................................ 22,113 15,500 104,222
Mortgage warehouse debt (Note 5).............................................. 5,693
Nonrecourse debt (Note 5)..................................................... 6,000 959 30,605
Income taxes payable (Note 6)................................................. 541 1,219 1,329
Payable to partners (Note 7).................................................. 3,399 3,907 950
Net liabilities of discontinued operation (Note 9)............................ 954
Other liabilities (Note 8).................................................... 6,652 12,864 6,428
-------- -------- -------------
Total liabilities........................................................... 71,954 58,754 162,058
-------- -------- -------------
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY (Note 11):
Preferred stock, $1.00 par value, authorized 5,000,000 shares; none
outstanding
Common stock, $.05 par value, authorized 50,000,000 shares; 22,309,817,
23,592,647 and 24,193,464 shares issued in 1993, 1994 and 1995,
respectively................................................................. 1,116 1,180 1,210
Capital in excess of par...................................................... 67,112 74,691 78,790
Reductions for employee stock................................................. (607) (429) (620)
Treasury stock, $0.05 par value, 24,339 shares in 1995........................ (160)
Retained earnings (Note 5).................................................... 24,078 38,144 49,804
-------- -------- -------------
Total shareholders' equity.................................................. 91,699 113,586 129,024
-------- -------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................... $163,653 $172,340 $291,082
-------- -------- -------------
-------- -------- -------------
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
TWO MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------ ------------------------
1992 1993 1994 1994 1995
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES (Note 3):
Asset management and resolution fees............. $ 37,678 $ 168,313 $ 120,640 $ 101,221 $ 27,278
Asset portfolio income........................... 2,642 13,089 8,433 23,662
Mortgage banking fees............................ 6,176 1,967 14,077
Other revenues................................... 157 1,207 17,279 16,184 4,585
------------ ----------- ----------- ----------- -----------
Total revenues................................. 37,835 172,162 157,184 127,805 69,602
------------ ----------- ----------- ----------- -----------
EXPENSES:
Personnel........................................ 16,814 84,347 79,018 62,268 36,827
Occupancy........................................ 763 3,329 4,108 3,106 1,903
Equipment........................................ 560 2,121 2,637 1,978 1,580
Professional fees................................ 5,085 17,517 11,593 9,156 2,359
General and administrative....................... 6,903 17,380 22,299 16,136 3,745
Interest (Note 5)................................ 19 754 1,768 1,696 2,771
Profit participations............................ 1,529 3,037 75 (65) 446
------------ ----------- ----------- ----------- -----------
Total expenses................................. 31,673 128,485 121,498 94,275 49,631
------------ ----------- ----------- ----------- -----------
Income from continuing operations before taxes..... 6,162 43,677 35,686 33,530 19,971
Income tax expense (Note 6)........................ 2,279 17,371 14,753 13,874 7,541
------------ ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS.................. 3,883 26,306 20,933 19,656 12,430
------------ ----------- ----------- ----------- -----------
Discontinued operations (Note 9)
Loss from operations, net of $99, $1,392, $891,
and $651 income tax benefit for 1992, 1993,
1994, and the nine months ended September 30,
1994, respectively.............................. (148) (2,088) (1,287) (976)
Loss on disposal of AMRESCO Services, Inc.
(including provision of $923 for operating
losses during the phase-out period), less
applicable income tax benefit of $622........... (898)
Gain from sale of discontinued operations, net of
$1,617 income tax expense....................... 2,425
------------ ----------- ----------- ----------- -----------
Gain (Loss) from discontinued operations........... (148) (2,088) (2,185) (976) 2,425
------------ ----------- ----------- ----------- -----------
NET INCOME......................................... $ 3,735 $ 24,218 $ 18,748 $ 18,680 $ 14,855
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Earnings per share for income from continuing
operations........................................ $ 0.34 $ 2.33 $ 0.88 $ 0.83 $ 0.51
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Earnings per share for net income.................. $ 0.33 $ 2.15 $ 0.79 $ 0.79 $ 0.61
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Weighted average number of shares outstanding...... 11,419,536 11,288,688 23,679,239 23,515,800 24,429,822
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON
CONVERTIBLE COMMON STOCK, STOCK,
PREFERRED STOCK NO PAR VALUE $0.05 PAR
-------------------- --------------------- VALUE
NUMBER NUMBER -----------
OF OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES
--------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
NOVEMBER 1, 1992....................................................... 126,960 $ 12,696 515,000 $ 3,090
Net income.............................................................
--------- --------- ---------- --------- -----------
DECEMBER 31, 1992...................................................... 126,960 12,696 515,000 3,090
--------- --------- ---------- --------- -----------
Cancellation of stock and notes receivable (Note 11)................... (29,800) (179)
Employee stock compensation (Note 11).................................. 1,188
Dividends paid ($.35 per share)........................................
Conversion of convertible preferred stock (Note 2)..................... (126,960) (12,696) 623,531 12,696
Conversion of common stock (Note 2).................................... (1,108,731) (16,795) 11,120,530
Issuance of common stock for acquisition (Note 2)...................... 11,189,287
Net income.............................................................
--------- --------- ---------- --------- -----------
DECEMBER 31, 1993...................................................... 22,309,817
--------- --------- ---------- --------- -----------
Exercise of stock options (Note 11).................................... 711,590
Issuance of common stock for acquisition (Note 2)...................... 571,240
Tax benefits from employee stock compensation..........................
Repayments of notes receivable for officer's shares....................
Dividends paid ($.15 per share)........................................
Dividends declared ($.05 per share)....................................
Foreign currency translation adjustments...............................
Net income.............................................................
--------- --------- ---------- --------- -----------
DECEMBER 31, 1994...................................................... 23,592,647
--------- --------- ---------- --------- -----------
(Unaudited)
Exercise of stock options............................................ 394,480
Issuance of common stock for earnout................................. 112,002
Issuance of common stock for unearned stock compensation............. 94,335
Amortization of unearned stock compensation..........................
Tax benefits from employee stock compensation........................
Repayment of notes receivable for officers' shares...................
Settlement of notes receivable for officers' shares with common stock
(14,339 shares).....................................................
Acquisition of treasury stock (10,000 shares)........................
Dividends paid ($0.10 per share).....................................
Dividends declared ($0.05 per share).................................
Foreign currency translation adjustments.............................
Unrealized gain on assets available for sale.........................
Net income...........................................................
--------- --------- ---------- --------- -----------
SEPTEMBER 30, 1995 (unaudited)....................................... $ $ 24,193,464
--------- --------- ---------- --------- -----------
--------- --------- ---------- --------- -----------

CAPITAL IN REDUCTIONS
EXCESS OF FOR EMPLOYEE TREASURY
AMOUNT PAR STOCK STOCK
----------- ----------- ------------- -----------
<S> <C> <C>
NOVEMBER 1, 1992....................................................... $ $ $ (786) $
Net income.............................................................
----------- ----------- ------ -----------
DECEMBER 31, 1992...................................................... (786)
----------- ----------- ------ -----------
Cancellation of stock and notes receivable (Note 11)................... 179
Employee stock compensation (Note 11)..................................
Dividends paid ($.35 per share)........................................
Conversion of convertible preferred stock (Note 2).....................
Conversion of common stock (Note 2).................................... 556 16,239
Issuance of common stock for acquisition (Note 2)...................... 560 50,873
Net income.............................................................
----------- ----------- ------ -----------
DECEMBER 31, 1993...................................................... 1,116 67,112 (607)
----------- ----------- ------ -----------
Exercise of stock options (Note 11).................................... 35 1,560
Issuance of common stock for acquisition (Note 2)...................... 29 4,291
Tax benefits from employee stock compensation.......................... 1,728
Repayments of notes receivable for officer's shares.................... 178
Dividends paid ($.15 per share)........................................
Dividends declared ($.05 per share)....................................
Foreign currency translation adjustments...............................
Net income.............................................................
----------- ----------- ------ -----------
DECEMBER 31, 1994...................................................... 1,180 74,691 (429)
----------- ----------- ------ -----------
(Unaudited)
Exercise of stock options............................................ 20 1,146
Issuance of common stock for earnout................................. 5 772
Issuance of common stock for unearned stock compensation............. 5 644 (649)
Amortization of unearned stock compensation.......................... 149
Tax benefits from employee stock compensation........................ 1,537
Repayment of notes receivable for officers' shares................... 220
Settlement of notes receivable for officers' shares with common stock
(14,339 shares)..................................................... 89 (89)
Acquisition of treasury stock (10,000 shares)........................ (71)
Dividends paid ($0.10 per share).....................................
Dividends declared ($0.05 per share).................................
Foreign currency translation adjustments.............................
Unrealized gain on assets available for sale.........................
Net income...........................................................
----------- ----------- ------ -----------
SEPTEMBER 30, 1995 (unaudited)....................................... $ 1,210 $ 78,790 $ (620) $ (160)
----------- ----------- ------ -----------
----------- ----------- ------ -----------

TOTAL
RETAINED SHAREHOLDERS'
EARNINGS EQUITY
----------- -------------
NOVEMBER 1, 1992....................................................... $ $ 15,000
Net income............................................................. 3,735 3,735
----------- -------------
DECEMBER 31, 1992...................................................... 3,735 18,735
----------- -------------
Cancellation of stock and notes receivable (Note 11)...................
Employee stock compensation (Note 11).................................. 1,188
Dividends paid ($.35 per share)........................................ (3,875) (3,875)
Conversion of convertible preferred stock (Note 2)..................... --
Conversion of common stock (Note 2).................................... --
Issuance of common stock for acquisition (Note 2)...................... 51,433
Net income............................................................. 24,218 24,218
----------- -------------
DECEMBER 31, 1993...................................................... 24,078 91,699
----------- -------------
Exercise of stock options (Note 11).................................... 1,595
Issuance of common stock for acquisition (Note 2)...................... 4,320
Tax benefits from employee stock compensation.......................... 1,728
Repayments of notes receivable for officer's shares.................... 178
Dividends paid ($.15 per share)........................................ (3,441) (3,441)
Dividends declared ($.05 per share).................................... (1,179) (1,179)
Foreign currency translation adjustments............................... (62) (62)
Net income............................................................. 18,748 18,748
----------- -------------
DECEMBER 31, 1994...................................................... 38,144 113,586
----------- -------------
(Unaudited)
Exercise of stock options............................................ 1,166
Issuance of common stock for earnout................................. 777
Issuance of common stock for unearned stock compensation............. --
Amortization of unearned stock compensation.......................... 149
Tax benefits from employee stock compensation........................ 1,537
Repayment of notes receivable for officers' shares................... 220
Settlement of notes receivable for officers' shares with common stock
(14,339 shares)..................................................... --
Acquisition of treasury stock (10,000 shares)........................ (71)
Dividends paid ($0.10 per share)..................................... (2,398) (2,398)
Dividends declared ($0.05 per share)................................. (1,208) (1,208)
Foreign currency translation adjustments............................. 155 155
Unrealized gain on assets available for sale......................... 256 256
Net income........................................................... 14,855 14,855
----------- -------------
SEPTEMBER 30, 1995 (unaudited)....................................... $ 49,804 $ 129,024
----------- -------------
----------- -------------
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
TWO MONTHS YEAR ENDED DECEMBER NINE MONTHS ENDED
ENDED 31, SEPTEMBER 30,
DECEMBER 31, -------------------- --------------------
1992 1993 1994 1994 1995
------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................................... $ 3,735 $ 24,218 $ 18,748 $ 18,680 $ 14,855
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 581 2,955 3,028 2,198 2,694
Loss (Gain) on discontinued operation (Note 9).............. 1,645 (2,425)
Write-off of intangible related to contract conclusion...... 2,827 2,827
Deferred tax provision (benefit)............................ (603) (1,650) 966 2,705 4,397
Loss from disposition of premises and equipment............. 16 198 692 78
Employee stock compensation................................. 1,188 149
Increase (decrease) in cash for changes in (exclusive of
assets and liabilities acquired in business combinations):
Accounts receivable....................................... (10,417) 3,287 17,855 20,468 13,025
Other assets.............................................. 94 (3,848) 1,908 3,484 (3,894)
Accounts payable.......................................... 6,641 (4,924) (4,768) (6,614) (630)
Income taxes payable...................................... 2,783 (2,699) 678 3,191 (1,507)
Other liabilities......................................... (2,191) 17,391 (4,137) (2,782) (21,588)
------------- --------- --------- --------- ---------
Net cash provided by operating activities............... 639 35,918 38,948 44,849 5,154
------------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Cash and cash equivalents acquired through BEI merger......... 18,521
Purchase of investment securities, net........................ (27,222)
Cash used for purchase of subsidiaries........................ (17,830) (17,830) (1,295)
Loans originated or purchased................................. (7,767)
Purchase of asset portfolios.................................. (36,894) (62,580) (33,196) (139,123)
Collections on asset portfolios............................... 3,099 30,815 23,175 34,569
Proceeds from sale of subsidiaries............................ 1,385 1,385 6,250
Purchase of premises and equipment............................ (852) (2,141) (2,091) (1,627)
------------- --------- --------- --------- ---------
Net cash used in investing activities................... (16,126) (50,351) (28,557) (136,215)
------------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from notes payable, mortgage warehouse debt and
nonrecourse debt............................................. 4,656 42,426 19,894 4,394 238,048
Repayment of notes payable, mortgage warehouse debt and
nonrecourse debt............................................. (3,045) (19,129) (31,547) (23,340) (113,987)
Payment of dividends.......................................... (3,875) (3,441) (2,266) (3,578)
Stock options exercised....................................... 1,595 1,381 1,166
Tax benefit of employee stock compensation.................... 1,728 1,652 1,537
Acquisition of treasury stock................................. (71)
Repayment of notes receivable for officer's shares............ 178 178 220
------------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities..... 1,611 19,422 (11,593) (18,001) 123,335
------------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents............ 2,250 39,214 (22,996) (1,709) (7,726)
Cash and cash equivalents, beginning of period.................. 1,978 4,228 43,442 43,442 20,446
------------- --------- --------- --------- ---------
Cash and cash equivalents, end of period........................ $ 4,228 $ 43,442 $ 20,446 $ 41,733 $ 12,720
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Interest paid................................................. $ 5 $ 678 $ 1,533 $ 1,466 $ 2,912
Income taxes paid............................................. 23,460 8,507 3,619 2,990
Conversion of convertible preferred stock to common stock..... 12,696
Common stock issued for purchase of subsidiary................ 4,320 4,320 777
Common stock issued for unearned stock compensation........... 649
Holliday Fenoglio earnout liability........................... 3,883
Notes receivable received in connection with sale of
subsidiary................................................... 818 818
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1994 AND 1995 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION -- On December 31, 1993, AMRESCO, INC., formerly BEI
Holdings, Ltd. (BEI), merged with AMRESCO Holdings, Inc. (Holdings). The merger
was accounted for as a "reverse acquisition" whereby Holdings was deemed to have
acquired BEI for financial reporting purposes. However, BEI, renamed AMRESCO,
INC. on May 23, 1994, remains the continuing legal entity and registrant for
Securities and Exchange Commission filing purposes. Consistent with the reverse
acquisition accounting treatment, the historical financial statements of
AMRESCO, INC. presented for the year ended December 31, 1993, and the two months
ended December 31, 1992, are the consolidated financial statements of Holdings
and differ from the consolidated financial statements of BEI as previously
reported. The operations of BEI have been included in the financial statements
from the date of acquisition. AMRESCO, INC. (the Company) is engaged primarily
in the business of portfolio acquisition, asset management and resolution, loan
origination/underwriting, servicing and real estate brokerage.

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the Company, its subsidiaries and its controlled joint ventures.
Significant intercompany accounts and transactions have been eliminated in
consolidation.

REVENUE AND EXPENSE RECOGNITION -- Asset management and resolution fees from
management contracts are based on the amount of assets under management and the
net proceeds from the resolution of such assets, respectively, and are
recognized as earned. Expenses incurred in managing and administering the assets
subject to management contracts are charged to expense as incurred. Asset
resolution fees are accrued based on estimated collections and related costs.
Differences between estimated and actual amounts are recorded in the period of
determination. Loan placement fees, commitment fees, loan servicing fees and
real estate brokerage commissions are recognized as earned. Placement and
servicing expenses are charged to expense as incurred.

CASH EQUIVALENTS -- Cash equivalents include all highly liquid investments
with a maturity of three months or less when purchased.

INVESTMENT SECURITIES -- Investment Securities consist of short-term
investments such as Treasury bills, Federal agency securities and commercial
paper with a maturity of three months or less. The Company has the intent and
ability to hold these investments to maturity and are carried at amortized cost.
Because of the short maturities, cost estimates fair value. All investment
securities are pledged as collateral under the investment loan agreement. See
Note 5.

RECEIVABLES -- Receivables are recognized as earned according to the
respective management contracts. Included in accounts receivable are other
amounts due as reimbursement for certain expenses incurred or for funds advanced
on behalf of its customers. Receivables are due primarily from the Federal
Deposit Insurance Corporation (FDIC), the Resolution Trust Company (RTC) and
other customers. The Company's exposure to credit loss in the event that payment
is not received for revenue recognized equals the balance of accounts receivable
in the balance sheet.

MORTGAGE BANKING ACTIVITIES -- Mortgage loans held for sale are carried at
the lower of cost or market. Market is determined on an individual loan basis
based upon the estimated fair value of similar loans for the month of expected
delivery.

Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights" (an amendment of SFAS No. 65), which is effective for
the fiscal year 1996, requires mortgage banking enterprises to recognize as
separate assets rights to service mortgage loans for others, whether such

F-7
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
rights are originated by the Company's own mortgage banking activities or
purchased from others. The Company will adopt SFAS No. 122 effective January 1,
1996, and expects that the impact of such adoption will be insignificant to its
financial condition and results of operations.

INVESTMENT IN ASSET PORTFOLIOS -- The Company classifies its investments in
asset portfolios as: loans, partnerships and joint ventures, real estate, and
asset-backed securities. The original cost of an asset portfolio is allocated to
individual assets within that asset portfolio based on their relative fair value
to the total purchase price. The difference between gross estimated cash flows
from loans and asset-backed securities and its present value is accrued using
the level yield method. The Company accounts for its investments in partnerships
and joint ventures using the equity method which generally results in the pass-
through of the Company's pro rata share of earnings as if the Company had a
direct investment in the underlying loans. Real estate is accounted for at the
lower of cost or estimated fair value. Gains and losses on the sale or
collection of specific assets are recognized on a specific identification basis.
Loans, partnerships and joint ventures, and real estate are carried at the lower
of cost or estimated fair value. The Company's investments in asset-backed
securities are classified as available for sale and are carried at estimated
fair value determined by discounting estimated cash flows at current market
rates. Any unrealized gains (losses) on asset-backed securities are excluded
from earnings and reported as a separate component of shareholders' equity, net
of tax effects.

Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended by SFAS 118, which is effective
for fiscal year 1995, requires creditors to evaluate the collectibility of both
contractual interest and principal of loans when assessing the need for a loss
accrual. Impairment is measured based on the present value of the expected
future cash flows discounted at the loan's effective interest rate, or the fair
value of the collateral, less estimated selling costs, if the loan is collateral
dependent and foreclosure is probable. In management's judgment, because all
loans are purchased at substantial discounts, the adoption of SFAS 114 will have
an insignificant impact on the Company's financial condition and results of
operations. As of January 1, 1995, the Company adopted the provisions of SFAS
No. 114 "Accounting by Creditors for Impairment of a Loan" as amended by SFAS
118.

PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation. The related assets are depreciated using the
straight-line method over their estimated service lives, which range from three
to twenty years. Improvements to leased property are amortized over the life of
the lease or the life of the improvement, whichever is shorter.

INTANGIBLE ASSETS -- Intangible assets represent the excess of purchase
price over the fair market value of net assets acquired in connection with the
purchases described in Note 2. These intangible assets, principally goodwill,
servicing rights and contracts acquired, are amortized using the straight-line
method over periods ranging from one to fifteen years. The Company periodically
assesses the recoverability of intangible assets and estimates the remaining
useful life by reviewing projected results of acquired operations, servicing
rights and contracts.

INCOME TAXES -- The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are recorded for
temporary differences between the bases of assets and liabilities as recognized
by tax laws and their bases as reported in the financial statements.

EARNINGS PER SHARE -- Earnings per share is computed by dividing net income
by the weighted average number of common shares and common share equivalents
outstanding. The weighted average number of shares outstanding for the years
ended December 31, 1993 and the two months ended December 31, 1992, is based on
the number of BEI shares of common stock and equivalents exchanged for Holdings
shares (see Note 2) and assumes the retroactive conversion of the preferred
stock.

F-8
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN OPERATIONS -- The Company has foreign subsidiaries located in
Canada. Assets and liabilities of the foreign subsidiaries are translated into
United States dollars at the prevailing exchange rate on the balance sheet date.
Revenue and expense accounts for these subsidiaries are translated using the
weighted average exchange rate during the period. These translation methods give
rise to cumulative foreign currency translation adjustments which are reported
as a separate component of equity.

INTERIM FINANCIAL INFORMATION -- The accompanying unaudited consolidated
financial statements of AMRESCO, INC. and subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month periods ended September 30,
1994 and 1995, are not necessarily indicative of the results that may be
expected for the entire fiscal year or any other interim period.

RECLASSIFICATIONS -- Certain reclassifications of prior year amounts have
been made to conform to the current year presentation.

2. ACQUISITIONS AND ORGANIZATION
On November 20, 1992, a Stock Sale Agreement (the Agreement) was entered
into by AMRESCO Acquisition Corporation (Acquisition), an entity formed by CGW
Southeast Partners, L.P. I and II, to purchase the stock of Asset Management
Resolution Company and AMRESCO Holdings, Inc. effective as of October 31, 1992.
Acquisition and Holdings were merged, and Acquisition was renamed AMRESCO
Holdings, Inc. Prior to the transaction, the acquired companies were wholly
owned by NationsBank Corporation (the Seller). Additional payments were made to
the Seller based on Holdings' earnings. The Seller was entitled to 25% of pretax
income of Holdings in excess of certain agreed upon levels through June 30,
1997. Amounts paid and charged to expense under the Agreement during the two
months ended December 31, 1992 and the year ended December 31, 1993 were
$1,529,000 and $3,037,000, respectively. Certain provisions of the Agreement
related to the additional payments to the Seller were amended effective April 1,
1993, which replaced the earnout provisions with a rebate of 12.25% of revenues
from an asset management contract with the Seller through June 30, 1997. During
1993 and 1994, rebates of $7,347,000 and $6,437,000, respectively, were accrued
and charged against revenues in the period the revenues were earned. See Note 3.

The assets purchased and liabilities assumed as of October 31, 1992, were as
follows (in thousands):

<TABLE>
<S> <C>
Cash and cash equivalents......................................... $ 1,978
Accounts receivable............................................... 19,843
Intangible assets................................................. 4,748
Other assets...................................................... 6,771
Liabilities....................................................... (16,659)
---------
Net assets acquired........................................... $ 16,681
---------
---------
</TABLE>

On December 31, 1993, BEI merged with Holdings. The merger was accomplished
first by converting each outstanding share of Holdings' convertible preferred
stock into 4.91 shares of Holdings common stock. Each share of Holdings common
stock was then exchanged for 10.03 shares of BEI common stock for a total of
11,120,530 shares, resulting in Holdings becoming a subsidiary of BEI. The
purchase price, determined

F-9
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND ORGANIZATION (CONTINUED)
based on the fair market value of the stock exchanged plus direct acquisition
costs, was allocated to the BEI assets and liabilities acquired based on their
fair market value at the date of acquisition. The BEI assets purchased and
liabilities assumed as of December 31, 1993, were as follows (in thousands):

<TABLE>
<S> <C>
Cash and cash equivalents......................................... $ 18,521
Accounts receivable............................................... 12,426
Net deferred tax asset............................................ 14,450
Intangible assets................................................. 6,566
Other assets...................................................... 12,856
Liabilities....................................................... (13,386)
---------
Net assets acquired........................................... $ 51,433
---------
---------
</TABLE>

Effective August 1, 1994, the Company acquired substantially all of the
assets of Holliday Fenoglio Dockerty & Gibson, Inc. and certain of its
affiliates (Holliday Fenoglio), which are originators and servicers of
commercial mortgages, for a maximum of approximately $33,000,000, based upon an
initial payment of $17,280,000 in cash and $4,320,000 in stock, and three
additional annual earnout payments if targeted earnings are met or exceeded in
1994, 1995 and 1996. For the period ended December 31, 1994, $3,883,000 was
accrued for the current year earnout payment. The transaction has been accounted
for as an asset purchase. The purchase price, determined based on the cash paid,
the fair market value of the Company stock issued and direct acquisition costs,
was allocated to the Holliday Fenoglio assets acquired based on the fair market
value at the date of acquisition. The Holliday Fenoglio assets purchased,
including acquisition costs, as of August 1, 1994, were as follows (in
thousands):

<TABLE>
<S> <C>
Premises and equipment............................................. $ 1,015
Loan servicing rights.............................................. 2,200
Goodwill and non-compete agreement................................. 18,907
Other assets....................................................... 78
---------
Net assets acquired............................................ $ 22,200
---------
---------
</TABLE>

The following pro forma consolidated results of operations for the twelve
months ended December 31, 1993 and 1994 are presented as if the acquisitions of
Holliday Fenoglio and BEI occurred on January 1, 1993 (in thousands, except per
share data):

<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Revenues.............................................................. $ 222,489 $ 174,017
Net Income............................................................ 25,913 19,661
Earnings per share.................................................... 1.14 .82
</TABLE>

Effective June 30, 1995, a wholly-owned subsidiary of the Company acquired
substantially all of the assets of CKSRS Housing Group, Ltd., a Miami,
Florida-based commercial mortgage banking company specializing in the
origination, sale and servicing of multifamily mortgages in Florida, for
$1,287,000. As of June 30, 1995, the purchase price was allocated as follows (in
thousands):

<TABLE>
<S> <C>
Mortgage servicing asset............................................ $ 300
Equipment, furniture and fixtures................................... 10
Goodwill and non-compete agreement.................................. 1,032
Liabilities......................................................... (55)
---------
Net assets of acquired company.................................. $ 1,287
---------
---------
</TABLE>

The shown allocation of the purchase price is based on the best available
information and is subject to adjustment.

F-10
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND ORGANIZATION (CONTINUED)
On September 13, 1995, the Company signed a definitive agreement to acquire
from EQ Services, Inc. 22 contracts to service a total of $6.2 billion in
commercial real estate mortgages. The closing of the transaction is subject to
the satisfaction of certain customary conditions.

On October 11, 1995, the Company signed a definitive agreement with Acacia
Realty Advisors, Inc. to acquire 16 pension fund advisory contracts. The closing
of the transaction is subject to the satisfaction of certain customary
conditions.

3. ASSET MANAGEMENT CONTRACTS
The Company provides asset management and resolution services for private
investors, financial institutions, and government agencies. Generally, the
contracts provide for the payment of a fixed management fee which is reduced
proportionately as managed assets decrease, a resolution fee using specified
percentage rates based on net cash collections and an incentive fee for
resolution of certain assets. Asset management and resolution contracts are of a
finite duration, typically 3-5 years. Unless new assets are added to these
contracts during their terms, the amount of total assets under management
decreases over the terms of these contracts. The FDIC contract expired on
January 31, 1995. During 1994 all the existing asset management contracts with
the RTC expired.

On August 31, 1994, the Company and NationsBank Corporation concluded their
asset management contract (NationsBank Contract). The NationsBank Contract had
an original term expiring in June 1997 and, as provided, the Company received an
early conclusion fee of $10.0 million which is included in other revenues.
One-time expenses related to the NationsBank Contract conclusion included
incentive compensation of $1.2 million and $2.8 million for related intangible
write-offs.

Revenues from the Company's three largest customers, NationsBank
Corporation, the FDIC and the RTC, constituted 45%, 39% and 10%, respectively,
for the two months ended December 31, 1992, 46%, 39% and 6%, respectively, for
the year ended December 31, 1993, and 38%, 36% and 6% of total asset management
fees, respectively, for the year ended December 31, 1994.

4. OTHER ASSETS
The following table summarizes the components of other assets at December
31, 1993 and 1994, (in thousands):

<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Investments held for sale................................................ $ 1,637 $ 468
Mortgages/Notes receivable............................................... 1,710 2,236
Deferred compensation agreements with former officers.................... 1,072 1,629
Income taxes receivable.................................................. 2,849 1,135
Prepaid expenses......................................................... 939 412
Other.................................................................... 1,999 2,210
--------- ---------
Total other assets................................................... $ 10,206 $ 8,090
--------- ---------
--------- ---------
</TABLE>

Deferred compensation agreements include notes from two former officers of
BEI, who are currently directors, which were executed prior to its acquisition
by the Company. The amounts due represent the present value of non-interest
bearing notes due in 2006 and 2007 for advances for premiums on split-dollar
life insurance policies owned by the two directors. Cash surrender values of
approximately $607,000 and $850,000 at December 31, 1993 and 1994 respectively,
collateralize these notes, and the Company is a beneficiary under the life
insurance policies to the extent of total premiums advanced. Included in other
liabilities at December 31, 1993 and 1994 is $900,000 and $1,331,000,
respectively, representing the present

F-11
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. OTHER ASSETS (CONTINUED)
value of the Company's obligation to make future premium payments on such life
insurance policies. Included in mortgages/notes receivable are unsecured notes
from these former officers totaling $525,000 due in 1995 and bearing interest at
8 1/2%.

5. NOTES PAYABLE, MORTGAGE WAREHOUSE DEBT AND NONRECOURSE DEBT
Notes payable, mortgage warehouse debt and nonrecourse subordinated debt at
December 31, 1993 and 1994, and September 30, 1995 consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1993 1994 1995
--------- --------- -------------
<S> <C> <C> <C>
Revolving credit line agreement with NationsBank of Texas, N.A.
(the Bank) for:
Advances on a 30 day term at 7 5/8%.............................. $ 72,000
Advances at 8 3/4%............................................... 5,000
Revolving credit line agreement with the Bank for:
Advance on a 182 day term at a 8 3/8%............................ $ 8,000
Advance at a prime rate of 8 1/2%................................ 7,500
Senior note payable to the Bank with interest at their prime rate
plus 1 1/2% payable monthly; collateralized by the investment in
asset portfolio. Monthly principal payments are the greater of
90% of the net cash flow of the portfolio or a minimum payment
as defined in the note. The note required that $2,000,000 in
cash and cash equivalents be maintained as a compensating
balance with the Bank........................................... $ 21,953
Revolving investment loan agreement with the Bank at 2%.......... 27,222
Other notes payable.............................................. 160
--------- --------- -------------
Total notes payable............................................ $ 22,113 $ 15,500 $ 104,222
--------- --------- -------------
--------- --------- -------------
Mortgage warehouse debt payable to the Bank at 7 13/16%............ $ 2,702
-------------
-------------
Mortgage warehouse debt payable at 8 33/50%........................ $ 2,991
-------------
-------------
Nonrecourse debt payable to two financial services companies....... $ 6,000 $ 959 $ 30,605
--------- --------- -------------
--------- --------- -------------
</TABLE>

A subsidiary of the Company had a nonrecourse subordinated note payable to a
financial services company collateralized by a second security interest in the
investment in asset portfolio. The note bears basic interest at the 90 day LIBOR
plus 4 1/2% (7 7/8% and 11% at December 31, 1993 and December 30, 1994,
respectively) payable monthly. Principal payments are due monthly, equal to 10%
of the net portfolio cash flow with the remaining outstanding balance due
December 30, 1996. The note is nonrecourse to the borrowing entity and the
Company. After repayment of the outstanding principal and basic interest,
contingent interest to provide the lender a 15% compounded rate is due from any
available net portfolio cash flow. Additionally, after the above payments are
made, and the subsidiary has recovered $6,337,000 (representing its equity in
the asset portfolio at December 31, 1993, the date of the loan, and capitalized
costs), the lender is entitled to receive 6% of the net portfolio cash flow. The
principal balance was fully repaid at January 31, 1995.

F-12
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. NOTES PAYABLE, MORTGAGE WAREHOUSE DEBT AND NONRECOURSE DEBT (CONTINUED)
On November 2, 1994, the Company entered into a $50,000,000 revolving credit
agreement with the Bank, which matures and is payable in full on April 30, 1996.
The line was temporarily increased to $75,000,000 until a greater revolver could
be established. The borrowing terms, including interest, may be selected by the
Company and tied to either the Bank's floating prime (8 1/2% at December 30,
1994) or, for advances on a term basis up to approximately 180 days, a rate
equal to an adjusted LIBOR rate plus 150 basis points (8 1/2% at December 30,
1994 for a term of 180 days). Interest is payable monthly and at the end of each
advance period as to the amounts with respect to which LIBOR is applicable. A
facility fee equal to 3/8% of the average daily unused portion of the line is
payable quarterly in arrears. As part of the agreement, the Company is subject
to both positive and negative covenants, such as liquidity maintenance, tangible
net worth requirements and minimum consolidated net income before taxes,
depreciation, amortization and interest. The credit line is secured by a pledge
of all stock of substantially all of the subsidiaries of the Company. The
Company has outstanding letters of credit totaling $833,000 at December 31,
1994, which reduce the available revolving line. This line of credit was
terminated with the new $175,000,000 revolving loan agreement described below.

Prior to entering into the revolving credit agreement described above,
Holdings maintained a $35,000,000 line of credit with the Bank which bore
interest at their prime rate plus 1/2%. This line of credit was terminated with
the $50,000,000 revolving credit agreement.

On January 20, 1995, the Company entered into a $35,000,000 revolving
investment loan agreement with the Bank. Proceeds of the loan are used to
acquire short-term investments which secure the loan. Interest is computed based
on market rates adjusted for the Company's credited funds at the Bank.

On April 28, 1995, a wholly-owned subsidiary of the Company entered into a
$25,000,000 revolving credit loan agreement with the Bank to facilitate mortgage
loan underwriting and origination. The stated interest rate for this line is the
Bank's floating prime rate (8 3/4% at September 30, 1995); however, the Company
may elect to have up to three traunches of debt bear interest at adjusted 30-day
LIBOR rate plus 2% (7 13/16% at September 30, 1995 for a term of 30 days), and
interest is payable monthly. Principal payments on the note are due monthly, and
are equal to the aggregate amount of all principal payments received by the
borrowing entity with respect to mortgage loan underwriting and origination. The
loan is collateralized by the mortgage loans and the borrowing entity/servicers
collection accounts.

On July 27, 1995, two wholly-owned subsidiaries of the Company jointly
entered into a $27,500,000 nonrecourse term loan agreement with a financial
services company to finance investments in Asset Portfolios. The loan is
collateralized by a security interest in the investments in asset portfolios of
the subsidiaries. The stated interest rate for this debt is the financial
company's floating prime rate plus 1 1/2% (10 1/4% at July 27, 1995); however,
the borrowing entities may elect to have up to three traunches of debt bear
interest at adjusted LIBOR rate plus 3% (8 15/16 at July 27, 1995 for a term of
180 days), with the term of each traunche to be up to 180 days. Interest is
payable monthly. Principal payments are due monthly and are equal to 90% of the
net portfolio cash flow for the preceding month. Additional principal reductions
may be required on a quarterly basis to meet minimum principal payment
requirements. The loan is nonrecourse to the Company and matures on July 31,
1998. As part of the agreement, the borrowing entities and the Company are
subject to both positive and negative covenants.

On August 15, 1995, a wholly-owned subsidiary of the Company entered into a
mortgage warehouse agreement with a funding corporation to facilitate
multi-family mortgage loan underwriting and origination. The stated interest
rate for this line is an adjusted 30-day LIBOR rate plus 3% (8 33/50% at
September 30, 1995), and interest and principal are payable upon the receipt of
the proceeds of the sale or other disposition of related mortgage loans. The
loan is secured by the mortgage loans originated by the Company and held for
sale under the facility. The Company is a guarantor on this facility. At
September 30, 1995, an advance of $2,991,000 was outstanding at an interest rate
of 8 33/50%.

F-13
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. NOTES PAYABLE, MORTGAGE WAREHOUSE DEBT AND NONRECOURSE DEBT (CONTINUED)
On September 27, 1995, a wholly-owned subsidiary of the Company entered into
a $8,696,000 Global Master Repurchase Agreement to support the purchase of
certain commercial mortgage pass-through certificates. The Agreement bears
interest at a rate based on LIBOR (7 3/8% at September 30, 1995) payable
monthly. This facility is secured by the commercial mortgage pass-through
certificates and repayment of principal is based on cash flow from such
securities.

On September 29, 1995, the Company entered into a $175,000,000 revolving
loan agreement with a syndicate of banks, led by the Bank which matures and is
payable in full on September 29, 1997. By its terms, the revolving loan
agreement has two primary components, $75,000,000 available under a corporate
facility (including $25,000,000 under a temporary bridge facility) and
$100,000,000 available under a portfolio facility. The syndicate's current
commitment under the revolving loan agreement is limited to a total of
$127,500,000; $68,900,000 under the corporate facility and $58,600,000 under the
portfolio facility. The additional amounts under the revolving loan agreement
would become available to the Company upon the participation by additional
financial institutions in the syndicate for the loan and upon an increase in the
Company's borrowing base under this agreement. There can be no assurance that
such events will occur. The borrowing terms, including interest, may be selected
by the Company and tied to either the Bank's variable rate (8 3/4% at September
30, 1995) or, for advances on a term basis up to approximately 180 days, a rate
equal to an adjusted LIBOR rate (7 5/8% at September 30, 1995 for a term of 180
days). Interest is payable quarterly and at the end of each advance period as to
the amounts with respect to which LIBOR is applicable. The revolving loan
agreement is secured by substantially all of the assets of the Company not
pledged under other credit facilities, including stock of a majority of the
Company's subsidiaries held by the Company. The revolving loan agreement
requires the Company to meet certain financial tests, including minimum
consolidated tangible net worth, maximum consolidated funded debt to
consolidated capitalization ratio, minimum fixed charge coverage ratio, minimum
interest coverage ratio, maximum consolidated funded debt to consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
and maximum corporate facility outstanding to consolidated EBITDA ratio. The
revolving loan agreement contains covenants that, among other things, will limit
the incurrence of additional indebtedness, investments, asset sales, loans to
shareholders, dividends, transactions with affiliates, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements. On September 7, 1995, the Company entered into an interest
rate swap agreement to hedge a portion of this debt agreement. The swap
agreement has a notional amount of $25,000,000 and requires payment of interest
by the Company at a fixed rate of 5 4/5% and receipt of interest by the Company
at a floating rate equal to 30-day LIBOR.

6. INCOME TAXES
Income tax expense (benefit) consists of the following for the two months
ended December 31, 1992, and the years ended December 31, 1993, and 1994, (in
thousands):

<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal............................................................... $ 2,200 $ 14,533 $ 9,665
State................................................................. 583 3,096 2,609
--------- --------- ---------
Total current tax expense........................................... 2,783 17,629 12,274
Deferred tax expense (benefit).......................................... (603) (1,650) 966
--------- --------- ---------
Total income tax expense............................................ $ 2,180 $ 15,979 $ 13,240
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-14
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)
The net deferred tax asset at December 31, 1993 and 1994, consists of the
tax effects of temporary differences related to the following (in thousands):

<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Accounts receivable............................................................... $ 221 $ 1,386
Premises and equipment............................................................ 277 235
Intangible assets................................................................. 3,483 2,691
Investment in subsidiaries........................................................ 2,097 930
Accrued employee compensation..................................................... 1,911 3,261
Net operating loss carryforwards.................................................. 8,140 6,775
AMT credit carryforwards.......................................................... 602 602
Other............................................................................. 2,117 2,002
--------- ---------
Total deferred tax asset before valuation allowance............................. 18,848 17,882
Valuation allowance............................................................. (675) (675)
--------- ---------
Net deferred tax asset............................................................ $ 18,173 $ 17,207
--------- ---------
--------- ---------
</TABLE>

A reconciliation of income taxes on reported pretax income at statutory
rates to actual income tax expense for the two months ended December 31, 1992,
and the years ended December 31, 1993 and 1994, is as follows (in thousands):

<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Income tax at statutory rates........................................... $ 2,011 $ 14,069 $ 11,196
State income taxes, net of Federal tax benefit.......................... 169 1,910 1,606
Other................................................................... 438
--------- --------- ---------
Total income tax expense.............................................. $ 2,180 $ 15,979 $ 13,240
--------- --------- ---------
--------- --------- ---------
Income tax expense attributable to continuing operations................ $ 2,279 $ 17,371 $ 14,753
Income tax benefit attributable to discontinued operations.............. (99) (1,392) (1,513)
--------- --------- ---------
Total income tax expense.............................................. $ 2,180 $ 15,979 $ 13,240
--------- --------- ---------
--------- --------- ---------
</TABLE>

As a result of the acquisition of BEI, the Company has available for its use
BEI's net operating loss carryforwards existing at the acquisition date. The
Company is limited to utilizing approximately $4,245,000 of such losses
annually. The following are the expiration dates and the approximate net
operating loss carryforwards at December 31, 1994, (in thousands):

<TABLE>
<CAPTION>
EXPIRATION DATE AMOUNT
- ------------------------------------------------------------------------- ---------
<S> <C>
1995..................................................................... $ 812
1996..................................................................... 739
1997..................................................................... 2,325
1998..................................................................... 2,818
1999..................................................................... 1,333
2001..................................................................... 3,516
2002..................................................................... 2,071
2003..................................................................... 1,459
2006..................................................................... 372
2007..................................................................... 2,867
---------
$ 18,312
---------
---------
</TABLE>

F-15
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. PAYABLE TO PARTNERS
Payable to partners represents amounts owed to Esther Ritz Corporation
(Ritz) and other partners for their shares of the undistributed earnings of
various joint ventures and partnerships. The consolidated balance sheets at
December 31, 1993 and 1994, include the accounts of BEI-Ritz Joint Venture #1
and BEI-Ritz Joint Venture #2 (the Joint Ventures) of which the Company owns a
controlling interest. The Joint Ventures were formed in 1991 between BEI and
Ritz to participate in the bidding for contracts for the management and
disposition of assets owned by the RTC. The Joint Ventures make distributions to
the Company and to Ritz as cash is collected on the RTC contracts.

8. OTHER LIABILITIES
The following table summarizes the components of other liabilities at
December 31, 1993 and 1994, (in thousands):

<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Accrued earnout (Note 2)................................................. $ 0 $ 3,883
Deferred compensation obligations (Note 4)............................... 900 1,331
Dividends payable........................................................ 560 1,179
Lease abandonment accrual................................................ 1,250 964
Other.................................................................... 3,942 5,507
--------- ---------
Total other liabilities.............................................. $ 6,652 $ 12,864
--------- ---------
--------- ---------
</TABLE>

9. DISCONTINUED OPERATION
The Company adopted a plan on December 1, 1994, to discontinue its data
processing operations for the banking and asset management industry, to sell the
discontinued subsidiary, AMRESCO Services, Inc., or most of the assets of that
subsidiary, by June 30, 1995. The net liabilities of the subsidiary at December
31, 1994, were as follows (in thousands):

<TABLE>
<S> <C>
Accounts receivable................................................ $ 666
Premises and equipment and other assets............................ 341
Liabilities........................................................ (718)
Reserve for losses on discontinued operations...................... (1,243)
---------
Net liabilities of discontinued subsidiary..................... $ (954)
---------
---------
</TABLE>

Gross revenues applicable to the discontinued operations were $957,000,
$5,500,000 and $4,542,000 for the two months ended December 31, 1992, the year
ended December 31, 1993, and the eleven months ended November 30, 1994,
respectively. The loss from the discontinued operations for the period December
1, 1994 to December 31, 1994 was $95,000, net of $63,000 income tax benefit.

On June 16, 1995, the Company sold substantially all of the assets of
AMRESCO Services, Inc., for $6,250,000 in cash with a gain of approximately
$2,425,000, or $0.10 per share, net of certain transaction costs and $1,617,000
provision for income taxes. The book values of the net assets sold in the
transaction were as follows (in thousands; unaudited):

<TABLE>
<S> <C>
Cash................................................................. $ 283
Accounts receivable.................................................. 293
Premises and equipment............................................... 302
Other assets......................................................... 65
Liabilities.......................................................... (199)
---------
Net assets of discontinued subsidiary............................ $ 744
---------
---------
</TABLE>

F-16
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SALE OF ASSETS
During 1994, the Company sold to outside parties substantially all of the
assets of its EnterChange division, acquired December 31, 1993 with the
acquisition of BEI, for approximately $1,500,000 in cash and $818,000 in
promissory notes. The sale of the EnterChange division is not expected to have
any material financial impact on the Company.

11. COMMON STOCK
The Company has incentive stock option plans for the benefit of key
individuals, including its directors, officers and key employees. In connection
with the merger of BEI and Holdings (See Note 2), certain granted options became
fully vested. The plans are administered by a committee of the Board of
Directors. The plans were adjusted to reflect the conversion of each share of
Holdings common stock into 10.03 shares of the Company's stock for the two
months ended December 31, 1992 and the years ended December 31, 1993. Stock
option activity under the plans for the two months ended December 31, 1992 and
the years ended December 31, 1993 and 1994 is as follows:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE PER
SHARES SHARE
---------- ----------------
<S> <C> <C>
Options outstanding at November 1, 1992........................ --
Granted...................................................... 411,230 $0.60
---------- ----------------
Options outstanding at December 31, 1992....................... 411,230 $0.60
Granted...................................................... 431,290 $3.50
Canceled..................................................... (70,210) $0.60
Acquired company options outstanding......................... 1,321,790 $2.25 to $4.50
---------- ----------------
Options outstanding at December 31, 1993....................... 2,094,100 $0.60 to $4.50
Granted...................................................... 500,000 $7.00 to $8.94
Exercised.................................................... (711,590) $0.60 to $3.50
Forfeited.................................................... (10,060) $3.50
---------- ----------------
Options outstanding at December 31, 1994....................... 1,872,450 $0.60 to $8.94
---------- ----------------
---------- ----------------
Options exercisable at December 31, 1994....................... 1,455,256 $0.60 to $8.94
---------- ----------------
---------- ----------------
Options available for grant at December 31, 1994............... 501,766
----------
----------
</TABLE>

At December 31, 1994, the Company has reserved a total of 2,374,216 shares
of common stock for exercise of stock options.

A stock subscription agreement and related shareholders' agreement (the
Stockholder Agreements) were entered into by the Company with various officers
and other parties (the Subscribers) on December 9, 1992. Such Stockholder
Agreements state that the Subscribers agreed to purchase a set number of shares
of capital stock, as defined. The purchase price was based on a purchase price
of $6.00 per share of common stock ($.60 per share after effect of the
conversion into Company stock). Certain executive officers purchased common
stock with cash and promissory notes. The notes accrue interest at 6% per annum
and are due and payable in December 2002 or within one year of termination of
employment. The shares are subject to certain restrictions and repurchase rights
pursuant to the Stockholder Agreements. In the event of termination prior to
December 2002, the Company could cancel unvested shares by canceling related
indebtedness based on the original issue price. Originally, 50% of the notes
were vested based upon performance and the remainder were time notes. As a
result of the merger with BEI, the performance notes were converted into time
notes. The conversion of the notes resulted in additional compensation expense
recorded during 1993 of $1,188,000. In addition, the shares are now fully
vested. The notes are secured by the

F-17
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. COMMON STOCK (CONTINUED)
stock acquired and are nonrecourse to the Subscribers. The notes are classified
as a reduction of shareholders' equity for financial reporting purposes. During
1993, $179,000 in notes receivable for officers' shares and the related common
stock were canceled. During 1994, a $178,000 note receivable was repaid.

On February 6, 1995, the Company's Board of Directors authorized the
repurchase of up to $6,000,000 of its common stock from time to time through
February 6, 1996. Any purchases, if made, would be in the open market at
prevailing prices or in privately negotiated transactions. The repurchased
shares would be held for existing or future stock option or employee benefit
plans and for possible stock splits or dividends.

12. EMPLOYEE COMPENSATION AND BENEFITS
Accrued employee compensation and benefits at December 31, 1993 and 1994,
includes amounts for incentive compensation, severance and benefits. Certain
employees are eligible to receive a bonus from a pool computed on 20% to 25% of
pretax income over predetermined minimum earning levels. In addition, certain
employees are covered by severance plans in the event their employment is
terminated due to reductions in the workforce. The Company accrues for such
costs over the service period. At December 31, 1993 and 1994, a total of
$6,777,000 and $5,144,000, respectively, was accrued for costs incurred or
expected to be incurred under the severance plans of continuing operations.

Effective January 1, 1993, the Company adopted the AMRESCO Retirement
Savings and Profit Sharing Plan (the Plan). The Plan qualifies under Section
401(k) of the Internal Revenue Code and incorporates both a savings component
and a profit sharing component for eligible employees. As determined each year
by the Board of Directors, the Company may match the employee contribution up to
6% of their base pay based on the Company's performance. For 1994, the matching
contribution was set at $.50 for each $1.00 contributed by the employees. In
addition to the matching savings contribution, the Company provides an annual
contribution to the profit sharing retirement component of the Plan on behalf of
all eligible employees. This portion of the Plan has been subsequently amended
to assure that the Company is not required to make an employer profit sharing
contribution to the Plan after 1993. However, it is anticipated that some level
of profit sharing contribution will continue in future periods. For the years
ended December 31, 1993 and 1994, the Company made profit sharing contributions
of $1,700,000 and $1,312,000, respectively. Allocation of the Company's
contribution will be based on a percentage of an employee's "weighted total
pay." Weighted total pay places a stronger emphasis on the age of the employee
and provides an increasingly larger profit sharing contribution as an employee
nears retirement.

13. COMMITMENTS AND CONTINGENCIES
The Company is committed to pay additional consideration to former owners of
an acquired subsidiary based on financial performance during 1994, 1995 and
1996. See Note 2.

The Company has entered into non-cancelable operating leases covering office
facilities which expire at various dates through 2000. Certain of the lease
agreements provide for minimum annual rentals with provisions to increase the
rents to cover increases in real estate taxes and other expenses of the lessor.
The Company also has cancelable leases on equipment which expire on various
dates through 1998. The total rent expense for the two months ended December 31,
1992, and the years ended December 31, 1993 and

F-18
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1994, was approximately $876,000, $3,116,000 and $4,386,000, respectively. The
future minimum annual rental commitments under non-cancelable agreements having
a remaining term in excess of one year at December 31, 1994 are as follows (in
thousands):

<TABLE>
<S> <C>
Year Ended December 31,
1995.............................................................. $ 1,686
1996.............................................................. 1,509
1997.............................................................. 1,233
1998.............................................................. 814
1999.............................................................. 485
Thereafter........................................................ 149
</TABLE>

The Company is a defendant in various legal actions. In the opinion of
management, such actions will not materially affect the financial position or
results of operations of the consolidated company.

14. FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirement of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1994
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents......................................... $ 43,442 $ 43,442 $ 20,446 $ 20,446
Accounts receivable............................................... 39,399 39,399 20,682 20,682
Investment in asset portfolios:
Loans........................................................... 33,795 36,300 30,920 37,485
Partnerships and joint ventures................................. 22,491 25,200
Asset-backed securities......................................... 3,481 3,500
Other assets...................................................... 6,923 6,923 7,216 7,216

Liabilities:
Accounts payable.................................................. 9,830 9,830 4,891 4,891
Notes payable and other debt...................................... 28,113 28,113 16,459 16,459
Payable to partners............................................... 3,399 3,250 3,907 3,907
Letters of credit ($833).......................................... -- --
</TABLE>

The fair values of the investment in asset portfolios, notes payable and
payable to joint venture partner are estimated based on present values using
applicable rates to approximate current entry-value interest rates applicable to
each category of such financial instruments. The carrying amount of cash and
cash equivalents, accounts receivable, net of reserves, and accounts payable
approximates fair value. The Company has reviewed its exposure on standby
letters of credit and has determined that the fair value of such exposure is not
material. The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1993 and 1994. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the date presented,
and therefore, current estimates of fair value may differ significantly from the
amounts presented herein.

F-19
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. SUBSEQUENT EVENTS (UNAUDITED)

CONVERTIBLE SUBORDINATED DEBENTURE OFFERING. On November 27, 1995, the
Company completed an offering conducted in Europe, pursuant to Regulation S
promulgated under the Securities Act, of $45.0 million aggregate principal
amount of Convertible Subordinated Debentures. The net proceeds (aggregating
approximately $43.0 million) from such offering were used to repay borrowings
under the revolving credit line. The Convertible Subordinated Debentures bear
interest at 8% per annum and will mature on December 15, 2005. There is no
sinking fund or amortization of principal prior to maturity. The Convertible
Subordinated Debentures are not redeemable prior to December 15, 1996. The
Convertible Subordinated Debentures are convertible at the option of the holders
into shares of Common Stock at a conversion price of $12.50 per share
(equivalent to a conversion rate of 80 shares of Common Stock per $1,000
principal amount of Convertible Subordinated Debentures), subject to adjustment
in certain events. The Convertible Subordinated Debentures are unsecured
obligations of the Company and subordinated to all existing and future Senior
Indebtedness (as defined in the Convertible Subordinated Debenture Indenture) of
the Company. The Convertible Subordinated Debentures contain certain rights of
the holder to require the repurchase of the Convertible Subordinated Debentures
(i) upon a Fundamental Change (as defined in the Convertible Subordinated
Debenture Indenture) and (ii) if the Company is not able to maintain a Net Worth
(as defined in the Convertible Subordinated Debenture Indenture) of
approximately $141.0 million (which includes the net proceeds to the Company
from the Common Stock offering described below) plus the net proceeds to the
Company from any other offering of Common Stock by the Company subsequent to the
date hereof. There are certain other covenants restricting dividends on and
redemptions of capital stock.

COMMON STOCK OFFERING. On December 13, 1995, the Company completed a
registered public offering of 2,000,000 shares of Common Stock. Subsequent
thereto, the Company sold an additional 300,000 shares of Common Stock upon
exercise of the Underwriters' over-allotment option. The net proceeds from such
offering, including the over-allotment shares, aggregated approximately $25.1
million and were used to repay borrowings under the revolving credit line. The
price to the public was $11.75 per share and the price to the Company per share
was $11.10 (after an underwriting discount of $ .65 per share). In addition to
the offering of shares of Common Stock by the Company, two institutional
shareholders sold an aggregate of 2,300,000 shares of Common Stock (including
300,000 shares sold pursuant to the exercise of the underwriters' over-allotment
option). The Company did not receive any proceeds from the sale of these shares.
Assuming issuance of 2,300,000 shares of common stock at the beginning of each
of the periods January 1, 1994 and 1995 and application of related net proceeds
to the repayment of borrowings bearing an average interest cost of 8.2%,
earnings per share for the year ended December 31, 1994 and the nine months
ended September 30, 1995 for income from continuing operations would have been
$0.85 and $0.50, respectively, while earnings per share for net income would
have been $0.77 and $0.59, respectively.

GLOBAL MASTER REPURCHASE AGREEMENT. On December 19, 1995, a wholly owned
subsidiary of the Company entered into a $20,593,000 Global Master Repurchase
Agreement to support the purchase of certain commercial mortgage pass-through
certificates. The agreement bears interest at a rate based on 30 day LIBOR plus
1 2/5% (7 1/3% at December 31, 1995) payable monthly. This facility is secured
by the commercial mortgage pass-through certificates and repayment of principal
is based on cash flow from such securities.

F-20
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly results of operations,
revised to reflect discontinued operations, for the years ended December 31,
1993 and 1994 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from continuing operations......................... $ 50,525 $ 36,814 $ 41,080 $ 43,743
Income from continuing operations before taxes.............. 11,756 11,245 12,344 8,332
Income from continuing operations........................... 7,143 6,842 7,442 4,879
Loss from discontinued operations........................... 277 326 355 1,130
Net income.................................................. 6,866 6,516 7,087 3,749
Earnings per share from continuing operations............... 0.63 0.61 0.66 0.43
Earnings per share.......................................... 0.61 0.58 0.63 0.33
</TABLE>

Nonrecurring charges of $2,209,000 related to write-off of software and
merger related compensation accruals were made during the quarter ended December
31, 1993. Quarterly financial data has been revised to reflect discontinued
operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from continuing operations......................... $ 40,563 $ 40,460 $ 46,782 $ 29,379
Income from continuing operations before taxes.............. 9,244 9,307 14,979 2,156
Income from continuing operations........................... 5,358 5,425 8,873 1,277
Loss from discontinued operations........................... 422 316 238 1,209
Net income.................................................. 4,936 5,109 8,635 68
Earnings per share from continuing operations............... 0.23 0.23 0.37 0.05
Earnings per share.......................................... 0.21 0.22 0.36 0.00
</TABLE>

Nonrecurring income of $10,000,000 related to the conclusion of the
NationsBank Contract was recorded during the third quarter of 1994. Nonrecurring
accruals for the loss on discontinued operations were made during the fourth
quarter of 1994.

F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT

AMRESCO:

We have audited the accompanying combined statements of income and cash
flows of Asset Management Resolution Company and AMRESCO Holdings, Inc. and
subsidiaries (together AMRESCO), both of which were under the common ownership
and management of NationsBank Corporation as of October 31, 1992, for the ten
months ended October 31, 1992. These combined financial statements are the
responsibility of AMRESCO management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.

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

In our opinion, such 1992 financial statements, present fairly, in all
material respects, the combined results of AMRESCO's operations and cash flows
for the ten months ended October 31, 1992, in conformity with generally accepted
accounting principles.

/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
March 26, 1993

F-22
<PAGE>
AMRESCO
(PREDECESSOR BUSINESSES)

FOR THE TEN MONTHS ENDED OCTOBER 31, 1992
(DOLLARS IN THOUSANDS)

COMBINED STATEMENT OF INCOME

<TABLE>
<S> <C>
REVENUES:
Asset management fees (Note 3).................................................... $ 129,179
Other............................................................................. 3,680
---------
Total revenues.............................................................. 132,859
---------
EXPENSES:
Personnel (Note 5)................................................................ 64,955
Occupancy......................................................................... 4,918
Equipment......................................................................... 3,534
Professional fees................................................................. 19,817
General and administrative........................................................ 5,533
---------
Total expenses.............................................................. 98,757
---------
Income before taxes............................................................... 34,102
Income tax expense (Note 4)....................................................... 10,795
---------
Net income.................................................................. $ 23,307
---------
---------

COMBINED STATEMENT OF CASH FLOWS
OPERATING ACTIVITIES:
Net income........................................................................ $ 23,307
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on retirement of property and equipment.................................... 16
Depreciation and amortization................................................... 5,240
Expenses paid by parent......................................................... 475
Increase (decrease) in cash for changes in:
Accounts receivable........................................................... 15,788
Deferred income taxes......................................................... (2,068)
Other assets.................................................................. (126)
Other liabilities............................................................. (1,050)
Income taxes payable.......................................................... 8,138
Accounts payable.............................................................. (10,233)
---------
Net cash provided by operating activities................................... 39,487
---------
INVESTING ACTIVITIES:
Expenditures for furniture, fixtures, and equipment............................... (5,117)
---------
FINANCING ACTIVITIES
Dividends paid.................................................................... (20,000)
---------
Net increase in cash and cash equivalents......................................... 14,370
Cash and cash equivalents, beginning of period.................................... 21,216
---------
Cash and cash equivalents, end of period.......................................... $ 35,586
---------
---------
</TABLE>

See notes to combined financial statements.

F-23
<PAGE>
AMRESCO

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION
Effective October 31, 1992, a Stock Sale Agreement (the Agreement) was
entered into by AMRESCO Acquisition Corporation, an entity formed by CGW
Southeast Partners, L.P. I and II and which was renamed AMRESCO Holdings, Inc.,
to purchase the stock of AMRESCO, Inc. and AMRESCO Holdings, Inc. (AHI). The
combined financial statements of AMRESCO (predecessor businesses of AMRESCO
Holdings, Inc.) consist of Asset Management Resolution Company (dba AMRESCO,
Inc.) and AHI, including its wholly owned subsidiaries, AMRESCO Services, Inc.,
AMRESCO Institutional, Inc. and AMRESCO Management, Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AMRESCO is engaged primarily in the business of managing, servicing and
liquidating loans and related assets for various financial institutions,
government agencies and others. All transactions between AHI and its
subsidiaries and AMRESCO, Inc. and their predecessor businesses have been
eliminated in the combined financial statements.

REVENUE AND EXPENSE RECOGNITION -- Revenues, principally fees for the
management and collection of assets subject to management contracts, are
recognized as earned. Expenses incurred in managing and administering the assets
subject to management contracts are charged to expense as incurred. Asset
disposition fees are accrued based on estimated collections and related costs.
Differences between estimated and actual amounts are recorded in the period of
determination. Revenue from AMRESCO's largest customers constituted 42%, 39% and
16% of total asset management fees for the ten months ended October 31, 1992.

INCOME TAXES -- AMRESCO's tax provision and related balance sheet accounts
have been recorded in accordance with Statement of Financial Accounting
Standards No. 96. Current income tax provisions approximate taxes on a stand
alone basis to be paid or refunded for the applicable period. Deferred taxes are
provided on the temporary differences between the bases of assets and
liabilities as measured by tax laws and their bases as reported in the financial
statements.

3. CONTRACTS
AMRESCO performs asset management services primarily for NationsBank, the
FDIC and the RTC under management contracts. Generally, the contracts provide
for the payment of a fixed management fee which is reduced proportionately as
managed assets decrease, a disposition fee using specified percentage rates
based on net cash collections and an incentive fee for resolution of certain
assets. Contracts to manage, service and liquidate assets expire beginning
December 31, 1993 through June 30, 1997. AMRESCO, Inc. and the RTC agreed in
principle to effect an early termination of a full-service contract and a loan
administration contract no later than December 31, 1992. AMRESCO, Inc. collected
an agreed disposition fee on the book value of the remaining assets and, as of
December 31, 1992, returned the management of the assets to the RTC. A
significant amount of AMRESCO's revenues are derived under an asset management
contract beginning in 1992 between AMRESCO and NationsBank Corporation
(NationsBank).

4. INCOME TAXES
Prior to the acquisition, AMRESCO filed a consolidated tax return with its
parent, NationsBank. Income taxes were accrued as if AMRESCO filed separate
returns. No delineation was made of current and deferred taxes as NationsBank
allocated tax benefits to AMRESCO. The receipt of tax benefits were handled as a
capital contribution by the Parent. AMRESCO's acquisition was a taxable
transaction, and as a

F-24
<PAGE>
AMRESCO

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES (CONTINUED)
result, a new tax basis for the AMRESCO group was created. A reconciliation of
income taxes on reported pretax income at statutory rates to total income tax
expense is as follows for the ten months ended October 31, 1992 (in thousands):

<TABLE>
<S> <C>
Income tax at statutory rate (34%)..................................... $ 11,595
State income taxes (net of federal benefit)............................ 1,797
Change in prior-year estimate of Parent tax attributes................. (2,503)
Other.................................................................. (94)
---------
Income tax expense..................................................... $ 10,795
---------
---------
</TABLE>

5. RETIREMENT AND EMPLOYEE BENEFITS
Certain professional employees received a bonus from a pool computed on 20%
to 25% of pretax income over predetermined minimum earning levels for the ten
months ended October 31, 1992 and based upon NationsBank's bonus programs prior
to 1992. Certain employees are covered by severance plans in the event their
employment is terminated by AMRESCO. Until December 9, 1992, the Company
participated in a qualified retirement plan of NationsBank, which covered all
full-time, salaried employees and certain part-time employees. Pension expense
under this plan was accrued. The costs allocated from NationsBank were charged
to current operations and consist of several components of net pension cost
based on various actuarial assumptions regarding future experience under the
plan.

6. COMMITMENTS AND CONTINGENCIES
Total rent expense for the ten months ended October 31, 1992 was
approximately $3,220,000. AMRESCO is a defendant in or party to pending and
threatened legal actions and proceedings. Management believes, based upon the
opinion of legal counsel, that the actions and liability or loss, if any,
resulting from the final outcome of these proceedings will not be material in
the aggregate.

7. STOCKHOLDER'S EQUITY
The activity in stockholder's equity for the ten months ended October 31,
1992 is as follows (in thousands):

<TABLE>
<S> <C>
JANUARY 1, 1992....................................................... $ 30,935
Net income.......................................................... 23,307
Contribution by parent.............................................. 475
Dividends and distributions to parent............................... (42,169)
---------
OCTOBER 31, 1992...................................................... $ 12,548
---------
---------
</TABLE>

F-25
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Company or the
Underwriters. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Available Information............................ 2
Incorporation of Certain Documents by
Reference....................................... 2
Certain Definitions.............................. 4
Summary.......................................... 6
Risk Factors..................................... 12
Recent Developments.............................. 16
Use of Proceeds.................................. 17
Capitalization................................... 18
Summary Financial and Other Data................. 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 21
Business......................................... 27
Management....................................... 38
Description of the Notes......................... 41
Description of Other Indebtedness................ 48
Underwriting..................................... 54
Legal Matters.................................... 54
Independent Accountants.......................... 54
Index to Financial Statements.................... F-1
</TABLE>

$50,000,000

[LOGO]

10% SENIOR SUBORDINATED NOTES
DUE 2003
--------------------

P R O S P E C T U S

--------------------
PIPER JAFFRAY INC.
J.C. BRADFORD & CO.
MORGAN KEEGAN & COMPANY, INC.

January 30, 1996