<PAGE>   1

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

                                    FORM 10-Q

X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934.

     For the quarterly period ended: September 30, 1998

                                       OR

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

     For the transition period from ________________ to  ________________

     Commission File Number:  1-13485

                   AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
             (Exact name of Registrant as specified in its Charter)

              Maryland                                  33-0741174
              (State or other jurisdiction of           (I.R.S. Employer
              Incorporation or organization)            Identification Number)

              445 Marine View Avenue, Suite 230
              Del Mar, California                       92014
              (Address of principal executive offices)  Zip Code


        Registrant's telephone number, including area code (619) 350-5000

              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to files such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 [X] YES [ ] NO

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Common Stock ($.01 par value)                   8,055,500 as of November 1, 1998

<PAGE>   2

INDEX

<TABLE>
<CAPTION>
                                                                                 Page
                                                                                 ----
<S>                                                                              <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

Consolidated Balance Sheets at September 30, 1998 and December 31, 1997           1

Consolidated Statements of Operations for the three months ended September 30,
1998 and 1997, for the nine months ended September 30, 1998, and for the period
from February 11, 1997 (commencement of operations) through September 30, 1997    2

Consolidated Statements of Cash Flows for the nine months ended September 30,
1998 and for the period from February 11, 1997 (commencement of operations)
through September 30, 1997                                                        3

Notes to Consolidated Financial Statements                                        4

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                   15

Item 3.  Quantitative and Qualitative Disclosures about Market Risk              25

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings                                                       25

Item 2.  Changes in Securities and Use of Proceeds                               25

Item 3.  Defaults Upon Senior Securities                                         25

Item 4.  Submission of Matters to a Vote of Security Holders                     25

Item 5.  Other Information                                                       25

Item 6.  Exhibits and Reports on Form 8-K                                        25
</TABLE>


<PAGE>   3

                   AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                               September 30,    December 31,
                                                                  1998              1997
                                                                ---------        ---------
<S>                                                            <C>              <C>      
Cash and cash equivalents                                       $  12,608        $   5,893
Retained interest in securitization                                 6,700               --
Mortgage securities available-for-sale, net                       258,536          387,099
Mortgage loans held-for-investment, net, pledged                  637,823          162,762
Interest rate cap agreements                                        1,132              411
Accrued interest receivable                                         9,698            5,169
Due from affiliate                                                    989              269
Investment in American Residential Holdings                           715               --
Other assets                                                          224              231
                                                                --------------------------
                                                                $ 928,425        $ 561,834
                                                                ==========================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term debt                                                 $ 400,988        $ 451,288
Long-term debt, net                                               418,412               --
Accrued interest payable                                            2,099            1,839
Due to affiliate                                                      543               --
Accrued expenses and other liabilities                              1,128              632
Management fees payable                                               697              208
Accrued dividends                                                      --            1,298
                                                                --------------------------
   Total liabilities                                              823,867          455,265

Stockholders' Equity:
Preferred stock, par value $.01 per share; 1,000 shares
   authorized; no shares issued and outstanding                        --               --
Common stock, par value $.01 per share; 25,000,000 shares
   authorized; 8,055,500 shares issued and outstanding                 81               81
Additional paid-in-capital                                        109,271          109,786
Accumulated other comprehensive loss                               (5,800)          (3,300)
Cumulative dividends declared                                      (6,945)          (2,401)
Retained earnings                                                   7,951            2,403
                                                                --------------------------
   Total stockholders' equity                                     104,558          106,569
                                                                --------------------------
                                                                $ 928,425        $ 561,834
                                                                ==========================
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       1
<PAGE>   4


                   AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                              For the Period from
                                                                                                               February 11, 1997
                                                            For the Three     For the Three     For the Nine   (commencement of
                                                             Months Ended      Months Ended     Months Ended  operations) through
                                                            Sept. 30, 1998    Sept. 30, 1997   Sept. 30, 1998    Sept. 30, 1997
                                                            --------------    --------------   -------------- -------------------
<S>                                                         <C>               <C>              <C>            <C>    
Interest income:
Mortgage assets                                                 $18,447          $ 4,222          $51,704          $ 8,390
Cash and investments                                                195               --              402               --
                                                                ----------------------------------------------------------
      Total interest income                                      18,642            4,222           52,106            8,390
Interest expense                                                 16,974            3,532           44,611            6,977
                                                                ----------------------------------------------------------
   Net interest income                                            1,668              690            7,495            1,413
Provision for loan losses                                           296               --              714               --
                                                                ----------------------------------------------------------
   Net interest income after provision for loan losses            1,372              690            6,781            1,413
Other operating income:
   Management fee income                                            214               --              317               --
   Equity in income of Holdings                                     240               --            1,125               --
   Prepayment penalty                                               311               --              494               --
                                                                ----------------------------------------------------------
      Total other operating income                                  765               --            1,936               --
                                                                ----------------------------------------------------------
         Net operating income                                     2,137              690            8,717            1,413
Other expenses:
   Management fees                                                  697              104            1,866              173
   Loan expenses                                                    103               --              359               --
   General and administrative expenses                              336               67              944              137
                                                                ----------------------------------------------------------
      Total other expenses                                        1,136              171            3,169              310
                                                                ----------------------------------------------------------
Net income                                                      $ 1,001          $   519          $ 5,548          $ 1,103
                                                                ==========================================================

Net income per share of Common Stock -- Basic                   $  0.12          $  0.32          $  0.69          $  0.68

Net income per share of Common Stock -- Diluted                 $  0.12          $  0.31          $  0.69          $  0.66

Dividends per share of Common Stock for related period          $  0.12          $  0.32          $  0.68          $  0.68
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       2
<PAGE>   5

                   AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                         For the period
                                                                          For the       February 11, 1997
                                                                         Nine Months     (commencement of
                                                                            Ended       operations) through
                                                                        September 30,      September 30,
                                                                            1998                1997
                                                                         ---------           ---------
<S>                                                                      <C>            <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                               $   5,548           $   1,103
   Adjustments to reconcile net income to net cash provided
      by operating activities:
      Amortization of mortgage assets premiums                               9,558               1,000
      Amortization of interest rate cap agreements                             321                  86
      Amortization of closing costs                                              2                   1
      Provision for loan loss                                                  714                  --
      Increase in accrued interest receivable                               (4,529)             (2,232)
      Decrease/(increase) in other assets                                        5                 (14)
      Increase in due from affiliate                                          (720)                 --
      Increase in accrued interest payable                                     260               1,605
      Increase in accrued expenses and management fees payable                 985                 309
      Increase in due to affiliate                                             543                  82
                                                                         -----------------------------
      Net cash provided by operating activities                             12,687               1,940
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of mortgage securities available-for-sale                          --            (256,947)
   Purchases of mortgage loans held for investment                        (650,685)                 --
   Principal payments on mortgage securities available-for-sale            121,140              28,150
   Principal payments on mortgage loans held for investment                 61,207                  --
   Sale of mortgage loans held for investment                              109,068                  --
   Investment in Holdings                                                     (715)                 --
   Purchase of retained interest in securitization                          (6,700)                 --
   Purchase of interest rate cap agreements                                 (1,042)               (542)
                                                                         -----------------------------
      Net cash used in investing activities                               (367,727)           (229,339)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase/(decrease) in net borrowings from reverse
      repurchase agreements                                                (50,300)            209,706
   Net proceeds from stock issuance                                             --              20,026
   Purchase of treasury stock                                                 (492)                 --
   Dividends paid                                                           (5,842)               (584)
   Issuance of CMO/FASIT bonds                                             456,536                  --
   Payments on CMO/FASIT bonds                                             (38,124)                 --
   Other                                                                       (23)                 --
                                                                         -----------------------------
      Net cash provided by financing activities                            361,755             229,148
Net increase in cash and cash equivalents                                    6,715               1,749
Cash and cash equivalents at beginning of period                             5,893                  --
                                                                         -----------------------------
Cash and cash equivalents at end of period                               $  12,608           $   1,749
                                                                         =============================

Supplemental information - interest paid                                 $  34,567           $   4,371
                                                                         =============================
Non-cash transactions:
   Increase in accumulated other comprehensive income/(loss)             $  (2,500)          $     804
                                                                         =============================
   Equity in income of Holdings                                          $   1,125           $      --
                                                                         =============================
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       3
<PAGE>   6

AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.   BASIS OF FINANCIAL PRESENTATION AND ORGANIZATION

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of American
Residential Investment Trust, Inc. ("AmRES") and American Residential Eagle,
Inc. ("Eagle"), its wholly owned subsidiary (collectively "AmRIT").
Substantially all of the assets of Eagle are pledged or subordinated to support
long-term debt in the form of collateralized mortgage bonds ("Long-Term Debt")
and are not available for the satisfaction of general claims of AmRIT and
American Residential Holdings, Inc. ("Holdings"), (collectively the "Company").
The Company's exposure to loss on the assets pledged as collateral is limited to
its net investment, as the Long-Term Debt is non-recourse to the Company. All
significant intercompany balances and transactions with Eagle have been
eliminated in the consolidation of AmRIT.

During the first half of 1998, the Company formed Holdings, through which a
portion of the Company's Mortgage Loan acquisition and finance activities will
be conducted. AmRIT owns all of the preferred stock and has a non-voting 95%
economic interest in Holdings. Because AmRIT does not control Holdings, its
investment in Holdings is accounted for under the equity method. Under this
method, original equity investments in Holdings are recorded at cost and
adjusted by AmRIT's share of earnings or losses and decreased by dividends
received.

For financial reporting purposes, references to AmRIT mean AmRES and Eagle;
while references to the "Company" mean AmRES, Eagle, and Holdings. Certain
amounts for prior periods have been reclassified to conform with the 1998
presentation.

The accompanying consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles ("GAAP") and with the
instructions to Form 10-Q promulgated under the Securities and Exchange Act of
1934. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of the
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of AmRIT and its consolidated
financial condition and results of operations have been included. Operating
results for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.

Organization

American Residential Investment Trust, Inc., a Maryland corporation, commenced
operations on February 11, 1997. AmRES was financed through a private equity
funding from its manager, Home Asset Management Corporation (the "Manager").
AmRES 



                                       4
<PAGE>   7

operates as a mortgage real estate investment trust ("REIT") which has elected
to be taxed as a real estate investment trust for Federal income tax purposes,
which generally will allow AmRES to pass through its income to its stockholders
without payment of corporate level Federal income tax, provided that the Company
distributes at least 95% of its taxable income to stockholders. During 1998,
the Company formed Eagle, a special-purpose finance subsidiary. Holdings, a
non-REIT, taxable affiliate of the Company, was established during the first
half of 1998. The Company acquires residential mortgage-backed securities and
mortgage loans (collectively, "Mortgage Assets"). These Mortgage Assets are
typically secured by single-family real estate properties throughout the United
States. The Company utilizes both debt and equity to finance its acquisitions.
The Company may also use securitization techniques to enhance the value and
liquidity of the Company's Mortgage Assets and may sell Mortgage Assets from
time to time.

The Company diversified its residential mortgage loan sales activities in the
second quarter of 1998 to include the securitization of such loans through a
Real Estate Mortgage Investment Conduit ("REMIC"). The REMIC, which consisted of
pooled adjustable-rate first-lien mortgages, was issued by Holdings to the
public through the registration statement of the related underwriter.

Earnings Per Share

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128"). This
statement replaces the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effect of options. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts have been restated to conform
to the SFAS No. 128 requirements.

The following table illustrates the computation of basic and diluted earnings
per share:

<TABLE>
<CAPTION>
                                                                                                                  For the period
                                                                                                     For the     February 11, 1997
                                                                   For the Three Months Ended      Nine Months    (commencement of
                                                                         September 30,                Ended      operations) through
                                                                     1998              1997       Sept. 30, 1998    Sept. 30, 1997
                                                                  ----------        ----------    --------------    --------------
                                                                           (dollars in thousands, except per share data)
<S>                                                               <C>               <C>           <C>               <C>       
Numerator:
   Numerator for basic income per share - net income              $    1,001        $      519      $    5,548        $    1,103
Denominator:
   Denominator for basic income per share - weighted average
      number of common shares outstanding during the period        8,080,345         1,614,000       8,102,658         1,614,000
Incremental common shares attributable to exercise of
   outstanding options                                                    --            61,989              --            61,989
                                                                  --------------------------------------------------------------
Denominator for diluted income per share                           8,080,345         1,675,989       8,102,658         1,675,989
Basic income per share                                            $     0.12        $     0.32      $     0.69        $     0.68
Diluted income per share                                                0.12              0.31            0.69              0.66
</TABLE>



                                       5
<PAGE>   8

Comprehensive Income

Effective with the quarter ending March 31, 1998, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires all items that are required to be recognized
under accounting standards as components of comprehensive income to be reported
in a financial statement that is displayed in equal prominence with the other
financial statements and to disclose as a part of shareholders' equity
accumulated comprehensive income. The Company has chosen, for purposes of its
interim financial reporting, to present a statement of comprehensive income in
the notes to the financial statements. Comprehensive income is defined as the
change in equity during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income generally includes
net income, foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on investments in certain debt and equity securities
(i.e., securities available for sale). The Company's statement of comprehensive
income for the periods presented is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                        For the period from
                                                                                            For the       February 11, 1997
                                                                    For the                Nine Months    (commencement of
                                                               Three Months Ended            Ended       operations) through
                                                                 September 30,              Sept. 30,       Sept. 30,
                                                              1998            1997            1998             1998
                                                             -------         -------       ------------ --------------------
                                                                              (dollars in thousands)
<S>                                                          <C>             <C>           <C>          <C>    
Net income                                                   $ 1,001         $   519         $ 5,548         $ 1,103
Other comprehensive gain/(loss), net of
  related income taxes:
    Unrealized gains/(losses) on securities:
    Unrealized holding gains/(losses) arising
      during the period                                       (1,170)            804          (2,500)            804
    Less reclassification of realized gains/( losses)
      included in income                                          --              --              --              --
                                                             -------------------------------------------------------
                                                              (1,170)            804          (2,500)            804
                                                             -------------------------------------------------------
Comprehensive income/(loss)                                  $  (169)        $ 1,323         $ 3,048         $ 1,907
                                                             =======================================================
</TABLE>

Recent Accounting Developments

Disclosure about Segments of an Enterprise and Related Information

In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that selected information about these operating segments be reported in interim
financial statements. This statement supersedes SFAS No. 14 "Financial Reporting
for Segments of a Business Enterprise." SFAS No. 131 requires that all public
enterprises report financial and 



                                       6
<PAGE>   9

descriptive information about its reportable operating segments. Operating
segments are defined as components evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. This statement is effective for fiscal years beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years should be restated.

Accounting for Derivative Instruments and Hedging Activities

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction.

Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.

SFAS No. 133 amends SFAS No. 32, "Foreign Currency Translation," to permit
special accounting for a hedge of a foreign currency forecasted transaction with
a derivative. It supersedes SFAS No. 80, "Accounting for Futures Contracts,"
SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," and SFAS No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments." It amends SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," to include in SFAS No. 107 the disclosure
provisions about concentrations of credit risk from SFAS No. 105. This Statement
also nullifies or modifies the consensuses reached in a number of issues
addressed by the Emerging Issues Task Force. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.



                                       7
<PAGE>   10

NOTE 2.  MORTGAGE SECURITIES AVAILABLE FOR SALE, NET

At September 30, 1998, the Company's Mortgage Securities consisted of the
following mortgage participation certificates issued or guaranteed by Federal
government sponsored agencies:

<TABLE>
<CAPTION>
                                                Federal Home      Federal National
                                               Loan Mortgage         Mortgage
                                                Corporation         Association            Total
                                               -------------      ----------------       ---------
                                                               (dollars in thousands)
<S>                                            <C>                <C>                    <C>      
Mortgage Securities available-for-sale,
   principal                                     $ 171,835           $  82,480           $ 254,315
Unamortized premium                                  6,537               3,484              10,021
                                                 ---------           ---------           ---------
Amortized cost                                     178,372              85,964             264,336
Unrealized loss                                     (3,855)             (1,945)             (5,800)
                                                 ---------           ---------           ---------
Fair value                                       $ 174,517           $  84,019           $ 258,536
                                                 =========           =========           =========
</TABLE>

At September 30, 1998 all investments in Mortgage Securities consisted of
interests in adjustable rate mortgage loans on residential properties. The
securitized interest in pools of adjustable rate mortgages from the Federal Home
Loan Mortgage Corporation and the Federal National Mortgage Association are
guaranteed as to principal and interest. The original maturity is subject to
change based on the prepayments of the underlying mortgage loans.

At September 30, 1998, the weighted average net coupon on the Mortgage
Securities was 7.70% per annum based on the amortized cost of the Mortgage
Securities. All Mortgage Securities have a repricing frequency of one year or
less.

NOTE 3.  MORTGAGE LOANS HELD FOR INVESTMENT, NET, PLEDGED

The Company purchases certain non-conforming Mortgage Loans to be held as
long-term investments. At September 30, 1998, Mortgage Loans held for investment
consists of the following (dollars in thousands):


<TABLE>
<S>                                                                   <C>      
Mortgage Loans held for investment, principal                         $ 597,751
Unamortized premium                                                      43,224
Allowance for loan losses                                                (3,152)
                                                                      ---------
                                                                      $ 637,823
                                                                      =========
</TABLE>

At September 30, 1998, the weighted average net coupon on the Mortgage Loans was
9.29% per annum. All Mortgage Loans have a repricing frequency of five years or
less. At September 30, 1998, approximately 40% of the collateral was located in
California with no other state representing more than approximately 6%.



                                       8
<PAGE>   11

NOTE 4.  SHORT-TERM DEBT

The Company has entered into uncommitted reverse repurchase agreements
(collectively "short-term" debt), which may be withdrawn at any time, to finance
the acquisition of a portion of its Mortgage Assets. The maximum aggregate
amount available under the uncommitted reverse repurchase agreements at
September 30, 1998 is over $3.2 billion. These reverse repurchase agreements are
collateralized by a portion of the Company's Mortgage Assets.

Mortgage Securities

The maximum outstanding reverse repurchase agreements with any one lender during
the nine months ended September 30, 1998 was approximately $168.3 million, or
approximately 70% of the total repurchase liability for the month ending August
31, 1998. At September 30, 1998, Mortgage Securities pledged had an estimated
fair value of approximately $233.5 million.

At September 30, 1998, the Company had approximately $231.1 million of Mortgage
Securities reverse repurchase agreements outstanding with a weighted average
borrowing rate of 5.57% per annum and a weighted average remaining maturity of
37 days. The maximum month end balance and the average balance outstanding for
the nine months ended September 30, 1998 were approximately $304.4 million and
$269.3 million, respectively. At September 30, 1998, the Mortgage Securities
reverse repurchase agreements had the following characteristics:

<TABLE>
<CAPTION>
                                                                                    Weighted Average
                             Repurchase       Underlying        Interest Rate       Weighted Average
Mortgage Securities          Liability        Collateral         (per annum)         Maturity Date
                             --------         ----------        -------------       ----------------
                                                  (dollars in thousands)
                             -----------------------------------------------------------------------
<S>                          <C>              <C>               <C>                 <C>
Mortgage Securities
FHLMC                        $ 31,196          $ 30,656               5.62%          Oct. 21, 1998
FNMA                           77,356            76,139               5.62           Oct. 31, 1998
Paine Webber                  122,549           126,659               5.53           Nov. 13, 1998
                             -----------------------------------------------------------------------
                             $231,101          $233,454               5.57%          Nov. 6, 1998
                             =======================================================================
</TABLE>

Mortgage Loans

Reverse repurchase agreements for Mortgage Loans are currently placed with two
investment banking firms. The maximum amount outstanding with Lehman Brothers
during the nine months ended September 30, 1998 was approximately $668.7
million. At September 30, 1998, Mortgage Loans pledged had an estimated fair
value of approximately $161.5 million.



                                       9
<PAGE>   12

At September 30, 1998, the Company had approximately $169.9 million of Mortgage
Loans reverse repurchase agreements outstanding with a weighted average
borrowing rate of 6.39% per annum and a weighted average remaining maturity of
one day. The maximum month end balance and the average balance outstanding for
the nine months ended September 30, 1998 were approximately $668.7 million and
$333.2 million, respectively. At September 30, 1998, the Mortgage Loans reverse
repurchase agreements had the following characteristic:

<TABLE>
<CAPTION>
                         Repurchase       Underlying        Interest Rate       Weighted Average
Mortgage Loans           Liability        Collateral         (per annum)         Maturity Date
                         ----------       ----------        -------------       ---------------
                                               (dollars in thousands)
                         ----------------------------------------------------------------------
<S>                      <C>              <C>               <C>                 <C>    
Lehman Brothers          $ 98,603          $104,619               6.40%          Oct. 1, 1998
Bear Stearns               71,284            56,874               6.38           Sept. 30, 1998
                         ----------------------------------------------------------------------
                         $169,887          $161,493               6.39%          Oct. 1, 1998
                         ======================================================================
</TABLE>

NOTE 5.  LONG-TERM DEBT, NET

During the second quarter of 1998, AmRIT, through its wholly owned subsidiary,
Eagle, issued approximately $456.5 million of collateralized mortgage bonds
(Long-Term Debt) through a Financial Asset Securitization Investment Trust
(FASIT). The bonds were assigned to a FASIT trust and trust certificates
evidencing the assets of the trust were sold to investors. The trust
certificates were issued in classes representing senior, mezzanine, and
subordinate payment priorities. Payments received on single-family mortgage
loans ("Bond Collateral") are used to make payments on the Long-Term Debt. The
obligations under the Long Term Debt are payable solely from the Bond Collateral
and are otherwise non-recourse to AmRIT. The maturity of each class of trust
certificates is directly affected by the rate of principal repayments on the
related Bond Collateral. The Long-Term Debt is also subject to redemption
according to the specific terms of the indenture pursuant to which the bonds
were issued and the FASIT trust. As a result, the actual maturity of the
Long-Term Debt is likely to occur earlier than its stated maturity.

The components of the Long-Term Debt at September 30, 1998 along with selected
other information are summarized below (dollars in thousands):

<TABLE>
<S>                                                                   <C>      
Long-Term Debt                                                        $ 418,757
Capitalized Costs on Long-Term Debt                                        (345)
                                                                      ---------
Total Long-Term Debt                                                  $ 418,412
                                                                      =========

Range of Certificate pass-through rates                               5.74% - 7.05%

Stated maturities                                                     2008 - 2028
</TABLE>

NOTE 6.  COLLATERAL FOR LONG-TERM DEBT

AmRIT has pledged collateral in order to secure the Long-Term Debt issued in the
form of Bond Collateral. This Bond Collateral consists primarily of
adjustable-rate, conventional, 30-year mortgage loans secured by first liens on
one- to four-family residential properties. All Bond Collateral is pledged to
secure repayment of the related 



                                       10
<PAGE>   13

Long-Term Debt obligation. All principal and interest (less servicing and
related fees) on the Bond Collateral is remitted to a trustee and is available
for payment on the Long-Term Debt obligation. AmRIT's exposure to loss on the
Bond Collateral is limited to its net investment, as the Long-Term Debt is
non-recourse to AmRIT.

The components of the Bond Collateral at September 30, 1998 are summarized as
follows (dollars in thousands):

<TABLE>
<S>                                                                  <C>      
Mortgage loans                                                       $ 425,008
Unamoritized premium                                                    34,343
Allowance for loan losses                                               (3,027)
Accrued interest receivable                                              3,594
                                                                     ---------
                                                                     $ 459,918
                                                                     =========

Weighted average gross coupon                                             9.95%
Weighted average net coupon                                               9.30%
Weighted average pass-through rate                                        9.28%
</TABLE>

NOTE 7.  RETAINED INTEREST IN SECURITIZATION

Retained interests in securitization consist of assets generated by the
Company's loan securitization. These assets at September 30, 1998 were as
follows (dollars in thousands):

<TABLE>
<S>                                                                       <C>   
REMIC subordinate certificates                                            $6,700
                                                                          ======
</TABLE>

The Company classifies REMIC securities as trading securities in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
and carries them as current assets at market value.

The fair value of the retained interest is determined by computing the present
value of the excess of the weighted-average coupon of the residential mortgages
sold (9.32%) over the sum of: (1) the coupon on the senior interest (5.95%), and
(2) a basic servicing fee paid to servicer of the residential mortgages (0.50%)
and other fees, and taking into account expected estimated losses to be incurred
on the portfolio of residential mortgages sold over the estimated lives of the
residential mortgages and using an estimated future average prepayment
assumption (25%) per year. The prepayment assumptions used in estimating the
cash flows is based on recent evaluations of the actual prepayments of the
related portfolio and on market prepayment rates on new portfolios of similar
residential mortgages, taking into consideration the current interest rate
environment and its expected impact on the estimated future prepayment rate. The
estimated cash flows expected to be received by the Company are discounted at an
interest rate that the 



                                       11
<PAGE>   14

Company believes is commensurate with the risk of holding such a financial
instrument. The rate used to discount the cash flows coming out of the trust was
approximately 12%. To the extent that actual future excess cash flows are
different from estimated excess cash flows, the fair value of the Company's
retained interest could decline.

Under the terms of the securitization, the retained interest is required to
build overcollateralization to specified levels using the excess cash flows
described above until set percentages of the securitized portfolio are attained.
Future cash flows to the retained interest holder are all held by the REMIC
trust until a specific percentage of either the original or current certificate
balance is attained which percentage can be raised if certain charge-offs and
delinquency ratios are exceeded. The certificate holders' recourse for credit
losses is limited to the amount of overcollateralization held in the REMIC
trust. Upon maturity of the certificates or upon exercise of an option ("clean
up call") to repurchase all the remaining residential mortgages once the balance
of the residential mortgages in the trust are reduced to 10% of the original
balance of the residential mortgages in the trust, any remaining amounts in the
trust are distributed. The current amount of any overcollateralization balance
held by the trust is recorded as part of the retained interest.

NOTE 8.  DIVIDENDS

On October 15, 1998, the Company declared a dividend of $967 thousand or $0.12
per share. This dividend was paid on November 2, 1998 to holders of record of
Common Stock as of October 26, 1998. On July 13, 1998, the Company declared a
dividend of $2.3 million or $0.28 per share. This dividend was paid on July 31,
1998 to holders of record of Common Stock as of July 24, 1998. On April 24,
1998, the Company declared a dividend of $2.3 million or $0.28 per share. This
dividend was paid on April 30, 1998 to holders of record of Common Stock as of
April 24, 1998. On December 19, 1997, the Company declared a dividend of $1.3
million or $0.16 per share. The dividend was paid on January 21, 1998 to holders
of record of Common Stock as of December 31, 1997.



                                       12
<PAGE>   15


NOTE 9. INVESTMENT IN AMERICAN RESIDENTIAL HOLDINGS, INC.

The following condensed financial information summarizes the financial position
and results of operations of American Residential Holdings, Inc. (dollars in
thousands, except per share data):

                       AMERICAN RESIDENTIAL HOLDINGS, INC.
                             CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                  September 30, 1998
                                                                  ------------------
<S>                                                               <C>
                                     ASSETS

Cash and cash equivalents                                               $     8
Due from affiliate                                                          533
Class "X" Certificate - CMO/FASIT                                           475
Other assets                                                                 25
                                                                        -------
                                                                        $ 1,041
                                                                        =======
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other liabilities                                                       $   241
                                                                        -------
   Total liabilities                                                        241
Stockholders' Equity:
Preferred stock, par value $1,000 per share; 10,000 shares
   authorized; 475 shares issued and outstanding                            475
Common stock, par value $.01 per share; 100 shares
   authorized; 50 shares issued and outstanding                              --
Additional paid-in-capital                                                   25
Cumulative dividends declared                                              (885)
Retained earnings                                                         1,185
                                                                        -------
   Total stockholders' equity                                               800
                                                                        -------
                                                                        $ 1,041
                                                                        =======
</TABLE>

                       AMERICAN RESIDENTIAL HOLDINGS, INC.
                        CONDENSED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       For the period
                                                                      January 28, 1998
                                                                      (commencement of
                                                                     operations) through
                                                                      September 30, 1998
                                                                     -------------------
<S>                                                                  <C>   
Income:
   Gain on sale of loans                                                  $1,589
   Interest income                                                           266
   Other income                                                                2
                                                                          ------
      Total income                                                         1,857
Expenses:
   Other expenses                                                             19
                                                                          ------
      Income before taxes                                                  1,838
Taxes                                                                        653
                                                                          ------
   Net income                                                             $1,185
                                                                          ======
</TABLE>



                                       13
<PAGE>   16


                       AMERICAN RESIDENTIAL HOLDINGS, INC.
                        CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       For the period
                                                                      January 28, 1998
                                                                      (commencement of
                                                                     operations) through
                                                                      September 30, 1998
                                                                     -------------------
<S>                                                                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                              $ 1,185
   Adjustments to reconcile net income to net cash provided
      by operating activities:
      Increase in other assets                                             (558)
      Increase in accrued expenses                                          241
                                                                        -------
      Net cash provided by operating activities                             868
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of Class "X" certificates - CMO/FASIT                          (475)
                                                                        -------
      Net cash used in investing activities                                (475)
CASH FLOWS FROM FINANCING ACTIVITIES
   Net proceeds from stock issuance                                         500
   Dividends paid                                                          (885)
                                                                        -------
      Net cash used in financing activities                                (385)
Net increase in cash and cash equivalents at end of period                    8
Cash and cash equivalents at beginning of period                             --
                                                                        -------
Cash and cash equivalents at end of period                              $     8
                                                                        =======
</TABLE>


NOTE 10.  SUBSEQUENT EVENT

On October 29, 1998, management of the Company announced its intention to sell,
during the fourth quarter, $264.3 million of FNMA and FHLMC securities which are
classified as available-for-sale. As of September 30, 1998, the Mortgage
Securities had an unrealized loss allowance of $5.8 million. The Company has
estimated the loss on sale of these Mortgage Securities to be approximately $8
million to $10 million, which will negatively impact earnings upon the
completion of the sale. On October 30, 1998, the Company sold approximately
$65.4 million of Mortgage Securities at a loss of $1.9 million. On November 4,
1998, approximately $130.1 million of Mortgage Securities were traded to be
settled November 23, 1998, for a loss on the sale of approximately $3.3 million.
The Company is reasonably assured the remaining $68.8 million will be sold in
December 1998.



                                       14
<PAGE>   17


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS.

The statements contained in this Report that are not purely historical are
forward looking statements, including statements regarding the Company's
expectations, hopes, beliefs, intentions or strategies regarding the future.
Statements which use the words "intends", "expects", "will", "may",
"anticipates" and "seeks" are forward looking statements. These forward looking
statements, including statements regarding changes in the Company's future
income and intent to acquire fixed rate Mortgage Loans, are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward looking statements. Among the factors that could cause actual results to
differ materially are the factors set forth below under the heading "Business
Risks". In particular, the Company's future income could be affected by changes
in levels of repayments, changes in interest rates, lack of available Mortgage
Assets which meet the Company's acquisition criteria, the type of Mortgage
Assets acquired by the Company and the credit characteristics of the borrowers
under Mortgage Loans acquired by the Company.

OVERVIEW

The Company's income to date consists primarily of interest income generated
from its Mortgage Assets and its cash balances (collectively, "earning assets").
The Company funds its acquisitions of earning assets with both its equity
capital and with borrowings. For that portion of the Company's earning assets
funded with equity capital ("equity-funded lending"), net interest income is
derived from the average yield on earning assets. Due to the adjustable-rate
nature of its earning assets, the Company expects that income from this source
will tend to increase and decrease as interest rates rise and fall,
respectively.

For that portion of the Company's earning assets funded with borrowings ("spread
lending"), the resulting net interest income is a function of the volume of
spread lending and the difference between the Company's average yield on earning
assets and the cost of borrowed funds and interest rate hedging agreements. Net
income from spread lending may initially decrease following an increase in
interest rates and then, after a lag period, be restored to its former level as
earning assets yields adjust to market conditions. Net income from spread
lending may likewise increase following a fall in interest rates, but then
decrease as earning assets yields adjust to the new market conditions after a
lag period.

RESULTS OF OPERATIONS

For the three months ended September 30, 1998, the Company generated net income
of approximately $1.0 million and diluted net income per share of Common Stock
of $0.12. At September 30, 1998 the Company held Mortgage Securities that had a
carrying value 



                                       15
<PAGE>   18

of approximately $258.5 million, including a $5.8 million net unrealized loss,
and Mortgage Loans with a carrying value of approximately $637.8 million.

Net income for the Company increased 92.9% from approximately $519 thousand for
the three months ended September 30, 1997, to approximately $1.0 million for the
three months ended September 30, 1998. The growth in net income was directly
attributable to an increase in net interest income and other operating income.
Net interest income grew approximately 142% from the three months ended
September 30, 1997 to the three months ended September 30, 1998, from
approximately $690 thousand to approximately $1.7 million, respectively. Other
operating income was zero for the three months ended September 30, 1997 and was
approximately $765 thousand for the three months ended September 30, 1998. This
increase in income was partially offset by an increase in other expenses
consisting of management fees, loan expenses and general and administrative
expenses. From the three months ended September 31, 1997 to the three months
ended September 30, 1998, other expenses increased from approximately $171
thousand to approximately $1.1 million, or approximately 564%.

The growth in net interest income from the three months ended September 30, 1997
to the three months ended September 30, 1998 was due to an increase in the
Company's Mortgage Loans held-for-investment during the third quarter of 1998.
An increase in other operating income includes the increase in management fee
income, prepayment penalty income and equity in income of Holdings. Management
fee income increased due to the increase in the Company's Mortgage Loans during
the third quarter of 1998 and prepayment penalty income increased due to the
high levels of prepayments in the Mortgage Securities portfolio during the three
months ended September 30, 1998. Holdings income increased due to an increase in
interest income from the sale of loans structured in a Real Estate Mortgage
Investment Conduit ("REMIC").

For the nine months ended September 30, 1998, the Company generated net income
of approximately $5.5 million and diluted net income per share of Common Stock
of $0.69.

Net income for the Company increased 403% from approximately $1.1 million for
the period from February 11, 1997 (commencement of operations) through September
30, 1997, to approximately $5.5 million for the nine months ended September 30,
1998. The growth in net income was directly attributable to an increase in net
interest income and other operating income. Net interest income grew
approximately 430% from the period from February 11, 1997 (commencement of
operations) through September 30, 1997 to the nine months ended September 30,
1998, from approximately $1.4 million to approximately $7.5 million
respectively. Other operating income was zero for the period from February 11,
1997 (commencement of operations) through September 30, 1997 and was
approximately $1.9 million for the nine months ended September 30, 1998. This
increase in income was offset by an increase in other expenses consisting of
management fees, loan expenses and general and administrative expenses. From the
period from February 11, 1997 (commencement of operations) through September 30,
1997 to the nine months ended September 30, 1998, other expenses increased from
approximately $310 thousand to approximately $3.2 million, or 922%.



                                       16
<PAGE>   19

The growth in net interest income from the period from February 11, 1997
(commencement of operations) through September 30, 1997 to the nine months ended
September 30, 1998 was due to an increase in the Company's Mortgage Loans
held-for-investment during the first nine months of 1998. An increase in other
operating income includes the increase in management fee income, prepayment
penalty income and equity in income from Holdings. Management fee income
increased due to the increase in the Company's Mortgage Loans during the first
nine months of 1998 and prepayment penalty income increased due to the high
levels of prepayments in the Mortgage Securities portfolio during the nine
months ended September 30, 1998. While prepayment income increases cash flow,
higher than expected prepayments have a long-term negative effect on operating
income due to write-offs of capitalized mortgage premiums which would otherwise
have been amortized over a longer period of time. Equity in income of Holdings
increased due to interest income from the sale of loans structured in a Real
Estate Mortgage Investment Conduit ("REMIC"). The Company does not anticipate
that it will receive other operating income from REMIC transactions in the
future on a regular basis, or at all. Similarly, the increase in other expenses
from the period from February 11, 1997 (commencement of operations) through
September 30, 1997 to the nine months ended September 30, 1998 is primarily the
result of (i) the Company's increased management fees caused from the increase
in the Company's Mortgage Loans and (ii) the result of the Company's inital
public offering which increased professional fees, printing and reproduction
expenses caused from the 10-K and annual report.

The Company experienced very high levels of prepayments in the Mortgage Security
portfolio in the nine months ended September 30, 1998. The annualized Mortgage
Security principal prepayment rate for the Company was approximately 53% in the
nine months ending September 30, 1998 compared to the annualized mortgage
principal prepayment rate of approximately 28% for the period from February 11,
1997 (commencement of operations) through September 30, 1997. The Company
anticipates that prepayment rates may continue at very high levels for an
indefinite period. The sale of these securities may reduce this prepayment risk.
The Company's financial condition and results of operations will continue to be
materially adversely affected if prepayments continue at high levels. See
"Business Risks - High Levels of Mortgage Loan Prepayments May Reduce Operating
Income".

The 95% economic interest in the taxable affiliate, Holdings, was $1.1 million
for the nine months ended September 30, 1998 compared to zero for the period
from February 11, 1997 (commencement of operations) through September 30, 1997.
Holdings' future earnings will be recognized using the equity method of
accounting and will be disclosed as a separate line-item on the Company's income
statement. See "Note 9. Investment in American Residential Holdings, Inc." in
the notes to Consolidated Financial Statements section above for additional
information on Holdings.



                                       17
<PAGE>   20

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 1998, net cash provided by operating
activities was approximately $12.7 million. Net cash provided by operating
activities was negatively impacted by an increase in accrued interest
receivable. Mortgage Loans increased from $162.8 million on December 31, 1997 to
$637.8 million at September 30, 1998 and, therefore, accrued interest receivable
at September 30, 1998 has increased proportionally to loans, thereby negatively
affecting cash. The net increase in "Due from affiliate", also adversely affects
cash flow. Net cash for the period was positively affected by an increase in
accrued interest payable and management fees payable and due to affiliate.

Net cash used in investing activities for the nine months ended September 30,
1998 was approximately $367.7 million. Net cash used for the period was
negatively affected by the purchase of Mortgage Loans in the amount of
approximately $650.7 million and positively affected by principal prepayments of
mortgage securities of approximately $121.1 million and mortgage loans of
approximately $61.2 million, and sale of mortgage loans held for investment of
approximately $109.1 million.

For the nine months ended September 30, 1998, net cash provided by financing
activities was approximately $361.8 million. Net cash used was positively
affected by the issuance of long-term debt in the form of CMO/FASIT bonds issued
for approximately $456.5 million. Net cash used was negatively affected by a
decrease in borrowings under reverse repurchase agreements of $50.3 million and
payments on CMO/FASIT bonds of approximately $38.1 million.

SALE OF ASSETS

The Company anticipates selling its entire Mortgage Securities portfolio
(approximately $264.3 million) in the fourth quarter of 1998. These assets are
categorized as "available for sale". The Company expects to realize a capital
loss of between $8 million and $10 million including writing off unamortized cap
hedge protections. On October 30, 1998, approximately $65.4 million of Mortgage
Securities were sold. On November 4, 1998, approximately $130.1 million of
Mortgage Securities were traded to be settled November 23, 1998. The Company is
reasonably assured the remaining $68.8 million will be sold in December 1998.

FINANCING

At September 30, 1998 the Company had committed reverse repurchase agreement
facilities in place to provide $150 million to finance investments in Mortgage
loans. In addition, the Company had uncommitted reverse repurchase agreement
facilities in place to provide over $ 3 billion to finance investments in
Mortgage Assets.



                                       18
<PAGE>   21

If the Company's cash resources are insufficient to satisfy the Company's
liquidity requirements, the Company may be required to sell additional equity or
debt securities. There is no assurance that such financing will be available to
the Company on favorable terms, or at all.

BUSINESS RISKS

Failure to Implement Company's Leverage Strategy May Adversely Affect Results of
Operations

The Company relies on short term borrowings to fund acquisitions of Mortgage
Assets. Accordingly, the ability of the Company to achieve its investment
objectives depends on its ability (i) to borrow money in sufficient amounts and
on favorable terms, (ii) to renew or replace on a continuous basis its maturing
short term borrowings and (iii) to successfully leverage its Mortgage Assets. In
addition, the Company is dependent upon a few lenders to provide the primary
credit facilities for its purchases of Mortgage Assets. Any failure to obtain or
renew adequate funding under these facilities or other financing on favorable
terms, could reduce the Company's net interest income and have a material
adverse effect on the Company's operations. 

In the event the Company is not able to renew or replace maturing borrowings,
the Company could be required to sell Mortgage Assets under adverse market
conditions and could incur losses as a result. In addition, in such event, the
Company may be required to terminate hedge positions, which could result in
further costs to the Company. Any event or development, such as a sharp rise in
interest rates or increasing market concern about the value or liquidity of a
type or types of Mortgage Assets in which the Company's Mortgage Asset portfolio
is concentrated, will reduce the market value of the Mortgage Assets, which
would likely cause lenders to require additional collateral. A number of such
factors in combination may cause difficulties for the Company, including a
possible liquidation of a major portion of the Company's Mortgage Assets at
disadvantageous prices with consequent losses, which could have a material
adverse effect on the Company and could render it insolvent.

Lenders will have claims on the Company's assets superior to the claims of the
holders of the Shares and may require that the Company agree to covenants that
could restrict its flexibility in the future and limit the Company's ability to
pay dividends. In the event of the insolvency or bankruptcy of the Company, any
creditor under a reverse repurchase agreement may be allowed to avoid the
automatic stay provisions of the Bankruptcy Code and to foreclose on the
collateral agreements without delay. In the event of the insolvency or
bankruptcy of a lender during the term of a reverse repurchase agreement, the
lender may be permitted to repudiate the contract, and the Company's claim
against the lender for damages therefrom may be treated simply as one of the
unsecured creditors. Should this occur, the Company's claims would be subject to
significant delay 



                                       19
<PAGE>   22

and, if received, may be substantially less than the damages actually suffered
by the Company.

Due to the underlying loan to collateral values established by the Company's
lenders, the Company may be subject to calls for additional capital in the event
of adverse market conditions. Such conditions include (i) higher than expected
levels of prepayments on Mortgage Loans and (ii) sudden increases in interest
rates. To the extent that the Company is highly leveraged, it may not be able to
meet its loan to collateral value requirements, which may result in losses to
the Company. There can be no assurance that the Company will not face additional
margin calls.

High Levels of Mortgage Loan Prepayments May Reduce Operating Income

Prepayments of Mortgage Assets adversely affect the Company's results of
operations in several ways. A portion of the adjustable-rate Mortgage Assets
acquired by the Company bear initial "teaser" interest rates which are lower
than their "fully-indexed" rates (the applicable index plus a margin. In the
event that such an adjustable-rate Mortgage Asset is prepaid prior to or soon
after the time of adjustment to a fully-indexed rate, the Company will have held
the Mortgage Asset during its least profitable period and lost the opportunity
to receive interest at the fully-indexed rate over the expected life of the
adjustable-rate Mortgage Asset. In addition, the prepayment of any Mortgage
Asset that has been purchased with a premium by the Company would result in the
immediate write-off of any remaining capitalized premium amount and the
consequent reduction of the Company's net interest income by such amount.
Finally, in the event that the Company is unable to acquire new Mortgage Assets
to replace the prepaid Mortgage Assets, the Company's financial condition and
results of operations could be materially adversely affected.

Mortgage Asset prepayment rates generally increase when new Mortgage Loan
interest rates fall below the interest rates on the adjustable-rate Mortgage
Assets, Prepayment experience also may be affected by the geographic location of
the property securing the adjustable-rate Mortgage Loans, the assumability of an
adjustable-rate Mortgage Loan, the ability of the borrower to obtain or convert
to a fixed-rate Mortgage Loan, conditions in the housing and financial markets
and general economic conditions. The level of prepayments is also subject to the
same seasonal influences as the residential real estate industry with prepayment
rates generally being highest in the summer months and lowest in the winter
months. The Company experienced very high levels of prepayments during the nine
months ended September 30, 1998 and the Company anticipates that prepayment
rates will continue at very high levels for an indefinite period.

Certain Mortgage Loans acquired by the Company may contain provisions
restricting prepayments of such Mortgage Loans and require a charge in
connection with the prepayment thereof. Such prepayment restrictions can, but do
not necessarily, provide a deterrent of prepayments. Prepayment charges may be
in an amount which is less than the figure which would fully compensate the
Company for a lower yield upon reinvestment of the prepayment proceeds.



                                       20
<PAGE>   23

Borrower Credit May Decrease Value of Mortgage Loans

A substantial portion of the Company's Mortgage Assets consist of Mortgage
Loans. Accordingly, the Company is subject to increased credit risks, including
risks of borrower defaults and bankruptcies and special hazard losses that are
not covered by standard hazard insurance (such as those occurring from
earthquakes or floods.) In the event of a default on any Mortgage Loan held by
the Company, the Company will bear the risk of loss of principal to the extent
of any deficiency between the value of the secured property, and the amount
owing on the Mortgage Loan, less any payments from an insurer or guarantor.
Defaulted Mortgage Loans will also cease to be eligible collateral for
borrowings, and will have to be financed by the Company out of other funds until
ultimately liquidated. Although the Company established an allowance for
Mortgage Loan losses in an amount that it believes is adequate to cover these
risks, in view of its limited operating history and lack of experience with the
Company's current Mortgage Loans and Mortgage Loans that may be acquired, there
can be no assurance that any allowance for Mortgage Loan losses which are
established will be sufficient to offset losses on Mortgage Loans in the future.

The Company's Mortgage Loans remain relatively young from a delinquency
perspective, and there have not yet been any losses incurred on these loans.
Because of the age of the Company's loans, current delinquency and loss
information is not yet expected to be representative of future delinquencies and
losses. At September 30, 1998, approximately 7.74% of the Company's Mortgage
Loans were delinquent 30 days or more. In addition, at September 30, 1998, 37
Mortgage Loans were in bankruptcy with a total loan value of approximately $4.5
million and 87 Mortgage Loans in foreclosure with a total loan value of
approximately $12.8 million.

Credit risks associated with non-conforming Mortgage Loans, especially sub-prime
Mortgage Loans, may be greater than those associated with Mortgage Loans that
conform to FNMA and FHLMC guidelines. The principal difference between
non-conforming sub-prime Mortgage Loans and conforming Mortgage Loans include
the applicable loan-to-value ratios, the credit and income histories of the
mortgagors, the documentation required for approval of the mortgagors, the types
of properties securing the Mortgage Loans, loan sizes and the mortgagors'
occupancy status with respect to the mortgaged property. As a result of these
and other factors, the interest rates charged on non-conforming Mortgage Loans
are often higher than those charged for conforming Mortgage Loans. The
combination of different underwriting criteria and higher rates of interest may
lead to higher delinquency rates and/or credit losses for non-conforming as
compared to conforming Mortgage Loans and could have an adverse effect on the
Company to the extent that the Company has invested in such Mortgage Loans or
securities secured by such Mortgage Loans.



                                       21
<PAGE>   24

At September 30, 1998, the Mortgage Loans held for Investment had the following
credit grade characterizations:

<TABLE>
<CAPTION>
             Credit Grade                Percent          Non-Conforming Loans
             ------------                -------          --------------------
<S>                                      <C>              <C>     
                  A                            65%            $388,538
                  B                            22              131,505
                  C                            11               65,753
                  D                             2               11,955
                                         --------             --------
                                              100%            $597,751
                                         ========             ========
</TABLE>

Even assuming that properties secured by the Mortgage Loans held by the Company
provide adequate security for such Mortgage Loans, substantial delays could be
encountered in connection with the foreclosure of defaulted Mortgage Loans, with
corresponding delays in the receipt of related proceeds by the Company. State
and local statutes and rules may delay or prevent the Company's foreclosure on
or sale of the mortgaged property and may prevent the Company from receiving net
proceeds sufficient to repay all amounts due on the related Mortgage Loan. In
addition, the Company's servicing agent may be entitled to receive all expenses
reasonably incurred in attempting to recover amounts due and not yet repaid on
liquidated Mortgage Loans, thereby reducing amounts available to the Company.
Some properties which will collateralize the Company's Mortgage Loans may have
unique characteristics or may be subject to seasonal factors which would
materially prolong the time period required to resell such properties.

The Company Has Significant Conflicts with, and Is Dependent on, an Affiliate of
the Executive Officers of the Company

The Company is subject to conflicts of interest with the Manager and its
executive officers. The executive officers of the Company generally will also be
executive officers, employees and stockholders of the Manager, and will
therefore be affiliated with the Manager. The Manager will manage the day-to-day
operations of the Company. Accordingly, the Company's success will depend in
significant part on the Manager. Under the Management Agreement, the Manager
will receive an annual base management fee payable monthly in arrears and the
Manager will have the opportunity to earn incentive compensation under the
Management Agreement based on the Company's annualized net income. The ability
of the Company to achieve the performance level required for the Manager to earn
the incentive compensation is dependent upon the level and volatility of
interest rates, the Company's ability to react to changes in interest rates and
to implement the operating strategies described herein, and other factors, many
of which are not within the Company's control. In evaluating Mortgage Assets for
investment and other strategies, an undue emphasis on maximizing income at the
expense of other criteria, such as preservation of capital, in order to achieve
higher incentive compensation for the Manager, could result in increased risk to
the value of the Company's Mortgage Asset portfolio.



                                       22
<PAGE>   25

The Management Agreement does not limit or restrict the right of the Manager or
any of its officers, directors, employees or affiliates to engage in any
business or to render services of any kind to any other person, including
purchasing, or rendering advice to others purchasing, Mortgage Assets which meet
the Company's policies and criteria, except that the Manager and its officers,
directors, or employees will not be permitted to provide any such services to
any REIT which invests primarily in residential Mortgage Assets, other than the
Company.

Sudden Interest Rate Fluctuations May Reduce Income From Operations

Substantially all of the Company's Mortgage Assets have a repricing frequency of
two years or less, and substantially all of the Company's borrowings have
maturities of three months or less. The interest rates on the Company's
borrowings may be based on interest rate indices which are different from, and
adjust more rapidly than, the interest rate indices of its related Mortgage
Assets. Consequently, changes in interest rates may significantly influence the
Company's net interest income. While increases in interest rates will generally
increase the yields on the Company's adjustable-rate Mortgage Assets, rising
rates will also increase the cost of borrowings by the Company. To the extent
such costs rise more rapidly than the yields on such Mortgage Assets, the
Company's net interest income will be reduced or a net interest loss may result.

Adjustable-rate Mortgage Assets are typically subject to periodic and lifetime
interest rate caps which limit the amount an adjustable-rate Mortgage Asset
interest rate can change during any given period. The Company's borrowings will
not be subject to similar restrictions. Hence, in a period of increasing
interest rates, the cost of the Company's borrowings could increase without
limitation by caps while the yields on the Company's Mortgage Assets could be
limited. Further, some adjustable-rate Mortgage Assets may be subject to
periodic payment caps that result in some portion of the interest being deferred
and added to the principal outstanding. This could result in receipt by the
company of a lesser amount of cash income on its adjustable-rate Mortgage Assets
than is required to pay interest on the related borrowings, which will not have
such payment caps. These factors could lower the Company's net income or cause a
net interest loss during periods of rising interest rates, which would
negatively impact the Company's financial condition and results of operations.

The Company's results of operations may also be adversely affected to the extent
the Company acquires fixed-rate Mortgage Loans and is not able to fully hedge
the interest rate risk associated with such loans through hedging activities or
the financing of such loans through long-term securitizations.

Failure To Successfully Manage Interest Rates Risks May Adversely Affect Results
of Operations

The Company will follow a program intended to protect against interest rate
changes. However, developing an effective interest rate risk management strategy
is complex and 



                                       23
<PAGE>   26

no management strategy can completely insulate the Company from risks associated
with interest rate changes. In addition, hedging involves transaction costs. In
the event the Company hedges against interest rate risks, the Company may
substantially reduce its net income. Further, the Federal tax laws applicable to
REITs may limit the Company's ability to fully hedge its interest rate risks.
Such Federal tax laws may prevent the Company from effectively implementing
hedging strategies that, absent such restrictions, would best insulate the
Company from the risks associated with changing interest rates.

In the event that the Company purchases interest rate caps or other interest
rate derivatives to hedge against lifetime, periodic rate or payment caps, and
the provider of such caps on interest rate derivatives becomes financially
unsound or insolvent, the Company may be forced to unwind such caps on its
interest rate derivatives with such provider and may take a loss thereon.
Further, the Company could suffer the adverse consequences that the hedging
transaction was intended to protect against. Although the Company intends to
purchase interest rate caps and derivatives only from financially sound
institutions and to monitor the financial strength of such institutions on a
periodic basis, no assurance can be given that the Company can avoid such third
party risks.

Currently, the Company has entered into hedging transactions which seek to
protect only against the Mortgage Securities lifetime rate caps and not against
periodic rate caps or unexpected prepayments. In addition, the Company's
lifetime cap hedges are for a two year period which began in the second quarter
of 1998. Accordingly, the Company may not be adequately protected against risks
associated with interest rate changes and such changes could aversely affect the
Company's financial condition and results of operations.

Future Offerings of Securities May Affect Market Price of Common Stock

The Company may in the future increase its capital resources by making
additional offerings of equity and debt securities, including classes of
preferred stock, Common Stock, commercial paper, medium-term notes, CMOs and
senior or subordinated notes. All debt securities and classes of preferred stock
will be senior to the Common Stock in a liquidation of the Company. The effect
of additional equity offerings may be the dilution of the equity of stockholders
of the Company or the reduction of the price of the Company's Common Stock, or
both. The Company is unable to estimate the amount, timing, or nature of
additional offerings as they will depend upon market conditions and other
factors. There can be no assurance that the Company will be able to raise the
capital it will require through such offerings on favorable terms or at all. The
inability of the Company to obtain needed resources of capital on favorable
terms could have a materially adverse affect on the Company.

Year 2000 Issues

The Company may face problems in the year 2000 if any relied-on computer system,
either internally or externally, utilizes only two digits to identify a year. If
not addressed and corrected, a company's computer applications may fail or give
incorrect results.



                                       24
<PAGE>   27

The Company is currently in the process of reviewing its internal and external
exposure and contingency plans regarding Year 2000 issues. All internal computer
systems and programs that the Company relies on have been developed or upgraded
within the last five years. Additionally, the Company is in the process of
contacting all software and computer vendors to assess the potential for
problems from the change to the Year 2000. The Company does not anticipate any
interruption or problems arising from its internal systems that would be
detrimental to operations. The Company likewise does not expect to incur any
material expense associated with addressing Year 2000 compliance. There can be
no assurance, however, that the Company's counterparties will be Year 2000
compliant.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

           Not required.

PART II.  OTHER INFORMATION

Item. 1. Legal Proceedings

           At September 30, 1998, there were no pending legal proceedings to
           which the Company was a party or of which any of its property was
           subject.

Item 2.  Changes in Securities and Use of Proceeds

           None.

Item 3. Defaults Upon Senior Securities

           Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

            None.

Item 5. Other Information

           Proposals of stockholders intended to be presented at the next Annual
           Meeting of the Stockholders of the Company (other than proposals made
           under Rule 14a-8 of the Securities Exchange Act of 1934, as amended)
           must be received by the Company at its offices at 445 Marine View
           Avenue, Suite 230, Del Mar California 92014, between February 21 and
           March 23, 1999.

Item 6. Exhibits and Reports on Form 8-K:

(a)        Exhibits

            *3.1 Articles of Amendment and Restatement of the Registrant

            *3.2 Amended and Restated Bylaws of the Registrant

            *4.1 Registration Rights Agreement dated February 11, 1997



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<PAGE>   28

            **4.2 Indenture dated as of June 1, 1998 between American
                  Residential Eagle Board Trust 1998-1, a California
                  wholly-owned consolidated subsidiary of AmREIT, and First
                  Union National Bank, as Trustee.

            27.   Financial Data Schedule

        *   Incorporated by reference to Registration Statement on Form S-11
            (File No. 333-33679)

        **  Incorporated by reference to registration Statement on Form 8-K
            dated June 17, 1998, filed with the Commission on July 2, 1998.

(b)        Reports on Form 8-K

           None



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<PAGE>   29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized



                                   AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.



Dated:  November 12, 1998               By:  /s/ Mark A. Conger
                                            ------------------------------------
                                             Mark A. Conger,
                                             Executive Vice President
                                             Chief Financial Officer



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