FORM 10-Q
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549


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

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

             For the quarterly period ended September 30, 1998

                      Commission File Number 001-13937


                          ANTHRACITE CAPITAL, INC.
           ------------------------------------------------------
           (Exact name of registrant as specified in its charter)


                 Maryland                                13-3978906
       -------------------------------               -------------------
       (State or other jurisdiction of               (I.R.S. Employer
       incorporation or organization)                Identification No.)

      345 Park Avenue, New York, New York                   10154
    ---------------------------------------               ----------
    (Address of principal executive offices)              (Zip Code)

   (Registrant's telephone number including area code):   (212) 409-3333 

                               NOT APPLICABLE
            ----------------------------------------------------
            (Former name, former address, and former fiscal year
                       if changed since last report)

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

                            Yes   X        No   

       As of November 13, 1998, 19,985,098 shares of voting common stock
($.001 par value) were outstanding.





                          ANTHRACITE CAPITAL, INC.
                                 FORM 10-Q
                                   INDEX

PART I - FINANCIAL INFORMATION                                        Page

Item 1.    Interim Financial Statements.................................3

           Statement of Financial Condition
           At September 30, 1998 (Unaudited)............................3

           Statements of Operations
           For the Three Months Ended September 30, 1998
           and For the Period March 24, 1998 (Commencement
           of Operations) Through September 30, 1998 (Unaudited)........4

           Statement of Changes in Stockholders' Equity
           For the Period March 24, 1998 (Commencement
           of Operations) Through September 30, 1998 (Unaudited)........5

           Statement of Cash Flows
           For the Period March 24, 1998 (Commencement
           of Operations)Through September 30, 1998 (Unaudited).........6

           Notes to Financial Statements................................7

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations.........................20

Part II - OTHER INFORMATION

Item 1.    Legal Proceedings...........................................32

Item 2.    Changes in Securities and Use of Proceeds...................32

Item 3.    Defaults Upon Senior Securities.............................32

Item 4.    Submission of Matters to a Vote of Security Holders.........32

Item 5.    Other Information...........................................32

Item 6.    Exhibits and Reports on Form 8-K............................32

SIGNATURES



Part I - FINANCIAL INFORMATION
Item 1.  Financial Statements

Anthracite Capital, Inc.
Statement of Financial Condition
September 30, 1998 (Unaudited)
(in thousands, except per share amounts)
-----------------------------------------------------------------------------

ASSETS

Cash and cash equivalents                                     $     6,624

Securities available for sale, at fair value:

    Subordinated commercial mortgage-backed
      securities (CMBS)                         $ 312,519
    Other securities                              727,771       1,040,290
                                                ---------

Commercial mortgage loan, net                                      36,410

Receivable for securities sold                                     50,662

Principal and interest receivable                                  26,788

Other assets                                                          203
                                                              -----------
    Total Assets                                              $ 1,160,977
                                                              ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

Short-term borrowings:

    Secured by pledge of subordinated CMBS      $ 163,516
    Secured by pledge of other securities
      or loans                                    757,068     $   920,584
                                                ---------

Distributions payable                                               7,195

Hedging instruments, at fair value                                  5,340

Accrued interest payable                                            3,729

Accrued expenses, payables and other
   liabilities                                                      2,758
                                                              -----------
    Total Liabilities                                             939,606
                                                              ===========

Commitments and Contingencies

Stockholders' Equity:

Preferred stock, par value $0.001 per
   share; 100,000 shares authorized;
   no shares issued                                                    --

Common stock, par value $0.001 per
   share; 400,000 shares authorized;
   21,365 shares issued                                                21

Additional paid-in capital                                        296,920

Accumulated other comprehensive
   income (loss)                                                  (58,770)

Distributions in excess of earnings                                  (957)

Treasury stock, at cost (1,380 shares)                            (15,843)
                                                              -----------
    Total Stockholders' Equity                                    221,371

Total Liabilities and Stockholders' Equity                    $ 1,160,977
                                                              ===========

The accompanying notes are an integral part of these financial statements.




Anthracite Capital, Inc.
Statements of Operations (Unaudited)
(in thousands, except per share amounts)
----------------------------------------------------------------------------
                                                             For the Period
                                                             March 24, 1998
                                       For the Three        (Commencement of
                                        Months Ended      Operations) Through
                                     September 30, 1998    September 30, 1998
                                     ----------------------------------------

Interest Income:
    Securities available for sale         $ 19,318             $ 30,209 
    Commercial mortgage loan                   408                  408 
    Cash and cash equivalents                   63                  216 
                                          --------             -------- 
       Total interest income                19,789               30,833 
                                          --------             -------- 
                                                                        
Expenses:                                                               
    Interest                                11,708               16,090 
    Management fee                           1,374                2,244 
    Other expenses                             244                  482 
    Foreign currency loss                       32                   32 
                                          --------             -------- 
       Total expenses                       13,358               18,848 
                                          --------             -------- 
                                                                        
Gain on Sale of Securities                      22                   22 
                                          --------             -------- 
                                                                        
Net Income                                   6,453               12,007 
                                          --------             -------- 
                                                                        
Unrealized Loss on Securities:                                          
    Unrealized holding loss arising                                     
    during period                          (61,295)             (58,748)
                                                                        
    Less:  reclassification adjustment                                  
    for  gains included in net income          (22)                 (22)
                                          --------             -------- 
                                                                        
Comprehensive Loss                        $(54,864)            $(46,763)
                                          ========             ======== 
                                                                        
Net income per share:                                                   
    Basic                                 $   0.31             $ 0.57   
    Diluted                               $   0.31             $ 0.57   
                                                                        
                                                                        
Weighted average number of shares                                       
outstanding:                                                            
    Basic                                   20,562               20,980 
    Diluted                                 20,562               20,980 

The accompanying notes are an integral part of these financial statements.



Anthracite Capital, Inc.
Statement of Changes in Stockholders' Equity
For the Period March 24, 1998 (Commencement of Operations)
Through September 30, 1998 (Unaudited)
(in thousands, except per share amounts)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                         Accumulated                           
                                Common     Additional       Other        Distributions   Treasury        Total
                                Stock,      Paid-In     Comprehensive       In Excess     Stock,      Stockholders'
                               Par Value    Capital     Income (Loss)     Of Earnings     At Cost        Equity
                               ---------   ----------   -------------    -------------   ----------   --------------
<S>                            <C>         <C>          <C>              <C>             <C>          <C>        
Balance at March 24, 1998      $           $     200    $          -     $          -    $      -     $       200

Issuance of common stock             21      296,951               -                -           -         296,972

Net income                            -            -               -              173           -             173

Change in net unrealized                                                                   
gain (loss) on securities                                                                
available for sale and                                                         
interest rate swaps                   -            -               2                -           -               2
                               ---------   ----------   -------------    -------------   ----------   -------------

Balance at March 31, 1998            21      297,151               2              173           -         297,347
                               ---------   ----------   -------------    -------------   ----------   -------------

Net income                            -            -               -            5,381           -           5,381

Change in net unrealized                                                                   
gain (loss) on securities                                                               
available for sale and                           
interest rate swaps                   -            -           2,545                -            -          2,545

Distributions declared                
($0.27 per share)                     -            -               -           (5,769)           -         (5,769)

Cost of Dividend                      
Reinvestment and Stock                                                         
Purchase Plan offering                -          (30)              -                -            -            (30)

Redemption of common stock            -         (200)              -                -            -           (200)
                               ---------   ----------   -------------    -------------   ----------   ------------

Balance at June 30, 1998             21      296,921           2,547             (215)           -        299,274
                               ---------   ----------   -------------    -------------   ----------   ------------

Net income                            -            -               -            6,453            -          6,453

Change in net unrealized                                                                   
gain (loss) on securities                                                                  
available for sale and                                                               
interest rate swaps, net of          
reclassification adjustment           -            -         (61,317)              -             -        (61,317)

Distributions declared                                                                 
($0.36 per share)                     -            -               -           (7,195)           -         (7,195)

Redemption of common stock            -           (1)              -                -            -             (1)
                                                                                 
Purchase of treasury stock            -            -               -                -      (15,843)       (15,843)
                               ---------   ----------   -------------    -------------   ----------   ------------
Balance at September 30, 1998  $     21    $ 296,920    $    (58,770)    $       (957)   $ (15,843)   $   221,371
                               =========   ==========   =============    =============   ==========   ============
</TABLE>


The accompanying notes are an integral part of these financial statements.




Anthracite Capital, Inc.
Statement of Cash Flows
For the Period March 24, 1998 (Commencement of Operations)
Through September 30, 1998 (Unaudited)
(in thousands)
-----------------------------------------------------------------------------

Cash flows from operating activities:
   Net income                                                     $    12,007

Adjustments to reconcile net income to net cash
provided by operating activities:
      Premium amortization (discount accretion), net                    6,557
      Noncash portion of net foreign currency loss (gain)                (920)
      Net gain on sale of securities                                      (22)
      Increase in interest receivable                                 (13,230)
      Increase in other assets                                           (203)
      Increase in accrued interest payable                              3,729
      Increase in accrued expenses, payables and other
         liabilities                                                    2,758
                                                                  ------------
Net cash provided by operating activities                              10,676
                                                                  ------------

Cash flows from investing activities:
   Purchase of securities available for sale                       (1,241,091)
   Purchase of commercial mortgage loan                               (35,131)
   Principal payments received on securities available
     for sale                                                          53,395
   Proceeds from sales of securities available
      for sale                                                         73,524
   Increase in receivable for securities sold                         (50,662)
                                                                  ------------
Net cash used in investing activities                              (1,199,965)
                                                                  ------------

Cash flows from financing activities:
   Increase in net short-term borrowings                              920,584
   Proceeds from issuance of common stock, net of
      offering costs                                                  296,972
    Distributions on common stock                                      (5,769)
    Purchase of treasury stock                                        (15,843)
    Other common stock transactions                                      (231)
                                                                  ------------
Net cash provided by financing activities                           1,195,713
                                                                  ------------
Net increase in cash and cash equivalents                               6,424
Cash and cash equivalents, beginning of period                            200
                                                                  ------------
Cash and cash equivalents, end of period                          $     6,624
                                                                  ============

Supplemental disclosure of cash flow information:
    Interest paid                                                 $    12,361
                                                                  ============
Noncash financing activities:
    Net change in unrealized gain on securities
    available for sale and interest rate swaps                    $   (58,770)
                                                                  ============
    Distributions declared, not yet paid                          $     7,195
                                                                  ============

The accompanying notes are an integral part of these financial statements.




  Anthracite Capital, Inc.
  Notes to Financial Statements
  (Dollars in thousands, except per share amounts)
  --------------------------------------------------------------------------

  Note 1   BASIS OF PRESENTATION

  The accompanying unaudited financial statements have been prepared in
  conformity with the instructions to Form 10-Q and Article 10, Rule 10-01
  of Regulation S-X for interim financial statements. Accordingly, they do
  not include all of the information and footnotes required by generally
  accepted accounting principles ("GAAP") for complete financial
  statements.

  In the opinion of management, the accompanying financial statements
  contain all adjustments, consisting of normal and recurring accruals,
  necessary for a fair presentation of the financial condition of
  Anthracite Capital, Inc. (the "Company") at September 30, 1998, the
  results of its operations for the three months ended September 30, 1998
  and for the period March 24, 1998 (commencement of operations) through
  September 30, 1998, and the changes in its stockholders' equity and its
  cash flows for the period March 24, 1998 (commencement of operations)
  through September 30, 1998. Operating results for the period ended
  September 30, 1998 are not necessarily indicative of the results that may
  be expected for any other interim periods or the period ended December
  31, 1998.

  In preparing the financial statements, management is required to make
  estimates and assumptions that affect the reported amounts of assets and
  liabilities at the dates of the statements of financial condition and
  revenues and expenses for the periods covered. Actual results could
  differ from those estimates and assumptions.

  Note 2   ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

  The Company was incorporated in Maryland in November 1997 and commenced
  operations on March 24, 1998. The Company's principal business activity
  is to invest in a diversified portfolio of multifamily, commercial and
  residential mortgage loans, mortgage-backed securities and other real
  estate related assets in the U.S. and non-U.S. markets

  A summary of the Company's significant accounting policies follows:

  Cash and Cash Equivalents

  All highly liquid investments with original maturities of three months or
  less are considered to be cash equivalents.

  Securities Available for Sale

  The Company's mortgage-backed securities, mortgage-related securities and
  certain other securities are designated as assets available for sale
  because the Company may dispose of them prior to maturity. Securities
  available for sale are carried at estimated fair value with the net
  unrealized gains or losses reported as a component of accumulated other
  comprehensive income in stockholders' equity. Unrealized losses on
  securities that reflect a decline in value which is judged by management
  to be other than temporary, if any, are charged to earnings. At
  disposition the realized net gain or loss is included in earnings on a
  specific identification basis. The amortization of premiums and accretion
  of discounts are computed using the effective yield method after
  considering actual and estimated prepayment rates, if applicable. Actual
  prepayment experience is periodically reviewed and effective yields are
  recalculated when differences arise between prepayments originally
  anticipated and amounts actually received plus anticipated future
  prepayments.

  Commercial Mortgage Loan

  The Company purchases and originates certain commercial mortgage loans to
  be held as long-term investments. Loans held for investment are recorded
  at cost at the date of purchase. Premiums and discounts related to these
  loans are amortized over their estimated lives using the effective
  interest method. Any origination fee income, application fee income and
  costs associated with originating or purchasing commercial mortgage loans
  have been deferred and the net amount is added to the basis of the loans
  on the statement of financial condition. The Company recognizes
  impairment on the loans when it is probable that the Company will not be
  able to collect all amounts due according to the contractual terms of the
  loan agreement. The Company measures impairment based on the present
  value of expected future cash flows discounted at the loan's effective
  interest rate or the fair value of the collateral if the loan is
  collateral dependent.

  Hedging Instruments

  As part of its asset/liability management activities, the Company enters
  into interest rate swap agreements and forward currency exchange
  contracts in order to hedge interest rate and foreign currency exposures
  or to modify the interest rate or foreign currency characteristics of
  related items in its statement of financial condition.

  Revenues and expenses from interest rate swap agreements are recognized
  as a net adjustment to interest expense. During the term of the interest
  rate swap agreements, changes in fair value are recognized on the
  statement of financial condition as hedging instruments at fair value and
  included among assets (if there is a net unrealized gain) or among
  liabilities (if there is an unrealized loss). A corresponding amount is
  included as a component of accumulated other comprehensive income in
  stockholders' equity. In the event that interest rate swap agreements are
  terminated, the associated gain or loss is deferred over the remaining
  term of the agreement, provided that the underlying hedged item still
  exists.

  Revenues and expenses from forward currency exchange contracts are
  recognized as a net adjustment to foreign currency gain or loss. During
  the term of the forward currency exchange contracts, changes in fair
  value are recognized on the statement of financial condition as hedging
  instruments at fair value and included among assets (if there is a net
  unrealized gain) or among liabilities (if there is an unrealized loss). A
  corresponding amount is included as a component of net foreign currency
  gain or loss in the statement of operations.

  The Company is exposed to credit loss in the event of nonperformance by
  any other party to the Company's interest rate swap agreements or forward
  currency exchange contracts. However, the Company does not anticipate
  nonperformance by any counterparty.

  Foreign Currencies

  Assets and liabilities denominated in foreign currencies are translated
  at the exchange rate in effect on the date of the statement of financial
  condition. Revenues, costs, and expenses denominated in foreign
  currencies are translated at average rates of exchange prevailing during
  the period. Foreign currency gains and losses resulting from this process
  are recognized in the statement of operations.

  Net Income Per Share

  Net income per share is computed in accordance with Statement of
  Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, and
  is calculated on the basis of the weighted average number of common
  shares outstanding during each period plus the additional dilutive effect
  of common stock equivalents. The dilutive effect of outstanding stock
  options is calculated using the treasury stock method. For the three
  months ended September 30, 1998 and for the period March 24, 1998 to
  September 30, 1998, all outstanding stock options were antidilutive.

  Income Taxes

  The Company intends to elect to be taxed as a Real Estate Investment
  Trust ("REIT") and to comply with the provisions of the Internal Revenue
  Code of 1986, as amended, with respect thereto. Accordingly, the Company
  will not be subjected to Federal income tax to the extent of its
  distributions to stockholders and as long as certain asset, income and
  stock ownership tests are met.

  Income Recognition

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

  Comprehensive Income

  SFAS No. 130, Reporting Comprehensive Income, requires the Company to
  classify items of "other comprehensive income", such as unrealized gains
  and losses on securities available for sale, by their nature in a
  financial statement and display the accumulated balance of other
  comprehensive income separately from retained earnings and additional
  paid-in capital in the stockholders' equity section of the statement of
  financial condition. In accordance with SFAS No. 130, cumulative
  unrealized gains and losses on securities available for sale and interest
  rate swaps are classified as accumulated other comprehensive income in
  stockholders' equity and current period unrealized gains and losses are
  included as a component of comprehensive income.

  Note 3   SECURITIES AVAILABLE FOR SALE

  The Company's securities available for sale are carried at estimated fair
  value. The amortized cost and estimated fair value of securities
  available for sale at September 30, 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                                   Gross        Gross      Estimated
                                                   Amortized    Unrealized   Unrealized      Fair
              Security Description                    Cost         Gain         Loss         Value
------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>          <C>        <C>     
Commercial mortgage-backed securities
   ("CMBS") interests:
Investment grade rated senior interest only           $ 98,654                    $7,027     $ 91,627
    interests
Non-investment grade rated subordinated                313,109                    31,217      281,892
    interests
Non-rated subordinated interests                        38,953                     8,326       30,627
                                                  ----------------------------------------------------
    Total CMBS interests                               450,716                    46,570      404,146
                                                  ----------------------------------------------------
Single-family residential mortgage-backed
   securities ("residential MBS") interests:
Agency adjustable rate                                 197,981                       833      197,148
Agency fixed rate                                       55,128       $  198           51       55,275
Agency interest only                                    13,787                     6,018        7,769
Investment grade rated private issuer fixed rate       317,947        2,823                   320,770
                                                  ----------------------------------------------------
    Total residential MBS interests                    584,843        3,021        6,902      580,962
                                                  ----------------------------------------------------
Agency insured project loans                            27,969          208                    28,177
Investment grade rated asset backed securities          14,718                     1,181       13,537
Non-investment grade rated non-U.S. sovereign
    securities                                          15,833                     2,365       13,468
                                                  ====================================================
    Total securities available for sale             $1,094,079       $3,229      $57,018   $1,040,290
                                                  ====================================================
</TABLE>

  At September 30, 1998, an aggregate of $987,730 in estimated fair value
  of the Company's securities available for sale was pledged to secure its
  short-term borrowings.

  The aggregate estimated fair value by underlying credit rating of the
  Company's securities available for sale at September 30, 1998 is as
  follows:

                                             Estimated
         Security Rating                     Fair Value    Percentage
  -------------------------------------------------------------------
  Agency and agency insured securities       $ 288,369      27.7%
  AAA                                          412,397      39.6
  BBB                                           13,537       1.3
  BB+                                           28,098       2.7
  BB                                            40,165       3.9
  BB-                                           63,457       6.1
  B+                                             8,849       0.9
  B                                            103,774      10.0
  B-                                            35,489       3.4
  CCC                                           15,528       1.5
  Not rated                                     30,627       2.9
                                           ========================
  Total securities available for sale       $1,040,290     100.0%
      
                                           ========================

  As of September 30, 1998, the mortgage loans underlying the CMBS
  interests held by the Company were secured by properties of the types and
  at the locations identified below:

   Property Type   Percentage (1)    Geographic Location   Percentage (1)
  -----------------------------------------------------------------------
  Retail                 28.6%       California                  13.3%
  Multifamily            27.0        Texas                       10.3
  Office                 16.4        New York                     9.6
  Lodging                 9.9        Florida                      6.8
  Other                  18.1        Illinois                     5.6
                                     Other (2)                   54.4
                   ---------------                         ---------------
  Total                 100.0%       Total                      100.0%
                   ===============                         ===============

  (1)  Based on a percentage of the total unpaid principal balance of the
       underlying loans.
  (2)  No other individual state comprises more than 5% of the total.

  At September 30, 1998, none of the mortgage loans underlying the CMBS
  interests held by the Company were delinquent more than thirty days.

  The CMBS interests held by the Company consist of senior interest only
  and subordinated securities collateralized by adjustable and fixed rate
  commercial and multifamily mortgage loans. The residential MBS interests
  held by the Company consist of adjustable rate, fixed rate and interest
  only residential pass-through or mortgage-backed securities
  collateralized by adjustable and fixed rate single-family residential
  mortgage loans. Agency residential MBS were issued by Federal Home Loan
  Mortgage Corporation (FHLMC), Federal National Mortgage Association
  (FNMA) or Government National Mortgage Corporation (GNMA). Private issuer
  residential MBS were issued by entities other than FHLMC, FNMA or GNMA.
  The agency insured project loans held by the Company consist of
  participation interests in mortgage loans guaranteed by the Federal
  Housing Administration (FHA). The asset backed securities held by the
  Company consist of pass-through securities collateralized by manufactured
  housing installment sale contracts. The non-U.S. sovereign securities
  held by the Company consist of unsecured floating rate notes issued by a
  foreign government. The Company's securities available for sale are
  subject to credit, interest rate and/or prepayment risks.

  The yield to maturity on the Company's CMBS interests and residential MBS
  interests depends on, among other things, the rate and timing of
  principal payments (including prepayments, repurchases, defaults and
  liquidations), the pass-through rate and interest rate fluctuations. The
  subordinated CMBS interests owned by the Company provide credit support
  to the more senior interests of the related commercial securitization.
  Cash flow from the mortgages underlying the CMBS interests generally is
  allocated first to the senior interests, with the most senior interest
  having a priority entitlement to cash flow. Then, any remaining cash flow
  is allocated generally among the other CMBS interests in order of their
  relative seniority. To the extent there are defaults and unrecoverable
  losses on the underlying mortgages, resulting in reduced cash flows, the
  most subordinated CMBS interest will bear this loss first. To the extent
  there are losses in excess of the most subordinated interest's stated
  entitlement to principal and interest, then the remaining CMBS interests
  will bear such losses in order of their relative subordination.

  As of September 30, 1998 the anticipated weighted average unleveraged
  yield to maturity of the Company's subordinated CMBS interests for GAAP
  purposes was 9.68% per annum. The Company's anticipated yields to
  maturity on its subordinated CMBS interests are based upon a number of
  assumptions that are subject to certain business and economic
  uncertainties and contingencies. Examples of these include interest
  payment shortfalls due to delinquencies on the underlying mortgage loans,
  and the timing and magnitude of credit losses on the mortgage loans
  underlying the subordinated CMBS that are a result of the general
  condition of the real estate market (including competition for tenants
  and their related credit quality) and changes in market rental rates. As
  these uncertainties and contingencies are difficult to predict and are
  subject to future events which may alter these assumptions, no assurance
  can be given that the anticipated yields to maturity, discussed above and
  elsewhere, will be achieved.

  The agency adjustable rate residential MBS held by the Company are
  subject to periodic and lifetime caps that limit the amount such
  securities' interest rates can change during any given period and over
  the life of the loan. At September 30, 1998, the average periodic cap on
  the agency adjustable rate residential MBS was 1.9% per annum and the
  average lifetime cap was equal to 12.3%.

  Agency interest only residential MBS are held primarily to reduce the
  interest rate sensitivity of the Company's portfolio of securities
  available for sale.

  At September 30, 1998, the unamortized net discount on securities
  available for sale (excluding interest only securities) was $202,621,
  which represented 17.1% of the then remaining face amount of such
  securities. In May 1998, $16,750 face amount of U.S. Treasury securities
  were sold for proceeds net of termination costs on the related hedge of
  $17,133, which equaled the approximate amortized cost of such securities.
  During the three months ended September 30, 1998, $16,368 notional amount
  of agency interest only residential MBS interests, $50,410 face amount of
  investment grade rated private issuer fixed rate residential MBS
  interests and $3,000 face amount of non-investment grade rated non-U.S.
  sovereign securities were sold for total proceeds of $73,524, which
  exceeded the total amortized cost of such securities by $22.

  The Company sold a substantial portion of its portfolio of securities
  available for sale subsequent to September 30, 1998. See Note 12.

  Note 4   COMMERCIAL MORTGAGE LOAN

  On August 26, 1998, the Company along with a syndicate of other lenders
  originated a loan secured by a second lien on five luxury hotels in
  London, England and vicinity. The loan has a five-year maturity and may
  be prepaid at any time. The loan is denominated in pounds sterling and
  bears interest at a rate based upon the London Interbank Offered Rate
  (LIBOR). The Company's investment in the loan is carried at amortized
  cost. The amortized cost, estimated fair value and certain additional
  information with respect to the Company's investment in the loan at
  September 30, 1998 (at the exchange rate in effect on that date) are
  summarized as follows:

       Interest    Principal  Unamortized    Amortized
         Rate      Balance      Discount       Cost
       -----------------------------------------------
        11.43%     $36,501        $91         $36,410

  At September 30, 1998, the entire principal balance of the Company's
  investment in the loan was pledged to secure line of credit borrowings
  included in short-term borrowings. The loan was current in payment status
  at September 30, 1998.

  Note 5   COMMON STOCK

  The Company was initially capitalized with the sale of 13,333 shares of
  common stock on March 5, 1998, for a total of $200. In April and July
  1998, the Company redeemed all such shares from its initial stockholder
  in two transactions at the then current market price of such shares, or
  approximately $201 in the aggregate. The redeemed shares were retired.

  The Company received commitments on March 23, 1998 for the purchase, in
  private placements, of 1,365,198 shares of common stock at $13.95 per
  share for a total of $19,045. The sale of these shares was consummated at
  the time of the closing of the Company's initial public offering.

  On March 27, 1998, the Company completed its initial public offering of
  common stock. The Company issued 20,000,000 shares of common stock at a
  price of $15 per share and received proceeds of $279,000, net of
  underwriting discounts and commissions. Offering costs in connection with
  the public offering amounting to $1,073 have been charged against the
  proceeds of the offering.

  In June 1998, the Company registered with the Securities and Exchange
  Commission up to 2,000,000 shares of common stock in connection with a
  new Dividend Reinvestment and Stock Purchase Plan (the "Plan"). The Plan
  allows investors the opportunity to purchase additional shares of the
  Company's common stock through the reinvestment of the Company's
  dividends, optional cash payments and initial cash investments. Offering
  costs in connection with the establishment of the Plan amounting to $30
  have been charged against additional paid-in capital. As of September 30,
  1998, no shares had been issued under the Plan.

  In July 1998, the Board of Directors of the Company approved the
  repurchase of up to 10% of the then outstanding number of shares of the
  Company's common stock. In September 1998, the Board of Directors
  approved the repurchase of an additional 2,000,000 shares of the
  Company's common stock. Pursuant to these repurchase authorizations, the
  Company repurchased 1,380,100 shares of its common stock for $15,843 in
  open market transactions during the three months ended September 30,
  1998. Such purchases were made at an average price per share of $11.43
  (excluding commissions). The remaining number of shares authorized for
  repurchase is 2,756,419.

  On June 15, 1998, the Company declared distributions to its stockholders
  totaling $5,769 or $0.27 per share, which were paid on July 15, 1998 to
  stockholders of record on June 30, 1998. On September 2, 1998, the
  Company declared distributions to its stockholders totaling $7,195 or
  $0.36 per share, which were paid on October 15, 1998 to stockholders of
  record on September 30, 1998. For Federal income tax purposes, all
  distributions paid to date are expected to be ordinary income to the
  Company's stockholders.

  Note 6   TRANSACTIONS WITH AFFILIATES

  The Company has entered into a Management Agreement (the "Management
  Agreement") with BlackRock Financial Management, Inc. (the "Manager"), a
  majority owned indirect subsidiary of PNC Bank Corp. ("PNC") and the
  employer of certain directors and officers of the Company, under which
  the Manager manages the Company's day-to-day operations, subject to the
  direction and oversight of the Company's Board of Directors. The Company
  will pay the Manager an annual base management fee equal to a percentage
  of the Average Invested Assets of the Company as further defined in the
  Management Agreement. The base management fee is equal to 1% per annum of
  the Average Invested Assets rated less than BB- or not rated, 0.75% of
  Average Invested Assets rated BB- to BB+, and 0.35% of Average Invested
  Assets rated above BB+.

  The Company accrued $1,374 and $2,244 in base management fees in
  accordance with the terms of the Management Agreement for the three
  months ended September 30, 1998 and for the period March 24, 1998 through
  September 30, 1998, respectively. During the three months ended September
  30, 1998, the Company paid the $870 in Management Fees that had accrued
  for the period March 24, 1998 through June 30, 1998. The remaining amount
  payable for base management fees is included in accrued expenses,
  payables and other liabilities in the statement of financial condition.
  During the three months ended September 30, 1998, the Company reimbursed
  the Manager $134 for costs and expenses incurred on behalf of the Company
  in accordance with the terms of the Management Agreement.

  The Company will also pay the Manager, as incentive compensation, an
  amount equal to 25% of the Funds from Operations of the Company plus
  gains (minus losses) from debt restructuring and sales of property,
  before incentive compensation, in excess of the amount that would produce
  an annualized Return on Equity equal to 3.5% over the Ten-Year U.S.
  Treasury Rate as further defined in the Management Agreement. For
  purposes of the incentive compensation calculation, equity is generally
  defined as proceeds from issuance of common stock before underwriting
  discounts and commissions and other costs of issuance.

  The Company did not accrue for or pay the Manager any incentive
  compensation for the three months ended September 30, 1998 or for the
  period March 24, 1998 through September 30, 1998.

  The Company may also grant stock options to the Manager, directors,
  officers and any key employees of the Company, directors, officers and
  key employees of the Manager and to any other individual or entity
  performing services for the Company. Options granted during the three
  months ended September 30, 1998 and during the period March 24, 1998
  through September 30, 1998 are disclosed in Note 7.

  The Company received a commitment from PNC Investment Corp., a wholly
  owned indirect subsidiary of PNC, on March 23, 1998 for the purchase, in
  a private placement, of 648,352 shares of common stock at $13.95 per
  share for a total of $9,045. The sale of these shares was consummated at
  the time of the closing of the Company's initial public offering.

  During the three months ended September 30, 1998, the Company purchased,
  in private placements, 11 classes of subordinated CMBS interests for a
  total of $142,855 in two securitization transactions in which PNC Bank,
  N.A. ("PNC Bank"), a wholly owned subsidiary of PNC, and/or Midland Loan
  Services, Inc. ("Midland"), a wholly owned indirect subsidiary of PNC,
  participated as sellers of a portion of the commercial mortgage loans
  underlying the CMBS interests.

  The Company accrued $1,121 and $1,226 with respect to due diligence costs
  incurred on behalf of the Company by PNC Bank and Midland for the three
  months ended September 30, 1998 and for the period March 24, 1998 through
  September 30, 1998, respectively. During the three months ended September
  30, 1998, the Company paid PNC Bank and Midland $606 of such costs. The
  remaining amount payable to PNC Bank and Midland for such costs is
  included in accrued expenses, payables and other liabilities in the
  statement of financial condition.

  Note 7   STOCK OPTIONS

  The Company has adopted a stock option plan (the "1998 Stock Option
  Plan") that provides for the grant of both qualified incentive stock
  options that meet the requirements of Section 422 of the Code, and
  non-qualified stock options, stock appreciation rights and dividend
  equivalent rights. Stock options may be granted to the Manager,
  directors, officers and any key employees of the Company, directors,
  officers and key employees of the Manager and to any other individual or
  entity performing services for the Company.

  The exercise price for any stock option granted under the 1998 Stock
  Option Plan may not be less than 100% of the fair market value of the
  shares of common stock at the time the option is granted. Each option
  must terminate no more than ten years from the date it is granted.
  Subject to anti-dilution provisions for stock splits, stock dividends and
  similar events, the 1998 Stock Option Plan authorizes the grant of
  options to purchase an aggregate of up to 2,470,453 shares of common
  stock.

  On March 27, 1998, pursuant to the 1998 Stock Option Plan, options to
  purchase 1,313,967 shares of the Company's common stock were granted to
  certain officers, directors and employees of the Company and the Manager
  and options to purchase 324,176 shares of the Company's common stock were
  granted to PNC Investment Corp. The exercise price of these options is
  $15 per share. The remaining contractual life of each option is
  approximately 9.5 years. The options vest in four equal installments on
  March 27, 1999, March 27, 2000, March 27, 2001 and March 27, 2002.

  In addition to the options granted pursuant to the 1998 Stock Option
  Plan, on March 27, 1998 options to purchase 246,544 shares of the
  Company's common stock were granted to certain officers, directors and
  employees of the Company and the Manager. The exercise price of these
  options is $13.95 per share. The remaining contractual life of each
  option is approximately 0.5 years. The options became exercisable on
  September 30, 1998.

  No options were granted, exercised or forfeited during the three months
  ended September 30, 1998. No options were exercised or forfeited during
  the period March 24, 1998 through September 30,1998.

  Note 8    SHORT-TERM BORROWINGS

  At September 30, 1998, the Company's short-term borrowings consisted of
  line of credit borrowings and reverse repurchase agreements.

  On August 21, 1998, the Company entered into a Master Assignment
  Agreement and related Note, which provide financing for the Company's
  investments. The agreement, which is with Merrill Lynch Mortgage Capital
  Inc., permits the Company to borrow up to $400,000 and terminates August
  20, 1999. The agreement requires assets to be pledged as collateral,
  which may consist of rated CMBS interests, rated residential MBS
  interests, residential and commercial mortgage loans, and certain other
  assets. Outstanding borrowings against this line of credit bear interest
  at a LIBOR based rate.

  The Company has entered into reverse repurchase agreements to finance
  most of its securities available for sale that are not financed under its
  line of credit. The reverse repurchase agreements are collateralized by
  most of the Company's securities available for sale and bear interest
  rates that have historically moved in close relationship to LIBOR.

  Certain information with respect to the Company's short-term borrowings
  at September 30, 1998 is summarized as follows:

<TABLE>
<CAPTION>
                                                              Reverse        Total
                                                Line of     Repurchase    Short-Term
                                                Credit      Agreements    Borrowings
                                              ---------------------------------------
<S>                                               <C>          <C>          <C>      
  Outstanding borrowings                          $78,967      $841,617     $ 920,584
  Weighted average borrowing rate                   7.20%         6.09%         6.18%
  Weighted average remaining maturity            324 days       47 days       70 days
  Estimated fair value of assets  pledged        $114,905      $908,961    $1,023,866
</TABLE>
 

  At September 30, 1998, $27,103 of borrowings outstanding under the line
  of credit were denominated in pounds sterling.

  At September 30, 1998, the Company's short-term borrowings had the
  following remaining maturities:

                                         Reverse       Total
                           Line of     Repurchase    Short-Term
                           Credit      Agreements    Borrowings
                         ---------------------------------------
  Within 30 days                   -      $549,823     $549,823
  30 to 59 days                    -       106,728      106,728
  Over 59 days               $78,967       185,066      264,033
                         =======================================
                             $78,967      $841,617     $920,584
                         =======================================

  Under the line of credit and the reverse repurchase agreements, the
  respective lender retains the right to mark the underlying collateral to
  market value. A reduction in the value of its pledged assets will require
  the Company to provide additional collateral or fund margin calls. From
  time to time, the Company expects that it will be required to provide
  such additional collateral or fund margin calls.

  The Company repaid a substantial portion of its borrowings under reverse
  repurchase agreements subsequent to September 30, 1998. See Note 12.

  Note 9    FAIR VALUE OF FINANCIAL INSTRUMENTS

  The following table presents the amortized cost and estimated fair values
  of the Company's financial instruments at September 30, 1998:

                                                       Estimated
                                          Amortized      Fair
                                            Cost         Value
                                         ------------------------
  Assets
  Securities available for sale           $1,094,079   $1,040,290
  Commercial mortgage loan                $   36,410   $   36,136

  Liabilities
  Hedging instruments                              -   $    5,340

  SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
  defines the fair value of a financial instrument as the amount at which
  the instrument could be exchanged in a current transaction between
  willing parties other than in a forced or liquidation sale.

  The fair value of the Company's securities available for sale, commercial
  mortgage loan and hedging instruments are based on market prices provided
  by certain dealers who make markets in these financial instruments. The
  fair values reported reflect estimates and may not necessarily be
  indicative of the amounts the Company could realize in a current market
  exchange. For securities available for sale that were sold subsequent to
  September 30, 1998 (see Note 12), the actual sale price was used as the
  fair value at September 30, 1998, if such sale price was lower that the
  market prices obtained from dealers at September 30, 1998. The carrying
  amounts of all other asset and liability accounts in the statements of
  financial condition approximate fair value because of the short-term
  nature of these accounts.

  Note 10      HEDGING INSTRUMENTS

  At September 30, 1998, the Company's hedging instruments included an
  interest rate swap transaction and a forward currency exchange contract.

  The Company has entered into an interest rate swap transaction with a
  notional amount of $70,000. Under the interest rate swap agreement, the
  Company will receive quarterly payments of interest based on three-month
  LIBOR and will remit semi-annual payments based on a fixed interest rate
  of approximately 6.19%, in each case based upon a notional balance of
  $70,000. The swap became effective on May 19, 1998 and has a stated
  termination date of May 19, 2008. In certain circumstances, the Company
  may be required to provide collateral to secure its obligations under the
  interest rate swap agreement, or may be entitled to receive collateral
  from the counterparty to the swap agreement. At September 30, 1998, no
  collateral was required under the interest rate swap agreement. At
  September 30, 1998, the interest rate payable to the Company by the
  counterparty to the swap transaction was approximately 5.69%. The Company
  terminated this swap transaction subsequent to September 30, 1998. See
  Note 12.

  The Company has entered into a forward currency exchange contract
  pursuant to which it has agreed to exchange (pound)5,758 (pounds
  sterling) for $9,337 (U.S. dollars) on March 31, 1999. In certain
  circumstances, the Company may be required to provide collateral to
  secure its obligations under the forward currency exchange contract, or
  may be entitled to receive collateral from the counterparty to the
  forward currency exchange contract. At September 30, 1998, no collateral
  was required under the forward currency exchange contract.

  The following table presents the amortized cost and estimated fair values
  of the Company's hedging instruments at September 30, 1998:

                                                         Estimated
                                             Amortized      Fair
                                                Cost       Value
                                             ----------------------
  Interest rate swap                              $   -    $(4,981)
  Forward currency exchange contract                  -       (359)
                                             ======================
       Total hedging instruments                  $   -    $(5,340)
                                             ======================

  Note 11     COMMITMENTS AND CONTINGENCIES

  At September 30, 1998, the Company had a commitment outstanding to
  originate a $35,000 floating rate commercial real estate construction
  loan secured by a second mortgage. Funding of the commitment is subject
  to satisfaction by the borrower of various closing conditions. The
  Company received a $175 commitment fee relating to the commitment, which
  has been deferred and included in accrued expenses, payables and other
  liabilities. The fee will be added to the basis of the related loan when
  it is funded.

  Note 12     SUBSEQUENT EVENTS

  Subsequent to September 30, 1998, the Company sold certain of its
  securities available for sale at their carrying value of approximately
  $622,000 and terminated its interest rate swap. These transactions
  resulted in a realized loss of approximately $21,000. The proceeds from
  the sale were used primarily to repay the Company's borrowings under
  reverse repurchase agreements and to increase its cash position. Of the
  securities sold, approximately $95,000 were acquired subsequent to
  September 30, 1998, and accordingly, are not included in the pro forma
  effects described below.

  Had these transactions occurred on September 30, 1998, the pro forma
  effect on the September 30, 1998 statement of financial condition would
  be a decrease in total assets from $1,160,977 to approximately $660,000,
  a decrease in total liabilities from $936,606 to approximately $436,000.
  Total stockholders' equity would remain the same. The decrease in total
  assets would be a result paying for the termination of the interest rate
  swap and selling: all of the Company's agency adjustable rate residential
  MBS interests, agency interest only residential MBS interests, investment
  grade rated asset backed securities and non-investment grade rated
  non-U.S. sovereign securities; substantially all of the Company's
  investment grade rated senior interest only CMBS interests, agency fixed
  rate residential MBS interests and agency insured project loans; and a
  substantial portion of the Company's investment grade rated private
  issuer fixed rate residential MBS interests. The decrease in liabilities
  would be a result of repaying the reverse repurchase agreement borrowings
  that financed the securities sold and terminating the interest rate swap.

  Had these transactions occurred on September 30, 1998, the pro forma
  effect on the statement of operations for the three months ended
  September 30, 1998 would be a decrease in net income from $6,453 to a net
  loss of approximately $(13,547) and a decrease in net income per share
  from $0.31 to a net loss per share of approximately $(0.66), and for the
  period March 24, 1998 through September 30, 1998 would be a decrease in
  net income from $12,007 to a net loss of approximately $(7,993) and a
  decrease in net income per share from $0.57 to a net loss per share of
  approximately $(0.38), in each case as a result of the realized loss on
  the sale of the securities.

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

  General: The Company was organized in November 1997 to invest in a
  diversified portfolio of multifamily, commercial and residential mortgage
  loans, mortgage-backed securities and other real estate related assets in
  the U.S. and non-U.S. markets. The Company expects to generate income for
  distribution to its stockholders primarily from the net earnings derived
  from its investments in real estate related assets. The Company intends
  to operate in a manner that permits it to maintain its status as a REIT
  for Federal income tax purposes.

  In March 1998, the Company received $297.0 million of net proceeds from
  the initial public offering of 21,365,198 shares of its common stock. As
  of September 30, 1998, the Company had invested, net of repayments to
  date, $1.2 billion to acquire its initial portfolio of securities
  available for sale and its commercial mortgage loan.

  The following discussion should be read in conjunction with the Interim
  Financial Statements and related Notes included in Item 1 hereof. Dollar
  amounts are expressed in thousands, other than per share amounts.

  Market Conditions: The third quarter of 1998 can be characterized as one
  of the most dramatic periods of credit spread widening in recent history.
  Economic uncertainty in Asia and Russia caused uneasiness among investors
  and a flight to quality - investors sold off holdings of credit-sensitive
  securities in favor of Treasuries. This caused credit spreads to widen
  substantially and Treasury yields to fall.

  These factors combined to cause a significant decline in the market value
  of the Company's investment portfolio. The Company's holdings of
  subordinated commercial mortgage-backed securities ("CMBS") were
  particularly affected, inasmuch as they represent the first classes in a
  securitization transaction to be affected by credit losses. The
  unrealized gain (loss) on the Company's holdings of subordinated CMBS
  declined from $3,012 at June 30, 1998 to $(39,543) at September 30, 1998.
  These declines have occurred despite the Company's belief that there has
  been no fundamental change in the credit quality of the underlying loans.

  The fall in Treasury yields during the three months ended September 30,
  1998 resulted in a further "inversion" of the yield curve, that is, the
  excess of short-term interest rates over long-term interest rates became
  more pronounced during such period. Average one-month LIBOR for the three
  months ended September 30, 1998 was 5.62% and for the period March 24,
  1998 through September 30, 1998 was 5.64%. The average ten-year U.S.
  Treasury yield for the three months ended September 30, 1998 was 5.20%
  and for the period March 24, 1998 through September 30, 1998 was 5.40%.
  The excess of one-month LIBOR over the ten-year U.S. Treasury yield was
  0.12% on March 24, 1998, 0.22% on June 30, 1998 and 0.96% on September
  30, 1998.

  The Company's earnings depend, in part, on the relationship between
  long-term interest rates and short-term interest rates. The Company's
  investments bear interest at fixed rates determined by reference to the
  yields of medium- or long-term U.S. Treasury securities or at adjustable
  rates determined by reference (with a lag) to the yields on various
  short-term instruments. The Company's borrowings bear interest rates that
  have historically moved in close relationship to LIBOR. To the extent
  that interest rates on the Company's borrowings increase without an
  offsetting increase in the interest rates earned on the Company's
  investments, the Company's earnings could be negatively affected.

  Recent Events: To respond to reduced liquidity in the financing markets
  and spread widening in the credit-sensitive sectors of the debt markets,
  the Company sold approximately $622,000 in market value of assets since
  September 30, 1998. The proceeds from these sales were applied primarily
  to reduce the Company's borrowings under reverse repurchase agreements
  and to increase its cash position. As a result of these transactions, the
  Company's debt to equity ratio has declined from approximately 4.2 to 1
  at September 30, 1998 to approximately 2.0 to 1 currently.

  The Company incurred a financial statement (GAAP) realized loss on the
  investments sold and termination of its interest rate swap since
  September 30, 1998 of approximately $21,000. As a result, the Company
  expects to record a GAAP loss for the fourth quarter of 1998. In
  addition, the reduction in the Company's balance sheet will cause future
  net interest income from investments to be lower than previously
  expected. The Company anticipates that the decline in future net interest
  income under current market conditions could be in the range of 20 to 30
  percent below the level posted in the third quarter.

  Depending on market conditions, the Company may sell the remainder of its
  securities available for sale other than subordinated CMBS over the next
  several quarters. The Company does not anticipate that such sales, were
  they to occur, would have a significant additional effect on its
  stockholders' equity or earnings.

  Funds From Operations: Most industry analysts, including the Company,
  consider FFO an appropriate supplementary measure of operating
  performance of a REIT. In general, FFO adjusts net income for non-cash
  charges such as depreciation, certain amortization expenses and gains or
  losses from debt restructuring and sales of property. However, FFO does
  not represent cash provided by operating activities in accordance with
  GAAP and should not be considered an alternative to net income as an
  indication of the results of the Company's performance or to cash flows
  as a measure of liquidity.

  In 1995, the National Association of Real Estate Investment Trusts
  ("NAREIT") established new guidelines clarifying its definition of FFO
  and requested that REITs adopt this new definition beginning in 1996. The
  Company computes FFO in accordance with the definition recommended by
  NAREIT. The Company believes that the exclusion from FFO of gains or
  losses from sales of property was not intended to address gains or losses
  from sales of securities as it applies to the Company. Accordingly, the
  Company includes gains or losses from sales of securities in its
  calculation of FFO.

  The Company's FFO for the three months ended September 30, 1998 was
  $6,453, or $0.31 per share (basic and diluted), and for the period March
  24, 1998 through September 30, 1998 was $12,007, or $0.57 per share
  (basic and diluted), which was the same as its reported GAAP net income
  for such periods.

  Results of Operations

  Net income for the three months ended September 30, 1998 was $6,453, or
  $0.31 per share (basic and diluted), and for the period March 24, 1998
  through September 30, 1998 was $12,007, or $0.57 per share (basic and
  diluted).

  Interest Income: The following tables sets forth information regarding
  the total amount of income from interest-earning assets and the resultant
  average yields. Information is based on daily average balances during the
  reported periods.

<TABLE>
<CAPTION>
                                             For the Three Months Ended September 30, 1998
                                          --------------------------------------------------
                                              Interest         Average         Annualized
                                               Income          Balance           Yield
                                          ---------------- ---------------- ----------------
<S>                                           <C>             <C>                 <C>  
  Securities available for sale             $ 19,318        $1,047,990            7.31%
  Commercial mortgage loan                       408            14,462           11.19
  Cash and cash equivalents                       63             4,436            5.61
                                          ================ ================ ================
  Total                                     $ 19,789        $1,066,888            7.36%
                                          ================ ================ ================

                                                     For the Period March 24, 1998
                                                      Through September 30, 1998
                                          --------------------------------------------------
                                              Interest         Average         Annualized
                                               Income          Balance           Yield
                                          ---------------- ---------------- ----------------
  Securities available for sale             $ 30,209        $ 789,280             7.31%
  Commercial mortgage loan                       408            6,966            11.19
  Cash and cash equivalents                      216            7,413             5.57
                                          ================ ================ ================
  Total                                     $ 30,833        $ 803,659             7.33%
                                          ================ ================ ================
</TABLE>

  The Company sold a substantial portion of its portfolio of securities
  available for sale subsequent to September 30, 1998 and, as a result, the
  amount of the Company's interest income for comparable periods in the
  near future is likely to be significantly less than the amounts reported
  above. See "Recent Events" above and Note 12 to the Interim Financial
  Statements included in Item 1 hereof.

  Expenses: The following tables set forth information regarding the total
  amount of interest expense from short-term borrowings (including the net
  amount payable under the interest rate swap agreement allocated pro rata
  to each category of short-term borrowings) and the resultant average
  yields. Information is based on daily average balances during the
  reported periods.

<TABLE>
<CAPTION>
                                             For the Three Months Ended September 30, 1998
                                          --------------------------------------------------
                                              Interest         Average         Annualized
                                              Expense          Balance           Yield
                                          ---------------- ---------------- ----------------
<S>                                           <C>            <C>                   <C>  
  Reverse repurchase agreements              $11,460        $ 763,529             5.96%
  Line of credit borrowings                      248           11,118             8.81
                                          ---------------- ---------------- ----------------
  Total                                     $ 11,708        $ 774,647             6.00%
                                          ================ ================ ================

                                                     For the Period March 24, 1998
                                                      Through September 30, 1998
                                          --------------------------------------------------
                                              Interest         Average         Annualized
                                              Expense          Balance           Yield
                                          ---------------- ---------------- ----------------
  Reverse repurchase agreements             $ 15,842        $ 515,965             5.87%
  Line of credit borrowings                      248            5,355             8.85
                                          ---------------- ---------------- ----------------
  Total                                     $ 16,090        $ 521,320             5.90%
                                          ================ ================ ================
</TABLE>

  The Company repaid a substantial portion of its borrowings under reverse
  repurchase agreements subsequent to September 30, 1998 and, as a result,
  the amount of the Company's interest expense for comparable periods in
  the near future is likely to be significantly less than the amounts
  reported above. See "Recent Events" above and Note 12 to the Interim
  Financial Statements included in Item 1 hereof.

  Management fees of $1,374 for the three months ended September 30, 1998
  and $2,244 for the period March 24, 1998 through September 30, 1998 were
  comprised solely of the base management fee paid to the Manager for such
  periods (as provided pursuant to the management agreement between the
  Manager and the Company), as the Manager earned no incentive fee for such
  periods. Other expenses of $244 for the three months ended September 30,
  1998 and $482 for the period March 24, 1998 through September 30, 1998
  were comprised of accounting agent fees, custodial agent fees, directors'
  fees, insurance premiums and other miscellaneous expenses. The foreign
  currency loss of $32 for the three months ended September 30, 1998 and
  for the period March 24, 1998 through September 30, 1998 relates to the
  Company's net investment in a commercial mortgage loan denominated in
  pounds sterling.

  Net Interest Margin: Net interest margin is annualized net interest
  income divided by the average daily balance of interest-earning assets.
  Net interest income is total interest income less interest expense
  (including the net amount payable under the interest rate swap
  agreement). Net interest margin was 3.00% for the three months ended
  September 30, 1998 and 3.51% for the period March 24, 1998 through
  September 30, 1998.

  Distributions Declared and Distributions in Excess of Earnings: On June
  15, 1998, the Company declared distributions to its stockholders totaling
  $5,769 or $0.27 per share. These distributions were paid on July 15, 1998
  to stockholders of record on June 30, 1998. On September 2, 1998, the
  Company declared distributions to its stockholders totaling $7,195 or
  $0.36 per share. These distributions were paid on October 15, 1998 to
  stockholders of record on September 30, 1998. Distributions paid to date
  covered the Company's undistributed tax basis income for the period March
  24, 1998 through September 30, 1998. As a result of these distributions,
  the Company incurred distributions in excess of earnings of $957 as of
  September 30, 1998. For Federal income tax purposes, all distributions
  paid to date are expected to be ordinary income to the Company's
  stockholders.

  Tax Basis Income and GAAP Net Income: Net income as calculated for tax
  purposes (tax basis income) was $7,421, or $0.36 per share (basic and
  diluted), for the three months ended September 30, 1998 and $13,246, or
  $0.63 per share (basic and diluted), for the period March 24, 1998
  through September 30, 1998, compared to net income as calculated in
  accordance with generally accepted accounting principles (GAAP) of
  $6,453, or $0.31 per share (basic and diluted), for the three months
  ended September 30, 1998 and $12,007, or $0.57 per share (basic and
  diluted), for the period March 24, 1998 through September 30, 1998.
  Differences between tax basis income and GAAP net income arise for
  various reasons. For example, in computing income from its subordinated
  CMBS interests for GAAP purposes, the Company takes into account
  estimated credit losses on the underlying loans whereas for tax basis
  income purposes, only actual credit losses are taken into account. Loan
  commitment fees are recognized over the life of the related loan for GAAP
  purposes but are included in tax basis income upon receipt. In addition,
  certain general and administrative expenses may differ due to differing
  treatment of the deductibility of such expenses for tax basis income.
  Also, differences could arise in the treatment of premium and discount
  amortization on the Company's securities available for sale.

  A reconciliation of GAAP net income to tax basis income is as follows:

<TABLE>
<CAPTION>
                                                                        For the Period
                                              For the Three             March 24, 1998
                                               Months Ended                Through
                                            September 30, 1998       September 30, 1998
                                           ---------------------    -------------------
<S>                                               <C>                       <C>     
  GAAP net income                                $ 6,453                 $ 12,007
  Subordinate CMBS interests income                  628                      771
  differentials
  Income from loan commitment fees                   175                      175
  General and administrative expense 
  differences                                        148                      276
  Other                                               17                       17
                                            ===================     ==================
  Tax basis income                               $ 7,421                 $ 13,246
                                            ===================     ==================
</TABLE>

  Changes in Financial Condition

  Securities Available for Sale: At September 30, 1998, an aggregate of
  $53,789 in unrealized losses on securities available for sale was
  included as a component of accumulated other comprehensive income in
  stockholders' equity.

  The Company's securities available for sale, which are carried at
  estimated fair value, included the following at September 30, 1998:

                                                     Estimated
               Security Description                  Fair Value   Percentage
 ------------------------------------------------- ------------- -----------
 Commercial mortgage-backed securities ("CMBS") 
     interests:
 Investment grade rated senior interest only           $ 91,627       8.8%
     interests
 Non-investment grade rated subordinated                281,892      27.1
     interests
 Non-rated subordinated interests                        30,627       2.9
                                                   ------------- -----------
     Total CMBS interests                               404,146      38.8
                                                   ------------- -----------
 Single-family residential mortgage-backed 
     securities ("residential MBS") interests:
 Agency adjustable rate                                 197,148      19.0
 Agency fixed rate                                       55,275       5.3
 Agency interest only                                     7,769       0.8
 Investment grade rated private issuer fixed rate       320,770      30.8
                                                   ------------- -----------
     Total residential MBS interests                    580,962      55.9
                                                   ------------- -----------
 Agency insured project loans                            28,177       2.7
 Investment grade rated asset backed securities          13,537       1.3
 Non-investment grade rated non-U.S. sovereign
     securities                                          13,468       1.3
                                                   ============= ===========
     Total securities available for sale             $1,040,290     100.0%
                                                   ============= ===========

  In May 1998, $16,750 face amount of U.S. Treasury securities were sold
  for proceeds net of termination costs on the related hedge of $17,133,
  which equaled the approximate amortized cost of such securities. During
  the three months ended September 30, 1998, $16,368 notional amount of
  agency interest only residential MBS interests, $50,410 face amount of
  investment grade rated private issuer fixed rate residential MBS
  interests and $3,000 face amount of non-investment grade rated non-U.S.
  sovereign securities were sold for total proceeds of $73,524, which
  exceeded the total amortized cost of such securities by $22.

  The Company sold a substantial portion of its portfolio of securities
  available for sale subsequent to September 30, 1998. See "Recent Events"
  above and Note 12 to the Interim Financial Statements included in Item 1
  hereof.

  Short-Term Borrowings: To date, the Company's debt has consisted of line
  of credit borrowings and reverse repurchase agreements, which have been
  collateralized by a pledge of most of the Company's securities available
  for sale and its commercial mortgage loan. The Company's financial
  flexibility is affected by its ability to renew or replace on a
  continuous basis its maturing short-term borrowings. To date, the Company
  has obtained short-term financing in amounts and at interest rates
  consistent with the Company's financing objectives.

  Under the line of credit and the reverse repurchase agreements, the
  respective lender retains the right to mark the underlying collateral to
  market value. A reduction in the value of its pledged assets will require
  the Company to provide additional collateral or fund margin calls. From
  time to time, the Company expects that it will be required to provide
  such additional collateral or fund margin calls.

  The following tables set forth information regarding the Company's
short-term borrowings.

<TABLE>
<CAPTION>
                                             For the Three Months Ended September 30, 1998
                                          --------------------------------------------------
                                              Average          Maximum          Range of
                                              Balance          Balance         Maturities
                                          ---------------- ---------------- ----------------
<S>                                          <C>              <C>                <C>   
  Reverse repurchase agreements            $ 763,529        $ 841,617        1 to 180 days
  Line of credit borrowings                   11,118           78,967        324 to 359 days
                                          ---------------- ---------------- ----------------
  Total                                    $ 774,647        $ 920,584        1 to 359 days
                                          ================ ================ ================

                                                     For the Period March 24, 1998
                                                      Through September 30, 1998
                                          --------------------------------------------------
                                              Average          Maximum          Range of
                                              Balance          Balance         Maturities
                                          ---------------- ---------------- ----------------
  Reverse repurchase agreements            $ 515,965        $ 841,617        1 to 180 days
  Line of credit borrowings                    5,355           78,967        324 to 359 days
                                          ---------------- ---------------- ----------------
  Total                                    $ 521,320        $ 920,584        1 to 359 days
                                          ================ ================ ================
</TABLE>

  The Company repaid a substantial portion of its borrowings under reverse
  repurchase agreements subsequent to September 30, 1998. See "Recent
  Events" above and Note 12 to the Interim Financial Statements included in
  Item 1 hereof.

  Hedging instruments: At September 30, 1998, the Company's hedging
  instruments included an interest rate swap transaction and a forward
  currency exchange contract.

  The Company has entered into an interest rate swap transaction with a
  notional amount of $70,000. Under the interest rate swap agreement, the
  Company will receive quarterly payments of interest based on three-month
  LIBOR and will remit semi-annual payments based on a fixed interest rate
  of approximately 6.19%, in each case based upon a notional balance of
  $70,000. The swap became effective on May 19, 1998 and has a stated
  termination date of May 19, 2008. In certain circumstances, the Company
  may be required to provide collateral to secure its obligations under the
  interest rate swap agreement, or may be entitled to receive collateral
  from the counterparty to the swap agreement. At September 30, 1998, no
  collateral was required under the interest rate swap agreement. At
  September 30, 1998, the interest rate payable to the Company by the
  counterparty to the swap transaction was approximately 5.69%. The Company
  terminated this swap transaction subsequent to September 30, 1998. See
  "Recent Events" above and Note 12 to the Interim Financial Statements
  included in Item 1 hereof.

  The Company has entered into a forward currency exchange contract
  pursuant to which it has agreed to exchange (pound)5,758 (pounds
  sterling) for $9,337 (U.S. dollars) on March 31, 1999. In certain
  circumstances, the Company may be required to provide collateral to
  secure its obligations under the forward currency exchange contract, or
  may be entitled to receive collateral from the counterparty to the
  forward currency exchange contract. At September 30, 1998, no collateral
  was required under the forward currency exchange contract.

  Hedging instruments are carried in the statement of financial condition
  at estimated liquidation value. At September 30, 1998, an aggregate of
  $4,981 in unrealized losses on the interest rate swap was included as a
  component of accumulated other comprehensive income in stockholders'
  equity. During the three months ended September 30, 1998 and during the
  period March 24, 1998 through September 30, 1998, an aggregate of $359 in
  losses on the forward currency exchange contract was included as a
  component of foreign currency loss in the statement of operations.

  Capital Resources and Liquidity: Liquidity is a measurement of the
  Company's ability to meet potential cash requirements, including ongoing
  commitments to repay borrowings, fund investments, loan acquisition and
  lending activities and for other general business purposes. The primary
  sources of funds for liquidity consist of short-term borrowings,
  principal and interest payments on and maturities of securities available
  for sale and the commercial mortgage loan, and proceeds from sales
  thereof.

  The Company's operating activities provided cash flows of $10,676 during
  the period March 24, 1998 through September 30, 1998. During the
  foregoing period cash flows from operating activities were used primarily
  to purchase securities available for sale.

  The Company's investing activities used cash flows totaling $1,199,965
  during the period March 24, 1998 through September 30, 1998. During the
  foregoing period, cash was used in investing activities primarily to
  purchase securities available for sale.

  The Company's financing activities provided $1,195,713 during the period
  March 24, 1998 through September 30, 1998 and consisted primarily of net
  borrowings under short-term borrowings and net proceeds from the issuance
  of 21,365,198 shares of common stock.

  Although the Company's portfolio of securities available for sale was
  acquired at a net discount to the face amount of such securities, the
  Company has received to date and expects to continue to receive
  sufficient coupon income in cash from its portfolio to fund distributions
  to stockholders as necessary to maintain its REIT status.

  The Company's ability to execute its business strategy depends to a
  significant degree on its ability to obtain additional capital. 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 perception in the capital markets of the
  Company's business, covenants under the Company's current and future
  credit facilities, results of operations, leverage, financial conditions
  and business prospects. Except as discussed herein, management is not
  aware of any other trends, events, commitments or uncertainties that may
  have a significant effect on liquidity.

  REIT Status: The Company intends to elect to be taxed as a REIT and to
  comply with the provisions of the Internal Revenue Code of 1986, as
  amended, with respect thereto. Accordingly, the Company will not be
  subjected to Federal income tax to the extent of its distributions to
  stockholders and as long as certain asset, income and stock ownership
  tests are met. The Company may, however, be subject to tax at normal
  corporate rates on net income or capital gains not distributed.

  Investment Company Act: The Company intends to conduct its business so as
  not to become regulated as an investment company under the Investment
  Company Act of 1940, as amended (the "Investment Company Act"). Under the
  Investment Company Act, a non-exempt entity that is an investment company
  is required to register with the Securities and Exchange Commission
  ("SEC") and is subject to extensive, restrictive and potentially adverse
  regulation relating to, among other things, operating methods,
  management, capital structure, dividends and transactions with
  affiliates. The Investment Company Act exempts entities that are
  "primarily engaged in the business of purchasing or otherwise acquiring
  mortgages and other liens on and interests in real estate" ("Qualifying
  Interests"). Under current interpretation by the staff of the SEC, to
  qualify for this exemption, the Company, among other things, must
  maintain at least 55% of its assets in Qualifying Interests. Pursuant to
  such SEC staff interpretations, certain of the Company's interests in
  agency pass-through and mortgage-backed securities and agency insured
  project loans are Qualifying Interests. In general, the Company will
  acquire subordinated interests in commercial mortgage-backed securities
  ("subordinated CMBS interests") only when such mortgage securities are
  collateralized by pools of first mortgage loans, when the Company can
  monitor the performance of the underlying mortgage loans through loan
  management and servicing rights, and when the Company has appropriate
  workout/foreclosure rights with respect to the underlying mortgage loans.
  When such arrangements exist, the Company believes that the related
  subordinated CMBS interests constitute Qualifying Interests for purposes
  of the Investment Company Act. Therefore, the Company believes that it
  should not be required to register as an "investment company" under the
  Investment Company Act as long as it continues to invest primarily in
  such subordinated CMBS interests and/or in other Qualifying Interests.
  However, if the SEC or its staff were to take a different position with
  respect to whether the Company's subordinated CMBS interests constitute
  Qualifying Interests, the Company could be required to modify its
  business plan so that either (i) it would not be required to register as
  an investment company or (ii) it would comply with the Investment Company
  Act and be able to register as an investment company. In such event, (i)
  modification of the Company's business plan so that it would not be
  required to register as an investment company would likely entail a
  disposition of a significant portion of the Company's subordinated CMBS
  interests or the acquisition of significant additional assets, such as
  agency pass-through and mortgage-backed securities, which are Qualifying
  Interests or (ii) modification of the Company's business plan to register
  as an investment company, which would result in significantly increased
  operating expenses and would likely entail significantly reducing the
  Company's indebtedness (including the possible prepayment of the
  Company's short-term borrowings), which could also require it to sell a
  significant portion of its assets. No assurances can be given that any
  such dispositions or acquisitions of assets, or deleveraging, could be
  accomplished on favorable terms. Consequently, any such modification of
  the Company's business plan could have a material adverse effect on the
  Company. Further, if it were established that the Company were an
  unregistered investment company, there would be a risk that the Company
  would be subject to monetary penalties and injunctive relief in an action
  brought by the SEC, that the Company would be unable to enforce contracts
  with third parties and that third parties could seek to obtain recission
  of transactions undertaken during the period it was established that the
  Company was an unregistered investment company. Any such results would be
  likely to have a material adverse effect on the Company.

  New Accounting Pronouncement: In June of 1998, the Financial Accounting
  Standards Board issued Statement of Financial Accounting Standards No.
  133, "Accounting for Derivative Instruments and Hedging Activities"
  ("SFAS 133"). This statement establishes accounting and reporting
  standards for derivative instruments including certain derivative
  instruments embedded in other contracts, and for hedging activities. It
  requires that the Company recognize all derivatives as either assets or
  liabilities in the statement of financial condition and measure those
  instruments at fair value. If certain conditions are met, a derivative
  may be specifically designated as a hedge of the exposure to changes in
  the fair value of a recognized asset or liability or a hedge of the
  exposure to variable cash flows of a forecasted transaction. The
  accounting for changes in the fair value of a derivative (e.g., through
  earnings or outside of earnings, through comprehensive income) depends on
  the intended use of the derivative and the resulting designation.

  The Company is required to implement SFAS 133 by the end of the first
  quarter of the year ending December 31, 2000. Company management is
  evaluating the impact that this statement will have on its hedging
  strategies and use of derivative instruments and is currently unable to
  predict the effect, if any, it will have on the Company's financial
  statements.

  Forward-Looking Statements: Certain statements contained herein are not,
  and certain statements contained in future filings by the Company with
  the SEC, in the Company's press releases or in the Company's other public
  or shareholder communications may not be, based on historical facts and
  are "Forward-looking statements" within the meaning of the Private
  Securities Litigation Reform Act of 1995. Forward-looking statements
  which are based on various assumptions (some of which are beyond the
  Company's control), may be identified by reference to a future period or
  periods, or by the use of forward-looking terminology, such as "may,"
  "will," "believe," "expect," "anticipate," "continue," or similar terms
  or variations on those terms, or the negative of those terms. Actual
  results could differ materially from those set forth in forward-looking
  statements due to a variety of factors, including, but not limited to,
  those related to the economic environment, particularly in the market
  areas in which the Company operates, competitive products and pricing,
  fiscal and monetary policies of the U.S. Government, changes in
  prevailing interest rates, acquisitions and the integration of acquired
  businesses, credit risk management, asset/liability management, the
  financial and securities markets and the availability of and costs
  associated with sources of liquidity. The Company does not undertake, and
  specifically disclaims any obligation, to publicly release the result of
  any revisions which may be made to any forward-looking statements to
  reflect the occurrence of anticipated or unanticipated events or
  circumstances after the date of such statements.

  Year 2000 Readiness Disclosure: The Company is currently in the process
  of evaluating its information technology infrastructure for Year 2000
  compliance. Substantially all of the Company's information systems are
  supplied by the Manager. The Manager has advised the Company that it is
  currently evaluating whether such systems are Year 2000 compliant and
  that it expects to incur costs of up to approximately $500 to complete
  such evaluation and to make any modifications to its systems as may be
  necessary to achieve Year 2000 compliance. The Manager has advised the
  Company that it expects to have fully tested its systems for Year 2000
  compliance by December 31, 1998. The Company may be required to bear a
  portion of such costs incurred by the Manager in this regard. The Manager
  has advised the Company that it does not anticipate any material
  disruption in the operations of the Company as a result of any failure by
  the Manager to achieve Year 2000 compliance. There can be no assurance
  that the costs will not exceed the amount referred to above or that the
  Company will not experience a disruption in operations.

  The Manager has advised the Company that it is in the process of
  evaluating the Year 2000 compliance of various suppliers of the Manager
  and the Company. The Manager has advised the Company that it intends to
  communicate with such suppliers to determine their Year 2000 compliance
  status and the extent to which the Manager or the Company could be
  affected by any supplier's Year 2000 compliance issues. To date, however,
  the Manager has not received responses from all such suppliers with
  respect to their Year 2000 compliance, and there can be no assurance that
  the systems of such suppliers, who are beyond the Company's control, will
  be Year 2000 compliant. In the event that any of the Company's
  significant suppliers do not successfully and timely achieve Year 2000
  compliance, the Company's business or operations could be adversely
  affected. The Manager has advised the Company that it is in the process
  of preparing a contingency plan for Year 2000 compliance by its
  suppliers. There can be no assurance that such contingency plan will be
  successful in preventing a disruption of the Company's operations.

  The Company is designating this disclosure as its Year 2000 readiness
  disclosure for all purposes under the Year 2000 Information and Readiness
  Disclosure Act and the foregoing information shall constitute a Year 2000
  statement for purposes of that Act.

  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

  Not applicable

  Item 3.  Defaults Upon Senior Securities

  Not applicable

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

  Not applicable

  Item 5.  Other Information

  None

  Item 6.  Exhibits and Reports on Form 8-K

  (a)  Exhibits

  Exhibit 27.1 - Financial Data Schedule (filed herewith)

  (b)  Reports on Form 8-K

  None



                                 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.



                                     ANTHRACITE CAPITAL, INC.


 Dated:  November 13, 1998           By: /s/ Hugh R. Frater
                                        ------------------------------------
                                     Name:  Hugh R. Frater
                                     Title: President and Chief Executive
                                            Officer
                                            (authorized officer of registrant)



 Dated:  November 13, 1998           By: /s/ Richard M. Shea    
                                        -------------------------------------
                                     Name:  Richard M. Shea
                                     Title: Chief Operating Officer and Chief
                                            Financial Officer 
                                            (principal accounting officer)