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

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

                  For the quarterly period ended March 31, 2003

                                       OR

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

              For the transition period from: ________ to ________

                        Commission File Number 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.)

40 East 52nd Street, New York, New York                           10022
(Address of principal executive offices)                       (Zip Code)

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

                                 NOT APPLICABLE
 (Former name, former address, and for new 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.

                             (1) Yes  _X_    No ___
                             (2) Yes  _X_    No ___

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

                             (1) Yes  _X_    No ___

         As of May 13, 2003, 47,813,550 shares of common stock ($.001 par value
per share) were outstanding.

                                       1
<PAGE>

                            ANTHRACITE CAPITAL, INC.,
                                    FORM 10-Q
                                      INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                              Page

<S>                                                                                                              <C>
Item 1.       Interim Financial Statements........................................................................4

              Consolidated Statements of Financial Condition
              At March 31, 2003 (Unaudited) and December 31, 2002.................................................4

              Consolidated Statements of Operations (Unaudited)
              For the Three Months Ended March 31, 2003 and 2002..................................................5

              Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
              For the Three Months Ended March 31, 2003...........................................................6

              Consolidated Statements of Cash Flows (Unaudited)
              For the Three Months Ended March 31, 2003 and 2002..................................................7

              Notes to Consolidated Financial Statements (Unaudited)..............................................8

Item 2.       Management's Discussion and Analysis of Financial Condition and
              Results of Operations..............................................................................17

Item 3.       Quantitative and Qualitative Disclosures about Market Risk.........................................34

Item 4.       Controls and Procedures............................................................................39

Part II - OTHER INFORMATION

Item 1.       Legal Proceedings..................................................................................40

Item 2.       Changes in Securities and Use of Proceeds..........................................................40

Item 3.       Defaults Upon Senior Securities....................................................................40

Item 4.       Submission of Matters to a Vote of Security Holders................................................40

Item 5.       Other Information..................................................................................40

Item 6.       Exhibits and Reports on Form 8-K...................................................................40

SIGNATURES    ...................................................................................................41
</TABLE>

                                       2
<PAGE>

CAUTIONARY STATEMENT REGARDING FORWARD-WORKING STATEMENTS

Certain statements contained herein are not, and certain statements contained in
future filings by Anthracite Capital, Inc. (the "Company") with the Securities
and Exchange Commission (the "SEC") in the Company's press releases or in the
Company's other public or stockholder 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 "believe," "expect," "anticipate,"
"intend," "estimate," "position," "target," "mission," "assume," "achievable,"
"potential," "strategy," "goal," "objective," "plan," "aspiration," "outlook,"
"outcome," "continue," "remain," "maintain," "strive," "trend," and variations
of such words and similar expressions, or future or conditional verbs such as
"will," "would," "should," "could," "may," 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 and future results could differ materially from historical
performance due to a variety of factors, including, but not limited to: (1) the
introduction, withdrawal, success and timing of business initiatives and
strategies; (2) changes in political, economic or industry conditions, the
interest rate environment or financial and capital markets, which could result
in deterioration in credit performance; (3) the performance and operations of
the Manager; (4) the impact of increased competition; (5) the impact of capital
improvement projects; (6) the impact of future acquisitions; (7) the unfavorable
resolution of legal proceedings; (8) the extent and timing of any share
repurchases; (9) the impact, extent and timing of technological changes and the
adequacy of intellectual property protection; (10) the impact of legislative and
regulatory actions and reforms; (11) terrorist activities, which may adversely
affect the general economy, financial and capital markets, the real estate
industry and the Company; and (12) the ability of the Manager to attract and
retain highly talented professionals. Forward-looking statements speak only as
of the date they are made. 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.

                                       3
<PAGE>

Part I - FINANCIAL INFORMATION
Item 1.  Consolidated Financial Statements

<TABLE>
<CAPTION>
                                               Anthracite Capital, Inc. and Subsidiaries
                                            Consolidated Statements of Financial Condition
                                                 (in thousands, except per share data)
---------------------------------------------------------------------------------------------------------------------------------
                                                                              March 31, 2003             December 31, 2002
                                                                                (Unaudited)
ASSETS
<S>                                                                     <C>               <C>       <C>                <C>
Cash and cash equivalents                                                                 $  21,210                    $  24,698
Restricted cash equivalents                                                                  62,661                       84,485
Securities available for sale, at fair value
     Subordinated commercial mortgage-backed securities (CMBS)              $ 661,515                   $ 602,706
     Investment grade securities                                            1,400,377                     370,356
                                                                        --------------              --------------
Total securities available for sale                                                       2,061,892                      973,062
Securities held for trading, at fair value                                                  461,386                    1,427,733
Commercial mortgage loans, net                                                               57,742                       65,664
Investments in real estate joint ventures                                                     7,778                        8,265
Equity investment in Carbon Capital, Inc.                                                    17,755                       14,997
Receivable for investments sold                                                             252,241                            -
Other assets                                                                                 39,323                       40,447
                                                                                      --------------              ---------------
     Total Assets                                                                        $2,981,988                   $2,639,351
                                                                                      ==============              ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Borrowings:
    Collateralized debt obligations                                          $684,684                   $ 684,590
    Secured by pledge of subordinated CMBS                                     54,565                       7,295
    Secured by pledge of other securities available for sale
      and restricted cash equivalents                                       1,050,020                      98,439
    Secured by pledge of securities held for trading                          348,319                   1,355,333
    Secured by pledge of investments in real estate joint ventures                937                       1,337
    Secured by pledge of commercial mortgage loans                             14,667                      14,667
                                                                        --------------              --------------
Total borrowings                                                                         $2,153,192                   $2,161,661
Payable for investments purchased                                                           356,859                          524
Distributions payable                                                                        16,706                       16,589
Other liabilities                                                                            57,191                       54,361
                                                                                      --------------              ---------------
     Total Liabilities                                                                   $2,583,948                   $2,233,135
                                                                                      --------------              ---------------

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $0.001 per share; 400,000 shares authorized; 47,731
     shares issued and outstanding in March 31, 2003; and
     47,398 shares issued and outstanding in December 31, 2002                                   48                           47
10% Series B preferred stock, liquidation preference $47,817                                 36,379                       36,379
Additional paid-in capital                                                                  518,597                      515,180
Distributions in excess of earnings                                                        (32,366)                     (24,161)
Accumulated other comprehensive loss                                                      (124,618)                    (121,229)
                                                                                      --------------              ---------------
      Total Stockholders' Equity                                                            398,040                      406,216
                                                                                      --------------              ---------------
      Total Liabilities and Stockholders' Equity                                         $2,981,988                   $2,639,351
                                                                                      ==============              ===============
</TABLE>

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

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                                       Anthracite Capital, Inc.
                                           Consolidated Statements of Operations (Unaudited)
                                                 (in thousands, except per share data)

                                                                         For the Three     For the Three
                                                                         Months Ended      Months Ended
                                                                        March 31, 2003    March 31, 2002
                                                                       ------------------------------------
Income:
<S>                                                                              <C>               <C>
    Interest from securities                                                     $24,652           $28,679
    Interest from commercial mortgage loans                                        1,185             3,619
    Interest from trading securities                                              15,831             6,288
    Earnings from real estate joint ventures                                         236               261
    Earnings from equity investment                                                  743               185
    Interest from cash and cash equivalents                                          176               319
                                                                       ------------------------------------
        Total income                                                              42,823            39,351
                                                                       ------------------------------------

Expenses:
    Interest                                                                      15,504             8,032
    Interest-trading securities                                                    4,201             3,608
    Management and incentive fee                                                   2,577             5,407
    Other expenses - net                                                             582               576
                                                                       ------------------------------------
        Total expenses                                                            22,864            17,623
                                                                       ------------------------------------

Other gain (losses):
Gain (loss) on sale of securities available for sale                                 142           (4,079)
Gain (loss) on securities held for trading                                      (10,404)             4,014
Foreign currency gain (loss)                                                           -             (247)
                                                                       ------------------------------------
       Total other gain (loss)                                                  (10,262)             (312)
                                                                       ------------------------------------

Income before cumulative transition adjustment                                     9,697            21,416
                                                                       ------------------------------------

Cumulative transition adjustment - SFAS 142                                            -             6,327
                                                                       ------------------------------------

Net Income                                                                         9,697            27,743
                                                                       ------------------------------------

Dividends on preferred stock                                                       1,195             1,389
                                                                       ------------------------------------

Net Income available to common stockholders                                       $8,502           $26,354
                                                                       ====================================

Net income per common share, basic:
    Income before cumulative transition adjustment                                 $0.18             $0.44
    Cumulative transition adjustment - SFAS 142                                        -              0.14
                                                                       ------------------------------------
      Net income
                                                                                   $0.18             $0.58
                                                                       ====================================

Net income per common share, diluted:
      Income before cumulative transition adjustment                               $0.18             $0.44
      Cumulative transition adjustment - SFAS 142                                      -              0.14
                                                                       ------------------------------------
      Net income
                                                                                   $0.18             $0.58
                                                                       ====================================

Weighted average number of shares outstanding:
    Basic                                                                         47,592            45,654
    Diluted                                                                       47,622            45,731

The accompanying notes are an integral part of these financial statements.
</TABLE>

                                       5
<PAGE>
Anthracite Capital, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
For the Three Months Ended March 31, 2003
(in thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                   Series                              Accumulated
                                         Common       B     Additional  Distributions     Other                          Total
                                         Stock,   Preferred   Paid-In     In Excess   Comprehensive   Comprehensive  Stockholders'
                                        Par Value   Stock     Capital    Of Earnings       Loss           Income         Equity

<S>                                         <C>   <C>        <C>          <C>           <C>                              <C>
Balance at January 1, 2003                  $47   $36,379    $515,180     $(24,161)      $(121,229)                        $406,216



Net income                                                                   9,697                          $9,697            9,697




Unrealized loss on cash flow hedges                                                         (2,306)         (2,306)          (2,306)


Reclassification adjustments from cash
flow hedges included in net income                                                           1,869           1,869            1,869


Change in net unrealized gain (loss) on                                                     (2,952)         (2,952)          (2,952)
securities available for sale, net of
reclassification adjustment
                                                                                                    ----------------
Other Comprehensive loss                                                                                    (3,389)



Comprehensive Income                                                                                        $6,308
                                                                                                   ================



Dividends declared-common stock                                            (16,707)                                         (16,707)



Dividends on preferred stock                                                (1,195)                                          (1,195)



Issuance of common stock                      1                 3,417                                                         3,418
-----------------------------------------------------------------------------------------------------------------------------------


Balance at March 31, 2003                   $48   $36,379    $518,597     $(32,366)     $(124,618)                         $398,040
                                       ============================================================================================





Disclosure of reclassification
adjustment:


Unrealized holding loss
                                                                                                               $(3,094)

Reclassification for realized gains
previously recorded as unrealized                                                                                   142
                                                                                                        ----------------
                                                                                                               $(2,952)
                                                                                                        ================
</TABLE>

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

                                        6
<PAGE>

Anthracite Capital, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                                    For the Three           For the Three
                                                                                     Months Ended        Months Ended March
                                                                                    March 31, 2003             31, 2002

<S>                                                                                        <C>                   <C>
Cash flows from operating activities:

     Net income                                                                            $9,697                $27,743

Adjustments to reconcile net income to net cash provided by operating
activities:

        Net sale (purchase) of trading securities                                         387,278               (13,170)

        Net loss on sale of securities                                                     10,262                     65

        Cumulative transition adjustment                                                        -                (6,327)

        (Discount accretion), premium amortization, net                                   (8,758)                  3,932

        Non-cash portion of net foreign currency loss                                           -                     82

        Distributions from joint ventures in excess of earnings                               487                     87

        Decrease (Increase) in other assets                                                 1,578                (3,251)

        Increase (Decrease) in other liabilities                                            2,830                (8,947)

                                                                           -----------------------  ---------------------
Net cash provided by operating activities                                                 403,374                    214

                                                                           -----------------------  ---------------------
Cash flows from investing activities:

     Purchase of securities available for sale                                          (447,774)              (224,144)

     Repayments received from commercial mortgage loans                                     7,923                    865

     Decrease in restricted cash equivalents                                               21,824                  2,261

     Principal payments received on securities available for sale                          37,212                 62,491

     Investment in Carbon Capital, Inc.                                                   (2,950)                      -

     Proceeds from sales of securities available for sale                                       -                354,187

     Net payments from hedging securities                                                   (262)                (2,069)

                                                                           -----------------------  ---------------------
Net cash (used in) provided by investing activities                                     (384,027)                193,591

                                                                           -----------------------  ---------------------
Cash flows from financing activities:

     Net decrease in borrowings                                                           (8,469)              (207,396)

     Proceeds from issuance of common stock, net of offering costs                          3,418                  7,351

     Dividends paid on common stock                                                      (16,589)               (15,859)

     Interest paid on preferred stock                                                     (1,195)                (1,389)

                                                                           -----------------------  ---------------------
Net cash used in financing activities                                                    (22,835)              (217,293)
                                                                           -----------------------  ---------------------
Net decrease in cash and cash equivalents                                                 (3,488)               (23,488)

Cash and cash equivalents, beginning of period                                             24,698                 43,071

                                                                           -----------------------  ---------------------
Cash and cash equivalents, end of period                                                  $21,210                $19,583

                                                                           =======================  =====================
Supplemental disclosure of cash flow information:
     Interest paid                                                                        $15,231                $19,449
                                                                           =======================  =====================
Investments purchased not settled                                                        $252,241               $451,976
                                                                           =======================  =====================
Investments sold not settled                                                             $356,859               $297,129
                                                                           =======================  =====================
</TABLE>

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

                                        7
<PAGE>


Anthracite Capital, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(In thousands, except per shares and share data)

Note 1        ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Anthracite Capital, Inc. (the "Company"), a Maryland corporation, is a real
estate finance company that generates income based on the spread between the
interest income on its mortgage loans and securities investments and the
interest expense from borrowings used to finance its investments. The Company
seeks to earn high returns on a risk-adjusted basis to support a consistent
quarterly dividend. The Company has elected to be taxed as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code of 1986 and,
therefore, its income is largely exempt from corporate taxation. The Company
commenced operations on March 24, 1998.

The Company's business focuses on (i) originating high yield commercial real
estate loans, (ii) investing in below investment grade commercial mortgage
backed securities ("CMBS") where the Company has the right to control the
foreclosure/workout process on the underlying loans, and (iii) acquiring
investment grade real estate related securities as a liquidity diversification.

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 accounting principles generally accepted
in the United States of America ("GAAP") for complete financial statements.
These financial statements should be read in conjunction with the annual
financial statements and notes thereto included in the Company's annual report
on Form 10-K for 2002 filed with the Securities and Exchange Commission.

In the opinion of the Company's management, the accompanying financial
statements contain all adjustments, consisting of normal and recurring accruals
(except for the cumulative transition adjustment for SFAS 142 in the first
quarter of 2002 - see Note 2 to the consolidated financial statements),
necessary for a fair presentation of the results for the interim periods.
Operating results for interim periods are not necessarily indicative of the
results that may be expected for the entire year.

In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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. Significant estimates
in the financial statements include the valuation of certain of the Company's
mortgage-backed securities and certain other investments.


Note 2         ACCOUNTING CHANGE - BUSINESS COMBINATIONS

In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, ''Business Combinations,'' and No. 142,
''Goodwill and Other Intangible Assets'' (''SFAS 142''). These standards changed
the accounting for business combinations by, among other things, prohibiting

                                       8
<PAGE>

the prospective use of pooling-of-interests accounting and requiring companies
to stop amortizing goodwill and certain intangible assets with an indefinite
useful life. Instead, goodwill and intangible assets deemed to have an
indefinite useful life will be subject to an annual review for impairment. The
new standards generally were effective for the Company in the first quarter of
2002. Upon adoption of SFAS 142 in the first quarter of 2002, the Company
recorded a one-time, noncash adjustment of approximately $6,327 to write off the
unamortized balance of its negative goodwill. Such charge is non-operational in
nature and is reflected as a cumulative effect of an accounting change in the
accompanying consolidated statement of operations.

Note 3        NET INCOME PER SHARE

Net income per share is computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Basic income per share is
calculated by dividing net income available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
income per share is calculated using the weighted average number of common
shares outstanding during the period plus the additional dilutive effect of
common stock equivalents. The dilutive effect of outstanding stock options is
calculated using the treasury stock method, and the dilutive effect of preferred
stock is calculated using the "if converted" method.

<TABLE>
<CAPTION>
                                                                                        For the Three        For the Three
                                                                                        Months Ended          Months Ended
                                                                                       March 31, 2003        March 31, 2002
<S>                                                                                               <C>                 <C>
Numerator:

Net Income available to common stockholders before cumulative transition
      adjustment                                                                                  $8,502              $20,027
       Cumulative transition adjustment                                                                -                6,327
                                                                                     --------------------  -------------------
       Numerator for basic earnings per share                                                      8,502               26,354
Effect of 10.5% series A senior cumulative redeemable preferred stock                                  -                    -
                                                                                     --------------------  -------------------
Numerator for diluted earnings per share                                                          $8,052              $26,354
                                                                                     ====================  ===================

Denominator:
Denominator for basic earnings per share--weighted average common shares
             outstanding                                                                          47,592               45,654
Effect of 10.5% series A senior cumulative redeemable preferred stock                                  -                   30
Dilutive effect of stock options                                                                      30                   47
                                                                                     --------------------  -------------------
Denominator for diluted earnings per share--weighted average common shares
      outstanding and common share equivalents outstanding                                        47,622               45,731
                                                                                     ====================  ===================

Basic net income per weighted average common share:
Income before cumulative transition adjustment                                                     $0.18                $0.44
Cumulative transition adjustment - SFAS 142                                                            -                 0.14
                                                                                     --------------------  -------------------
Net income                                                                                         $0.18                $0.58
                                                                                     ====================  ===================

Diluted net income per weighted average common share and common share
equivalents:
Income before cumulative transition adjustment                                                     $0.18                $0.44
Cumulative transition adjustment - SFAS 142                                                            -                 0.14
                                                                                     --------------------  -------------------
Net income                                                                                         $0.18                $0.58
                                                                                     ====================  ===================
</TABLE>

                                       9
<PAGE>


Note 4        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 as
of March 31, 2003 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"):
  CMBS IOs                                                          $ 40,858         $  1,377  $        (484)          $ 41,751
  Investment grade CMBS                                               49,895            5,364               -            55,259
  Non-investment grade rated subordinated securities                 688,685           18,576        (72,342)           634,919
  Non-rated subordinated securities                                   39,783            2,584        (15,771)            26,596
  Credit tenant lease                                                  9,025                -            (69)             8,956
  Investment grade REIT debt                                         174,431           13,696            (20)           188,107
                                                              --------------- ---------------- --------------- -----------------
       Total CMBS                                                  1,002,677           41,597        (88,686)           955,588
                                                              --------------- ---------------- --------------- -----------------

  Single-family residential mortgage-backed securities ("RMBS"):
  Agency adjustable rate securities                                   38,021              450           (160)            38,311
  Agency fixed rate securities                                     1,034,436           10,468           (184)         1,044,720
  Residential CMOs                                                    10,404              254               -            10,658
  Hybrid Arms                                                         12,485              130               -            12,615
                                                              --------------- ---------------- --------------- -----------------
       Total RMBS                                                  1,095,346           11,302           (344)         1,106,304
                                                              --------------- ---------------- --------------- -----------------

  Total securities available for sale                            $ 2,098,023         $ 52,899      $ (89,030)       $ 2,061,892
                                                              =============== ================ =============== =================
</TABLE>

On March 31, 2003, $1,037,519 of RMBS securities classified as trading
securities were reclassified as available for sale securities. The
reclassification was based on the Company's intent with respect to these
securities with the principle objective of generating returns from other than
short-term pricing differences.

As of March 31, 2003, an aggregate of $1,906,391 in estimated fair value of the
Company's securities available for sale was pledged to secure its collateralized
borrowings.

As of March 31, 2003, the anticipated weighted average yield to maturity based
upon the amortized cost of the subordinated CMBS ("reported yield") was 9.8% per
annum. The anticipated reported yield of the Company's investment grade
securities available for sale was 5.1%. The Company's reported yields on its
subordinated CMBS and investment grade securities available for sale are based
upon a number of assumptions that are subject to certain business and economic
uncertainties and contingencies. Examples of these include, among other things,
the rate and timing of principal payments (including prepayments, repurchases,
defaults, and liquidations), the pass-through or coupon rate, and interest rate
fluctuations. Additional factors that may affect the Company's anticipated
yields to maturity on its subordinated CMBS include interest payment shortfalls
due to

                                       10
<PAGE>

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 following table sets forth certain information relating to the aggregate
principal balance and payment status of delinquent mortgage loans underlying the
subordinated CMBS held by the Company as of March 31, 2003:

<TABLE>

     ----------------------------------------------------------------- ----------------------------------------------
                                                                               March 31, 2003
     ----------------------------------------------------------------- ----------------------------------------------
                                                                                   Number              % of
                                                        Principal                 of Loans           Collateral
     ------------------------------------------ ---------------------- ---------------------- -----------------------
<S>                                                 <C>                          <C>                  <C>
     Past due 30 days to 60 days                      $  31,540                      5                0.30%
     ------------------------------------------ ---------------------- ---------------------- -----------------------
     Past due 60 days to 90 days                         31,994                      4                0.30
     ------------------------------------------ ---------------------- ---------------------- -----------------------
     Past due 90 days or more                           124,811                     21                1.19
     ------------------------------------------ ---------------------- ---------------------- -----------------------
     Real estate owned ("REO")                           23,530                      6                0.22
     ------------------------------------------ ---------------------- ---------------------- -----------------------
     Total delinquent                                   211,875                     36                2.01
     ------------------------------------------ ---------------------- ---------------------- -----------------------
     Total principal balance                        $10,529,266                  2,043
     ------------------------------------------ ---------------------- ---------------------- -----------------------
</TABLE>

To the extent that the Company's expectation of realized losses on individual
loans supporting the CMBS, if any, or such resolutions differ significantly from
the Company's original loss estimates, it may be necessary to reduce the
projected reported yield on the applicable CMBS investment to better reflect
such investment's expected earnings net of expected losses, and write the
investment down to its fair value. While realized losses on individual loans may
be higher or lower than original estimates, the Company currently believes its
aggregate loss estimates and reported yields are appropriate on all investments.


Note 5        SECURITIES HELD FOR TRADING

Securities held for trading reflect short-term trading strategies, which the
Company employs from time to time, designed to generate economic and taxable
gains based on short-term difference in pricing. As part of its trading
strategies, the Company may acquire long or short positions in U.S. Treasury or
agency securities, forward commitments to purchase such securities, financial
futures contracts and other fixed income or fixed income derivative securities.

The Company's securities held for trading are carried at estimated fair value.
At March 31, 2003, the Company's securities held for trading consisted of FNMA
Mortgage Pools with an estimated fair value of $358,976, and a forward
commitment with an estimated fair value of $102,410. The FNMA Mortgage Pools,
and the underlying mortgages, bear interest at fixed rates for specified
periods, generally three to seven years, after which the rates are periodically
reset to market.

For the three months ended March 31, 2003, losses on securities held for trading
in the consolidated statements of operations of $10,404 are largely attributable
to hedging the Company's sensitivity to long-

                                       11
<PAGE>

term interest rates. The Company's longstanding policy has been to maintain
limits on the exposure of the Company's equity to changes in long-term rates as
well as the exposure of earnings to changes in short-term funding rates. The
sale of five-year futures on U.S. Treasury notes to reduce the Company's
exposure to intermediate rates resulted in realized losses since market value
changes in those hedging investments must be marked-to-market though the income
statement. The value of these investments was negatively affected as the
five-year US Treasury went up in price (therefore reducing the value of the
hedged position) during the quarter.

The Company's trading strategies are subject to the risk of unanticipated
changes in the relative prices of long and short positions in trading
securities, but are designed to be relatively unaffected by changes in the
overall level of interest rates.


Note 6        COMMON STOCK

On March 6, 2003, the Company declared dividends to its common stockholders of
$0.35 per share, which were paid on April 30, 2003 to stockholders of record on
March 31, 2003. For U.S. Federal income tax purposes, the dividends are expected
to be ordinary income to the Company's stockholders.

For the three months ended March 31, 2003, the Company issued 333,328 shares of
Common Stock under its Dividend Reinvestment Plan. Net proceeds to the Company
were approximately $3,517. For the three months ended March 31, 2002, the
Company issued 519,303 shares of Common Stock under its Dividend Reinvestment
Plan. Net proceeds to the Company were approximately $5,661.

In March 2002, the remaining 10,000 shares of Series A Preferred Stock were
converted to 34,427 shares of Common Stock at a price of $7.26 per share in
accordance with the terms of the Series A Preferred Stock.


Note 7        TRANSACTIONS WITH AFFILIATES

The Company has a Management Agreement with BlackRock Financial Management, Inc.
(the "Manager"), a majority owned indirect subsidiary of The PNC Financial
Services Group, Inc. ("PNC Bank") 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. On March 25, 2002, the Management Agreement was extended for
one year through March 27, 2003, with the approval of the unaffiliated
directors, on terms similar to the prior agreement with the following changes:
(i) the incentive fee calculation would be based on GAAP earnings instead of
funds from operations, (ii) the removal of the four-year period to value the
Management Agreement in the event of termination and (iii) subsequent renewal
periods of the Management Agreement would be for one year instead of two years.
The Board was advised by Houlihan Lokey Howard & Zukin Financial Advisors, Inc.,
a national investment banking and financial advisory firm, in the renewal
process.

                                       12
<PAGE>

On March 6, 2003, the unaffiliated directors approved an extension of the
Management Agreement from its expiration of March 27, 2003 for one year through
March 31, 2004. The terms of the renewed agreement are similar to the prior
agreement except for the incentive fee calculation which would provide for a
rolling four-quarter high watermark rather than a quarterly calculation. In
determining the rolling four-quarter high watermark, the Company would calculate
the incentive fee based upon the current and prior three quarters' net income.
The Manager would be paid an incentive fee in the current quarter if the Yearly
Incentive Fee, as defined, is greater than what was paid to the Manager in the
prior three quarters cumulatively. The Company will phase in the rolling
four-quarter high watermark commencing with the second quarter of 2003.
Calculation of the incentive fee will be based on GAAP and adjusted to exclude
special one-time events pursuant to changes in GAAP accounting pronouncements
after discussion between the Manager and the unaffiliated directors. The
incentive fee threshold did not change. The high watermark will be based on the
existing incentive fee hurdle, which provides for the Manager to be paid 25% of
the amount of earnings (calculated in accordance with GAAP) per share that
exceeds the product of the adjusted issue price of the Company's common stock
per share ($11.39 as of March 31, 2003) and the greater of 9.5% or 350 basis
points over the ten-year Treasury note.

The Company pays the Manager an annual base management fee equal to a percentage
of the average invested assets of the Company as 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 0.20% of average invested assets rated above BB+.
In order to coincide with the increased size of the Company, effective July 1,
2001, the Manager reduced the base management fee from 0.35% of average invested
assets rated above BB+.

The Company incurred $2,577 and $2,219 in base management fees in accordance
with the terms of the Management Agreement for the three months ended March 31,
2003 and 2002, respectively. In accordance with the provisions of the Management
Agreement, the Company recorded reimbursements to the Manager of $6 and $5 for
certain expenses incurred on behalf of the Company during the three months ended
March 31, 2003 and 2002, respectively.

Pursuant to the March 25, 2002 one-year Management Agreement extension, the
incentive fee paid to the Manager was based on 25% of earnings (calculated in
accordance with GAAP) of the Company. For purposes of calculating the incentive
fee during 2002, the cumulative transition adjustment of $6,327 resulting from
the Company's adoption of SFAS 142 was excluded from earnings in its entirety
and included using an amortization period of three years. This revision saved
the Company $1,448 of incentive fee for the three months ended March 31, 2002.
The Company incurred $3,188 in incentive fees for the three months ended March
31, 2002. There was no incentive fee due to the Manager for the three months
ended March 31, 2003.

On March 17, 1999, the Company's Board of Directors approved an administration
agreement with the Manager and the termination of a previous agreement with an
unaffiliated third party. Under the terms of the administration agreement, the
Manager provides financial reporting, audit coordination and accounting
oversight services to the Company. The Company pays the Manager a monthly
administrative fee at an annual rate of 0.06% of the first $125 million of
average net assets, 0.04% of the next $125 million of average net assets and
0.03% of average net assets in excess of $250 million

                                       13
<PAGE>

subject to a minimum annual fee of $120. For the three months ended March 31,
2003 and 2002, the Company paid administration fees of $43 and $43,
respectively.

On July 20, 2001, the Company entered into a $50 million commitment to acquire
shares in Carbon Capital, Inc. ("Carbon"), a private commercial real estate
income opportunity fund managed by the Manager. The period during which the
Company may be required to purchase shares under the commitment expires in July
2004. On March 31, 2003, the Company owned 18.8% of the outstanding shares in
Carbon. The Company's remaining commitment at March 31, 2003 and December 31,
2002 was $32,436 and $35,116, respectively. On February 6, 2003, the Company
funded a capital call notice in the amount of $2,680, which was used by Carbon
to acquire a mezzanine loan secured by ownership interests in an entity that
owns a mixed-use development.

On May 15, 2000, the Company completed the acquisition of CORE Cap, Inc. The
merger was a stock for stock acquisition where the Company issued 4,180,552
shares of its common stock and 2,261,000 shares of its series B preferred stock.
At the time of the CORE Cap acquisition, the Manager agreed to pay GMAC (CORE
Cap, Inc.'s external advisor) $12,500 over a ten-year period ("Installment
Payment") to purchase the right to manage the assets under the existing
management contract ("GMAC Contract"). The GMAC Contract had to be terminated in
order to allow for the Company to complete the merger, as the Company's
management agreement with the Manager did not provide for multiple managers. As
a result the Manager offered to buy-out the GMAC Contract as the Manager
estimated it would receive incremental fees above and beyond the Installment
Payment, and thus was willing to pay for, and separately negotiate, the
termination of the GMAC Contract. Accordingly, the value of the Installment
Payment was not considered in the Company's allocation of its purchase price to
the net assets acquired in the acquisition of CORE Cap, Inc. The Company agreed
that should the Management Agreement with its Manager be terminated, not renewed
or not extended for any reason other than for cause, the Company would pay to
the Manager an amount equal to the Installment Payment less the sum of all
payments made by the Manager to GMAC. As of March 31, 2003, the Installment
Payment would be $9,500 payable over eight years. The Company does not accrue
for this contingent liability.


Note 8         BORROWINGS

Certain information with respect to the Company's collateralized borrowings at
March 31, 2003 is summarized as follows:

<TABLE>
<CAPTION>

                                   Lines of             Reverse                                          Total
                                  Credit and          Repurchase           Collateralized           Collateralized
                                  Term Loans          Agreements          Debt Obligations            Borrowings
                                 ------------------ --------------------- ---------------------- ---------------------------
<S>                                   <C>                <C>                    <C>                         <C>
Outstanding borrowings                $18,789            $1,449,719               $684,684                  $2,153,192
Weighted average
    borrowing rate                      2.99%                 1.31%                  6.60%                       3.01%
Weighted average
    remaining maturity               441 days               21 days             3,308 days                  1,070 days
Estimated fair value of
    assets pledged                    $50,438            $1,587,499               $754,514                  $2,392,451
</TABLE>

                                       14
<PAGE>


As of March 31, 2003, the Company's collateralized borrowings had the following
remaining maturities:
<TABLE>
<CAPTION>
                                      Lines of          Reverse                                            Total
                                   Credit and Term    Repurchase           Collateralized Debt         Collateralized
                                        Loans         Agreements               Obligations               Borrowings
                                 ------------------ --------------------- --------------------------- ----------------------
<S>                                   <C>                <C>                           <C>                  <C>
Within 30 days                          $   -            $1,449,719                      $    -             $1,449,719
31 to 59 days                               -                     -                           -                      -
Over 60 days                           18,789                     -                     684,684                703,473
                                 ================== ===================== =========================== ======================

                                      $18,789            $1,449,719                    $684,684             $2,153,192
                                 ================== ===================== =========================== ======================
</TABLE>

Under the lines of credit and the reverse repurchase agreements, the respective
lender retains the right to mark the underlying collateral to estimated 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.


Note 9      DERIVATIVE INSTRUMENTS

Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
All derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged risk are recognized
in earnings. If the derivative is designated as a cash flow hedge, the effective
portions of change in the fair value of the derivative are recorded in other
comprehensive income ("OCI") and are recognized in the income statement when the
hedged item affects earnings. Ineffective portions of changes in the fair value
of cash flow hedges are recognized in earnings.

The Company uses interest rate swaps to manage exposure to variable cash flows
on portions of its borrowings under reverse repurchase agreements and as trading
derivatives intended to offset changes in fair value related to securities held
as trading assets. On the date in which the derivative contract is entered, the
Company designates the derivative as either a cash flow hedge or a trading
derivative.

As of March 31, 2003, the Company had interest rate swaps with notional amounts
aggregating $1,177,826 that were designated as cash flow hedges of borrowings
under reverse repurchase agreements. Their aggregate fair value was a $45,235
asset included in other assets on the consolidated statements of financial
condition. For the three months ended March 31, 2003, the net change in the fair
value of the interest rate swaps was a decrease of $2,568, of which $262 was
deemed ineffective and is included as an increase of interest expense and $2,306
was recorded as a reduction of OCI. As of March 31, 2003, the $1,177,826
notional of swaps which were designated as cash flow hedges had a weighted
average remaining term of 5.31 years.

As of March 31, 2003, the Company had interest rate swaps with notional amounts
aggregating $651,545 designated as trading derivatives. Their aggregate fair
value at March 31, 2003 of $4,408 is included in

                                       15
<PAGE>

trading securities on the consolidated statements of financial condition. For
the three months ended March 31, 2003, the change in fair value for these
trading derivatives was a decrease of $1,473 and is included as an addition to
loss on securities held for trading in the consolidated statements of
operations. As of March 31, 2003, the $651,545 notional of swaps which were
designated as trading derivatives had a weighted average remaining term of 3.68
years.

Occasionally, counterparties will require the Company or the Company will
require counterparties to provide collateral for the interest rate swap
agreements in the form of margin deposits. Net deposits are recorded as a
component of either accounts receivable or other liabilities. Should the
counterparty fail to return deposits paid, the Company would be at risk for the
fair market value of that asset. At March 31, 2003 and 2002, the balance of such
net margin deposits owed to counterparties as collateral under these agreements
totaled $15,610 and $680, respectively.

The contracts identified in the remaining portion of this note have been entered
into to limit the Company's mark to market exposure to long-term interest rates.

At March 31, 2003, the Company had outstanding short positions of 137 ten-year
U.S. Treasury Note future contracts and 3,059 five-year U.S. Treasury Note
future contracts expiring in June 2003, which represented $13,700 and $305,900
in face amount of U.S. Treasury Notes, respectively. The estimated fair value of
these contracts was approximately $(362,834) at March 31, 2003, and the change
in fair value related to these contracts is included as a component of loss on
securities held for trading in the consolidated statements of operations.

                                       16
<PAGE>

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

All dollar figures expressed herein are expressed in thousands, except share or
per share amounts.

I.       General

The Company's primary long-term objective is to distribute consistent dividends
supported by GAAP earnings. Over the long term, earnings are primarily
maintained by consistent credit performance on the Company's investments,
stability of the Company's liability structure and reinvestment rates. In 2002,
the Company established a strong long-term secured debt issuance platform
through two collateralized debt obligation ("CDO") offerings. These transactions
effectively match funded a significant part of the Company's long-term credit
sensitive CMBS and REIT portfolios at attractive terms. In 2003, the Company
expects to redeploy capital raised from these transactions combined with
additional equity capital raised from the Company's common stock issuance
program. The current low interest rate environment adds a significant challenge
to accreting per share earnings, since portfolio cash flows must be reinvested
at lower than historical rates. However, issuing stock at a premium and locking
in attractive spreads with additional CDO offerings can lead to the accretion of
both earnings and book value per share as well as to increase diversification of
credit exposure.

Economic activity in the United States continues to point towards slow recovery
at best. During the first quarter, low interest rates and rallying stock markets
triggered a massive demand for high yield corporate credits causing the high
yield market to return 7.6% for the three months ended March 31, 2003. This
phenomenon was not replicated in the high yield commercial real estate markets.
Management attributes this to high barriers to entry in these markets and
believes this represents an opportunity for the Company to continue deploying
capital in this sector.

The Company continues to maintain a positive, though controlled exposure to both
long and short-term rates through its active hedging strategies. The Company
also will continue to seek out the best long-term matched financing solutions to
lock in attractive spreads on the Company's commercial real estate securities
portfolio.

The Company establishes its dividend by analyzing the long-term sustainability
of net income given existing market conditions and the current composition of
its portfolio. This includes an analysis of the Company's credit loss
assumptions, general level of interest rates, realized gains and losses and
projected hedging costs. These factors are generally beyond the Company's
control so there is no certainty that dividends will remain at current levels.
During the first quarter of 2003, the Board of Directors declared a dividend of
$0.35 per share to stockholders of record on March 31,2003, which was paid on
April 30, 2003. This represents the sixth consecutive quarterly $0.35 dividend
distribution. Since inception in March 1998, the Company has paid $200,229 in
dividends.

For the quarter ended March 31, 2003, the Company recorded $0.18 of GAAP
earnings per share. For the quarter ended March 31, 2002, the Company recorded
$0.58 of GAAP earnings per share, which included $0.14 per share as a cumulative
transition adjustment under the implementation of SFAS 142.

The Company's investment activities encompass three distinct lines of business:
1)       Commercial Real Estate Securities

                                       17
<PAGE>

2)       Commercial Real Estate Loans
3)       Residential Mortgage Backed Securities

The Company believes that these three investment activities represent an
integrated strategy where each line of business supports the others and creates
value over and above operating each line in isolation. The commercial real
estate securities portfolio represents broad exposure to commercial real estate
lending and provides diversification and high yields that are adjusted for
anticipated losses over a long period of time (typically, a ten year weighted
average life). These securities can be financed through the issuance of secured
debt that matches the life of the investment. Commercial real estate loans
provide attractive risk adjusted returns over shorter periods of time
(typically, a three to five year weighted average life) through investments in
loans secured by specific property types in specific regions. The RMBS portfolio
is a highly liquid portfolio that supports the liquidity needs of the Company
while typically earning attractive returns after hedging costs relative to other
liquid investments. The Company believes the risks of these portfolios are not
always highly correlated and thus can serve to provide stable earnings over long
periods of time.

The following table illustrates the change in the mix of the Company's three
investment activities:

<TABLE>
<CAPTION>
                                                     Carrying Value as of
                                          March 31, 2003       December 31, 2002
                                           Amount        %       Amount        %
                                        ---------------------------------------------
<S>                                         <C>          <C>      <C>          <C>
Commercial real estate securities           $ 955,588    37.0%    $ 894,345    36.1%
Commercial real estate loans(1)                65,520     2.5        73,929     3.0
Residential mortgage backed securities      1,567,690    60.5     1,506,450    60.9
                                        ---------------------------------------------

Total                                      $2,588,798   100.0%   $2,474,724   100.0%
                                        ---------------------------------------------
</TABLE>

(1) Includes real estate joint ventures

Commercial Real Estate Securities Portfolio Activity

The Company continues to increase its investments in commercial real estate
securities. Commercial real estate securities include CMBS and investment grade
REIT debt. During the quarter ended March 31, 2003, the Company increased total
assets in this sector by 7% from $894,345 to $955,588.

Included in the Company's December 10, 2002 collateralized debt obligation ("CDO
II") was a ramp facility that will be utilized to fund the purchase of $50,000
of par of below investment grade CMBS by September 30, 2003. The increase in
commercial real estate securities for the quarter includes $30,000 of par of
CMBS that was contributed to the ramp facility. At March 31, 2003, the balance
of the ramp facility permits another $20,000 of par to be contributed to CDO II.

The CMBS added includes $47,804 par of 2003 vintage CMBS rated BB- thru a
nonrated tranche where the Company has the right to direct foreclosure on
$1,006,389 of underlying loans. The loss adjusted yield of the controlling class
(CMBS rated BB- and lower) CMBS acquired during the first quarter is estimated
to be 11.23%. In computing the loss adjusted yields the Company assumed 2.30% of
the principal of the underlying loans would result in losses over a weighted
average of 8.6 years. The yield

                                       18
<PAGE>

of these CMBS assuming there would not be any losses is 16.44%. This is the
eighth controlling class trust the Company acquired since its inception.

The following table details the par, fair market value, adjusted purchase price
and loss adjusted yield of the Company's commercial real estate securities
included in the two CDOs as of March 31, 2003:

<TABLE>
<CAPTION>
                                       Par        Fair Market   Dollar Price   Adjusted   Dollar Price  Loss Adjusted
                                                     Value                  Purchase Price                  Yield
                                 ----------------------------------------------------------------------------------------
<S>                                      <C>             <C>          <C>         <C>           <C>                <C>
Investment grade CMBS                    $47,730         $51,914      108.77       $46,674       97.79              7.6%
Investment grade REIT debt               171,545         188,107      109.65       174,431      101.68              6.5%
CMBS rated BB+ to B                      610,264         483,739       79.27       495,625       81.21              9.2%
Whole Loans                                9,032           8,956       99.16         9,025       99.92              6.1%
                                 ----------------------------------------------------------------------------------------
Total                                   $838,571        $732,716       87.38      $725,755       86.55             8.43%
</TABLE>

The following table details the par, fair market value, adjusted purchase price
and loss adjusted yield of the Company's commercial real estate securities
outside of the two CDOs as of March 31, 2003:

<TABLE>
<CAPTION>
                                              Fair Market                     Adjusted                  Loss Adjusted
                                  Par            Value         Dollar Price Purchase Price  Dollar Price     Yield
                            -----------------------------------------------------------------------------------------
<S>                                <C>              <C>            <C>        <C>            <C>              <C>
CMBS rated BB+ to B                $ 126,567         $89,994       71.10      $104,653       82.69              8.7%
CMBS rated B- or lower               298,456          87,783       29.41       128,190       42.95             12.6%
CMBS IOs                             915,068          41,750        4.56        40,858        4.47              9.5%
Whole Loans                            4,000           3,345       83.62         3,221       80.53              7.0%
                            -----------------------------------------------------------------------------------------
Total                             $1,344,091        $222,872       16.58      $276,922       20.60            10.60%
</TABLE>


Below Investment Grade CMBS and Underlying Loan Performance

The Company divides its below investment grade CMBS investment activity into two
portfolios: the eight trusts ("Controlling Class CMBS"), in which the Company is
in the first loss position, and other below investment grade CMBS. The
distinction between the two is in the controlling class rights. Controlling
class rights allow the Company to control the workout and/or disposition of
defaults that occur in the underlying loans. These securities absorb the first
losses realized in the underlying loan pools. Other below investment grade CMBS
have no rights to control the workout and/or disposition of underlying loan
defaults, however they are not the first to absorb losses in the underlying
pools.

At March 31, 2003, the total par of the Company's other below investment grade
CMBS was $261,157; the total credit protection, or subordination level, of this
portfolio is 6.33%. The total par of the Company's Controlling Class CMBS at
March 31, 2003 was $774,130 and the total par of the loans underlying these
securities was $10,529,266. The non-rated security is the first to absorb
underlying loan losses until its par is completely written off. The coupon
payment on the non-rated security can also be reduced for special servicer fees
charged to the trust. The next highest rated security in the structure will then
generally be downgraded to non-rated and becomes the first to absorb losses and
expenses from that point on.

                                       19
<PAGE>

The Company's investment in its Controlling Class CMBS by credit rating category
at March 31, 2003 is as follows:

<TABLE>
<CAPTION>
                                Fair Market   Dollar       Adjusted       Dollar    Subordination
                       Par         Value       Price    Purchase Price     Price        Level
                  ----------------------------------------------------------------------------------
<S>                     <C>          <C>          <C>            <C>          <C>       <C>
BB+                     $80,286      $69,341      86.37          $68,518      85.34     7.90%
BB                       88,266       74,133      83.99           74,730      84.66     6.22%
BB-                      92,520       65,863      71.19           73,947      79.92     5.35%
B+                       39,877       26,216      65.74           27,818      69.76     3.59%
B                       174,725      104,194      59.63          129,331      74.02     3.31%
B-                       92,263       42,024      45.55           56,671      61.42     2.25%
CCC                      79,212       19,163      24.19           31,736      40.06     1.41%
NR                      126,981       26,560      20.92           39,783      31.33      n/a
                  ----------------------------------------------------------------------------------
Total                  $774,130     $427,494      55.22         $502,534      64.92
</TABLE>

The Company's investment in its Controlling Class CMBS by credit rating category
at December 31, 2002 is as follows:

<TABLE>
<CAPTION>
                                Fair Market   Dollar       Adjusted       Dollar    Subordination
                       Par         Value       Price    Purchase Price     Price        Level
                  ----------------------------------------------------------------------------------
<S>                     <C>          <C>          <C>            <C>          <C>       <C>
BB+                     $65,159      $56,543      86.78          $56,181      86.22     8.26%
BB                       58,170       48,674      83.68           48,560      83.48     6.73%
BB-                      84,972       59,415      69.92           68,623      80.76     5.48%
B+                       32,329       21,533      66.61           23,173      71.68     3.72%
B                       168,435       99,815      59.26          125,197      74.33     3.35%
B-                       87,231       40,335      46.24           53,415      61.23     2.32%
CCC                      70,407       17,715      25.16           28,942      41.11     1.46%
NR                      123,349       25,335      20.54           34,171      27.70      n/a
                  ----------------------------------------------------------------------------------
Total                  $690,052     $369,365      53.53         $438,262      63.51
</TABLE>


During the first quarter of 2003, total par writedowns in the CMBS Controlling
Class portfolio were $10,469. This reduces the total par of the non-rated
securities by 2% and permanently reduces future cashflows. When the principal of
loans is written off, the trust must also pay the expense of loan workouts and
foreclosures, including special servicer fees. The effect of these cashflow
reductions is reflected in the market value of these securities which declined
by $4,302 during the quarter causing a reduction in Company book value. Further
delinquencies and losses in the underlying loan portfolios may cause shortfalls
to continue and cause the Company to conclude that a change in loss adjusted
yield is required along with a significant write down of the adjusted purchase
price through the income statement in accordance with accounting standard EITF
99-20.

During the first quarter of 2003, the underlying loans were paid down by
$39,363. Pay down proceeds are distributed to the highest rated CMBS class first
and reduce the percent of total underlying collateral represented by each rating
category.

For all of the Company's Controlling Class securities, the Company assumes that
1.95% of the remaining current aggregate loan balance will not be recoverable.
This represents an increase from 1.88% as of December 31, 2002 to include the
new Controlling Class CMBS transaction acquired on

                                       20
<PAGE>


March 14, 2003. This estimate was developed based on an analysis of individual
loan characteristics and prevailing market conditions at the time of
origination. This loss estimate equates to cumulative expected defaults of
approximately 5% over the life of the portfolio and an average assumed loss
severity of 39.0% of the defaulted loan balance. All estimated workout expenses
including special servicer fees are included in these assumptions. Actual
results could differ materially from these estimated results. The following
table shows the total amount of collateral outstanding on March 31, 2003 for
each vintage year of Controlling Class securities owned by the Company along
with losses assumed.

<TABLE>
<CAPTION>
                                                                       Weighted Avg.         Losses
                                                                     Remaining Life of   Recognized as %
                              Total Collateral    Losses Assumed          Losses            of Total
                             -----------------------------------------------------------------------------
<S>                      <C>       <C>                    <C>              <C>                 <C>
                         1998      $  7,870,911           $ 137,891        6.93                17.8%

                         1999           733,347              18,950        5.04                -0.2%

                         2001           918,619              23,797        6.54                 0.0%

                         2003         1,006,389              24,348        7.89                 0.0%
                             -----------------------------------------------------------------------------
                  Total            $ 10,529,266           $ 204,986        6.85                11.9%
                             =============================================================================
</TABLE>

As additional Controlling Class CMBS are added, the Company has been increasing
the loss assumptions to take into account slower economic activity.
Additionally, the Company plans to perform a detailed re-underwriting for a
significant amount of the collateral from its 1998 vintage CMBS over the next 18
months. Upon completion, the Company may determine that its reported yields and
book values need to be adjusted. The result of assuming greater losses, if that
were the conclusion, would be an other than temporary writedown of CMBS to their
market value which would include the realization of the amounts currently
carried as unrealized losses on the Company's consolidated statements of
financial condition. The Company feels this approach provides the appropriate
discipline to maintain steady earnings over the long-term from this portfolio.

See Item 3 -"Quantitative and Qualitative Disclosures About Market Risk" for a
discussion of how differences between estimated and actual losses could affect
Company earnings.

The Company monitors credit performance on a monthly basis and debt service
coverage ratios on a quarterly basis. Using these and other statistics, the
Company maintains watch lists for loans that are delinquent thirty days or more
and for loans that are not delinquent but have issues that the Company feels
require close monitoring.

The Company considers delinquency information from the Lehman Brothers Conduit
Guide to be the most relevant measure of credit performance and market
conditions applicable to its Controlling Class CMBS holdings. The year of
issuance, or vintage year, is important, as older loan pools will tend to have
more delinquencies than newly underwritten loans. The Company owns Controlling
Class CMBS issued in 1998, 1999, 2001 and 2003. Comparable delinquency
statistics referenced by vintage year as a percentage of par outstanding as of
March 31, 2003 are shown in the table below:

   Vintage Year    Underlying      Delinquencies      Lehman Conduit Guide
                   Collateral       Outstanding
   ----------------------------------------------------------------------------

      1998             $7,870,911            2.55%                     2.21%
      1999                733,347            1.51%                     1.67%
      2001                918,619            0.00%                     0.76%
      2003              1,006,389            0.00%                     0.00%
               ----------------------------------------------------------------
      Total           $10,529,266            2.01%  *                  1.44% *

* Weighted average based on respective collateral

                                       21
<PAGE>



Morgan Stanley also tracks CMBS loan delinquencies for specific CMBS
transactions with more than $200,000 of collateral and that have been seasoned
for at least one year. This seasoning criterion will generally adjust for the
lower delinquencies that occur in newly originated collateral. As of March 31,
2003, the Morgan Stanley index indicated that delinquencies on 210
securitizations was 2.12%, and as of December 31, 2002, this same index
indicated that delinquencies on 204 securitizations was 2.01%. See Item 3 -
"Quantitative and Qualitative Disclosures About Market Risks" for a detailed
discussion of how delinquencies and loan losses affect the Company.

Delinquencies on the Company's CMBS collateral as a percent of principal
increased in line with expectations. The Company's aggregate delinquency
experience is consistent with comparable data provided in the Lehman Brothers
Conduit Guide.

Of the 36 delinquent loans shown on the chart in Note 4 of the consolidated
financial statements, one was delinquent due to technical reasons, six were REO
and being marketed for sale, four were in foreclosure, and the remaining 25
loans were in some form of workout negotiations. Aggregate realized losses of
$14,277 were realized in the first quarter of 2003. This brings cumulative net
losses realized to $23,426, which is 11.4% of total estimated losses. These
losses include special servicer and other workout expenses. This experience to
date is in line with the Company's loss expectations. Realized losses are
expected to increase on the underlying loans as the portfolio ages. Special
servicer expenses are also expected to increase as portfolios mature and US
economic activity remains weak.

The five transactions acquired in 1998 contributed 35 of the 36 delinquent
loans. Of those five, the CMAC 1998 C2 transaction represents eleven delinquent
loans with total par of $103,440. At March 31, 2003, this transaction incurred
principal reductions of $6,700 which reduces the par and the future cash flows
of the non rated class M security. The reduction represents 15% of the original
class M principal balance. Furthermore, prior cash flow interruptions due to
losses and delinquencies resulted in schedule payment shortfalls to the classes
senior to the class M security in the amount of $2,437. This prevents the class
M from receiving further cash flows until this shortfall has been paid in full.
The Company has determined that cash flows may not resume for a significant
period of time depending on future performance on the underlying loans. The fair
market value of this security is currently carried at a dollar price of 33.1 to
reflect the uncertainty of the cash flows. If underlying loan performance
deteriorates, the Company may have to write this security down to its market
value through the income statement in accordance with accounting standard EITF
99-20. The current unrealized loss on this security is $8,476.

The Company manages its credit risk through disciplined underwriting,
diversification, active monitoring of loan performance and exercise of its right
to control the workout process as early as possible. The Company maintains
diversification of credit exposures through its underwriting process and can
shift its focus in future investments by adjusting the mix of loans in
subsequent acquisitions. The comparative profiles of the loans underlying the
Company's CMBS by property type as of March 31, 2003 and December 31, 2002 is as
follows:


                                       22
<PAGE>

                             3/31/03 Exposure          12/31/02 Exposure
     -------------------------------------------------------------------------
     Property Type        Loan Balance  % of Total  Loan Balance   % of Total
     -------------------------------------------------------------------------
     Multifamily             $3,577,849      34.0%      $3,302,387      34.4%
     Retail                   3,021,956       28.7       2,704,952       28.1
     Office                   2,145,019       20.4       1,809,519       18.8
     Lodging                    819,927        7.8         834,854        8.7
     Industrial                 594,293        5.6         589,044        6.1
     Healthcare                 344,305        3.3         346,298        3.6
     Parking                     25,917        0.2          29,743        0.3
                         -----------------------------------------------------
     Total                  $10,529,266        100%     $9,616,797       100%
                         =====================================================

As of March 31, 2003, the fair market value of the Company's holdings of CMBS is
$66,953 lower than the adjusted cost for these securities. This decline in the
value of the investment portfolio represents market valuation changes and is not
due to actual credit experience or credit expectations. The adjusted purchase
price of the Company's Controlling Class CMBS portfolio as of March 31, 2003
represents approximately 65% of its par amount. The market value of the
Company's Controlling Class CMBS portfolio as of March 31, 2003 represents
approximately 55% of its par amount. As the portfolio matures, the Company
expects to recoup the unrealized loss, provided that the credit losses
experienced for each class of security in a transaction are not greater than the
credit losses assumed in the purchase analysis of those individual securities.
As of March 31, 2003, the Company believes there has been no material
deterioration in the credit quality of its portfolio below original
expectations.

As the portfolio matures and expected losses occur, subordination levels of the
lower rated classes of a CMBS investment will be reduced. This may cause the
lower rated classes to be downgraded, which would negatively affect their market
value and therefore the Company's net asset value. Reduced market value will
negatively affect the Company's ability to finance any such securities that are
not financed through a CDO or similar matched funding vehicle. In some cases,
securities held by the Company may be upgraded to reflect seasoning of the
underlying collateral and thus would increase the market value of the
securities.

The Company's GAAP income for its CMBS securities is computed based upon a yield
which assumes credit losses. The yield to compute the Company's taxable income
does not assume the occurrence of credit losses, as a loss can only be deducted
for tax purposes when it has occurred. As a result, for the years ended December
31, 1998 through the three months ended March 31, 2003, the Company's GAAP
income accrued on its CMBS assets was approximately $21,634 lower than the
taxable income accrued on the CMBS assets.

Commercial Real Estate Loan Activity

The Company's commercial real estate loan portfolio generally emphasizes larger
transactions located in metropolitan markets, as compared to the typical loan in
the CMBS portfolio. There are no delinquencies in the Company's commercial real
estate loan portfolio which is relatively small and heterogeneous. The Company
has determined it is not necessary to establish a loan loss reserve for this
portfolio.

                                       23
<PAGE>

The following table summarizes the Company's commercial real estate loan
portfolio by property type as of March 31, 2003 and December 31, 2002:

<TABLE>
<CAPTION>
                                             March 31, 2003                   December 31, 2002
                                    --------------------------------- ---------------------------------
                                                           Weighted                          Weighted
                                                           Average                           Average
                   Property Type     Loan Outstanding      Coupon       Loan Outstanding      Coupon
                   ---------------- -------------------- ------------ -------------------- ------------
                                      Amount       %                    Amount       %
                   ---------------- ---------- --------- ------------ ---------- --------- ------------
<S>                <C>                 <C>       <C>          <C>        <C>       <C>       <C>
                   Office              $64,425   95.6%        9.3%       $69,431   91.4%     9.5%
                   Multifamily           2,965    4.4         3.7          3,013    4.0      3.6
                   Retail                    -      -         -            3,500    4.6      4.6
                                    ---------- --------- ------------ ---------- --------- ------------
                   Total               $67,390 100.0%         9.0%       $75,944 100.0%      9.2%
                                    ---------- --------- ------------ ---------- --------- ------------
</TABLE>

Residential Mortgage Backed Securities

The RMBS market was extremely volatile in the first quarter as prepayments
spiked to record levels and the ten-year Treasury rate increased as high as
4.15% and as low as 3.58%. However, the steep yield curve continues to provide a
significant amount of income which offsets some of the volatility. The mark to
market of this portfolio with its hedges is reflected in realized and unrealized
gain/loss on the Company's consolidated statement of operations, and the net
income is reported in the interest income and expense section of the same
statements. The Company continues its policy of hedging this portfolio to
maintain long-term stability of the portfolio, though short-term volatility can
and does occur. The realized losses were substantially from rolling Treasury
futures hedges; the Company did not liquidate any RMBS assets at a loss. The
Company has significant liquidity to maintain its position over the longer term.

At the end of the third quarter in 2002, the Company reevaluated its RMBS
strategy. The Company relies on hedging to protect the value of the RMBS
portfolio and maintain stable levels of leverage. The Company determined it
would be more favorable to rely less on futures as a hedge, which is required to
be marked to market through the consolidated statement of operations, and rely
more on swaps which are marked to market on the consolidated statement of
financial condition. Reducing the effect of income statement volatility caused
by the RMBS portfolio that is not actively traded is important to the Company.
At March 31, 2003, the Company reclassified $1,037,519 market value of RMBS from
held for trading to available for sale, leaving $461,386 market value of RMBS in
held for trading. The securities left in held for trading are 6.0% coupon agency
passthroughs hedged to a zero duration with five year futures. These securities
will be sold in the short-term with the capital redeployed into commercial real
estate assets. The securities reclassified as available for sale are 4% - 5.5%
Agency RMBS hedged with interest rate swaps of up to ten year maturities.

A breakdown of the RMBS portfolio income performance for the quarter is as
follows:

Interest Income          $20,285

Interest Expense           7,940
                   --------------
Net Interest Income       12,345
                   --------------
Realized loss             (8,672)

Unrealized loss in value  (1,731)

Net Income from RMBS      $1,942
                   ==============

                                       24
<PAGE>

II.      Results of Operations

Net income for the three months ended March 31, 2003 was $9,697 or $0.18 per
share ($0.18 diluted). Net income for the three months ended March 31, 2002 was
$27,743 or $0.58 per share ($0.58 diluted). The decrease in income from 2002 to
2003 is primarily due to the cumulative transition adjustment for SFAS 142 in
2002 and  losses on securities classified as held for trading in 2003.

Interest Income: The following tables sets forth information regarding the total
amount of income from certain of the Company's interest-earning assets.

<TABLE>
<CAPTION>

                                            For the Three Months Ended March 31,
                                                2003                    2002
                                       ----------------------- ------------------------
                                          Interest Interest         Income Income
                                       ----------------------- ------------------------
<S>                                            <C>                     <C>
CMBS                                           $13,154                 $13,279
Other securities                                11,498                  15,400
Commercial mortgage loans                        1,185                   3,619
Cash and cash equivalents                          176                     319
                                       ----------------------- ------------------------
Total                                          $26,013                 $32,617
                                       ======================= ========================
</TABLE>

In addition, the Company earned $15,831 and $6,288 in interest income from
securities held for trading during the three months ended March 31, 2003 and
2002, respectively, $236 and $261 in earnings from real estate joint ventures
during the three months ended March 31, 2003 and 2002, respectively, and $743
and $185 in earnings from an equity investment during the three months ended
March 31, 2003, and 2002, respectively.

                                       25
<PAGE>


Interest Expense: The following table sets forth information regarding the total
amount of interest expense from certain of the Company's collateralized
borrowings. Information is based on daily average balances during the period.

<TABLE>
<CAPTION>
                                                    For the Three Months Ended March 31,
                                                        2003                     2002
                                              ------------------------- ------------------------
                                                      Interest                 Interest
                                                      Expense                   Expense
                                              ------------------------- ------------------------
<S>                                                            <C>                      <C>
Reverse repurchase agreements                                  $ 5,852                  $ 8,147
Lines of credit and term loan                                      136                      695
CDO liabilities                                                  6,405                        -
                                              ========================= ========================
Total                                                          $12,393                  $ 8,842
                                              ========================= ========================
</TABLE>

The foregoing interest expense amounts for the three months ended March 31, 2003
do not include a $262 addition to interest expense related to hedge
ineffectiveness, as well as a $7,050 addition to interest expense related to
swaps. The foregoing interest expense amounts for the three months ended March
31, 2002 do not include a $1,175 reduction of interest expense related to hedge
ineffectiveness, as well as a $3,973 addition to interest expense related to
swaps. See Note 9 in the consolidated financial statements, Derivative
Instruments, for a further description of the Company's hedge ineffectiveness.

Net Interest Margin and Net Interest Spread from the Portfolio: The Company
considers its portfolio to consist of its securities available for sale,
mortgage loan pools, commercial mortgage loans and cash and cash equivalents
because these assets relate to its core strategy of acquiring and originating
high yield loans and securities backed by commercial real estate, while at the
same time maintaining a portfolio of investment grade securities to enhance the
Company's liquidity.

Net interest margin from the portfolio is annualized net interest income from
the portfolio divided by the average market value of interest-earning assets in
the portfolio. Net interest income from the portfolio is total interest income
from the portfolio less interest expense relating to collateralized borrowings.
Net interest spread from the portfolio equals the yield on average assets for
the period less the average cost of funds for the period. The yield on average
assets is interest income from the portfolio divided by average amortized cost
of interest earning assets in the portfolio. The average cost of funds is
interest expense from the portfolio divided by average outstanding
collateralized borrowings.

The following chart describes the interest income, interest expense, net
interest margin and net interest spread for the Company's portfolio. The
following interest income and interest expense amounts exclude income and
expense related to real estate joint ventures, equity investment and hedge
ineffectiveness.

<TABLE>
<CAPTION>
                                                      For the Three Months Ended March 31,
                                                     2003                              2002
                                       --------------------------------- ---------------------------------
<S>                                                <C>                               <C>
         Interest income                           $41,844                           $39,090
         Interest expense                          $19,433                           $12,803
         Net interest margin                          3.62%                             5.01%
         Net interest spread                          3.30%                             4.56%
</TABLE>

                                       26
<PAGE>


Other Expenses: Expenses other than interest expense consist primarily of
management fees and general and administrative expenses. Management fees paid to
the Manager of $2,577 for the three months ended March 31, 2003 and were solely
base management fees. Management fees paid to the Manager of $5,407 for the
three months ended March 31, 2002 were comprised of base management fees of
$2,219 and incentive fees of $3,188. Other expenses/income-net of $582 and $576
for the three months ended March 31, 2003, and 2002, respectively, were
comprised of accounting agent fees, custodial agent fees, directors' fees, fees
for professional services, insurance premiums and due diligence costs.

Other Gains (Losses): During the three months ended March 31, 2003 and 2002, the
Company sold a portion of its securities available for sale for total proceeds
of $0 and $354,187, respectively, resulting in a realized gain/(loss) of $142
and $(4,079), respectively. The (losses)/gains on securities held for trading
were $(10,389) and $4,014 for the three months ended March 31, 2003 and 2002,
respectively. The foreign currency loss of $(247) for the three months ended
March 31, 2002 relates to the Company's net investment in a commercial mortgage
loan denominated in pounds sterling and associated hedging, which was
subsequently paid off in December 2002.

Dividends Declared: On March 6, 2003, the Company declared distributions to its
stockholders of $.35 per share, which was paid on April 30, 2003 to stockholders
of record on March 31, 2003.

                                       27
<PAGE>


Changes in Financial Condition

Securities Available for Sale: The Company's securities available for sale,
which are carried at estimated fair value, included the following at March 31,
2003 and December 31, 2002:

<TABLE>
<CAPTION>

                                                     March 31, 2003                      December 31,
                                                        Estimated                      2002 Estimated
                                                          Fair                             Fair
                Security Description                      Value         Percentage         Value          Percentage
  -------------------------------------------------- ---------------- --------------- ----------------- ----------------
<S>                                                         <C>             <C>               <C>             <C>
  Commercial mortgage-backed securities:
  CMBS IOs                                                  $ 41,751         2.0%             $ 43,634         4.5%
  Investment grade CMBS                                       55,259         2.7                55,120         5.7
  Non-investment grade rated subordinated                    634,919        30.8               577,371        59.3
  securities
  Non-rated subordinated securities                           26,596         1.3                25,335         2.7
  Credit tenant lease                                          8,956         0.4                 9,063         0.9
  Investment grade REIT debt                                 188,107         9.1               183,822        18.9
                                                     ---------------- --------------- ----------------- ----------------
       Total CMBS                                            955,588        46.3               894,345        92.0
                                                     ---------------- --------------- ----------------- ----------------

  Single-family residential mortgage-backed securities:
  Agency adjustable rate securities                           38,311         1.9                41,299         4.2
  Agency fixed rate securities                             1,044,720        50.7                 8,833         0.9
  Residential CMOs                                            10,658         0.5                13,834         1.4
  Hybrid arms                                                 12,615         0.6                14,751         1.5
                                                     ---------------- --------------- ----------------- ----------------
       Total RMBS                                          1,106,304        53.7                78,717         8.0
                                                     ---------------- --------------- ----------------- ----------------

                                                     ---------------- --------------- ----------------- ----------------
  Total securities available for sale                     $2,061,892      100.0%              $973,062      100.0%
                                                     ================ =============== ================= ================
</TABLE>

The increase in the CMBS and investment grade REIT debt is attributable to the
attractive opportunities available to the Company to match fund these assets in
its two CDOs.

Borrowings: As of March 31, 2003, the Company's debt consisted of collateralized
debt obligations, line-of-credit borrowings, and reverse repurchase agreements,
collateralized by a pledge of most of the Company's securities available for
sale, securities held for trading, and its commercial mortgage loans. The
Company's financial flexibility is affected by its ability to renew or replace
on a continuous basis its maturing short-term borrowings. As of March 31, 2003,
the Company has obtained financing in amounts and at interest rates consistent
with the Company's short-term financing objectives.

Under the collateralized debt obligations, lines of credit, and the reverse
repurchase agreements, the lender retains the right to mark the underlying
collateral to market value. A reduction in the value of its pledged assets would
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.

                                       28
<PAGE>

The following table sets forth information regarding the Company's
collateralized borrowings:

<TABLE>
<CAPTION>
                                                                          For the Three Months Ended
                                                                                March 31, 2003
                                                       -----------------------------------------------------------------

                                                          March 31, 2003         Maximum              Range of
                                                             Balance             Balance             Maturities
                                                       --------------------- ---------------- --------------------------
<S>                                                               <C>              <C>            <C>   <C>
Collateralized debt obligations                                    $684,684         $684,684      8.7 to 10.4 years
Reverse repurchase agreements                                     1,449,719        1,858,434        3 to 24 days
Line of credit and term loan borrowings                              18,789           22,057       121 to 837 days
                                                       --------------------- ---------------- --------------------------
</TABLE>

Hedging Instruments: From time to time, the Company may reduce its exposure to
market interest rates by entering into various financial instruments that adjust
portfolio duration. These financial instruments are intended to mitigate the
effect of changes in interest rates on the value of certain assets in the
Company's portfolio. At March 31, 2003, the Company had outstanding short
positions of 3,059 five-year and 137 ten-year U.S. Treasury Note future
contracts. At December 31, 2002, the Company had outstanding short positions of
3,166 five-year and 1,126 ten-year U.S. Treasury Note future contracts.

Interest rate swap agreements as of March 31, 2003 and December 31, 2002
consisted of the following:

<TABLE>
<CAPTION>
                                                                  March 31, 2003
                                                                                           Weighted
                                                 Notional     Estimated     Unamortized     Average
                                                   Value     Fair Value        Cost     Remaining Term
                                               --------------------------------------------------------
<S>                                               <C>         <C>               <C>     <C>
                    Interest rate swaps           $1,179,000  $(15,580)         $0        2.18 years
                    Interest rate swaps - CDO        650,371   (34,063)          0        9.36 years
                                               --------------------------------------------------------
                    Total                         $1,829,371  $(49,643)         $0        4.73 years
                                               ========================================================


                                                                December 31, 2002
                                                                                           Weighted
                                                 Notional     Estimated     Unamortized     Average
                                                   Value     Fair Value        Cost     Remaining Term
                                               --------------------------------------------------------
                    Interest rate swaps             $489,000  $(11,948)         $0    1.79 years
                    Interest rate swaps - CDO        673,832   (33,654)          0    9.60 years
                                               --------------------------------------------------------
                    Total                         $1,162,832  $(45,602)         $0    6.31 years
                                               ========================================================
</TABLE>

As of March 31, 2003, the Company had designated $1,177,826 notional of the
interest rate swap agreements as cash flow hedges. As of December 31, 2002, the
Company had designated $791,287 notional of the interest rate swap agreements as
cash flow hedges.

Capital Resources and Liquidity

Liquidity is a measurement of the Company's ability to meet potential cash
requirements, including

                                       29
<PAGE>

 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
collateralized borrowings, principal and interest payments on and maturities of
securities available for sale, securities held for trading and commercial
mortgage loans, and proceeds from the maturity or sales thereof.

To the extent that the Company may become unable to maintain its borrowings at
their current level due to changes in the financing markets for the Company's
assets, the Company may be required to sell assets in order to achieve lower
borrowing levels. In this event, the Company's level of net income would
decline. The Company's principal strategies for mitigating this risk are to
maintain portfolio leverage at levels it believes are sustainable and to
diversify the sources and types of available borrowing and capital. The Company
has utilized committed bank facilities and preferred stock offerings, and will
consider resecuritization or other achievable term funding of existing assets.

In March 2002, the Series A Preferred stockholder converted its remaining 10,000
shares of the Series A Preferred Stock into 34,427 shares of Common Stock at a
price of $7.26 per share pursuant to the terms of such preferred stock, which is
$0.09 lower than the original conversion price due to the effects of
anti-dilution provisions in the Series A Preferred Stock.

For the quarter ended March 31, 2003, the Company issued 333,328 shares of
Common Stock under its Dividend Reinvestment Plan. Net proceeds to the Company
were approximately $3,517.

As of March 31, 2003, $166,211 of the Company's $185,000 committed credit
facility with Deutsche Bank, AG was available for future borrowings.

The Company's operating activities provided cash flows of $403,374 and $214
during the three months ended March 31, 2003 and 2002, respectively, primarily
through sales of trading securities and net income and purchases of trading
securities, respectively.

The Company's investing activities (used) provided cash flows of $(384,027) and
$193,591 during the three months ended March 31, 2003 and 2002, respectively,
primarily to purchase securities available for sale and to fund commercial
mortgage loans, offset by significant sales of securities.

The Company's financing activities used $(22,835) and $(217,293) during the
three months ended March 31, 2003 and 2002, respectively, primarily from
distributions on Common Stock in 2003 and reductions of the level of short-term
borrowings in 2002.

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 have, sufficient cash flows from
its portfolio to fund distributions to stockholders.

The Company is subject to various covenants in its lines of credit, including
maintaining a minimum GAAP net worth of $305,000, a debt-to-equity ratio not to
exceed 5.5 to 1, a minimum cash requirement based upon certain debt to equity
ratios, a minimum debt service coverage ratio of 1.5, and a minimum liquidity
reserve of $10,000. As of March 31, 2003, the Company was in compliance with all
such covenants.

                                       30
<PAGE>

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. Current conditions in the capital markets for
REITs such as the Company have made permanent financing transactions difficult
and more expensive than at the time of the Company's initial public offering.
Consequently, there can be no assurance that the Company will be able to
effectively fund future growth. Except as discussed herein, management is not
aware of any other trends, events, commitments or uncertainties that may have a
significant effect on liquidity.

Contingent Liability

On May 15, 2000, the Company completed the acquisition of CORE Cap, Inc. The
merger was a stock for stock acquisition where the Company issued 4,180,552
shares of its common stock and 2,261,000 shares of its series B preferred stock.
At the time of the CORE Cap acquisition, the Manager agreed to pay GMAC (CORE
Cap, Inc.'s external advisor) $12,500 over a ten-year period ("Installment
Payment") to purchase the right to manage the assets under the existing
management contract ("GMAC Contract"). The GMAC Contract had to be terminated in
order to allow for the Company to complete the merger, as the Company's
management agreement with the Manager did not provide for multiple managers. As
a result the Manager offered to buy-out the GMAC Contract as the Manager
estimated it would receive incremental fees above and beyond the Installment
Payment, and thus was willing to pay for, and separately negotiate, the
termination of the GMAC Contract. Accordingly, the value of the Installment
Payment was not considered in the Company's allocation of its purchase price to
the net assets acquired in the acquisition of CORE Cap, Inc. The Company agreed
that should the Management Agreement with its Manager be terminated, not renewed
or not extended for any reason other than for cause, the Company would pay to
the Manager an amount equal to the Installment Payment less the sum of all
payments made by the Manager to GMAC. As of March 31, 2003, the Installment
Payment would be $9,500 payable over eight years. The Company does not accrue
for this contingent liability.

Transactions with Affiliates

The Company has a Management Agreement with the Manager, a majority owned
indirect subsidiary of The PNC Financial Services Group, Inc. ("PNC Bank") 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. On March 25, 2002, the
Management Agreement was extended for one year through March 27, 2003, with the
approval of the unaffiliated directors, on terms similar to the prior agreement
with the following changes: (i) the incentive fee calculation would be based on
GAAP earnings instead of funds from operations, (ii) the removal of the
four-year period to value the Management Agreement in the event of termination
and (iii) subsequent renewal periods of the Management Agreement would be for
one year instead of two years. The Board was advised by Houlihan Lokey Howard &
Zukin Financial Advisors, Inc., a national investment banking and financial
advisory firm, in the renewal process.

On March 6, 2003, the unaffiliated directors approved an extension of the
Management Agreement from its expiration of March 27, 2003 for one year through
March 31, 2004. The terms of the renewed

                                       31
<PAGE>

agreement are similar to the prior agreement except for the incentive fee
calculation which would provide for a rolling four-quarter high watermark rather
than a quarterly calculation. In determining the rolling four-quarter high
watermark, the Company would calculate the incentive fee based upon the current
and prior three quarters' net income. The Manager would be paid an incentive fee
in the current quarter if the Yearly Incentive Fee is greater than what was paid
to the Manager in the prior three quarters cumulatively. The Company will phase
in the rolling four-quarter high watermark commencing with the second quarter of
2003. Calculation of the incentive fee will be based on GAAP and adjusted to
exclude special one-time events pursuant to changes in GAAP accounting
pronouncements after discussion between the Manager and the unaffiliated
directors. The incentive fee threshold did not change. The high watermark will
be based on the existing incentive fee hurdle, which provides for the Manager to
be paid 25% of the amount of earnings (calculated in accordance with GAAP) per
share that exceeds the product of the adjusted issue price of the Company's
common stock per share ($11.39 as of March 31, 2003) and the greater of 9.5% or
350 basis points over the ten-year Treasury note.

The Company pays the Manager an annual base management fee equal to a percentage
of the average invested assets of the Company as 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 0.20% of average invested assets rated above BB+.

The Company incurred $2,577 and $2,219 in base management fees in accordance
with the terms of the Management Agreement for the three months ended March 31,
2003 and 2002, respectively. In accordance with the provisions of the Management
Agreement, the Company recorded reimbursements to the Manager of $6 and $5 for
certain expenses incurred on behalf of the Company for the three months ended
March 31, 2003 and 2002, respectively.

Pursuant to the March 25, 2002 one-year Management Agreement extension, the
incentive fee was based on 25% of earnings (calculated in accordance with GAAP)
of the Company. For purposes of calculating the incentive fee during 2002, the
cumulative transition adjustment of $6,327 resulting from the Company's adoption
of SFAS 142 was excluded from earnings in its entirety and included using an
amortization period of three years. This revision saved the Company $1,448 of
incentive fee for the three months ended March 31, 2002. The Company incurred
$3,188 in incentive compensation for the three months ended March 31, 2002. The
Company did not incur incentive compensation fees for the three months ended
March 31, 2003.

On March 17, 1999, the Company's Board of Directors approved an administration
agreement with the Manager and the termination of a previous agreement with an
unaffiliated third party. Under the terms of the administration agreement, the
Manager provides financial reporting, audit coordination and accounting
oversight services to the Company. The Company pays the Manager a monthly
administrative fee at an annual rate of 0.06% of the first $125 million of
average net assets, 0.04% of the next $125 million of average net assets and
0.03% of average net assets in excess of $250 million subject to a minimum
annual fee of $120. For the three months ended March 31, 2003 and 2002, the
Company paid administration fees of $43 and $43, respectively.

On July 20, 2001, the Company entered into a $50 million commitment to acquire
shares in Carbon. The period during which the Company may be required to
purchase shares under the commitment, expires in July 2004. On March 31, 2003,
the Company owned 18.8% of the outstanding shares in


                                       32
<PAGE>

Carbon. The Company's remaining commitment at March 31, 2003 and December 31,
2002 was $32,436 and $35,116, respectively. On February 6, 2003, the Company
funded a capital call notice in the amount of $2,680, which was used by Carbon
to acquire a mezzanine loan secured by ownership interests in an entity that
owns a mixed-use development.

REIT Status: The Company has elected to be taxed as a REIT and therefore must
comply with the provisions of the Internal Revenue Code with respect thereto.
Accordingly, the Company generally will not be subject 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 corporate rates or at excise tax rates on net income or capital gains
not distributed.


                                       33
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk: Market risk is the exposure to loss resulting from changes in
interest rates, credit curve spreads, foreign currency exchange rates, commodity
prices and equity prices. The primary market risks to which the Company is
exposed are interest rate risk and credit curve risk. Interest rate risk is
highly sensitive to many factors, including governmental, monetary and tax
policies, domestic and international economic and political considerations and
other factors beyond the control of the Company. Credit risk is highly sensitive
to dynamics of the markets for commercial mortgage securities and other loans
and securities held by the Company. Excessive supply of these assets combined
with reduced demand will cause the market to require a higher yield. This demand
for higher yield will cause the market to use a higher spread over the U.S.
Treasury securities yield curve, or other benchmark interest rates, to value
these assets. Changes in the general level of the U.S. Treasury yield curve can
have significant effects on the market value of the Company's portfolio.

The majority of the Company's assets are fixed rate securities valued based on a
market credit spread to U.S. Treasuries. As U.S. Treasury securities are priced
to a higher yield and/or the spread to U.S. Treasuries used to price the
Company's assets is increased, the market value of the Company's portfolio may
decline. Conversely, as U.S. Treasury securities are priced to a lower yield
and/or the spread to U.S. Treasuries used to price the Company's assets is
decreased, the market value of the Company's portfolio may increase. Changes in
the market value of the Company's portfolio may affect the Company's net income
or cash flow directly through their impact on unrealized gains or losses on
securities held for trading or indirectly through their impact on the Company's
ability to borrow. Changes in the level of the U.S. Treasury yield curve can
also affect, among other things, the prepayment assumptions used to value
certain of the Company's securities and the Company's ability to realize gains
from the sale of such assets. In addition, changes in the general level of the
LIBOR money market rates can affect the Company's net interest income. The
majority of the Company's liabilities are floating rate based on a market spread
to U.S. LIBOR. As the level of LIBOR increases or decreases, the Company's
interest expense will move in the same direction.

The Company may utilize a variety of financial instruments, including interest
rate swaps, caps, floors and other interest rate exchange contracts, in order to
limit the effects of fluctuations in interest rates on its operations. The use
of these types of derivatives to hedge interest-earning assets and/or
interest-bearing liabilities carries certain risks, including the risk that
losses on a hedge position will reduce the funds available for payments to
holders of securities and, that such losses may exceed the amount invested in
such instruments. A hedge may not perform its intended purpose of offsetting
losses or increased costs. Moreover, with respect to certain of the instruments
used as hedges, the Company is exposed to the risk that the counterparties with
which the Company trades may cease making markets and quoting prices in such
instruments, which may render the Company unable to enter into an offsetting
transaction with respect to an open position. If the Company anticipates that
the income from any such hedging transaction will not be qualifying income for
REIT income test purposes, the Company may conduct part or all of its hedging
activities through a to-be-formed corporate subsidiary that is fully subject to
federal corporate income taxation. The profitability of the Company may be
adversely affected during any period as a result of changing interest rates.

The following tables quantify the potential changes in the Company's net
portfolio value and net interest income under various interest rates and
credit-spread scenarios. The Company views the probability of

                                       34
<PAGE>

interest rate changes in terms of standard deviation units. Based on historical
data, there is a 68% and 95% statistical probability that rates remained in a
range of one and two standard deviation units, respectively. This statistical
computation provides an historical context for analyzing changes in interest
rates. Net portfolio value is defined as the value of interest-earning assets
net of the value of interest-bearing liabilities. It is evaluated using an
assumption that interest rates, as defined by the U.S. Treasury yield curve,
increase or decrease and the assumption that the yield curves of the rate shocks
will be parallel to each other.

Net interest income is defined as interest income earned from interest-earning
assets net of the interest expense incurred by the interest bearing liabilities.
It is evaluated using the assumptions that interest rates, as defined by the
U.S. LIBOR curve, increase or decrease and the assumption that the yield curves
of the LIBOR rate shocks will be parallel to each other. Market value in this
scenario is calculated using the assumption that the U.S. Treasury yield curve
remains constant.

All changes in income and value are measured as percentage changes from the
respective values calculated in the scenario labeled as "Base Case." The base
interest rate scenario assumes interest rates as of March 31, 2003. Actual
results could differ significantly from these estimates.

 Projected Percentage Change In Portfolio Net Market Value
       Given U.S. Treasury Yield Curve Movements
          Change in               Projected Change in
    Treasury Yield Curve,              Portfolio
       +/- Basis Points            Net Market Value
------------------------------- ------------------------
             -200                        8.1%
             -100                        6.3%
             -50                         3.7%
          Base Case                        0
             +50                        (4.8)%
             +100                       (10.8)%
             +200                       (26.0)%

Projected Percentage Change In Portfolio Net Market Value
            Given Credit Spread Movements
          Change in                Projected Change in
       Credit Spreads,                  Portfolio
       +/- Basis Points             Net Market Value
------------------------------- --------------------------
             -200                         27.1%
             -100                         15.8%
             -50                          8.4%
          Base Case                         0
             +50                         (9.6)%
             +100                        (20.2)%
             +200                        (44.9)%


                                       35
<PAGE>

<TABLE>
<CAPTION>
          Projected Percentage Change In Portfolio Net Interest Income
                              Given LIBOR Movements

                                  Projected Change in        Projected Change in
       Change in LIBOR,                Portfolio           Portfoilo Net Ineterest
       +/- Basis Points           Net Interest Income         Income per Share
------------------------------- ------------------------- --------------------------
<S>           <C>                          <C>                      <C>
             -100                          2.3%                     $0.04
             -50                           1.2%                     $0.02
          Base Case                        0                          0
             +50                         (1.2)%                    $(0.02)
             +100                        (2.3)%                    $(0.04)
             +200                        (4.6)%                    $(0.09)
</TABLE>

After changes to RMBS hedging were fully implemented early in the second quarter
of 2003, the Company's exposure to changes in short-term interest rates would
result in a $0.045 change in net income for every 50 basis point change in
LIBOR. The aggregate sensitivity to short-term rates has not changed year over
year. However, as detailed above, a significant portion of the Company's
illiquid credit sensitive CMBS was match funded in 2002 with no short-term rate
risk. As of March 31, 2003 the majority of the Company's short-term rate
exposure was concentrated in the highly liquid RMBS portfolio which can be
adjusted quickly to react to changes in short-term rates.

Credit Risk: The Company's portfolios of commercial real estate assets are
subject to a high degree of credit risk. Credit risk is the exposure to loss
from loan defaults. Default rates are subject to a wide variety of factors,
including, but not limited to, property performance, property management,
supply/demand factors, construction trends, consumer behavior, regional
economics, interest rates, the strength of the American economy and other
factors beyond the control of the Company.

All loans are subject to a certain probability of default. The Company
underwrites its CMBS investments assuming the underlying loans will suffer a
certain dollar amount of defaults and these defaults will lead to some level of
realized losses. Loss adjusted yields are computed based on these assumptions
and applied to each class of security supported by the cash flow on the
underlying loans. The most significant variables affecting loss adjusted yields
include, but are not limited to, the number of defaults, the severity of loss
that occurs subsequent to a default and the timing of the actual loss. The
different rating levels of CMBS will react differently to changes in these
assumptions. The lowest rated securities (B- or lower) are generally more
sensitive to changes in timing of actual losses. The higher rated securities (B
or higher) are more sensitive to the severity of losses.

The Company generally assumes that all of the principal of a non-rated security
and a significant portion, if not all, of CCC and a portion of B- rated
securities will not be recoverable over time. The loss adjusted yields of these
classes reflect that assumption; therefore, the timing of when the total loss of
principal occurs is the key assumption. The interest coupon generated by a
security will cease when there is a total loss of its principal regardless of
whether that principal is paid. Therefore, timing is of paramount importance
because the longer the principal balance remains outstanding the more interest
coupon the holder receives to support a greater economic return. Alternatively,
if principal is lost faster than originally assumed there is less opportunity to
receive interest coupon therefore a lower or possibly negative return may
result. Additional losses occurring due to greater severity will not have a

                                       36
<PAGE>


significant effect as all principal is already assumed to be non-recoverable.

If actual principal losses on the underlying loans exceed assumptions, the
higher rated securities will be affected more significantly as a loss of
principal may not have been assumed. The Company generally assumes that most if
not all principal will be recovered by classes rated B or higher.

The Company manages credit risk through the underwriting process, establishing
loss assumptions and careful monitoring of loan performance. Before acquiring a
Controlling Class security that represents a proposed pool of loans, the Company
will perform a rigorous analysis of the quality of all of the loans proposed. As
a result of this analysis, loans with unacceptable risk profiles will be removed
from the proposed pool. Information from this review is then used to establish
loss assumptions. The Company will assume that a certain portion of the loans
will default and calculate an expected or loss adjusted yield based on that
assumption. After the securities have been acquired, the Company monitors the
performance of the loans, as well as external factors that may affect their
value.

Factors that indicate a higher loss severity or acceleration of the timing of an
expected loss will cause a reduction in the expected yield and therefore reduce
the earnings of the Company. Furthermore, the Company may be required to write
down a portion of the adjusted purchase price of the affected assets through its
income statement.

For purposes of illustration, a doubling of the losses in the Company's
Controlling Class CMBS, without a significant acceleration of those losses would
reduce GAAP income going forward by approximately $0.21 per share of common
stock per annum and cause a significant write down at the time the loss
assumption is changed The amount of the write down depends on several factors,
including which securities are most affected at the time of the write down, but
is estimated to be in the range of $0.60 to $0.80 per share based on a doubling
of expected losses. A significant acceleration of the timing of these losses
would cause the Company's net income to decrease. The total adjusted purchase
price of Controlling Class CMBS at March 31, 2003 was $10.53 per share. The
amount of adjusted purchase price that is not match funded in a CDO is $4.84 per
share. The Company's exposure to a write down is mitigated by the fact that most
of these assets are financed on a non-recourse basis in the Company's CDOs,
where a significant portion of the risk of loss is transferred to the CDO
bondholders.

Asset and Liability Management: Asset and liability management is concerned with
the timing and magnitude of the repricing and/or maturing of assets and
liabilities. It is the objective of the Company to attempt to control risks
associated with interest rate movements. In general, management's strategy is to
match the term of the Company's liabilities as closely as possible with the
expected holding period of the Company's assets. This is less important for
those assets in the Company's portfolio considered liquid as there is a very
stable market for the financing of these securities.

Other methods for evaluating interest rate risk, such as interest rate
sensitivity "gap" (defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period),
are used but are considered of lesser significance in the daily management of
the Company's portfolio. Management considers this relationship when reviewing
the Company's hedging strategies. Because different types of assets and
liabilities with the same or similar maturities react differently to changes in
overall market rates or conditions, changes in interest rates may affect the

                                       37
<PAGE>

Company's net interest income positively or negatively even if the Company were
to be perfectly matched in each maturity category.

The Company currently has positions in forward currency exchange contracts to
hedge currency exposure in connection with its commercial mortgage loan
denominated in pounds sterling. The purpose of the Company's foreign
currency-hedging activities is to protect the Company from the risk that the
eventual U.S. dollar net cash inflows from the commercial mortgage loan will be
adversely affected by changes in exchange rates. The Company's current strategy
is to roll these contracts from time to time to hedge the expected cash flows
from the loan. Fluctuations in foreign exchange rates are not expected to have a
material impact on the Company's net portfolio value or net interest income.

                                       38
<PAGE>


ITEM 4.       CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"). Based on such evaluation,
such officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's reports
filed or submitted under the Exchange Act.

(b) Changes in Internal Controls. Since the Evaluation Date, there have not been
any significant changes in the Company's internal controls or in other factors
that could significantly affect such controls.

                                       39
<PAGE>


Part II - OTHER INFORMATION

Item 1.     Legal Proceedings

At March 31, 2003 there were no pending legal proceedings to which the Company
was a party or of which any of its property was subject.

Item 2.     Changes in Securities and Use of Proceeds

None.

Item 3.     Defaults Upon Senior Securities

Not applicable.

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

None.

Item 5.     Other Information

None.

Item 6.     Exhibits and Reports on Form 8-K

(a)      Exhibits

10.1        Amended and Restated Investment Advisory Agreement, dated as of
            March 27, 2003, between the Registrant and BlackRock Financial
            Management, Inc.

99.1        Certification of CEO and CFO pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On February 25, 2003, the Company filed a Current Report on Form 8-K to report
under Item 5 the Company's earnings for the quarter and full year ended December
31, 2002.

                                       40
<PAGE>

                                   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:  May 15, 2003        By: /s/ Hugh R. Frater
                                ____________________
                                Name: Hugh R. Frater
                                Title: President and Chief Executive Officer
                                (authorized officer of registrant)




Dated:  May 15, 2003        By: /s/ Richard M. Shea
                                _________________________
                                    Name: Richard M. Shea
                                    Title: Chief Operating Officer and Chief
                                    Financial Officer

                                       41
<PAGE>

                                 CERTIFICATIONS

         I, Hugh R. Frater, certify that:

         1. I have reviewed this quarterly report on Form 10-Q of Anthracite
Capital, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

         b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

         c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

         a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

                                       42
<PAGE>

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Dated:  May 15, 2003        By: /s/ Hugh R. Frater
                                ____________________
                                Name: Hugh R. Frater
                                Title: President and Chief Executive Officer
                                (authorized officer of registrant)

                                       43
<PAGE>

         I, Richard M. Shea, certify that:

         1. I have reviewed this quarterly report on Form 10-Q of Anthracite
Capital, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

         b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

         c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

         a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

                                       44
<PAGE>

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Dated:  May 15, 2003        By: /s/ Richard M. Shea
                                _________________________
                                    Name: Richard M. Shea
                                    Title: Chief Operating Officer and Chief
                                    Financial Officer

                                       45