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


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

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

             For the quarterly period ended September 30, 2000

                      Commission File Number 001-13937
                                            ----------


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


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

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

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

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

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

                                    (1)     Yes  X             No
                                                ---                --
                                    (2)     Yes  X             No
                                                ---                --

         As of November 10, 2000, 25,135,986, shares of voting common stock
($.001 par value) were outstanding.



                         ANTHRACITE CAPITAL, INC.,
                                 FORM 10-Q
                                   INDEX

PART I - FINANCIAL INFORMATION                                             Page
                                                                           ----

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

         Consolidated Statements of Financial Condition
         At September 30, 2000 (Unaudited) and December 31, 1999..............3

         Consolidated Statements of Operations For the Three Months Ended
         September 30, 2000 and 1999 (Unaudited), and For the Nine Months
         Ended September 30, 2000 and 1999
         (Unaudited)..........................................................4

         Consolidated Statement of Changes in Stockholders' Equity
         For the Nine Months Ended September 30, 2000 (Unaudited).............5

         Consolidated Statements of Cash Flows
         For the Nine Months Ended September 30, 2000 and 1999 (Unaudited)....6

         Notes to Consolidated Financial Statements (Unaudited)...............7

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations...............................................30

Item 3.  Quantitative and Qualitative Disclosures about Market Risk..........46

Part II - OTHER INFORMATION

Item 1.  Legal Proceedings...................................................52

Item 2.  Changes in Securities and Use of Proceeds...........................52

Item 3.  Defaults Upon Senior Securities.....................................52

Item 4.  Submission of Matters to a Vote of Security Holders.................52

Item 5.  Other Information...................................................52

Item 6.  Exhibits and Reports on Form 8-K....................................52

SIGNATURES    ...............................................................53

Financial Data Schedule......................................................54

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)

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

                                                             September 30, 2000          December 31, 1999
                                                              -----------------          -----------------
                                                                 Unaudited)
ASSETS
<S>                                                              <C>                         <C>
Cash and cash equivalents                                        $  13,397                   $   22,265
Securities available for sale, at fair value
  Subordinated commercial mortgage-backed
    securities (CMBS)                                            $  284,138                  $  272,733
  Investment grade securities                                       607,682                     304,462
                                                                   ---------                    -------
Total securities available for sale                                 891,820                     577,195
Mortgage loans held for sale                                         78,590                           -
Commercial mortgage loans, net                                      145,335                      69,611
Investment in real estate joint ventures                              5,074                           -
Other assets                                                         16,466                      10,591
                                                                  --------------             ---------------
     Total Assets                                                $1,150,682                    $679,662
                                                                  ==============             ===============


LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Borrowings:
  Secured by pledge of subordinated CMBS                         $   164,478                   $162,738
  Secured by pledge of other securities
   available for sale and other assets                               555,954                    272,289

  Secured by pledge of mortgage loans held for sale                   71,967                          -
  Secured by pledge of commercial mortgage loans                      57,566                     36,506
                                                                  ------------                --------------

Total borrowings                                                 $   849,965                   $471,533
Distributions payable                                                  9,490                      6,079
Other liabilities                                                     16,500                      3,767
                                                                  --------------              ---------------
     Total Liabilities                                               875,955                    481,379
                                                                  --------------              ---------------

10.5% Series A preferred stock, redeemable convertible,
liquidation preference $34,200                                        30,295                     30,022
                                                                  --------------             ---------------

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $0.001 per share; 400,000 shares
  authorized; 25,136 shares issued and outstanding in 2000;
  and 20,961 shares issued and outstanding in 1999                        25                         21
10% Series B Preferred stock, liquidation preference $56,025          43,004                          -
Additional paid-in capital                                           315,532                    287,486
Distributions in excess of earnings                                  (14,868)                   (18,107)

Accumulated other comprehensive loss                                 (99,261)                  (101,139)
                                                                  --------------              ---------------
      Total Stockholders' Equity                                      244,432                   168,261
                                                                  --------------              ---------------
      Total Liabilities and Stockholders' Equity                 $  1,150,682                   $679,662
                                                                  ==============              ===============


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

</TABLE>


<TABLE>
<CAPTION>


ANTHRACITE CAPITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------------------------------------------------------

                                                             For the Three Months Ended          For the Nine Months Ended
                                                                 September 30,                         September 30,
                                                         -----------------------------------------------------------------------
                                                            2000               1999               2000               1999
                                                         ----------         ----------         ---------         ------------
Interest Income:
<S>                                                       <C>                 <C>               <C>                <C>
    Securities available for sale                         $ 21,585            $ 11,127          $ 55,113           $  34,075
    Commercial mortgage loans                                3,573               1,620             8,550               3,663

    Mortgage loans held for sale                             1,555                   -             5,021                   -
    Trading securities                                           -                 567                 -               3,186
    Cash and cash equivalents                                  255                 104               909                 404
                                                        -----------         ----------         ---------           ---------

        Total interest income                               26,968              13,418            69,593              41,328
                                                        -----------         ----------         ---------           ---------

Expenses:
    Interest                                                14,765               4,919            37,328              14,553
    Interest-trading securities                                  -                 607                 -               4,108

    Management fee                                           2,060               1,050             5,050               3,173

    Other expenses/(income) - net                              (20)                507             1,415               1,541
                                                         -----------         ----------         ---------           ---------
        Total expenses                                      16,805               7,083            43,793              23,375
                                                         -----------         ----------         ---------           ---------

Other Gain (Losses):
Gain (Loss) on sale of securities available for sale          994                 (566)            1,700               (423)
Gain on securities held for trading                           191                  739               519               2,992
Foreign currency gain (loss)                                   29                   28                18                (55)
                                                         -----------         ----------         ---------           ---------
          Total other gain (loss)                           1,214                  201             2,237               2,514
                                                         -----------         ----------         ---------           ---------
Net Income                                                 11,377                6,536            28,037              20,467
                                                         -----------         ----------         ---------           ---------

Dividends and accretion on
    Preferred stock                                         2,307                    -             4,748                   -
                                                         -----------         ----------         ---------           ---------
Net Income Available to Common
    Shareholders                                          $ 9,070             $  6,536           $23,289           $  20,467
                                                         ===========         ==========         =========           =========


Net income per share:
    Basic                                                   $0.36                $0.31             $1.01               $0.99
    Diluted                                                 $0.34                $0.31             $0.95               $0.99

Weighted average number of shares outstanding:
    Basic                                                  25,136               20,998            23,069              20,761
    Diluted                                                29,218               20,998            27,150              20,761

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

</TABLE>


<TABLE>
<CAPTION>

ANTHRACITE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------------------

                                                                                         Accumulated
                                          Common             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 December 31, 1999                $ 21               $ 287,486  $ (18,107)      $ (101,139)                  $ 168,261

 Net income                                                                  28,037                      $ 28,037        28,037

 Other comprehensive income:

   Unrealized gain on securities,
   net of reclassification adjustment                                                          1,878        1,878         1,878
                                                                                                         ----------
Other comprehensive income                                                                                  1,878

Comprehensive income                                                                                      $29,915
                                                                                                         ==========

Distributions declared on common stock                                      (20,050)                                    (20,050)

Repurchase of common shares                                          (39)                                                   (39)


Issuance of common stock                       4                  28,085                                                 28,089

Issuance of Series B Preferred Stock                 $43,004                                                             43,004


Dividends to preferred shareholders                                          (4,748)                                     (4,748)
                                          ---------------------------------------------------------------           -----------

Balance at September 30, 2000              $  25     $43,004     $315,532  $(14,868)        $(99,261)                  $ 244,432
                                          ===============================================================           ===========


DISCLOSURE OF RECLASSIFICATION AMOUNT:
Unrealized holding gains arising during the nine
months ended September 30, 2000
                                                                                                            3,578
Less: reclassification for realized gains previously recorded as
unrealized at December 31, 1999.                                                                           (1,700)
                                                                                                        ----------
Net unrealized gain on securities                                                                           1,878
                                                                                                            =====

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

</TABLE>


<TABLE>
<CAPTION>

ANTHRACITE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------------------
                                                                                      For the Nine            For the Nine
                                                                                      Months Ended            Months Ended
                                                                                   September 30, 2000       September 30, 1999
                                                                                   ------------------       ------------------


Cash flows from operating activities:
<S>                                                                                       <C>                     <C>
     Net income                                                                          $   28,037              $  20,467


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

        Net sale of trading securities and securities sold short                                328                141,003
        Amortization on negative goodwill                                                      (637)                      -
        Premium amortization (discount accretion), net                                         (828)                    172
        Non-cash portion of net foreign currency loss                                            18                     55
        Net gain on sale of securities                                                       (2,219)                (2,569)
        Earnings from real estate joint ventures                                                (25)                     -
        Distributions real estate joint ventures                                                 72                      -
        Decrease in other assets                                                             11,518                    410
        Decrease in other liabilities                                                        (6,553)                (4,460)
                                                                                         ------------             ----------
 Net cash provided by operating activities                                                     29,711                155,078
                                                                                         ------------             ----------
 Cash flows from investing activities:
     Purchase of securities available for sale                                           (1,312,487)              (217,260)
     Funding of commercial mortgage loans                                                   (78,600)               (28,261)
     Maturities of restricted cash equivalents                                                    -                  3,242
     Net payments from hedging securities                                                    (4,405)                      -
     Investment in real estate joint ventures                                                (5,121)                      -
     Principal payments received on securities available for sale                            63,951                  63,436
     Proceeds from sales of securities available for sale                                 2,122,735                  45,367
     Payable for securities purchased                                                             -                  88,133
                                                                                         ------------             ----------

Net cash provided by (used in) investing activities                                         786,073                 (45,343)
                                                                                         ------------             ----------
Cash flows from financing activities:
     Net decrease in borrowings                                                            (831,774)               (89,881)
     Proceeds from issuance of common stock                                                       -                  6,726
     Distributions on common stock                                                          (18,839)               (17,973)
     Distributions on preferred stock                                                        (3,251)                     -
     Net cash acquired in merger                                                              33,380                     -
     Acquisition costs paid                                                                  (4,129)                     -
     Repurchase of common shares                                                                (39)                     -
                                                                                         ------------             ----------
Net cash used in financing activities                                                      (824,652)              (101,128)
                                                                                         ------------             ----------
Net (decrease) increase in cash and cash equivalents                                         (8,868)                  8,607

Cash and cash equivalents, beginning of period                                                22,265                  1,087
                                                                                         ------------             ----------
Cash and cash equivalents, end of period                                                   $  13,397               $  9,694
                                                                                         ============             ==========
                                                                                           $  41,546               $ 21,675
Supplemental disclosure of cash flow information:
     Interest paid
</TABLE>

Supplemental schedule of non-cash investing and financing activities: The
Company purchased all of the assets of CORE Cap., Inc during the quarter
ended June 30, 2000 primarily through issuance of the Company's common and
preferred stock, as follows:

         Fair value of assets acquired                      $ 1,281,070
         Liabilities assumed                                  1,216,967
Common stock issued in connection with acquisition               28,089
Preferred stock issued in connection with the acquisition        43,004


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




ANTHRACITE CAPITAL, INC. AND SUBSIDIARIES
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

   NOTE 1         ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

   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 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 1999 filed with
   the Securities and Exchange Commission.

   In the opinion of management, the accompanying financial statements
   contain all adjustments, consisting of normal and recurring accruals,
   necessary for a fair presentation of the 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 the Company's mortgage-backed
   securities and certain other investments.

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

   PRINCIPLES OF CONSOLIDATION

   The consolidated financial statements include the financial statements
   of the Company and its wholly owned subsidiaries. All significant
   balances and transactions have been eliminated in consolidation.

   SECURITIES AVAILABLE FOR SALE

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

   The Company may, in the future, acquire similar securities that it
   intends to hold to maturity, or change its intent with respect to
   certain securities currently in its portfolio, and designate such
   securities as "held to maturity." Securities so designated would be
   carried at amortized cost, subject to an impairment test.

   SECURITIES HELD FOR TRADING

   The Company has designated certain securities as assets held for trading
   because the Company intends to hold them for short periods of time.
   Securities held for trading are carried at estimated fair value with net
   unrealized gains or losses included in income.

   MORTGAGE LOANS

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

   The Company acquired certain residential mortgage loan pools in the CORE
   Cap merger (Note 2). These loan pools may be sold in the near term and
   are treated as available-for-sale debt securities and are carried at
   estimated fair value with net unrealized gains or losses reported as a
   component of accumulated other comprehensive income (loss) in
   stockholders' equity. Unrealized losses that reflect a decline in value
   which is judged by management to be other than temporary, if any, are
   charged to earnings.


   INVESTMENT IN REAL ESTATE JOINT VENTURES

   Investments in real estate entities over which the Company exercises
   significant influence, but not control, are accounted for under the
   equity method. The Company recognizes its share of each venture's income
   or loss, and reduces its investment balance by distributions received.
   Real estate held by such entities is regularly reviewed for impairment,
   and would be written down to its estimated fair value if impairment is
   determined to exist.

   SHORT SALES

   As part of its short-term trading strategies (see Note 4), the Company
   may sell securities that it does not own ("short sales"). To complete a
   short sale, the Company may arrange through a broker to borrow the
   securities to be delivered to the buyer. The proceeds received by the
   Company from the short sale are retained by the broker until the Company
   replaces the borrowed securities, generally within a period of less than
   one month. In borrowing the securities to be delivered to the buyer, the
   Company becomes obligated to replace the securities borrowed at their
   market price at the time of the replacement, whatever that price may be.
   A gain, limited to the price at which the Company sold the security
   short, or a loss, unlimited as to dollar amount, will be recognized upon
   the termination of a short sale if the market price is less than or
   greater than the proceeds originally received. The Company's liability
   under the short sales is recorded at fair value, with unrealized gains
   or losses included in net gain or loss on securities held for trading in
   the statement of operations.

   The Company is exposed to credit loss in the event of nonperformance by
   any broker that holds a deposit as collateral for securities borrowed.
   However, the Company does not anticipate nonperformance by any broker.

   FAIR VALUE OF FINANCIAL INSTRUMENTS

   The fair values of the Company's securities available for sale,
   securities held for trading, and securities sold short are based on
   market prices provided by certain dealers who make markets in these
   financial instruments. The fair values reported reflect estimates and
   may not necessarily be indicative of the amounts the Company could
   realize in a current market exchange.

   FORWARD COMMITMENTS

   As part of its short-term trading strategies (see Note 4), the Company
   may enter into forward commitments to purchase or sell U.S. Treasury or
   agency securities, which obligate the Company to purchase or sell such
   securities at a specified date at a specified price. When the Company
   enters into such a forward commitment, it will, generally within sixty
   days or less, enter into a matching forward commitment with the same or
   a different counterparty which entitles the Company to sell (in
   instances where the original transaction was a commitment to purchase)
   or purchase (in instances where the original transaction was a
   commitment to sell) the same or similar securities on or about the same
   specified date as the original forward commitment. Any difference
   between the specified price of the original and matching forward
   commitments will result in a gain or loss to the Company. Changes in the
   fair value of open commitments are recognized on the statement of
   financial condition and included among assets (if there is an unrealized
   gain) or among liabilities (if there is an unrealized loss). A
   corresponding amount is included as a component of net gain or loss on
   securities held for trading in the statement of operations.

   The Company is exposed to interest rate risk on these commitments, as
   well as to credit loss in the event of nonperformance by any other party
   to the Company's forward commitments. However, the Company does not
   anticipate nonperformance by any counterparty.

   FINANCIAL FUTURES CONTRACTS - TRADING

   As part of its short-term trading strategies (see Note 4), the Company
   may enter into financial futures contracts, which are agreements between
   two parties to buy or sell a financial instrument for a set price on a
   future date. Initial margin deposits are made upon entering into futures
   contracts and can be either cash or securities. During the period that
   the futures contract is open, changes in the value of the contract are
   recognized as gains or losses on securities held for trading by
   "marking-to-market" on a daily basis to reflect the market value of the
   contract at the end of each day's trading. Variation margin payments are
   received or made, depending upon whether gains or losses are incurred.

   The Company is exposed to interest rate risk on the contracts, as well
   as to credit loss in the event of nonperformance by any other party to
   the contract. However, the Company does not anticipate nonperformance by
   any counterparty.

   HEDGING INSTRUMENTS

   As part of its asset/liability management activities, the Company may
   enter into interest rate swap agreements, forward currency exchange
   contracts and other financial instruments in order to hedge interest
   rate and foreign currency exposures or to modify the interest rate or
   foreign currency characteristics of related items in its statement of
   financial condition. The Company's portfolio of interest rate swap
   agreements involves the exchange of fixed interest payments for floating
   interest payments.

   Income and expenses from interest rate swap agreements that are, for
   accounting purposes, designated as hedging securities available for sale
   are recognized as a net adjustment to the interest income of the hedged
   item. During the term of the interest rate swap agreement, changes in
   fair value are recognized on the statement of financial condition and
   included among assets (if there is an unrealized gain) or among
   liabilities (if there is an unrealized loss). A corresponding amount is
   included as a component of accumulated other comprehensive income (loss)
   in stockholders' equity. The Company accounts for revenues and expenses
   from the interest rate swap agreements under the accrual basis over the
   period to which the payment relates. Amounts paid to acquire these
   instruments are capitalized and amortized over the life of the
   instrument. Amortization of capitalized fees paid as well as payments
   received under these agreements are recorded as an adjustment to
   interest income. If the underlying hedged securities are sold, the
   amount of unrealized gain or loss in accumulated other comprehensive
   income (loss) relating to the corresponding interest rate swap agreement
   is included in the determination of gain or loss on the sale of the
   securities. If interest rate swap agreements are terminated, the
   associated gain or loss is deferred over the remaining term of the
   agreement, provided that the underlying hedged item still exists.

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

   Financial futures contracts that are, for accounting purposes,
   designated as hedging securities available for sale, are carried at fair
   value, with changes in fair value included in other comprehensive income
   (loss). Realized gains and losses on closed contracts are deferred and
   recognized in the basis of the hedged available for sale security, and
   amortized as a yield adjustment over the security's remaining term.

   The Company monitors its hedging instruments throughout their terms to
   ensure that they remain effective at their intended purpose. The Company
   is exposed to interest rate and/or currency risk on these hedging
   instruments, as well as to credit loss in the event of nonperformance by
   any other party to the Company's hedging instruments. However, the
   Company does not anticipate nonperformance by any counterparty.

   FOREIGN CURRENCIES

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

   NEGATIVE GOODWILL

   Negative goodwill reflects the excess of the estimated fair value of the
   net assets acquired in the CORE Cap Inc. merger (Note 2) over the
   purchase price for such assets. Negative goodwill is amortized using the
   straight-line method from the date of acquisition over approximately 5.7
   years, the weighted average lives of the assets acquired in the merger
   that the Company currently intends to retain. This amortization is
   included in other expenses/(income) - net. Negative goodwill, net, was
   $9,050 at September 30, 2000, and is included in other liabilities.

   NET INCOME (LOSS) PER SHARE

   Net income per share is computed in accordance with Statement of
   Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share.
   Basic income (loss) per share is calculated by dividing net income
   (loss) available to common shareholders by the weighted average number
   of common shares outstanding during the period. Diluted income (loss)
   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 Months Ended September 30, 2000
                                             ---------------------------------------------------------------------------------
                                                     Income                      Shares                    Per-Share
                                                  (Numerator)                 (Denominator)                  Amount
Net income available to common
<S>                                                  <C>                        <C>                          <C>
shareholders                                         $9,070
                                             --------------------------
Basic net income per share                            9,070                     25,135,986                    $0.36
                                                                                                      ------------------------

Effect of dilutive securities:
10.5% Series A Senior Cumulative
Redeemable Preferred Stock                               893                    4,081,680
                                             ------------------------------------------------------
Diluted net income per share                          $9,963                    29,217,666                   $0.34
                                             =================================================================================



                                                             For the Nine Months Ended September 30, 2000
                                             ---------------------------------------------------------------------------------
                                                     Income                      Shares                    Per-Share
                                                  (Numerator)                 (Denominator)                  Amount
Net income available to common
shareholders                                        $23,290
                                             --------------------------
Basic net income per share                           23,290                   23,068,624                    $1.01
                                                                                                      ------------------------
Effect of dilutive securities:
10.5% Series A Senior Cumulative
Redeemable Preferred Stock                             2,627                    4,081,680
                                             -------------------------------------------------------
Diluted net income per share                        $25,917                    27,150,304                    $0.95
                                             ===============================================================================
</TABLE>

   The Company's stock options outstanding were antidilutive for all
   periods presented. For the three and nine months ended September 30,
   1999, the Company had no preferred stock outstanding, so basic and
   diluted earnings per share were the same.


   INCOME TAXES

   The Company has elected to be taxed as a Real Estate Investment Trust
   ("REIT") and to comply with the provisions of the Internal Revenue Code
   of 1986, as amended, with respect thereto. Accordingly, the Company
   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. As of December 31, 1999, the Company had
   a capital loss carryover of $13,165 available to offset future capital
   gains.




   COMPREHENSIVE INCOME

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

   RECENT ACCOUNTING PRONOUNCEMENTS

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

   The Company will implement SFAS 133 (as amended by SFAS No. 137 and 138)
   on January 1, 2001. Company management is evaluating the impact that
   this statement will have on its hedging strategies and use of derivative
   instruments and is currently unable to predict the effect, if any, it
   will have on the Company's financial statements.

   In December of 1999, the staff of the Securities and Exchange Commission
   issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
   Financial Statements." This bulletin summarizes certain of the staff's
   views in applying generally accepted accounting principles to revenue
   recognition in financial statements. The Company's management believes
   that the guidance expressed in the bulletin does not affect the
   Company's current revenue recognition policies.

   In July of 2000, the FASB's Emerging Issues Task Force reached a
   consensus on Issue 99-20, Recognition of Interest Income and Impairment
   on Purchased and Retained Beneficial Interests in Securitized Financial
   Interests. This issue provides guidance on the appropriate methodology
   to be used in recognizing changes in the estimated yield on asset-backed
   securities, and in determining whether impairment exists. This consensus
   is to be applied in the first quarter of 2001. The Company's management
   does not believe that application of this consensus will have a material
   impact on the Company's financial statements, but it may require earlier
   recognition of impairment of CMBS investments than under previous
   guidance, should the Company experience credit losses on the loans
   underlying a CMBS investment in amounts greater than anticipated at
   acquisition.

   In September of 2000, the FASB issued SFAS No. 140, Accounting for
   Transfers and Servicing of Financial Assets and Extinguishment of
   Liabilities. This statement replaces SFAS No. 125, which had the same
   name. It revises the standards for accounting for securitizations and
   other transfers of financial assets and collateral and requires certain
   disclosures, but it carries over most SFAS No. 125's provisions without
   consideration. The Company's management does not believe that
   application of this statement will have a material impact on the
   Company's financial statements.

   RECLASSIFICATIONS

   Certain amounts from 1999 have been reclassified to conform to the 2000
presentation.

   NOTE 2         ACQUISITION OF CORE CAP, INC.

   On May 15, 2000, the Company acquired all of the outstanding capital
   stock of CORE Cap, Inc. ("CORE Cap"), a private real estate investment
   trust investing in mortgage loans and mortgage-backed securities, in
   exchange for 4,180,553 of the Company's common shares and 2,261,000
   Series B preferred shares. The common and preferred shares issued by the
   Company were valued at approximately $71,093 on May 15, 2000. The
   acquisition was accounted for under the purchase method. Application of
   purchase accounting resulted in an excess of the value of the acquired
   net assets over the value of the Company's common and preferred shares
   issued in the acquisition, plus transaction costs. This deferred credit
   totaled $9,687 and is being amortized as described in "Negative
   Goodwill" above. The operations of CORE Cap are included in the
   Company's financial statements from May 15, 2000.

   NOTE 3     SECURITIES AVAILABLE FOR SALE

   The Company's securities available for sale are carried at estimated
   fair value. The amortized cost and estimated fair value of securities
   available for sale as of September 30, 2000 are summarized as follows:
<TABLE>
<CAPTION>

                                                                                      Gross           Gross          Estimated
                                                                    Amortized       Unrealized      Unrealized         Fair
                      Security Description                             Cost            Gain            Loss            Value
------------------------------------------------------------------------------------------------------------------------------
Commercial mortgage-backed securities ("CMBS"):
<S>                                                                    <C>           <C>           <C>                 <C>
Investment grade rated securities                                      $ 154,972     $ 9,259            -             $164,231
Non-investment grade rated subordinated securities                       340,430         112      $ (86,572)           253,970
Non-rated subordinated securities                                         38,360         475         (8,667)            30,168
                                                                  -------------------------------------------------------------
     Total CMBS                                                          533,762       9,846        (95,239)           448,369
                                                                  -------------------------------------------------------------
Single-family residential mortgage-backed securities ("RMBS"):
Agency adjustable rate securities                                        112,720         329            (11)           113,038
Agency fixed rate securities                                             205,727         661         (1,306)           205,082
Privately issued investment grade rated fixed rate securities            124,892       1,404           (965)           125,331
                                                                  -------------------------------------------------------------
Total RMBS                                                               443,339       2,394         (2,282)           443,451
                                                                  -------------------------------------------------------------
     Total securities available for sale                                $977,101     $12,240      $ (97,521)          $891,820
                                                                  =============================================================
</TABLE>

   As of September 30, 2000, an aggregate of $866,253 in estimated fair
   value of the Company's securities available for sale was pledged to
   secure its borrowings.

The amortized cost and estimated fair value of securities available for
sale as of December 31, 1999 are summarized as follows:

<TABLE>
<CAPTION>

                                                                                     Gross           Gross          Estimated
                                                                   Amortized    Unrealized Gain    Unrealized         Fair
                     Security Description                            Cost                             Loss            Value
-----------------------------------------------------------------------------------------------------------------------------
Commercial mortgage-backed securities ("CMBS"):
<S>                                                                <C>               <C>            <C>              <C>
Non-investment grade rated subordinated securities                 $ 334,162           -           $ (90,454)       $ 243,708
Non-rated subordinated securities                                     38,882           -              (9,857)          29,025
                                                                 -------------------------------------------------------------
     Total CMBS                                                      373,044           -            (100,311)         272,733
                                                                 -------------------------------------------------------------
Single-family residential mortgage-backed securities ("RMBS"):
Agency adjustable rate securities                                     57,826       $ 1,032               -             58,858
Agency fixed rate securities                                         166,323           -                (498)         165,825
Privately issued investment grade rated fixed rate securities         78,091           -              (1,270)          76,821
                                                                 -------------------------------------------------------------
     Total RMBS                                                      302,240         1,032            (1,768)         301,504
                                                                 -------------------------------------------------------------
Agency insured project loan                                            3,050           -                 (92)           2,958
                                                                 -------------------------------------------------------------
     Total securities available for sale                           $ 678,334       $ 1,032        $ (102,171)       $ 577,195
                                                                 =============================================================
</TABLE>

   At December 31, 1999, an aggregate of $392,831 in estimated fair value
   of the Company's securities available for sale was pledged to secure its
   borrowings.

   The aggregate estimated fair value by underlying credit rating of the
   Company's securities available for sale at September 30, 2000 is as
   follows:
<TABLE>
<CAPTION>

                                                   September 30, 2000                 December 31, 1999
                                               Estimated                          Estimated
              Security Rating                 Fair Value        Percentage        Fair Value      Percentage
   ---------------------------------------------------------------------------------------------------------
   Agency and agency insured
<S>                                                <C>              <C>             <C>              <C>
   securities                                      $318,121         35.6%           $227,641         39.5%
   AAA                                              125,330         14.0              76,821         13.3
   BBB                                              164,231         18.4                   -            -
   BB+                                               25,841          2.9              23,103          4.0
   BB                                                25,496          2.9              22,051          3.8
   BB-                                               47,273          5.3              50,412          8.7
   B+                                                14,792          1.7              14,173          2.5
   B                                                 85,333          9.6              84,830         14.7
   B-                                                37,580          4.2              32,770          5.7
   CCC                                               17,655          2.0              16,368          2.8
   Not rated                                         30,168          3.4              29,026          5.0
                                            -----------------------------------------------------------------
   Total securities available for sale            $ 891,820       100.0%             $ 577,195        100.0%
                                            =================================================================
</TABLE>

   As of September 30, 2000, there were 1,761 loans underlying the
   subordinated CMBS held by the Company with a principle balance of
   $9,232,035.

   As of September 30, 2000 the mortgage loans underlying the subordinated
   CMBS held by the Company were secured by properties of the types and at
   the locations identified below:


  Property Type     Percentage (1)       Geographic Location     Percentage (1)
-------------------------------------------------------------------------------
Multifamily                27.0%         California                     13.4%
Retail                      29.9         Texas                           10.4
Office                      16.8         New York                         9.7
Lodging                      9.5         Florida                          7.0
Other                       16.8         Other (2)                       59.5
                   -------------------                          -------------
Total                      100.0%        Total                         100.0%
                   ===================                          =============

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

   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
   September 30, 2000 and December 31, 1999:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------
                                                  SEPTEMBER 30, 2000                            DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------------------
                                                      NUMBER OF         % OF                        NUMBER OF         % OF
                                       PRINCIPAL        LOANS        COLLATERAL     PRINCIPAL         LOANS        COLLATERAL
------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>           <C>            <C>              <C>           <C>
Past due 30 days to 60 days             $11,167          5             0.14%         $2,936            2             0.03%
------------------------------------------------------------------------------------------------------------------------------
Past due 60 days to 90 days              18,527          3             0.18%         13,522            3             0.14%
------------------------------------------------------------------------------------------------------------------------------
Past due 90 days or more                 13,601          3             0.16%         34,631            6             0.36%
------------------------------------------------------------------------------------------------------------------------------
Resolved Loans                             -             -               -           22,296            1             0.24%
------------------------------------------------------------------------------------------------------------------------------
REO                                      10,181          2             0.11%             -             -                -
------------------------------------------------------------------------------------------------------------------------------
Total                                   $53,476          12            0.59%       $73,385             11             0.77%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The Company's delinquency experience of 0.59% is in line with directly
   comparable collateral experience shown in the Lehman Brothers 1998 CMBS
   index at 0.57%. (See Item 2, Management's Discussion and Analysis of
   Financial Condition and Results of Operations for further information
   regarding delinquent mortgage loans).

   To the extent that realized losses, if any, or such resolutions are
   significantly worse than the Company's original loss estimates, it may
   be necessary to reduce the projected yield on the applicable CMBS
   investment to better reflect such investment's expected earnings net of
   expected losses, from the date of purchase. Such events would also
   indicate impairment of the affected asset, requiring the Company to
   write it down to its estimated fair value. While realized losses on
   individual assets may be higher or lower than original estimates, the
   Company currently believes its aggregate loss estimates and yields are
   appropriate.

   The CMBS held by the Company consist of subordinated securities
   collateralized by adjustable and fixed rate commercial and multifamily
   mortgage loans. The RMBS held by the Company consist of adjustable rate
   and fixed rate residential pass-through or mortgage-backed securities
   collateralized by adjustable and fixed rate single-family residential
   mortgage loans. Agency RMBS were issued by Federal Home Loan Mortgage
   Corporation (FHLMC), Federal National Mortgage Association (FNMA) or
   Government National Mortgage Association (GNMA). Privately issued RMBS
   were issued by entities other than FHLMC, FNMA or GNMA. The Company's
   securities available for sale are subject to credit, interest rate
   and/or prepayment risks.

   The CMBS owned by the Company provide credit support to the more senior
   classes of the related commercial securitization. Cash flow from the
   mortgages underlying the CMBS generally is allocated first to the senior
   classes, with the most senior class having a priority entitlement to
   cash flow. Then, any remaining cash flow is allocated generally among
   the other CMBS classes in order of their relative seniority. To the
   extent there are defaults and unrecoverable losses on the underlying
   mortgages, resulting in reduced cash flows, the most subordinated CMBS
   class will bear this loss first. To the extent there are losses in
   excess of the most subordinated class' stated entitlement to principal
   and interest, then the remaining CMBS classes will bear such losses in
   order of their relative subordination.

   As of September 30, 2000, the anticipated weighted average unleveraged
   yield to maturity based upon adjusted cost of the Company's subordinated
   CMBS was 9.82% per annum, and of the Company's other securities
   available for sale was 7.94% per annum. The Company's anticipated yields
   to maturity on its subordinated CMBS and other 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
   delinquencies on the underlying mortgage loans, and the timing and
   magnitude of credit losses on the mortgage loans underlying the
   subordinated CMBS that are a result of the general condition of the real
   estate market (including competition for tenants and their related
   credit quality) and changes in market rental rates. As these
   uncertainties and contingencies are difficult to predict and are subject
   to future events, which may alter these assumptions, no assurance can be
   given that the anticipated yields to maturity, discussed above and
   elsewhere, will be achieved.

   The agency adjustable rate RMBS held by the Company are subject to
   periodic and lifetime caps that limit the amount such securities'
   interest rates can change during any given period and over the life of
   the loan.

   As of September 30, 2000, the unamortized net discount on securities
   available for sale was $1,025,201 which represented 36.81% of the then
   remaining face amount of such securities.

   During the nine months ended September 30, 2000, the Company sold
   securities available for sale for total proceeds of $2,122,735 resulting
   in a realized gain of $1,700. Of the securities sold, $1,806,022 of
   sales proceeds represents securities acquired in the CORE Cap merger.
   Any gain on the sale of securities acquired in the CORE Cap merger was
   attributable to market movements subsequent to the acquisition of such
   securities.

   NOTE 4     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. 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.
   Any taxable gains from such strategies will be applied as an offset
   against the tax basis capital loss carry forward that the Company
   incurred during 1998 as a result of the sale of a substantial portion of
   its securities available for sale.

   The Company's securities held for trading are carried at estimated fair
   value. As of September 30, 2000 and December 31, 1999, the Company did
   not have any long or short positions in securities held for trading.

   During the nine months ended September 30, 2000 and September 30, 1999,
   aggregate net realized gains on securities held for trading were $519
   and $2,992, respectively.

   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 5     COMMERCIAL MORTGAGE LOANS

   In August 1998, the Company along with a syndicate of other lenders
   originated a loan secured by a second lien on five luxury hotels in
   London, England and the surrounding vicinity (The "London Loan"). The
   loan has a five-year maturity and may be prepaid at any time. The London
   Loan is denominated in pounds sterling and bears interest at a rate
   based upon the London Interbank Offered Rate (LIBOR) for pounds sterling
   plus approximately 4%. The Company's investment in the London Loan is
   carried at amortized cost and translated into U.S. dollars at the
   exchange rate in effect on the reporting date. The amortized cost and
   certain additional information with respect to the Company's investment
   in the London Loan as of September 30, 2000, and December 31, 1999 (at
   the exchange rates in effect on such dates) are summarized as follows:

<TABLE>
<CAPTION>

                     September 30, 2000                                                December 31, 1999
----------------------------------------------------------------------------------------------------------------------------
   Interest       Principal     Unamortized      Amortized                     Principal       Unamortized       Amortized
     Rate          Balance        Discount          Cost          Interest      Balance         Discount            Cost
                                                                     Rate
-----------------------------------------------------------------------------------------------------------------------
<S> <C>             <C>              <C>           <C>            <C>          <C>                <C>            <C>
    10.21%          $31,480          $49           $31,431        10.11%       $ 34,680           $67            $34,613

</TABLE>

   The exchange rate for the British pound at September 30, 2000 was
   (pound)0.681663 to US $1.00; at December 31, 1999 the exchange rate was
   (pound)0.61908. The entire principal balance of the Company's investment
   in the London Loan is pledged to secure line of credit borrowings. The
   borrower has made all payments when due.

   Toward the end of the first quarter of 2000, the Company funded a
   $30,600 subordinated participation in a first mortgage secured by a
   commercial office building located in New York City (the "Commercial
   Office Building Loan"). The Commercial Office Building Loan matures
   December, 2001, and payments are interest only based upon LIBOR plus
   approximately 6.5%. The Company will receive a 50 basis point exit fee
   related to the Commercial Office Building Loan, which is being amortized
   into interest income over the life of such loan. The entire principal
   balance of the Company's investment in the Commercial Office Building
   Loan is pledged to secure line of credit borrowings. As of September 30,
   2000, the interest rate on the Commercial Office Building Loan was
   13.18%, and the borrower has made all payments when due.

   During 1999, the Company funded its entire commitment, $35,000, under a
   floating rate commercial real estate construction loan secured by a
   second mortgage on an office complex located in Santa Monica, California
   (the "Santa Monica Loan"). The Santa Monica Loan matures August 2001,
   and payments are interest only, based upon LIBOR plus approximately
   6.5%. The Santa Monica Loan provides for two one-year extensions through
   August 2003 at the borrower's option, subject to property performance.
   The Company received a $175 commitment fee relating to the commitment,
   which is being amortized into income over the expected two-and-one-half
   year life of such loan. The entire principal balance of the Santa Monica
   Loan is pledged to secure borrowings under a term financing agreement.
   As of September 30, 2000, the interest rate on the Santa Monica Loan was
   13.13% and the borrower had made all payments when due.

   On August 15, 2000 the Company purchased an $18,000 mezzanine loan,
   secured by a lien on the borrower's interest in the Westin St. Francis
   Hotel, located in San Francisco, California (the "San Francisco Loan").
   The loan matures on May 1, 2003, and may be extended by the borrower for
   two additional twelve-month periods. Payments are interest only based
   upon LIBOR plus 6.5%. Beginning June 1, 2001, principal payments will be
   required, based on a 25 year amortization schedule. As of September 30,
   2000, the interest rate on the San Francisco Loan was 13.12% and the
   borrower has made all payments when due.

   On September 22, 2000 the Company funded a $15,000 senior mezzanine loan
   (the "Senior Chicago Loan") and a $15,000 junior mezzanine loan (the
   "Junior Chicago Loan"). These loans are secured by a second mortgage on
   a condominium conversion project in Chicago, Illinois, two land parcels,
   as well as the borrower's partnership interest. The Senior Chicago Loan
   has a four-month term, which may be extended in 90-day increments for up
   to one year at the borrower's option. The Junior Chicago Loan has a
   24-month term, which may be extended in six-month increments for up to
   36 months at the borrower's option. Both loans may be prepaid at any
   time. Payments are interest only based at 12%. Additional interest of 8%
   is due upon pay-off of each loan.


   NOTE 6         INVESTMENT IN REAL ESTATE JOINT VENTURES

   On July 20, 2000 the Company made an investment aggregating $5,121 in
   two limited partnerships for the purpose of purchasing a 99 thousand
   square foot office building and a 120 thousand square foot office
   building, both of which are located in located in suburban Philadelphia.
   The Company's ownership interest is 64.81% in each partnership.


    NOTE 7        COMMON STOCK

   On January 5, 2000, the Company repurchased 6,100 shares of its common
   stock for $39 in open market transactions. This purchase was made at a
   price of $6.42 per share (including commissions). The remaining number
   of shares authorized for repurchase is 2,713,519. In accordance with
   Maryland corporate regulations, all repurchased shares are retired.

   On March 31, 1999 the Company filed a $200,000 shelf registration
   statement with the SEC. The shelf registration statement will permit the
   Company to issue a variety of debt and equity securities in the public
   markets should appropriate opportunities arise.

   On March 16, May 22 and September 14, 2000, the Company declared
   distributions to its common shareholders of $0.29 per share, payable on
   April 28, July 28, and October 31, 2000 to stockholders of record on
   March 31, June 30, and September 29, 2000 respectively. For U.S. Federal
   income tax purposes, the dividends are ordinary income to the Company's
   stockholders.

   As part of the CORE Cap merger, the Company issued 4,180,552 shares of
   its common stock to CORE Cap shareholders.

   NOTE 8     PREFERRED STOCK

   On December 2, 1999 the Company authorized and issued 1,200,000 shares
   of 10.5% Series A Senior Cumulative Redeemable Preferred Stock ("Series
   A Preferred Stock"), $0.001 par value per share, for aggregate proceeds
   of $30,000. The Series A Preferred Stock carries a 10.5% coupon and is
   convertible into the Company's common stock at a price of $7.35. The
   Series A Preferred Stock has a seven-year maturity at which time, at the
   option of the holders, the shares may be converted into common shares or
   liquidated ("Liquidation Preference") for $28.50 per share. If
   converted, the Series A Preferred Stock would convert into approximately
   4 million shares of the Company's common stock. The difference between
   the liquidation price and the proceeds received totals $4,200, and is
   being accreted to the carrying value of the Series A Preferred Stock
   over its seven-year life.

   The Series A Preferred Stock was privately placed by the Company, and
   there was no underwriting discount paid. At the closing of the CORE Cap
   merger, the Liquidation Preference was increased from $27.75 to $28.50
   per share.

   As part of the CORE Cap merger, the Company authorized and issued
   2,261,000 shares of 10% Series B Cumulative Redeemable Convertible
   Preferred Stock ("Series B Preferred Stock"), $0.001 par value per share
   to CORE Cap shareholders. The Series B Preferred Stock is perpetual,
   carries a 10% coupon, has a preference in liquidation of $56,025, and is
   convertible into the Company's common stock at a price of $17.09 per
   share, subject to adjustment. As of September 30, 2000, the Company has
   authorized and unissued preferred stock of 96,539,003 shares.

   NOTE 9     TRANSACTIONS WITH AFFILIATES

   The Company has a Management Agreement (the "Management Agreement") with
   BlackRock Financial Management, Inc. (the "Manager"), a majority owned
   indirect subsidiary of PNC Bank Corp. ("PNC") and the employer of
   certain directors and officers of the Company, under which the Manager
   manages the Company's day-to-day operations, subject to the direction
   and oversight of the Company's Board of Directors. The initial two year
   term of the Management Agreement was to expire on March 20, 2000; on
   March 16, 2000, the Management Agreement was extended for an additional
   two years, with the approval of a majority of the unaffiliated
   directors, on terms similar to the prior agreement. 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 0.35% of average invested
   assets rated above BB+.

   The Company accrued $2,060, $1,050, $5,050 and $3,173 in base management
   fees in accordance with the terms of the Management Agreement for the
   three months and nine months ended September 30, 2000 and September 30,
   1999 respectively. In accordance with the provisions of the Management
   Agreement, the Company will reimburse the Manager for certain expenses
   incurred on behalf of the Company by the Manager. No expense
   reimbursement was incurred during the nine months ended September 30,
   2000 and 1999.

   The Company will also pay the Manager, as incentive compensation, an
   amount equal to 25% of the funds from operations of the Company (as
   defined) plus gains (minus losses) from debt restructuring and sales of
   property, before incentive compensation, in excess of the amount that
   would produce an annualized return on equity equal to 3.5% over the
   Ten-Year U.S. Treasury Rate as defined in the Management Agreement. For
   purposes of the incentive compensation calculation, equity is generally
   defined as proceeds from issuance of common stock before underwriting
   discounts and commissions and other costs of issuance. The Company
   incurred $461 in incentive compensation for the three months and nine
   months ended September 30, 2000. The Company did not pay incentive
   compensation for the three months and nine months ended September 30,
   1999.

   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. 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. The terms of
   the administrative agreement are substantially similar to the terms of
   the previous third-party agreement. For both the three months ended
   September 30, 2000 and September 30, 1999, the administration fee was
   $30. For both the nine months ended September 30, 2000 and September 30,
   1999, the administration fee was $90.

   During the nine months ended September 30, 2000, the Company purchased
   certificates representing a 1% interest in Midland Commercial Mortgage
   Owner Trust IV, Midland Commercial Mortgage Owner Trust V, Midland
   Commercial Mortgage Owner Trust VI, and Midland Commercial Mortgage
   Owner Trust VII for $1,649, $851, $557 and $2,376 respectively. These
   Trusts were purchased from Midland Loan Services, Inc. ("Midland"), a
   wholly owned indirect subsidiary of PNC and the depositor to the Trusts.
   The assets of the Trusts consist of commercial mortgage loans originated
   or acquired by Midland. In connection with these transactions, the
   Company entered into a $4,500 committed line of credit from PNC Funding
   Corp., a wholly owned indirect subsidiary of PNC, to borrow up to 90% of
   the fair market value of the Company's interest in the Trusts.
   Outstanding borrowings against this line of credit bear interest at a
   LIBOR based variable rate. The Company earned $163 and $33 from the
   Trusts and paid interest of approximately $115 and $28 to PNC Funding
   Corp. during the nine and three months ended September 30, 2000 and
   September 30, 1999, respectively. These investments were all sold
   subsequent to September 30, 2000. The gain on sale of these investments
   was not significant.

   NOTE 10        STOCK OPTIONS

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

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

   Pursuant to the 1998 Stock Option Plan, during 1998 certain officers,
   directors and employees of the Company and the Manager were granted
   options to purchase 1,163,967 shares of the Company's common stock and
   PNC Investment Corp., a wholly owned indirect subsidiary of PNC, was
   granted options to purchase 324,176 shares of the Company's common
   stock. The exercise price of these options is $15 per share. The
   remaining contractual life of each option is approximately 7.4 years at
   September 30, 2000. One half of these options, representing 744,072
   shares, vested on March 31, 2000; the remaining options vest in equal
   installments on March 27, 2001 and March 27, 2002. 125,000 of these
   options have been terminated and none have been exercised as of
   September 30, 2000.

   During 1999 pursuant to the 1998 Stock Option Plan, options to purchase
   270,000 shares of the Company's common stock were granted to certain
   officers of the Company and employees of the Manager who provide
   services to the Company. The exercise price of these options is $8.44
   per share. The remaining contractual life of each option is
   approximately 8.4 years at September 30, 2000. One half of these options
   vested on March 31, 2000 and the remainder will vest on March 31, 2001.
   40,000 of these options were terminated and none have been exercised as
   of September 30, 2000.

   In addition to the foregoing, in 2000 pursuant to the 1998 Stock Option
   Plan, options to purchase 70,000 shares of the Company's common stock
   were granted to certain officers of the Company and employees of the
   Manager who provide services to the Company. The exercise price of these
   options is $8.02 per share. The remaining contractual life of each
   option is approximately 9.4 years at September 30, 2000. The options
   vest in two equal installments on March 31, 2001 and March 31, 2002.
   20,000 of these options were terminated as of September 30, 2000, and
   none have been exercised.

   In addition to the foregoing, on May 15, 2000 pursuant to the
   acquisition of CORE Cap, the Company granted stock options on the
   Company's stock to the directors of CORE Cap similar in term and vesting
   to the stock options the directors held immediately prior to the date of
   acquisition. The strike price was adjusted for the effect of the
   acquisition. The options granted are as follows:

  Number of Options           Exercise           %
       Granted                 Price          Vested
---------------------------------------------------------
76,998                         15.58            66%
15,400                         15.84           100%
15,400                          9.11           100%
15,400                          7.82           100%






   The fair value of the CORE-Cap option grants at the grant date was
   estimated by the Company using the Black-Scholes option-pricing model;
   the resulting valuation was negligible. None of these options have been
   terminated or exercised as of September 30, 2000.

   NOTE 11         BORROWINGS

   The Company's borrowings consist of lines of credit borrowings and
reverse repurchase agreements.

   In September of 2000, the Company closed a $200,000, one year term
   facility with Merrill Lynch Mortgage Capital Inc. ("Merrill Lynch")
   which will be used to finance the Company's residential loan pools. As
   of September 30, 2000 outstanding borrowings under this facility were
   $34,464. Outstanding borrowings under this facility bear interest at a
   LIBOR based variable rate.

   The Company has another agreement with Merrill Lynch which permits the
   Company to borrow up to $200,000. As of September 30, 2000 and December
   31, 1999, the outstanding borrowings under this line of credit were
   $60,810 and $64,575, respectively. The agreement requires assets to be
   pledged as collateral, which may consist of rated CMBS, rated RMBS,
   residential and commercial mortgage loans, and certain other assets.
   Outstanding borrowings under this line of credit bear interest at a
   LIBOR based variable rate. This facility matures on November 15, 2000.
   Subsequent to September 30, 2000, the Company obtained an agreement in
   principal from Merrill Lynch to renew the facility for a twelve month
   period.

   In June 1999, the Company closed a $17,500, three year term financing
   secured by the Company's $35,000 Santa Monica Loan. As of September 30,
   2000 and December 31, 1999, the Company had drawn $14,131 under this
   loan. Outstanding borrowings under this term financing bear interest at
   a LIBOR based variable rate.

   On July 19, 1999, the Company entered into a $185,000 committed credit
   facility with Deutsche Bank, AG (the "Deutsche Bank Facility"). The
   Deutsche Bank Facility has a two-year term and provides for a one-year
   extension at the Company's option. The Deutsche Bank Facility can be
   used to replace existing reverse repurchase agreement borrowings and to
   finance the acquisition of mortgage-backed securities, loan investments,
   and real estate investments, which will be used to collateralize
   borrowings under the Deutsche Bank Facility. As of September 30, 2000
   and December 31, 1999, the outstanding borrowings under this facility
   were $27,972 and $5,022, respectively. Outstanding borrowings under the
   Deutsche Bank Facility bear interest at a LIBOR based variable rate.

   In December 1999 the Company entered into a two-year $50,000 credit
   facility with an institutional lender. This facility can be used to
   finance the acquisition of mortgage-backed securities and loan
   investments, which are used to collateralize borrowings under this
   facility. As of September 30, 2000 and December 31, 1999, the Company
   borrowed $8,910 under this facility. Outstanding borrowings under this
   term financing bear interest at a LIBOR based variable rate.

   At the time of the CORE Cap acquisition, CORE cap was a party to
   commercial paper facility agreements with each of ABN Amro and Societe
   Generale which were used to finance residential and commercial loans,
   which are used to collateralize borrowings under the facilities.
   Following the CORE Cap acquisition, the Company has elected to renew the
   facility with ABN Amro, which facility is in the amount of $200,000,
   matures on June 18, 2001, and bears interest at a variable based LIBOR
   rate. As of September 30, 2000, outstanding borrowing under the ABN Amro
   facility was $37,503. Following the CORE Cap acquisition, the Company
   did not renew the facility with Societe Generale.

   The Company is subject to various covenants in its lines of credit,
   including maintaining a minimum GAAP net worth of $140,000, a
   debt-to-equity ratio not to exceed 4.5 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.
   Additionally, the Company's GAAP net worth cannot decline by more than
   37% during the course of any two consecutive fiscal quarters. As of
   September 30, 2000 and December 31, 1999, the Company was in compliance
   with all such covenants.

   The Company has entered into reverse repurchase agreements to finance
   most of its securities available for sale that are not financed under
   its lines of credit. The reverse repurchase agreements are
   collateralized by most of the Company's securities available for sale
   and bear interest at a LIBOR based variable rate.

   Certain information with respect to the Company's collateralized
   borrowings at September 30, 2000 is summarized as follows:

<TABLE>
<CAPTION>

                                             Lines of          Reverse           Total
                                            Credit and       Repurchase      Collateralized
                                            Term Loans       Agreements        Borrowings
                                          ------------------------------------------------------
<S>                                           <C>               <C>                <C>
Outstanding borrowings                        $ 187,196         $662,769           $849,965
Weighted average borrowing rate                   7.56%            6.88%              7.03%
Weighted average remaining maturity            223 days          21 days            65 days
Estimated fair value of assets pledged        $ 264,790         $746,017         $1,010,807

</TABLE>

   As of September 30, 2000, $20,486 of borrowings outstanding under the
   lines of credit were denominated in pounds sterling and interest payable
   is based on sterling LIBOR.

   As of September 30, 2000, the Company's collateralized borrowings had
the following remaining maturities:

                        Lines of           Reverse                Total
                       Credit and        Repurchase          Collateralized
                        Term Loan        Agreements            Borrowings
                   ------------------------------------------------------------
Within 30 days                    -        $648,328              $648,328
31 to 59 days              $ 60,810          14,441                75,251
Over 60 days                126,386               -               126,386
                   ------------------------------------------------------------
                           $187,196        $662,769              $849,965
                   ============================================================

Certain information with respect to the Company's collateralized borrowings
as of December 31, 1999 is summarized as follows:
<TABLE>
<CAPTION>


                                          Lines of       Reverse            Total
                                         Credit and     Repurchase     Collateralized
                                         Term Loans     Agreements       Borrowings
                                        ----------------------------------------------
<S>                                          <C>           <C>          <C>
Outstanding borrowings                       $ 94,035      $ 377,498    $ 471,533
Weighted average borrowing rate                 7.25%          6.32%        6.50%
Weighted average remaining maturity          360 days        36 days     101 days
Estimated fair value of assets pledged       $133,301      $ 412,983    $ 546,284
</TABLE>

As of December 31, 1999, $22,375 of borrowings outstanding under the
line of credit were denominated in pounds sterling and interest payable
based on sterling LIBOR.



   As of December 31, 1999, the Company's collateralized borrowings had the
following remaining maturities:

                       Lines of            Reverse                   Total
                   Credit and Term        Repurchase            Collateralized
                        Loans             Agreements              Borrowings
                 ------------------- ----------------------- ------------------
 Within 30 days              -               $ 157,918            $ 157,918
 31 to 59 days               -                 219,580              219,580
 Over 60 days          $94,035                       -               94,035
                 ------------------- ----------------------- ------------------
                       $94,035               $ 377,498            $ 471,533
                 =================== ======================= ==================

   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 12      HEDGING INSTRUMENTS

   As of September 30, 2000 the Company has entered into forward currency
   exchange contracts pursuant to which it has agreed to exchange
   (pound)8,000 (pounds sterling) for $12,137 (U.S. dollars) on January 18,
   2001. In certain circumstances, the Company may be required to provide
   collateral to secure its obligations under the forward currency exchange
   contracts, or may be entitled to receive collateral from the counter
   party to the forward currency exchange contracts. At September 30, 2000,
   no collateral was required under the forward currency exchange
   contracts. The estimated fair value of the forward currency exchange
   contract was $282 as of September 30, 2000, which was recognized as part
   of net foreign currency gain.

   As of September 30, 2000, the Company had outstanding a long position of
   298 ten-year U.S. Treasury Note future contracts expiring on December
   29, 2000, which represented $29,800 in face amount of U.S. Treasury
   Notes. These contracts are designated as hedging certain of the
   Company's available-for-sale securities. The unrealized gain of these
   contracts was approximately $98 as of September 30, 2000 and is included
   in the carrying value of the hedged available-for-sale securities.
   During the nine months ended September 30, 2000 the Company had $2,654
   of realized losses from futures contracts in U.S. Treasury securities,
   which increased the basis of the hedged available-for-sale securities.

   Interest rate swap agreements involve the exchange of fixed interest for
   floating interest payments. The Company pays fixed interest payments to
   the counterparty on a quarterly or semi-annual basis, in exchange for
   receiving floating interest payments on a quarterly basis from the
   counterparty. The Company has designated these swap agreements as
   hedging certain of the Company's available-for-sale securities.



In July, 2000 the Company redesignated two interest rate agreements from
hedging certain of the Company's available-for-sale securities to
securities held for trading. These interest rate agreements were
redesignated in September, 2000 back to hedging certain of the Company's
available-for-sale securities. The loss in value of these interest rate
agreements during the period they were designated as trading securities was
$612 and is included in gain on securities held for trading in the
statement of operations.

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 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 September 30, 2000 the balance of
such net margin deposits received from counterparties as collateral under
these agreements totaled $2,616.

Interest rate agreements as of September 30, 2000 consist of the following:
<TABLE>
<CAPTION>

                                     Notional      Estimated Fair     Unamortized      Remaining           Strike
                                      Value             Value             Cost            Term              Rate
                                   -------------------------------------------------------------------------------
<S>                                   <C>                <C>                <C>           <C>               <C>
 Interest rate floor agreement -      $200,000           $0                 0             75 days           5.50%
 purchased options
 Interest rate swap agreements        373,000         (3,654)            10,938          9.2 years           n/a
</TABLE>

For the quarter ended September 30, 2000, the Company owned a $200,000
(notional value) interest rate floor agreement. There was no cost
associated with this agreement. The Company will receive cash payments
should one-month LIBOR drop below the contract strike rate. These payments,
if any, will be recorded as an adjustment to interest expense. For the
quarter ended September 30, 2000 the Company did not receive cash payments
under this agreement.

Interest rate agreements contain an element of risk in the event that the
counterparties to the agreements do not perform their obligations under the
agreements. The Company minimizes its risk exposure by entering into
agreements with parties rated at least A+ by Standard & Poor's Rating
Services. Furthermore, the Company has interest rate agreements established
with several different counterparties in order to reduce the risk of credit
exposure to any one counterparty. Management does not expect any
counterparty to default on their obligations and, therefore, does not
expect to incur a loss.

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

   GENERAL: The Company was organized in November 1997 to invest in a
   diversified portfolio of multifamily, commercial and residential
   mortgage loans, mortgage-backed securities and other real estate related
   assets in the U.S. and non-U.S. markets. In March 1998, the Company
   received $296.9 million of net proceeds from the initial public offering
   of 20,000,000 shares and the private placement of 1,365,198 shares of
   its Common Stock, which the Company used to acquire its initial
   portfolio of investments. The Company commenced operations on March 24,
   1998.

   The Company is a real estate finance company that generates income based
   on the spread between the interest income on its investments and the
   interest expense from borrowings used to finance its investments.
   Because the Company has elected to be taxed as a REIT its income is
   largely exempt from corporate taxation and the Company is able to
   generate a higher level of net interest earnings than otherwise
   obtainable by a taxable corporation making similar investments. The
   principal risks that the Company faces are (i) credit risk on the high
   yield real estate loans and securities it underwrites, (ii) interest
   rate risk on the spread between the rates (typically one month LIBOR) at
   which the Company borrows and the generally longer term rates (as
   represented by the U.S. Ten Year Treasury) at which the Company lends;
   and (iii) funding risk in the amount and cost of debt financing employed
   by the Company over time versus the level of such funding that is
   sustainable by the financing markets. These risks are discussed in more
   detail below, under the heading, "Quantitative and Qualitative
   Disclosures About Market Risk and under Capital Resources and
   Liquidity".

   The Company also provides financing through certain real estate loan
   arrangements that, because of their nature, qualify either as real
   estate or joint venture investments for financial reporting purposes.
   For a discussion of these arrangements, see the Company's consolidated
   financial statements and notes included herein.

   The following discussion should be read in conjunction with the
   financial statements and related notes. Dollar amounts are expressed in
   thousands, other than per share amounts.

   MARKET CONDITIONS:
   Credit: The Company considers the Lehman Brothers delinquency statistics
   for 1998 conduit transactions to be the most relevant for its CMBS
   holdings, because most of the Company's CMBS were originated during
   1998. Pursuant to these statistics as of September 30, 2000, 41
   different securitizations were included in the index and 0.57% of
   principal balances were delinquent. As of June 30, 2000, these 41
   securitizations had 0.53% of principal balances delinquent. The broader
   Lehman Brothers CMBS collateral delinquency statistics representing all
   CMBS conduit deals dates back to 1993 originations. As of September 30,
   2000, 165 securitizations were being monitored among the larger universe
   and 0.72% of outstanding balances were delinquent, compared to 161
   securitizations included as of June 30, 2000 and 0.61% delinquent.

   Morgan Stanley Dean Witter (MSDW) also tracks CMBS loan delinquencies
   using a slightly smaller universe. Their index tracks all CMBS
   transactions with more than $200,000 of collateral that have been
   seasoned for at least one year. This will generally adjust for the lower
   delinquencies that occur in newly originated collateral. As of September
   30, 2000, MSDW delinquencies on 132 securitizations were 0.88%. As of
   June 30, 2000 this same index tracked 120 securitizations with
   delinquencies of 0.83%. The indices do not show any trend that could
   affect credit outlook.

   Real Estate: The national real estate market is maintaining a healthy
   balance between supply and demand for space. Certain local/regional
   markets have shown significant increases in rents for office space and
   apartments. These markets tend to be located in or around cities which
   operate on a 24-hour schedule. Selectively, new construction in
   primarily Southeast and Southwestern markets has decreased rent growth
   and added to vacancies. The FDIC's Regional Outlook Third Quarter 2000
   report served as a warning about levels of construction lending in 13
   markets. While the report raised appropriate concerns, GDP growth in the
   range of 2%-3% and low unemployment rates have kept demand strong.
   Generally, regional real estate markets will be more sensitive to
   deliveries of new space during the time that the national economy is
   slowing.

   Interest Rates: The Federal Reserve has not changed short-term rates
   since the 50 basis points increase in May 2000. In response to news of
   economic slow-down and concern of smaller buybacks of Treasury bonds,
   Treasury yields declined and the yield curve moved to a less inverted
   position. Yields remain higher on 2-year notes than on 30-year bonds but
   by a much smaller margin than existed at the beginning of the quarter.
   One month LIBOR finished the quarter at 6.62%, down from 6.64% at June
   30, 2000. Ten year Treasury yields fell from 6.02% to 5.80% at September
   30, 2000. CMBS market prices are impacted by both Treasury yields and
   swap spreads. Ten year swap spreads also declined to 111 basis points
   from 123 basis points since June 30, 2000. The Fed continues to maintain
   a tightening bias against inflation. Oil price increases are a
   continuing concern, but also act as a damper on consumer spending and
   economic activity.

   CMBS: The credit spread curve for investment grade CMBS has remained
   relatively flat from AAA to BBB in a range of 78 to 88 basis points
   since June 30, 2000. BBB CMBS have benefited from demand from insurance
   companies and CBO issuers. Expected rule changes from the Department of
   Labor would further expand demand as investment grade CMBS - rated down
   to BBB - would become ERISA eligible investments. Demand for BB rated
   classes has kept spreads in a narrow range of 520 - 545 basis points.
   Spreads on single-B and unrated securities have remained relatively
   unchanged. The distinction between bidders for them has been primarily
   credit enhancement and loan pool kick-out stipulations at the time of
   new issue.

   Real Estate Capital Markets: Capital flow into the public real estate
   mutual funds improved in the third quarter 2000 with $519,000 of inflows
   compared to second quarter 2000 inflows of $389,000 and a first quarter
   2000 outflow of $117,000. Public real estate companies have benefited
   from volatility in other equity market sectors like technology. Merger
   and acquisition activity among REITs has increased particularly among
   retail property owners. Mezzanine lending opportunities are expected
   from these corporate events and the portfolio restructuring which is
   expected in their aftermath.


                                 Average Credit Spreads (in basis points)*
                            ----------------------------------------------
                             BB CMBS        BB Corporate       Difference
As of September 30, 2000          556            430                126
As of June 30, 2000               588            454                134
As of March 31, 2000              571            438                133

                             B CMBS         B Corporate        Difference
As of September 30, 2000          976            718                258
As of June 30, 2000               977            630                347
As of March 31, 2000              931            646                285

*Source - Lehman Brothers CMBS High Yield Index & Lehman Brothers High
 Yield Index


   EFFECT OF MARKET CONDITIONS ON COMPANY PERFORMANCE:
   The decrease in interest rates during the third quarter of 2000 led to a
   slight increase in the value of the Company's investment portfolio. The
   unrealized loss on the Company's holdings of CMBS decreased from
   $101,399 at June 30, 2000 to $99,261 at September 30, 2000. Short-term
   rates were stable but the Company's cost of funds increased slightly as
   the full effect of the last Fed tightening was felt in the third
   quarter.

   The Company's earnings depend, in part, on the relationship between
   long-term interest rates and short-term interest rates. A significant
   part of Company's investments earn interest at fixed rates determined by
   reference to the yields of medium or long-term U.S. Treasury securities
   or at adjustable rates determined by reference (with a lag) to the
   yields on various short-term instruments. As a hedge, the Company
   focused on the origination of more LIBOR based floating rate assets.
   Approximately $118,000 of the Company's assets earn interest at rates
   that are determined with reference to LIBOR. All of the Company's
   borrowings earn interest at rates that are determined with reference to
   LIBOR. To the extent that interest rates on the Company's borrowings
   increase without an offsetting increase in the interest rates earned on
   the Company's investments, the Company's earnings would be negatively
   affected. During the third quarter 2000 the Company reduced leverage on
   fixed rate assets by approximately $125,000. At September 30, 2000 the
   company had $373,000 of notional amount of swaps where the company pays
   fixed rates and receives a LIBOR based floating rate. This represents a
   reduction of $129,000 from June 30, 2000. This hedging strategy
   effectively converts fixed rate assets into floating rate assets thereby
   protecting against short-term rate increases. The chart below compares
   the rate for the ten-year U.S. Treasury securities to the one-month
   LIBOR rate.


                       Ten Year                    One month
                       U.S Treasury Securities     LIBOR         Difference
                       -----------------------     ---------     ----------
September 30, 2000     5.80%                        6.62%        (0.82%)
June 30, 2000          6.03%                        6.66%        (0.63%)
March 31, 2000         6.02%                        6.13%        (0.11%)
June 30, 1999          5.81%                        5.22%         0.59%

   The decrease in LIBOR from June 30, 2000 to September 30, 2000 had an
   insignificant impact on the Company's financing costs. At the end of
   October 2000, the ten-year U.S. Treasury yield had decreased slightly
   from its September 30, 2000 level to 5.79%, and one month LIBOR remained
   unchanged during the same period.

   The Company purchased its CMBS portfolio at prices that reflect the
   assumption that credit losses will occur. The adjusted purchase price of
   the Company's CMBS portfolio as of September 30, 2000 represents 61% of
   its par amount, while the market value is 46% of par. As the portfolio
   matures the Company expects to recoup this difference provided that the
   credit losses experienced are not greater than the credit losses assumed
   in the purchase analysis. The Company performs a detailed review of its
   loss assumptions on a quarterly basis. As of September 30, 2000 the
   Company determined that there has been no material change in the credit
   quality of its portfolio.

   The Company's CMBS represents approximately $600,000 of par
   collateralized by underlying pools of commercial mortgages with a
   principal balance of over $9.2 billion as of September 30, 2000. The
   Company is in a first loss position with respect to these loans. The
   Company manages its credit risk through conservative underwriting at
   time of purchase, diversification, active monitoring of loan
   performance, and exercise of its right to control the workout process as
   early as possible. All of these processes are based on the extensive
   intranet-based analytic systems developed by BlackRock.

   In underwriting loans, the Company performs site inspections and/or
   desktop reviews of all loans in the pools. This process includes
   detailed analysis of regional economic factors, industry outlooks,
   project viability and documentation. Unacceptable risks are removed from
   the pool. An assumption of expected losses is developed and the
   securities are priced accordingly.

   Active monitoring of loan performance is a critical function that is
   performed via electronic uploads of information gathered from the master
   and special servicers of each deal, PNC Bank and external data
   providers. This internet-based system allows the Company to monitor
   payments, debt service coverage ratios, regional economic statistics,
   general real estate market trends and other relevant factors.

   The Company also uses the internet-based system to monitor
   delinquencies. The Company updates this information monthly allowing for
   more detailed analysis of loans before problems develop. The following
   table shows the comparison of delinquencies:

<TABLE>
<CAPTION>

                                               09/30/00                                        06/30/00
                                               NUMBER OF          % OF                         NUMBER OF         % OF
                              PRINCIPAL        LOANS/REO       COLLATERAL      PRINCIPAL         LOANS        COLLATERAL
<S>                               <C>            <C>              <C>         <C>                <C>           <C>
Past due 30 days to 60 days    $ 11,167            5              0.14%      $ 21,355              4            0.23%
Past due 60 days to 90 days      18,527            3              0.18          5,262              3            0.06
Past due 90 days or more         13,601            3              0.16          17,487             4            0.19
REO                              10,181            2              0.11          10,214             2            0.11
                             ------------- ------------------ -------------- -------------- ---------------- --------------
TOTAL                            53,476           13              0.59%      $  54,318             13            0.59%
                             ============= ================== ============== ============== ================ ==============
</TABLE>

   Of the 11 delinquent loans at September 30, 2000, one is delinquent due
   to technical reasons and six are in foreclosure proceedings or workout
   negotiations. Regarding one of the loans, the party which originally
   contributed the loan to the CMBS trust has indemnified the trust against
   a loss of up to $1,300. This loan has a principal balance of $8,984.

   The Company's delinquency experience of 0.59% is in line with directly
   comparable collateral experience shown in the Lehman Brothers 1998 CMBS
   index at 0.57%.

   On September 29, 2000 Fitch, a major international credit rating agency,
   announced a downgrade of certain of the GMAC 98 C1 CMBS securities. The
   Company owns five of the securities from this transaction totaling
   $51,300 of par value. Three of the five securities were down graded from
   BB-, B and B-, to B, B- and CCC respectively. The credit action was
   precipitated by loan collateralized by a diverse portfolio of nursing
   homes and assisted living facilities. The debt service coverage ratio of
   the properties declined significantly during 1999. The manager of the
   properties has since been replaced and operating improvements are
   expected. A subsidiary of Zurich Reinsurance Centre Holdings, Inc., an A
   rated insurance company, credit enhanced 67% of the loan balance. The
   Company does not anticipate a loss from this loan; therefore, the
   Company has not changed its loss adjusted yield on these securities. As
   a result of the downgrade one of the securities became ineligible for
   the Company's financing facility thus the amount being borrowed
   (approximately $2,300) was paid off with available cash.

   The Company also owns five mezzanine whole loans. The Santa Monica Loan
   is a $35,000 second mortgage on an office construction project in Santa
   Monica, California. The building was largely completed (except certain
   tenant improvements) and was completed on time during the third quarter.
   As of October 31, 2000 approximately 90% of the building is pre-leased
   at average rents of over $40 per square foot. The first group of tenants
   moved in their space in July 2000. The percentage of the property leased
   and the dollar per square foot being attained is greater than the base
   case expectations at the time the Company originated the loan.
   Furthermore, the real estate values for this class of office space in
   Santa Monica have increased significantly since origination.

   The London Loan is a (pound)21,459 Sterling denominated loan that was
   funded in August of 1998. It is secured by five luxury hotel properties
   in and around London, England. The operations of the hotels continue to
   meet expectations. While the underlying properties have performed well,
   the loan's estimated liquidation value as of September 30, 2000 was 96%
   of par.

   The Commercial Office Building Loan is a $30.6 million subordinated
   participation in a first mortgage secured by a 545 thousand square foot,
   100% leased, class A office building in Midtown Manhattan. The Loan was
   originated at the end of the first quarter and is scheduled to mature in
   December, 2001.

   The $15,000 Senior Chicago Loan and $15,000 Junior Chicago Loan are
   secured by a second mortgage on a condominium conversion project in
   Chicago, Illinois, two land parcels and the borrower's partnership
   interest. Interest in purchasing the condominium apartments is ahead of
   expectations; as a result, conversion of the building to condominium is
   anticipated to begin in December 2000. At conversion, the Senior Chicago
   Loan is expected to be paid-off with accrued interest, and prepayment
   penalties. The Junior Chicago Loan provides for a 24-month term, which
   may be extended in six-month increments for up to 36 months.

   The San Francisco Loan is an $18,000 loan is secured by a lien on the
   borrower's interest in a full service hotel located in San Francisco,
   California. The hotel is a 1,192-room full service hotel originally
   constructed in 1904 and expanded in 1913 and 1972. It is centrally
   located in downtown San Francisco and borders Union Square, the hub of
   the city shopping and theater district. The loan was originated in
   August 2000 and matures May 1, 2003, and may be extended by the borrower
   for two additional twelve-month periods.

   On July 20, 2000 the Company made an investment aggregating $5,121 in
   the preferred equity interests of two limited partnerships that own a 99
   thousand square foot office building and a 120 thousand square foot
   office building, both of which are located in suburban Philadelphia.
   Leasing activity is ahead of expectations. The Company's ownership
   interest is 64.81% in each partnership.

   RECENT EVENTS: Subsequent to the quarter end, the Company financed its
   San Francisco Loan and its investment in real estate joint ventures for
   $15,085 under the Deutsche Bank Facility. The Company borrowed an
   additional $3,191 secured by the Santa Monica Loan. The Company sold its
   investment in Midland Commercial Mortgage Owner Trust IV, V, VI, and VII
   in October, 2000, and repaid its borrowings to PNC Funding Corp. The
   gain on sale of these investments is insignificant. Subsequent to the
   quarter end, the Company reached an agreement to renew its agreement
   with Merrill Lynch for a one year period.

   FUNDS FROM OPERATIONS (FFO): The Company calculates FFO based upon
   guidance from the National Association of Real Estate Investment Trusts
   ("NAREIT"). FFO is defined as net income, excluding gains or losses from
   debt restructuring and sales of property, plus depreciation and
   amortization and after adjustments for unconsolidated joint ventures.

   Most industry analysts, including the Company, consider FFO an
   appropriate supplementary measure of operating performance of a REIT.
   FFO does not represent cash provided by operating activities in
   accordance with GAAP and should not be considered an alternative to net
   income as an indication of the results of the Company's performance or
   to cash flows as a measure of liquidity.

   The Company believes that the exclusion from FFO of gains or losses from
   sales of property was not intended to address gains or losses from sales
   of securities as they apply to the Company. Accordingly, the Company
   includes gains or losses from sales of securities in its calculation of
   FFO.

   The table below sets forth the adjustments which were made to the net
   income of the Company in the calculation of FFO for the three and nine
   months ended September 30, 2000 and 1999. Although the Company believes
   that this table is a full and fair presentation of the Company's FFO,
   similarly captioned items may be defined differently by other REITs, in
   which case direct comparisons may not be possible.


                                              Funds from Operations
                                              ---------------------
                                   Three Months Ended      Nine Months Ended
                                   September 30,              September 30,
                                       2000      1999       2000      1999
                                   ----------- --------- ---------   --------
Net Income Available to             $ 9,070    $6,536    $23,290    == $20,467
Common Shareholders:

Proportionate share of Adjustments
 to earnings from real estate
joint ventures:
  Depreciation and amortization          77        -          77            -

Funds from operations                $9,147    $6,536    $23,367       $20,467
                                   =========== ========= =========   =========

 Cash flow provided by (used for)
      Operating Activities                               $29,711      $155,078
      Investing Activities                              $786,073     $ (45,343)
      Financing Activities                             $(824,652)    $(101,128)

RESULTS OF OPERATIONS

   Net income for the three and nine months ended September 30, 2000 was
   $11,377, or $0.36 per share ($0.34 diluted) and $28,037 or $1.01 per
   share ($0.95 diluted), respectively. Further details of the changes are
   set forth below.

   Net income for the three and nine months ended September 30, 1999 was
   $6,536, or $0.31 per share (base and diluted) and $20,467, or $0.99 per
   share (base and diluted), respectively. Further details of the changes
   are set forth below.

   INTEREST INCOME: The following tables sets forth information regarding
   the total amount of income from certain of the Company's
   interest-earning assets and the resulting average yields. Interest
   income for the three and nine months ended September 30, 2000 on
   securities available for sale includes the net interest income/expenses
   of swaps. There were no swaps in 1999. Information is based on monthly
   average balances during the period.

<TABLE>
<CAPTION>

                                            For the Three Months Ended September 30, 2000
                                  ------------------------------------------------------------------
                                        Interest               Average              Annualized
                                         Income                Balance                Yield
                                  ---------------------- --------------------- ---------------------
<S>                                       <C>                  <C>                    <C>
CMBS                                      $9,489               $377,612                10.05%
Securities available for sale             12,096                613,822                 7.88%
Commercial mortgage loans                  3,573                111,796                12.78%
Mortgage loans held for sale               1,555                 82,055                 7.58%
Cash and cash equivalents                    255                 15,098                 6.76%
                                  ---------------------- --------------------- ---------------------
Total                                    $26,968            $1,200,383                8.99%
                                  ====================== ===================== =====================
</TABLE>


<TABLE>
<CAPTION>

                                            For the Nine Months Ended September 30, 2000
                                  ------------------------------------------------------------------
                                        Interest               Average              Annualized
                                         Income                Balance                Yield
                                  ---------------------- --------------------- ---------------------
<S>                                      <C>                  <C>                     <C>
CMBS                                     $ 27,915             $ 375,481               9.91%
Securities available for sale              27,198               442,142               8.20%
Commercial mortgage loans                   8,550                95,988              11.88%
Mortgage loans held for sale                5,021                88,312               7.58%
Cash and cash equivalents                     909                19,699               6.16%
                                  ---------------------- --------------------- ---------------------
Total                                    $ 69,593           $ 1,021,622               9.08%
                                  ====================== ===================== =====================

</TABLE>

<TABLE>
<CAPTION>

                                               For the Three Months Ended September 30, 1999
                                  ---------------------- --------------------- ---------------------
                                        Interest               Average              Annualized
                                         Income                Balance                Yield
                                  ---------------------- --------------------- ---------------------
<S>                                      <C>                  <C>                     <C>
CMBS                                     $ 8,373              $ 352,923               9.49%
Securities available for sale              2,754                206,881               5.32%
Commercial mortgage loan                   1,620                 56,264              11.52%
Cash and cash equivalents                    104                  7,785              5.34%
                                  ---------------------- --------------------- ---------------------
Total                                   $ 12,851              $ 623,853               8.24%
                                  ====================== ===================== =====================
</TABLE>
<TABLE>
<CAPTION>

                                             For the Nine Months Ended September 30, 1999
                                  ------------------------------------------------------------------
                                        Interest               Average              Annualized
                                         Income                Balance                Yield
                                  ---------------------- --------------------- ---------------------
<S>                                     <C>                   <C>                      <C>
CMBS                                    $ 25,112              $ 352,880               9.49%
Other securities available
for sale                                   8,963                201,547               5.93%
Commercial mortgage loans                  3,663                 46,373              10.53%
Cash and cash equivalents                    404                 10,630               5.10%
                                  ---------------------- --------------------- ---------------------
Total                                   $ 38,142              $ 611,430               8.32%
                                  ====================== ===================== =====================
</TABLE>

   In addition to the foregoing, the Company earned $567 and $3,186 in
   interest income from securities held for trading during the three and
   nine months ended September 30, 1999.



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 September 30, 2000
                                     ------------------------------------------------------------------
                                           Interest               Average              Annualized
                                            Expense               Balance                 Rate
                                     ---------------------- --------------------- ---------------------
<S>                                        <C>                    <C>                    <C>
Reverse repurchase agreements              $ 11,488               $656,477               7.00%
Lines of credit and term loan                 3,277                175,222               7.48%
                                     ---------------------- --------------------- ---------------------
Total                                      $ 14,765              $ 831,699               7.10%
                                     ====================== ===================== =====================
</TABLE>


<TABLE>
<CAPTION>

                                               For the Nine Months Ended September 30, 2000
                                     ------------------------------------------------------------------
                                           Interest               Average              Annualized
                                            Expense               Balance                 Rate
                                     ---------------------- --------------------- ---------------------
<S>                                         <C>                   <C>                    <C>
Reverse repurchase agreements               $27,579               $538,495               6.83%
Lines of credit and term loan                 9,749                179,979               7.22%
                                     ---------------------- --------------------- ---------------------
Total                                       $37,328               $718,473               6.93%
                                     ====================== ===================== =====================
</TABLE>

<TABLE>
<CAPTION>


                                               For the Three Months Ended September 30, 1999
                                     ------------------------------------------------------------------
                                           Interest               Average              Annualized
                                            Expense               Balance                 Rate
                                     ---------------------- --------------------- ---------------------
<S>                                         <C>                  <C>                     <C>
Reverse repurchase agreements               $ 4,133              $ 278,045               5.90%
Lines of credit borrowings                      786                  48,136              6.48%
                                     ---------------------- --------------------- ---------------------
Total                                       $ 4,919              $ 326,181               6.03%
                                     ====================== ===================== =====================
</TABLE>

<TABLE>
<CAPTION>


                                               For the Nine Months Ended September 30, 1999
                                     ------------------------------------------------------------------
                                           Interest               Average              Annualized
                                            Expense               Balance                 Rate
                                     ---------------------- --------------------- ---------------------
<S>                                        <C>                   <C>                     <C>
Reverse repurchase agreements              $ 10,765              $ 251,390               5.75%
Lines of credit borrowings                    3,788                 80,959               6.28%
                                     ---------------------- --------------------- ---------------------
Total                                      $ 14,553              $ 332,349               5.84%
                                     ====================== ===================== =====================
</TABLE>

   In addition to the foregoing, the Company incurred $607 and $4,108 in
   interest expense from short-term borrowings relating to its securities
   held for trading and securities sold short during the three months and
   nine months ended September 30, 1999, respectively.

   NET INTEREST MARGIN AND NET INTEREST SPREAD FROM THE PORTFOLIO: The
   Company considers its portfolio to consist of its securities available
   for sale, its mortgage loans held for sale its commercial mortgage loans
   and its 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 liquid 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.

                          For the Three Months         For the Three Months
                                  Ended                       Ended
                           September 30, 2000           September 30, 1999
                      ----------------------------- ---------------------------
  Interest Income               $26,968                      $12,851
  Interest Expense              $14,765                      $ 4,919
  Net Interest Margin              4.44%                        6.14%
  Net Interest Spread              2.71%                        2.31%

   OTHER EXPENSES: Expenses other than interest expense consist primarily
   of management fees and general and administrative expenses. Management
   fees of $2,060 and $5,050 for the three and nine months ended September
   30, 2000 and $1,050 and $3,173 for the three and nine months ended
   September 30, 1999, respectively, were paid to the Manager in accordance
   with the management agreement between the Manager and the Company. The
   Manager earned $375 and $462 in incentive management fees for the three
   and nine months ended September 30, 2000. No incentive management fees
   were earned in 1999. Other expenses/(income) - net of $(20) and $1,415
   for the three and nine months ended September 30, 2000 and $507 and
   $1,541 for the three and nine months ended September 30, 1999,
   respectively, were comprised of accounting agent fees, custodial agent
   fees, directors' fees, fees for professional services, insurance
   premiums, broken deal expenses, due diligence costs, amortization of
   prepaid expenses, and other miscellaneous expenses. Other
   expenses/(income) - net in the year 2000 includes the amortization of
   negative goodwill.

   OTHER GAINS (LOSSES): During the three and nine months ended September
   30, 2000 the Company sold a portion of its securities available-for-sale
   for total proceeds of $812,279 and $2,122,735 resulting in a realized
   gain of $994 and $1,700. For the three and nine months ended September
   30, 1999, the Company sold securities available-for-sale for total
   proceeds of $23,855 and $45,367, resulting in realized losses of $566
   and $423. The gains on securities held for trading were $191 and $739
   for the three months ended September 30, 2000 and 1999, respectively,
   and $519 and $2,992 for the nine months ended September 30, 2000 and
   1999, respectively. The foreign currency gains (losses) of $29 and $28
   for the three months and $118 and $(55) for the nine months ended
   September 30, 2000 and 1999, respectively relate to the Company's net
   investment in a commercial mortgage loan denominated in pounds sterling
   and associated hedging.

   DIVIDENDS DECLARED: On March 16, May 22 and September 14, 2000, the
   Company declared distributions to its shareholders of $0.29 per share,
   payable on April 28, July 28, and October 31, 2000 to shareholders of
   record on March 31, June 30, and September 29, 2000 respectively. For
   U.S. Federal income tax purposes, the dividends are ordinary income to
   the Company's shareholders.


   TAX BASIS NET INCOME AND GAAP NET INCOME: For tax purposes the fourth
   quarter 1998 dividend of $0.29 is treated as a 1999 distribution. Thus,
   for tax purposes the total dividends paid year to date in each of 2000
   and 1999 were $0.58 and $0.87, respectively.

   Differences between tax basis net income and GAAP net income arise for
   various reasons. For example, in computing income from its subordinated
   CMBS for GAAP purposes, the Company takes into account estimated credit
   losses on the underlying loans whereas for tax basis income purposes,
   only actual credit losses are taken into account. As there were no
   actual credit losses incurred in the three months ended September 30,
   2000, tax basis income is higher than GAAP income. Certain general and
   administrative expenses may differ due to differing treatment of the
   deductibility of such expenses for tax basis income. Also, differences
   could arise in the treatment of premium and discount amortization on the
   Company's securities available for sale.

   A reconciliation of GAAP net income to tax basis net income is as
follows:
<TABLE>
<CAPTION>

                                        For the Three Months          For the Nine
                                      Ended September 30, 2000        Months Ended
                                                                   September 30, 2000
                                      ---------------------------------------------------
<S>                                           <C>                       <C>
GAAP net income                               $11,377                   $28,037
Subordinate CMBS income differences               507                     2,158
Use of capital loss carryforward                 (602)                   (1,625)
CORE Cap merger expenses                            -                    (2,300)
                                      ---------------------------------------------------
Tax basis net income                          $11,282                   $26,270
                                      ===================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                      For the Nine
                                        For the Three Months          Months Ended
                                      Ended September 30, 1999      September 30, 1999
                                      ----------------------------------------------------
<S>                                            <C>                        <C>
GAAP net income                                $6,536                     $20,467
Subordinate CMBS income differences             2,831                       4,875
General and administrative expense
differences                                       372                           -
                                      ----------------------------------------------------
Tax basis net income                           $9,739                     $25,342
                                      ====================================================
</TABLE>


   CHANGES IN FINANCIAL CONDITION

   SECURITIES AVAILABLE FOR SALE: At September 30, 2000 and December 31,
   1999, an aggregate of $99,261 and $101,139, respectively, in unrealized
   losses on securities available for sale was included as a component of
   accumulated other comprehensive income (loss) in stockholders' equity.


   The Company's securities available-for-sale, which are carried at
   estimated fair value, included the following at September 30, 2000:
<TABLE>
<CAPTION>
                                                                               Estimated
                                                                                  Fair
                           Security Description                                  Value          Percentage
--------------------------------------------------------------------------- ----------------- ----------------
Commercial mortgage-backed securities:
<S>                                                                                 <C>             <C>
Investment grade rated securities                                                   $164,231        18.4%
Non-investment grade rated subordinated securities                                   253,970        28.5
Non-rated subordinated securities                                                     30,168         3.4
                                                                            ----------------- ----------------
                                                                                     448,369        50.3%
                                                                            ----------------- ----------------
Single-family residential mortgage-backed securities:
Agency adjustable rate securities                                                    113,038        12.7%
Agency fixed rate securities                                                         205,082        23.0
Privately issued investment grade rated fixed rate securities                        125,331        14.0
                                                                            ----------------- ----------------
                                                                                     443,451       49.7%
                                                                            ----------------- ----------------
                                                                                    $891,820       100.0%
                                                                            ================= ================
</TABLE>



   The Company's securities available-for-sale included the following at
December 31, 1999:
<TABLE>
<CAPTION>

                                                                              Estimated
                                                                                 Fair
                          Security Description                                  Value           Percentage
------------------------------------------------------------------------- ------------------- ----------------
Commercial mortgage-backed securities:
<S>                                                                                 <C>            <C>
Non-investment grade rated subordinated securities                                  $243,708       42.7%
Non-rated subordinated securities                                                     29,025        4.6
                                                                          ------------------- ----------------
                                                                                     272,733       47.3
                                                                          ------------------- ----------------
Single-family residential mortgage-backed securities:
Agency adjustable rate securities                                                     58,858       10.2
Agency fixed rate securities                                                         165,825       28.7
Privately issued investment grade rated fixed rate securities                         76,821       13.3
                                                                          ------------------- ----------------
                                                                                     301,504       52.2
                                                                          ------------------- ----------------
Agency insured project loan                                                            2,958        0.5
                                                                          ------------------- ----------------
                                                                                    $577,195       100.0%
                                                                          =================== ================
</TABLE>

   BORROWINGS: As of September 30, 2000, the Company's debt consisted of
   line-of-credit borrowings, term loans and reverse repurchase agreements,
   collateralized by a pledge of most of the Company's securities available
   for sale, securities held for trading, mortgage loans held for sale 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 September 30, 2000, the Company
   has obtained financing in amounts and at interest rates consistent with
   the Company's short-term financing objectives.

   Under the lines of credit, term loans, 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 will require the Company to provide additional collateral or fund
   margin calls. From time to time, the Company expects that it will be
   required to provide such additional collateral or fund margin calls.

   The following tables set forth information regarding the Company's
collateralized borrowings.
<TABLE>
<CAPTION>

                                                                          For the Nine Months Ended
                                                                              September 30, 2000
                                                      -------------------------------------------------------------------
                                                          September 30,
                                                              2000                 Maximum               Range of
                                                             Balance               Balance              Maturities
                                                      ---------------------- --------------------- ----------------------
<S>                                                       <C>                   <C>                <C>
Reverse repurchase agreements                             $662,769             $1,206,696           6 to 51 days
Line of credit and term loan borrowings                    187,196              $453,841            45 to 441 days
                                                      ---------------------- --------------------- ----------------------
</TABLE>

   HEDGING INSTRUMENTS: The Company's hedging policy with regard to its
   sterling denominated commercial mortgage loan is to minimize its
   exposure to fluctuations in the sterling exchange rate. At September 30,
   2000, the Company's hedging transactions outstanding consisted of
   forward currency exchange contracts pursuant to which the Company agreed
   to exchange (pound)8,000 (pounds sterling) for U.S. $12,137 on January
   18, 2001. The estimated fair value of the forward currency exchange
   contract was $282 at September 30, 2000, which was recognized as a part
   of net foreign currency gains.

   From time to time the Company may reduce its exposure to market interest
   rates by entering into various financial instruments that shorten
   portfolio duration. These financial instruments are intended to mitigate
   the effect of interest rates on the value of certain assets in the
   Company's portfolio. At September 30, 2000, the Company had outstanding
   a long position of 298 ten-year U.S. Treasury Note future contracts
   expiring on December 29, 2000, which represented $29,800 in face amount
   of U.S. Treasury Notes. The unrealized gain of these contracts was
   approximately $98 at September 30, 2000.

   The Company acquired interest rate swap agreements through the CORE Cap
   merger and assigned a cost to each contract equal to the fair market
   value of each contract. The amortized cost of these agreements was
   $10,326 at September 30, 2000, and their fair value included in other
   assets was $2,621. The cost of the swaps will be amortized into interest
   income over the remaining life of the swaps. At September 30, 2000
   accrued net interest payable equaled $209. As of September 30, the
   weighted average interest rate receivable and payable is 6.43% and
   6.99%, respectively.

   In July, 2000 the Company redesignated two interest rate agreements from
   hedging certain of the Company's available-for-sale securities to
   securities held for trading. These interest rate agreements were
   redesignated in September, 2000 back to hedging certain of the Company's
   available-for-sale securities. The loss in value of the interest rate
   agreements during the period they were designated as trading securities
   was $612 and is included in gain on securities held for trading in the
   statements of operations.

   CAPITAL RESOURCES AND LIQUIDITY: Liquidity is a measurement of the
   Company's ability to meet potential cash requirements, including ongoing
   commitments to repay borrowings, fund investments, loan acquisition and
   lending activities and for other general business purposes. The primary
   sources of funds for liquidity consist of issuance of common and
   preferred stock, 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 sales
   thereof.

   If the Company is unable to maintain its borrowings at their current
   level due to changes in the financing markets for the Company's assets,
   then the Company may be required to sell assets in order to achieve
   lower borrowings levels. In this event, the Company's level of net
   earnings 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, and will consider resecuritization or
   other achievable term funding of existing assets to diversify its
   existing capital base.

   On March 31, 1999, the Company filed a $200,000 shelf registration
   statement with the SEC. The shelf registration statement will permit the
   Company to issue a variety of debt and equity securities in the public
   markets. There can be no certainty, however, that the Company will be
   able to issue, on terms favorable to the Company, or at all, any of the
   securities so registered.

   As of September 30, 2000, $157,028 was available for future borrowings
   under the $185,000 Deutsche Bank Facility, $41,090 was available for
   future borrowings under the Company's $50,000 credit facility, $3,369
   was available for future borrowings under the Company's term financing
   secured by the Santa Monica Loan, $162,497 was available for future
   borrowings under the Company's facility with ABN Amro Bank, and $165,536
   was available for future borrowings under the Company's residential
   facility with Merrill Lynch.

   On May 15, 2000 as part of the CORE Cap acquisition the Company issued
   4,180,552 shares of common stock and 2,260,997 shares of Series B
   Preferred Stock.

   The Company's operating activities provided cash of $29,617 and $155,078
   during the nine months ended September 30, 2000, and 1999, respectively,
   primarily through net income, and in 1999, through sales of trading
   securities in excess of purchases.

   The Company's investing activities provided (used) cash totaling
   $786,167 and $(45,343) during the nine months ended September 30, 2000,
   and 1999, respectively, primarily to purchase securities
   available-for-sale and to fund commercial mortgage loans, offset by
   principal payments received on securities available-for-sale and
   proceeds from sales of securities available-for-sale.

   The Company's financing activities used cash of $824,652 during the nine
   months ended September 30, 2000, primarily to reduce the level of
   borrowings assumed in the CORE Cap merger and to pay distributions. The
   Company's financing activities used cash of $101,128 during the nine
   months ended September 30, 1999 primarily to reduce the level of
   short-term borrowings and to pay distributions.

   Although the Company's portfolio of securities available-for-sale was
   acquired at a net discount to the face amount of such securities, the
   Company has received to date and expects to continue to receive
   sufficient cash flows from these securities to fund distributions to the
   Company's stockholders.

   The Company is subject to various covenants in its lines of credit,
   including maintaining a minimum GAAP net worth of $140,000, a
   debt-to-equity ratio not to exceed 4.5 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.
   Additionally, the Company's GAAP net worth cannot decline by more than
   37% during the course of any two consecutive fiscal quarters. As of
   September 30, 2000 and December 31, 1999, the Company was in compliance
   with all such covenants.

   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
   more 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 through the
   capital markets. Except as discussed herein, management is not aware of
   any other trends, events, commitments or uncertainties that may have a
   significant effect on liquidity.

   REIT STATUS: The Company has elected to be taxed as a REIT and to comply
   with the provisions of the Internal Revenue Code of 1986, as amended,
   with respect thereto. Accordingly, the Company 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.

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

   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,
   indeed, 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 rate and
   credit spread scenarios. 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 up to 300
   basis points 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
   by 200 basis points and the assumption that the yield curve 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 September
   30, 2000. 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
------------------------------- ------------------------
             -300                        11.8%
             -200                        8.9%
             -100                        4.9%
          Base Case                        0
             +100                       (5.9)%
             +200                       (12.8)%
             +300                       (20.7)%


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
------------------------------- ------------------------
             -300                        52.9%
             -200                        34.5%
             -100                        16.9%
          Base Case                        0
             +100                       (16.1)%
             +200                       (31.5)%
             +300                       (46.2)%

PROJECTED PERCENTAGE CHANGE IN PORTFOLIO NET INTEREST INCOME
                    GIVEN LIBOR MOVEMENTS


---------------------------------------------------------
                                  Projected Change in
       Change in LIBOR,                Portfolio
       +/- Basis Points           Net Interest Income
------------------------------- -------------------------
             -200                        12.9%
             -100                         6.4%
          Base Case                        0
             +100                        (6.4)%
             +200                       (12.9)%

   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 and
   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 nature of
   the CMBS assets owned are such that all losses experienced by a pool of
   mortgages will be borne by the Company. Changes in the expected default
   rates of the underlying mortgages will significantly affect the value of
   the Company, the income it accrues and the cash flow it receives. An
   increase in default rates will reduce the book value of the Company's
   assets and the Company's earnings and cash flow available to fund
   operations and pay dividends.

   The Company manages credit risk through the underwriting process,
   establishing loss assumptions, and careful monitoring of loan
   performance. Before acquiring a security that represents a pool of
   loans, the Company will perform a rigorous analysis of the quality of
   substantially all of the loans proposed for that security. As a result
   of this analysis, loans with unacceptable risk profiles will be removed
   from the proposed security. 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 timing experience is likely to cause a reduction
   in the expected yield, and therefore reduce the earnings of the Company
   and may require a significant write down of assets.

   For purposes of illustration, a doubling of the losses in the Company's
   credit sensitive portfolio, without a significant acceleration of those
   losses would reduce the expected yield from approximately 10.05% to
   approximately 8.40%. This would reduce GAAP income going forward and
   cause a significant write down in assets at the time the loss assumption
   is changed.

   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.

   The Company uses interest rate duration as its primary measure of
   interest rate risk. This metric, expressed when considering any existing
   leverage, allows the Company's management to approximate changes in the
   net market value of the Company's portfolio given potential changes in
   the U.S. Treasury yield curve. Interest rate duration considers both
   assets and liabilities. As of September 30, 2000, the Company's duration
   on equity was approximately 5.7 years. This implies that a parallel
   shift of the U.S. Treasury yield curve of 100 basis points would cause
   the Company's net asset value to increase or decrease by approximately
   5.7%. Because the Company's assets, and their markets, have other, more
   complex sensitivities to interest rates, the Company's management
   believes that this metric represents a good approximation of the change
   in portfolio net market value in response to changes in interest rates,
   though actual performance may vary due to changes in prepayments, credit
   spreads and the cost of increased market volatility.

   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. The majority of the
   Company's assets pay a fixed coupon and the income from such assets are
   relatively unaffected by interest rate changes. The majority of the
   Company's liabilities are borrowings under its line of credit or reverse
   repurchase agreements that bear interest at variable rates that reset
   monthly. Given this relationship between assets and liabilities, the
   Company's interest rate sensitivity gap is highly negative. This implies
   that a period of falling short-term interest rates will tend to increase
   the Company's net interest income while a period of rising short-term
   interest rates will tend to reduce the Company's net interest income.
   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 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.

   FORWARD-LOOKING STATEMENTS: Certain statements contained herein are not,
   and certain statements contained in future filings by the Company with
   the SEC in the Company's press releases or in the Company's other public
   or shareholder communications may not be, based on historical facts and
   are "Forward-looking statements" within the meaning of the Private
   Securities Litigation Reform Act of 1995. Forward-looking statements
   which are based on various assumptions (some of which are beyond the
   Company's control) may be identified by reference to a future period or
   periods, or by the use of forward-looking terminology, such as "may,"
   "will," "believe," "expect," "anticipate," "continue," or similar terms
   or variations on those terms, or the negative of those terms. Actual
   results could differ materially from those set forth in forward-looking
   statements due to a variety of factors, including, but not limited to,
   those related to the economic environment, particularly in the market
   areas in which the Company operates, competitive products and pricing,
   fiscal and monetary policies of the U.S. Government, changes in
   prevailing interest rates, acquisitions and the integration of acquired
   businesses, credit risk management, asset/liability management, the
   financial and securities markets and the availability of and costs
   associated with sources of liquidity. Additional information regarding
   these and other important factors that could cause actual results to
   differ from those in the Company's forward looking statements are
   contained under the section entitled "Risk Factors" in the Company's
   Registration Statement on Form S-3 (File No. 333-32155), as filed with
   the SEC on March 10, 2000 and in the Company's Registration Statement on
   Form S-4 (File No.333-33596), as filed with the SEC on March 30, 2000,
   as amended by Amendment No.1 to the Company's Registration Statement on
   Form S-4, as filed with the SEC on April 11, 2000. The Company hereby
   incorporates by reference those risk factors in this Form 10-Q. 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.

   Part II - OTHER INFORMATION

   Item 1.      Legal Proceedings

   At September 30, 2000 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

         Exhibit 27.1 - Financial Data Schedule (filed herewith)

(b)      Reports on Form 8-K

         None.


                                 SIGNATURES


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




                                  ANTHRACITE CAPITAL, INC.



Dated:  November 13, 2000      By: /s/  Hugh R. Frater
                                   ---------------------
                                   Name: Hugh R. Frater
                                   Title:President and Chief Executive Officer
                                          (authorized officer of registrant)





Dated:  November 13, 2000      By: /s/ Richard M. Shea
                                   ---------------------
                                   Name: Richard M. Shea
                                   Title: Chief Operating Officer and Chief
                                          Financial Officer
                                          (principal accounting officer)