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 March 31, 2001

                      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 May 14, 2001, 34,014,046 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 March 31, 2001 (Unaudited) and December 31, 2000..................3

         Consolidated Statements of Operations
         For the Three Months Ended March 31, 2001 and 2000 (Unaudited).......4

         Consolidated Statement of Changes in Stockholders' Equity
         For the Three Months Ended March 31, 2001 (Unaudited)................5

         Consolidated Statements of Cash Flows
         For the Three Months Ended March 31, 2001 and 2000 (Unaudited).......6

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

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

Item 3.  Quantitative and Qualitative Disclosures about Market Risk..........27

Part II - OTHER INFORMATION

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

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

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

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

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

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

SIGNATURES ..................................................................33




Part I - FINANCIAL INFORMATION
Item 1.  Consolidated Financial Statements

<TABLE>
<CAPTION>

                 Anthracite Capital, Inc. and Subsidiaries
               Consolidated Statements of Financial Condition
                   (in thousands, except per share data)
--------------------------------------------------------------------------------------------------------------------------------
                                                                              March 31, 2001             December 31, 2000
                                                                              --------------             -----------------
                                                                                (Unaudited)
ASSETS
<S>                                                                          <C>             <C>         <C>            <C>
Cash and cash equivalents                                                                 $  35,050                   $  37,829
Restricted cash equivalents                                                                  23,461                       9,484
Securities available for sale, at fair value
     Subordinated commercial mortgage-backed securities (CMBS)               $294,098                   $288,686
     Investment grade securities                                              802,020                    389,436
                                                                              -------                    -------


Total securities available for sale                                                       1,096,118                     678,122
Securities held for trading, at fair value                                                   57,681                      54,043
Mortgage loan pools available for sale at fair value                                              -                      71,535
Commercial mortgage loans, net                                                              116,552                     153,187
Investments in real estate joint ventures                                                    10,393                      10,354
Receivable for investments sold                                                              13,475                           -
Other assets                                                                                 17,176                      19,097
                                                                                     --------------             ---------------
  Total Assets                                                                           $1,369,906                  $1,033,651
                                                                                     ==============             ===============


LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Borrowings:
    Secured by pledge of subordinated CMBS                                   $170,384                   $161,608
    Secured by pledge of other securities available for sale
      and cash equivalents                                                    428,796                    356,491
    Secured by mortgage loans pools                                                 -                     67,367
    Secured by pledge of securities held for trading                           62,063                     55,212
    Secured by pledge of investments in real estate joint ventures              3,385                      3,385
    Secured by pledge of commercial mortgage loans                             55,865                     75,279
                                                                            ---------                   ---------
Total borrowings                                                                          $ 720,493                    $719,342
Payable for investments purchased                                                           306,837                           -
Distributions payable                                                                        11,114                       9,741
Other liabilities                                                                            25,522                      31,910
                                                                                      --------------             ---------------
     Total Liabilities                                                                    1,063,966                     760,993
                                                                                      --------------             ---------------

10.5% Series A preferred stock, redeemable convertible, liquidation
preference $34,200                                                                           30,517                      30,404
                                                                                      --------------             ---------------

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $0.001 per share; 400,000 shares authorized; 29,792
     shares issued and outstanding in 2001; and 25,136 shares issued and
     outstanding in 2000                                                                         30                          25

10% Series B preferred stock, liquidation preference $55,567 in
2001, $56,525 in 2000                                                                        42,276                      43,004
Additional paid-in capital                                                                  354,505                     315,533

Distributions in excess of earnings                                                         (12,893)                    (13,437)
Accumulated other comprehensive loss                                                       (108,495)                   (102,871)
                                                                                      --------------             ---------------
      Total Stockholders' Equity                                                            275,423                     242,254
                                                                                      --------------             ---------------
      Total Liabilities and Stockholders' Equity                                         $1,369,906                  $1,033,651
                                                                                      ==============             ===============

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 data)
--------------------------------------------------------------------------------------------------------------------------------

                                                                      For the Three                    For the Three
                                                                       Months Ended                    Months Ended
                                                                       March 31, 2001                   March 31, 2000
                                                                     -----------------               ------------------
Income:
<S>                                                                          <C>                              <C>
    Securities available for sale                                            $ 17,247                         $ 14,342
    Commercial mortgage loans                                                   5,987                            1,989
    Mortgage loan pools                                                         1,438                                -
    Trading securities                                                          1,104                                -
    Earnings from real estate joint ventures                                      367                                -
    Cash and cash equivalents                                                     197                              291
                                                                     -----------------               ------------------
        Total income                                                           26,340                           16,622
                                                                     -----------------               ------------------

Expenses:
    Interest                                                                   11,401                            7,467
    Interest-trading securities                                                   871                                -
    Management and incentive fee                                                2,449                            1,290
    Other expenses - net                                                          686                              887
                                                                     -----------------               ------------------
        Total expenses                                                         15,407                            9,644
                                                                     -----------------               ------------------

Other gain (losses):
Gain on sale of securities available for sale                                   1,947                               24
Gain on securities held for trading                                              692                               328
Foreign currency gain (loss)                                                     104                                (4)
                                                                     -----------------               ------------------
       Total other gain (loss)                                                 2,743                              348
                                                                     -----------------               ------------------

Income before cumulative transition adjustment                                 13,676                            7,326
Cumulative transition adjustment - SFAS 133                                   (1,903)                                -
                                                                     -----------------               ------------------
Net Income                                                                    11,773                             7,326
                                                                     -----------------               -----------------
Dividends and accretion on preferred stock                                     2,289                              866
                                                                     -----------------               ------------------

Net Income available to Common Shareholders                                    9,484                            6,460
                                                                     =================               ==================

Net income per common share, basic:
    Income before cumulative transition adjustment                              $0.42                            $0.31
    Cumulative transition adjustment - SFAS 133                                 (0.07)                               -
                                                                     -----------------               ------------------
      Net income                                                                $0.35                            $0.31
                                                                     ==================               ==================

Net income per common share, diluted:
      Income before cumulative transition adjustment                            $0.39                            $0.29
      Cumulative transition adjustment - SFAS 133                               (0.06)                               -
                                                                     -----------------               ------------------
      Net income                                                                $0.33                            $0.29
                                                                     ==================               ==================

Weighted average number of shares outstanding:
    Basic                                                                      27,003                           20,956
    Diluted                                                                    31,116                           25,037

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 Three Months Ended March 31, 2001
(in thousands)

------------------------------------------------------------------------------------------------------------------------------------
                                                    Series                              Accumulated
                                          Common       B     Additional  Distributions     Other                          Total
                                          Stock,   Preferred   Paid-In     In Excess   Comprehensive   Comprehensive  Stockholders'
                                         Par Value   Stock     Capital    Of Earnings       Loss           Income         Equity

<S>                                            <C>   <C>        <C>          <C>           <C>            <C>               <C>
Balance at January 1, 2001                     $25   $43,004    $315,533     ($13,437)     ($102,871)                      $242,254

Issuance of common stock                         5                38,216                                                     38,221
Net income                                                                     11,773                        $11,773         11,773

Net charge associated with current
period hedging transactions                                                                   (4,303)         (4,303)        (4,303)

Net amount reclassified into earnings due
to amortization of de-designated hedges                                                          248             248            248

Cumulative transition adjustment -
SFAS 133                                                                                       1,903          1,903          1,903

Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification adjustment                                                                   (3,472)         (3,472)        (3,472)
                                                                                                             ---------
Other Comprehensive loss                                                                                      (5,624)

Comprehensive Income                                                                                          $6,149
                                                                                                             =========
Dividends declared-common stock                                                (8,940)                                       (8,940)

Dividends and accretion on
Preferred stock                                                                (2,289)                                       (2,289)

Conversion of Series B preferred stock
to common stock                                         (728)         728
                                                                                                                                  -
Compensation cost - stock options                                      28                                                         28
------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001                      $30   $42,276     $354,505    ($12,893)     ($108,495)                       $275,443
                                               =====================================================================================
Disclosure of reclassification adjustment:

Unrealized holding loss
                                                                                                               $(5,419)

Less: reclassification for realized gains
previously recorded as unrealized                                                                                1,947

Net charge associated with current period
hedging transactions                                                                                            (4,303)

Net amount reclassified into earnings due
to amortization of de-designated hedges                                                                            248

Cumulative transition adjustment - SFAS 133                                                                      1,903
                                                                                                              ---------
Net unrealized loss on securities                                                                              $(5,624)
                                                                                                              ==========
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 Three           For the Three
                                                                                      Months Ended        Months Ended March
                                                                                     March 31, 2001             31, 2000
                                                                                     --------------             --------
Cash flows from operating activities:
<S>                                                                                   <C>                     <C>
     Net income                                                                  $       11,773                $ 7,326

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

        Net sale of trading securities                                                   54,736                    328
        Amortization on negative goodwill                                                  (425)                     -
        Compensation cost - stock options                                                    28                      -
        Cumulative transition adjustment - SFAS 133                                      (1,903)                     -
        Premium amortization (discount accretion), net                                   (7,051)                   (14)
        Non-cash portion of net foreign currency (gain) loss                               (104)                     4
        Net gain on sale of securities                                                   (2,639)                  (352)
        Earnings from real estate joint ventures                                           (367)                     -
        Distributions real estate joint ventures                                            328                      -
        (Increase) decrease in other assets                                              (5,892)                   893
        (Decrease) increase in other liabilities                                         (3,144)                   809
                                                                                 ---------------  ---------------------
Net cash provided by operating activities                                                45,340                  8,994
                                                                                 ---------------  ---------------------
Cash flows from investing activities:
     Purchase of securities available for sale                                         (439,334)                (8,650)
     Funding of commercial mortgage loans                                                     -                (30,600)
     Repayments received from commercial mortgage loans                                  36,739                      -
     Increase in restricted cash equivalents                                            (13,977)                     -
     Principal payments received on securities available for sale                        17,528                 17,482
     Principal payments received on mortgage loan pools                                  10,981                      -
     Proceeds from sales of securities available for sale and mortgage loan pools       315,975                 15,712
     Net proceeds (payments) from hedging securities                                     (5,662)                (3,133)
                                                                                 ---------------  ---------------------
Net cash provided by (used in) investing activities                                     (77,750)                (9,189)
                                                                                 ---------------  ---------------------
Cash flows from financing activities:
     Net increase in borrowings                                                           1,151                  1,439
     Proceeds from issuance of common stock, net of offering costs                       38,222                      -
     Distributions on common stock                                                       (7,429)                (6,079)
     Distributions on preferred stock                                                    (2,313)                     -
     Purchase of common shares                                                                -                    (39)
                                                                                 ---------------  ---------------------
Net cash provided by (used in) financing activities                                      29,631                 (4,679)
                                                                                 ---------------  ---------------------
Net decrease in cash and cash equivalents                                                (2,779)                (4,874)
Cash and cash equivalents, beginning of period                                           37,829                 22,265
                                                                                 ---------------  ---------------------
Cash and cash equivalents, end of period                                         $       35,050                $17,391
                                                                                 ===============  =====================
Supplemental disclosure of cash flow information:
     Interest paid                                                               $       15,315                $ 7,195
                                                                                 ===============  =====================
Investments purchased not settled                                                $      306,837                      -
                                                                                 ===============  =====================
Investments sold not settled                                                     $       13,475                      -
                                                                                 ===============  =====================

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

</TABLE>


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

   Note 1     ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

   The accompanying unaudited financial statements have been prepared in
   conformity with the instructions to Form 10-Q and Article 10, Rule 10-01
   of Regulation S-X for interim financial statements. Accordingly, they do
   not include all of the information and footnotes required by accounting
   principles generally accepted in the United States of America 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 2000 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
   (except for the cumulative transition adjustment for SFAS 133 in the
   first quarter 2001 - see note 2), 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.

   Note 2     ACCOUNTING CHANGE - DERIVATIVE FINANCIAL INSTRUMENTS

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

   On January 1, 2001 the Company reclassified certain of its agency debt
   securities, with an amortized cost of $64,432 from available-for-sale to
   trading. An interest rate swap agreement with a $25,000 notional amount
   that had been designated as hedging these debt securities was similarly
   reclassified. The unrealized gain of $895 related to the agency debt
   securities and the unrealized loss of $2,830 related to the interest
   rate swap as of January 1, 2001 were removed from OCI and recorded as
   the cumulative transition adjustment to earnings upon adoption of SFAS
   133. The net cumulative effect of adopting SFAS 133 was ($1,903) or
   ($0.07) per share, and is reflected as "Cumulative Transition Adjustment
   - SFAS 133" on the consolidated statement of operations.

   In addition, on January 1, 2001, the Company re-designated interest rate
   swap agreements with notional amounts aggregating $98,000 that had been
   hedging available-for-sale debt securities as cash flow hedges of its
   variable rate borrowings under reverse repurchase agreements. The fair
   value of these swap agreements on January 1, 2001, an unrealized loss of
   ($9,853), remained in OCI at the date of adoption of FAS 133, and
   therefore, did not result in a transition adjustment.

   Because of the de-designation and re-designation of the $98,000 interest
   rate swaps, the Company is required to amortize the related $9,853
   recorded in OCI. Amortization is on a straight-line basis over the
   shorter of the life of the swap or the previously hedged assets and is
   recognized as a reduction of interest income. For the period ended March
   31, 2001, $248 was amortized as a reduction of interest income, and $248
   will be amortized as a reduction of interest income each quarter for the
   next 12 months.

   In addition, on January 1, 2001 the Company re-designated interest rate
   swap agreements with notional amounts aggregating $57,744 that had been
   hedging available-for-sale debt securities as trading securities. These
   interest rate swap agreements were sold in January 2001; the loss of
   $795 is included in gain on securities held for trading. As of December
   31, 2000 the accumulated loss for these interest rate swaps was $3,226.
   This accumulated loss is being amortized as a reduction of income from
   securities available for sale over the weighted average life of the
   securities these interest rate swaps were hedging on December 31, 2000.

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

   The Company has entered into reverse repurchase agreements to finance
   securities available for sale that are not financed under its lines of
   credit. The reverse repurchase agreements bear interest at a LIBOR based
   variable rate. Increases in the LIBOR rate could negatively impact
   earnings. The interest rate swap agreements allow the Company to receive
   a variable rate cash flow based on LIBOR and pay a fixed rate cash flow,
   mitigating the impact of this exposure.

   As of March 31, 2001, the Company had interest rate swaps with notional
   amounts aggregating $251,000 that were hedging borrowings under reverse
   repurchase agreements. Their aggregate fair value was a $9,989 liability
   included in other liabilities on the statement of financial condition.
   For the three months ended, the net change in the fair value of the
   interest rate swaps of $(4,303) was recorded in OCI. None of this net
   change in value was deemed ineffective and therefore, nothing was
   recognized in earnings relating to the change in value.

   As of March 31, 2001, the Company had interest rate swaps with notional
   amounts aggregating $25,000 designated as trading derivatives. Their
   aggregate fair value at March 31, 2001 was $(2,819), included in trading
   securities. For the three months ended March 31, 2001, the change in
   fair value for these trading derivatives was ($567) and is included in
   gain on securities held for trading in the consolidated statement of
   operations.

   The implementation of SFAS 133 did not change the manner in which the
   Company accounts for its forward currency exchange contracts; these
   contracts are carried at fair value, with changes in fair value included
   as a component of net foreign currency gain or loss in the consolidated
   statement of operations.

   The Company formally documents all relationships between hedging
   instruments and hedged items, as well as its risk-management objectives
   and strategies for undertaking various hedge transactions. The Company
   assesses, both at the inception of the hedge and on an on-going basis,
   whether the derivatives that are used in hedging transactions are highly
   effective in offsetting changes in fair values or cash flows of hedged
   items. When it is determined that a derivative is not highly effective
   as a hedge, the Company discontinues hedge accounting prospectively.


   Note 3     NET INCOME 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        For the Three
                                                                                           Months Ended         Months Ended
                                                                                          March 31, 2001       March 31, 2000
                                                                                          --------------       --------------
Numerator:

     Net Income available to common shareholders before cumulative transition
<S>                                                                                            <C>                 <C>
           adjustment                                                                          $  11,387           $  6,460
     Cumulative transition adjustment - SFAS 133                                                  (1,903)                 -
                                                                                               ----------          ---------
     Numerator for basic earnings per share                                                        9,484              6,460
     Effect of 10.5% series A senior cumulative redeemable preferred stock                           900                866
                                                                                               ----------          ---------
     Numerator for diluted earnings per share                                                    $10,384             $7,326
                                                                                               ==========          =========

Denominator:
     Denominator for basic earnings per share--weighted average common shares outstanding         27,003             20,956
     Effect of 10.5% series A senior cumulative redeemable preferred stock                         4,091              4,081
     Dilutive effect of stock options                                                                 22                  -
                                                                                               ----------          ---------
     Denominator for diluted earnings per share--weighted average common shares
           outstanding and common share equivalents outstanding                                   31,116             25,037
                                                                                               ==========          =========

Basic net income per weighted average common share:
     Income before cumulative transition adjustment                                                $0.42              $0.31
     Cumulative transition adjustment - SFAS 133                                                   (0.07)                 -
                                                                                               ----------          ---------
     Net income                                                                                    $0.35              $0.31
                                                                                               ==========          =========

Diluted net income per weighted average common share and common share equivalents:
     Income before cumulative transition adjustment                                                $0.39              $0.29
     Cumulative transition adjustment - SFAS 133                                                   (0.06)                 -
                                                                                               ----------          ---------
     Net income                                                                                    $0.33              $0.29
                                                                                               ==========          =========
</TABLE>


   Note 4     SECURITIES AVAILABLE FOR SALE

   The Company's securities available for sale are carried at estimated
   fair value. The amortized cost and estimated fair value of securities
   available for sale as of March 31, 2001 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>
CMBS IO's                                                               $ 81,069         $ 2,439          $   -           $83,508
Investment grade CMBS                                                     90,836           3,448         (7,238)           87,046
Non-investment grade rated subordinated securities                       342,473             868        (78,139)          265,202
Non-rated subordinated securities                                         36,639             807         (8,550)           28,896
----------------------------------------------------------------- --------------- --------------- --------------- ----------------
     Total CMBS                                                          551,017           7,562        (93,927)          464,652

Single-family residential mortgage-backed securities ("RMBS"):
Agency adjustable rate securities                                         89,222           1,155              -            90,377
                                                                  --------------- --------------- --------------- ----------------
Agency fixed rate securities                                             541,028           1,005           (944)          541,089
                                                                  --------------- --------------- --------------- ----------------
     Total RMBS                                                        1,181,267           9,722        (94,871)        1,096,118
                                                                  =============== =============== =============== ================
</TABLE>

   As of March 31, 2001, an aggregate of $884,781 in estimated fair value
   of the Company's securities available for sale was pledged to secure its
   collateralized borrowings.

   The following table sets forth certain information relating to the
   aggregate principal balance and payment status of delinquent mortgage
   loans underlying the subordinated CMBS held by the Company as of March
   31, 2001:





                                                         March 31, 2001
                                    Principal      Number of           % of
                                                     Loans          Collateral
     Past due 30 days to 60 days      $3,234           1              0.04%
     Past due 60 days to 90 days      21,586           4               0.24
     Past due 90 days or more         27,879           6               0.31
     REO                              10,107           2               0.11
     Total                           $62,806          13              0.69%
     Total principal balance      $9,101,437       1,760



   The Company's delinquency experience of 0.69% is compared to the 0.99%
   for directly comparable collateral experience shown in the Lehman
   Brothers CMBS 1998 vintage collateral delinquency index.

   To the extent that realized losses, if any, or such resolutions differ
   significantly from the Company's original loss estimates, it may be
   necessary to reduce the projected GAAP yield on the applicable CMBS
   investment to better reflect such investment's expected earnings net of
   expected losses, from the date of purchase. While realized losses on
   individual assets may be higher or lower than original estimates, the
   Company currently believes its aggregate loss estimates and GAAP yields
   are appropriate.

   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 second 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.

   As of March 31, 2001, the anticipated weighted average unleveraged yield
   to maturity based upon adjusted cost of the Company's subordinated CMBS
   was 9.83% per annum, and of the Company's other securities available for
   sale was 7.82% 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.

   During the three months ended March 31, 2001, the Company sold all of
   its mortgage loan pools. The gain on the sale was $723.


   Note 5     SECURITIES HELD FOR TRADING

   Securities held for trading reflect short-term trading strategies, which
   the Company employs from time to time, designed to generate economic and
   taxable gains. 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. At March 31, 2001, the Company's securities held for trading
   consisted of FNMA Mortgage Pools with an estimated fair value of $60,500
   and a interest rate swap agreement which represented a notional amount
   of $25,000 and a fair value of $(2,189). The FNMA Mortgage Pools, and
   the underlying mortgages, bear interest at fixed rates for specified
   periods, generally three to seven years after which the rates are
   periodically reset to market.

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


   Note 6     COMMERCIAL MORTGAGE LOANS

   A summary of activity for commercial mortgage loans at March 31, 2001 is
as follows:

                                                              March 31, 2001
                                                              ---------------
    Balance at beginning of period                                $153,187
    Principal payments received during the period                   (1,635)
    Proceeds from repayment of mortgage loans                      (35,000)
                                                              ---------------
    Balance at end of period                                      $116,552
                                                              ===============

   In March 2001, a $35,000 commercial real estate construction loan
   secured by a second mortgage on an office complex located in Santa
   Monica, California was satisfied in full. The original maturity of the
   loan was August 2001. Upon repayment, the remaining unamortized
   commitment fee was recognized and recorded as additional interest
   income.


    Note 7        COMMON STOCK

   On February 14, 2001 the Company completed a secondary offering of
   4,000,000 shares of its common stock in an underwritten public offering.
   The aggregate net proceeds to the Company (after deducting underwriting
   fees and expenses) were approximately $33,200. The Company had granted
   the underwriters an option, exercisable for 30 days, to purchase up to
   600,000 additional shares of Common Stock to cover over-allotments. This
   option was exercised on March 13, 2001 and resulted in net proceeds to
   the Company of approximately $5,000.

   On May 11, 2001, the Company completed a secondary offering of 4,000,000
   shares of its common stock in an underwritten public offering. The
   aggregate net proceeds to the Company (after deducting underwriting fees
   and expenses) were approximately $37,800. The Company had granted the
   underwriters an option, exercisable for 30 days, to purchase up to
   600,000 additional shares of Common Stock to cover over-allotments.

   On March 15, 2001, the Company declared distributions to its common
   shareholders of $0.30 per share, payable on April 30, 2001 to
   stockholders of record on March 30, 2001. For U.S. Federal income tax
   purposes, the dividends are expected to be ordinary income to the
   Company's stockholders.


   Note 8     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 Financial Services Group, Inc. ("PNC Bank")
   and the employer of certain directors and officers of the Company, under
   which the Manager manages the Company's day-to-day operations, subject
   to the direction and oversight of the Company's Board of Directors. The
   Management Agreement expires on March 20, 2002. 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 incurred $1,866 and $1,290 in base management fees in
   accordance with the terms of the Management Agreement for the three
   months ended March 31, 2001 and 2000 respectively. In accordance with
   the provisions of the Management Agreement, the Company recorded
   reimbursements to the Manager of $37 and $100 for certain expenses
   incurred on behalf of the Company during the three months ended March
   31, 2001 and 2000, respectively.

   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 $583 in incentive compensation for the three months ended March
   31, 2001. The Company did not pay incentive compensation for the three
   months ended March 31, 2000.

   Under the terms of an 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. For both the three months ended March 31, 2001 and March
   31, 2000, the administration fee was $30.

   On March 30, 2001, the Company purchased two certificates representing a
   1% interest in PNC Loan Trust - III for an aggregate investment of
   $1,732. These certificates were purchased from PNC Bank, an affiliate.
   The assets of the Trusts consist of commercial mortgage loans originated
   or acquired by PNC. The Company has a committed line of credit for
   $4,500 from PNC Funding Corp., a wholly owned indirect subsidiary of PNC
   Bank, to borrow up to 90% of the fair market value of the Company's
   interest in such Trusts. Outstanding borrowings against this line of
   credit bear interest at a LIBOR based variable rate. As of March 31,
   2001, there were no outstanding borrowings against this line of credit.

   During the three months ended March 31, 2001, the Company purchased
   twelve certificates each representing a 1% interest in different classes
   of Owner Trust NS I Trust ("Owner Trusts") for an aggregate investment
   of $37,868. These certificates were purchased from PNC Bank. The assets
   of the Owner Trusts consist of commercial mortgage loans originated or
   acquired by an affiliate of PNC. The Company entered into a $50,000
   committed line of credit from PNC Funding Corp. to borrow up to 95% of
   the fair market value of the Company's interest in the Owner Trusts.
   Outstanding borrowings against this line of credit bear interest at a
   LIBOR based variable rate. As of March 31, 2001, there was $35,974
   borrowed under this line of credit. The Company earned $121 from the
   Owner Trusts and paid interest of approximately $99 to PNC Funding Corp.
   as interest on borrowings under a related line of credit for the three
   months ended March 31, 2001.


   Note 9      BORROWINGS

   Certain information with respect to the Company's collateralized
   borrowings at March 31, 2001 is summarized as follows:
<TABLE>
<CAPTION>

                                                Lines of       Reverse          Total
                                               Credit and     Repurchase     Collateralized
                                               Term Loans     Agreements       Borrowings
                                              ----------------------------------------------
<S>                                              <C>              <C>              <C>
   Outstanding borrowings                        $ 151,323        $569,170         $720,493
   Weighted average borrowing rate                    6.31%           5.28%            5.50%
   Weighted average remaining maturity             174 days         22 days          54 days
   Estimated fair value of assets pledged          $176,312        $708,469         $884,781
</TABLE>

   As of March 31, 2001, $24,803 of borrowings outstanding under the lines
   of credit were denominated in pounds sterling and interest payable is
   based on sterling LIBOR.

   As of March 31, 2001, 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              $40,324           $518,666        $558,990
   31 to 59 days                     -             50,504          50,504
   Over 60 days                110,999                  -         110,999
                             -----------       -----------    --------------
                              $151,323           $569,170        $720,493
                             ===========       ===========    ==============

   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.

   The Company repaid its $17,500 three year term financing secured by the
   Company's $35,000 Santa Monica Loan in March 2001 when the Santa Monica
   Loan was paid off in full.

   The Company has a facility with ABN Amro, in the amount of $200,000,
   which matures on June 18, 2001, and bears interest at a variable based
   LIBOR rate. As of March 31, 2001, outstanding borrowing under the ABN
   Amro facility was $25,264. This amount was repaid in April 2001 when the
   sale of the mortgage loan pool assets was completed.


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

   General:

   During the first quarter of 2001 the Company's stock posted a total
   return of 29.4%. The financial markets are placing greater value on
   consistent earnings and recognizing the Company's ability to perform
   versus expectations. The Company is focused on increasing scale with the
   long-term goals of increasing earnings, increasing dividends and
   providing greater financial flexibility. Through May 11, 2001 the
   Company issued 8,600,000 shares of common stock at prices significantly
   in excess of GAAP book value. The Federal Reserve Board's dramatic
   reductions in short term rates has created a positive environment to
   invest accretively using the Company's traditional investment
   strategies. The Company is currently deploying its new capital in the
   investment grade real estate related securities sector employing greater
   leverage and less credit risk to create a higher level of operating
   earnings. This strategy will be followed by a continued focus on
   strategic redeployment of this capital into the high yield commercial
   real estate loan portfolio, creating a sustainable level of higher
   earnings on a risk adjusted basis. The Company believes that this
   approach will allow shareholders to benefit from rising dividends and
   improved stock market valuation.

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

   Company management believes that this represents an integrated strategy
   where each line of business supports the others and creates additional
   value for shareholders over and above operating each line in isolation.
   The commercial real estate loans provide high risk adjusted returns for
   shorter periods of time, the CMBS portfolio provides diversification and
   high loss adjusted returns over a weighted average life of approximately
   10 years, and the investment grade securities investments are an
   actively managed portfolio that supports the liquidity needs of the
   Company while earning attractive returns.

   These strategies are pursued within an aggregate risk management
   framework that seeks to limit the exposure of the Company's equity and
   earnings to changes in interest rates and other factors beyond the
   Company's control.

   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.

   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:

   Commercial Real Estate Conduit Credit: The Company considers delinquency
   information from the Lehman Brothers Conduit Guide for 1998 transactions
   to be the most relevant measure of market conditions applicable to its
   below investment grade CMBS holdings. Pursuant to these statistics as of
   March 31, 2001, 40 different securitizations were included in the index
   and 0.99% of principal balances were delinquent. As of December 31,
   2000, 41 securitizations had 0.77% of principal balances delinquent. The
   broader measure of all transactions tracked in the Conduit Guide since
   1994 also provides relevant comparable information. As of March 31,
   2001, 180 securitizations were being monitored among the larger universe
   and 0.94% of outstanding balances were delinquent, compared to 180
   securitizations included as of December 31, 2000 and 0.77% 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 March 31,
   2001, MSDW delinquencies on 150 securitizations were 1.27%. As of
   December 31, 2000 this same index tracked 144 securitizations with
   delinquencies of 1.01%. Over the life of these types of transactions,
   delinquencies and issues will naturally increase.

   Real Estate: The slowing economy has had different effects on each
   property type. Rent growth has stopped for office properties as space
   becomes available in the sublet market and users no longer inventory
   space based on high growth expectations. Retail property markets have
   yet to experience a slow down in consumer spending, but properties have
   been impacted by disparate anchor tenant performance. Multifamily
   properties have been the beneficiary of the slowdown as job layoffs and
   economic uncertainty lead households to remain renters rather than buy a
   home. The lodging sector may also slow as business travel expenses are
   further reduced.

   Real Estate Capital Markets: CMBS exhibited modest spread tightening at
   the BB level and modest widening at the B rating category. Increasing
   volume of mortgage CBO's has created demand for BB rated CMBS and
   increased money manager participation in the sector. Single-B bonds are
   not generally included in CBO structures and generally are bought in
   conjunction with the first-loss bonds in a securitization. Due to the
   low interest rate environment, and the increased bid/ask spread between
   buyers and sellers, mortgage debt is increasingly viewed as an
   alternative to a sale of real property. Real estate equity mutual fund
   flows turned negative in the first quarter of 2001 as outflows totaled
   $11,000. This marked a turnaround from the positive inflows of $63,000
   compared to the fourth quarter of 2000. Year-to-date flows through the
   first week of May 2001 were negative $38,000. All figures are exclusive
   of distributions as reported by Salomon Smith Barney equity research.

   CMBS: CMBS credit spreads remain at historically wide levels despite
   continued strength in the commercial real estate credit markets.
   Corporate high yield spreads widened considerably at the end of 2000.
   The chart below compares the credit spreads for high yield CMBS to high
   yield corporate bonds.


                                   Average Credit Spreads (in basis points)*
                                   -----------------------------------------
                                   BB CMBS      BB Corporate      Difference
                                   -------      ------------      ----------
      As of March 31, 2001         556          448               108
      As of December 31, 2000      558          523               35

                                   B CMBS       B Corporate       Difference
                                   -------      ------------      ----------
      As of March 31, 2001         990          818               172
      As of December 31, 2000      987          978               9

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

   Interest Rates: During the first quarter of 2001 the yield on the
   ten-year U.S. Treasury Note dropped by 19 basis points from 5.11% to
   4.92%. At the beginning of 2001 the Federal Reserve Board began a
   dramatic reversal of short-term policy by reducing rates in 50 basis
   points increments. By the end of March the Fed had reduced short-term
   rates by 150 basis points. This caused one month LIBOR to drop from
   6.56% to 5.09% by quarter end. The outlook for short-term rates
   indicates a continuing bias towards easing. On April 12, 2001 the Fed
   once again surprised the market with another 50 basis point reduction.

   Effect of Market Conditions on Company Performance:

   Commercial Mortgage Backed Securities: The Company's below investment
   grade CMBS represent approximately $608,109 of par collateralized by
   underlying pools of first lien commercial mortgages. The CMBS owned by
   the Company include 1,760 loans with an aggregate principal balance of
   over $9.1 billion as of March 31, 2001. The Company is in a first loss
   position with respect to these loans. The Company manages its credit
   risk through conservative underwriting, 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 loan
   servicers, 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. In addition the
   Company tracks debt service coverage ratios ("DSCR") on all loans on a
   quarterly basis. The current DSCR information is compared to the
   underwritten information to develop an understanding of the property
   performance trends.

   The following table shows the comparison of delinquencies:
<TABLE>
<CAPTION>

                                                           March 31, 2001                          December 31, 2000
                                                          Number of          % of                       Number of           % of
                                           Principal         Loans        Collateral      Principal       Loans         Collateral
                                           ---------      ---------       ----------      ---------     ---------       ----------
<S>                                        <C>             <C>            <C>         <C>             <C>
   Past due 30 days to 60 days               $3,234            1             0.04%         $6,319            3              0.07%
   Past due 60 days to 90 days               21,586            4             0.24           7,963            2              0.09
   Past due 90 days or more                  27,879            6             0.31          28,526            5              0.31
                  Real Estate owned          10,107            2             0.11          10,145            2              0.11%
                  -----------------
                   Total Delinquent         $62,806           13             0.69%        $52,953           12              0.58%
                   ----------------
            Total Principal Balance      $9,101,437        1,760                       $9,137,150        1,765
            -----------------------
</TABLE>


   Of the 13 delinquent loans as of March 31, 2001, five were delinquent
   due to technical reasons, two were REO and being marketed for sale,
   three were in foreclosure, and the remaining three loans were in workout
   negotiations. Realizing the estimated losses on all the properties
   currently in delinquency would not cause the Company to change its loss
   adjusted yields. The 13 delinquent loans do not indicate any weakness in
   any geographic area or property type.

   During the first quarter the Company negotiated and accepted a
   discounted pay off for one loan secured by an office building in
   Kingston, NY. This loan was not delinquent at any time. This property is
   in a market that has been experiencing significant vacancy rates for an
   extended period of time. At acquisition the Company projected there
   would be a loss on this loan of $3,300. The actual realized loss on this
   transaction was $2,445. The excess of the projected loss over the actual
   loss will be allocated to other loans in the pool.

   The Company's delinquency experience of 0.69% remains slightly better
   than the 0.99% for directly comparable collateral experience shown in
   the Lehman Brothers Conduit Guide for 1998 Transactions.

   During the first quarter of 2001 the Company also experienced early
   payoffs of $12,992, representing 0.14% of the existing pool balance.
   These loans were paid at par with no loss. The anticipated losses
   attributable to these loans will be reallocated to the loans remaining
   in the pools.

   The Company's DSCR monitoring process shows improving debt service
   coverage across the aggregate portfolio. This process generally has a
   3-6 month lag so this information is as of December 31, 2000.

   Subsequent to March 31, 2001 one of the REO properties was sold. The
   realized loss to the trust is expected to be approximately $1,000. This
   is well within expectations and will not cause a change in loss-adjusted
   yields on the portfolio.

   During April of 2001 two of the delinquent loans became current; both
   were loans on healthcare facilities. Also in April four loans became
   delinquent; two are loans on multifamily properties, one office building
   and one hotel. The four loans are in diverse locations.

   The unrealized loss on the Company's holdings of CMBS at March 31, 2001
   was $85,149. This decline in the value of the investment portfolio
   represents market valuation changes and is not due to credit experience
   or credit expectations. The adjusted purchase price of the Company's
   CMBS portfolio as of March 31, 2001 represents approximately 62% of its
   par amount. As the portfolio matures the Company expects to recoup the
   unrealized loss, 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 and will adjust them when it believes that credit
   experience or expectations justify such an adjustment. As of March 31,
   2001 the Company concluded that real estate credit fundamentals remain
   solid, and the Company believes there has been no material change in the
   credit quality of its portfolio. As the portfolio matures and expected
   losses occur subordination levels of the lower rated classes of a CMBS
   investment will be reduced. This may cause the lower rated classes to be
   downgraded. This is the natural course for this type of security and is
   built into the loss expectations of the portfolio. This would negatively
   affect the market value and liquidity of the portfolio, but will not
   affect its credit performance.

   Investment Grade Real Estate Related Securities: As part of the
   acquisition of CORE Cap, Inc. in May 2000 the Company inherited three
   securities backed by franchise loans originated by Franchise Mortgage
   Acceptance Corporation ("FMAC"). The securities were the class B, C and
   D securities issued by the FMACT 1998 - BA trust. The respective credit
   ratings at the date of acquisition were AA, A and BBB. The Company
   currently owns $16,366 of class B principal and $10,829 of class C
   principal.

   The trust is collateralized by loans on 365 properties to 75 borrowers.
   The quality of information provided by the servicer on underlying
   collateral has been poor. In March 2001 class B was downgraded to A and
   class C was downgraded to BB. These bonds were marked down to dollar
   prices of 70 and 50 respectively. At these marks, the unrealized losses
   on these two positions are $2,700 and $4,538 respectively. The Company's
   current strategy is to force the servicer to provide timely and accurate
   information so the bonds may be properly evaluated.

   Commercial Lending: The Company also owns five mezzanine whole loans and
   two preferred equity interests in partnerships that own office
   buildings. The Company's commercial loan portfolio generally emphasizes
   larger transactions located in metropolitan markets as compared to the
   loans in the CMBS portfolio.

   In March 2001, a $35,000 commercial real estate construction loan
   secured by a second mortgage on an office complex located in Santa
   Monica, California was satisfied in full. The original maturity of the
   loan was August 2001.

   Interest Rates: 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 bear interest at
   fixed rates determined by reference to the yields of medium or long-term
   U.S. Treasury securities or at adjustable rates determined by reference
   (with a lag) to the yields on various short-term instruments.
   Approximately $101,552 of the Company's assets earn interest at rates
   that are determined with reference to LIBOR. All of the Company's
   borrowings bear 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 and hedges, the Company's earnings could be
   negatively affected. 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
                           -----------------------     ---------    ----------
     March 31, 2001        4.92%                       5.09%        0.17%
     December 31, 2000     5.11%                       6.56%        1.45%


   The decrease in LIBOR from December 31, 2000 to March 31, 2001 had a
   positive impact on the Company's financing costs. On May 11, 2001 one
   month LIBOR was 4.12%, and the ten-year U.S. Treasury Note was 5.49%,
   creating a positively sloped yield curve of 1.37%.


   Recent Events:

   On May 11, 2001, the Company completed a secondary offering of 4,000,000
   shares of its common stock in an underwritten public offering. The
   aggregate net proceeds to the Company (after deducting underwriting fees
   and expenses) were approximately $37,800. The Company has granted the
   underwriters an option, exercisable for 30 days, to purchase up to
   600,000 additional shares of Common Stock to cover over-allotments.

   This transaction was done on a spot basis to take advantage of the
   significant earnings accretion opportunities that developed when the
   yield curve steepened dramatically following the Federal Reserve's
   fourth 50 basis point rate cut in 2001. The Company sought to act
   quickly to take advantage of this opportunity and was able to issue
   stock at a significant premium to GAAP book value. This is consistent
   with the Company's long-term goal of increasing scale to provide higher
   earnings, higher dividends and improved valuations.

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

   The Company computes FFO in accordance with the definition recommended
   by the National Association of Real Estate Investment Trusts. The
   Company believes that the exclusion from FFO of gains or losses from
   sales of property was not intended to address gains or losses from sales
   of securities as it applies to the Company. Accordingly, the Company
   includes gains or losses from sales of securities in its calculation of
   FFO.

   The Company's FFO for the three months ended March 31, 2001 and 2000 was
   $11,773, and $7,326, respectively, which was the same as its reported
   GAAP net income for the periods. The Company reported cash flows
   provided by operating activities of $45,340 and $8,994, cash flows used
   in investing activities of $77,750 and of $9,189 and cash flows provided
   by (used in) financing activities of $29,631 and $(4,679) in its
   statement of cash flows for the three months ended March 31, 2001 and
   2000, respectively.

   Results of Operations: Net income for the three months ended March 31,
   2001 was $11,773 or $0.35 per share ($0.33 diluted). Net income for the
   three months ended March 31, 2000 was $7,326, or $0.31 per share ($0.29
   diluted). Further details of the changes are set forth below.

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

                                           For the Three Months Ended March 31
                                             2001                      2000
                                           Interest                  Interest
                                            Income                    Income
                                        ------------------------------------
CMBS                                     $10,307                     $9,093
Other securities available for sale        6,940                      5,249
Commercial mortgage loans                  5,987                      1,989
Mortgage loan pools                        1,438                          -
Trading securities                         1,104                          -
Cash And cash equivalents                    197                        291
                                        ------------------------------------
Total                                    $25,973                    $16,622
                                        ====================================

   In addition to the foregoing, the Company earned $367 from real estate
   joint ventures during the three months ended March 31, 2001.

   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.

                                          For the Three Months Ended March 31
                                          2001                        2000
                                        Interest                    Interest
                                         Expense                     Expense
                                        -------------------------------------
Reverse repurchase agreements            $ 8,756                     $5,802
Lines of credit and term loan              3,516                      1,665
                                        -------------------------------------
Total                                    $12,272                     $7,467
                                        =====================================


   Net Interest Margin and Net Interest Spread from the Portfolio: The
   Company considers its portfolio to consist of its securities available
   for sale, mortgage loan pools, commercial mortgage loans, and cash and
   cash equivalents because these assets relate to its core strategy of
   acquiring and originating high yield loans and securities backed by
   commercial real estate, while at the same time maintaining a portfolio
   of 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.
   Interest income and Interest expense do not include earnings from real
   estate joint ventures of $367 and $60, respectively.

                                 For the Three Months Ended March 31
                                2001                              2000
                             -------------------------------------------
  Interest income             $25,973                           $16,622
  Interest expense            $12,212                            $7,467
  Net interest margin            5.04%                             5.72%
  Net interest spread            3.92%                             2.29%

   Other Expenses: Expenses other than interest expense consist primarily
   of management fees and general and administrative expenses. Management
   fees of $2,449 for the three months ended March 31, 2001 comprised base
   management fees of $1,866 and incentive fees of $583. Management fees of
   $1,290 for the three months ended March 31, 2000 were comprised solely
   of the base management fee paid to the Manager (as provided pursuant to
   the management agreement between the Manager and the Company), as the
   Manager earned no incentive fee for the period. Other expenses - net of
   $686 for the three months ended March 31, 2001, and $887 for the three
   months ended March 31, 2000, were comprised of accounting agent fees,
   custodial agent fees, directors' fees, fees for professional services,
   insurance premiums, broken deal expenses, due diligence costs and
   amortization of negative goodwill.

   Other Gains (Losses): During the three months ended March 31, 2001 and
   2000 the Company sold a portion of its securities available-for-sale for
   total proceeds of $315,975 and $15,712, resulting in a realized gain of
   $1,947 and $24, respectively. The gains on securities held for trading
   were $692 and $328 for the three months ended March 31, 2001 and 2000,
   respectively. The foreign currency gains (losses) of $104 and $(4) for
   the three months ended March 31, 2001 and 2000, respectively, relate to
   the Company's net investment in a commercial mortgage loan denominated
   in pounds sterling and associated hedging.

   Dividends Declared: On March 15, 2001, the Company declared
   distributions to its shareholders of $.30 per share, payable on April
   30, 2001 to shareholders of record on March 30, 2001.

   Tax Basis Net Income and GAAP Net Income: Net income as calculated for
   tax purposes (tax basis net income) was estimated at $14,496, or $0.45
   ($0.42 diluted) per share, for the three months ended March 31, 2001,
   compared to a net income as calculated in accordance with GAAP of
   $11,773, or $0.35 ($0.33 diluted) per share.

   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 2001, tax basis income for subordinate
   CMBS is higher the 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:

                                             For the Three Months Ended March 31
                                                   2001                2000
                                               ------------------------------
GAAP net income                                  $11,773              $7,326
Gain on trading securities and FAS 133
  adjustment                                       1,709                  -
Subordinate CMBS income differences                1,014                 993
                                               ------------------------------
Tax basis net income                             $14,496              $8,319
                                               ==============================

   Changes in Financial Condition

   Securities Available for Sale: The Company's securities available for
   sale, which are carried at estimated fair value, included the following
   at March 31, 2001 and December 31, 2000:

<TABLE>
<CAPTION>

                                                       March 31, 2001                       December 31,
                                                          Estimated                        2000 Estimated
                                                            Fair                                Fair
                    Security Description                    Value            Percentage        Value           Percentage
------------------------------------------------------------------------ --------------- ----------------- ----------------
Commercial mortgage-backed securities:
<S>                                                            <C>             <C>               <C>             <C>
CMBS IO's                                                      $ 83,508        7.6%              $ 68,844        10.2%
Investment grade CMBS                                            87,046         7.9                54,905         8.1
Non-investment grade rated subordinated securities              265,202        24.2               261,489        38.5
Non-rated subordinated securities                                28,896         2.6                27,197         4.0
                                                       ----------------- --------------- ----------------- ----------------
                                                                464,652        42.3               412,435        60.8
                                                       ----------------- --------------- ----------------- ----------------

Single-family residential mortgage-backed securities:
Agency adjustable rate securities                                90,377         8.3               160,928        23.7
Agency fixed rate securities                                    541,089        49.4               104,759        15.5
                                                       ----------------- --------------- ----------------- ----------------
                                                                631,466       57.7                265,687        39.2
                                                       ----------------- --------------- ----------------- ----------------
                                                             $1,096,118       100.0%             $678,122       100.0%
                                                       ================= =============== ================= ================
</TABLE>

   Borrowings: As of March 31, 2001, 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 March 31, 2001, 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 table sets forth information regarding the Company's
collateralized borrowings.

<TABLE>
<CAPTION>
                                                                         For the Three Months Ended
                                                                               March 31, 2001
                                                       ----------------------------------------------------------------

                                                          March 31, 2001            Maximum             Range of
                                                              Balance               Balance            Maturities
                                                       ---------------------- -------------------- --------------------
<S>                                                         <C>                    <C>                <C>
Reverse repurchase agreements                               $569,170               $729,605           5 to 44 days
Line of credit and term loan borrowings                      151,323               $206,278          26 to 347 days
                                                       ---------------------- -------------------- --------------------
</TABLE>


   Hedging Instruments: Effective January 1, 2001, the Company adopted SFAS
   No. 133, "Accounting for Derivative Instruments and Hedging Activities",
   as amended, which establishes accounting and reporting standards for
   derivative instruments, including certain derivative instruments
   embedded in other contracts and for hedging activities.

   As a result, On January 1, 2001 the Company reclassified certain of its
   agency debt securities, with an amortized cost of $64,432 from
   available-for-sale to trading. An interest rate swap agreement with a
   $25,000 notional amount that had been designated as hedging these debt
   securities was similarly reclassified. The unrealized gain of $895
   related to the debt securities and the unrealized loss of $2,830 related
   to the interest rate swap were removed from OCI and recorded as the
   cumulative transition adjustment to earnings upon adoption of SFAS 133.
   The net cumulative effect of adopting SFAS 133 was ($1,903) or ($0.07)
   per share, and is reflected as Cumulative transition adjustment - SFAS
   133 on the statement of operations.

   In addition, on January 1, 2001, the Company re-designated interest rate
   swap agreements with notional amounts aggregating $98,000 that had been
   hedging available-for-sale debt securities as cash flow hedges of its
   variable rate borrowings under reverse repurchase agreements. The fair
   value of these swap agreements on January 1, 2001, an unrealized loss of
   ($9,853), remained in OCI at the date of adoption of FAS 133, and
   therefore, did not result in a transition adjustment.

   In addition, on January 1, 2001 the Company re-designated interest rate
   swap agreements with notional amounts aggregating $57,744 that had been
   hedging available-for-sale debt securities as trading securities. These
   interest rate swap agreements were sold in January 2001; the loss of
   $795 is included in Gain on securities held for trading.

   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 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.

   To the extent that the Company may become unable to maintain its
   borrowings at their current level due to changes in the financing
   markets for the Company's assets, the Company may be required to sell
   assets in order to achieve lower borrowing levels. In this event, the
   Company's level of net 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, preferred stock, and will consider
   resecuritization or other achievable term funding of existing assets.

   On February 14, 2001 the Company completed a secondary offering of
   4,000,000 shares of its common stock in an underwritten public offering.
   The aggregate net proceeds to the Company (after deducting underwriting
   fees and expenses) were approximately $33,200. The Company had granted
   the underwriters an option, exercisable for 30 days, to purchase up to
   600,000 additional shares of common stock to cover over-allotments. This
   option was exercised on March 13, 2001 and resulted in net proceeds to
   the Company of approximately $5,000.

   On May 11, 2001 the Company completed a secondary offering of 4,000,000
   shares of its common stock in an underwritten public offering. The
   aggregate net proceeds to the Company (after deducting underwriting fees
   and expenses) were approximately $37,800. The Company has granted the
   underwriters an option, exercisable for 30 days, to purchase up to
   600,000 additional shares of common Stock to cover over-allotments.

   As of March 31, 2001, $131,190 of the Company's $185,000 committed
   credit facility with Deutsche Bank, AG was available for future
   borrowings, and $138,461 was available under the Company's $200,000 term
   facility with Merrill Lynch.

   The Company's operating activities provided cash of $45,340 and $8,994
   during the three months ended March 31, 2001, and 2000, respectively,
   primarily through net income and, in 2001, sales of trading securities.

   The Company's investing activities used cash totaling $77,750 and $9,189
   during the three months ended March 31, 2001, and 2000, 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 provided (used) cash of $29,631 and
   $(4,679) during the three months ended March 31, 2001 and 2000,
   respectively, primarily to reduce the level of short-term borrowings and
   to pay distributions, offset in 2001, by proceeds from the issuance of
   common stock.

   Although the Company's portfolio of securities available-for-sale was
   acquired at a net discount to the face amount of such securities, the
   Company has received to date and expects to continue to receive
   sufficient 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
   March 31, 2001, 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. There can be no assurance that the Company will
   be able to effectively fund future growth. Except as discussed herein,
   management is not aware of any other trends, events, commitments or
   uncertainties that may have a significant effect on liquidity.

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


   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 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
   counter parties with which the Company trades may cease making markets
   and quoting prices in such instruments, which may render the Company
   unable to enter into an offsetting transaction with respect to an open
   position. If the Company anticipates that the income from any such
   hedging transaction will not be qualifying income for REIT income test
   purposes, the Company may conduct part or all of its hedging activities
   through a to-be-formed corporate subsidiary that is fully subject to
   federal corporate income taxation. The profitability of the Company may
   be adversely affected during any period as a result of changing interest
   rates.

   The following tables quantify the potential changes in the Company's net
   portfolio value and net interest income under various interest rates and
   credit-spread scenarios. 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 curves of the
   LIBOR rate shocks will be parallel to each other. Market value in this
   scenario is calculated using the assumption that the U.S. Treasury yield
   curve remains constant.

   All changes in income and value are measured as percentage changes from
   the respective values calculated in the scenario labeled as "Base Case."
   The base interest rate scenario assumes interest rates as of March 31,
   2001. 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                        1.6%
             -200                        2.7%
             -100                        2.2%
          Base Case                        0
             +100                       (3.9)%
             +200                       (9.4)%
             +300                      (16.6)%

         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                         55.6%
             -200                         36.0%
             -100                         17.5%
          Base Case                         0
             +100                        (16.5)%
             +200                        (32.0)%
             +300                        (46.6)%


        Projected Percentage Change In Portfolio Net Interest Income
          and Change in Net Income per Share Given LIBOR Movements


                       Projected Change in               Projected Change in Net
       Change in LIBOR,                Portfolio              Income per Share
       +/- Basis Points           Net Interest Income
------------------------------- ------------------------- ---------------------
             -200                        22.0%                      $0.42
             -100                         11.0%                     $0.21
          Base Case                        0                          0
             +100                       (11.0)%                    $(0.21)
             +200                       (22.0)%                    $(0.42)


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

   All loans are subject to a certain probability of default. The 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 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 on adjusted purchase price from
   9.78% to 8.35%. This would reduce GAAP income going forward by
   approximately $0.20 per common share 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 March 31, 2001 the Company's duration on
   equity was approximately 3.03 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
   3.03%. 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 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, and the
   Company's prospectus supplement, dated May 7, 2001, to the prospectus
   dated February 13, 2001, as filed with the SEC on May 8, 2001 (File No.
   333-75473). 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 March 31, 2001 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:  May 15, 2001             By: /s/ Hugh R. Frater
                                        ---------------------------------
                                        Name:  Hugh R. Frater
                                        Title: President and Chief
                                               Executive Officer
                                               (authorized officer of
                                               registrant)



   Dated:  May 15, 2001             By: /s/ Richard M. Shea
                                        ---------------------------------
                                        Name:  Richard M. Shea
                                        Title: Chief Operating Officer
                                               and Chief Financial Officer
                                               (principal accounting officer)