<PAGE>

================================================================================
--------------------------------------------------------------------------------
                  UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D. C. 20549


                                     FORM 10-Q


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

     FOR THE QUARTERLY PERIOD ENDED:    JUNE 30, 1999
---
                                         OR

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

     FOR THE TRANSITION PERIOD FROM _____ TO _____


                         COMMISSION FILE NUMBER: 001-13637


                            APEX MORTGAGE CAPITAL, INC.
               (Exact name of Registrant as specified in its Charter)

                MARYLAND                                  95-4650863
     (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                 Identification Number)

     865 SOUTH FIGUEROA STREET
     LOS ANGELES, CALIFORNIA                                90017
     (Address of principal executive offices)             (Zip Code)

               Registrant's telephone number, including area code (213) 244-0440


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
     Yes    X       No
           ---         ---

                       APPLICABLE ONLY TO CORPORATE ISSUERS:


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

Common Stock ($0.01 par value)                  5,753,000 as of August 11, 1999


================================================================================
--------------------------------------------------------------------------------

<PAGE>

                            APEX MORTGAGE CAPITAL, INC.

                                     FORM 10-Q


                                       INDEX

<TABLE>
<CAPTION>
<S>                                                                                          <C>
PART I.   FINANCIAL INFORMATION                                                              PAGE

Item 1.   Financial Statements

              Balance Sheets at June 30, 1999 (unaudited) and December 31, 1998               3

              Statement of Operations for the three months and six months ended
              June 30, 1999 and June 30, 1998 (unaudited)                                     4

              Statement of Stockholders' Equity for the six months ended
              June 30, 1999 (unaudited)                                                       5

              Statements of Cash Flows for the three months and six months ended
              June 30, 1999 and June 30, 1998 (unaudited)                                     6

              Notes to 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                         23


PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings                                                                  25

Item 2.    Changes in Securities                                                              25

Item 3.    Defaults Upon Senior Securities                                                    25

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

Item 5.    Other Information                                                                  26

Item 6.    Exhibits and Reports on Form 8-K                                                   26


Signatures                                                                                    27

</TABLE>



<PAGE>


PART 1.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS


                           APEX MORTGAGE CAPITAL, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              JUNE 30, 1999     DECEMBER 31, 1998
                                                              -------------     -----------------
                                                                (Unaudited)
<S>                                                           <C>               <C>
ASSETS

     Cash and cash equivalents                                $  11,029,000     $  12,679,000
     Fixed income securities available-for-sale,
     at fair value (Note 3)                                     773,005,000       829,712,000
     Equity securities available-for-sale,
     at fair value (Note 4)                                      21,491,000        16,422,000
     Accrued interest receivable                                  5,735,000         5,151,000
     Principal payments receivable                                3,364,000           937,000
     Receivable for unsettled securities                            547,000               -
     Other assets                                                   798,000           577,000
                                                              -------------     -------------
                                                              $ 815,969,000     $ 865,478,000
                                                              -------------     -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

     Liabilities

          Reverse repurchase agreements (Note 5)              $ 736,668,000     $ 767,908,000
          Payable for unsettled securities                              -             838,000
          Accrued interest payable                                2,683,000         6,173,000
          Dividend payable                                        2,487,000         1,777,000
          Accrued expenses and other liabilities                    774,000           752,000
                                                              -------------     -------------
                                                                742,612,000       777,448,000
                                                              -------------     -------------
     Commitments and contingencies (Note 10)

     Stockholders' Equity

          Preferred Stock, par value $0.01 per share;
          50,000,000 shares authorized; no shares outstanding
          Common Stock, par value $0.01 per share;
          100,000,000 shares authorized; 6,700,100 shares
          outstanding (Notes 8 and 9)                                67,000            67,000
          Additional paid-in-capital                             93,123,000        92,978,000
          Accumulated other comprehensive income (loss)          (9,208,000)        6,689,000
          Accumulated dividend distributions in excess
          of net income                                             (56,000)       (1,135,000)
          Treasury stock, at cost (947,100 shares)
          (Note 7)                                              (10,569,000)      (10,569,000)
                                                              -------------     -------------
                                                                 73,357,000        88,030,000
                                                              -------------     -------------
                                                               $815,969,000      $865,478,000
                                                              -------------     -------------
                                                              -------------     -------------
</TABLE>

     See accompanying notes to financial statements

                                       3

<PAGE>


                            APEX MORTGAGE CAPITAL, INC.

                              STATEMENT OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED            SIX MONTHS ENDED
                                                          JUNE 30,                     JUNE 30,
                                                    1999          1998           1999           1998
                                                ---------------------------    --------------------------
<S>                                             <C>              <C>           <C>            <C>
INTEREST INCOME:

     Fixed income securities                     $13,020,000     $9,224,000    $26,868,000    $13,949,000
     Cash and cash equivalents                        61,000        274,000        150,000        456,000
                                                 -----------     ----------    -----------    -----------
                                                  13,081,000      9,498,000     27,018,000     14,405,000
INTEREST EXPENSE                                  10,760,000      8,999,000     22,021,000     13,010,000
                                                 -----------     ----------    -----------    -----------
NET INTEREST INCOME                                2,321,000        499,000      4,997,000      1,395,000
                                                 -----------     ----------    -----------    -----------
NET GAIN ON INVESTMENT TRANSACTIONS                  662,000        469,000      1,277,000        469,000

DIVIDEND INCOME                                      684,000            -        1,395,000            -

GENERAL AND ADMINISTRATIVE EXPENSES:
     Management fee (Note 8)                         158,000        161,000        314,000        334,000
     Incentive fee (Note 8)                          426,000            -        1,017,000            -
     Audit and tax fees                               19,000         11,000         31,000         23,000
     Insurance expense                                67,000         67,000        133,000        133,000
     Directors' fees                                  15,000         20,000         30,000         40,000
     Stock Option expense                             71,000         28,000        146,000         56,000
     Other                                            57,000         72,000        182,000        105,000
                                                 -----------     ----------    -----------    -----------
                                                     813,000        359,000      1,853,000        691,000
                                                 -----------     ----------    -----------    -----------
NET INCOME                                       $ 2,854,000     $  609,000    $ 5,816,000    $ 1,173,000
                                                 -----------     ----------    -----------    -----------
                                                 -----------     ----------    -----------    -----------
Net Income Per Share:
     Basic                                       $      0.50     $     0.10    $      1.01    $      0.18
                                                 -----------     ----------    -----------    -----------
                                                 -----------     ----------    -----------    -----------
     Diluted                                     $      0.49     $     0.10    $      1.01    $      0.18
                                                 -----------     ----------    -----------    -----------
                                                 -----------     ----------    -----------    -----------
Weighted Average Number of Shares Outstanding:
     Basic                                         5,753,000      6,387,000      5,753,000      6,495,000
     Diluted                                       5,787,000      6,387,000      5,780,000      6,495,000
                                                 -----------     ----------    -----------    -----------
                                                 -----------     ----------    -----------    -----------
Dividends Declared Per Share                     $      0.42     $     0.25    $      0.80    $      0.50
                                                 -----------     ----------    -----------    -----------
                                                 -----------     ----------    -----------    -----------
</TABLE>

See accompanying notes to financial statements

                                       4

<PAGE>

                            APEX MORTGAGE CAPITAL, INC.

                         STATEMENT OF STOCKHOLDERS' EQUITY
                            PERIOD ENDED JUNE 30, 1999
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                Accumulated
                                                                  Acccumulated   Dividend
                                                     Additional      Other      Distribution               Treasury
                                      Common Stock    Paid-in    Comprehensive  In Excess of Comprehensive  Stock,
                                   Shares     Amount  Capital       Income       Net Income      Income     At Cost      Total
                                 -------------------  ---------   -----------   ------------  ------------  --------    -----------
<S>                              <C>                  <C>         <C>           <C>          <C>         <C>            <C>
Balance, December 31, 1998       6,700,100   $67,000  $92,978,000  $6,689,000   ($1,135,000)             ($10,569,000)  $88,030,000

Repurchases of common stock            -         -           -           -             -            -              -             -

Issuance of stock options
     to non-employees (Note 9)         -         -        74,000         -             -            -              -         74,000

Net income                             -         -           -           -        2,962,000    2,962,000           -      2,962,000

Other comprehensive income:
     Net unrealized (loss) on
     investments available-
     for-sale                          -         -           -     (2,861,000)        -      (2,861,000)           -     (2,861,000)

                                                                                             ----------
Comprehensive income                   -         -           -           -                     $101,000            -            -
                                                                                             ----------
                                                                                             ----------
Dividends declared                     -         -           -           -       (2,250,000)                       -     (2,250,000)
                                 ---------    ------- -----------  ----------     ----------  ---------- ------------  ------------
Balance, March 31, 1999          6,700,100    $67,000 $93,052,000  $3,828,000     ($423,000)             ($10,569,000)  $85,955,000

Repurchases of common stock-           -         -           -           -              -           -              -             -

Issuance of stock options
     to non-employees (Note 9)         -         -        71,000         -              -           -              -         71,000

Net income                             -         -           -           -        2,854,000   2,854,000            -      2,854,000

Other comprehensive income:
     Net unrealized (loss) on
     investments available-
     for-sale                          -         -           -    (13,036,000)         -   (13,036,000)            -    (13,036,000)

                                                                                          -------------
Comprehensive income (loss)            -         -           -           -             -   $(10,182,000)           -             -
                                                                                          -------------
                                                                                          -------------
Dividends declared                     -         -           -           -       (2,487,000)                       -     (2,487,000)
                                -----------  ------- -----------  ------------   -----------           -------------    ------------
Balance, June 30, 1999           6,700,100   $67,000 $93,123,000  $(9,208,000)   $  (56,000)           ($10,569,000)    $73,357,000
                                -----------  ------- -----------  ------------   -----------           -------------    ------------
                                -----------  ------- -----------  ------------   -----------           -------------    ------------
</TABLE>
                                       5
<PAGE>

                            APEX MORTGAGE CAPITAL, INC.

                              STATEMENT OF CASH FLOWS
                                    (UNAUDITED)
<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                            JUNE 30,                       JUNE 30,
                                                                     1999            1998           1999            1998
OPERATING ACTIVITIES:                                            ------------    -----------   -------------   ---------------
<S>                                                                <C>           <C>           <C>             <C>
Net Income                                                       $  2,854,000    $   609,000   $   5,816,000   $     1,173,000
Adjustments to reconcile net income to net cash
     provided by operating activities:
     Amortization                                                     282,000      1,764,000         447,000         2,736,000
     Net gain on sale of securities                                  (662,000)      (469,000)     (1,277,000)         (469,000)
     Change in assets and liabilities:
          Accrued interest receivable                                 155,000     (1,220,000)       (584,000)       (4,033,000)
          Other assets                                               (339,000)        52,000        (221,000)          100,000
          Accrued interest payable                                    523,000      2,520,000      (3,490,000)        3,788,000
          Accrued expenses and other liabilities                      (97,000)       594,000          22,000          (343,000)
                                                                 ------------    -----------   -------------   ---------------
          Net cash provided by operating activities                 2,716,000      3,850,000         713,000         2,952,000
                                                                 ------------    -----------   -------------   ---------------
INVESTING ACTIVITIES:
     Purchase of equity securities                                   (536,000)           -        (7,541,000)              -
     Purchase of interest rate caps                                       -              -              -             (80,000)
     Purchase of fixed income securities                          (22,784,000)  (707,278,000)   (115,731,000)   (1,266,466,000)
     Proceeds from sales of equity securities                       2,935,000            -         4,376,000               -
     Proceeds from sales of fixed income securities                       -      461,602,000      40,406,000       461,602,000
     Principal payments on fixed income securities                 55,906,000    124,593,000     111,371,000       180,170,000
                                                                 ------------    -----------   -------------   ---------------
          Net cash (used in) provided by investing activities      35,521,000   (121,083,000)     32,881,000      (624,774,000)
                                                                 ------------    -----------   -------------   ---------------
FINANCING ACTIVITIES:
     Net proceeds from reverse repurchase agreements              (28,350,000)   156,470,000     (31,240,000)      665,934,000
     Dividend distributions                                        (2,284,000)    (1,626,000)     (4,004,000)       (1,894,000)
     Purchase of treasury stock                                           -       (3,901,000)           -           (6,436,000)
                                                                 ------------    -----------   -------------   ---------------
          Net cash (used in) provided by financing activities     (30,634,000)   150,943,000     (35,244,000)      657,604,000
                                                                 ------------    -----------   -------------   ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                7,603,000     33,710,000      (1,650,000)       35,782,000

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                    3,426,000      5,157,000      12,679,000         3,085,000
                                                                 ------------    -----------   -------------   ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                       $ 11,029,000    $38,867,000   $  11,029,000   $    38,867,000
                                                                 ------------    -----------   -------------   ---------------
                                                                 ------------    -----------   -------------   ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid for interest                                      $ 10,237,000    $ 6,463,000   $  25,511,000   $     9,193,000
                                                                 ------------    -----------   -------------   ---------------
                                                                 ------------    -----------   -------------   ---------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
     Net unrealized gain (loss) on mortgage-backed
          securities available-for-sale                          $(13,036,000)   $  (291,000)  $ (15,897,000)  $     1,256,000
                                                                 ------------    -----------   -------------   ---------------
                                                                 ------------    -----------   -------------   ---------------
     Securities sold, not yet settled                            $    539,000    $56,593,000   $     547,000   $    56,593,000
                                                                 ------------    -----------   -------------   ---------------
                                                                 ------------    -----------   -------------   ---------------
     Principal payments, not yet received                        $  1,901,000    $ 4,652,000   $   2,427,000   $       957,000
                                                                 ------------    -----------   -------------   ---------------
                                                                 ------------    -----------   -------------   ---------------
     Securities purchased, not yet settled                       $   (187,000)   $33,766,000   $    (838,000)  $    32,222,000
                                                                 ------------    -----------   -------------   ---------------
                                                                 ------------    -----------   -------------   ---------------
     Dividends declared, not yet paid                            $ (2,487,000)   $(1,560,000)  $  (2,487,000)  $    (1,560,000)
                                                                 ------------    -----------   -------------   ---------------
                                                                 ------------    -----------   -------------   ---------------

</TABLE>

See accompanying notes to financial statements

                                       6

<PAGE>

                      APEX MORTGAGE CAPITAL, INC.
                     NOTES TO FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY

         Apex Mortgage Capital, Inc. (the "Company") was incorporated in
         Maryland on September 15, 1997. The Company commenced its operations of
         acquiring and managing a portfolio of mortgage related assets on
         December 9, 1997, upon receipt of the net proceeds from the initial
         public offering of the Company's common stock. The Company uses its
         equity capital and borrowed funds to seek to generate income based on
         the difference between the yield on its fixed income securities and the
         cost of its borrowings. The Company is structured for tax purposes as a
         real estate investment trust ("REIT") under the Internal Revenue Code
         of 1986, as amended (the "Code").

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CASH AND CASH EQUIVALENTS

         Cash and cash equivalents include cash and highly liquid investments
         with original maturities of three months or less. The carrying amount
         of cash equivalents approximates their fair value.

     FIXED INCOME SECURITIES

         The Company's fixed income securities consist primarily of residential
         mortgage securities and other fixed income securities. All fixed income
         securities are recorded at cost on the date the assets are purchased.
         Realized gains and losses on sales of the securities are determined on
         a specific identification basis. A majority of the Company's fixed
         income securities are expected to qualify as real estate assets under
         the REIT Provisions of the Code.

         Interest income on the Company's mortgage securities is accrued based
         on the actual coupon rate and the outstanding principal amount.
         Premiums and discounts are amortized into interest income over the
         lives of the securities using the effective yield method adjusted for
         the effects of estimated prepayments.

         Interest income on the Company's other fixed income securities is
         accrued using the effective interest method applied prospectively based
         on current market assumptions.

         The Company's policy is to generally classify its fixed income
         securities as available-for-sale. The fixed income securities are
         reported at fair value with unrealized gains and losses excluded from
         earnings and reported in other comprehensive income.

     EQUITY SECURITIES

         The Company's equity securities consist primarily of equity securities
         issued by other real estate investment trusts. Dividend income on
         equity securities is recorded on the declaration date. Realized gains
         and losses on sales of the securities are determined on a specific
         identification basis. A majority of the Company's equity securities are
         expected to qualify as real estate assets under the REIT Provisions of
         the Code.

         The Company's policy is to generally classify its equity securities as
         available-for-sale. Equity securities are reported at fair value with
         unrealized gains and losses excluded from earnings and reported in
         other comprehensive income.

     INTEREST RATE HEDGING TRANSACTIONS

         The Company enters into interest rate swap and interest rate cap
         agreements in order to mitigate the impact of rising interest rates on
         the cost of its short-term borrowings. Amounts payable or receivable
         from such agreements are accounted for on an accrual basis and
         recognized as a net adjustment to interest expense. Premiums paid for
         cap agreements accounted for as hedges are recorded as other assets and
         amortized over the lives of such agreements as an adjustment to
         interest expense.

                                       7
<PAGE>

     STOCK BASED COMPENSATION

         The Company grants stock options to its directors and officers and to
         certain directors, officers and employees of its investment manager and
         the investment manager itself, as discussed in Note 9. Options granted
         to directors of the Company are accounted for using the intrinsic
         method, and generally no compensation expense is recognized in the
         statement of operations for such options. Other options are accounted
         for using the fair value method; such options are measured at their
         fair value when they are granted and are recognized as a general and
         administrative expense during the periods when the options vest and the
         related services are performed.

     FEDERAL AND STATE INCOME TAXES

         The Company has elected to be taxed as a REIT and generally is not
         subject to federal and state taxes on its income to the extent it
         distributes annually 95% of its predistribution taxable income to
         stockholders and meets certain other asset, income and stock ownership
         tests. As such, no accrual for income taxes has been included in the
         financial statements.

     NET INCOME PER SHARE

         Basic net income per share is calculated on the basis of the weighted
         average number of common shares outstanding during each period. Diluted
         net income per share includes the additional dilutive effect of common
         stock equivalents and outstanding stock options and is calculated using
         the treasury stock method.

     INCOME RECOGNITION

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

     CREDIT RISK

         The Company has limited its exposure to credit losses on its portfolio
         of fixed income securities by purchasing securities that are either
         rated "AAA" by at least one nationally recognized rating agency or are
         issued by the Federal Home Loan Mortgage Corporation ("FHLMC"), Fannie
         Mae (formerly known as the Federal National Mortgage Corporation) or
         the Government National Mortgage Association ("GNMA"). The payment of
         principal and interest on the FHLMC, Fannie Mae and GNMA securities are
         guaranteed by those respective agencies. In addition, the Company has
         the ability to purchase up to 10% of the portfolio in below investment
         grade securities.

     USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenues and expenses during the reporting period. Actual
         results could differ from those estimates.

     COMPREHENSIVE INCOME

         The Company has adopted Statement of Financial Accounting Standards
         ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME. This statement
         establishes standards for reporting and display of comprehensive
         income and its components in a full set of general-purpose financial
         statements. Comprehensive income is defined as "the change in equity
         of a business enterprise during a period from transactions and other
         events and circumstances from non-owner sources. It includes all
         changes in equity during a period except those resulting from
         investments by owners and distributions to owners."

     RECENTLY ISSUED ACCOUNTING STANDARDS

         During the six months ended June 30, 1999, the Company wrote off
         $64,000 of unamortized organizational costs in accordance with the
         adoption of Statement of Position ("SOP") 98-5, "Reporting on the Cost
         of Start-Up Activities."

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
         133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The
         Statement establishes accounting and reporting standards requiring that
         every derivative instrument (including certain derivative instruments
         embedded in other contracts) be recorded in the balance sheet as either
         an asset or liability measured at its fair value. The Statement
         requires that changes in the derivative's fair value be recognized
         currently in earnings unless specific hedge accounting criteria are
         met. Special accounting for qualifying hedges allows a derivative's
         gains and losses to offset related results on the hedged item in the
         income statement, and requires that a company must formally document,
         designate, and assess

                                       8
<PAGE>

         the effectiveness of transactions that receive hedge accounting.
         SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal
         years beginning after June 15, 2000. A company may also implement the
         Statement as of the beginning of any fiscal quarter after issuance
         (that is, fiscal quarters beginning June 16, 1998 and thereafter).
         Statement 133 cannot be applied retroactively. Statement 133 must be
         applied to (a) derivative instruments and (b) certain derivative
         instruments embedded in hybrid contracts that were issued, acquired, or
         substantively modified after December 31, 1998 (and, at the
         Company's election, before January 1, 1998). The Company will adopt
         the reporting requirements of SFAS No. 133 by the first quarter of
         2001. An earlier adoption may be made if circumstances warrant. The
         Company expects the impact of the adoption of the reporting
         requirements of SFAS No. 133 to include the recording of the
         approximate fair value of the Company's interest rate swaps as
         comprehensive income.

     RECLASSIFICATIONS

         Certain prior year amounts have been reclassified to conform to the
         current year presentation.


NOTE 3 - FIXED INCOME SECURITIES AND EQUITY SECURITIES

         At June 30, 1999, fixed income securities consisted of the following:
<TABLE>
<CAPTION>
                                                                       Fixed Rate
        (in thousands)                             Adjustable Rate       Mortgage          Other Fixed
                                               Mortgage Securities      Securities       Income Securities        Total
                                               -------------------- ------------------- ------------------- ------------------
        <S>                                    <C>                  <C>                 <C>                 <C>
        Principal Amount                       $            38,290  $          738,942  $            8,400  $         785,632
        Unamortized Premium (Discount)                         442               1,737              (2,472)            (293)
                                               -------------------- ------------------- ------------------ -------------------
        Amortized Cost                                      38,732             740,679               5,928            785,339
        Unrealized Gains                                       149                 312                   0                461
        Unrealized Losses                                     (104)            (12,328)               (363)           (12,795)
                                               -------------------- ------------------- ------------------ -------------------
        Fair Value                             $            38,777  $          728,663  $            5,565  $         773,005
                                               ==================== =================== =================== ==================
</TABLE>
         At December 31, 1998, fixed income securities consisted of the
         following:
<TABLE>
<CAPTION>
                                                                       Fixed Rate
        (in thousands)                             Adjustable Rate       Mortgage          Other Fixed
                                               Mortgage Securities      Securities       Income Securities        Total
                                               -------------------- ------------------- ------------------- ------------------
        <S>                                    <C>                  <C>                 <C>                 <C>
        Principal Amount                       $            61,590  $           758,110 $            5,400  $       825,100
        Unamortized Premium (Discount)                         772                  800              (1,380)            192
                                               -------------------- ------------------- ------------------- ------------------
        Amortized Cost                                      62,362              758,910              4,020          825,292
        Unrealized Gains                                        86                4,762                  0            4,848
        Unrealized Losses                                     (110)                 (15)              (303)            (428)
                                               -------------------- ------------------- ------------------- ------------------
        Fair Value                             $            62,338  $           763,657 $            3,717  $       829,712
                                               ==================== =================== =================== ==================
</TABLE>

         The contractual final maturity of the mortgage loans supporting the
         mortgage securities is generally between 15 and 30 years at
         origination. Because of prepayments on the underlying mortgage loans,
         the actual weighted-average maturity is expected to be less.

         A portion of the other fixed income securities generally have an
         original maturity of five years subject to certain acceleration
         provisions. The expected average remaining maturity at June 30, 1999
         and December 31, 1998 were approximately 3.5 and 4.0 years,
         respectively. The remaining portion has a fixed remaining maturity of
         approximately 3.3 years as of June 30, 1999.

         The adjustable rate mortgage securities are typically subject to
         periodic and lifetime caps that limit the amount an adjustable rate
         mortgage security's interest rate can change during any given period
         and over the life of the asset. At June 30, 1999 and December 31, 1998,
         the average periodic cap on the adjustable rate mortgage was 2.0% per
         annum and the average lifetime cap was equal to 11.3%.

                                       9
<PAGE>

         There were no sales of mortgage securities during the quarter ended
         June 30, 1999. During the quarter ended June 30, 1998, the Company
         realized $582,000 in gains on the sale of $461,600,000 of adjustable
         rate mortgage securities which were classified as available-for-sale.

         At June 30, 1999 and December 31, 1998, equity securities consisted of
         the following:

<TABLE>
<CAPTION>
        (in thousands)
                                               June 30, 1999      December 31, 1998
                                               -------------      -----------------
        <S>                                    <C>                <C>
        Cost Basis                             $     18,758       $         14,154
        Unrealized Gains                              4,005                  2,268
        Unrealized Losses                           (1,272)                    (0)
                                               -------------      -----------------
        Fair Value                             $     21,491       $         16,422
                                               =============      =================
</TABLE>

         During the quarter ended June 30, 1999, the Company realized $662,000
         in gains on the sale of $2,935,000 of equity securities that were
         classified as available-for-sale. There were no equity securities sold
         in the second quarter ended June 30, 1998.

NOTE 4 - INTEREST RATE CAP AGREEMENTS AND TREASURY PUT OPTIONS

         Interest rate cap agreements include the carrying value of purchased
         interest rate caps, entered into by the Company in order to mitigate
         the impact of rising interest rates on the cost of its short-term
         borrowings. As discussed in Note 10, the Company has entered into
         certain interest rate swap transactions. The execution of these swaps
         eliminated the need for the cap protection previously purchased.
         Accordingly, the interest rate cap agreements no longer qualify for
         hedge accounting and were written down to zero during the year ended
         December 31, 1998 which approximates their fair value.

         The terms of outstanding interest rate cap agreements are as follows:
<TABLE>
<CAPTION>
                                   At June 30, 1999       At December 31, 1998
                                   ----------------       --------------------
<S>                                <C>                    <C>
Notional Amount                     $900,000,000              $900,000,000
Average Contract Rate                   10.4%                     10.4%
Average Final Maturity             January 24, 2002         January 24, 2002
</TABLE>

         Under these agreements, the Company will receive cash payments to the
         extent of the excess of three month London Interbank Offered Rate
         ("LIBOR") over the agreements' contract rate times the notional amount.

         During the quarter ended June 30, 1999, the Company purchased put
         options on ten-year U.S. Treasury futures contracts with a notional
         amount of $50,000,000 for a purchase price of $334,000. At June 30,
         1999, the fair market value of the put options was $156,000 which is
         included in Other assets on the balance sheet. The unrealized loss of
         $178,000 is included in Net Gain on Investment Transactions in the
         Statement of Operations. The put options are expected to expire in
         August 1999 and therefore an additional loss of $156,000 may be
         recorded during the third quarter of 1999.

NOTE 5 - REVERSE REPURCHASE AGREEMENTS

         The Company has entered into reverse repurchase agreements to finance
         certain of its fixed income securities. These agreements are secured by
         a portion of the Company's fixed income securities and bear interest
         rates that have historically moved in close relationship to LIBOR.

         At June 30, 1999, the Company had outstanding $736,668,000 of reverse
         repurchase agreements with a weighted average current borrowing rate of
         5.00% and a maturity of 1.8 months. The reverse repurchase agreements
         were collateralized by fixed income securities with an estimated fair
         value of $763,993,000.

                                      10
<PAGE>

         At December 31, 1998, the Company had outstanding $767,908,000 of
         reverse repurchase agreements with a weighted average current borrowing
         rate of 5.34% and a maturity of 2.9 months. The reverse repurchase
         agreements were collateralized by fixed income securities with an
         estimated fair value of $800,260,000.

         For the quarter ended June 30, 1999, the average reverse repurchase
         agreement balance was $744,645,000 with a weighted average interest
         cost of 4.93%. The maximum reverse repurchase agreement balance
         outstanding during the quarter ended June 30, 1999 was $765,018,000.

         For the quarter ended June 30, 1998, the average reverse repurchase
         agreement balance was $639,029,000 with a weighted average interest
         cost of 5.60%. The maximum reverse repurchase agreement balance
         outstanding during the quarter ended June 30, 1998 was $753,752,000.


NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following table presents the amortized cost and estimated fair
         values of the Company's financial instruments. SFAS No. 107,
         DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, defines the fair
         value of a financial instrument as the amount at which the instrument
         could be exchanged in a current transaction between willing parties,
         other than in a forced or liquidation sale (dollars in thousands):

<TABLE>
<CAPTION>
                                                  At June 30, 1999                     At December 31, 1998
                                              Amortized                            Amortized
                                                 Cost           Fair Value            Cost           Fair Value
                                              ---------         ----------         ---------         ----------
        <S>                                   <C>               <C>                <C>               <C>
        Mortgage related securities           $779,411          $767,440           $821,272          $825,995
        Equity securities                       18,578            21,491             14,154            16,422
        Other fixed income securities            5,928             5,565              4,020             3,717
        Interest rate swaps                          -              (238)                -             (9,994)
</TABLE>

         The Company bases its fair value estimates for fixed income securities,
         equity securities and interest rate swaps primarily on third party
         price indications provided by dealers who make markets in these
         financial instruments when such indications are available. However, the
         fair value reported reflects estimates and may not necessarily be
         indicative of the amounts the Company could realize in a current market
         exchange. Cash and cash equivalents, interest receivable and reverse
         repurchase agreements are reflected in the financial statements at
         their costs, which approximates their fair value because of the
         short-term nature of these instruments.

NOTE 7 - STOCK REPURCHASE PROGRAM

         The Company's Board of Directors has authorized a program to repurchase
         shares of the Company's common stock. At June 30, 1999 and December 31,
         1998, the Company was authorized to repurchase 552,900 shares of the
         Company's common stock pursuant to the repurchase program.

         At June 30, 1999 and December 31, 1998, the Company held 947,100 shares
         of treasury stock. During the quarter ended June 30, 1999, the Company
         did not repurchase any treasury shares, however, for the quarter ended
         June 30, 1998, the Company repurchased 535,000 shares which are held at
         cost in the financial statements herein.


NOTE 8 - TRANSACTIONS WITH AFFILIATES

         The Company has entered into a Management Agreement (the "Management
         Agreement") with TCW Investment Management Company (the "Manager"), a
         wholly owned subsidiary of The TCW Group, Inc., under which the Manager
         will manage its day-to-day operations, subject to the direction and
         oversight of the Company's Board of Directors. The Company will pay the
         Manager annual base management compensation, payable monthly in
         arrears, equal to 3/4 of 1% of the average net invested capital as
         further defined in the Management Agreement.

                                      11
<PAGE>

         The Company paid the Manager $158,000 and $161,000 in base management
         compensation during the quarters ended June 30, 1999 and June 30, 1998,
         respectively.

         The Company also pays the Manager, as incentive compensation, an amount
         equal to 30% of the Net Income of the Company, before incentive
         compensation, in excess of the amount that would produce an annualized
         return on equity equal to the ten-year U.S. Treasury rate plus 1% as
         further defined in the Management Agreement.

         The Company accrued $426,000 for incentive compensation to the Manager
         for the quarter ended June 30, 1999. The Company did not accrue any
         incentive compensation to the Manager for the quarter ended June 30,
         1998.

         The Company may also grant stock options to directors, officers and key
         employees of the Company, the Manager, its directors, officers and key
         employees.

         The Company's other fixed income securities include securities that are
         issued by special purpose companies that invest primarily in
         mortgage-related assets. An affiliate of the Manager serves as the
         investment manager to these companies and is paid fees in connection
         with such services. The Company does not anticipate paying any
         management fees directly to any affiliate of the Manager in connection
         with these investments.

NOTE 9 - STOCK OPTIONS

         The Company has adopted a stock option plan (the "Amended and Restated
         1997 Stock Option Plan") that provides for the grant of both qualified
         incentive stock options that meet the requirements of Section 422 of
         the Code, and non-qualified stock options, stock appreciation rights
         and dividend equivalent rights. Stock options may be granted to
         directors, officers and key employees of the Company, the Manager, its
         directors, officers and key employees.

         The exercise price for any stock option granted under the Amended and
         Restated 1997 Stock Option Plan may not be less than 100% of the fair
         market value of the shares of common stock at the time the option is
         granted. Each option must terminate no more than ten years from the
         date it is granted. Subject to anti-dilution provisions for stock
         splits, stock dividends and similar events, the Amended and Restated
         1997 Stock Option Plan authorizes the grant of options to purchase an
         aggregate 1,000,000 shares of common stock.

         The Company  recognized  stock option expenses relating to these
         options of $71,000 and $28,000 during the quarters ended June 30, 1999
         and June 30, 1998, respectively.

         If the Company had recorded stock option grants to Company directors at
         fair value and related compensation expense, the pro forma effect on
         the Company's net income and earnings per share would have been as
         follows:

<TABLE>
<CAPTION>
                                                                            Quarter Ended            Quarter Ended
                                                                            June 30, 1999            June 30, 1998
                                                                       ------------------------ ------------------------
        <S>                                                             <C>                        <C>
        Net income - as reported                                        $     2,854,000            $      609,000
        Net income - pro forma                                                2,729,000                   578,000

        Basic and diluted earnings per share - as reported              $          0.50            $         0.10
        Basic and diluted earnings per share - pro forma                $          0.47            $         0.09

</TABLE>

         Information regarding stock option activity during the six months ended
June 30, 1999 is as follows:

<TABLE>
<CAPTION>
                                                                                               Weighted Average
                                                                                 Shares         Exercise Price
                                                                            ------------------ ------------------
        <S>                                                                 <C>                <C>
        Options Granted Prior to December 31, 1998                               570,000            $13.62
        Exercised                                                                   -                  -
        Expired                                                                     -                  -
                                                                            ------------------ ------------------
        Options Outstanding at June 30, 1999                                     570,000             $13.62
                                                                            ================== ==================
</TABLE>

                                      12
<PAGE>

NOTE 10 - CONTRACTUAL COMMITMENTS

         At June 30, 1999 the Company had entered into interest rate swap
         agreements with the total current notional amount as stated below.
         Under these agreements, the Company receives a floating rate and pays a
         fixed rate.

<TABLE>
<CAPTION>
                                                                                              Average         Unrealized
            Current                                       Average                           Termination     Gains (Losses)
     Notional Amount (000)            Type              Fixed Rate       Floating Rate         Date              (000)
    ------------------------ ----------------------- ------------------ ----------------- ---------------- -----------------
    <S>                      <C>                     <C>                <C>               <C>              <C>
         $  678,047            Interest Rate Swap         5.850%           1Mo LIBOR          2/16/01                $(238)
</TABLE>

         At December 31, 1998 the Company  entered into  interest rate swap
         agreement as follows:

<TABLE>
<CAPTION>
            Current                                                                           Average         Unrealized
     Notional Amount (000)                                Average                           Termination     Gains (Losses)
                                      Type              Fixed Rate       Floating Rate         Date              (000)
    ------------------------ ----------------------- ------------------ ----------------- ---------------- -----------------
    <S>                      <C>                     <C>                <C>               <C>              <C>
         $  703,590            Interest Rate Swap         5.850%           1Mo LIBOR          2/16/01              $(9,994)
</TABLE>

         The Company paid $1,395,000 to the swap counter-parties during the
         quarter ended June 30, 1999 which is included in interest expense in
         the statement of operations. There were no such payments made during
         the quarter ended June 30, 1998.

         The Company is generally required to deposit collateral with the swap
         agreement counter-parties in an amount at least equal to the amount of
         any unrealized losses. At June 30, 1999 and December 31, 1998, the
         Company had securities with a fair market value of $3,898,000 and
         $17,327,000, respectively, on deposit with its counter-parties. If
         unrealized losses on the interest rate swap agreements were to
         increase, the Company would be required to deposit additional
         collateral.

NOTE 11 - ADOPTION OF SHAREHOLDER RIGHTS PLAN

         On June 30, 1999, the Board of Directors of Apex Mortgage Capital, Inc.
         (the "Company") declared a dividend distribution of one Right for each
         outstanding share of Company Common Stock to stockholders of record at
         the close of business on July 30, 1999 (the "Record Date"). Each Right
         entitles the registered holder to purchase from the Company one
         one-hundredth of a share of Series A Junior Participating Preferred
         Stock, par value $0.01 per share (the "Preferred Stock"), at a Purchase
         Price of $50.00, subject to adjustment. The description and terms of
         the Rights are set forth in a Shareholder Rights Agreement (the "Rights
         Agreement") between the Company and The Bank of New York, as Rights
         Agent.

         Initially, the Rights will be attached to all Common Stock certificates
         representing shares then outstanding, and no separate Rights
         Certificates will be distributed. Subject to certain exceptions
         specified in the Rights Agreement, the Rights will separate from the
         Common Stock and a Distribution Date will occur upon the earlier of (i)
         10 business days following a public announcement that a person or group
         of affiliated or associated persons (an "Acquiring Person") has
         acquired, or obtained the right to acquire, beneficial ownership of 15%
         or more of the outstanding shares of Common Stock (the "Stock
         Acquisition Date"), other than as a result of repurchases of stock by
         the Company or certain inadvertent actions by institutional or certain
         other stockholders or (ii) 10 business days (or such later date as the
         Board shall determine) following the commencement of a tender offer or
         exchange offer that would result in a person or group becoming an
         Acquiring Person. Until the Distribution Date, (i) the Rights

                                      13

<PAGE>

         will be evidenced by the Common Stock certificates and will be
         transferred with and only with such Common Stock certificates, (ii)
         new Common Stock certificates issued after the Record Date will
         contain a notation incorporating the Rights Agreement by reference
         and (iii) the surrender for transfer of any certificates for Common
         Stock outstanding will also constitute the transfer of the Rights
         associated with the Common Stock represented by such certificate.
         Pursuant to the Rights Agreement, the Company reserves the right to
         require prior to the occurrence of a triggering event that, upon any
         exercise of Rights, a number of Rights be exercised so that only
         whole shares of Preferred Stock will be issued.

         The Rights are not exercisable until the Distribution Date and will
         expire at 5:00 P.M. (New York City time) on July 30, 2009, unless
         earlier redeemed or exchanged by the Company.

                                      14
<PAGE>

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

                  SAFE HARBOR/FORWARD LOOKING STATEMENTS

     Certain information contained in this Quarterly Report on Form 10-Q
constitutes "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate," "intend," "continue," or "believes" or the negatives
thereof or other variations thereon or comparable terminology. Discussed below
are some important factors that would cause actual results to differ materially
from those in any forward-looking statements, including changes in interest
rates; domestic and foreign business, market, financial or legal conditions;
differences in the actual allocation of the assets of the Company from those
assumed; and the degree to which assets are hedged and the effectiveness of the
hedge, among others. In addition, the degree of risk is increased by the
Company's leveraging of its assets. For additional discussion of factors that
could cause actual results to differ from those contained in such
forward-looking statements, see "Principal Risks and Special Considerations",
"Item 7 Management's Discussion and Analysis of Financial Conditions and Results
of Operations" and "Item 7A Quantitative and Qualitative Disclosures About
Market Risk" in the Company's annual report on Form 10-K for the year ended
December 31, 1998. The Company does not undertake, and specifically disclaims
any obligation, to update any forward-looking statements to reflect occurrences
or unanticipated events or circumstances after the date of such statements.

                                     GENERAL

     Apex Mortgage Capital, Inc. (the "Company"), a Maryland corporation, was
formed on September 15, 1997, primarily to acquire United States agency
securities and other highly rated, single-family real estate adjustable and
fixed rate mortgage related assets. The Company commenced operations on December
9, 1997, upon receipt of the net proceeds from the initial public offering of
the Company's common stock. The Company's principal executive offices are
located at 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017,
and its telephone number is (213) 244-0440.

         The Company uses its equity capital and borrowed funds to seek to
generate income based on the difference between the yield on its mortgage
related assets and the cost of its borrowings. The Company has elected to be
taxed as a real estate investment trust ("REIT") under the Internal Revenue Code
of 1986, as amended (the "Code"). The Company should not generally be subject to
federal taxes on its income to the extent that it distributes its net income to
its stockholders and maintains its qualification as a REIT.

     The goal of the Company is to be an efficient investor in mortgage assets.
The Company generally acquires mortgage assets primarily in the secondary
mortgage market through the operational experience and market relationships of
TCW Investment Management Company (the "Manager") and its affiliates.

     The day-to-day operations of the Company are managed by an external
management company, TCW Investment Management Company (the "Manager"), subject
to the direction and oversight of the Company's Board of Directors. A majority
of the Board of Directors are unaffiliated with The TCW Group, Inc. ("TCW" and
together with its subsidiaries and affiliates, the "TCW Group") or the Manager.
The Manager is a wholly-owned subsidiary of TCW. The Manager was established in
1992 and the TCW Group began operations in 1971 through one of its affiliates.
The Company's investment management team consists of selected members of TCW's
mortgage-backed securities group, all of whom have over eleven years of
experience in raising and managing mortgage capital. The Company has elected to
be externally managed by the Manager to take advantage of the existing
operational systems, expertise and economies of scale associated with the
Manager's current business operations, among other reasons. The Manager's key
officers have experience in raising and managing mortgage capital, mortgage
finance and the purchase and administration of mortgage related assets.

                                    STRATEGY

     To achieve its business objective and generate dividend yields that provide
a competitive rate of return for its stockholders, the Company's strategy is to:

-         purchase primarily single-family adjustable and fixed rate mortgage
          related assets;

                                      15

<PAGE>

-         manage the credit risk of its mortgage related assets through, among
          other activities (i) carefully selecting mortgage related assets to be
          acquired, (ii) complying with the Company's investment policy, (iii)
          actively monitoring the ongoing credit quality and servicing of its
          mortgage related assets, and (iv) maintaining appropriate capital
          levels and allowances for possible credit losses;

-         finance purchases of mortgage related assets with the net proceeds of
          equity offerings and, to the extent permitted by the Company's
          leverage policy, to utilize leverage to increase potential returns to
          stockholders through borrowings (primarily reverse repurchase
          agreements) with interest rates that will also reflect changes in
          short-term market interest rates;

-         seek to structure its borrowings in accordance with its interest rate
          risk management policy;

-         utilize interest rate caps, swaps and similar financial instruments
          to mitigate interest rate risks; and

-         seek to minimize prepayment risk primarily by structuring a
          diversified portfolio with a variety of prepayment characteristics.

     There can be no assurance that the Company will be able to generate
competitive earnings and dividends while holding primarily high quality
mortgage related assets and maintaining a disciplined risk-control profile.

     The Company may attempt to increase the return to stockholders over time
by: (i) raising additional capital in order to increase its ability to invest
in additional mortgage related assets; (ii) lowering its effective borrowing
costs through direct funding with collateralized lenders, in addition to
using Wall Street intermediaries, and investigating the possibility of using
collateralized commercial paper and medium-term note programs; and (iii)
improving the efficiency of its balance sheet structure by issuing
uncollateralized subordinated debt and other forms of capital.

                                    POLICIES

     The Company's current investment policies are set forth in its Annual
Report on Form 10-K for the year ended December 31, 1998. Such policies
supersede in their entirety the policies presented in the Company's initial
public offering prospectus and in the Company's annual and quarterly reports
filed prior to such 10-K. Changes in policy included permission for the Company
to invest in either adjustable-rate or fixed-rate mortgage securities (prior to
the modification, the Company's investment policy stated that the Company would
invest primarily in adjustable-rate mortgage securities) and permission for the
Company to invest in securities of other issuers for purposes of seeking to
exercise or influence control.

                              FINANCIAL CONDITION

FIXED INCOME SECURITIES

         At June 30, 1999, the Company held $773,005,000 of Fixed Income
Securities as compared to $829,712,000 at December 31, 1998. The following
table is a schedule of Fixed Income Securities held listed by security type
(dollars in thousands):

<TABLE>
<CAPTION>
                                                June 30, 1999                     December 31, 1998
                                      ----------------------------------- ----------------------------------

                                            Carrying       Percent of        Carrying         Percent of
   Fixed Income Securities                   Value          Portfolio          Value           Portfolio
   ---------------------------------- ------------------ ---------------- ---------------- -----------------
   <S>                                <C>                <C>              <C>              <C>
   Mortgage Securities:
      Adjustable Rate (1)             $          38,777             5.0%  $        62,338              7.5%
      Fixed Rate                                728,663            94.3%          763,657             92.0%
   Other Fixed Income Securities                  5,565             0.7%            3,717              0.5%
                                      ------------------ ---------------- ---------------- -----------------
        Totals                        $         773,005           100.0%  $       829,712            100.0%
                                      ================== ================ ================ =================
</TABLE>

          (1) At June 30, 1999 and December 31, 1998, the interest rate indices
              for 95% and 5% of the adjustable rate mortgage securities were
              based on the one-year U.S. Treasury rate and the six-month London
              Inter-Bank Offered Rate, respectively.

                                      16
<PAGE>

     The following table shows various weighted average characteristics of the
Fixed Income Securities held by the Company at June 30, 1999 (dollars in
thousands):
<TABLE>
<CAPTION>
                                                           Percent of                                            Weighted
                                                            Total Par     Amortized    Market      Current       Average
Security Type                                Par Amount      Amount      Cost Basis      Price       Coupon      Life (1)
------------------------------------------ --------------- ------------ -------------- ----------- ----------- -------------
<S>                                        <C>             <C>          <C>            <C>         <C>         <C>
15 Year Agency/AAA Pass-throughs           $      210,407        26.8%        100.39%    98.90%       6.50%        5.0
20 Year Agency Pass-throughs                      263,809        33.6%        100.46%    98.00%       6.50%        6.1
30 Year Agency Pass-throughs                       33,554         4.3%        101.40%    98.73%       7.00%        6.9
AAA CMOs                                          231,172        29.4%         99.67%    99.03%       6.85%        3.1
                                           --------------- ------------ -------------- ----------- ----------- -------------
Total Fixed Rate Holdings                  $      738,942        94.1%        100.24%    98.61%       6.63%        4.9

Other Fixed Income Securities                       8,400         1.1%         69.04%    64.96%      15.89%        3.1
Adjustable Rate Holdings                           38,290         4.9%        101.15%   101.27%       6.51%        1.0
                                           --------------- ------------ -------------- ----------- ----------- -------------

Total Portfolio                            $      785,632       100.0%         99.95%    98.38%       6.73%        4.7
                                           =============== ============ ============== =========== =========== =============
</TABLE>

     The following table shows various weighted average characteristics of the
Fixed Income Securities held by the Company at December 31, 1998 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                           Percent of                                            Weighted
                                                            Total Par     Amortized    Market      Current       Average
Security Type                                Par Amount      Amount      Cost Basis      Price       Coupon      Life (1)
------------------------------------------ --------------- ------------ -------------- ----------- ----------- -------------
<S>                                        <C>             <C>          <C>            <C>         <C>         <C>
15 Year Agency/AAA Pass-throughs           $      253,581        33.4%        100.42%   101.23%      6.50%         3.7
20 Year Agency Pass-throughs                      209,566        27.6%        100.45%   101.06%      6.50%         6.1
30 Year Agency Pass-throughs                        8,076         1.1%        102.19%   101.99%      7.50%         3.2
AAA CMOs                                          286,887        37.8%         99.52%   100.01%      6.82%         2.7
                                           --------------- ------------ -------------- ----------- ----------- -------------
Total Fixed Rate Holdings                  $      758,110        91.9%        100.11%   100.73%      6.63%         3.9

Other Fixed Income Securities                       5,400         0.7%         74.43%    72.24%      21.83%        4.0
Adjustable Rate Holdings                           61,590         7.5%        101.25%   101.21%       6.79%        1.0
                                           --------------- ------------ -------------- ----------- ----------- -------------

Total Portfolio                            $      825,100       100.0%        100.02%   100.58%      6.74%         3.7
                                           =============== ============ ============== =========== =========== =============
</TABLE>

          (1) The weighted average life of the fixed rate mortgage securities is
          based upon market prepayment expectations as of the dates shown. The
          actual weighted average life could be longer or shorter depending on
          the actual prepayment rates experienced over the life of the
          securities. The weighted average life shown for the adjustable rate
          mortgage assets represents the average time until the next coupon
          reset date. All averages are shown in years.


EQUITY SECURITIES

     At June 30, 1999, the Company held $21,491,000 of equity securities
compared to $16,422,000 at December 31, 1998. Equity securities consist
primarily of investment in equities issued by other real estate investment
trusts.

     The Company's  investments in other real estate  investment  trusts
consist of publicly  traded  preferred and common stock  securities  issued
by  companies  involved in the  mortgage  finance  industry.  The Company
generally  expects to receive dividend income on the majority of these
investments.

                                      17
<PAGE>

HEDGING RELATED TRANSACTIONS

     The Company utilizes interest rate caps, swaps and similar financial
instruments to mitigate the risk of the cost of its variable-rate liabilities
exceeding the earnings on its mortgage assets during a period of rising
interest rates. The Company is currently utilizing both interest rate cap and
interest rate swap agreements.

     Interest rate cap agreements consisted of LIBOR based agreements as
follows:
<TABLE>
<CAPTION>
                                   At June 30, 1999         At December 31, 1998
                              --------------------------- -------------------------
<S>                           <C>                         <C>
Notional Amount                      $900,000,000               $900,000,000
Average Contract Rate                   10.4%                       10.4%
Average Final Maturity             January 24, 2002           January 24, 2002
</TABLE>

     Under these agreements, the Company will receive cash payments to the
extent of the excess of three-month LIBOR over the agreements' contract rate
times the notional amount. The interest rate cap agreements no longer qualify
for hedge accounting now that the Company has entered into additional hedging
transactions as discussed below. Accordingly, the Company now records the cap
agreements at fair market value, which is zero in the current market
environment.

     During the quarter ended June 30, 1999, the Company purchased put
options on ten-year U.S. Treasury futures contracts with a notional amount of
$50,000,000 for a purchase price of $334,000. At June 30, 1999, the fair
market value of the put options was $156,000 which is included in Other
assets on the balance sheet. The unrealized loss of $178,000 is included in
Net Gain on Investment Transactions in the Statement of Operations. The put
options are expected to expire in August 1999 and therefore an additional
loss of $156,000 may be recorded during the third quarter of 1999.

     At June 30, 1999, the Company had entered into interest rate swap
agreements with the total current notional amount as stated below. Under
these agreements, the Company receives a floating rate and pays a fixed rate.

<TABLE>
<CAPTION>
                                                                                              Average         Unrealized
            Current                                       Average                           Termination     Gains (Losses)
     Notional Amount (000)            Type              Fixed Rate       Floating Rate         Date              (000)
    ------------------------ ----------------------- ------------------ ----------------- ---------------- -----------------
    <S>                      <C>                     <C>                <C>               <C>              <C>
          $ 678,047            Interest Rate Swap         5.850%           1Mo LIBOR          2/16/01                $(238)
</TABLE>

     The weighted average life of the agreements at June 30, 1999 was 1.4 years.

     At December 31, 1998, the Company had entered into interest rate swap
agreements with the total current notional amount as stated below.

<TABLE>
<CAPTION>
                                                                                                              Unrealized
            Current                                       Average                           Termination     Gains (Losses)
     Notional Amount (000)            Type              Fixed Rate       Floating Rate         Date              (000)
    ------------------------ ----------------------- ------------------ ----------------- ---------------- -----------------
    <S>                      <C>                     <C>                <C>               <C>              <C>
          $ 703,590            Interest Rate Swap         5.850%           1Mo LIBOR          2/16/01              $(9,994)
</TABLE>

     The weighted average life of the agreements at December 31, 1998 was 1.9
years.

     The Company is generally required to deposit collateral with the swap
agreement counter-parties in an amount at least equal to the amount of any
unrealized losses. At June 30, 1999 the Company had securities with a fair
market value of $3,898,000 on deposit with its counter-parties. If the
unrealized losses on the interest rate swap agreements were to increase, the
Company would be required to deposit additional collateral.

     There can be no assurance that the Company will enter into hedging
activities or that, if entered into, such activities will have the desired
beneficial impact on the Company's results of operations or financial
condition. Moreover, no hedging activity can completely insulate the Company
from the risks associated with changes in interest rates and prepayment rates.

                                      18
<PAGE>

     Hedging involves risk and typically involves costs, including
transaction costs. Such costs increase dramatically as the period covered by
the hedging increases and during periods of rising and volatile interest
rates. The Company may increase its hedging activity and, thus, increase its
hedging costs during such periods when interest rates are volatile or rising
and hedging costs have increased. The Company intends generally to hedge as
much of the interest rate risk as the Manager determines is in the best
interest of the shareholders of the Company given the cost of such hedging
transactions and the Company's desire to maintain its status as a REIT. The
Company's policies do not contain specific requirements as to the percentages
or amount of interest rate risk which the Manager is required to hedge.

LIABILITIES

     The Company has entered into reverse repurchase agreements to finance
certain of its mortgage-backed securities. These agreements are secured by a
portion of the Company's mortgage-backed securities and bear interest rates
that have historically moved in close relationship to LIBOR.

     At June 30, 1999, the Company had outstanding $736,668,000 of reverse
repurchase agreements with a weighted average current borrowing rate of 5.00%
and a maturity of 1.8 months. The reverse repurchase agreements were
collateralized by mortgage-backed securities with an estimated fair value of
$763,993,000.

         At December 31, 1998, the Company had outstanding $767,908,000 of
reverse repurchase agreements with a weighted average current borrowing rate
of 5.34% and a maturity of 2.9 months. The reverse repurchase agreements were
collateralized by mortgage-backed securities with an estimated fair value of
$800,260,000.

     The Company had $5,944,000 and $9,540,000 of other liabilities at June
30, 1999 and December 31, 1998, respectively, consisting primarily of accrued
interest payable and payables for unsettled securities at June 30, 1999 and
December 31, 1998, respectively. The Company anticipates settling all other
liabilities within one year by entering into additional reverse repurchase
agreements.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999

     For the quarter ended June 30, 1999, the Company's net income was
$2,854,000, or $0.50 per share on a basic basis and $0.49 on a diluted basis,
based on a weighted average of 5,753,000 and 5,787,000 shares outstanding,
respectively. That compares to $609,000, or $0.10 per share on both a basic
and diluted basis, based on a weighted average of 6,387,000 shares
outstanding for the quarter ending June 30, 1998. Net interest income for the
second quarter 1999 was $2,321,000 consisting of interest income on mortgage
assets and cash balances less interest expense on reverse repurchase
agreements compared to $499,000 for the second quarter in 1998. The Company
reported dividend income of $684,000 from dividends on equity investments at
June 30, 1999. No dividend interest was reported for the quarter ending June
30, 1998. The Company reported gains on investment transactions, net of
$662,000 primarily from the sale of equity securities during the quarter
ending June 30, 1999. The Company realized $582,000 in gains for the quarter
ending June 30, 1998. The Company incurred operating expenses of $813,000 for
the quarter ending June 30, 1999 consisting of management fees, audit, tax,
legal, printing, insurance and other expenses compared to $359,000 for the
quarter ending June 30, 1998.

         The following table reflects the average balances for each category
of the Company's interest earning assets as well as the Company's interest
bearing liabilities, with the corresponding effective rate of interest
annualized (dollars in thousands):

                                      19
<PAGE>

                         AVERAGE BALANCE AND RATE TABLE
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                   For the Quarter Ended             For the Quarter Ended
                                                       June 30, 1999                     June 30, 1998

                                                  Average         Effective          Average       Effective
                                                  Balance           Rate             Balance          Rate
                                                ------------     ------------      ------------    -----------
<S>                                             <C>              <C>               <C>             <C>
Interest Earning Assets:
     Mortgage Securities                        $   781,084            6.52%       $   681,123          5.42%
     Other Fixed Income Assets                        3,758           11.55%                 0             0%
     Cash and Cash Equivalents                        5,276            4.62%            21,974          5.00%
                                                ------------     ------------      ------------    -----------
     Total Interest Earning Assets                  790,118            6.62%           703,097          5.40%
                                                ------------     ------------      ------------    -----------

Interest Bearing Liabilities:
     Reverse Repurchase Agreements                  744,645            5.78%           639,029          5.63%

                                                ------------     ------------      ------------    -----------
Net Interest Earning Assets and Spread          $    45,473            0.84%       $    64,068        (0.23%)
                                                ============     ============      ============    ===========
</TABLE>

     The effective yield data is computed by dividing the annualized net
interest income or expense including hedging transactions into the average
daily balance shown.

     The following table reflects the average balances for the Company's
equity securities (dollars in thousands):

                         AVERAGE BALANCE AND RATE TABLE
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                   For the Quarter Ended             For the Quarter Ended
                                                       June 30, 1999                     June 30, 1998

                                                  Average         Effective          Average       Effective
                                                  Balance       Dividend Yield       Balance      Dividend Yield
                                                ------------    --------------     ------------   --------------
     <S>                                        <C>              <C>               <C>             <C>
     Equity securities                              $19,066           14.35%                 -              -
</TABLE>

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999

     For the six months ended June 30, 1999, the Company's net income was
$5,816,000, or $1.01 per share on both a basic and diluted basis, based on a
weighted average of 5,753,000 and 5,780,000 shares outstanding, respectively.
That compares to $1,173,000, or $0.18 per share on both a basic and diluted
basis, based on a weighted average of 6,495,000 shares outstanding for the
six months ending June 30, 1998. Net interest income for the six months ended
1999 was $4,997,000 consisting of interest income on mortgage assets and cash
balances less interest expense on reverse repurchase agreements compared to
$1,395,000 for the six months in 1998. The Company reported dividend income
of $1,395,000 from dividends on equity investments for the six months ended
June 30, 1999. No dividend interest was reported for the six months ending
June 30, 1998. The Company reported gains on investment transactions, net of
$1,277,000 primarily from the sale of mortgage securities and equity
securities during the six months ending June 30, 1999 compared to $469,000
for the six months ended June 30, 1998. The Company incurred operating
expenses of $1,853,000 for the six months ending June 30, 1999 consisting of
management fees, audit, tax, legal, printing, insurance and other expenses
compared to $691,000 for the six months ending June 30, 1998.

         The following table reflects the average balances for each category
of the Company's interest earning assets as well as the Company's interest
bearing liabilities, with the corresponding effective rate of interest
annualized (dollars in thousands):

                                      20
<PAGE>

                         AVERAGE BALANCE AND RATE TABLE
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                  For the Six months Ended          For the Six months Ended
                                                       June 30, 1999                     June 30, 1998

                                                  Average         Effective          Average       Effective
                                                  Balance           Rate             Balance          Rate
                                                ------------     ------------      ------------    -----------
<S>                                             <C>              <C>               <C>             <C>
Interest Earning Assets:
     Mortgage Securities                        $   803,589            6.57%       $   516,584          5.40%
     Other Fixed Income Assets                        3,797           12.66%                 0             0%
     Cash and Cash Equivalents                        5,977            5.02%            15,893          5.10%
                                                ------------     ------------      ------------    -----------
     Total Interest Earning Assets                  813,363            6.67%           534,477          5.39%
                                                ------------     ------------      ------------    -----------

Interest Bearing Liabilities:
     Reverse Repurchase Agreements                  765,443            5.75%           464,031          5.58%

                                                ------------     ------------      ------------    -----------
Net Interest Earning Assets and Spread          $    47,920            0.92%       $    70,446        (0.19%)
                                                ============     ============      ============    ===========
</TABLE>

     The effective yield data is computed by dividing the annualized net
interest income or expense including hedging transactions into the average
daily balance shown.

     The following table reflects the average balances for the Company's
equity securities (dollars in thousands):


                         AVERAGE BALANCE AND RATE TABLE
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                  For the Six months Ended          For the Six months Ended
                                                       June 30, 1999                     June 30, 1998

                                                  Average         Effective          Average       Effective
                                                  Balance       Dividend Yield        Balance     Dividend Yield
                                                ------------    --------------      ------------  --------------
     <S>                                        <C>              <C>               <C>             <C>
     Equity securities                          $    17,748           15.72%                 -              -
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary sources of funds as of June 30, 1999 and December
31, 1998, consisted of reverse repurchase agreements totaling $736,668,000
and $767,908,000, respectively. The Company expects to continue to borrow
funds in the form of reverse repurchase agreements. At June 30, 1999 and
December 31, 1998, the Company had borrowing arrangements with twenty-three
different investment banking firms. Increases in short-term interest rates
could negatively impact the valuation of the Company's mortgage assets which
could limit the Company's borrowing ability or cause its lenders to initiate
margin calls.

     The Company will also rely on the cash flow from operations, primarily
monthly principal and interest payments to be received on the mortgage
assets, for liquidity.

     The Company believes that equity capital, combined with the cash flow
from operations and the utilization of borrowings, will be sufficient to
enable the Company to meet anticipated liquidity requirements. If the
Company's cash resources are at any time insufficient to satisfy the
Company's liquidity requirements, the Company may be required to liquidate
mortgage assets or sell debt or additional equity securities. If required,
the sale of mortgage assets at prices lower than the carrying value of such
assets would result in losses.

     The Company may in the future increase its capital resources by making
additional offerings of equity and debt securities, including classes of
preferred stock, common stock, commercial paper, medium-term notes, CMOs and
senior or subordinated notes. All debt securities, other borrowings, and
classes of preferred stock will be senior to the Common

                                 21
<PAGE>

Stock in a liquidation of the Company. The effect of additional equity
offerings may be the dilution of stockholders' equity of the Company or the
reduction of the price of shares of the Common Stock, or both. The Company is
unable to estimate the amount, timing or nature of additional offerings as
they will depend upon market conditions and other factors.

INFLATION

         Virtually all of the Company's assets and liabilities are financial in
nature. As a result, interest rates and other factors drive the Company's
performance far more than does inflation. Changes in interest rates do not
necessarily correlate with inflation rates or changes in inflation rates. The
Company's financial statements are prepared in accordance with generally
accepted accounting principles and the Company's dividends are determined by the
Company's net income as calculated for tax purposes; in each case, the Company's
activities and balance sheet are measured with reference to historical cost and
or fair market value without considering inflation.


YEAR 2000 MATTERS

     The year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Any computer system that the
Company relies on with time sensitive software may recognize a date entered as
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of operations, including, among
other things, a temporary inability to process transactions or engage in normal
business activities. The Company believes that most of its exposure to year 2000
issues involves the readiness of external third parties such as, but not limited
to, loan servicers, security master servicers, security paying agents and
trustees, its stock transfer agent, its securities custodian, the counterparties
on its various financing agreements and hedging contracts and vendors ("External
Service Providers").

     The Company relies on the Manager for its computer services and the Manager
has been addressing this issue at no cost to the Company. Specifically, the
Manager's internally developed computer systems have been implemented within the
past five years. These systems have been developed with software tools that
utilize a century date format (ccyymmdd). Although it has been a standard
procedure to use this format for all date fields, the Manager is nonetheless in
the process of unit testing its internally developed applications for numerous
date conditions, including: the first and last day of the year 2000, the leap
year day and the day after, the first day of the year 2001, functions with date
ranges from 1999 which cross over into year 2000, functions which have both
"from date" and "to date" in the year 2000, date arithmetic and validation using
standard routines through the year 2199.

     The Manager has been, and is currently in contact with, each of its
External Service Providers to evaluate their readiness for the year 2000. The
Manager has requested each of its External Service Providers to either (i)
prepare a description of its process for identifying date sensitive areas, its
approach for implementing changes, its testing methodology, along with its
timetable for completion, or (ii) certify as to its year 2000 compliance. The
Manager has received replies from each of its External Service Providers
indicating that each is in a state of year 2000 compliance. No assurances can
be given as to the adequacy of the External Service Providers' internal
evaluations.

     Due to the technical architecture of the Manager's internally developed
applications, its emphasis on using major providers and its ongoing
communication with those providers, the Manager anticipates it will be well
positioned to begin the year 2000. There can be no assurance, however, that the
Company's External Service Providers will resolve their own year 2000 issues in
a timely manner, or that any failure by these External Service Providers to
resolve such issues would not have an adverse effect on the Company's operations
and financial condition. Each External Service Provider is in turn subject to
the year 2000 issues of various third parties with which it does business,
making the Company's exposure to the noncompliance of any External Service
Provider difficult to assess. In a worst case scenario, a significant portion of
the Company's External Service Providers and contractual counter-parties could
fail to fulfill their respective obligations which would significantly impair
the Company's ability to meet its obligations under its financing and hedging
agreements. This would in turn cause the Company to liquidate assets at
potentially substantial losses and possibly render the Company insolvent. The
Company believes it is devoting the necessary resources to address the year 2000
issues over which it has control. The Company has completed all necessary
procedures for year 2000 compliance as of June 30, 1999. With respect to the
year 2000 issues of External Service Providers, over which the Company has no
control, the Company's contingency plan is to identify replacement vendors,
where possible.

                                 22
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                   MARKET RISK

     The Company's two primary components of market risk are interest rate
risk and equity price risk as discussed below.

INTEREST RATE RISK

     EFFECT ON NET INCOME. The Company invests in fixed-rate mortgage assets
that are expected to be funded with short-term borrowings. During periods of
rising interest rates, the borrowing costs associated with funding such
fixed-rate assets are subject to increase while the income earned on such
assets may remain substantially unchanged. This would result in a narrowing
of the net interest spread between the related assets and borrowings and may
even result in losses. The Company may enter into derivative transactions
seeking to mitigate the negative impact of a rising interest rate
environment. Hedging techniques will be based, in part, on assumed levels of
prepayments of the Company's mortgage assets. If prepayments are slower or
faster than assumed, the life of the mortgage assets will be longer or
shorter which would reduce the effectiveness of the Company's hedging
techniques and may result in losses on such transactions. Hedging techniques
involving the use of derivative securities are highly complex and may produce
volatile returns. The hedging activity of the Company will also be limited by
the asset and sources of income requirements applicable to the Company as a
REIT.

     Two primary risks the Company faces are that of extension risk and
prepayment risk.

     EXTENSION RISK. Fixed-rate assets are generally acquired with a
projected weighted average life based on certain assumptions regarding
prepayments. In general, when a fixed-rate mortgage asset is acquired with
borrowings, the Company will enter into an interest rate swap agreement or
other hedging instrument that effectively fixes the Company's borrowing costs
for a period close to the anticipated average life of the related asset. This
strategy is designed to protect the Company from rising interest rates
because the borrowing costs are fixed for the duration of the asset. However,
if prepayment rates decrease in a rising interest rate environment, the life
of the mortgage asset could extend beyond the term of the swap agreement or
other hedging instrument. This situation could negatively impact the Company
as borrowing costs would no longer be fixed after the end of the hedging
instrument while the income earned on the asset would remain fixed. This
situation may also cause the market value of the Company's mortgage assets to
decline with little or no offsetting gain from the related hedging
transactions. In certain situations, the Company may be forced to sell assets
and incur losses to maintain adequate liquidity.

     PREPAYMENT RISK. Fixed-rate assets in combination with hedging
instruments are also subject to prepayment risk. In falling interest rate
scenarios, the fixed-rate mortgage assets may prepay faster such that the
average life becomes shorter than its related hedging instrument. If this
were to happen, the Company would potentially need to reinvest at rates lower
than that of the related hedging instrument. This situation may result in the
narrowing of interest rate spreads or may cause losses.

     The Company also invests in adjustable-rate mortgage assets that are
typically subject to periodic and lifetime interest rate caps that limit the
amount an adjustable-rate mortgage asset's interest rate can change during
any given period, as well as the minimum rate payable. The Company's
borrowings will not be subject to similar restrictions. Hence, in a period of
increasing interest rates, interest rates on its borrowings could increase
without limitation by caps, while the interest rates on its mortgage assets
are generally limited by caps. This problem will be magnified to the extent
the Company acquires mortgage assets that are not fully indexed. Further,
some adjustable-rate mortgage assets may be subject to periodic payment caps
that result in some portion of the interest being deferred and added to the
principal outstanding. This could result in receipt by the Company of less
cash income on its adjustable-rate mortgage assets than is required to pay
interest on the related borrowings. These factors could lower the Company's
net interest income or cause a net loss during periods of rising interest
rates, which would negatively impact the Company's financial condition, cash
flows and results of operations.

     The Company intends to fund a substantial portion of its acquisitions of
adjustable-rate mortgage assets with borrowings that have interest rates
based on indices and repricing terms similar to, but of somewhat shorter
maturities than, the interest rate indices and repricing terms of the
mortgage assets. Thus, the Company anticipates that in most cases the
interest rate indices and repricing terms of its mortgage assets and its
funding sources will not be identical, thereby creating an interest rate
mismatch between assets and liabilities. While the historical spread between
relevant short-term interest rate indices has been relatively stable, there
have been periods, especially during the 1979-1982 and 1994 interest rate
environments, when the spread between such indices was volatile. During
periods of changing interest rates, such interest rate mismatches could
negatively impact the Company's financial condition, cash flows and results
of operations.

                                 23
<PAGE>

     Prepayment rates generally increase when prevailing interest rates fall
below the interest rates on existing mortgage assets. In addition, prepayment
rates generally increase when the difference between long-term and short-term
interest rates declines. Prepayments of mortgage assets could adversely
affect the Company's results of operations in several ways. The Company
anticipates that a substantial portion of its adjustable-rate mortgage assets
may bear initial "teaser" interest rates that are lower than their "fully
indexed" rates (the applicable index plus a margin). In the event that such
an adjustable-rate mortgage asset is prepaid prior to or soon after the time
of adjustment to a fully indexed rate, the Company will have held the
mortgage asset while it was less profitable and lost the opportunity to
receive interest at the fully indexed rate over the expected life of the
adjustable-rate mortgage asset. In addition, the prepayment of any mortgage
asset that had been purchased at a premium by the Company would result in the
immediate write-off of any remaining capitalized premium amount and
consequent reduction of the Company's net interest income by such amount.
Finally, in the event that the Company is unable to acquire new mortgage
assets to replace the prepaid mortgage assets, its financial condition, cash
flow and results of operations could be materially adversely affected.

     EFFECT ON FAIR VALUE. Another component of interest rate risk is the
effect changes in interest rates will have on the market value of the
Company's assets. This is the risk that the market value of the Company's
assets will increase or decrease at different rates than that of the
Company's liabilities including its hedging instruments.

     The Company primarily assesses its interest rate risk by estimating the
duration of its assets and the duration of its liabilities including all
hedging instruments. Duration essentially measures the market price
volatility of financial instruments as interest rates change. The Company
generally calculates duration using various financial models and empirical
data.

     The following sensitivity analysis table shows the estimated impact on
the fair value of the Company's interest rate sensitive investments net of
its hedging instruments and reverse repurchase agreement liabilities assuming
rates instantaneously fall one hundred basis points and rise one hundred
basis points. (Dollars are in thousands except per share amounts.)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                            Fair Value for Scenario Shown
                                       Interest                       Interest
                                      Rates Fall                     Rates Rise
                                      100 Basis                       100 Basis
                                        Points        Unchanged        Points
-------------------------------------------------------------------------------
<S>                                     <C>            <C>             <C>
Interest Rate Sensitive Instruments     $45,915        $36,255         $23,602

Change in Fair Value                    $ 9,660               -       ($12,653)
Change as a Percent
   of Stockholders' Equity                13.17%              -        (17.25%)
Change on a Per Share Basis             $  1.68               -         ($2.20)
</TABLE>

     It is important to note that the impact of changing interest rates on
fair value can change significantly when interest rates change beyond one
hundred basis points from current levels. Therefore, the volatility in fair
value for the Company could increase significantly when interest rates change
beyond one hundred basis points. In addition, there are other factors that
impact the fair value of the Company's interest rate sensitive investments
and hedging instruments such as the shape of the yield curve, market
expectations as to future interest rate changes and other market conditions.
Accordingly, there may be differences between the fair value changes shown
above and actual changes in fair value as interest rates change and those
differences may be material.

     The contract terms of the Company's liabilities exclusive of hedging
instruments are subject to change as interest rates change. In general, the
Company utilizes short-term borrowings in the form of reverse repurchase
agreements to finance certain of its mortgage-backed securities. These
agreements are secured by a portion of the Company's mortgage-backed
securities and bear interest rates that have historically moved in close
relationship to LIBOR.

                                      24
<PAGE>

EQUITY PRICE RISK

     Another component of market risk for the Company is equity price risk. This
is the risk that the market value of the Company's equity investments will
decrease. The following table shows the impact on the Company's fair value as
the price of its equity securities change assuming price decreases of 10% and
increases of 10%. Actual price decreases or increases may be greater or smaller.
(Dollars are in thousands except per share amounts.)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                               Fair Value for Scenario Shown
                                                           Prices                          Prices
                                                        Decrease 10%     Unchanged      Increase 10%
---------------------------------------------------------------------- --------------- ---------------
<S>                                                    <C>             <C>             <C>
Equity Investments                                        $19,342         $21,491         $23,640

Change in Fair Value                                      (2,149)              -            2,149
Change as a Percent of Fair Value                           (10%)              -              10%
Change as a Percent of Stockholders' Equity                (2.9%)              -             2.9%
Change on a Per Share Basis                                (0.37)              -             0.37
</TABLE>

     Although there is no direct link between changes in fair value and
changes in earnings in many cases, a decline in fair value for the Company
may translate into decreased earnings over the remaining life of the
investment portfolio.

     If the fair market value of the Company's portfolio were to decline
significantly, the Company's overall liquidity may be impaired which could
result in the Company being required to sell assets at losses.

     THE COMPANY'S ANALYSIS OF RISKS IS BASED ON MANAGEMENT'S EXPERIENCE,
ESTIMATES, MODELS AND ASSUMPTIONS. THESE ANALYSES RELY ON MODELS OF FINANCIAL
INFORMATION WHICH UTILIZE ESTIMATES OF FAIR VALUE AND INTEREST RATE
SENSITIVITY. ACTUAL ECONOMIC CONDITIONS OR IMPLEMENTATION OF INVESTMENT
DECISIONS BY THE MANAGER MAY PRODUCE RESULTS THAT DIFFER SIGNIFICANTLY FROM
THE ESTIMATES AND ASSUMPTIONS USED IN THE COMPANY'S MODELS AND THE PROJECTED
RESULTS SHOWN IN THE ABOVE TABLES AND IN THIS REPORT. THESE ANALYSES CONTAIN
CERTAIN "FORWARD-LOOKING STATEMENTS" AND ARE SUBJECT TO THE SAFE HARBOR
CONTAINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

PART 2.  OTHER INFORMATION

Item 1.  Legal Proceedings

     None.

Item 2.  Changes in Securities

     ADOPTION OF SHAREHOLDER RIGHTS PLAN

     On June 30, 1999, the Board of Directors of Apex Mortgage Capital, Inc.
declared a dividend distribution of one preferred stock purchase right ("Right")
for each outstanding share of Common Stock to stockholders of record at the
close of business on July 30, 1999 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company, under certain circumstances, one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share, at a purchase price of $50.00, subject to adjustment. The
description and terms of the Rights are more fully described in Apex's current
report on Form 8-K, filed July 27, 1999, and are set forth in the Shareholder
Rights Agreement by and between Apex and The Bank of New York, which is
incorporated by reference as an exhibit to this Quarterly Report.

Item 3.  Defaults Upon Senior Securities

     Not Applicable

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

At the 1999 Annual Meeting of Shareholders held June 30, 1999, shareholders
of record as of April 30, 1999 were asked to vote to ratify the selection of
Deloitte & Touch LLP as the Company's independent auditors. 5,605,859 shares
were voted for the proposal, 8,300 shares were voted against the proposal, no
shares were withheld, 10,730 shares abstained and no shares were broker
non-votes. In addition, the above-described shareholders were asked to vote
on the re-election of the three Class I Directors of the Company's Board of
Directors to hold office until the next Annual Meeting of the Stockholders in
2002. 5,561,806 shares were voted for John C. Argue and 63,083 shares were
voted against or were withheld. 5,568,906 shares were voted for Carl C.
Gregory, III and 55,983 shares were voted against or were withheld.
5,567,706 shares were voted for Jeffrey E. Gundlach and 57,183 shares were
voted against or were withheld.

                                     25

<PAGE>

Item 5.  Other Information

         None

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

     (a)  EXHIBITS

     The following exhibits are part of this quarterly report on Form 10-Q and
are numbered in accordance with Item 601 of Regulation S-K.

<TABLE>
<CAPTION>

EXHIBIT
   NO.       DESCRIPTION

<S>          <C>
   3.1       Articles of Amendment and Restatement of Apex Mortgage Capital, Inc.
             (the "Company"), as filed with the Maryland State Department of
             Assessments and Taxation on November 25, 1997 (previously filed as
             Exhibit 3.2 to Form S-11/A, filed November 21, 1997, and incorporated
             herein by reference).

   3.2       Articles Supplementary relating to the Series A Junior Participating
             Preferred Stock of Apex Mortgage Capital, Inc., as filed with the
             State Department of Assessments and Taxation of the State of Maryland
             on July 26, 1999 (previously filed as Exhibit 3.1 to Form 8-K, filed
             July 27, 1999, and incorporated herein by reference).

   3.3       Bylaws of Apex Mortgage Capital, Inc. (previously filed as Exhibit 3.2
             to Form S-11/A, filed November 21, 1997, and incorporated herein by
             reference).

   4.1       Shareholder Rights Agreement between Apex Mortgage Capital, Inc. and
             The Bank of New York, as Rights Agent, dated July 19, 1999 (previously
             filed as Exhibit 3.1 to Form 8-K, filed July 27, 1999, and
             incorporated herein by reference).

   4.2       Form of Rights Certificate (included as Exhibit B to the Shareholder
             Rights Agreement filed as Exhibit 4.1).

   4.3       Form of Common Stock certificate (including the legend specified in
             the Shareholder Rights Agreement) for all shares issued on or after
             July 30, 1998 (previously filed as Exhibit 4.3 to Form 8-K, filed July
             27, 1999, and incorporated herein by reference).

   27        Financial Data Schedule

</TABLE>


(b)  REPORTS ON FORM 8-K

     On July 27, 1999 Apex filed a Form 8-K, dated June 30, 1999, disclosing
under Item 5 its adoption of a Shareholder Rights Plan.


                                      26
<PAGE>

                                   SIGNATURES

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

                                       Apex Mortgage Capital, Inc.

Dated:  August 13, 1999

                                  By:     /s/ PHILIP A. BARACH
                                          ---------------------
                                          Philip A. Barach
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)



                                  By:     /s/ DANIEL K. OSBORNE
                                          ---------------------
                                          Daniel K. Osborne
                                          Executive Vice President
                                          Chief Operating Officer
                                          Chief Financial Officer
                                          (Principal Accounting Officer)

                                      27


<PAGE>


                                  EXHIBIT INDEX

     Pursuant to Item 601(a)(2) of Regulation S-K, this exhibit index
immediately precedes the exhibits.

<TABLE>
<CAPTION>

EXHIBIT NO.    DESCRIPTION
<S>            <C>

   3.1         Articles of Amendment and Restatement of Apex Mortgage Capital,
               Inc. (the "Company"), as filed with the Maryland State Department
               of Assessments and Taxation on November 25, 1997 (previously
               filed as Exhibit 3.2 to Form S-11/A, filed November 21, 1997, and
               incorporated herein by reference).

   3.2         Articles Supplementary relating to the Series A Junior
               Participating Preferred Stock of Apex Mortgage Capital, Inc., as
               filed with the State Department of Assessments and Taxation of
               the State of Maryland on July 26, 1999 (previously filed as
               Exhibit 3.1 to Form 8-K, filed July 27, 1999, and incorporated
               herein by reference).

   3.3         Bylaws of Apex Mortgage Capital, Inc. (previously filed as
               Exhibit 3.2 to Form S-11/A, filed November 21, 1997, and
               incorporated herein by reference).

   4.1         Shareholder Rights Agreement between Apex Mortgage Capital, Inc.
               and The Bank of New York, as Rights Agent, dated July 19, 1999
               (previously filed as Exhibit 3.1 to Form 8-K, filed July 27,
               1999, and incorporated herein by reference).

   4.2         Form of Rights Certificate (included as Exhibit B to the
               Shareholder Rights Agreement filed as Exhibit 4.1).

   4.3         Form of Common Stock certificate (including the legend specified
               in the Shareholder Rights Agreement) for all shares issued on or
               after July 30, 1998 (previously filed as Exhibit 4.3 to Form 8-K,
               filed July 27, 1999, and incorporated herein by reference).

   27          Financial Data Schedule

</TABLE>