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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
       For the transition period from _______________ to _________________

                         Commission file number: 1-13563

                         LASER MORTGAGE MANAGEMENT, INC.
             (Exact name of registrant as specified in its charter)

       MARYLAND                                               22-3535916
(State or other jurisdiction of incorporation or            (I.R.S. Employer
    organization)                                          Identification No.)

                             151 WEST PASSAIC STREET
                         ROCHELLE PARK, NEW JERSEY 07662
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (201) 909-3722
              (Registrant's telephone number, including area code)


     Indicate by check mark whether the registrant (1) has filed all documents
and 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   ____

     Indicate the number of shares outstanding of each of the issuer's classes
of stock, as of the last practicable date: 17,733,183 shares of common stock,
$0.001 par value, outstanding as of August 11, 1999

<PAGE>
                         LASER MORTGAGE MANAGEMENT, INC.


                                    FORM 10-Q

                                      INDEX


PART I.   FINANCIAL INFORMATION..............................................3

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

                Balance Sheet at June 30, 1999 (Unaudited) and
                   December 31, 1998.........................................3

                Statement of Operations (Unaudited) for the Three Months
                and Six Months Ended June 30, 1999 and June 30, 1998.........4

                Statement of Stockholders' Equity (Unaudited) for the
                Six Months Ended June 30, 1999...............................5

                Statement of Cash Flows (Unaudited) for the Three Months
                and Six Months Ended June 30, 1999 and June 30, 1998.........6

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

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

       Item 3.  Quantitative and Qualitative Disclosures About Market Risk..30

PART II. OTHER INFORMATION..................................................32

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

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

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

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

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

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

<PAGE>
PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

<TABLE>
<CAPTION>
LASER MORTGAGE MANAGEMENT, INC.

BALANCE SHEET AT                                                        JUNE 30, 1999                 DECEMBER 31, 1998
                                                                         (UNAUDITED)
                                                                    -------------------------      ----------------------
ASSETS

<S>                                                                 <C>                            <C>
Cash and cash equivalents.....................................      $        39,117,107            $         30,392,828
Receivable for securities sold................................               75,372,239                            --
Investment in securities available for sale
   at fair value..............................................              175,285,128                     817,689,386
Investment in mortgage loans at amortized cost................                5,471,930                       8,417,484
Accrued interest receivable...................................                1,860,303                       8,148,616
Principal paydown receivable..................................                3,215,744                       2,305,060
Margin deposits on repurchase agreements......................                     --                         7,117,098
Other assets..................................................                  111,695                              --
                                                                         --------------                  ---------------
            Total assets......................................              300,434,146                     874,070,472
                                                                         --------------                  ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Repurchase agreements.......................................              216,839,610                     742,384,912
  Accrued interest payable....................................                  422,232                       2,446,237
  Other payable...............................................                  295,207                            --
  Accounts payable............................................                  492,842                         557,547
  Payable to Manager..........................................                       --                       1,125,000
                                                                         --------------                 ---------------
         Total liabilities....................................              218,049,891                     746,513,696
                                                                         --------------                 ---------------

STOCKHOLDERS' EQUITY:
  Common stock: par value $.001 per share;
    100,000,000 shares authorized, 20,118,749 and
    20,099,999 shares issued, respectively....................                   20,119                          20,100
  Additional paid-in capital..................................              283,012,967                     282,921,970
  Accumulated other comprehensive loss........................               (9,834,264)                    (14,745,929)
  Accumulated distributions and losses........................             (171,160,114)                   (121,290,971)
  Treasury stock at cost (2,385,566 and 2,300,466
    shares respectively)...............                                     (19,654,453)                    (19,348,394)
                                                                          -------------             -------------------
         Total stockholders' equity...........................               82,384,255                     127,556,776
                                                                         --------------             -------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................           $  300,434,146             $       874,070,472
                                                                         ==============             ===================


                       See notes to financial statements.
</TABLE>

<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
STATEMENT OF OPERATIONS (UNAUDITED) FOR

<TABLE>
<CAPTION>
                                                      THE THREE MONTHS ENDED                   THE SIX MONTHS ENDED
                                                             JUNE 30,                                JUNE 30,
                                                     1999                 1998                1999              1998
                                            --------------------------------------------------------------------------------
Interest income:
<S>                                                <C>                  <C>              <C>                <C>
  Mortgage loans and securities............        $   6,643,202        $  58,515,279    $    22,196,489    $   112,400,332
  Cash and cash equivalents................              523,137            1,159,663            988,310          2,422,527
                                                   -------------        -------------    ---------------     --------------
           Total interest income...........            7,166,339           59,674,942         23,184,799        114,822,859
                                                   -------------        -------------    ---------------     --------------

Interest expense:
  Repurchase agreements....................            3,801,595           51,135,634         13,975,909         96,279,245
                                                   -------------        -------------    ---------------     --------------

Net interest income........................            3,364,744            8,539,308          9,208,890         18,543,614

(Loss) gain on sale of securities, swaps
and termination of repurchase agreement....           (3,654,810)             510,627        (21,224,228)         1,265,801
Impairment loss on interest-only securities--                 --          (28,617,746)                --        (28,617,746)

General and administrative expenses........              796,039            2,102,483          2,246,039          4,332,310

Net loss...................................         $ (1,086,105)        $(21,670,294)    $  (14,261,377)     $ (13,140,641)
                                                   ==============       ==============   ================    ===============

Unrealized loss on securities:
  Unrealized holding gain (loss) arising
    during period..........................        $   1,053,483        $   2,474,295    $  (16,312,563)     $ (10,960,581)



  Add: reclassification adjustment for loss
  (gain) included in net (loss) income.....            3,654,810            (510,627)         21,224,228        (1,265,801)
                                                   -------------        -------------    ---------------     --------------
Other comprehensive (loss) income..........            4,708,293            1,963,688          4,911,665       (12,226,382)
                                                   -------------        -------------    ---------------     --------------


Comprehensive income (loss)................        $   3,622,188        $(19,706,626)    $   (9,349,712)     $ (25,367,023)
                                                   =============        =============    ===============     ==============


Net (loss) income per share:
  Basic....................................        $      (0.06)        $      (1.08)    $        (0.80)     $       (0.66)
                                                   =============        =============    ===============     ==============

  Diluted..................................        $      (0.06)        $      (1.08)    $        (0.80)     $       (0.66)
                                                   =============        =============    ===============     ==============

Weighted average number of shares outstanding:

  Basic....................................           17,775,914           20,050,473         17,791,327         20,047,613
                                                   =============        =============    ===============     ==============

  Diluted..................................           17,775,914           20,050,473         17,791,327         20,047,613
                                                   =============        =============    ===============     ==============
                                            --------------------------------------------------------------------------------

                       See notes to financial statements.
</TABLE>

<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED
JUNE 30, 1999

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                                     ACCUMULATED
                                                                                        OTHER
                                           COMMON    ADDITIONAL     COMPREHENSIVE   COMPREHENSIVE
                                           STOCK      PAID-IN         INCOME            INCOME
                                         PAR VALUE    CAPITAL         (LOSS)            (LOSS)

BALANCE
<S>                                    <C>           <C>            <C>           <C>
   DECEMBER 31, 1998.................. $   20,100    $282,921,970                  $  (14,745,929)
                                         ==========  ============                  ===============

Comprehensive income (loss)
  Net loss............................                              $ (13,175,272)
  Other comprehensive loss
     Unrealized gain on securities,
        net of reclassification
        adjustment....................                                    203,372  $      203,372
                                                                    -------------

Comprehensive loss....................                              $ (12,971,900)
                                                                    ==============
Common stock issued................... $       19    $     90,997
Repurchase of common stock............
Dividends/Distributions declared -
  $2.00 per share.....................
                                       ----------    ------------                  --------------

BALANCE
     MARCH 31, 1999................... $   20,119    $283,012,967                  $  (14,542,557)
                                       ==========    ============                  ===============

Comprehensive income (loss)
Net loss..............................                              $  (1,086,105)
Other comprehensive income
   Unrealized loss on securities
      net of reclassification
      adjustment......................                              $   4,708,293  $    4,708,293
                                                                    -------------
Comprehensive income..................                              $  3 ,622,188
                                                                    =============

Repurchase of common stock............

BALANCE
                                       ----------    ------------                   -------------
     JUNE 30, 1999.................... $   20,119    $283,012,967                  $   (9,834,264)
                                       ==========    ============                  ===============


Unrealized holding losses arising
during period.........................                              $ (16,312,563)
Add:  reclassification adjustment
  for losses included in net loss.....                              $  21,224,228
                                                                    -------------
Net unrealized gain on securities.....                              $   4,911,665
                                                                    =============
</TABLE>


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------


                                       ACCUMULATED      TREASURY
                                       DISTRIBUTIONS      STOCK
                                       AND LOSSES        AT COST          TOTAL

BALANCE
<S>                                    <C>            <C>             <C>
   DECEMBER 31, 1998.................. 121,290,971)   $(19,348,394)   $127,556,776
                                       ============   =============   ============

Comprehensive income (loss)
  Net loss............................ (13,175,272)                   $(13,175,272)
  Other comprehensive loss
     Unrealized gain on securities,
        net of reclassification
        adjustment....................                                     203,372


Comprehensive loss....................

Common stock issued...................                                      91,016
Repurchase of common stock............                $    (69,038)        (69,038)
Dividends/Distributions declared -
  $2.00 per share..................... (35,607,766)                    (35,607,766)


BALANCE
     MARCH 31, 1999................... 170,074,009)   $(19,417,432)    $78,999,088
                                       ============   =============    ===========

Comprehensive income (loss)
Net loss..............................  (1,086,105)                    $(1,086,105)
Other comprehensive income
   Unrealized loss on securities
      net of reclassification
      adjustment......................                                 $ 4,708,293

Comprehensive income..................


Repurchase of Common Stock............               $   (237,021)     $  (237,021)

BALANCE
                                       ------------  ------------      -----------
     JUNE 30, 1999.................... 171,160,114)  $ 19,654,453      $82,384,255
                                       ============  ============      ===========


Unrealized holding losses arising
during period.........................
Add:  reclassification adjustment
  for losses included in net loss.....
Net unrealized gain on securities.....


                       See notes to financial statements.
</TABLE>

<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                         JUNE 30,                                JUNE 30,
                                                                 1999               1998              1999              1998
                                                           ------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                           <C>              <C>                 <C>              <C>
Net (loss) income.........................................    $  (1,086,105)   $   (21,670,294)    $ (14,261,377)   $  (13,140,641)
  Adjustments to reconcile net loss to
   net cash provided by (used in) operating activities:
    Amortization of mortgage premiums and discounts, net..          723,545          5,210,832         1,730,835        10,553,436
    Impairment loss (gain) on interest-only
       securities.........................................               --         28,617,746                --        28,617,746
    Gain (loss) on sale of securities.....................        3,654,810         (1,131,703)       21,224,228        (1,265,801)
    Decrease (increase) in accrued interest receivable....        6,151,645           (796,685)        5,377,629        (1,853,724)
    Increase in variation margin on interest rate swaps...               --        (26,241,083)               --       (30,412,872)
    Decrease in margin deposits on repurchase agreements..        1,238,875                 --         7,117,098                --
    Increase in other assets..............................         (111,695)                --          (111,695)               --
    Increase (decrease) in accrued interest payable.......       (1,669,988)          (314,261)       (2,024,005)        2,353,042
    Decrease in accrued expenses and other liabilities....       (1,637,567)                --        (1,637,567)       (1,450,142)
    Increase (decrease) in accounts payable...............          146,860           (524,609)          (64,705)               --
    Decrease in payable to Manager........................         (416,505)                --        (1,125,000)               --
                                                              -------------    ---------------     -------------    --------------
           Net cash provided by (used in) operating
              activities..................................        6,993,875        (16,850,057)       16,225,441        (6,598,956)
                                                              -------------    ----------------    -------------    ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of securities..................................               --       (586,729,047)               --    (2,809,914,169)
  Purchase of mortgage loans..............................               --                 --                --       (11,912,075)
  Proceeds from sale of securities........................      273,450,820        482,166,442       570,886,009     1,868,055,604
  Decrease in receivables for securities sold.............      193,969,493                 --       (75,372,239)               --
  Principal payments on securities........................       17,517,923         98,610,607        56,420,405       147,869,415
  Other payables..........................................               --                 --         1,932,774                --
                                                              -------------    ---------------     -------------    --------------
           Net cash provided by (used in) investing
              activities..................................      484,938,236         (5,951,998)      553,866,949      (805,901,225)
                                                              -------------    ----------------    -------------    ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from repurchase agreements.....................    1,113,443,146     10,270,996,260     2,814,845,246    22,372,554,347
  Principal payments on repurchase agreements.............   (1,572,306,331)   (10,264,490,745)   (3,340,390,547)  (21,580,629,698)
  Net proceeds from issuance (repurchase) of common stock.         (237,022)        (1,678,063)         (215,044)       (1,312,438)
  Distributions paid to stockholders......................      (35,607,766)        (8,619,350)      (35,607,766)      (11,221,950)
                                                              -------------    ----------------    --------------   ---------------
           Net cash provided by (used in)  financing
              activities..................................     (494,707,973)        (3,791,898)     (561,368,111)      779,390,261
                                                              --------------   ----------------    --------------   --------------

 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.....
                                                                 (2,775,862)       (26,593,953)        8,724,279       (33,109,920)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............
                                                                 41,892,969         76,110,559        30,392,828        82,626,526
                                                              -------------    ---------------     -------------    --------------

CASH AND CASH EQUIVALENTS, END OF PERIOD..................    $  39,117,107    $    49,516,606     $  39,117,107    $   49,516,606
                                                               ============     ==============      ============    ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid...........................................        3,801,595         51,449,895        14,329,926    $   93,926,203
                                                              =============    ===============     =============    ==============
  Noncash financing activities:
    Net change in unrealized loss on available-for-sale
    securities............................................        4,708,293          1,963,668         4,911,665       (12,226,382)
                                                              =============    ===============     =============    ===============
    Dividends declared, not yet paid......................                     $     7,626,600                      $    7,626,600
                                                                                ==============                      ==============

                       See notes to financial statements.
</TABLE>

<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1.    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

     LASER Mortgage Management, Inc. (the "Company") was incorporated in
Maryland on September 3, 1997. The Company commenced its operations on November
26, 1997 (see Note 5).

     BASIS OF PRESENTATION - The accompanying unaudited financial statements
have been prepared in conformity with the instructions to Form 10-Q and Article
10, Rule 10-01 of Regulation S-X for interim financial statements. The interim
financial statements for the three-month and six-month periods are unaudited;
however, in the opinion of the Company's management, all adjustments, consisting
only of normal recurring accruals, necessary for a fair statement of the results
of operations have been included. These unaudited financial statements should be
read in conjunction with the audited financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
nature of the Company's business is such that the results of any interim period
are not necessarily indicative of results for a full year.

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

     CASH AND CASH EQUIVALENTS - Cash and cash equivalents includes cash on hand
and overnight repurchase agreements. The carrying amounts of cash equivalents
approximates their value.

     INVESTMENTS - The Company invests primarily in mortgage-backed securities
and mortgage loans. The mortgage-backed securities include mortgage pass-through
certificates, collateralized mortgage obligations and other securities
representing interests in, or obligations backed by, pools of mortgage loans
(collectively, "Mortgage Securities"). The Company also invests in other debt
and equity securities ("Other Securities" and, together with Mortgage
Securities, "Securities"). The mortgage loans are secured by first or second
liens on single-family residential, multi-family residential, commercial or
other real property ("Mortgage Loans" and, together with Securities,
"Investments").  The Company did not purchase any Investments during the six
months ended June 30, 1999.

     All Securities classified as available-for-sale are reported at fair value,
with unrealized gains and losses reported as a separate component of
stockholders' equity within accumulated other comprehensive income (loss).
Unrealized losses on Securities that are considered other-than-temporary, as
measured by the amount of decline in fair value attributable to factors other
than temporary factors, are recognized in income and the cost basis of the
Securities is adjusted. Other-than-temporary unrealized losses are based on
management's assessment of various factors affecting the expected cash flow from
the Securities, including the level of interest rates, an other-than-temporary
deterioration of the credit quality of the underlying mortgages and/or the
credit protection available to the related mortgage pool and a significant
change in the prepayment characteristics of the underlying collateral. The
Company's Mortgage Loans are held as long-term investments and are carried at
their unpaid principal balance, net of unamortized discount or premium.

     Interest income is accrued based on the outstanding principal or notional
amount of the Investments and their contractual terms. Premiums and discounts
associated with the purchase of the Investments are amortized into interest
income over the lives of the Investments using the effective yield method.

     Investment transactions are recorded on the date the Investments are
purchased or sold. Purchases of newly-issued securities are recorded when all
significant uncertainties regarding the characteristics of the securities are
removed, generally shortly before settlement date. Realized gains and losses on
Investment transactions are determined on the specific identification basis.

     INTEREST RATE SWAPS - Before 1999, the Company entered into interest rate
swap agreements ("swaps") to reduce the mismatch in the maturity and repricing
characteristics of its fixed-rate agency pass-through securities and its
short-term repurchase obligations used for funding. The objective was to change
the interest rate characteristics of the securities from fixed to floating rate.
Swaps were designated as hedges of certain of its fixed rate agency pass-through
securities. The Company monitored the correlation and effectiveness for swap
transactions by ensuring that the notional amount of the swap was less than the
principal amount of the assets being hedged, the maturity of the swaps did not
exceed the maturity of the assets being hedged and the interest rate index on
the asset being hedged correlated with the interest rate index for the paying
leg of the swap.

     The Company carried the swaps that meet the above criteria and the hedged
securities at their fair value and reported unrealized gains and losses in other
comprehensive income. Net payments or receipts on swaps that qualified for hedge
accounting were recognized as adjustments to interest income as they accrued.

     The gain or loss on the terminated swaps was transferred and amortized as a
yield adjustment over the remaining original term of the swap. Gains and losses
on swaps associated with sold securities were recognized as part of the gain or
loss on sale.

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

     USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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 SFAS No. 130, Reporting
Comprehensive Income. This statement requires the reporting of comprehensive
income in addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information (such as unrealized gains or losses on securities) that
historically has not been recognized in the calculation of net income.

2.    AVAILABLE-FOR-SALE INVESTMENTS

     The following tables set forth the fair value of the Company's Securities,
excluding interest-only securities ("IOs"), as of June 30, 1999 and December 31,
1998:


<TABLE>
<CAPTION>
                                            JUNE 30, 1999
                                     AGENCY
                                     FIXED/
                                    FLOATING                         NON-
                                  RATE MORTGAGE    MORTGAGE        MORTGAGE
                                   SECURITIES    SUBORDINATES    SUBORDINATES       TOTAL

<S>                              <C>           <C>             <C>             <C>
Securities, principal amount     $125,488,717  $ 73,164,375    $ 7,714,997     $ 206,368,089
Unamortized discount                      --    (24,847,142)      (764,326)      (25,611,468)
Unamortized premium                   750,010            --             --           750,010
                                 ------------  ------------     ----------     -------------
Amortized cost                    126,238,727    48,317,233      6,950,671       181,506,631
Gross unrealized gains                    --             --             --                --
Gross unrealized losses            (1,848,038)  (16,607,149)      (585,773)      (19,040,960)
                                -------------- -------------   ------------    --------------
Estimated fair value             $124,390,689   $31,710,084     $6,364,898      $162,465,671
                                 ============   ===========     ==========      ============
</TABLE>

     In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities ("SFAS No.
115"), an entity should recognize an other-than-temporary impairment when it
intends to sell a specifically identified available-for-sale debt security at a
loss shortly after the balance sheet date. The write-down for the impairment
should be recognized in earnings in the period in which the decision is made.
The Company reclassified an amount of approximately $1.08 million from
unrealized loss to realized loss for securities sold in July 1999, as the
decision to sell them was made in June 1999.

<TABLE>
<CAPTION>
                                 DECEMBER 31, 1998

                                    AGENCY                                     NON-AGENCY
                                    FIXED/                                      FIXED/
                                   FLOATING                                     FLOATING
                                     RATE                            NON-         RATE
                                   MORTGAGE        MORTGAGE        MORTGAGE       MORTGAGE
                                  SECURITIES     SUBODINATES    SUBORDINATES    SECURITIES     TOTAL

<S>                              <C>            <C>              <C>            <C>          <C>
Securities, principal amount     $667,919,453   $118,998,059     $15,106,000    $31,275,000  $833,298,512
Unamortized discount               (1,294,653)  (29,974,938)      (1,343,889)       (67,115)  (32,680,595)
Unamortized premium                 4,918,479            --               --        117,991     5,036,470
                                 ------------   -----------      -----------    -----------  ------------
Amortized cost                    671,543,279    89,023,121       13,762,111     31,325,876   805,654,387
Gross unrealized gains              9,186,945           --                --           --       9,186,945
Gross unrealized losses                   --    (16,396,200)      (1,284,223)    (5,939,633)  (23,620,056)
                                 ------------   ------------     ------------   ------------ -------------
Estimated fair value             $680,730,224   $72,626,921      $12,477,888    $25,386,243  $791,221,276
                                 ============   ===========      ===========    ===========  ============

</TABLE>

     The fair value of the Company's IOs as of June 30, 1999 and December 31,
1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                 JUNE 30, 1999                             DECEMBER 31, 1998
                                                                                       FIXED RATE
                                                  FLOATING RATE         TOTAL          COMMERCIAL     FLOATING RATE        TOTAL
<S>                                               <C>                <C>              <C>             <C>              <C>
Securities, notional amount                       $107,953,321       $107,953,321     $276,985,725    $177,704,524     $454,690,249
Amortized cost, after provision for impairment       4,682,614          4,682,614       19,447,590       7,333,338       26,780,928
Gross unrealized gains                               8,136,843          8,136,843               --       2,995,078        2,995,078
Gross unrealized losses                                     --                 --       (3,307,896)             --       (3,307,896)
                                                   -----------       ------------     -------------   ------------      ------------
Estimated fair value                               $12,819,457       $ 12,819,457      $16,139,694     $10,328,416      $26,468,110
                                                   ===========       ============     ============    ============      ===========
</TABLE>

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

     The fair values of the Company's Investments are based on prices provided
by dealers who make markets in these financial instruments. The fair values
reported reflect estimates and may not necessarily be indicative of the amounts
the Company could realize in a current market exchange. Cash and cash
equivalents, interest receivable, repurchase agreements and other liabilities
are reflected in the financial statements at their fair value because of the
short-term nature of these instruments.

     The Company continued to reduce its investment portfolio during the six
months ended June 30, 1999 and sold approximately $587 million of Investments,
of which approximately $496 million were agency pass-through certificates. The
Company did not purchase any Investments during the six months ended June 30,
1999.

     During the year ended December 31, 1998, the Company wrote down (took a
permanent impairment charge of $51,473,981) its floating-rate and residential
IOs which had an amortized cost greater than their market value. All of the
Company's floating-rate and residential IOs were written down to their estimated
fair market value, and such writedown is reflected in the Company's statement of
operations.

     Most of the IOs were LIBOR floating rate IOs and were purchased in the
fourth quarter of 1997. They were acquired to balance duration in the Company's
portfolio. This investment was made based on the Company's evaluation of the
then-current prepayments and shape of the yield curve, and the relative values
of similar investments.

     In evaluating the impairment charge on the IOs, the Company employs current
estimates of future prepayments that are obtained from independent sources. For
IOs collateralized by fixed-rate pass-through mortgage securities issued by
FNMA, GNMA and FHLMC (collectively, "Agency Fixed Rate Pass-Throughs"), the
Company utilized the median lifetime projection prepayment speeds compiled and
reported by Bloomberg L.P. from a survey of leading dealers in the mortgage
market. For "private label" IOs (collateralized by non-government agency
mortgage securities), the Company employs prepayment estimates from at least one
independent dealer. The prepayment estimates typically take into consideration
the current level and shape of the yield curve.

     As a result of the substantial decline in interest rates since the purchase
of the IOs, current estimates of prepayment speeds significantly exceed the
original prepayment speed estimates.

     At the end of the first quarter of 1998, the majority of the Company's IOs
were floating rate IOs. Floating rate IOs are unique securities in that the
interest payments on these securities increase as one-month LIBOR increases. Due
to this characteristic of option value, floating rate IOs trade at much lower
yields than fixed rate IOs. At the end of the second and third quarter of 1998,
in light of the continued flat yield curve, low levels of LIBOR and faster than
expected prepayment rates actually occurring for an extended period of time, the
Company decided that the impairment in market value was other than temporary.

3.    MORTGAGE LOANS

     The following tables pertain to the Company's Mortgage Loans as of June 30,
1999 and December 31, 1998 which are carried at their amortized cost:

<TABLE>
<CAPTION>
                                                 JUNE 30, 1999        DECEMBER 31, 1998

<S>                                            <C>                     <C>
Mortgage Loans, principal amount               $   5,259,194           $     8,150,593
Unamortized discount                                      --                        --
Unamortized premium                                  212,736                   266,891
                                               -------------           ---------------
Amortized cost                                 $   5,471,930           $     8,417,484
                                               =============           ===============
</TABLE>


     As of June 30, 1999 and December 31, 1998, the amortized cost of the
Mortgage Loans approximated their fair value.

4.   REPURCHASE AGREEMENTS

     The Company has entered into repurchase agreements to finance most of its
Investments. The repurchase agreements are collateralized by the market value of
the Company's Investments and bear interest rates that generally move in close
relation to one-month LIBOR.

     As of June 30, 1999, the Company had outstanding $216,839,610 of repurchase
agreements with a weighted average borrowing rate of 5.14% and a weighted
average remaining maturity of 28 days. At June 30, 1999, Investments actually
pledged had an estimated fair value of $228,860,267.

     As of December 31, 1998, the Company had outstanding $742,384,912 of
repurchase agreements with a weighted average borrowing rate of 5.94% and a
weighted average remaining maturity of 2.77 years. At December 31, 1998,
Investments actually pledged had an estimated fair value of $854,791,117.

     At June 30, 1999 and December 31, 1998, the repurchase agreements had the
following remaining maturities:

<TABLE>
<CAPTION>
                                    JUNE 30, 1999                 DECEMBER 31, 1998

<S>                              <C>                              <C>
Within 30 days                   $        216,839,610             $        242,384,912
30 to 90 days                                      --                         __
Greater than 90 days                               --                      500,000,000
                                 --------------------             --------------------
                                 $        216,839,610             $        742,384,912
                                 ====================             ====================
</TABLE>


     As of December 31, 1998, $500,000,000 of the Company's Securities were
subject to a repurchase agreement with a broker-dealer with a term of five years
ending March 10, 2003. The borrowing rate of this repurchase agreement was
three-month LIBOR plus 61.5 basis points and was capped at 6.365%. On March 29,
1999 the Company terminated this repurchase agreement for settlement April 14,
1999 and recognized a loss of approximately $8.5 million.

5.  COMMON STOCK

     SALES OF COMMON STOCK - The Company's common stock was sold through several
transactions as follows:

     The Company was initially capitalized with the sale of 6,000 shares of
common stock on September 2, 1997, for a total of $15,005.

     The Company received commitments on September 15, 1997 for the purchase, in
a private placement, of 1,014,000 shares of common stock, at $15.00 per share,
for a total of $15,210,000 from certain officers, directors, proposed directors,
employees and affiliates of the Company and LASER Advisers Inc. (the "Former
Manager"). The sale of these shares was consummated at the time of the closing
of the public offering.

     The Company received commitments on November 7, 1997 from several mutual
funds under common management (the "Funds") for the purchase, in a private
placement, of 3,333,333 shares of common stock, at $15.00 per share, for a total
of $49,999,995. The sale of these shares was consummated at the time of the
closing of the public offering.

     The Company has been informed by the Former Manager that a fund affiliated
with the Former Manager entered into a total rate of return swap with a
broker-dealer which provides that the affiliated fund bear the economic benefit
and risk of directly holding 666,666 shares of the Company's common stock for a
total of $9,999,990. The shares of common stock were sold by the Company to
such broker-dealer in a private placement without registration under Section
4(2) of the Securities Act of 1933. At December 16, 1998, the total rate of
return swap was closed and the Company repurchased the 666,666 shares at a price
of $5.31 per share.

     The Company sold 15,000,000 shares of common stock through a
public offering for $225,000,000. Syndication costs of $18,364,795 were deducted
from the gross proceeds of the private placement and the public offering.

     On each of January 2, 1998, April 1, 1998 and July 1, 1998, 25,000 shares
(75,000 shares in the aggregate) of common stock were issued as deferred stock
awards to certain employees of the Company. On each of October 1, 1998 and
January 1, 1999, an additional 5,000 shares were issued as deferred stock awards
to certain employees of the Company, and on February 28, 1999, an additional
13,750 shares were issued as deferred stock awards to an employee of the
Company.

     DIVIDENDS/DISTRIBUTIONS - On March 29, 1999, the Company declared a special
first quarter distribution in cash to stockholders of $2.00 per share of common
stock, which was paid on April 30, 1999. The Company declared and paid dividends
and distributions in cash of $2.19 per share during the year ended December 31,
1998.

     STOCK REPURCHASES - In March 1998, the Board of Directors of the Company
approved the repurchase of up to $20 million of the Company's common stock. In
June 1998, the Board of Directors increased the amount of common stock
authorized to be repurchased to $30 million. Pursuant to the repurchase program,
for the six months ended June 30, 1999, the Company has used the proceeds of
sales of, and payments from, its portfolio securities to repurchase 85,100
shares of common stock for $306,060 in open market transactions. Such purchases
were made at a weighted average price per share of $3.56 (excluding commission
costs). As of December 31, 1998, the Company had repurchased 2,300,466 shares of
common stock for $19,348,394 in open market transactions. Such purchases were
made at a weighted average price per share of $8.41 (excluding commission
costs). The repurchased shares have been returned to the Company's authorized
but unissued shares of common stock as treasury shares.

6.   TRANSACTIONS WITH AFFILIATES AND TERMINATION OF MANAGEMENT AGREEMENT

     Pursuant to the terms of a Management Agreement (the "Management
Agreement") with the Company, the Former Manager was responsible for the
day-to-day operations of the Company and performed (or caused to be performed)
such services and activities relating to the assets and operations of the
Company as was appropriate, subject to the supervision of the Company's Board of
Directors. For performing these services, the Former Manager received an annual
base management fee of 1.0% of Average Stockholders' Equity. The term "Average
Stockholders' Equity" for any period meant stockholders' equity, calculated in
accordance with GAAP, excluding any mark-to-market adjustments of the investment
portfolio. The Company and the Former Manager have agreed that the provision for
impairment charge on the IOs in the Company's portfolio is not a mark-to-market
adjustment for purposes of these calculations.

     The Former Manager also was entitled to receive a quarterly incentive fee
in an amount equal to 20% of the Net Income of the Company for the preceding
fiscal quarter, in excess of the amount that would produce an annualized Return
on Average Stockholders' Equity for such fiscal quarter equal to the Ten-Year
U.S. Treasury Rate plus 1%. The term "Return on Average Stockholders' Equity" is
calculated for any quarter by dividing the Company's Net Income for the quarter
by its Average Stockholders' Equity for the quarter. For such calculations, the
"Net Income" of the Company means the taxable income of the Company within the
meaning of the Code, less capital gains and capital appreciation included in
taxable income, but before the Former Manager's incentive fees and before
deduction of dividends paid. The incentive fee payments to the Former Manager
were computed before any income distributions were made to stockholders. As used
in calculating the Former Manager's fee, the term "Ten-Year U.S. Treasury Rate"
means the arithmetic average of the weekly yield to maturity for actively traded
current coupon U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of ten years) published by the Federal Reserve Board during
a quarter, or, if such rate is not published by the Federal Reserve Board,
published by any Federal Reserve Bank or agency or department of the federal
government selected by the Company.

     Effective February 28, 1999, the Company and the Former Manager terminated
the Management Agreement, and the Company became advised internally with Robert
J. Gartner, Vice President of the Company and a former Vice President of the
Manager, responsible for day-to-day investment decisions for the Company. In
connection with the termination of the Management Agreement, the Company paid to
the Former Manager: (a) $416,505, which represented the base management fee
payable under the Management Agreement for the fourth quarter of 1998; (b)
$708,495, which the Company and the Former Manager agreed to as the quarterly
incentive fee for the fourth quarter of 1998; and (c) $500,000 for services
performed under the Management Agreement for the period January 1, 1999 through
February 28, 1999 and for certain transition services with respect to
internalizing the advisory function. Accordingly, for the three months ended
June 30, 1999, no management and incentive fees were payable or paid to the
Former Manager.

     For the six months ended June 30, 1998, management fees paid to the Former
Manager amounted to $1,399,743 and incentive fees were $1,449,002.

7.   EARNINGS PER SHARE (EPS)

     In February 1997, the FASB issued Statement of Financial Accounting No.
128, Earnings Per Share ("SFAS No. 128") which requires dual presentation of
Basic EPS and Diluted EPS on the face of the income statement for all entities
with complex capital structures. SFAS No. 128 also requires a reconciliation of
the numerator and denominator of the Basic EPS to the numerator and denominator
of Basic EPS and Diluted EPS computation. There are no differences between Basic
EPS and Diluted EPS for the three months and six months ended June 30, 1999.

<TABLE>
<CAPTION>
                              FOR THE THREE MONTHS ENDED                         FOR THE SIX MONTHS ENDED
                                    JUNE 30, 1999                                     JUNE 30, 1999
                           LOSS            SHARES      PER-SHARE             LOSS            SHARES      PER-SHARE
                        (NUMERATOR)     (DENOMINATOR)    AMOUNT           (NUMERATOR)    (DENOMINATOR)    AMOUNT

<S>                    <C>              <C>             <C>             <C>               <C>            <C>
Basic EPS              $ (1,086,105)    $ 17,775,914    $ (0.06)        $ (14,261,377)    $ 17,791,327   $ (0.80)

Diluted EPS            $ (1,086,105)    $ 17,775,914    $ (0.06)        $ (14,261,377)    $ 17,791,327   $ (0.80)
</TABLE>


     For the three months and six months ended June 30, 1999, the Company has no
deferred common stock reserved for issuance.

     For the three months and six months ended June 30, 1999, options to
purchase 72,000 shares were outstanding during the period and were anti-dilutive
because the strike price ($15.00) was greater than the average daily market
price of the Company's common stock for the period ($4.15 and $4.59,
respectively). Therefore, these options were excluded from Diluted EPS.

There are no differences between Basic EPS and Diluted EPS for the three months
and six months ended June 30, 1998.

<TABLE>
<CAPTION>
                             FOR THE THREE MONTHS ENDED                        FOR THE SIX MONTHS ENDED
                                   JUNE 30, 1998                                     JUNE 30, 1998
                           LOSS            SHARES     PER-SHARE            LOSS            SHARES       PER-SHARE
                        (NUMERATOR)    (DENOMINATOR)   AMOUNT           (NUMERATOR)     (DENOMINATOR)    AMOUNT

<S>                     <C>                <C>          <C>             <C>                 <C>           <C>
Basic EPS               $ (21,670,294)     20,050,473   $(1.08)         $ (13,140,641)      20,047,613    $ (0.66)

Diluted EPS             $ (21,670,294)     20,050,473   $(1.08)          $(13,140,641)      20,047,613    $ (0.66)
</TABLE>


     As of June 30, 1998, the Company had deferred common stock totaling 350,000
shares outstanding. The receipt of the stock was contingent upon the holder's
continued employment or service. The deferred common stock has been awarded and
does not have an exercise or strike price. Such shares were not included in
Diluted EPS as the Company had a loss from operations and including such amounts
would be anti-dilutive.

     For the three months ended June 30, 1998, options to purchase 778,000
shares were outstanding during the period and were anti-dilutive because the
strike price ($15.00) was greater than the average daily market price of the
Company's common stock for the quarter ($14.587). Therefore, these options were
excluded from Diluted EPS.

     For the six months ended June 30, 1998, 10,893 incremental shares would
have been included in Diluted EPS representing 778,000 options exercisable at a
strike price of $15.00 per share and an average market price of the Company's
common stock for the quarter of $15.213. However, since the Company had a loss
the inclusion of such shares would be anti-dilutive.

8.   LONG-TERM STOCK INCENTIVE PLAN

     The Company has adopted a Long-Term Stock Incentive Plan for directors,
executive officers and key employees (the "Incentive Plan"). The Incentive Plan
authorizes the Compensation Committee of the Board of Directors to grant awards,
including deferred stock, incentive stock options as defined under Section 422
of the Code ("ISOs") and options not so qualified ("NQSOs"). The Incentive Plan
authorizes the granting of options or other awards for an aggregate of 2,066,666
shares of the Company's common stock.

     The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123") for the options. Accordingly, no compensation cost for the
Incentive Plan has been determined based on the fair value at the grant date for
awards consistent with the provisions of SFAS No. 123. For the Company's pro
forma net earnings, the compensation cost will be amortized over the four-year
vesting period of the options. The Company's net loss per share would have been
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                 FOR THE THREE MONTHS ENDED            FOR THE SIX MONTHS ENDED
                                                       JUNE 30, 1999                        JUNE 30, 1999
                                                 --------------------------            ------------------------

<S>                                                   <C>                                 <C>
   Net earnings (loss) - as reported                  $   (1,086,105)                     $   (14,261,377)
   Net earnings (loss) - pro forma                    $   (1,091,865)                     $   (14,267,137)
   (Loss) earnings per share - as reported            $        (0.06)                     $         (0.80)
   (Loss) earnings per share - pro forma              $        (0.06)                     $         (0.80)

                                                 FOR THE THREE MONTHS ENDED           FOR THE SIX MONTHS ENDED
                                                       JUNE 30, 1998                        JUNE 30, 1998
                                                 --------------------------            ------------------------

   Net loss - as reported                             $  (21,670,294)                     $   (13,140,641)
   Net loss - pro forma                               $  (21,685,368)                     $   (13,170,789)
   Loss per share - as reported                       $        (1.08)                     $         (0.66)
   Loss per share - pro forma                         $        (1.08)                     $         (0.66)
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants for the three months and six months ended June 30,
1999 and 1998: dividend yield of 11.47%; expected volatility of 18%; risk-free
interest rate of 5.82%; and expected lives of ten years.

     The following table summarizes information about stock options outstanding
as of June 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                 WEIGHTED
                                                                  AVERAGE       WEIGHTED
                            RANGE OF                             REMAINING       AVERAGE
                            EXERCISE          OPTIONS           CONTRACTUAL     EXERCISE
                             PRICES         OUTSTANDING         LIFE (YRS.)       PRICE

<S>                        <C>                <C>                  <C>           <C>
      June 30, 1999        $  15.00           72,000               8.3           $  15.00
      June 30, 1998        $  15.00          778,000               9.3           $  15.00
</TABLE>

     The options become exercisable at the rate of 25% on each of January 2,
1998, January 2, 1999, January 2, 2000 and January 2, 2001, subject to the
holder's continued employment or service. During the six months ended June 30,
1999, 148,000 stock options terminated.

     The compensation expense for the 400,000 shares of deferred stock
outstanding as of June 30, 1998 will be amortized over a four-year period.

9.   INTEREST RATE SWAPS

     In December 1997, the Company entered into interest rate swaps with an
aggregate notional amount of $1,035 million. The Company used these interest
rate swaps to hedge its available-for-sale portfolio of fixed-rate agency
pass-through certificates. The primary objective of this hedging strategy was to
change the interest rate characteristics of these securities from fixed to
variable rates, to better correspond to the maturity and repricing
characteristics of the short-term repurchase agreements used by the Company to
fund these investments. This primary objective was the basis for the Company's
hedge accounting treatment. The Company continually monitored the swaps to
ensure that they were effective at changing the interest rate characteristics of
the securities. A secondary objective was to offset fluctuations in the fair
value of the securities caused by fluctuations in market interest rates.

     In September 1998, the Company experienced margin calls and believed it
prudent to increase its liquidity and, therefore, liquidated a large portion of
its agency pass-through certificates. In conjunction with the liquidation of
these securities positions, the Company also discontinued hedge accounting for
the related swaps with an aggregate notional amount of $485 million. The Company
recognized the unrealized loss on these swaps as an element of the overall loss
on the liquidation of the securities of $(26.0) million. In October 1998, the
Company liquidated agency pass-through certificates in response to continued
margin calls and the need for liquidity. The overall October 1998 loss on the
liquidation of agency pass-through certificates, including losses recognized
upon suspension of hedge accounting for the remaining swap with a notional
amount of $550 million, totaled $(35.0) million. On the day of each suspension
of hedge accounting, the affected swaps were closed out without additional gain
or loss.

     The Company did not enter into any swaps during the six months ended June
30, 1999.

     As of June 30, 1998, the Company was a party to interest rate swaps with
original notional amounts as stated below. Under these agreements, the Company
received a floating rate and paid a fixed rate. These swaps were cancelable at
the option of the Company on the fifth anniversary of their respective effective
dates.

<TABLE>
<CAPTION>
 NON-AMORTIZING
    NOTIONAL
     AMOUNT          FIXED                         TERMINATION        UNREALIZED
 (IN THOUSANDS)      RATE        FLOATING RATE        DATE          LOSS IN VALUE

    <S>            <C>           <C>                 <C>               <C>
    $  350,000     7.4075%       1 month LIBOR       1/10/13           $ (10,045,000)
       550,000     7.4100%       1 month LIBOR       1/10/13             (15,840,000)
       135,000     7.3025%       1 month LIBOR       1/10/13              (2,835,000)
                                                                       --------------
                                                                       $ (28,720,000)
                                                                       ==============
</TABLE>

     During the three months ended June 30, 1998, the Company entered into and
terminated interest rate swaps with notional amounts totaling $140 million and
incurred a realized loss of $1,897,968, which was included as a reduction of the
gain on sale of securities in the statement of operations.

     The valuations and other information used by the Company to monitor the
effectiveness of its interest rate swap hedging strategy were obtained through
multiple independent dealer quotes. This same information was used to record the
investments and swaps in the Company's financial statements and to determine the
Company's net asset value. The Company has never purchased or written options to
enter into swaps.

10.  TAXABLE INCOME

     The recently issued Revenue Procedure 99-17 provides securities and
commodities traders with the ability to elect mark-to-market treatment for 1998
by including a statement with their timely filed 1998 tax return. The election
applies for all future years as well unless revoked with the consent of the
Internal Revenue Service. After consultation with legal counsel, the Company
determined to elect mark-to-market treatment as a securities trader for 1998
and, accordingly, will recognize gains and losses prior to the actual
disposition of its securities. Moreover, some if not all of those gains and
losses, as well as some if not all gains or losses from actual dispositions of
securities, will be treated as ordinary in nature, and not capital, as they
would be in the absence of this election. Accordingly, revised Form 1099s were
sent to the Company's shareholders to reflect the changed characterization of
the Company's distributions. There is no assurance, however, that the Company's
election will not be challenged on the ground that it is not in fact a trader in
securities, or that it is only a trader with respect to some, but not all, of
its securities. As such, there is a risk that the Company will not be able to
mark-to-market its securities, or that it will be limited in its ability to
recognize certain losses.

     For the three months and six months ended June 30, 1999, a net operating
(loss) as calculated for tax purposes ("NOL") is estimated at approximately
$(1.09) million and $(14.27) million, respectively, or $(0.06) and $(0.80),
respectively, per weighted average share. NOLs may be carried forward for 20
years. Taxable income was different from income (loss) as calculated according
to generally accepted accounting principles ("GAAP income (loss)") as a result
of differing treatment of unrealized gains and losses on securities
transactions. For the year ended December 31, 1998, a NOL is estimated at
approximately $(51.3) million, or $(2.65) per weighted average share.

11.  RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
was issued and is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS No. 133 generally requires that entities recognize all
derivative financial instruments as assets or liabilities, measured at fair
value, and include in earnings the changes in the fair value of such assets and
liabilities. SFAS No. 133 also provides that changes in the fair value of assets
or liabilities being hedged with recognized derivative instruments be recognized
and included in earnings. The Company has not yet completed its evaluation of
SFAS No. 133, and therefore, at this time, cannot predict what, if any, effect
its adoption will have on the Company's financial condition or results of
operations.

12.  SUBSEQUENT EVENTS

     As of July 31, 1999, the Company estimates that its net asset value per
share was between $4.35 and $4.85 per share. As of that date, the Company
estimates that its portfolio was comprised of approximately $121 million of
Agency Certificates, $25 million of Subordinate Interests, $13 million of IOs,
$5 million of Mortgage Loans and $6 million of other fixed-income assets.

                                    * * * * *

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

     The following discussion should be read in conjunction with the Company's
financial statements and notes thereto.

FORWARD-LOOKING STATEMENTS

     "Safe Harbor" statement under the Private Securities Litigation Reform Act
of 1995: Statements in this discussion regarding the Company and its business,
which are not historical facts, are "forward-looking statements" that involve
risks and uncertainties. Risks and uncertainties, which could cause results to
differ from those discussed in the forward-looking statements herein, are listed
in the Company's Annual Report filed on Form 10-K.

GENERAL

     The Company is a specialty finance company, organized in September 1997,
that invests primarily in mortgage-backed securities and mortgage loans. The
mortgage-backed securities include mortgage pass-through certificates,
collateralized mortgage obligations, other securities representing interests in,
or obligations backed by, pools of mortgage loans and mortgage derivative
securities (collectively, the "Mortgage Securities"). The mortgage loans are
secured by first or second liens on single-family residential, multi-family
residential, commercial or other real property (the "Mortgage Loans" and,
together with the Mortgage Securities, the "Mortgage Assets").

     The Company is authorized to acquire the following types of investments:
(i) fixed and adjustable rate mortgage pass-through certificates ("Pass-Through
Certificates"), which are securities collateralized by pools of Mortgage Loans
issued and sold to investors by private, non-governmental issuers
("Privately-Issued Certificates") or by various U.S. government agencies or
instrumentalities, such as the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Federal National Mortgage Association ("FNMA") and the Government National
Mortgage Association ("GNMA") (collectively, "Agency Certificates"); (ii)
collateralized mortgage obligations ("CMOs"), including regular interests in
real estate mortgage investment conduits, which are fixed and adjustable rate
debt obligations collateralized by Mortgage Loans or Pass-Through Certificates;
(iii) Mortgage Loans; (iv) mortgage derivative securities ("Mortgage
Derivatives"), including interest-only securities ("IOs") which receive only
certain interest payments from a pool of Mortgage Securities or Mortgage Loans;
(v) subordinate interests ("Subordinate Interests"), which are classes of
Mortgage Securities junior to other classes of Mortgage Securities in the right
to receive payments from the underlying Mortgage Loans; and (vi) other
fixed-income securities, other than emerging market securities, in an amount not
to exceed 5% of total assets.

     The Company has been reducing its portfolio by selling certain securities
and repaying borrowings in an attempt to reduce the portfolio's susceptibility
to basis and interest rate risk and to create additional liquidity. As of June
30, 1999, the Company estimates that its net asset value per share was between
$4.50 and $4.75 per share. During the six months ended June 30, 1999, the
Company reduced its portfolio by approximately $587 million of Mortgage Assets,
including approximately $496 million of Agency Certificates, at a loss of
approximately $(11.7) million. In addition, in accordance with SFAS No. 115, an
entity should recognize an other-than-temporary impairment when it intends to
sell a specifically identified available-for-sale debt security at a loss
shortly after the balance sheet date. The write-down for the impairment should
be recognized in earnings in the period in which the decision is made. The
Company reclassified an amount of approximately $1.08 million from unrealized
loss to realized loss for securities sold in July 1999, as the decision to sell
them was made in June 1999.

     Lehman Brothers Inc., as financial advisor to the Board of Directors of the
Company, has been engaged to solicit offers to acquire the Company or all, or
substantially all, of the Company's assets.

     The Company has elected to be taxed and intends to continue to qualify as a
REIT under the Code commencing with its short taxable year ended December 31,
1997, and such election has not been revoked. The Company has qualified as a
REIT for the taxable years since its inception, and generally will not be
subject to federal income tax provided that it distributes its income to its
stockholders and maintains its qualification as a REIT.

RECENT DEVELOPMENTS

     As of July 31, 1999, the Company estimates that its net asset value per
share was between $4.35 and $4.85 per share. As of that date, the Company
estimates that its portfolio was comprised of approximately $121 million of
Agency Certificates, $25 million of Subordinate Interests, $13 million of IOs,
$5 million of Mortgage Loans and $6 million of other fixed-income assets.

RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999
COMPARED TO THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998

NET LOSS SUMMARY

     For the three months ended June 30, 1999, the Company had a net gain (loss)
of $(1.09) million, or $(0.06) per weighted average share, compared to income
before giving effect to charges relating to the permanent impairment of certain
IOs of $6.9 million, or $0.35 per weighted average share for the three months
ended June 30, 1998. After giving effect to the impairment charges of $(28.6)
million, or $(1.43) per weighted average share, the Company had a net loss of
$(21.7) million, or $(1.08) per weighted average share for the three months
ended June 30, 1998. The weighted average number of shares of common stock
outstanding for the three months ended June 30, 1999 and 1998 were 17,775,914
and 20,050,473, respectively. No dividends were declared during the three months
ended June 30, 1999. Dividends declared per share were $0.38 per weighted
average share, $7.6 million in total, for the three months ended June 30, 1998.
Return on average equity was (1.35%) and (8.00)% on an unannualized basis (after
giving effect to the impairment charges) for the three months ended June 30,
1999 and 1998, respectively.

     For the six months ended June 30, 1999, the Company had a net loss of
$(14.26) million, or $(0.80) per weighted average share, compared to income
before giving effect to charges relating to the permanent impairment of certain
IOs of $15.5 million, or $0.77 per weighted average share for the six months
ended June 30, 1998. After giving effect to the impairment, the Company had a
net loss of $(13.1) million, or $(0.66) per weighted average share for the six
months ended June 30, 1998. The weighted average number of shares of common
stock outstanding for the six months ended June 30, 1999 and 1998 were
17,791,327 and 20,047,613, respectively. Dividends declared per share were $2.00
and $0.81 per weighted average share, and $35.61 million and $16.2 million in
total, for the six months ended June 30, 1999 and 1998, respectively. Return on
average equity was (14.09%) and (4.79)% on an unannualized basis (after giving
effect to the impairment charges) for the six months ended June 30, 1999 and
1998, respectively.

     For the three months and six months ended June 30, 1999, the Company sold
securities with an aggregate historical amortized cost of $276 million and $587
million, respectively, for a net loss of $(2.56) million and $(11.7) million,
respectively, compared to sales of $880.9 million and $2266.75 million,
respectively, of securities for an aggregate gain of $0.51 million and $1.3
million, respectively, for the three months and six months ended June 30, 1998.
In addition, in accordance with SFAS No. 115, an entity should recognize an
other-than-temporary impairment when it intends to sell a specifically
identified available-for-sale debt security at a loss shortly after the balance
sheet date. The write-down for the impairment should be recognized in earnings
in the period in which the decision is made. The Company reclassified an amount
of approximately $1.08 million from unrealized loss to realized loss for
securities sold in July 1999, as the decision to sell them was made in June
1999.

     During the second quarter of 1998, the Company's net income (before giving
effect to the impairment charges) declined as a result of a reduction in the
income from its Mortgage Securities due to the effect of increasing prepayments.
The Company, based on its then-current estimates of future prepayments and the
shape of the yield curve, wrote down (took an impairment charge of $28.6 million
on) its floating-rate IOs which had amortized cost greater than their market
value. As of June 30, 1998, all of the Company's floating-rate IOs were written
down to their estimated fair market value, and such writedown is reflected in
the Company's statement of operations. This writedown reduced GAAP income by
$(28.6) million, or $(1.43) per weighted average share. This writedown did not
affect the Company's taxable income or total stockholders' equity.

     The realized gains (losses) during the three months ended June 30, 1999
were approximately $(3.7) million, or $(0.21) per weighted average share,
compared to a gain of approximately $0.51 million, or $0.03 per weighted average
share for the three months ended June 30, 1998. Excluding realized gains and
losses, the Company's income for the three months ended June 30, 1999 was
approximately $2.57 million, or $0.14 per weighted average share, compared to
approximately $6.44 million, or $0.32 per weighted average share for the three
months ended June 30, 1998 (excluding impairment loss on interest-only
securities). The realized losses during the six months ended June 30, 1999 were
approximately $(21.2) million, or $(1.19) per weighted average share, compared
to a gain of approximately $1.3 million, or $0.06 per weighted average share for
the six months ended June 30, 1998 (excluding impairment loss on interest-only
securities). Excluding realized gains and losses, the Company's income for the
six months ended June 30, 1999 was approximately $6.96 million, or $0.39 per
weighted average share, compared to approximately $14.21 million, or $0.71 per
weighted average share for the six months ended June 30, 1998 (excluding
impairment loss on interest-only securities). This reduction of income for the
three months and six months ended June 30, 1999 compared to the three months and
six months ended June 30, 1998 is consistent with the Company's substantially
reduced investment portfolio.

TAXABLE INCOME (LOSS) AND GAAP INCOME (LOSS)

     For the three months and six months ended June 30, 1999, a NOL is estimated
at approximately $(1.09) million and $(14.2) million, respectively, or $(0.06)
and $(0.80), respectively, per weighted average share. NOLs may be carried
forward for 20 years. Taxable income (loss) was different from GAAP income
(loss) as a result of differing treatment of unrealized gains and losses on
securities transactions. For the year ended December 31, 1998, a NOL is
estimated at approximately $(51.3) million, or $(2.65) per weighted average
share.

     For the three months ended June 30, 1998, taxable income was estimated at
approximately $6.1 million or $0.30 per weighted average share. For the six
months ended June 30,1998, taxable income was estimated at approximately $14.4
million or $0.72 per weighted average share. Taxable income was different from
GAAP income as a result of differing treatments of premium and discount
amortization and permanent impairment writedowns on IOs.

     Taxable income (loss) and GAAP income (loss) could differ for numerous
reasons. For example, the Company may take credit provisions which would affect
GAAP income whereas only actual credit losses are deducted in calculating
taxable income. In addition, general and administrative expenses may differ due
to differing treatment of leasehold amortization, certain stock option expenses
and other items. As of June 30, 1999 and 1998, the Company had not taken credit
provisions because 69% and 91%, respectively, of the Company's investments were
Agency Certificates.

     The distinction between taxable income (loss) and GAAP income (loss) is
important to the Company's stockholders because dividends or distributions are
declared on the basis of taxable income. While the Company does not pay taxes so
long as it satisfies the requirements for exemption from taxation pursuant to
the REIT Provisions of the Code, each year the Company completes a corporate tax
form wherein taxable income is calculated as if the Company were to be taxed.
This taxable income level helps to determine the amount of dividends the Company
intends to pay out over time.

INTEREST INCOME AND AVERAGE EARNING ASSET YIELD

     The Company had average earning assets of $470 million and $657 million for
the three months and six months ended June 30, 1999, respectively, compared to
average earning assets of $3,765.6 million and $3,642.3 million for the three
months and six months ended June 30, 1998, respectively. The table below shows,
for the three months and six months ended June 30, 1999 and 1998, the Company's
average balance of cash equivalents, loans and securities, the yields earned on
each type of earning asset, the yield on average earning assets and interest
income.

<TABLE>
<CAPTION>
                                             AVERAGE EARNING ASSET YIELD
                                               (dollars in thousands)

                                                                                             Yield on    Yield on
                                                          Average                Yield on     Average    Average
                                             Average      Amortized    Average     Average    Amortized   Interest
                                               Cash        Cost of     Earning      Cash       Cost of    Earning   Interest
                                            Equivalents  Securities    Assets    Equivalents Securities    Assets    Income

<S>                                         <C>          <C>         <C>           <C>          <C>        <C>      <C>
For the three  months  ended June 30, 1999  $  38,888    $  322,735  $  361,623    5.06%        8.17%      7.84%    $  7,166
For the three  months  ended June 30, 1998  $  57,059    $3,708,502  $3,765,561    5.82%        6.72%      6.71%    $ 59,675

For the six  months  ended  June  30, 1999  $  38,803    $  571,047  $  609,850    5.07%        7.73%      7.56%    $ 23,185
For the six  months  ended  June  30, 1998  $  66,135    $3,576,170  $3,642,305    5.82%        6.72%      6.70%    $114,823
</TABLE>

INTEREST EXPENSE AND THE COST OF FUNDS

     For the three months ended June 30, 1999 and 1998, the Company had average
borrowed funds of $288.6 million and $3,539.1 million, respectively, and total
interest expense of $3.8 and $51.1 million, respectively, with an average cost
of funds of 5.21% and 5.72%, respectively. For the six months ended June 30,
1999 and 1998, the Company had average borrowed funds of $502.2 million and
$3,377.7 million, respectively, and total interest expense of $14.0 and $96.3
million, respectively, with an average cost of funds of 5.53% and 5.67%,
respectively. The Company believes that its largest expense is usually the cost
of borrowed funds. Interest expense is calculated in the same manner for tax and
GAAP purposes.

     The Company expects that changes in the Company's cost of funds will
closely correlate with changes in one-month LIBOR, although the Company may
choose to extend the maturity of its liabilities at any time, subject to the
lender's consent. The Company's average cost of funds was 0.25% above one-month
LIBOR for the three months ended June 30, 1999 compared to 0.06% above one-month
LIBOR for the three months ended June 30, 1998 and was 0.58% above one-month
LIBOR for the six months ended June 30, 1999 compared to 0.02% above one-month
LIBOR for the six months ended June 30, 1998. The Company generally has
structured its borrowings to adjust with one-month LIBOR. During the three
months ended June 30, 1999, average one-month LIBOR, which was 4.961%, was 4.45%
lower than average six-month LIBOR, which was 5.192%. During the three months
ended June 30, 1998, average one-month LIBOR, which was 5.66%, was 0.09% lower
than average six month LIBOR, which was 5.75%. The increase in the Company's
average cost of funds relative to LIBOR in the second quarter of 1999 compared
to the second quarter of 1998 was due primarily to (a) the reduced availability
of funds for the Company and (b) the Company's portfolio during the second
quarter of 1999 compared to the second quarter of 1998 containing a greater
percentage of less liquid securities which finance at higher spreads.

     The table below shows, for the three months and six months ended June 30,
1999 and 1998, the Company's average borrowed funds and average cost of funds
compared to average one and six-month LIBOR.

<TABLE>
<CAPTION>
                                                    AVERAGE COST OF FUNDS
                                                    (dollars in thousands)

                                                                                                 Average     Average     Average
                                                                                                 One-Month   Cost of     Cost of
                                                                                                 LIBOR       Funds       Funds
                                                                                                 Relative    Relative    Relative
                                                                                                 to          to          to
                                       Average                 Average   Average     Average     Average     Average     Average
                                      Borrowed     Interest    Cost of   One-Month   Six-Month   Six-Month   One-Month   Six-Month
                                        Funds       Expense     Funds      LIBOR       LIBOR       LIBOR       LIBOR       LIBOR


For the three  months ended
<S>                                <C>            <C>           <C>        <C>        <C>         <C>         <C>          <C>
  June 30, 1999                    $   288,615    $   3,802     5.21%      4.961%     5.192%      (0.23)%     0.25%        0.02%
For the three  months ended
  June 30, 1998                    $ 3,539,147    $  51,136     5.72%      5.66%      5.75%       (0.09)%     0.06%       (0.03)%

For the six months ended
  June 30, 1999                    $   502,252    $  13,976     5.53%      4.957%     5.119%      (0.16)%     0.58%        0.09%
For the six months ended
  June 30, 1998                    $ 3,377,684    $  96,279     5.67%      5.65%      5.71%       (0.06)%     0.02%       (0.04)%
</TABLE>

     During 1998, events in the financial markets (including the continued flat
yield curve, the dislocation in the market for fixed-income securities, the
tightening of credit available for investment in securities and the increased
risk of interest rate sensitive prepayment on mortgages) had an adverse effect
upon the Company's earnings. A relatively flat yield curve caused financing
costs to be relatively high compared to the income earned on the Company's
Mortgage Assets. The dislocation in the fixed-income securities market and the
increased risk of prepayments, which affected the value of the Company's
portfolio, together with the tightening of credit available for investment in
securities, adversely affected the Company's ability to employ leverage
profitably.

INTEREST RATE SWAPS

     The Company did not enter into any swaps during the six months ended June
30, 1999.

     During the three months and six months ended June 30, 1998, the Company had
outstanding the interest rate swaps with original notional amounts stated below.
Under these agreements, the Company received a floating rate and pays a fixed
rate. As part of its asset/liability management process, the Company entered
into interest rate agreements such as interest rate caps, floors and swaps. The
agreements were entered into to reduce interest rate risk and were designed to
provide income and capital appreciation to the Company in the event of certain
changes in interest rates.

                                  INTEREST RATE SWAP TERMS
                                   (dollars in thousands)

<TABLE>
<CAPTION>
                                                                      Average
                                             Notional      Fixed     Floating          Net
                                              Amount       Rate        Rate            Loss

<S>                                          <C>           <C>         <C>        <C>
For the three months ended June 30, 1998     $1,035,000    7.40%       5.66%      $     (4,460)
For the six months ended June 30, 1998       $1,035,000    7.40%       5.65%      $     (8,455)
</TABLE>


     During the three months ended June 30, 1998, the Company entered into and
terminated interest rate swaps with notional amounts totaling $140 million and
incurred a realized loss of $(1.9) million, which is included as a reduction of
the gain on sale of securities in the statement of operations.

     In December 1997, the Company entered into interest rate swaps with an
aggregate notional amount of $1,035 million. The Company used these interest
rate swaps to hedge its available-for-sale portfolio of fixed-rate Agency
Certificates. The primary objective of this hedging strategy was to change the
interest rate characteristics of these securities from fixed to variable rates,
to better correspond to the maturity and repricing characteristics of the
short-term repurchase agreements used by the Company to fund these investments.
This primary objective was the basis for the Company's hedge accounting
treatment. The Company continually monitored the swaps to ensure that they were
effective at changing the interest rate characteristics of the securities. A
secondary objective was to offset fluctuations in the fair value of the
securities caused by fluctuations in market interest rates.

     In September 1998, the Company experienced margin calls and believed it
prudent to increase its liquidity, and therefore, liquidated a large portion of
its Agency Certificates. In conjunction with liquidating these securities
positions, the Company also discontinued hedge accounting for the related swaps
with an aggregate notional amount of $485 million. The Company recognized the
unrealized loss on these swaps as an element of the overall loss on the
liquidation of the securities of $(26.0) million. In October 1998, the Company
liquidated Agency Certificates in response to continued margin calls and the
need for liquidity. The overall October 1998 loss on the liquidation of Agency
Certificates, including losses recognized upon suspension of hedge accounting
for the remaining swap with a notional amount of $550 million, totaled $(35.0)
million. On the day of each suspension of hedge accounting, the affected swaps
were closed out without additional gain or loss.

     The valuations and other information used by the Company to monitor the
effectiveness of its interest rate swap hedging strategy were obtained through
multiple independent dealer quotes. This same information was used to record the
investments and swaps in the Company's financial statements and to determine the
Company's net asset value. The Company has never purchased or written options to
enter into swaps. As part of the Company's investigation of the potential impact
of the pricing irregularities discovered at the Affiliated Funds, the Company
reviewed the pricing of its own securities and swaps and concluded that the
valuations used were accurate.

     The Company has been concerned about the potential distortion of GAAP
income relative to taxable income caused by differences in the book and tax
accounting treatment for its hedging activities and about volatility in reported
earnings that would obscure the comparability of the Company with other mortgage
REITs. At the time of the Company's initial public offering, the Company
believed that some of these concerns would best be addressed by electing to
classify the Mortgage Securities as trading securities for financial statement
purposes. Upon further analysis, including analysis of the accounting for the
related borrowings, the Company concluded that this accounting election would
not achieve the results initially anticipated and that classifying the Mortgage
Securities as available-for-sale would likely result in closer conformity to the
tax accounting method upon which distributions are based and greater
comparability with other mortgage REITs. Therefore, as the Company purchased the
individual securities in its portfolio of Mortgage Securities, it did not
classify them as trading securities.

     Because the Mortgage Assets were not voluntarily classified as trading
securities, they met the definition of available-for-sale securities of
paragraph 12(b) of SFAS No. 115. Accordingly, the Company classified each
Mortgage Security as available-for-sale at its acquisition date and subsequently
reported each security at its fair value. Pursuant to paragraph 13 of SFAS No.
115, unrealized holding gains of $3.7 million related to available-for-sale
Mortgage Securities were reported in other comprehensive income at December 31,
1997 following the initial acquisition of most of the securities.

NET INTEREST INCOME

     Net interest income, which equals interest income less interest expense,
totaled $3.4 million for the three months ended June 30, 1999 compared to $8.5
million for the three months ended June 30, 1998. Net interest income totaled
$9.2 million for the six months ended June 30, 1999 compared to $18.5 million
for the six months ended June 30, 1998. Net interest rate spread, which equals
the yield on the Company's interest earning assets (excluding cash) less the
average cost of funds for the period was 2.63% and 2.06% for the three months
and six months ended June 30, 1999, respectively, compared to 1.00% and 1.05%%
for the three months and six months ended June 30, 1998, respectively. The
decrease in net interest income for the three months and six months ended June
30, 1999 compared to the three months and six months ended June 30, 1998 was due
to the Company's substantially reduced investment portfolio. The net interest
rate spread increased for the three months ended June 30, 1999 compared to the
three months ended June 30, 1998 due to the mix of Mortgage Assets in the
Company's investment portfolio, which contained a greater percentage of less
liquid securities which finance at higher spreads for the three months ended
June 30, 1999 compared to the three months ended June 30, 1998.

     The table below shows interest income by earning asset type, average
earning assets by type, total interest income, interest expense, average
repurchase agreements, average cost of funds, and net interest income for the
three months and six months ended June 30, 1999 and 1998.

<TABLE>
<CAPTION>
                                                NET INTEREST INCOME
                                              (dollars in thousands)

                                                              Net Income           Yield on
                Average     Interest              Interest       on                Average    Average
                Amortized   Income on  Average     Income    Contractual Total     Interest   Balance of            Average    Net
                 Cost of     Invest-     Cash       on Cash     Commit-  Interest  Earning    Repurchase  Interest  Cost of Interest
                Securities  ments     Equivalent Equivalents    ments    Income    Assets     Agreements  Expense    Funds    Income

For the three
months ended
June 30,
<S>             <C>         <C>       <C>        <C>         <C>         <C>        <C>       <C>         <C>      <C>     <C>
1999            $  322,736  $ 6,669   $38,888    $    497    $    --     $ 7,166    7.84%    $   28,615   $ 3,801  5.21%   $ 3,365
For the three
months ended
June 30,
1998            $3,708,502  $62,975   $57,059    $  1,160    $ (4,460)   $59,675    6.71%    $3,539,147   $51,136  5.72%   $ 8,539

For the six
months ended
June 30,
1999              $571,047  $23,185   $38,803   $    988     $     --    $23,185    7.56%    $  502,252   $13,976    5.53% $ 9,209
For the six
months ended
June 30,
1998            $3,576,170 $120,855   $66,135   $  2,423     $ (8,455)  $114,823    6.70%    $3,377,684 $96,279      5.67% $18,544
</TABLE>

CREDIT CONSIDERATIONS

     The Company has not experienced credit losses on its investment portfolio
to date, but losses may be experienced in the future. At June 30, 1999 and 1998,
the Company had limited its exposure to credit losses on its portfolio by
holding 69% and 91% of its investments in Agency Certificates.

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses ("operating expense" or "G&A expense")
were $0.80 million and $2.25 million for the three months and six months ended
June 30, 1999, respectively, consisting of fees paid to the Former Manager of $0
and $500,000, fees paid to BlackRock Financial Management, Inc. ("BlackRock") of
$375,000 and $750,000 and professional and other miscellaneous fees. G&A expense
were $2,102,483 and $4,332,310 for the three months and six months ended June
30, 1998, respectively, consisting of management fees paid to the Former Manager
of $694,113 and $1,399,743, incentive fees paid to the Former Manager of
$497,493 and $1,449,002 and professional and other miscellaneous fees. There
were no differences in the calculation of G&A expense for taxable and GAAP
income purposes. The "Efficiency Ratio" is the G&A expense divided by the net
interest income.

                               G&A EXPENSE RATIOS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                              Total G&A    Total G&A
                                                                                               Expense/    Expense/
                                                    Deferred              Other      Total     Average      Average    Efficiency
                                Management Incentive  Stock   Consulting    G&A       G&A       Assets      Equity       Ratio
                                   Fee       Fee     Expense     Fee     Expense    Expense  (Annualized) (Annualized)(Annualized)

For the three months ended
<S>                              <C>       <C>       <C>       <C>      <C>       <C>           <C>         <C>         <C>
  June 30, 1999                  $    --   $   --    $  --     $ 375    $  421    $   796       0.68%       3.96%       23.66%
For the three months ended
  June 30, 1998                  $   694   $  497    $ 406     $  --    $  505    $ 2,102       0.22%       3.11%       26.55%

For the six months ended
  June 30, 1999                  $   500   $   --    $  91     $ 750    $  905    $ 2,246       0.68%       4.44%       24.39
For the six months ended
  June 30, 1998                  $ 1,400   $1,449    $ 772     $  --    $  711    $ 4,332       0.22%       3.19%       24.17%
</TABLE>

NET (LOSS) INCOME AND RETURN ON AVERAGE EQUITY

     Net losses were $(1.09) million and $(14.26) million for the three months
and six months ended June 30, 1999, respectively, compared to net losses of
$(21.7) million and $(13.1) million for the three months and six months ended
June 30, 1998, respectively. Return on average equity, on an unannualized basis,
for the three months and six months ended June 30, 1999 was (1.35)% and
(14.09)%, respectively, compared to (8.00)% and (4.79)% for the three months and
six months ended June 30, 1998, respectively.

     The table below shows, on an unannualized basis, for the three months and
six months ended June 30, 1999 and 1998 the Company's net interest income, gain
(loss) on sale of securities and G&A expense each as a percentage of average
equity, and the return on average equity.

<TABLE>
<CAPTION>
                                      COMPONENTS OF RETURN ON AVERAGE EQUITY

                                           Net Interest     Gain (Loss) on       Impairment Loss
                                          Income/Average   Sale of Securities/   on Interest-Only      G&A Expense/     Return on
                                              Equity         Average Equity        Securities        Average Equity   Average Equity
<S>                                            <C>               <C>                                  <C>            <C>
For the three months ended June 30, 1999       4.19%             4.55%                --              0.99%          (1.35)%
For the three months ended June 30, 1998       3.15%             0.19%             (10.57)%           0.77%          (8.00)%

For the six months ended June 30, 1999         9.10%           (20.96)%               --              2.22%         (14.09)%
For the six months ended June 30, 1998         6.76%             0.46%             (10.44)%           1.57%          (4.79)%
</TABLE>


DISTRIBUTIONS AND TAXABLE INCOME

     The Company has elected to be taxed as a REIT under the Code. Accordingly,
the Company intends to distribute substantially all of its taxable income for
each year to stockholders, including income resulting from gains on sales of
securities. For the three months and six months ended June 30, 1999, the Company
estimated that it had no taxable income. For the three months and six months
ended June 30, 1999, the Company made distributions of 35.6 million. For the six
months ended June 30, 1998, dividend declarations exceeded estimated taxable
income by approximately $1.8 million, or $0.09 per share, based on the weighted
average number of shares of common stock outstanding during the period.

FINANCIAL CONDITION

     INVESTMENTS

     As of June 30, 1999 and December 31, 1998, the Company's portfolio
consisted of:


<TABLE>
<CAPTION>
                                                  AS OF JUNE 30, 1999                          AS OF DECEMBER 31, 1998
                                                  -------------------                          -----------------------
                                            Dollar Amount                              Dollar Amount
            SECURITIES                      (IN MILLIONS)          PERCENTAGE          (IN MILLIONS)             PERCENTAGE
            ----------                      -------------          ----------          -------------             ----------
<S>                                              <C>                 <C>            <C>                          <C>
Agency Certificates...........                   125                 69%            $   681                      82%
Subordinate Interests.........                    32                 18%                 73                       9%
IOs...........................                    13                  7%                 26                       3%
CMOs..........................                    --                  --                 25                       3%
Mortgage Loans................                     5                  3%                  8                       1%
Other fixed-income assets.....                     6                  3%                 13                       2%
                                        ================== ==================== ===================== ===================
   Total......................                   181                100%            $   826                     100%
                                        ================== ==================== ===================== ===================
</TABLE>

     The Company reduced its portfolio of Mortgage Assets during the six months
ended June 30, 1999 in an attempt to reduce the portfolio's susceptibility to
basis and interest rate risk and to create additional liquidity.

     Discount balances are accreted as an increase in interest income over the
life of discount investments and premium balances are amortized as a decrease in
interest income over the life of premium investments. At June 30, 1999 and
December 31, 1998, the Company had on its balance sheet (excluding IOs) $25.61
million and $32.7 million, respectively, total unamortized discount (which is
the difference between the remaining principal value and the current historical
amortized cost of investments acquired at a price below principal value) and
$0.9 million and $5.0 million, respectively, unamortized premium (which is the
difference between the remaining principal amount and the current historical
amortized cost of investments acquired at a price above principal value). The
Company also had $103 million unamortized discount on IOs at June 30, 1999
compared to $26.8 million unamortized premium at December 31, 1998.

     Mortgage principal repayments received were $56.4 million for the six
months ended June 30, 1999. Given the Company's current portfolio composition,
if mortgage principal repayment rates increase over the life of the Mortgage
Securities comprising the current portfolio, all other factors being equal, the
Company's net interest income should decrease during the life of such Mortgage
Securities as the Company will be required to amortize its net premium balance
into income over a shorter time period. Similarly, if mortgage principal
prepayment rates decrease over the life of such Mortgage Securities, all other
factors being equal, the Company's net interest income should increase during
the life of such Mortgage Securities as the Company will amortize its net
premium balance over a longer time.

     The tables below summarize the Company's investments at June 30, 1999 and
December 31, 1998.

<TABLE>
<CAPTION>
                                      SECURITIES (EXCLUDING IOs)
                                        (dollars in thousands)

                                                                   Amortized                   Estimated      Weighted
                                                                    Cost to                    Fair Value      Average
                            Principal      Net       Amortized     Principal      Estimated   to Principal      Life
                             Amount      Discount       Cost        Amount       Fair Value      Amount        (Years)

<S>                        <C>           <C>           <C>          <C>           <C>            <C>            <C>
June 30, 1999              $   206,368   $ (25,611)    $ 181,507    87.95%        $ 162,466      78.73%         9.0
December 31, 1998          $   833,299   $ (27,644)    $ 805,654    96.68%        $ 791,221      94.95%         7.1
</TABLE>

<TABLE>
<CAPTION>
                                            MORTGAGE LOANS
                                        (dollars in thousands)

                                                                   Amortized                   Estimated      Weighted
                                                                    Cost to                    Fair Value      Average
                            Principal      Net       Amortized     Principal      Estimated   to Principal      Life
                             Amount      Discount       Cost        Amount       Fair Value      Amount        (Years)

<S>                        <C>           <C>           <C>          <C>           <C>            <C>            <C>

June 30, 1999              $    5,259    $     213    $   5,472    104.05%       $   5,472      104.05%          3.1
December 31, 1998          $    8,151    $     267    $   8,417    103.27%       $   8,417      103.27%          2.6
</TABLE>

     At June 30, 1999, the Company had borrowing outstanding from three lenders
compared to eight lenders at December 31, 1998. Such borrowings are generally
short-term (7-day or 30-day terms) and may not be renewed by the lender at its
discretion.

<TABLE>
<CAPTION>
                                             IO SECURITIES
                                        (dollars in thousands)

                                                                   Amortized                 Estimated   Weighted
                                           Net                      Cost to                 Fair Value    Average
                            Notional     Premium     Amortized     Notional     Estimated   to Notional    Life
                             Amount     (Discount)    Cost (1)      Amount      Fair Value    Amount      (Years)

<S>                        <C>           <C>          <C>           <C>          <C>            <C>         <C>
June 30, 1999              $   107,953   $(103,271)   $   4,683     4.34%        $ 12,819       11.87%      6.0
December 31, 1998          $   454,690   $(427,909)   $  26,781     5.89%        $ 26,468        5.82%      7.1

-------------------
(1) After provision for impairment.
</TABLE>

     The table below shows unrealized gains and losses on the securities in the
Company's portfolio at June 30, 1999 and December 31, 1998.

<TABLE>
<CAPTION>
                                            UNREALIZED GAINS AND LOSSES
                                              (dollars in thousands)

                                                                               AT JUNE 30, 1999           AT DECEMBER 31, 1998
                                                                               ----------------           --------------------
<S>                                                                              <C>                         <C>
Unrealized Gain                                                                  $       8,137               $     12,182
Unrealized Loss                                                                        (19,041)                   (26,928)
Net Unrealized Loss                                                                    (10,904)                   (14,746)
Net Unrealized Loss as % of  Investments Principal/Notional Amount                      (3.41)%                    (1.14)%
Net Unrealized Loss as % of Investments Amortized Cost                                  (5.69)%                    (1.75)%
</TABLE>

     The following table sets forth a schedule of Pass-Through Certificates and
Mortgage Loans owned by the Company at June 30, 1999 and December 31, 1998
classified by issuer and by ratings categories.

    PASS-THROUGH CERTIFICATES AND MORTGAGE LOANS BY ISSUER AND CREDIT RATING
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                   AT JUNE 30, 1999                       AT DECEMBER 31, 1998
                                          CARRYING VALUE       PORTFOLIO MIX      CARRYING VALUE       PORTFOLIO MIX

<S>                                         <C>                      <C>             <C>                     <C>
Agency Certificates..............           $ 124,391                69%             $   680,730             83%
Privately Issued Certificates:
   AAA/Aaa Rating................                  --                 --                  --                 --
   AA/Aa Rating..................                  --                 --                  --                 --
   A Rating......................                  --                 --                   7,596              1%
   BBB/Baa Rating................               5,280                 3%                  17,791              2%
   BB/Ba Rating and Other........              38,267                21%                  85,105             10%
IOs..............................              12,819                 7%                  26,468              3%
Mortgage Loans...................                  --                 --                   8,417              1%
                                            ---------        -----------             -----------    ------------
              Total..............           $ 180,757               100%             $   826,107            100%
                                            =========        ===========             ===========    ============
</TABLE>

     The following tables set forth information about the Company's portfolio of
Subordinate Interests, IOs, CMOs, and other fixed-income assets as of June 30,
1999 and December 31, 1998.

<TABLE>
<CAPTION>
                                              SUBORDINATE INTERESTS
                                              (dollars in thousands)

                                                                 MARKET VALUE AT
                  DESCRIPTION                     JUNE 30, 1999             DECEMBER 31, 1998
<S>                                              <C>                          <C>
                  Commercial                     $     10,597                 $      45,292
                  Residential                          21,113                        27,337
</TABLE>

<TABLE>
<CAPTION>
                                                  IO SECURITIES
                                              (dollars in thousands)

                                                                     MARKET VALUE AT
                  DESCRIPTION          COUPON            JUNE 30, 1999         DECEMBER 31, 1998
<S>                                     <C>              <C>                   <C>
                  Commercial           Fixed              $     --             $     16,140
                  Residential          Floating              12,819                  10,328
</TABLE>

<TABLE>
<CAPTION>
                                                       CMOs
                                              (dollars in thousands)

                                                                     MARKET VALUE AT
                  DESCRIPTION          RATING            JUNE 30, 1999         DECEMBER 31, 1998
                  -----------          ------            -------------         -----------------
<S>               <C>                   <C>              <C>                    <C>
                  Residential          BBB                $       --            $    17,792
                  Residential          A                          --                  7,596
</TABLE>

<TABLE>
<CAPTION>
                                            OTHER FIXED-INCOME ASSETS
                                              (dollars in thousands)

                                                                     MARKET VALUE AT
                  DESCRIPTION                            JUNE 30, 1999         DECEMBER 31, 1998
<S>                                                        <C>                    <C>
                  CBO/CLO                                  $     6,365            $      12,478
</TABLE>

BORROWINGS

     To date, the Company's debt has consisted entirely of borrowings
collateralized by a pledge of the Company's investments. These borrowings appear
on the balance sheet as repurchase agreements. Substantially all of the
Company's investments are currently accepted as collateral for such borrowings.
The Company has not established, and currently does not intend to establish,
permanent lines of credit. The Company has obtained, and believes it will be
able to continue to obtain, short-term financing in amounts and at interest
rates consistent with the Company's financing objectives. At June 30, 1999, the
Company had borrowings outstanding from three lenders, compared to eight lenders
at December 31, 1998. Such borrowings are generally short-term (7-day or 30-day
terms) and may not be renewed by the lender at its discretion. Certain lenders
have reduced the funds made available to the Company for pledges of certain less
liquid securities.

     For the six months ended June 30, 1999, the term to maturity of the
Company's borrowings has ranged from one day to 4.2 years, with a weighted
average remaining maturity of 28 days at June 30, 1999. At June 30, 1999, the
Company had outstanding $217 million of repurchase agreements. At June 30, 1999,
the weighted average cost of funds for all of the Company's borrowings was 5.14%
and investments actually pledged had an estimated fair value of $229 million.

     On March 29, 1999, to improve its liquidity, the Company terminated a
repurchase agreement with a broker-dealer with respect to $500 million of the
Company's Agency Certificates and recognized a loss of approximately $(8.5)
million.

     For the year ended December 31, 1998, the term to maturity of the Company's
borrowings has ranged from one day to five years, with a weighted average
remaining maturity of 2.77 years at December 31, 1998. At December 31, 1998, the
Company had outstanding $742.4 million of repurchase agreements. Approximately
$242.4 million of the Company's borrowings have a cost of funds which adjusts
monthly based on a fixed spread over or under one-month LIBOR. At December 31,
1998, the weighted average cost of funds for all of the Company's borrowings was
5.94% and investments actually pledged had an estimated fair value of $854.8
million.

LIQUIDITY

     Liquidity, which is the Company's ability to turn non-cash assets into
cash, allows the Company to purchase additional securities and to pledge
additional assets to secure existing borrowings should the value of pledged
assets decline. Potential immediate sources of liquidity for the Company include
cash balances and unused borrowing capacity. Unused borrowing capacity varies
over time as the market value of the Company's securities varies. The Company's
balance sheet also generates liquidity on an on-going basis through mortgage
principal repayments and net earnings held prior to payment as dividends. Should
the Company's needs ever exceed these on-going sources of liquidity plus the
immediate sources of liquidity discussed above, management believes that the
Company's securities could in most circumstances be sold to raise cash; however,
if the Company is forced to liquidate Mortgage Assets that qualify as qualified
real estate assets to repay borrowings, there can be no assurance that it will
be able to maintain its REIT status.

     During 1998, events in the financial markets (including the dislocation in
the market for fixed-income securities, the tightening of credit available for
investment in securities and the decrease in value of mortgage securities due to
prepayment risk) had an adverse effect on the Company's ability to borrow funds
and may continue to have such an effect. To address concerns with respect to
possible decreased liquidity, the Company has reduced its portfolio and sold
securities. During the six months ended June 30, 1999, the Company sold
approximately $587 million of Mortgage Assets, including approximately $496
million of Agency Certificates.

     The availability of financing for the Company's portfolio has been stable
during the first two quarters of 1999. This is in sharp contrast to the third
and fourth quarters of 1998, which saw a significant decline in the availability
of financing. While financing is not as easily available as it was in early
1998, the Company believes it can adequately finance its portfolio given current
market conditions.

     In June 1998, the Board of Directors increased the amount of Common Stock
authorized to be repurchased under the Company's stock repurchase program to $30
million. Pursuant to the repurchase program, during the six months ended June
30, 1999, the Company has used the proceeds of sales of, and payments from, its
portfolio securities to repurchase 85,100 shares of Common Stock for $306,060 in
open market transactions. Such purchases were made at a weighted average price
per share of $3.56 (excluding commission costs). As of December 31, 1998, the
Company had repurchased 2,300,466 shares of Common Stock for $19.3 million in
open market transactions. Such purchases were made at a weighted average price
per share of $8.41 (excluding commission costs). The repurchased shares have
been returned to the Company's authorized but unissued shares of Common Stock as
treasury shares.

STOCKHOLDERS' EQUITY

     The Company uses "available-for-sale" treatment for its securities; these
assets are carried on the balance sheet at estimated market value rather than
historical amortized cost. Based upon such "available-for-sale" treatment, the
Company's equity base at June 30, 1999 was $82.5 million, or $4.65 per share,
compared to $127.6 million, or $7.17 per share, at December 31, 1998. If the
Company had used historical amortized cost accounting, the Company's equity base
at June 30, 1999 would have been $94.5 million, or $5.33 per share compared to
$142.3 million, or $7.99 per share, at December 31, 1998.

     With the Company's "available-for-sale" accounting treatment, unrealized
fluctuations in market values of assets do not impact GAAP net income or taxable
income but rather are reflected on the balance sheet by changing the carrying
value of the assets and reflecting the change in stockholders' equity under
"Accumulated Other Comprehensive Income (Loss)" and in the statement of
operations under "Other Comprehensive Loss." By accounting for its assets in
this manner, the Company hopes to provide useful information to stockholders and
creditors and to preserve flexibility to sell assets in the future without
having to change accounting methods.

     As a result of this mark-to-market accounting treatment, the book value and
book value per share of the Company are likely to fluctuate far more than if the
Company used historical amortized cost accounting. As a result, comparison with
companies that use historical cost accounting for some or all of their balance
sheet may be misleading.

     Unrealized changes in the estimated net market value of securities have one
direct effect on the Company's potential earnings and dividends: positive
mark-to-market changes will increase the Company's equity base and allow the
Company to increase its borrowing capacity while negative changes in the net
market value of the Company's securities might impair the Company's liquidity
position, requiring the Company to sell assets with the likely result of
realized losses upon sale. "Accumulated Other Comprehensive Income (Loss)" was
$(9.8) million, or (5.11)% of the amortized cost of securities at June 30, 1999
and $(14.7) million, or (1.75)% of the amortized cost of securities at December
31, 1998.

     In accordance with SFAS No. 115, an entity should recognize an
other-than-temporary impairment when it intends to sell a specifically
identified available-for-sale debt security at a loss shortly after the balance
sheet date. The write-down for the impairment should be recognized in earnings
in the period in which the decision is made. The Company reclassified an amount
of approximately $1.08 million from unrealized loss to realized loss for
securities sold in July 1999, as the decision to sell them was made in June
1999.

     The table below shows the Company's equity capital base as reported and on
a historical amortized cost basis at June 30, 1999 and at December 31, 1998. The
historical cost equity basis is influenced by issuances of Common Stock, the
level of GAAP earnings as compared to dividends declared, and other factors. The
GAAP reported equity base is influenced by these factors plus changes in the
"Accumulated Other Comprehensive Income (Loss)" account.

<TABLE>
<CAPTION>
                                              STOCKHOLDERS' EQUITY
                                 (dollars in thousands, except per share data)

                                                        Net Unrealized      GAAP       Historical      GAAP
                                           Historical      Losses on      Reported     Amortized     Reported
                                           Amortized        Assets         Equity         Cost        Equity
                                          Cost Equity      Available        Base         Equity     (Book Value
                                              Base          for Sale    (Book Value)   Per Share    Per Share)

<S>                                         <C>            <C>            <C>            <C>           <C>
At June 30, 1999                            $ 94,456       $(11,978)      $ 82,478       $5.33         $4.65
At December 31, 1998                        $142,303       $(14,746)      $127,557       $7.99         $7.17
</TABLE>

CAPITAL AND LEVERAGE STRATEGIES

     The Company's operations are leveraged approximately 3.6 to 1 at June 30,
1999 compared to 6.9 to 1 at December 31, 1998. At June 30, 1999, the Company's
equity-to-assets ratio was 27.4%, and has ranged from a high of approximately
27.4% to a low of approximately 4.1% during the past 12 months. Initially, the
Company financed its acquisition of Mortgage Assets through proceeds of its
initial public offering and several concurrent private placements, and currently
finances any acquisitions primarily by borrowing against or "leveraging" its
existing portfolio and using the proceeds to acquire additional Mortgage Assets.
The Company's target for its equity-to-assets ratio depends on market conditions
and other relevant factors.

     The equity-to-assets ratio is total stockholders' equity as a percentage of
total assets. The Company's total stockholders' equity, for purposes of this
calculation, equals the Company's stockholders' equity determined in accordance
with GAAP. For purposes of calculating the equity-to-assets ratio, the Company's
total assets include the value of the Company's investment portfolio on a
marked-to-market-basis. For purchased Mortgage Assets, the Company obtains
market quotes for its Mortgage Assets from independent broker-dealers that make
markets in securities similar to those in the Company's portfolio. The Board of
Directors has discretion to deviate from or change the Company's indebtedness
policy at any time. However, the Company endeavors to maintain an adequate
capital base to protect against interest rate environments in which the
Company's financing and hedging costs might exceed interest income from its
Mortgage Assets. These conditions could occur, for example, when, due to
interest rate fluctuations, interest income on the Company's Mortgage Assets
(which occur during periods, such as the first three quarters of 1998, of
rapidly rising interest rates or during periods when the Mortgage Loans in the
portfolio are prepaying rapidly) lags behind interest rate increases in the
Company's variable rate borrowings.

INFLATION

     Virtually all of the Company's assets and liabilities are financial in
nature. As a result, interest rates are expected to influence the Company's
performance more directly than inflation. While changes in interest rates do not
necessarily correlate with inflation rates or changes in inflation rates,
interest rates ordinarily increase during periods of high or increasing
inflation and decrease during periods of low or declining inflation.
Accordingly, management believes that the Company's financial condition or
results of operations will be influenced by inflation to the extent interest
rates are affected by inflation.

YEAR 2000 COMPLIANCE

     The Company uses computer software programs and operating systems in its
internal operations relating to the management of the Company and its portfolio.
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year and impacts both
information technology ("IT") and non-IT systems. Any of the Company's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause the Company to incur
expenses and the risk and potential expense of any disruptions that may be
caused by the software's impaired functioning as the year 2000 approaches and by
the modification or replacement of such software.

     The Company does not own or license any proprietary IT systems in its
operations and relies on the IT systems of third parties, for its operations.
The ability of these third parties with whom the Company transacts business to
address adequately their year 2000 compliance is beyond the Company's control.
The Company has started the process of contacting these parties and others with
whom the Company does significant business to determine their year 2000
compliance status and the extent to which the Company could be affected by any
third party year 2000 compliance issues. There can be no assurance that the
systems of other companies with whom the Company does business or upon which the
Company's systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company. The Company is
currently in the process of assessing its non-IT systems for year 2000
compliance.

     The costs incurred by the Company to address year 2000 compliance have not
had, and are not anticipated to have, a material adverse effect on the Company's
business, financial condition, results of operations or ability to sustain
growth. The costs are based on management's best estimates, which were derived
using numerous assumptions of future events including the continued availability
of certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ from those plans.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
was issued and is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS No. 133 generally requires that entities recognize all
derivative financial instruments as assets or liabilities, measured at fair
value, and include in earnings the changes in the fair value of such assets and
liabilities. SFAS No. 133 also provides that changes in the fair value of assets
or liabilities being hedged with recognized derivative instruments be recognized
and included in earnings. The Company has not yet completed its evaluation of
SFAS No. 133, and therefore, at this time, cannot predict what, if any, effect
its adoption will have on the Company's financial condition or results of
operations.

<PAGE>
Item 3.  Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK

     Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. The
primary market risk to which the Company is exposed is interest rate risk, which
is highly sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations and
other factors beyond the control of the Company. Changes in the general level of
interest rates can affect the Company's net interest income, which is the
difference between the interest income earned on interest-earning assets and the
interest expense incurred in connection with its interest-bearing liabilities,
by affecting the spread between the Company's interest-earning assets and
interest-bearing liabilities. Changes in the level of interest rates also can
affect, among other things, the value of the Company's Mortgage Securities and
its ability to realize gains from the sale of such assets.

     The Company may utilize a variety of financial instruments, including
interest rate swaps, caps, floors and other interest rate exchange contracts, in
order to limit the effects of interest rates on its operations. The use of these
types of derivatives to hedge interest-earning assets and/or interest-bearing
liabilities carries certain risks, including the risk that losses on a hedge
position will reduce the funds available for payments to holders of securities
and, indeed, that such losses may exceed the amount invested in such
instruments. As described previously, the Company has experienced significant
losses as a result of its hedging activities. The profitability of the Company
may be adversely affected during any period as a result of changing interest
rates.

     The following table quantifies the potential changes in net interest income
and net portfolio value should interest rates go up or down (shocked) 400 basis
points, assuming the yield curves of the rate shocks will be parallel to each
other. Net portfolio value is defined as interest-earning assets net of
interest-bearing liabilities. All changes in income and value are measured as
percentage changes from the projected net interest income and net portfolio
value at the base interest rate scenario. The base interest rate scenario
assumes interest rates at June 30, 1999 and various estimates regarding
prepayment and all activities are made at each level of rate shock. Actual
results could differ significantly from these estimates.


                           PROJECTED PERCENTAGE CHANGE IN
CHANGE IN INTEREST RATE          NET INTEREST INCOME         NET PORTFOLIO VALUE

- 400 Basis Points                   (25%)                        (1%)
- 300 Basis Points                   (32%)                        (4%)
- 200 Basis Points                   (24%)                        (2%)
- 100 Basis Points                   (14%)                         0%
Base Interest Rate                     0%                          0%
+ 100 Basis Points                     3%                         (2%)
+ 200 Basis Points                     4%                         (6%)
+ 300 Basis Points                     2%                         (11%)
+ 400 Basis Points                    (7%)                        (18%)

ASSET AND LIABILITY MANAGEMENT

     Asset and liability management is concerned with the timing and magnitude
of the repricing of assets and liabilities. The Company's objective is to
attempt to control risks associated with interest rate movements. Methods for
evaluating interest rate risk include an analysis of the Company's interest rate
sensitivity "gap," which is defined as the difference between interest-earning
assets and interest-bearing liabilities maturing or repricing within a given
time period. A gap is considered positive when the amount of interest-rate
sensitive assets exceeds the amount of interest-rate sensitive liabilities. A
gap is considered negative when the amount of interest-rate sensitive
liabilities exceeds the amount of interest-rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income, while a positive gap would tend to result in an increase in
net interest income. During a period of declining interest rates, a negative gap
would tend to result in an increase in net interest income, while a positive gap
would tend to affect net interest income adversely. Because different types of
assets and liabilities with the same or similar maturities may react differently
to changes in overall market rates or conditions, changes in interest rates may
affect net interest income positively or negatively even if an institution were
perfectly matched in each maturity category.

     The following table sets forth the estimated maturity or repricing of the
Company's interest-earning assets and interest-bearing liabilities at June 30,
1999. The amounts of assets and liabilities shown within a particular period
were determined in accordance with the contractual terms of the assets and
liabilities, except (i) floating-rate securities are included in the period in
which their interest rates are first scheduled to adjust and not in the period
in which they mature and (ii) fixed-rate Mortgage Assets reflect estimated
prepayments, which were estimated based on analyses of broker estimates.
Management believes that these assumptions approximate actual experience and
considers them reasonable; however, the interest rate sensitivity of the
Company's assets and liabilities in the table could vary substantially if
different assumptions were used or actual experience differs from the historical
experience on which the assumptions are based.

<TABLE>
<CAPTION>
                                                                              June 30, 1999
                                                                              More than 1
                                                   Within 3      4 to 12      Year to 3      3 Years
                                                    Months        Months        Years        and Over       Total
                                                                       (dollars in thousands)

Rate-Sensitive Assets:
<S>                                                  <C>            <C>           <C>           <C>           <C>
   Mortgage Assets..........................         51,937         5,317         5,472         237,708       300,434

Rate-Sensitive Liabilities:
   Repurchase agreements....................        218,049             0             0               0       218,049

Interest rate sensitivity gap...............       (166,112)        5,317         5,472         237,708

Cumulative interest rate sensitivity gap....       (166,112)     (160,795)     (155,323)         82,385

  Cumulative interest rate sensitivity gap as
a percentage of total rate-sensitive assets.          (55%)        (54%)         (52%)              27%
</TABLE>

<PAGE>
PART II.          OTHER INFORMATION

Item 1.  Legal Proceedings

     At June 30, 1999, there were no legal proceedings to which the Company was
a party or of which any of its properties were subject.

Item 2.  Changes in Securities and Use of Proceeds

     Not applicable.

Item 3.  Defaults Upon Senior Securities

     Not applicable.

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

     The Annual Meeting of Stockholders of the Company was held on June 24,
1999. The following matters were voted on at the Annual Meeting:

     (1) ELECTION OF DIRECTOR. The following person was elected as a director:

                                                 NUMBER OF SHARES
                                                       Voted against
            NAME                       VOTED FOR         OR WITHHELD
    ------------------------         -------------    ----------------
      Frederick N. Khedouri           14,742,099          177,238

     Of the remaining three board members, two will stand for election in 2000
     and the remaining one will stand for election in 2001.

     (2) APPOINTMENT OF INDEPENDENT AUDITORS. The stockholders approved the
     appointment of Deloitte & Touche LLP as independent auditors for the
     Company for the year 1999. There were 14,839,471 shares voted for approval;
     72,725 shares voted against and 7,141 abstained.

Item 5.   Other Information

     As of July 31, 1999, the Company estimates that its net asset value per
share was between $4.35 and $4.85 per share. As of that date, the Company
estimates that its portfolio was comprised of approximately $121 million of
Agency Certificates, $25 million of Subordinate Interests, $13 million of IOs,
$5 million of Mortgage Loans and $6 million other fixed-income assets.

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits

     Exhibit 27.1 - Financial Data Schedule

(b) Reports

     On April 6, 1999, the Company filed a Current Report on Form 8-K regarding
a press release issued by the Company announcing that the Board of Directors
declared on March 30, 1999 a special first quarter distribution in cash of $2.00
per share of Common Stock, payable on April 30, 1999.

<PAGE>
                                   SIGNATURES


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


                                    LASER MORTGAGE MANAGEMENT, INC.



Dated:   August 16, 1999            By:  /S/ ROBERT J. GARTNER
                                         ---------------------
                                    Robert J. Gartner
                                    Vice President
                                    (principal accounting officer)
                                    (authorized officer of registrant)

<PAGE>
                                  EXHIBIT INDEX


EXHIBIT NUMBER                              EXHIBIT

     3.1  Articles of Incorporation of the Registrant (Incorporated by reference
          to Exhibit 3.1 to the Registration Statement on Form S-11 (File No.
          333-35673))

     3.2  Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to
          the Registration Statement on Form S-11 (File No. 333-35673))

     27.1* Summary Financial Data

----------
* Filed herewith.