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:     September 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.)


                               65 EAST 55TH STREET
                            NEW YORK, NEW YORK 10022
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (212) 758-6200
              (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: 14,860,583 shares of common
stock, $0.001 par value, outstanding as of November 8, 1999


<PAGE>



                         LASER MORTGAGE MANAGEMENT, INC.


                                    FORM 10-Q

                                      INDEX


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

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

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

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

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

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

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

    Item 2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations.......................................18

    Item 3. Quantitative and Qualitative Disclosures About Market Risk.......32

PART II. OTHER INFORMATION...................................................34

     Item 1.  Legal Proceedings..............................................34

     Item 2.  Changes in Securities and Use of Proceeds......................34

     Item 3.  Defaults Upon Senior Securities................................34

     Item 4.  Submission of Matters to a Vote of Security Holders............34

     Item 5.  Other Information..............................................34

     Item 6.  Exhibits and Reports on Form 8-K...............................34


<PAGE>


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

<TABLE>
<CAPTION>


LASER MORTGAGE MANAGEMENT, INC
BALANCE SHEET AT                                                    SEPTEMBER 30, 1999  DECEMBER 31, 1998
                                                                     (Unaudited)
                                                                    ---------------------------------------

ASSETS

<S>                                                                  <C>                <C>
Cash and cash equivalents ........................................   $  38,951,907      $  30,392,828
Receivable for securities sold ...................................           3,512               --
Investment in securities available for sale
     at fair value ...............................................     162,846,693        817,689,386
Investment in mortgage loans at amortized cost ...................       4,477,606          8,417,484
Accrued interest receivable ......................................       1,446,106          8,148,616
Principal paydown receivable .....................................         944,787          2,305,060
Margin deposits on repurchase agreements .........................            --            7,117,098
Other assets .....................................................          45,451               --
                                                                            ------        -----------
     Total assets ................................................     208,716,062        874,070,472
                                                                       -----------        -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Repurchase agreements ..........................................     133,393,000        742,384,912
  Accrued interest payable .......................................         307,301          2,446,237
  Other payable ..................................................         574,365               --
  Accounts payable ...............................................         718,593            557,547
  Payable to Manager .............................................            --            1,125,000
                                                                      ------------        -----------
     Total liabilities ...........................................     134,993,259        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 ...........................      (7,853,497)       (14,745,929)
  Accumulated distributions and losses ...........................    (171,844,095)      (121,290,971)
  Treasury stock at cost (5,233,166 and 2,300,466
    shares respectively) .........................................     (29,612,691)       (19,348,394)
                                                                       -----------        -----------
        Total stockholders' equity ...............................      73,722,803        127,556,776
                                                                        ----------        -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................   $ 208,716,062      $ 874,070,472
                                                                     =============      =============

        See notes to financial statements
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

STATEMENT OF OPERATIONS (UNAUDITED) FOR

                                                 THE THREE MONTHS ENDED             THE NINE MONTHS ENDED
                                                    SEPTEMBER 30,                      SEPTEMBER 30,

                                                      1999          1998            1999            1998
                                               --------------------------------------------------------------

Interest income:
<S>                                            <C>              <C>              <C>              <C>
  Mortgage loans and securities ............   $   3,854,058    $  48,934,346    $  26,074,650    $ 161,334,678
  Cash and cash equivalents ................         595,217        1,035,186        1,559,424        3,457,713
                                                     -------        ---------        ---------        ---------
           Total interest income ...........       4,449,275       49,969,532       27,634,074      164,792,391
                                                   ---------       ----------       ----------      -----------

Interest expense:
   Repurchase agreements ...................       1,996,483       43,412,378       15,972,392      139,691,623
                                                   ---------       ----------       ----------      -----------

Net interest inco me .......................       2,452,792        6,557,154       11,661,682       25,100,768

(Loss) gain on sale of securities, swaps and
 termination of repurchase agreement .......      (2,191,446)     (21,990,909)     (23,415,673)     (20,725,108)

Impairment loss on interest-only securities             --        (22,412,673)            --        (51,030,419)

General and administrative expenses ........         945,328        1,662,319        3,191,367        5,994,629
                                                     -------        ---------        ---------        ---------

Net loss ...................................   $    (683,982)   $ (39,508,747)   $ (14,945,358)   $ (52,649,388)
                                               =============    =============    =============    =============

Unrealized loss on securities:
  Unrealized holding (loss) arising
   during period ...........................   $    (210,679)   $ (27,199,052)   $ (16,523,241)   $ (38,159,633)

Add: reclassification adjustment for loss
included in net (loss) income ..............       2,191,446       21,990,909       23,415,673       20,725,108
                                                   ---------       ----------       ----------       ----------

Other comprehensive (loss) income ..........       1,980,767       (5,208,143)       6,892,432      (17,434,525)
                                                   ---------       ----------        ---------      -----------

Comprehensive income (loss) ................   $   1,296,785    $ (44,716,890)   $  (8,052,926)   $ (70,083,913)
                                               =============    =============    =============    =============

Net (loss) income per share:
  Basic ....................................   $       (0.04)   $       (2.10)   $       (0.85)   $       (2.68)
                                               =============    =============    =============    =============

  Diluted ..................................   $       (0.04)   $       (2.10)   $       (0.85)   $       (2.68)
                                               =============    =============    =============    =============

Weighted average number of shares
  outstanding:

  Basic ....................................      17,223,109       18,788,275       17,601,921       19,623,221
                                                  ==========       ==========       ==========       ==========

  Diluted ..................................      17,223,109       18,788,275       17,601,921       19,623,221
                                                  ==========       ==========       ==========       ==========

                                                 See notes to financial statements
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999

------------------------------------------------------------------------------------------------------------------------
                                                                                                  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....................................                                  $  (14,945,358)
  Other comprehensive loss
     Unrealized gain on securities,
        net of reclassification adjustment....                                       6,892,432           6,892,432
                                                                                --------------

Comprehensive loss............................                                  $   (8,052,926)
                                                                                ==============
Common stock issued...........................          19          90,997
Repurchase of common stock....................
Dividends/Distributions declared - $2.00
 per share...................................  -----------     ------------                        ---------------

BALANCE SEPTEMBER 30, 1999.................... $   20,119     $283,012,967                         $     (7,853,497)
                                               ==========     ============                         ================

Unrealized holding losses arising during
  period.....................................                                       (16,523,241)
Add:  reclassification adjustment for losses
     included in net loss.....................                                       23,415,673
                                                                                     ----------
Net unrealized losses on securities...........                                  $     6,892,432
                                                                                ===============


                                            See notes to financial statements.

</TABLE>
<TABLE>
<CAPTION>


STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999

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

                                                 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....................................      (14,945,358)                     (14,945,358)
  Other comprehensive loss
     Unrealized gain on securities,
        net of reclassification adjustment....                                        6,892,432

Comprehensive loss............................
Common stock issued...........................                                           91,016
Repurchase of common stock....................                      (10,264,297)    (10,264,297)
Dividends/Distributions declared - $2.00
 per share...................................       (35,607,766)                     (35,607,766)
                                                    -----------      -----------     -----------

BALANCE SEPTEMBER 30, 1999....................   $ (171,844,095)  $ (29,612,691)  $ 73,722,803
                                                 ==============   =============   ============

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


                                            See notes to financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE
                                                                     THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                       SEPTEMBER 30,                        SEPTEMBER 30,

                                                                     1999               1998             1999              1998
                                                              -------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                <C>            <C>                 <C>               <C>
Net loss ......................................................    $(683,982)     $(39,508,747)       $(14,945,359)    $(52,649,388)
  Adjustments to reconcile net loss to
   net cash provided by (used in) operating activities:
  Amortization of mortgage premiums and discounts, net .........     485,021         3,764,826           2,215,856       14,318,262
  Impairment loss on interest-only securities ..................        --          22,412,673          51,030,419
  Loss on sale of securities ...................................   2,191,446        21,990,909          23,415,673       20,725,108
  Decrease in accrued interest receivable ......................   2,685,154         6,592,218           8,062,783        4,738,494
  Increase in variation margin on interest rate swaps ..........       --         (26,483,991)               --               --
  Decrease in margin deposits on repurchase agreements .........       --                --             7,117,098       (56,896,863)
  Increase (decrease) in other assets ..........................      66,244              --               (45,451)           --
  Decrease in accrued interest payable .........................    (114,931)       (5,135,291)         (2,138,936)      (2,782,249)
  Increase (decrease) in accrued expenses and other liabilities.     279,158              --            (1,358,409)           --
  Increase (decrease) in accounts payable ......................     225,751          (104,005)            161,046       (1,554,147)
  Decrease in payable to Manager ...............................        --                --            (1,125,000)           --
                                                                   ---------       -----------          ----------      -----------
     Net cash provided by (used in) operating activities .......   5,133,863       (16,471,408)         21,359,303      (23,070,364)
                                                                   =========       ===========          ==========      ===========

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of securities .......................................     --        (179,675,163)               --        (2,989,589,332)
  Purchase of mortgage loans ...................................     --                --                  --           (11,912,075)
  Proceeds from sale of securities .............................   6,245,873     1,608,965,175         577,131,882    3,477,020,779
  Decrease (increase) in receivables for securities sold .......  75,368,727              --                (3,512)           --
  Principal payments on securities .............................   6,491,188        92,436,806          62,911,593      240,306,221
  Other payables ...............................................     --                --                1,932,774            --
                                                                   ----------    -------------          ----------    -------------
     Net cash provided by investing activities .................  88,105,785     1,521,726,818         641,972,734      715,825,593
                                                                  ==========     =============         ===========    =============

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from repurchase agreements .........................  425,974,000    11,042,252,930       3,240,819,246   33,414,807,277
  Principal payments on repurchase agreements ................. (509,420,610)  (12,551,437,167)     (3,849,811,157  (34,132,066,865)
  Net proceeds from repurchase of common stock ................   (9,958,238)      (13,360,736)        (10,173,282      (14,673,174)
  Distributions paid to stockholders ..........................       --          (7,552,246)          (35,607,766)     (18,774,196)
                                                                -------------       -----------     --------------- ---------------
     Net cash (used in) financing activities ..................  (93,404,848)   (1,530,097,219)       (654,772,959)    (750,706,958)
                                                                =============    ==============     ===============  ==============

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ..................................................      (165,200)      (24,841,809)          8,559,079      (57,951,729)

CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD .......................................................    39,117,107        49,516,606          30,392,828       82,626,526
                                                                -------------    --------------      --------------    ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD .....................    38,951,907        24,674,797          38,951,907      $24,674,797
                                                                =============    ==============      ==============     ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
  Interest paid ..............................................    $2,111,414      $142,473,872         $18,111,328     $142,473,872
                                                                ============      ============         ===========     ============
  Noncash financing activities:
    Net change in unrealized gain (loss) on available-for-sale
     securities ..............................................    $1,980,767       $(5,208,143)         $6,892,432     $(17,434,525)
                                                                ============       ===========          ==========     ============
    Dividends declared, not yet paid .........................                      $7,022,096                           $7,022,096
                                                                                   ===========                         ============


                                                 See notes to financial statements
</TABLE>

<PAGE>

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 nine-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 nine
months ended September 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 deferred 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.

AVAILABLE-FOR-SALE INVESTMENTS

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

<PAGE>

<TABLE>
<CAPTION>

                                         SEPTEMBER 30, 1999

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

<S>                       <C>               <C>                  <C>            <C>
Securities, principal
  amount                  121,150,975       64,702,593           7,122,513      192,976,081
Unamortized discount               --      (24,375,668)           (674,326)     (25,049,994)
Unamortized premium            92,075                --                  --         692,075
Amortized cost            121,843,050       40,326,925           6,448,187      168,618,162
Gross unrealized gains             --                --             74,326           74,326
Gross unrealized losses    (2,731,561)     (15,763,193)                         (18,494,754)
                            ----------     -----------         -----------      -----------
Estimated fair value      119,111,489       24,563,732           6,522,513      150,197,734
                          ===========      ===========         ===========      ===========
</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 $2.1 million from unrealized
loss to realized loss for securities sold in October 1999, as the decision to
sell them was made in September 1999.

<TABLE>
<CAPTION>

                                                  DECEMBER 31, 1998


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

<S>                                  <C>               <C>                 <C>            <C>            <C>
Securities, principal amount         $667,919,453      $118,887,059        $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 losse                       --         (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 September 30, 1999 and
December 31, 1998 are summarized as follows:


<TABLE>
<CAPTION>

                                        SEPTEMBER 30, 1999                    DECEMBER 31, 1998
                                        ------------------     -------------------------------------------------
                                                                                FIXED RATE
                                        FLOATING RATE          COMMERCIAL       FLOATING RATE           TOTAL
<S>                                     <C>                    <C>               <C>                <C>
Securities, notional amount             $101,191,673           $ 276,985,725     $177,704,524       $454,690,249
Amortized cost, after provision
  for impairment                           4,221,147              19,447,590        7,333,338         26,780,928
Gross unrealized gains                     8,427,812                     --         2,995,078          2,995,078
Gross unrealized losses                        --                 (3,307,896)             --          (3,307,896)
                                           ---------              ----------      ------------        ----------
Estimated fair value                     $12,648,959           $  16,139,694      $ 10,328,416       $26,468,110
                                         ===========           =============      ============       ===========
</TABLE>


          All of the Company's IOs as of September 30, 1999 were floating rate
IOs.

          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
nine months ended September 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 nine
months ended September 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
September 30, 1999 and December 31, 1998 which are carried at their amortized
cost:

                                     September 30, 1999     December 31, 1998

Mortgage Loans, principal amount             $4,284,262           $8,150,593
Unamortized discount                                 --                   --
Unamortized premium                             193,344              266,891
                                                -------              -------
Amortized cost                               $4,477,606           $8,417,484
                                             ==========           ==========


          As of September 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 September 30, 1999, the Company had outstanding $133,393,000 of
repurchase agreements with a weighted average borrowing rate of 5.410% and a
weighted average remaining maturity of 29 days. At September 30, 1999,
Investments actually pledged had an estimated fair value of $140,781,399.


<PAGE>


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

                             SEPTEMBER 30, 1999        December 31, 1998

Within 30 days                     $133,393,000       $        242,384,912
30 to 90 days                                --                   __
Greater than 90 days                         --                500,000,000
                                   ------------       --------------------
                                   $133,393,000       $        742,384,912
                                   ============       ====================


          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.


<PAGE>


          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 - During the three months ended September 30,
1999, the Company did not declare or pay any dividends or 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 nine months ended September 30, 1999, the Company has used the proceeds
of sales of, and payments from, its portfolio securities to repurchase 2,932,700
shares of common stock for $10,261,470 in open market transactions. Such
purchases were made at a weighted average price per share of $3.50 (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
September 30, 1999, no management and incentive fees were payable or paid to the
Former Manager.

          For the nine months ended September 30, 1998, management fees paid to
the Former Manager amounted to approximately $1,991,000 and incentive fees were
$1,414,000.

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 nine months ended September 30,
1999.

<TABLE>
<CAPTION>

                               FOR THE THREE MONTHS ENDED                      FOR THE NINE MONTHS ENDED
                                   SEPTEMBER 30, 1999                             SEPTEMBER 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                  $(683,982)     $17,223,109     $(0.04)      $(14,945,358)     $17,601,921      $(0.85)

Diluted EPS                $(683,982)     $17,223,109     $(0.04)      $(14,945,358)     $17,601,921      $(0.85)
</TABLE>


          For the three months and nine months ended September 30, 1999, the
Company had no deferred common stock reserved for issuance.

          For the three months and nine months ended September 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 ($3.59 and
$4.25, respectively). Therefore, these options were excluded from Diluted EPS.

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

<TABLE>
<CAPTION>

                              FOR THE THREE MONTHS ENDED                           FOR THE NINE MONTHS ENDED
                                  SEPTEMBER 30, 1998                                  SEPTEMBER 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                $ (39,508,747)      18,788,275  $   (2.10)          $(52,649,388)      19,623,221   $   (2.68)

Diluted EPS               $(39,508,747)      18,788,275  $   (2.10)          $(52,649,388)      19,623,221   $   (2.68)
</TABLE>


          As of September 30, 1998, the Company had deferred common stock
totaling 65,000 shares reserved for issuance. 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.


<PAGE>


          For the three months ended September 30, 1998, options to purchase
298,000 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 ($8.594). Therefore, these options were
excluded from Diluted EPS.

          For the nine months ended September 30, 1998, options to purchase
298,000 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 ($12.959). Therefore, these options were
excluded from Diluted EPS.

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 NINE MONTHS ENDED
                                               SEPTEMBER 30, 1999                 SEPTEMBER 30, 1999
                                               --------------------------     -------------------------

<S>                                            <C>                            <C>
Net earnings (loss) - as reported              $     (683,982)                $   (14,945,358)
Net earnings (loss) - pro forma                $     (684,049)                $   (14,945,425)
(Loss) earnings per share - as reported        $        (0.04)                $         (0.85)
(Loss) earnings per share - pro forma          $        (0.04)                $         (0.85)
</TABLE>


<TABLE>
<CAPTION>

                                       FOR THE THREE MONTHS ENDED       FOR THE NINE MONTHS ENDED
                                       SEPTEMBER 30, 1998               SEPTEMBER 30, 1998
                                       --------------------------       -------------------------

<S>                                     <C>                              <C>
Net loss - as reported                  $  (39,508,747)                  $   (52,649,388)
Net loss - pro forma                    $  (39,514,521)                  $   (52,666,709)
Loss per share - as reported            $        (2.10)                  $         (2.68)
Loss per share - pro forma              $        (2.10)                  $         (2.68)
</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 nine months ended September
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.


<PAGE>



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

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


   September 30, 1999      $   15.00       72,000        8.2          $  15.00
   September 30, 1998      $   15.00      298,000        9.2          $  15.00


          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 nine months ended September
30, 1999, 148,000 stock options terminated.

          The compensation expense for the 140,000 shares of deferred stock
outstanding as of September 30, 1998 is being 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 $1,035,000,000. 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 $485,000,000. The Company
recognized the unrealized loss on these swaps as an element of the overall loss
on the liquidation of the securities of $26,000,000. 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 $550,000,000, totaled $35,000,000. 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 nine months ended
September 30, 1999.

          As of September 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.


<PAGE>


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

        $550,000     7.41%     1 Month LIBOR       1/10/13        $(42,075,000)
                                                                  =============


          During the three months ended September 30, 1998, the Company entered
into and terminated interest rate swaps with notional amounts totaling
$485,000,000 and incurred a realized loss of $25,782,250, 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 nine months ended September 30, 1999, a net
operating gain (loss) as calculated for tax purposes is estimated at
approximately $(0.68) million and $(14.95) million, respectively, or $(0.04) and
$(0.85), respectively, per weighted average share. Net operating losses ("NOLs")
generally may be carried forward for 20 years. The Company believes that during
1999 it experienced an "ownership change" within the meaning of Section 382 of
the Code. Consequently, its use of NOLs generated before the ownership change to
reduce taxable income after the ownership change will be subject to limitations
under Section 382. Generally, the use of NOLs in any year is limited to the
value of the Company's stock on the date of the ownership change multiplied by
the long- term tax exempt rate (published by the IRS) with respect to that date.
The Company is currently attempting to determine the amount of the annual
limitation.

          Taxable income (loss) requires an annual calculation; consequently,
for the year ended December 31, 1999, taxable income (loss) may be different
from net 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 Company's tax
purposes, unrealized gains (losses) will be recognized at the end of the year
and will be aggregated with operating gains (losses) to produce total taxable
income (loss) for the year. For the three months and nine months ended September
30, 1999, the Company had unrealized gains of approximately $1.98 million and
$6.89 million, respectively. 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

          On November 15, 1999, the Company announced that its Board of
Directors has authorized management to conduct a competitive sale of
approximately $30 million of its less liquid portfolio assets as part of its
ongoing program to reduce the volatility of the Company's assets, that the
Company expects to distribute information to qualified potential purchasers over
the next 30 days and close the sales in January 2000, that the Board will review
other steps to increase shareholder value at that time, and that based on the
Company's projections of its taxable income, it will not have an obligation to
make further distributions in 1999 to maintain its REIT status. In addition, on
that date, the Company announced that the Board also approved the repurchase of
up to an additional $10 million of the Company's common stock pursuant to the
stock repurchase program in light of the successful completion of the initial
repurchase program.

          On November 5, 1999, the Company received an unsolicited letter from
Ellington Management Group, LLC ("Ellington"), an investment advisor to an
investment fund which holds 9.85% of the Company's outstanding common stock.
Ellington stated that it desires to discuss a negotiated acquisition of the
Company by funds managed by Ellington in a two step transaction which would
begin with a tender offer for the Company's common stock and would be followed
by a back-end merger, at a price of $4.15 per share. On November 10, 1999, the
Company announced that its Board of Directors, after consulting with the
Company's financial advisor, Lehman Brothers Inc., and outside legal counsel,
authorized the Company to enter into discussions with Ellington concerning its
proposed acquisition of the Company. On November 15, 1999, the Company announced
that the Board agreed to inform Ellington that, based upon the advice of its
financial advisor, its proposal of November 5, 1999 did not provide shareholders
sufficient value, that the Board also approved providing certain confidential
operating information to Ellington based upon Ellington's representation that
the price at which it would tender may be subject to improvement after review of
the requested information, and that the Company is not currently engaged in
negotiations with Ellington.

          On November 1, 1999 the Company announced that Mariner Mortgage
Management, LLC ("Mariner") has agreed to serve as the external manager of the
Company and be responsible for day-to-day management of the Company's
investments; William J. Michaelcheck, the Chairman of Mariner, has been
appointed President and Chief Executive Officer of the Company, and Frederick N.
Khedouri, an independent Director of the Company who has been acting as
non-executive President, has resigned as President and been elected Chairman of
the Board of Directors; the Company is terminating its consulting arrangement
with BlackRock Financial Management, Inc. upon completion of the transition to
Mariner; and Robert J. Gartner, who is Vice President of the Company and
responsible for day-to-day investment decisions for the Company, will resign
upon completion of the transition to Mariner. The Company estimates that the
restructuring of its management will reduce its base annual operating expenses
(before incentive fees, if any) from approximately $0.14 per share to
approximately $0.02 per share.

                                    * * * * *


<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 September 30, 1999, the Company estimates that its net asset
value per share was between $4.65 and $5.15 per share. During the nine months
ended September 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 $12.8 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 $2.1 million from unrealized loss to realized loss for securities
sold in October 1999, as the decision to sell them was made in September 1999.

          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

          On November 15, 1999, the Company announced that its Board of
Directors has authorized management to conduct a competitive sale of
approximately $30 million of its less liquid portfolio assets as part of its
ongoing program to reduce the volatility of the Company's assets, that the
Company expects to distribute information to qualified potential purchasers over
the next 30 days and close the sales in January 2000, that the Board will review
other steps to increase shareholder value at that time, and that based on the
Company's projections of its taxable income, it will not have an obligation to
make further distributions in 1999 to maintain its REIT status. In addition, on
that date, the Company announced that the Board also approved the repurchase of
up to an additional $10 million of the Company's common stock pursuant to the
stock repurchase program in light of the successful completion of the initial
repurchase program.

          On November 5, 1999, the Company received an unsolicited letter from
Ellington Management Group, LLC ("Ellington"), an investment advisor to an
investment fund which holds 9.85% of the Company's outstanding common stock.
Ellington stated that it desires to discuss a negotiated acquisition of the
Company by funds managed by Ellington in a two step transaction which would
begin with a tender offer for the Company's common stock and would be followed
by a back-end merger, at a price of $4.15 per share. On November 10, 1999, the
Company announced that its Board of Directors, after consulting with the
Company's financial advisor, Lehman Brothers Inc., and outside legal counsel,
authorized the Company to enter into discussions with Ellington concerning its
proposed acquisition of the Company. On November 15, 1999, the Company announced
that the Board agreed to inform Ellington that, based upon the advice of its
financial advisor, its proposal of November 5, 1999 did not provide shareholders
sufficient value, that the Board also approved providing certain confidential
operating information to Ellington based upon Ellington's representation that
the price at which it would tender may be subject to improvement after review of
the requested information, and that the Company is not currently engaged in
negotiations with Ellington.

          On November 1, 1999 the Company announced that Mariner Mortgage
Management, LLC ("Mariner") has agreed to serve as the external manager of the
Company and be responsible for day-to-day management of the Company's
investments; William J. Michaelcheck, the Chairman of Mariner, has been
appointed President and Chief Executive Officer of the Company, and Frederick N.
Khedouri, an independent Director of the Company who has been acting as
non-executive President, has resigned as President and been elected Chairman of
the Board of Directors; the Company is terminating its consulting arrangement
with BlackRock Financial Management, Inc. upon completion of the transition to
Mariner; and Robert J. Gartner, who is Vice President of the Company and
responsible for day-to-day investment decisions for the Company, will resign
upon completion of the transition to Mariner. The Company estimates that the
restructuring of its management will reduce its base annual operating expenses
(before incentive fees, if any) from approximately $0.14 per share to
approximately $0.02 per share.

RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30,
1999 COMPARED TO THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998

NET LOSS SUMMARY

          For the three months ended September 30, 1999, the Company had a net
loss of $(0.7) million, or $(0.04) per weighted average share, compared to a net
loss before giving effect to charges relating to the permanent impairment of
certain IOs of $(17.1) million, or $(0.91) per weighted average share for the
three months ended September 30, 1998. After giving effect to the impairment
charges of $(22.4) million, or $(1.19) per weighted average share, the Company
had a net loss of $(39.5) million, or $(2.10) per weighted average share for the
three months ended September 30, 1998. The weighted average number of shares of
common stock outstanding for the three months ended September 30, 1999 and 1998
were 17,223,109 and 18,788,275, respectively. No dividends were declared during
the three months ended September 30, 1999. Dividends declared per share were
$0.37 per weighted average share, $7.0 million in total, for the three months
ended September 30, 1998. Return on average equity was (0.83%) and (18.06)% on
an unannualized basis (after giving effect to the impairment charges) for the
three months ended September 30, 1999 and 1998, respectively.

          For the nine months ended September 30, 1999, the Company had a net
loss of $(14.9) million, or $(0.85) per weighted average share, compared to a
net loss before giving effect to charges relating to the permanent impairment of
certain IOs of $(1.6) million, or $(0.08) per weighted average share for the
nine months ended September 30, 1998. After giving effect to the impairment
charges of $(51.0) million, or $(2.60) per weighted average share, the Company
had a net loss of $(52.6) million, or $(2.68) per weighted average share for the
nine months ended September 30, 1998. The weighted average number of shares of
common stock outstanding for the nine months ended September 30, 1999 and 1998
were 17,601,921 and 19,623,221, respectively. Distributions declared per share
were $2.00 and $1.18 per weighted average share, and $35.6 million and $23.2
million in total, for the nine months ended September 30, 1999 and 1998,
respectively. Return on average equity was (15.75%) and (20.60)% on an
unannualized basis (after giving effect to the impairment charges) for the nine
months ended September 30, 1999 and 1998, respectively.

          For the three months and nine months ended September 30, 1999, the
Company sold securities with an aggregate historical amortized cost of $7.4
million and $598.4 million, respectively, for a net loss of $(0.05) million and
$(12.8) million, respectively, compared to sales of $1.2 billion and $3.4
billion, respectively, of securities for an aggregate loss of $(22.0) million
and $(20.7) million, respectively, for the three months and nine months ended
September 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 $2.1 million from unrealized loss to
realized loss for securities sold in October 1999, as the decision to sell them
was made in September 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 September
30, 1999 were approximately $(2.2) million, or $(0.13) per weighted average
share, compared to a gain of approximately $(22.0) million, or $(1.17) per
weighted average share for the three months ended September 30, 1998 (excluding
impairment loss on interest-only securities). Excluding realized gains and
losses, the Company's income for the three months ended September 30, 1999 was
approximately $1.5 million, or $0.09 per weighted average share, compared to
approximately $4.9 million, or $0.26 per weighted average share for the three
months ended September 30, 1998 (excluding impairment loss on interest-only
securities). The realized losses during the nine months ended September 30, 1999
were approximately $(23.42) million, or $(1.33) per weighted average share,
compared to losses of approximately $(20.7) million, or $(1.06) per weighted
average share for the nine months ended September 30, 1998 (excluding impairment
loss on interest-only securities). Excluding realized gains and losses, the
Company's income for the nine months ended September 30, 1999 was approximately
$8.5 million, or $0.48 per weighted average share, compared to approximately
$19.1 million, or $0.97 per weighted average share for the nine months ended
September 30, 1998 (excluding impairment loss on interest-only securities). This
reduction of income for the three months and nine months ended September 30,
1999 compared to the three months and nine months ended September 30, 1998 is
consistent with the Company's substantially reduced investment portfolio.

TAXABLE INCOME (LOSS) AND GAAP INCOME (LOSS)

          For the three months and nine months ended September 30, 1999, a net
operating gain (loss) is estimated at approximately $(0.68) million and $(14.95)
million, respectively, or $(0.04) and $(0.85), respectively, per weighted
average share. NOLs generally may be carried forward for 20 years. The Company
believes that during 1999 it experienced an "ownership change" within the
meaning of Section 382 of the Code. Consequently, its use of NOLs generated
before the ownership change to reduce taxable income after the ownership change
will be subject to limitations under Section 382. Generally, the use of NOLs in
any year is limited to the value of the Company's stock on the date of the
ownership change multiplied by the long-term tax exempt rate (published by the
IRS) with respect to that date. The Company is currently attempting to determine
the amount of the annual limitation.

          Taxable income (loss) requires an annual calculation; consequently,
for the year ended December 31, 1999, taxable income (loss) may be different
from GAAP income (loss) as a result of differing treatment of unrealized gains
and losses on securities transactions. For the Company's tax purposes,
unrealized gains (losses) will be recognized at the end of the year and will be
aggregated with operating gains (losses) to produce total taxable income (loss)
for the year. For the three months and nine months ended September 30, 1999, the
Company had unrealized gains of approximately $1.98 million and $6.89 million,
respectively. For the year ended December 31, 1998, a NOL is estimated at
approximately $(51.3) million, or $(2.65) per weighted average share.

          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 September 30, 1999 and 1998, the Company had not taken
credit provisions because 71% and 87%, 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 $210 million and $477
million for the three months and nine months ended September 30, 1999,
respectively, compared to average earning assets of $3,156 million and $3,531
million for the three months and nine months ended September 30, 1998,
respectively. The table below shows, for the three months and nine months ended
September 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 September 30, 1999     $ 44,205     $ 166,034    $  210,239   5.27%        9.08%       8.28%    $ 4,449
For the three months ended September 30, 1998     $ 25,969     $ 3,129,845  $3,155,814   5.61%        6.60%       6.59%    $ 49,970

For the nine months ended September 30, 1999      $ 40,603     $ 436,042    $  476,645   5.06%        7.89%       7.65%    $ 27,634
For the nine months ended September 30, 1998      $ 52,599     $ 3,478,359  $3,530,958   5.78%        6.68%       6.67%    $ 164,792
</TABLE>


INTEREST EXPENSE AND THE COST OF FUNDS

          For the three months ended September 30, 1999 and 1998, the Company
had average borrowed funds of $148 million and $2,969 million, respectively, and
total interest expense of $2 million and $43 million, respectively, with an
average cost of funds of 5.27% and 5.72%, respectively. For the nine months
ended September 30, 1999 and 1998, the Company had average borrowed funds of
$384 million and $3,240 million, respectively, and total interest expense of $16
million and $140 million, respectively, with an average cost of funds of 5.48%
and 5.69%, 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 0.01% less than
one-month LIBOR for the three months ended September 30, 1999 compared to 0.10%
above one-month LIBOR for the three months ended September 30, 1998 and was
0.41% above one-month LIBOR for the nine months ended September 30, 1999
compared to 0.05% above one-month LIBOR for the nine months ended September 30,
1998. The Company generally has structured its borrowings to adjust with
one-month LIBOR. During the three months ended September 30, 1999, average
one-month LIBOR, which was 5.28%, was 0.52% lower than average six-month LIBOR,
which was 5.80%. During the three months ended September 30, 1998, average
one-month LIBOR, which was 5.62%, was 0.01% lower than average six month LIBOR,
which was 5.63%.


<PAGE>


          The table below shows, for the three months and nine months ended
September 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 TO    RELATIVE TO   RELATIVE 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>
  September 30, 1999           $  148,273   $  1,996     5.27%    5.28%        5.80%      (.52)%         -0.01%        (0.53)%
For the three  months ended
  September 30, 1998           $2,969,455   $ 43,412     5.72%    5.62%        5.63%      (0.01)%        0.10%         0.09%

For the nine months ended
  September 30, 1999           $  384,259   $ 15,972     5.48%    5.07%        5.35%      (0.28)%        0.41%         0.13%
For the nine months ended
  September 30, 1998           $3,240,113   $139,692     5.69%    5.64%        5.68%      (0.04)%        0.05%         0.01%
</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 nine months ended
September 30, 1999.

          During the three months and nine months ended September 30, 1998, the
Company had outstanding interest rate swaps with the original notional amounts
stated below. Under these agreements, the Company received a floating rate and
paid 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.

<TABLE>
<CAPTION>

                                                       INTEREST RATE SWAP TERMS
                                                        (dollars in thousands)


                                                                           AVERAGE
                                                  NOTIONAL      FIXED     FLOATING        NET
                                                   AMOUNT       RATE        RATE         LOSS

<S>                                               <C>            <C>         <C>      <C>
For the three months ended September 30, 1998    $ 550,000      7.41%       5.65%    $ (3,857)
For the nine months ended September 30, 1998     $ 550,000      7.41%       5.65%    $(12,312)
</TABLE>


          During the three months ended September 30, 1998, the Company entered
into and terminated interest rate swaps with notional amounts totaling $485
million and incurred a realized loss of $25.8 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 $2.5 million for the three months ended September 30, 1999
compared to $6.6 million for the three months ended September 30, 1998. Net
interest income totaled $11.7 million for the nine months ended September 30,
1999 compared to $25.1 million for the nine months ended September 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 3.04%
and 2.20% for the three months and nine months ended September 30, 1999,
respectively, compared to 0.88% and 0.99% for the three months and nine months
ended September 30, 1998, respectively. The decrease in net interest income for
the three months and nine months ended September 30, 1999 compared to the three
months and nine months ended September 30, 1998 was due to the Company's
substantially reduced investment portfolio. The net interest rate spread
increased for the three months ended September 30, 1999 compared to the three
months ended September 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
September 30, 1999 compared to the three months ended September 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 nine months ended September 30, 1999 and 1998.

<TABLE>
<CAPTION>

                                                NET INTEREST INCOME
                                              (dollars in thousands)

                                                                                                 NET INCOME
                                   AVERAGE        INTEREST                      INTEREST         ON
                                   AMORTIZED      INCOME ON     AVERAGE         INCOME ON        CONTRACTUAL         TOTAL
                                   COST OF        INVEST-       CASH            CASH             COMMIT-             INTEREST
                                   SECURITIES     MENTS         EQUIVALENTS     EQUIVALENTS      MENTS               INCOME
<S>                                <C>            <C>           <C>             <C>              <C>                  <C>
For the three months ended
  September 30, 1999               $   166,034    $  3,854      $ 44,205        $   595          $    --             $  4,449
For the three months ended
  September 30, 1998               $ 3,129,845    $ 52,792      $ 25,969        $ 1,034          $ (3,857)           $ 49,969
For the nine months ended
  September 30, 1999               $   436,042    $ 26,075      $ 40,603        $ 1,559          $    --             $ 27,634
For the nine months ended
  September 30, 1998               $ 3,425,760    $ 173,647     $ 52,599        $ 3,458          $ (12,312)          $164,793
</TABLE>

<TABLE>
<CAPTION>
                                                NET INTEREST INCOME
                                              (DOLLARS IN THOUSANDS)

                                   YIELD ON
                                   AVERAGE        AVERAGE
                                   INTEREST       BALANCE OF                    AVERAGE    NET
                                   EARNING        REPURCHASE     INTEREST       COST OF    INTEREST
                                   ASSETS         AGREEMENTS     EXPENSE        FUNDS      INCOME

<S>                                <C>            <C>            <C>             <C>        <C>
For the three months ended
  September 30, 1999               8.28%          $  148,273     $  1,996        5.27%      $ 2,453
For the three months ended
  September 30, 1998               6.59%          $2,969,455     $ 43,412        5.72%      $ 6,557
For the nine months ended
  September 30, 1999               7.65%          $  384,259     $ 15,972        5.48%      $11,662
For the nine months ended
  September 30, 1998               6.67%          $3,240,113     $139,692        5.69%      $25,101
</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 September 30,
1999 and 1998, the Company had limited its exposure to credit losses on its
portfolio by holding 71% and 87%, respectively, of its investments in Agency
Certificates.

GENERAL AND ADMINISTRATIVE EXPENSES

          General and administrative expenses ("operating expense" or "G&A
expense") were $945,000 and $3.2 million for the three months and nine months
ended September 30, 1999, respectively, consisting of fees paid to BlackRock
Financial Management, Inc. of $375,000 and $1.13 million, salary expenses of
$150,000 and $350,000 and fees paid to the Former Manager of $0 and $500,000 and
professional and other miscellaneous fees. G&A expense were $1.7 million and
$6.0 million for the three months and nine months ended September 30, 1998,
respectively, consisting of management fees paid to the Former Manager of
$590,000 and $2.0 million, incentive fees paid to the Former Manager of $34,000
and $1.4 million 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.

<TABLE>
<CAPTION>

                                                    G&A EXPENSE RATIOS
                                                  (dollars in thousands)
                                                                                             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)
<S>                             <C>       <C>        <C>       <C>        <C>         <C>       <C>       <C>         <C>
For the three months ended
  September 30, 1999            $  --     $    --    $  --     $   375    $  570      $  945    1.50%     4.50%       38.54%
For the three months ended
  September 30, 1998            $ 591     $  (35)    $  275    $    --    $  831      $1,662    0.20%     3.01%       25.35%
For the nine months ended
  September 30, 1999            $ 500     $   --     $  --     $1,125     $1,475      $3,191    0.81%     4.43%       27.37%
For the nine months ended
  September 30, 1998            $1,991     $1,414    $1,047    $   --     $1,542      $5,994    0.21%4    3.14%       23.88%
</TABLE>


NET (LOSS) INCOME AND RETURN ON AVERAGE EQUITY

          Net losses were $(0.68) million and $(14.95) million for the three
months and nine months ended September 30, 1999, respectively, compared to net
losses of $(39.5) million and $(52.6) million for the three months and nine
months ended September 30, 1998, respectively. Return on average equity, on an
unannualized basis, for the three months and nine months ended September 30,
1999 was (0.83%) and (15.75%), respectively, compared to (18.06)% and (20.60)%
for the three months and nine months ended September 30, 1998, respectively.

          The table below shows, on an unannualized basis, for the three months
and nine months ended September 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>             <C>
For the three months ended
  September 30, 1999                    2.98%            (2.66)%                   --             1.15%          (0.83)%
For the three months ended
  September 30, 1998                    3.00%           (10.05)%               (10.25)%           0.76%          (18.06)%

For the nine months ended
  September 30, 1999                   12.29%           (24.67)%                   --             3.36%          (15.75)%
For the nine months ended
  September 30, 1998                    9.82%            (8.11)%               (19.97)%          2.34%          (20.60)%
</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 nine months ended September 30,
1999, the Company estimated that it had no taxable income. For the three months
ended September 30, 1999, the Company did not pay any dividends or
distributions. For the nine months ended September 30, 1999, the Company made
distributions totaling $35.6 million. For the nine months ended September 30,
1998, dividend declarations exceeded estimated taxable income by approximately
$5.1 million, or $0.26 per share, based on the weighted average number of shares
of common stock outstanding during the period.

<PAGE>

FINANCIAL CONDITION

          INVESTMENTS

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

<TABLE>
<CAPTION>

                                            AS OF SEPTEMBER 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..........              $  119               71%         $   681              82%
  Subordinate Interests........                  25               15%             73               9%
  IOs..........................                  13                8%             26               3%
  CMOs.........................                  --                --             25               3%
  Mortgage Loans...............                   4                2%              8               1%
  Other fixed-income assets....                   6                4%             13 (1)           2%
                                         -------------------------------------------------------------
                  Total                      $  167              100%         $   826             100%
                                         =============================================================

(1)      Included no emerging market securities.
</TABLE>



          The Company reduced its portfolio of Mortgage Assets during the nine
months ended September 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 September
30, 1999 and December 31, 1998, the Company had on its balance sheet (excluding
IOs) $25.1 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 $890,000 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 $97.0 million unamortized discount on IOs at
September 30, 1999 compared to $26.8 million unamortized premium at December 31,
1998.

          Mortgage principal repayments received were $62.9 million for the nine
months ended September 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.


<PAGE>


          The tables below summarize the Company's investments at September 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>
September 30, 1999        $192,976   $  (24,358)   $168,618       87.38%        $150,197     77.83%       6.7
December 31, 1998         $833,299   $  (27,644)   $805,655       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       PREMIUM        COST         AMOUNT      FAIR VALUE      AMOUNT          (YEARS)

<S>                          <C>           <C>           <C>            <C>          <C>            <C>             <C>
September 30, 1999           $    4,284    $     194     $   4,478      104.51%      $     4,478    104.51%         3.1
December 31, 1998            $    8,151    $     267     $   8,418      103.27%      $     8,417    103.27%         2.6
</TABLE>


          At September 30, 1999, the Company had borrowing outstanding from two
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.


<PAGE>

<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>
September 30, 1999              $101,192   $(96,971)   $   4,221    4.17%       $ 12,649         12.50%       6.5
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 September 30, 1999 and December 31, 1998.

<TABLE>
<CAPTION>

                                            UNREALIZED GAINS AND LOSSES
                                              (dollars in thousands)

                                                                         AT SEPTEMBER 30, 1999    AT DECEMBER 31, 1998
                                                                         ---------------------    ---------------------
<S>                                                                          <C>                     <C>
Unrealized Gain                                                              $     8,502             $     12,182
Unrealized Loss                                                                  (18,495)                 (26,928)
Net Unrealized Loss                                                               (9,993)                 (14,746)
Net Unrealized Loss as % of  Investments Principal/Notional Amount                 (3.35)%                  (1.14)%
Net Unrealized Loss as % of Investments Amortized Cost                             (5.64)%                  (1.75)%
</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>

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


                                                 AT SEPTEMBER 30, 1999                        AT DECEMBER 31, 1998
                                                 ---------------------                        --------------------
                                            CARRYING VALUE         PORTFOLIO MIX        CARRYING VALUE           PORTFOLIO MIX
                                            --------------         -------------        --------------           -------------
<S>                                          <C>                        <C>               <C>                         <C>
Agency Certificates                          $ 119,111                  71%               $   680,730                 83%
Privately Issued Certificates:
A Rating                                         --                     --                      7,596                  1%
BBB/Baa Rating                                   --                     --                     17,791                  2%
BB/Ba Rating and Other                          31,086                  17%                    85,105                 10%
IOs                                             12,649                   8%                    26,468                  3%
Mortgage Loans                                   4,478                   4%                     8,417                  1%
                                             ---------              -------               -----------        ------------
Total                                        $ 167,324                 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 September 30, 1999 and December 31, 1998.


                              SUBORDINATE INTERESTS
                             (dollars in thousands)

                                                  MARKET VALUE AT
                                                  -----------------
DESCRIPTION                    SEPTEMBER 30, 1999       DECEMBER 31, 1998
-----------                    ------------------       -----------------
Commercial                      $     19,784            $      45,292
Residential                            4,780                   27,337


                                  IO SECURITIES
                             (dollars in thousands)

                                                   MARKET VALUE AT
                                                   ---------------
DESCRIPTION           COUPON       SEPTEMBER 30, 1999      DECEMBER 31, 1998
-----------           ------       ------------------      -----------------
Commercial            Fixed           $         --           $     16,140
Residential           Floating             12,649                 10,328


                                      CMOs
                             (dollars in thousands)

                                                  MARKET VALUE AT
                                                  ---------------
DESCRIPTION           RATING       SEPTEMBER 30, 1999          DECEMBER 31, 1998
-----------           ------       ------------------          -----------------
Residential           BBB             $       --                 $    17,792
Residential           A                       --                       7,596


                            OTHER FIXED-INCOME ASSETS
                             (dollars in thousands)

                                              MARKET VALUE AT
                                              ---------------

DESCRIPTION                    SEPTEMBER 30, 1999          DECEMBER 31, 1998
-----------                    ------------------          ------------------
CBO/CLO                            $     6,522               $      12,478


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 September 30, 1999,
the Company had borrowings outstanding from two 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 nine months ended September 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 29 days at September 30, 1999. At September 30,
1999, the Company had outstanding $133.4 million of repurchase agreements. At
September 30, 1999, the weighted average cost of funds for all of the Company's
borrowings was 5.41% and investments actually pledged had an estimated fair
value of $140.8 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 nine months ended September 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 three 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 nine months ended
September 30, 1999, the Company has used the proceeds of sales of, and payments
from, its portfolio securities to repurchase 2,932,700 shares of Common Stock
for $10,261,470 in open market transactions. Such purchases were made at a
weighted average price per share of $3.50 (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 September 30, 1999 was $73.7 million, or $4.95 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 September 30, 1999 would have been $81.58 million, or $5.48 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 $(7.9) million, or (4.43)% of the amortized cost of securities at September
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 $2.1 million from unrealized loss to realized loss for
securities sold in October 1999, as the decision to sell them was made in
September 1999.

          The table below shows the Company's equity capital base as reported
and on a historical amortized cost basis at September 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.


<PAGE>

<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 September 30, 1999           $ 81,576            $(7,854)        $73,722     $5.48         $4.95
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 2.8 to 1 at
September 30, 1999 compared to 6.9 to 1 at December 31, 1998. At September 30,
1999, the Company's equity-to-assets ratio was 35.32%, and has ranged from a
high of approximately 35.32% to a low of approximately 9.94% during the past
nine 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.

<PAGE>

          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 September 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       NET PORTFOLIO
   CHANGE IN INTEREST RATE      IN NET INTEREST INCOME            VALUE
   -----------------------      ---------------------------       -------------

- 400 Basis Points                  (33)%                          (4)%
- 300 Basis Points                  (36)%                          (6)%
- 200 Basis Points                  (28)%                          (6)%
- 100 Basis Points                  (16)%                          (2)%
Base Interest Rate                   --                             --
+ 100 Basis Points                   12%                           (1)%
+ 200 Basis Points                   21%                           (4)%
+ 300 Basis Points                   22%                           (10)%
+ 400 Basis Points                   14%                           (16)%


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
September 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>

                                                                     SEPTEMBER 30, 1999
                                              --------------------------------------------------------
                                                                     MORE THAN
                                              WITHIN 3    4 TO 12   1 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..........................    $ 51,601    $ 4,780    $ 4,478       $ 146,418    $ 207,205

Rate-Sensitive Liabilities:
Repurchase agreements....................     133,393       -           -             -          133,393

Interest rate sensitivity gap............     (81,792)     4,780      4,478         146,418

Cumulative interest rate sensitivity
  gap....................................     (81,792)   (77,012)   (72,534)         73,884

Cumulative interest rate sensitivity
  gap as a percentage of total rate-
  sensitive assets.......................         (40)%      (37)%      (35)%            36%
</TABLE>


                               GARTNER TO PROVIDE

<PAGE>

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

          At September 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

          Not applicable.

Item 5.   Other Information

          On November 15, 1999, the Company announced that its Board of
Directors has authorized management to conduct a competitive sale of
approximately $30 million of its less liquid portfolio assets as part of its
ongoing program to reduce the volatility of the Company's assets, that the
Company expects to distribute information to qualified potential purchasers over
the next 30 days and close the sales in January 2000, that the Board will review
other steps to increase shareholder value at that time, and that based on the
Company's projections of its taxable income, it will not have an obligation to
make further distributions in 1999 to maintain its REIT status. In addition, on
that date, the Company announced that the Board also approved the repurchase of
up to an additional $10 million of the Company's common stock pursuant to the
stock repurchase program in light of the successful completion of the initial
repurchase program.

          On November 5, 1999, the Company received an unsolicited letter from
Ellington Management Group, LLC ("Ellington"), an investment advisor to an
investment fund which holds 9.85% of the Company's outstanding common stock.
Ellington stated that it desires to discuss a negotiated acquisition of the
Company by funds managed by Ellington in a two step transaction which would
begin with a tender offer for the Company's common stock and would be followed
by a back-end merger, at a price of $4.15 per share. On November 10, 1999, the
Company announced that its Board of Directors, after consulting with the
Company's financial advisor, Lehman Brothers Inc., and outside legal counsel,
authorized the Company to enter into discussions with Ellington concerning its
proposed acquisition of the Company. On November 15, 1999, the Company announced
that the Board agreed to inform Ellington that, based upon the advice of its
financial advisor, its proposal of November 5, 1999 did not provide shareholders
sufficient value, that the Board also approved providing certain confidential
operating information to Ellington based upon Ellington's representation that
the price at which it would tender may be subject to improvement after review of
the requested information, and that the Company is not currently engaged in
negotiations with Ellington.

          On November 1, 1999 the Company announced that Mariner Mortgage
Management, LLC ("Mariner") has agreed to serve as the external manager of the
Company and be responsible for day-to-day management of the Company's
investments; William J. Michaelcheck, the Chairman of Mariner, has been
appointed President and Chief Executive Officer of the Company, and Frederick N.
Khedouri, an independent Director of the Company who has been acting as
non-executive President, has resigned as President and been elected Chairman of
the Board of Directors; the Company is terminating its consulting arrangement
with BlackRock Financial Management, Inc. upon completion of the transition to
Mariner; and Robert J. Gartner, who is Vice President of the Company and
responsible for day-to-day investment decisions for the Company, will resign
upon completion of the transition to Mariner. The Company estimates that the
restructuring of its management will reduce its base annual operating expenses
(before incentive fees, if any) from approximately $0.14 per share to
approximately $0.02 per share.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

         Exhibit 27.1 - Financial Data Schedule
         Exhibit 99.1 - Press Release dated November 15, 1999

(b) Reports

         None.


<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:  November 15, 1999                    By:  /S/ WILLIAM J. MICHAELCHECK
                                                  ----------------------------
                                             (principal executive 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

          99.1*     Press Release dated November 15, 1999

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