================================================================================
                        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 quarter ended September 30, 1999

 |_|      Transition Report Pursuant to Section 13 or 15(d) of
          the Securities Exchange Act of 1934

                 Commission file number 33-83524


                  MERIT SECURITIES CORPORATION
     (Exact name of registrant as specified in its charter)

          Virginia                                       54-1736551
(State or other jurisdiction of incorporation)(I.R.S.EmployerIdentification No.)

     10900 Nuckols Road, 3rd Floor, Glen Allen, Virginia           23060
     (Address of principal executive offices)                     (Zip Code)

                         (804) 217-5800
      (Registrant's telephone number, including area code)

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

     As of October  31,  1999,  the latest  practicable  date,  there were 1,000
shares of Merit Securities Corporation common stock outstanding.

     The registrant  meets the  conditions  set forth in General  Instructions H
(1)(a)  and (b) of Form  10-Q and is  therefore  filing  this Form 10-Q with the
reduced disclosure format.

================================================================================
                                           MERIT SECURITIES CORPORATION
                                                     FORM 10-Q
                                                       INDEX
<TABLE>
<CAPTION>


<S>                 <C>                                                              <C>
                                                                                     Page Number
PART I.           FINANCIAL INFORMATION

Item 1.           Financial Statements
                      Balance Sheets at September 30, 1999 and
                      December 31, 1998                                                  3

                      Statements of Operations for the three and nine months
                      ended September 30, 1999 and 1998                                  4

                      Statement of Shareholder's Equity for the nine months
                      ended September 30, 1999                                           5

                      Statements of Cash Flows for the nine months ended
                      September 30, 1999 and 1998                                        6

                      Notes to Unaudited Financial Statements                            7

Item 2.           Management's Discussion and Analysis of
                      Financial Condition and Results of Operations                      9

Item 3.           Quantitative and Qualitative Disclosures about Market Risk             13

PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings                                                      15

Item 5.           Other Information                                                      15

Item 6.           Exhibits and Reports on Form 8-K                                       15

SIGNATURES                                                                                18
</TABLE>


PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

MERIT SECURITIES CORPORATION
Balance Sheets
(amounts in thousands except share data)
<TABLE>
<CAPTION>

<S>                                                                   <C>                  <C>
                                                                   September 30,         December 31,
                                                                      1999                   1998
                                                                ------------------     ------------------
ASSETS:
   Collateral for collateralized bonds                           $    2,987,802         $    3,350,344
   Due from affiliates, net                                                   -                  5,611
   Prepaid shelf registration fees                                          208                    406
   Cash                                                                      10                     10
                                                                ==================     ==================
                                                                 $    2,988,020         $    3,356,371
                                                                ==================     ==================

LIABILITIES AND SHAREHOLDER'S EQUITY

LIABILITIES:
   Non-recourse debt - collateralized bonds                      $    2,781,735         $    3,153,060
   Due to affiliates, net                                                41,682                      -
                                                                ------------------     ------------------
                                                                      2,823,417              3,153,060
                                                                ------------------     ------------------

SHAREHOLDER'S EQUITY:
   Common stock, no par value, $1 stated value
      10,000 shares authorized,
      1,000 shares issued and outstanding                                    10                     10
   Additional paid-in capital                                           133,241                190,156
   Accumulated other comprehensive income                                 8,037                 33,575
   Retained earnings (accumulated deficit)                               23,315                (20,430)
                                                                -----------------      ------------------
                                                                        164,603                203,311
                                                                ==================     ==================
                                                                 $    2,988,020         $    3,356,371
                                                                ==================     ==================
<FN>
See notes to unaudited financial statements.
</FN>
</TABLE>




MERIT SECURITIES CORPORATION
Statements of Operations
(amounts in thousands except share data)
<TABLE>
<CAPTION>
<S>                                                         <C>                           <C>

                                                              Three Months Ended              Nine Months Ended
                                                                 September 30,                  September 30,
                                                          ----------------------------   ----------------------------
                                                             1999            1998            1999           1998
                                                          ------------   -------------   -------------   ------------

Interest Income:
    Collateral for collateralized bonds                  $   51,225     $    71,119      $  155,501      $  191,187
                                                         -------------  --------------  --------------  -------------

Interest and related expense:
    Interest expense on collateralized bonds                 42,232          68,066         129,812         191,051
    Other collateralized bond expense                           590             744           1,513           2,729
                                                                                        --------------
                                                         -------------  --------------                  -------------
                                                             42,822          68,810         131,325         193,780
                                                         -------------  --------------  --------------  -------------

Net interest margin before provision for losses               8,403           2,309          24,176          (2,593)
Provision for losses                                         (3,138)         (1,686)         (7,704)         (4,550)
                                                         -------------  --------------  --------------  -------------
Net interest margin                                           5,265             623          16,472          (7,143)

Gain on sale of securities                                        -           6,122             397           7,247
Interest on due to affiliates, net                             (631)           (636)           (966)         (1,990)
                                                         -------------  --------------  --------------  -------------
Income (loss) before extraordinary item                       4,634           6,109          15,903          (1,886)
Extraordinary item-gain on extinguishment of debt                 -               -          27,842               -
                                                         -------------  --------------  ==============  =============
Net income (loss)                                        $    4,634           6,109      $   43,745      $   (1,886)
                                                         =============  ==============  ==============  =============



<FN>

See notes to unaudited financial statements.
</FN>
</TABLE>

MERIT SECURITIES CORPORATION
Statement of Shareholder's Equity
(amounts in thousands except share data)
<TABLE>
<CAPTION>

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

                                                                Accumulated other      Retained
                                                   Additional     comprehensive        earnings
                                    Common stock     paid-in          income         (accumulated
                                                     capital                           deficit)         Total
                                    ------------- --------------------------------- --------------- -------------

Balance at December 31, 1998          $    10    $      190,156 $            33,575  $     (20,43) $       203,311

Comprehensive income:
   Net income                               -                 -                   -         43,745          43,745

   Change in net unrealized gain on
      investments available-for-sale        -                 -            (25,538)              -        (25,538)
                                    ------------ -------------- ------------------- -------------- ----------------
Total comprehensive income                  -                 -            (25,538)         43,745          18,207

Capital distribution                        -          (56,915)                   -              -        (56,915)
                                    ------------ -------------- ------------------- -------------- ----------------

Balance at September 30, 1999         $    10    $      133,241 $             8,037  $      23,315 $       164,603
                                    ============ ============== =================== ============== ================


<FN>

See notes to unaudited financial statements.
</FN>
</TABLE>

MERIT SECURITIES CORPORATION
Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
<S>                                                                   <C>                 <C>

                                                                             Nine Months Ended
                                                                               September 30,
                                                                        1999                    1998
                                                                 -------------------     -------------------

Operating activities:
  Net income (loss)                                              $   43,745              $   (1,886)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
    Gain on sale of securities                                       (397)                   (7,247)
    Provision for losses                                             7,704                   4,550
    Gain on extinguishment of debt                                   (27,842)                  -
    Amortization, net                                                13,616                  28,525
    Net change in prepaid shelf registration fees                    198                     (72)
    Other                                                            (328)                   (560)
                                                                 -------------------     -------------------
      Net cash provided by operating activities                      36,696                  23,310
                                                                 -------------------     -------------------

Investing activities:
  Collateral for collateralized bonds:
    Purchase of loans subsequently securitized                       (628,584)               (1,692,780)
    Principal payments on collateral                                 939,933                 1,588,220
    Proceeds from sale of collateralized bonds                       5,250                   43,425
    Net (increase) decrease in accrued interest receivable and
      funds held by trustee                                          (1,473)                 1,219
                                                                 -------------------     -------------------
      Net cash provided by (used for) investing activities           318,072                 (59,916)
                                                                 -------------------     -------------------

Financing activities:
  Collateralized bonds:
    Proceeds from issuance of collateralized bonds                        589,904            1,589,272
    Principal payments on collateralized bonds                           (935,070)           (1,581,640)
    Increase (decrease) in accrued interest payable                            20            (435)
    Increase (decrease) in due from affiliates                             47,293            (34,795)
    (Repayments of) proceeds from capital contributions                   (56,915)           64,204
                                                                 -------------------     -------------------
    Net cash (used for) provided by financing activities                 (354,768)           36,606
                                                                 -------------------     -------------------

Cash at beginning of period                                                    10            10
                                                                 -------------------     -------------------


Cash at end of period                                            $             10        $   10
                                                                 ===================     ===================

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $        129,067        $   188,460
                                                                 ===================     ===================

  Collateral for collateralized bonds subsequently securitized   $      1,221,456        $   -
                                                                 ===================     ===================

<FN>

See notes to unaudited financial statements.
</FN>
</TABLE>

MERIT SECURITIES CORPORATION
Notes to Unaudited Financial Statements
September 30, 1999
(amounts in thousands except share data)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying  consolidated  financial  statements have been prepared in
accordance  with the  instructions  to Form 10-Q and do not  include  all of the
information and notes required by generally accepted  accounting  principles for
complete financial statements.  The financial statements include the accounts of
Merit Securities  Corporation  (the  "Company").  The Company is a wholly-owned,
limited-purpose  finance subsidiary of Issuer Holding Corporation  ("IHC").  IHC
was formed on September 4, 1996 to acquire all of the  outstanding  stock of the
Company and certain other affiliates of Dynex Capital, Inc. ("Dynex").  IHC is a
wholly-owned  subsidiary of Dynex.  The Company was organized to facilitate  the
securitization  of loans through the issuance and sale of  collateralized  bonds
(the "Bonds").

     In the opinion of  management,  all  material  adjustments,  consisting  of
normal recurring  adjustments,  considered  necessary for a fair presentation of
the financial statements have been included.  The Balance Sheet at September 30,
1999, the Statements of Operations for the three and nine months ended September
30, 1999 and 1998,  the  Statement of  Shareholder's  Equity for the nine months
ended September 30, 1999, the Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998,  and the related notes to financial  statements are
unaudited.  Operating  results for the nine months ended  September 30, 1999 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending  December  31,  1999.  For  further  information,  refer  to the  audited
financial  statements and footnotes  included in the Company's Form 10-K for the
year ended December 31, 1998.

     Certain  amounts  for  1998  have  been  reclassified  to  conform  to  the
presentation for 1999.

NOTE 2-COLLATERAL FOR COLLATERALIZED BONDS

     Pursuant to the requirements of Statement of Financial Accounting Standards
No. 115, Accounting for Certain  Investments in Debt and Equity Securities,  the
Company   has    classified    collateral    for    collateralized    bonds   as
available-for-sale.  The following table summarizes the Company's amortized cost
basis and fair value of  collateral  for  collateralized  bonds at September 30,
1999 and December 31, 1998,  and the related  average  effective  interest rates
(calculated  for the month ended  September 30, 1999 and December 31, 1998,  and
excluding unrealized gains and losses):
<TABLE>
<CAPTION>
<S>                                          <C>                 <C>            <C>                 <C>

-------------------------------------------------------------------------------------------------------------------
                                                   September 30, 1999                   December 31, 1998
-------------------------------------------------------------------------------------------------------------------

                                                                 Effective                           Effective
                                              Fair Value       Interest Rate       Fair Value      Interest Rate
-------------------------------------------------------------------------------------------------------------------

Collateral for collateralized bonds:
   Amortized cost                        $      2,991,003           7.3%       $      3,333,362         7.3%
   Allowance for losses                           (11,238)                              (16,593)
-------------------------------------------------------------------------------------------------------------------
      Amortized cost, net                       2,979,765                             3,316,769
   Gross unrealized gains                          33,232                                47,244
   Gross unrealized losses                        (25,195)                              (13,669)
-------------------------------------------------------------------------------------------------------------------
                                         $      2,987,802                      $      3,350,344
-------------------------------------------------------------------------------------------------------------------
</TABLE>

     Collateral  for  collateralized  bonds consists of debt  securities  backed
primarily by  adjustable-rate  and  fixed-rate  mortgage  loans secured by first
liens on single family residential  housing,  manufactured  housing  installment
loans  secured by either a UCC filing or a motor  vehicle title and property tax
receivables.  All  collateral  for  collateralized  bonds is  pledged  to secure
repayment of the related  collateralized bonds. All principal and interest (less
servicing-related  fees) on the  collateral  is  remitted  to a  trustee  and is
available for payment on the  collateralized  bonds.  The Company's  exposure to
loss on collateral for  collateralized  bonds is generally limited to the amount
of collateral pledged in excess of the related  collateralized  bonds issued, as
the collateralized  bonds issued are non-recourse to the Company. The collateral
for  collateralized  bonds can be sold by the  Company,  but only subject to the
lien of the collateralized bond indenture.

     During the nine months ended  September 30, 1999,  the Company  securitized
$1.8 billion of collateral, through the issuance of two series of collateralized
bonds, of which $1.2 billion related to the collapse and resecuritization of the
collateral  from six  series of  previously  issued  collateralized  bonds.  The
collateral   securitized   was  primarily   single  family  mortgage  loans  and
manufactured  housing loans. The securitizations were accounted for as financing
of the underlying  collateral pursuant to Statement of Accounting  Standards No.
125,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishments  of  Liabilities"  ("FAS No. 125") as the Company  retained call
rights on the bonds  which are  substantially  in excess of a  clean-up  call as
defined by this accounting standard.


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

     The Company was organized to facilitate the securitization of loans through
the issuance and sale of collateralized  bonds (the "Bonds").  The Bonds will be
secured  primarily  by: (i) mortgage  loans  secured by first or second liens on
residential property, (ii) Federal National Mortgage Association Mortgage-Backed
Certificates,  (iii)  Federal  Home Loan  Mortgage  Corporation  Mortgage-Backed
Certificates,  (iv) Government  National  Mortgage  Association  Mortgage-Backed
Certificates,     (v)    other    mortgage    pass-through    certificates    or
mortgage-collateralized  obligations,  (vi) property tax  receivables  and (vii)
consumer installment loans (collectively,  the "Collateral"). In the future, the
Company may also securitize other types of loans.

     After  payment of the  expenses of an offering  and certain  administrative
expenses,  the net  proceeds  from an offering of Bonds will be used to purchase
Collateral  from IHC or various  third  parties.  IHC can be expected to use the
proceeds  to reduce  indebtedness  incurred  to obtain  such loans or to acquire
additional Collateral.  After the issuance of a series of Bonds, the Company may
sell the  Collateral  securing that series of Bonds,  subject to the lien of the
Bonds.
<TABLE>
<CAPTION>
<S>                                               <C>                 <C>

                                                FINANCIAL CONDITION

--------------------------------------------- ----------------------------------
                                                September 30,      December 31,
(amounts in thousands except per share data)        1999               1998
--------------------------------------------- ----------------------------------

Collateral for collateralized bonds            $   2,987,802      $   3,350,344
Non-recourse debt - collateralized bonds           2,781,735          3,153,060
Shareholder's equity                                 164,603            203,311

Collateralized bond series outstanding                     4                  8

--------------------------------------------- ----------------------------------
</TABLE>

     Collateral for  collateralized  bonds Collateral for  collateralized  bonds
consists  primarily  of  securities  backed by  adjustable-rate  and  fixed-rate
mortgage loans secured by first liens on single family properties,  manufactured
housing  installment  loans  secured by either a UCC  filing or a motor  vehicle
title and property tax receivables.  As of September 30, 1999, the Company had 4
series of collateralized  bonds  outstanding.  The collateral for collateralized
bonds  decreased to $3.0 billion at September  30, 1999 compared to $3.4 billion
at December 31, 1998.  This  decrease of $0.4 billion is primarily the result of
$939.9 million in paydowns on collateral,  which was  principally  offset by the
net  addition  of $628.6  million of  collateral  as a result of a $1.8  billion
issuance of two series of collateralized bonds in March 1999 and September 1999,
of which $1.1  billion  related to the  collapse  and  re-securitization  of six
series of previously issued collateralized bonds.

     Non-recourse debt - collateralized  bonds Collateralized bonds decreased to
$2.8 billion at  September  30, 1999 from $3.2 billion at December 31, 1998 as a
result of $935.1 million in paydowns  during the nine months ended September 30,
1999.  This  decrease  was  partially  offset by the  issuance  of two series of
collateralized  bonds,  totaling $1.8 billion, of which $1.1 billion was related
to the collapse and re-securitization of six series on collateralized bonds.

     Shareholder's  Equity  Shareholder's  equity decreased to $164.6 million at
September 30, 1999 from $203.3  million at December 31, 1998.  This decrease was
primarily  the  result of a $56.9  capital  distribution  to IHC during the nine
months  ended  September  30,  1999.  In addition,  the net  unrealized  gain on
investments  available-for-sale  decreased  $25.5  million  to $8.0  million  at
September  30, 1999 from $33.6  million at December 31, 1998,  primarily  due to
prepayments on the collateral for collateralized  bonds, an increase of 50 basis
points in the  targeted  Fed  Funds  rate and the  approximate  1%  increase  in
long-term interest rates during 1999.
<TABLE>
<CAPTION>
<S>                                                    <C>                 <C>                  <C>                <C>

                                              RESULTS OF OPERATIONS

--------------------------------------------------------------------------------------------------------------------------------
                                                              Three Months Ended                     Nine Months Ended
                                                                September 30,                          September 30,
                                                      -----------------------------------    -----------------------------------
(amounts in thousands)                                     1999               1998                1999               1998
-----------------------------------------------------------------------------------------    -----------------------------------

Interest income                                         $     51,225       $     71,119        $    155,501       $    191,187
Interest expense on collateralized bonds                      42,232             68,066             129,812            191,051
Net interest margin                                            5,265                623              16,472             (7,143)
Gain on sale of securities                                         -              6,122                 397              7,247
Extraordinary item - gain on extinguishment of debt                -                  -              27,842                  -
Net income (loss)                                              4,634              6,109              43,745             (1,886)

--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     Interest  income on the collateral for  collateralized  bonds  decreased to
$51.2  million for the three months ended  September 30, 1999 from $71.1 million
for  the  same  period  in  1998.   Interest   income  on  the   collateral  for
collateralized  bonds  decreased  to $155.5  million for the nine  months  ended
September 30, 1999 from $191.2  million for the same period in 1998. The overall
decrease  was  primarily  a result of the  continued  impact of  prepayments  on
interest income, as average  collateral for  collateralized  bonds declined from
$3.5 billion to $3.0 billion for the three months ended  September  30, 1998 and
1999,  respectively,  and from $3.4  billion to $3.0 billion for the nine months
ended  September 30, 1998 and 1999,  respectively.  In addition  interest income
decreased  as a result of the  decrease in the  six-month  LIBOR rate during the
latter half of 1998.

     Interest expense on collateralized bonds decreased to $42.2 million for the
three months ended  September  30, 1999 from $68.1  million for the three months
ended  September  30, 1998 and  decreased to $129.8  million for the nine months
ended  September 30, 1999 from $191.1  million for the same period in 1998.  The
overall  decrease was primarily due to the decrease in the one-month  LIBOR rate
during the  fourth  quarter  of 1998 and the  decline in average  collateralized
bonds due to prepayments on the related collateral for collateralized bonds.

     Net interest margin for the three months ended September 30, 1999 increased
to $5.3 million from $0.6 million for the three months ended September 30, 1998.
Net interest  margin  increased to a positive  $16.5 million for the nine months
ended  September  30, 1999 from a negative  $7.1  million for the same period in
1998.   The  overall   increase  was  primarily  the  result  of  lower  premium
amortization  caused by lower prepayments during the nine months ended September
30, 1999 than during the same period in 1998.

     Gain on sale of  securities  of $0.4  million  during the nine months ended
September 30, 1999 is the result of the recognition of the remaining gain on the
sale of the Merit 11B A-1 class,  which had a principal balance of $4.9 million.
Gain on sale of securities  during the three and nine months ended September 30,
1998,  is the  result of the sale of M11 B A-1 class for a gain of $6.1  million
and $7.2 million respectively.

     The Company also incurred an extraordinary gain of $27.8 million related to
the recognition of unamortized premiums net of unamortized issuance costs on six
series of  collateralized  bonds,  which were  collapsed  during the nine months
ended September 30, 1999. The collateral securing these collateralized bonds was
re-securitized in the Company's $1.4 billion securitization in March 1999.

     Credit Exposures With collateralized  bond structures,  the Company retains
credit  risk  relative  to  the  amount  of  overcollateralization  required  in
conjunction  with the bond insurance.  Losses are generally first applied to the
overcollateralized amount, with any losses in excess of that amount borne by the
bond insurer or the holders of the collateralized bonds. The Company only incurs
credit  losses to the extent  that  losses  are  incurred  in the  repossession,
foreclosure and sale of the underlying  collateral.  Such losses generally equal
the excess of the principal amount outstanding,  less any proceeds from mortgage
or hazard insurance, over the liquidation value of the collateral. To compensate
the Company for retaining this loss exposure,  the Company generally receives an
excess  yield on the  collateralized  securities  relative  to the  yield on the
collateralized bonds. At September 30, 1999, the Company retained $194.2 million
in aggregate  principal amount of  overcollateralization,  and had reserves,  or
otherwise had provided  coverage on $45.8 million of this potential  credit loss
exposure.  $30.3  million  of  this  reserve  amount  is in the  form  of a loss
reimbursement  guarantee from a third-party rated A by Standards & Poors Ratings
Services, Inc.

     Other  Matters At  September  30,  1999,  the  Company  had  securities  of
approximately  $682.2  million  remaining  for  issuance  under  a  registration
statement  filed  with the  Securities  and  Exchange  Commission.  The  Company
anticipates issuing additional Bonds in the future.

     Year 2000 The Company relies upon its ultimate parent company,  Dynex,  for
all computer systems operations.  Dynex is dependent upon purchased, leased, and
internally-developed  software to conduct certain operations.  In addition,  the
Company relies upon certain  counterparties such as banks and loan servicers who
are also highly  dependent upon computer  systems.  The Company  recognizes that
some computer software may incorrectly recognize dates beyond December 31, 1999.
The ability of the Company and its  counterparties to correctly operate computer
software in the Year 2000 is critical to the Company's viability.

     The Dynex  computer  systems  that the  Company  relies upon to conduct its
business operations are as follows:

     The  internally-developed  investment portfolio analytics,  securitization,
and securities administration software

     The purchased  servicing system for single family and manufactured  housing
loans

      The purchased general ledger accounting system

     In  addition,  Dynex is  involved  in data  interchange  with a  number  of
counterparties  in the normal course of business.  Each system or interface that
Dynex relies on is being tested and evaluated for Year 2000 compliance.

     Dynex has contacted all of its key software vendors to determine their Year
2000  readiness.  We  have  received  documentation  from  each  of the  vendors
providing assurances of Year 2000 compliance:

     Baan/CODA,  vendor of the general ledger  accounting  system,  has provided
confirmation that their current software release is fully Year 2000 compliant.

     Interlinq  Software,  vendor of the single-family and manufactured  housing
loan servicing software, has provided assurance that their software is Year 2000
compliant.

     All  software  developed  internally  by Dynex was designed to be Year 2000
compliant.  Nevertheless,  Dynex has  established a Year 2000 test-bed to ensure
that there were no design or  development  oversights  that could lead to a Year
2000 problem.  Initial testing of all key  applications was completed in January
of 1999, with only minor issues discovered and subsequently  remedied.  Critical
applications  testing  was  completed  in June  of  1999,  and  new or  upgraded
applications  will  continue to be tested as required  through the century  date
change.

     Dynex has  reviewed or is reviewing  the Year 2000  progress of its primary
financial counterparties. These counterparties are expected to be in compliance.
Dynex,  as master  servicer of certain  securities  including  those held on the
Company's  books,  is in the process of assessing the Year 2000 readiness of its
external servicers, to ensure that these parties will be able to correctly remit
loan information and payments after December 31, 1999.

     Dynex believes that,  other than its exposure to financial  counterparties,
its most significant risk with respect to internal or purchased  software is the
software systems used to service  manufactured  housing loans. Dynex will not be
able to service these loans without the automated system.  Should these loans go
unattended  for a period  greater  than three  months,  the result  could have a
material  adverse  impact on the  Company  as Dynex  services  the  manufactured
housing loans, which are included in the Company's collateral for collateralized
bonds.

     Dynex  is  also  at  significant  risk  if the  systems  of  the  financial
institutions  that provide Dynex software for cash  management  services  should
fail. In a worst case scenario,  Dynex would be unable to fund its operations or
pay on its  obligations  for an  unknown  period of  failure.  This  would  have
material adverse impact on the Company.

     Dynex is also at  significant  risk if the  voice  and data  communications
network supplied by its provider should fail. In such an instance Dynex would be
unable to efficiently  service its Manufactured  Housing loans until the problem
is  remedied.  Dynex  is  closely  monitoring  the  Year  2000  efforts  of  its
telecommunications  ; the provider has provided  assurance that their network is
filly compliant at this time.

     Dynex is also at significant  risk should the electric  utility company for
Dynex's  offices in Glen  Allen,  Virginia,  fail to provide  power for  several
business  days.  In such  an  instance,  the  Company  would  be  unable  (i) to
communicate over its telecommunication  systems, (ii) would be unable to process
data,  and (iii) would be unable to service loans until the problem is remedied.
Dynex  continues  to monitor the Year 2000 status of its utility  provider,  who
currently  reports 99% completion of  remediation  and testing and projects 100%
compliance in December 1999.

     Dynex uses many other purchased and internally developed systems, including
non-IT,  that  could  fail  to  perform  accurately  after  December  31,  1999.
Management  believes  that the  functions  performed by these systems are either
non-critical or could be performed manually in the event of failure.

     Dynex has  substantially  completed its Year 2000 and remediation  efforts.
Management believes that there is little possibility of a significant disruption
in  business.  The major  risks are those  related to the ability of vendors and
business partners to complete Year 2000 plans.  Dynex expects that those vendors
and  counterparties  will complete their Year 2000  compliance  programs  before
January 1, 2000.

     The Company will not incur any costs related to Year 2000 as all costs will
be paid by Dynex.  Dynex has  incurred  less  than  $90,000  in costs to date in
carrying out its Year 2000  compliance  program.  Dynex  estimates  that it will
spend  less  than  $100,000.  Costs  could  increase  in the  event  that  Dynex
determines that a counter-party will not be Year 2000 compliant.

     Dynex  has  developed  contingency  plans in the  event  that a  system  or
counterparty is not Year 2000 compliant.


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk generally  represents the risk of loss that may result from the
potential  change in the value of a financial  instrument due to fluctuations in
interest and foreign exchange rates and in equity and commodity  prices.  Market
risk is inherent to both derivative and  non-derivative  financial  instruments,
and  accordingly,  the scope of the  Company's  market risk  management  extends
beyond derivatives to include all market risk sensitive  financial  instruments.
As a financial  services  company,  net interest  income  comprises  the primary
component of the Company's earnings. As a result, the Company is subject to risk
resulting  from  interest  rate  fluctuations  to the extent that there is a gap
between the amount of the  Company's  interest-earning  assets and the amount of
interest-bearing   liabilities  that  are  prepaid,  mature  or  reprice  within
specified  periods.  The  Company's  strategy is to mitigate  interest rate risk
through the structuring of the related  securitization  to create a stable yield
profile and reduce interest rate risk.

     As the Company's  parent,  Dynex  continuously  monitors the aggregate cash
flow,  projected net yield and market value of the collateral for collateralized
bonds  under  various  interest  rate and  prepayment  assumptions.  Dynex has a
Portfolio  Executive  Committee  ("PEC"),  which includes  executive  management
representatives,   monitors  and  manages  the  interest  rate  sensitivity  and
repricing  characteristics  of the  balance  sheet  components  consistent  with
maintaining  acceptable levels of change in both the net portfolio value and net
interest income. Dynex's exposure to interest rate risk is reviewed on a monthly
basis by the PEC and quarterly by the Board of Directors.

     Dynex utilizes several tools and risk management  strategies to monitor and
address interest rate risk, including (i) a quarterly sensitivity analysis using
option-adjusted  spread ("OAS")  methodology to calculate the expected change in
net interest  margin as well as the change in the market value of various assets
within the portfolio under various extreme scenarios;  and (ii) a monthly static
cash flow and yield  projection under 49 different  scenarios.  Such tools allow
Dynex to  continually  monitor and  evaluate  its exposure to these risks and to
manage the risk profile of the collateral for  collateralized  bonds in response
to changes in the market risk.  While the Company may use such tools,  there can
be no assurance Dynex will  accomplish the goal of adequately  managing the risk
profile of collateral for collateralized bonds.

     Dynex  measures the  sensitivity  of its net interest  income to changes in
interest rates.  Changes in interest rates are defined as parallel interest rate
movements  in 100 basis  point  increments  over a twelve  month  period.  Dynex
estimates its interest  income for the next twelve months assuming no changes in
interest rates from those at period end. Once the base case has been  estimated,
cash flows are projected for each of the defined interest rate scenarios.  Those
scenario  results  are then  compared  against  the base case to  determine  the
estimated change to net interest income.

     The  following   table   summarizes  the  Company's  net  interest   margin
sensitivity  analysis as of September 30, 1999 and June 30, 1999.  This analysis
represents management's estimate of the percentage change in net interest margin
given a parallel  shift in  interest  rates.  The  "Base"  case  represents  the
interest  rate  environment  as it existed as of September 30, 1999 and June 30,
1999. The analysis is heavily  dependent upon the assumptions used in the model.
The effect of changes in future interest rates,  the shape of the yield curve or
the mix of assets and  liabilities  may cause actual  results to differ from the
modeled results. In addition,  certain financial instruments provide a degree of
"optionality."  The model  considers the effects of these embedded  options when
projecting cash flows and earnings.  The most  significant  option affecting the
Company's portfolio is the borrowers' option to prepay the loans. The model uses
a dynamic prepayment model that applies a Constant Prepayment Rate (CPR) ranging
from 6.0% for fixed-rate  manufactured  housing loans to 69.1% for single family
ARM loans indexed to the six month certificate of deposit rate. The model varies
the CPR based on the projected  incentive to refinance for each loan type in any
given period.  While the Company's model considers these factors,  the extent to
which  borrowers  utilize the ability to exercise  their option may cause actual
results to significantly  differ from the analysis.  Furthermore,  its projected
results assume no additions or subtractions to the Company's  portfolio,  and no
change to the Company's liability structure.  Historically, the Company has made
significant changes to its assets and liabilities, and is likely to do so in the
future.
<TABLE>
<CAPTION>
<S>            <C>    <C>               <C>                 <C>

            ---------------------- --------------------------------------------
                 Basis Point
             Increase (Decrease)    % Change in Net Interest Margin from Base
              in Interest Rates                       Case
            ---------------------- --------------------------------------------
                                     September 30,           June 30, 1999
                                         1999
                                   ------------------     ---------------------

                    +200                   (20.93)%               (17.86)%
                    +100                   (10.24)%                (9.40)%
                    Base                     -                      -
                    -100                    10.17%                  7.83%
                    -200                    20.51%                 16.77%
            ---------------------- ------------------ --- ---------------------
</TABLE>

     The  September 30, 1999 analysis  illustrates  that net interest  margin is
slightly more sensitive to interest rate changes than it was at June 30, 1999.

     Approximately  $1.7  billion of the  Company's  investment  portfolio as of
September  30, 1999 is comprised of loans or  securities  that have coupon rates
which adjust over time (subject to certain periodic and lifetime limitations) in
conjunction with changes in short-term interest rates. Approximately 63% and 28%
of the ARM loans underlying the Company's  collateral for  collateralized  bonds
are indexed to and reset based upon the level of  six-month  LIBOR and  one-year
CMT, respectively.

     Generally,  during  a period  of  rising  short-term  interest  rates,  the
Company's net interest spread earned on its collateralized  bonds will decrease.
The  decrease of the net interest  spread  results from (i) the lag in resets of
the ARM loans underlying the collateral for collateralized bonds relative to the
rate  resets on the  collateralized  bonds and (ii) rate resets on the ARM loans
which are generally limited to 1% every six months or 2% every twelve months and
subject  to  lifetime  caps,  while  the  collateralized   bonds  have  no  such
limitation.  As short-term interest rates stabilize and the ARM loans reset, the
net interest margin may be restored to its former level as the yields on the ARM
loans adjust to market conditions.  Conversely, net interest margin may increase
following a fall in short-term interest rates. This increase may be temporary as
the  yields on the ARM loans  adjust to the new  market  conditions  after a lag
period. In each case, however, the Company expects that the increase or decrease
in the net interest spread due to changes in the short-term interest rates to be
temporary.  The net  interest  spread may also be  increased or decreased by the
proceeds or costs of interest rate swap and cap agreements.

     As part of its asset/liability  management process, the Company has entered
into interest rate cap and swap  agreements.  These interest rate agreements are
used  by  the  Company  to  help  mitigate  the  risk  to  the   collateral  for
collateralized  bonds of  fluctuations  in interest rates that would  ultimately
impact net interest income. To help protect the Company's net interest income in
a rising interest rate environment, the Company has purchased interest rate caps
with a notional amount of $351 million, which help reduce the Company's exposure
to interest rate risk rising above the lifetime  interest rate caps on ARM loans
underlying  the collateral for  collateralized  bonds.  These interest rate caps
provide the Company with  additional cash flow should the related index increase
above the contracted rates. The contracted rates on these interest rate caps are
based on one-month LIBOR,  six-month LIBOR or one-year CMT. The Company has also
utilized  interest rate swaps to convert  floating rate borrowings to fixed rate
where the associated  collateral  financed is fixed rate. The interest rate caps
that the Company uses to manage certain interest rate risks represent protection
for the earnings and cash flow of the net collateral for collateralized bonds in
adverse markets.  To date, short term interest rates have not risen at the speed
or to the extent  such that the  protective  cashflows  provided by the caps and
swaps have been realized.

     The remaining portion of the Company's  collateral for collateralized bonds
as of September 30, 1999, approximately $1.2 billion, is comprised of loans that
have  coupon  rates  that are  either  fixed or do not reset  within the next 15
months.  The  Company  has limited  its  interest  rate risk on such  collateral
primarily through the issuance of fixed-rate  collateralized bonds. Overall, the
Company's interest rate risk is primarily related to the rate of change in short
term interest rates, not the level of short term interest rates.


PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings:

                  None

Item 5.           Other Information:

                  None

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

(a)               Exhibits


     3.1 Articles of  Incorporation  of the Registrant  (Incorporated  herein by
reference to the Exhibits to Registrant's Registration Statement No. 33-83524 on
Form S-3 filed August 31, 1994).

     3.2  Bylaws of the  Registrant  (Incorporated  herein by  reference  to the
Exhibits to Registrant's  Registration  Statement No. 33-83524 on Form S-3 filed
August 31, 1994).

     3.3  Amended and  Restated  Articles of  Incorporation  of the  Registrant,
effective  April 19, 1995  (Incorporated  herein by  reference to Exhibit to the
Registrant's Current Report on Form 8-K, filed April 21, 1995).

     4.1 Indenture  between  Registrant and Trustee,  dated as of August 1, 1994
(Incorporated  herein by reference to the Exhibits to Registrant's  Registration
Statement No. 33-83524 on Form S-3 filed August 31, 1994).

     4.2  Form  of  Supplement   Indenture   between   Registrant   and  Trustee
(Incorporated  herein by reference to the Exhibits to Registrant's  Registration
Statement No. 33-83524 on Form S-3 filed August 31, 1994).

     Copy of the  Indenture,  dated as of November  1, 1994,  by and between the
Registrant   and  Texas   Commerce   Bank  National   Association,   as  Trustee
(Incorporated  herein by reference to Exhibit to the Registrant's Current Report
on Form 8-K, filed December 19, 1994).

     Copy of the Series 4 Indenture Supplement, dated as of June 1, 1995, by and
between the Registrant and Texas Commerce Bank National Association,  as Trustee
(including schedules and exhibits)  (Incorporated herein by reference to Exhibit
to the Registrant's Current Report on Form 8-K, filed July 10, 1995).

     4.5 Copy of the Series 10  Indenture  Supplement,  dated as of  December 1,
1997,  by  and  between  the   Registrant   and  Texas  Commerce  Bank  National
Association,  as Trustee (related  schedules and exhibits available upon request
of the Trustee).  (Incorporated  herein by reference to Exhibit of  Registrant's
Current Report on Form 8-K, filed January 6, 1998).

     4.6 Copy of the Series 11 Indenture Supplement,  dated as of March 1, 1998,
by and between the Registrant and Texas Commerce Bank National  Association,  as
Trustee (related  schedules and exhibits available upon request of the Trustee).
(Incorporated  herein by reference to Exhibit of Registrant's  Current Report on
Form 8-K, filed June 12, 1998).

     4.7 Copy of the Series 12 Indenture Supplement,  dated as of March 1, 1999,
by and between the Registrant and Texas Commerce Bank National  Association,  as
Trustee (related  schedules and exhibits available upon request of the Trustee).
(Incorporated  herein by reference to Exhibit of Registrant's  Current Report on
Form 8-K, filed April 12, 1999).

     4.8 Copy of the Series 13 Indenture Supplement, dated as of August 1, 1999,
by and between the Registrant and Texas Commerce Bank National  Association,  as
Trustee (related  schedules and exhibits available upon request of the Trustee).
(Incorporated  herein by reference to Exhibit of Registrant's  Current Report on
Form 8-K, filed September 13, 1999).

     99.1 Standard  Provisions to Servicing  Agreement  (Incorporated  herein by
reference to the Exhibits to Registrant's Registration Statement No. 33-83524 on
Form S-3 filed August 31, 1994).

     99.2 Form of Servicing Agreement  (Incorporated  herein by reference to the
Exhibits to Registrant's  Registration  Statement No. 33-83524 on Form S-3 filed
August 31, 1994).

     99.3 Standard Terms to Master Servicing Agreement  (Incorporated  herein by
reference to the Exhibits to Registrant's Registration Statement No. 33-83524 on
Form S-3 filed August 31, 1994).

     99.4 Form of Master Servicing Agreement  (Incorporated  herein by reference
to the Exhibits to Registrant's  Registration Statement No. 33-83524 on Form S-3
filed August 31, 1994).

     99.5 Form of  Prospectus  Supplement  of Bonds  secured by  adjustable-rate
mortgage  loans  (Incorporated  herein by reference to Exhibits to  Registrant's
Pre-Effective Amendment No. 4 to Registration Statement No. 33-83524 on Form S-3
filed December 5, 1994).

     99.6 Form of Financial  Guaranty Assurance Policy  (Incorporated  herein by
reference to the Exhibits to Registrant's Registration Statement No. 33-83524 on
Form S-3 filed August 31, 1994).

     99.7 Form of GEMICO Mortgage Pool Insurance Policy  (Incorporated herein by
reference to the Exhibits to Registrant's Registration Statement No. 33-83524 on
Form S-3 filed August 31, 1994).

     99.8 Form of PMI Mortgage Insurance Co. Pool Insurance Policy (Incorporated
herein by reference to the Exhibits to Registrant's  Registration  Statement No.
33-83524 on Form S-3 filed August 31, 1994).

     99.9 Form of Prospectus  Supplement of Bonds secured by fixed-rate mortgage
loans   (Incorporated   herein  by   reference   to  Exhibits  to   Registrant's
Pre-Effective Amendment No. 4 to Registration Statement No. 33-83524 on Form S-3
filed December 5, 1994).

     99.10 Copy of the Saxon Mortgage  Funding  Corporation  Servicing Guide for
Credit  Sensitive  Loans,  February  1,  1995  Edition  (Incorporated  herein by
reference to Exhibit to the Registrant's Current Report on Form 8-K, filed March
8, 1995).

     99.11 Copy of Financial  Guaranty  Insurance  Policy No.  50364-N issued by
Financial  Guaranty  Assurance  Inc.,  dated April 7, 1995,  with respect to the
Series 3 Bonds (Incorporated  herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K, filed April 21, 1995).

     99.12 Copy of Financial  Guaranty  Insurance  Policy No.  50382-N issued by
Financial  Guaranty  Assurance  Inc.,  dated June 29, 1995,  with respect to the
Series 4 Bonds (Incorporated  herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K, filed July 10, 1995).

     99.13 Copy of the Standard  Terms to Master  Servicing  Agreement,  June 1,
1995 Edition  (Incorporated  herein by reference to Exhibit to the  Registrant's
Current Report on Form 8-K, filed July 10, 1995).

     99.14 Copy of Financial  Guaranty Insurance Policy No. 19804 issued by MBIA
Insurance  Corporation  (Incorporated  herein by  reference  to  Exhibit  to the
Registrant's Current Report on Form 8-K, filed November 15, 1995).

     Copy of  Financial  Guaranty  Insurance  Policy  No.  20596  issued by MBIA
Insurance  Corporation  (Incorporated  herein by  reference  to  Exhibit  to the
Registrant's Current Report on Form 8-K, filed March 21, 1996).



     99.16 Copy of Financial  Guaranty Insurance Policy No. 21296 issued by MBIA
Insurance  Corporation  (Incorporated  herein by  reference  to  Exhibit  to the
Registrant's Current Report on Form 8-K, filed June 19, 1996).

(b)      Reports on Form 8-K

     Current Report on Form 8-K as filed with the Commission on August 16, 1999,
relating to the Registrant's Series 10 Bonds.

     Current Report on Form 8-K as filed with the Commission on August 16, 1999,
relating to the Registrant's Series 11 Bonds.

     Current Report on Form 8-K as filed with the Commission on August 16, 1999,
relating to the Registrant's Series 12-1 Bonds.

     Current Report on Form 8-K as filed with the Commission on August 20, 1999,
relating to the Registrant's Series 13 Bonds.

     Current  Report on Form 8-K as filed with the  Commission  on September 13,
1999, relating to the Registrant's Series 13 Bonds.












                                      SIGNATURES



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

                                         MERIT SECURITIES CORPORATION


                                         By:  /s/ Lynn K. Geurin
                                              Lynn K. Geurin
                                              (Principal Executive Officer)





                                       /s/ Teresa G. Eastep
                                       Teresa G. Eastep
                                      (Principal Financial & Accounting Officer)






Dated:  November 15, 1999