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                                  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 June 30, 2001

         |_|      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                               (I.R.S. Employer
 of incorporation)                                        Identification No.)

4551 Cox Road, Suite 300, 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. |_| Yes |X| No

As of June 30, 2001,  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.

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<PAGE>


                          MERIT SECURITIES CORPORATION
                                    FORM 10-Q
                                      INDEX

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

                                                                                                     Page Number
PART I.           FINANCIAL INFORMATION

Item 1.           Financial Statements
                      Balance Sheets at June 30, 2001(unaudited)
                      and December 31, 2000                                                               3

                      Statements of Operations for the three months and six months
                      ended June 30, 2001 and 2000(unaudited)                                           4

                      Statements of Cash Flows for the six months ended
                      June 30, 2001 and 2000(unaudited)                                                 5

                  Notes to Unaudited Financial Statements                                                 6

Item 2.           Management's Discussion and Analysis of
                  Financial Condition and Results of Operations                                           7

Item 3.           Quantitative and Qualitative Disclosures about Market Risk                              9

PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings                                                                      10

Item 5.           Other Information                                                                      10

Item 6.           Exhibits and Reports on Form 8-K                                                       10

SIGNATURES                                                                                               13
</TABLE>
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

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

                                                                        (Unaudited)
                                                                         June 30,            December 31,
                                                                          2001                   2000
                                                                    ------------------     ------------------
<S>                                                                         <C>                     <C>
ASSETS:
   Collateral for collateralized bonds                               $    1,897,553         $    2,208,015
   Cash                                                                           -                     10
                                                                    -----------------      -----------------
                                                                     $    1,897,553         $    2,208,025
                                                                    =================      =================

LIABILITIES AND SHAREHOLDER'S EQUITY

LIABILITIES:
   Non-recourse debt - collateralized bonds                          $    1,824,682         $    2,143,028
                                                                    -----------------      -----------------

SHAREHOLDER'S EQUITY:
   Common stock, no par value,
       10,000 shares authorized, 1,000 shares issued and outstanding             10                     10
   Additional paid-in capital                                               134,883                147,240
   Accumulated other comprehensive loss                                     (80,609)               (94,296)
   Retained earnings                                                         18,587                 12,043
                                                                    -----------------         --------------
                                                                             72,871                 64,997
                                                                    -----------------      -----------------
                                                                     $    1,897,553         $    2,208,025
                                                                    =================      =================
<FN>

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



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

                                                              Three Months Ended                 Six Months Ended
                                                                   June 30,                           June 30,
                                                          ----------------------------   ----------------------------
                                                             2001            2000            2001           2000
                                                          ------------   -------------   -------------   ------------
<S>                                                           <C>             <C>             <C>              <C>

Interest income:
    Collateral for collateralized bonds                  $   39,973     $    51,087      $    84,727     $  104,759
                                                         -------------  --------------  --------------  -------------

Interest and related expense:
    Interest expense on collateralized bonds                 28,752          44,791           64,629         90,960
    Other collateralized bond expense                           466             424              878            804
                                                         -------------  --------------  --------------  -------------
                                                             29,218          45,215           65,507         91,764
                                                         -------------  --------------  --------------  -------------

Net interest margin before provision for losses              10,755           5,872           19,220         12,995
Provision for losses                                         (6,338)         (5,795)        (12,676)        (10,780)
                                                         -------------  --------------  --------------  -------------
Net interest margin                                           4,417              77            6,544          2,215

Loss on sale of investments                                       -          (2,534)               -         (2,534)
Interest on due to affiliates, net                                -               -                -           (471)
                                                        --------------  -------------   --------------  -------------
Net income (loss)                                        $    4,417          (2,457)     $    6,544      $     (790)
                                                         =============  ==============  ==============  =============


<FN>

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



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

                                                                              Six Months Ended
                                                                                  June 30,
                                                                 -------------------------------------------
                                                                        2001                    2000
                                                                 -------------------     -------------------
<S>                                                                    <C>                     <C>

Operating activities:
  Net income                                                     $   6,544               $     (790)
  Adjustments to reconcile net income to net cash provided by
     operating activities:
    Loss on the termination of interest rate swaps                       -                    2,440
    Provision for losses                                            12,676                   10,780
    Amortization, net                                                5,008                    5,304
    Other                                                              293                       26
                                                                 -------------------     -------------------
      Net cash provided by operating activities                     24,521                   17,760
                                                                 -------------------     -------------------

Investing activities:
  Collateral for collateralized bonds:
    Principal payments on collateral                               307,171                  245,245
    Net decrease in accrued interest receivable and
      funds held by trustee                                          1,545                    1,090
                                                                 -------------------     -------------------
      Net cash provided by investing activities                    308,716                  246,335
                                                                 -------------------     -------------------

Financing activities:
  Collateralized bonds:
    Proceeds from issuance of collateralized bonds                       -                      657
    Principal payments on collateralized bonds                    (320,301)                (251,086)
    Decrease in accrued interest payable                              (589)                    (111)
    Decrease in due to affiliates                                       -                   (42,344)
    Capital (distributions) contributions                          (12,357)                  28,789
                                                                 -------------------     -------------------
      Net cash used for financing activities                      (333,247)                (264,095)
                                                                 -------------------     -------------------

Net decrease in cash                                                   (10)                       -
Cash, beginning of period                                               10                       10
                                                                 -------------------     -------------------

Cash, end of period                                              $       -               $       10
                                                                 ===================     ===================

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $  63,329               $   86,168
                                                                 ===================     ===================
</TABLE>

See notes to unaudited financial statements.
<PAGE>


MERIT SECURITIES  CORPORATION Notes to Unaudited  Financial  Statements
June 30,2001
(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 June 30, 2001,
the  Statements of  Operations  for the three and six months ended June 30, 2001
and 2000,  the  Statements  of Cash Flows for the six months ended June 30, 2001
and 2000, and the related notes to financial statements are unaudited. Operating
results for the three months ended June 30, 2001 are not necessarily  indicative
of the results that may be expected for the year ending  December 31, 2001.  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, 2000.

     Certain  amounts  for  2000  have  been  reclassified  to  conform  to  the
presentation for 2001.

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 June 30, 2001 and
December 31, 2000, and the related average effective  interest rates (calculated
for the  month  ended  June 30,  2001  and  December  31,  2000,  and  excluding
unrealized gains and losses):
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                                      June 30, 2001                     December 31, 2000
-------------------------------------------------------------------------------------------------------------------
                                                                  Effective                          Effective
                                              Fair Value        Interest Rate      Fair Value      Interest Rate
-------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                  <C>             <C>              <C>

Collateral for collateralized bonds:
   Amortized cost                         $      1,993,710          7.9%       $      2,322,537         8.1%
   Allowance for losses                            (15,548)                             (20,226)
-------------------------------------------------------------------------------------------------------------------
      Amortized cost, net                        1,978,162                            2,302,311
   Gross unrealized gains                           15,548                               25,113
   Gross unrealized losses                         (96,157)                            (119,409)
-------------------------------------------------------------------------------------------------------------------
                                          $      1,897,553                     $      2,208,015
-------------------------------------------------------------------------------------------------------------------
</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  delinquent
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.

NOTE 3 -- USE OF ESTIMATES

     Fair Value.  The Company uses estimates in establishing  fair value for its
financial instruments. Estimates of fair value for collateral for collateralized
bonds are determined by calculating  the present value of the projected net cash
flows of the instruments using appropriate discount rates,  prepayment rates and
credit loss assumptions. Discount rates used are those management believes would
be used by willing buyers of these  financial  instruments at prevailing  market
rates.  The  discount  rate  used  in the  determination  of fair  value  of the
collateral for collateralized  bonds at both June 30, 2001 and December 31, 2000
was 16%. Variations in market discount rates,  prepayments rates and credit loss
assumptions  may  materially  impact the resulting  fair values of the Company's
financial  instruments.  In  addition  to  variations  in such  assumptions,  as
discussed  further  in  Note  4,  due  to an  adverse  ruling  rendered  by  the
Commonwealth  Court of  Pennsylvania  on July 5, 2001, the Company's  ability to
collect certain  amounts of interest,  fees and costs incurred on its delinquent
property tax receivables  pledged as collateral for collateralized  bonds may be
adversely impacted. The Company, based on consultation with counsel,  reasonably
believes that the Appellate Court's decision will ultimately be reversed or that
the ultimate  outcome of the litigation  will not result in a material impact on
the carrying value of the delinquent  property tax  receivables.  Since the fair
value of the Company's financial instruments is based on estimates, actual gains
and  losses  recognized  may  differ  from  those  estimates   recorded  in  the
consolidated financial statements.

NOTE 4 -- LITIGATION

     GLS Capital,  Inc. ("GLS"), an affiliate of the Company,  together with the
County of Allegheny,  Pennsylvania  ("Allegheny  County"),  were defendants in a
lawsuit in the Commonwealth  Court of Pennsylvania  (the  "Commonwealth  Court")
wherein  the  plaintiffs  challenged  the right of  Allegheny  County and GLS to
collect certain interest,  costs and expenses related to delinquent property tax
receivables in Allegheny County. This lawsuit was related to the purchase by GLS
of delinquent  property tax receivables from Allegheny County in 1997, 1998, and
1999 for approximately $58,300. GLS sold a secured funding note,  collateralized
by the delinquent property tax receivables to the Company in connection with the
Company's  securitization  of such secured  funding note.  On July 5, 2001,  the
Commonwealth  Court ruling addressed,  among other things,  (i) the right of the
Company to charge to the  delinquent  taxpayer a rate of  interest of 12% versus
10% on the  collection  of its  delinquent  property tax  receivables,  (ii) the
charging of attorney's  fees to the  delinquent  taxpayer for the  collection of
such tax  receivables,  and (iii) the  charging  to the  delinquent  taxpayer of
certain  other fees and costs.  The  Commonwealth  Court  remanded  for  further
consideration  to the Court of Common Pleas items (i) and (iii),  and ruled that
neither  Allegheny County nor GLS had the right to charge attorney's fees to the
delinquent taxpayer related to the collection of such tax receivables, reversing
the Court of Common  Pleas  decision.  GLS and  Allegheny  County  have filed an
Application  for  Reargument  of  Appellees  with  the  Commonwealth   Court  of
Pennsylvania.  Allegheny  County and GLS are in the process of filing a Petition
for  Extraordinary  Jurisdiction  as well as a Petition for  Allowance of Appeal
with  the  Supreme  Court  of  Pennsylvania,  which  will  seek to  reverse  the
Commonwealth  Court's  decision.  No damages  have been  claimed in the  action;
however,  as  discussed  in  Note  4,  the  decision  may  impact  the  ultimate
recoverability  of the  delinquent  property tax  receivables.  To date, GLS has
incurred  attorneys fees of $2 million,  approximately  $1 million of which have
been reimbursed to GLS by the taxpayer or through  liquidation of the underlying
real property. To the extent not collected from the taxpayer, such $1 million of
attorney's  fees  would  need to be paid to GLS from the  cash  proceeds  of the
securitization trust.


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.

                               FINANCIAL CONDITION
<TABLE>
<CAPTION>

--------------------------------------------------- ------------------ ---- -------------------
                                                        June 30,               December 31,
(amounts in thousands except per share data)              2001                     2000
--------------------------------------------------- ------------------ ---- -------------------
<S>                                                        <C>                        <C>

Collateral for collateralized bonds                  $   1,897,553            $   2,208,015
Non-recourse debt - collateralized bonds                 1,824,682                2,143,028
Shareholder's equity                                        72,871                   64,997

Collateralized bond series outstanding                           7                        7

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

Collateral for collateralized bonds
     As of both June 30, 2001 and December 31, 2000, the Company had 7 series of
collateralized  bonds  outstanding.  The  collateral  for  collateralized  bonds
decreased  to $1.90  billion  at June 30,  2001  compared  to $2.21  billion  at
December 31, 2000.  This  decrease of $310.5 million is primarily  the result of
$307.2 million in paydowns on the collateral.

Non-recourse debt - collateralized bonds
     Collateralized bonds decreased to $1.82 billion at June 30, 2001 from $2.14
billion at December  31, 2000 as a result of $320.3  million in paydowns  during
the six months ended June 30, 2001.

Shareholder's Equity
     Shareholder's equity increased to $72.9 million at June 30, 2001 from $65.0
million at December 31, 2000.  This  increase  was  primarily  the result of net
income of $6.5million  and a decrease of $13.7 million in net unrealized loss on
investments  available-for-sale  during  the six  months  ended  June  30,  2001
partially  offset by a $12.4  million  capital  distribution  to IHC  during the
period.

                             RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------
                                                           Three Months Ended                       Six Months Ended
                                                              June 30,                               June 30,
                                                 -----------------------------------    -----------------------------------

(amounts in thousands)                                    2001               2000                2001               2000
---------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>                 <C>                <C>

Interest income                                    $     39,973       $     51,087        $     84,727       $    104,759
Interest expense on collateralized bonds                 28,752             44,791              64,629             90,960
Provision for losses                                      6,338              5,795              12,676             10,780
Net interest margin                                       4,417                 77               6,544              2,215
Loss on the termination of interest rate swaps                -             (2,440)                  -             (2,440)
Net income (loss)                                         4,417             (2,457)              6,544               (790)

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

     Interest  income on the collateral for  collateralized  bonds  decreased to
$84.7 million for the six months ended June 30, 2001 from $104.8 million for the
same  period in 2000.  This  decrease  was  primarily  a result of a decline  in
collateral for collateralized bonds between the respective periods.

     Interest expense on collateralized bonds decreased to $64.6 million for the
six months ended June 30, 2001 from $91.0  million for the six months ended June
30, 2000. This decrease resulted from the decline in collateralized bonds due to
prepayments on the related collateral for collateralized  bonds, coupled with an
overall decline in the cost of funds on the collateralized bonds.

     Provision  for losses  increased to $12.7  million for the six months ended
June 30, 2001 from $10.8 million for the same period in 2000.  This increase was
primarily a result of increasing the reserve for probable losses on various loan
pools  pledged as  collateral  for  collateralized  bonds  where the Company has
retained  credit risk,  specifically  the Company's  investment in  manufactured
housing loan pools.

     Net interest margin increased to $6.5 million from $2.2 million for the six
month  periods  ended  June 30,  2001 and 2000,  respectively.  An  increase  in
provision  for losses and the decline in interest  earning  assets was offset by
reduced borrowing costs on collateralized bonds outstanding.

Credit Exposures
     With  collateralized  bond  structures,  the  Company  retains  credit risk
relative to the amount of overcollateralization required in conjunction with the
bond  issuance.  Losses are generally  first  applied to the  overcollateralized
amount,  or in some  instances  surplus  cash and  then  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  loans  relative  to  the  yield  on  the
collateralized  bonds. At June 30, 2001, the Company  retained $175.5 million in
aggregate principal amount of  overcollateralization.  The Company had reserves,
or otherwise  had provided  coverage on $81.8  million at June 30, 2001. At June
30,  2001,  $30.3  million of these  reserve  amounts  are in the form of a loss
reimbursement  guarantee.  During  the first six  months  of 2001,  the  Company
provided for additional  reserves of $12.7 million and incurred credit losses of
$17.4 million.

     The  Company  and  Dynex  are  currently  engaged  in a  dispute  with  the
counterparty  to the  loss  reimbursement  guarantees,  which  aggregated  $30.3
million at June 30,  2001.  Such  guarantees  are payable when  cumulative  loss
trigger  levels are reached on certain of the Company's  single-family  mortgage
loan securitizations.  Currently, these trigger levels have been reached on four
of the  Company's  securities,  and  the  Company  has  made  claims  under  the
reimbursement guarantees in amounts approximating $1.7 million. The counterparty
has  denied  payment  on  these  claims,  citing  various  deficiencies  in loan
underwriting which would render these loans and corresponding  claims ineligible
under the reimbursement agreements. The Company disputes this classification and
is pursuing this matter through court-ordered arbitration.

Other Matters
     At June 30,  2001,  the  Company had  securities  of  approximately  $308.6
million  remaining for issuance  under a registration  statement  filed with the
Securities and Exchange  Commission.  The Company anticipates issuing additional
Bonds in the future.


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.

     Dynex and IHC 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.

     Approximately  $0.9 billion of the Company's  collateral for collateralized
bonds as of June 30, 2001, 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  60% and 22% 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  associated  borrowings  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,  to the extent the
Company has entered into such agreements.

     As part of its asset/liability  management  process,  the Company may enter
into interest rate cap and swap  agreements.  These interest rate agreements are
used by the Company to help  mitigate  the risk  related to the  collateral  for
collateralized  bonds for  fluctuations in interest rates that would  ultimately
impact net interest income.

     The remaining portion of the Company's  collateral for collateralized bonds
as of June 30, 2001, approximately $1.0 billion, is comprised of loans that have
coupon rates that are fixed.  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  and to the level of  short-term
interest rates.

     Dynex  measures the  sensitivity  of the  Company's  net  interest  income,
excluding  various  accounting  adjustments  including  provision for losses and
premium and  discount  amortization,  to changes in interest  rates.  Changes in
interest rates are defined as instantaneous,  parallel,  and sustained  interest
rate  movements in 100 basis point  increments.  Dynex  estimates  the Company's
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 June 30, 2001. 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 June 30,  2001.  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.  The model applies prepayment
rate assumptions representing  management's estimate of prepayment activity on a
projected basis for each collateral pool in the investment portfolio.  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.

          ------------------------ ---------------------
                Basis Point          % Change in Net
          Increase (Decrease) in     Interest Margin
              Interest Rates          from Base Case
          ------------------------ ---------------------

                   +200                  (7.7)%
                   +100                  (3.0)%
                   Base                     -
                   -100                   3.2%
                   -200                   9.0%
          ------------------------ --------------------



          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).

     4.3 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).

     4.4 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).

     4.9 Copy of the Series 14  Indenture  Supplement,  dated as of  November 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 November 12, 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).

     99.15 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

           None.
<PAGE>
                                   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/ Thomas H. Potts
                                         ---------------------------------------
                                         Thomas H. Potts
                                         President
                                         (Principal Executive Officer)




                                         /s/ Stephen J. Benedetti
                                         ---------------------------------------
                                         Stephen J. Benedetti
                                         Treasurer
                                         (Principal Financial &
                                          Accounting Officer)

Dated: August 17, 2001