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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549

                                    FORM 10-K

(MARK  ONE)
[X]  ANNUAL  REPORT  PURSUANT  TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT  OF  1934

     FOR  THE  FISCAL  YEAR  ENDED:     DECEMBER  31,  1998

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(D)  OF THE SECURITIES
     EXCHANGE  ACT  OF  1934

     FOR THE TRANSITION PERIOD FROM             TO
                                   -------------  -------------

                     COMMISSION FILE NUMBER:       001-11914

                      THORNBURG MORTGAGE ASSET CORPORATION
             (Exact name of Registrant as specified in its Charter)

                 MARYLAND                                    85-0404134
       (State or other jurisdiction of                    (I.R.S. Employer
        incorporation or organization)                   Identification Number)

           119 E. MARCY STREET
           SANTA FE, NEW MEXICO                                87501
  (Address of principal executive offices)                   (Zip Code)

               Registrant's telephone number, including area code (505) 989-1900

           Securities registered pursuant to Section 12(b) of the Act:

        Title  of  Each  Class             Name of Exchange on Which Registered
----------------------------------------  --------------------------------------
Common  Stock  ($.01  par  value)                 New York Stock Exchange
Series A 9.68% Cumulative Convertible
  Preferred Stock ($.01 par value)                New York Stock Exchange

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

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
Regulation  S-K  is not contained herein, and will not be contained, to the best
of  Registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.  [ ]

At  March  9,  1999,  the  aggregate  market  value  of the voting stock held by
non-affiliates  was $199,887,825, based on the closing price of the common stock
on  the  New  York  Stock  Exchange.

Number  of  shares  of  Common  Stock outstanding at March 9 , 1999:  21,489,663

DOCUMENTS  INCORPORATED  BY  REFERENCE:

     Portions  of  the  Registrant's  definitive Proxy Statement dated March 29,
1999,  issued  in  connection  with  the  Annual  Meeting of Shareholders of the
Registrant  to  be  held  on  April 29, 1999, are incorporated by reference into
Parts  I  and  III.


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                                        1
<PAGE>
<TABLE>
<CAPTION>
                      THORNBURG MORTGAGE ASSET CORPORATION
                          1998 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS

                               PART I

                                                                Page
                                                                ----
<S>                                                             <C>
  ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . .     3

  ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . .    17

  ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . .    17

  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.    17

                              PART II

  ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
          AND RELATED SHAREHOLDER MATTERS. . . . . . . . . . .    18

  ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . .    19

  ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . .    20

  ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE
          ABOUT MARKET RISKS . . . . . . . . . . . . . . . . .    39

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . .    39

  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . .    39

                              PART III

  ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .    39

  ITEM 11.EXECUTIVE COMPENSATION . . . . . . . . . . . . . . .    39

  ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT . . . . . . . . . . . . . . . . . . . . .    39

  ITEM 13.CERTAIN RELATIONSHIPS AND  RELATED TRANSACTIONS. . .    39

                              PART IV

  ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . .    40

  FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . .  F-1

  SIGNATURES

  EXHIBIT INDEX
</TABLE>


                                        2
<PAGE>
                                     PART I


ITEM  1.     BUSINESS

GENERAL

Thornburg  Mortgage  Asset  Corporation  and  subsidiaries  (the "Company") is a
mortgage  acquisition company that primarily invests in adjustable-rate mortgage
("ARM")  assets  comprised  of  ARM securities and ARM loans, thereby indirectly
providing capital to the single family residential housing market.  In 1998, the
Company  began investing in hybrid ARM assets ("Hybrid ARMs") which are included
in the Company's references to ARM securities and ARM loans.  Hybrid ARMs have a
fixed  rate  of interest for an initial period, generally 3 to 5 years, and then
convert  to an adjustable-rate for the balance of the term of the Hybrid ARM and
are funded with long-term debt obligations such that the debt obligations mature
within  one  year of the first interest rate reset date of the Hybrid ARMs.  ARM
securities  represent  interests  in  pools  of  ARM  loans, which often include
guarantees  or  other  credit  enhancements  against  losses from loan defaults.
While  the  Company  is  not  a  bank or savings and loan, its business purpose,
strategy, method of operation and risk profile are best understood in comparison
to  such  institutions.  The Company leverages its equity capital using borrowed
funds,  invests  in  ARM  assets  and  seeks  to  generate  income  based on the
difference  between  the  yield  on its ARM assets portfolio and the cost of its
borrowings.  The  corporate  structure  of the Company differs from most lending
institutions  in that the Company is organized for tax purposes as a real estate
investment  trust  ("REIT") and therefore generally passes through substantially
all  of  its earnings to shareholders without paying federal or state income tax
at  the corporate level.  See "Federal Income Tax Considerations -- Requirements
for  Qualification  as  a  REIT".  During 1998, in connection with the Company's
issuance  of  $1.1  billion  of  callable AAA notes, the Company formed two REIT
qualified  subsidiaries.  These  subsidiaries  are consolidated in the Company's
financial  statements  and  federal  and  state  tax  returns.

OPERATING  POLICIES  AND  STRATEGIES

Investment  Strategies

The  Company's  investment  strategy is to purchase ARM securities and ARM loans
originated  and  serviced by other mortgage lending institutions.  Increasingly,
mortgage  lending  is  being conducted by mortgage lenders who specialize in the
origination  and  servicing of mortgage loans and then sell these loans to other
mortgage  investment institutions, such as the Company.  The Company believes it
has  a competitive advantage in the acquisition and investment of these mortgage
securities and mortgage loans because of the low cost of its operations relative
to  traditional  mortgage  investors  like  banks  and  savings and loans.  Like
traditional  financial  institutions,  the  Company seeks to generate income for
distribution  to  its  shareholders  primarily  from  the difference between the
interest  income  on  its  ARM  assets  and  the financing costs associated with
carrying  its  ARM  assets.

The  Company purchases ARM assets from broker-dealers and financial institutions
that  regularly  make  markets  in these assets.  The Company also purchases ARM
assets from other mortgage suppliers, including mortgage bankers, banks, savings
and  loans,  investment banking firms, home builders and other firms involved in
originating,  packaging  and  selling  mortgage  loans.

The  Company's  mortgage  assets  portfolio  may  consist  of  either  agency or
privately  issued  securities  (generally  publicly  registered)  mortgage
pass-through  securities,  multiclass  pass-through  securities,  collateralized
mortgage  obligations  ("CMOs"),  collateralized  bond  obligations  ("CBOs"),
generally  backed  by high quality mortgage backed securities, ARM loans, Hybrid
ARMs  or  short-term  investments  that either mature within one year or have an
interest  rate  that reprices within one year.  The Company will not invest more
than  30%  of  its  ARM  assets  in Hybrid ARMs and will limit its interest rate
repricing  mismatch (the difference between the remaining fixed-rate period of a
Hybrid ARM and the maturity of the fixed-rate liability funding a Hybrid ARM) to
no  more  than  one  year.


                                        3
<PAGE>
The  Company's  investment  policy  is to invest at least 70% of total assets in
High  Quality  adjustable  and  variable rate mortgage securities and short-term
investments.  High  Quality  means:

(1)     securities that are unrated but are guaranteed by the U.S. Government or
issued  or  guaranteed  by  an  agency  of  the  U.S.  Government;
(2)     securities  which  are  rated  within  one  of  the  two  highest rating
categories  by  at  least  one  of either Standard & Poor's or Moody's Investors
Service,  Inc.  (the  "Rating  Agencies");  or
(3)     securities  that  are unrated or whose ratings have not been updated but
are  determined to be of comparable quality (by the rating standards of at least
one  of  the  Rating  Agencies)  to  a  High Quality rated mortgage security, as
determined by the Manager (as defined below) and approved by the Company's Board
of  Directors;  or
(4)     the portion of ARM or hybrid loans that have been deposited into a trust
and  have  received  a  credit  rating  of AA or better from at least one Rating
Agency.

The  remainder  of  the Company's ARM portfolio, comprising not more than 30% of
total  assets,  may  consist  of  Other  Investment  assets,  which may include:

(1)     adjustable  or  variable  rate  pass-through  certificates,  multi-class
pass-through  certificates  or  CMOs  backed  by  loans  on  single-family,
multi-family, commercial or other real estate-related properties so long as they
are  rated  at  least  Investment  Grade  at the time of purchase.   "Investment
Grade" generally means a security rating of BBB or Baa or better by at least one
of  the  Rating  Agencies;
(2)     ARM  loans  secured  by  first  liens  on  single-family  residential
properties,  generally  underwritten  to "A" quality standards, and acquired for
the  purpose  of  future  securitization  (see  description  of  "A"  quality in
"Portfolio  of  Mortgage  Assets  -  ARM  and  Hybrid  ARM  Loans");  or
(3)     a  limited  amount,  currently $70 million as authorized by the Board of
Directors,  of  less  than  investment  grade classes of ARM securities that are
created  as  a  result  of  the  Company's  loan  acquisition and securitization
efforts.

Since  inception,  the  Company  has generally invested less than 15%, currently
approximately  4%,  of  its  total  assets in Other Investment assets, excluding
loans  held for securitization.  Despite the generally higher yield, the Company
does  not  expect  to  significantly increase its investment in Other Investment
securities.  This is primarily due to the difficulty of financing such assets at
reasonable  financing  terms  and values through all economic cycles.  Since the
Company  has  never  had  a  large investment in Other Investment securities and
believes  it  has  always  been  very  selective  and  cautious  regarding these
investments,  this  adjustment  to  the  Company's  investment  strategy  is not
expected  to  have  a  material  impact  on  the  Company's  operating  results.

The  Company  does  not  invest  in  REMIC residuals or other CMO residuals and,
therefore  does not create excess inclusion income or unrelated business taxable
income  for  tax  exempt  investors.  Therefore,  the Company is a mortgage REIT
eligible  for  purchase  by  tax exempt investors, such as pension plans, profit
sharing  plans,  401(k)  plans,  Keogh  plans and Individual Retirement Accounts
("IRAs").

Acquisition  of  ARM  and  Hybrid  ARM  Loans

The  Company acquires existing pools of ARM loans and intends to begin acquiring
individual  loans  directly  from  loan  originators  for future securitization.
Acquiring ARM loans for future securitization is expected to benefit the Company
by  providing:  (i) greater control over the types of ARM loans originated; (ii)
the  ability  to  acquire  ARM  loans  at lower prices so that the amount of the
premium  to  be  amortized  will  be  reduced  in the event of prepayment; (iii)
additional  sources  of  new  whole-pool ARM assets; and (iv) potentially higher
yielding  investments  in  its  portfolio.

The  Company  acquires  residential ARM and Hybrid ARM whole loans utilizing two
processes  which  the  Company calls the Bulk Acquisition Method ("Bulk Method")
and  the  Flow  Acquisition  Method ("Flow Method").  The Bulk Method, which the
Company  began utilizing in 1997, involves a number of the Company's established
relationships  with  mortgage originators, or mortgage aggregators, who sell the
Company  pools  of  whole  loans  at  market  prices, with the servicing rights,
generally,  remaining with the originator or seller.  In cases where the Company
buys  the  servicing  rights  along with the loans, the Company contracts with a
qualified  loan  servicer  to perform the loan servicing function for a fee.  In
this  Bulk Method, the loans are originated using the seller's loan products and
programs,  and  the  credit  review  of  the  borrower  and the appraisal of the
property  and  the  quality control procedures are performed by the originators.


                                        4
<PAGE>
The  Company only considers the purchase of loans when all of the borrowers have
had  their  incomes  verified,  their  credit checked, their assets verified and
appraisals  of  the  properties have been obtained.  The Company then obtains an
independent  underwriter's review, performed by a third party for the benefit of
the  Company, which entails a review of the processes and closing method used by
the  originators  in  verifying  the  borrower credit as well as a review of the
property  valuation.  In addition, the Company will, at the request of the third
party  credit  review  providers, utilize its own personnel to re-review some of
the  individual loans in order to insure the highest possible loan quality.  The
Company  generally  selects  loans  for  underwriting review based upon specific
criteria  such  as property location, loan size, effective loan-to-value ratios,
borrowers'  credit  scoring  and  other  criteria  the  Company  believes  to be
important  indicators  of  credit  risk.  Additionally, prior to the purchase of
loans,  the  Company  obtains  representations  and  warranties from each seller
stating  that  each  loan  meets  the Company's underwriting standards and other
requirements.  The breach of such representations and warranties in regards to a
loan  can  result  in  the  seller  having an obligation to repurchase the loan.

In  the Flow Method, which the Company will begin utilizing in the first half of
1999,  the  Company  acquires  mortgage  loans using the Company's specific loan
programs  and  underwriting  criteria.  This  means  that  the originator/seller
originates  the  individual  loans  using  the  Company's established credit and
program  guidelines.  All  program  participants,  (originators/sellers),  are
screened  by  the Company as to their financial strength as well as to their own
established  in-house  mortgage procedures.  The credit of each borrower and the
value of each property is underwritten by the originators and are subject to the
quality control procedures of the originators.  This is the same process used by
originators/sellers  in  the  Bulk  Method  except  that  all  of the credit and
appraisal guidelines have been developed and designed by the Company to meet the
Company's  own credit criteria and portfolio requirements.  All of the loans are
then  subjected  to  further  credit review by mortgage insurance companies that
also  use  the  Company's guidelines to insure product quality and compliance to
the  Company's guidelines.  The three mortgage insurance companies chosen by the
Company  to  perform  this function use a two-step loan approval process.  After
the  credit  review  and  quality  control  review  are  performed  by  the
originator/seller, but prior to the purchase of the loans by the Company, all of
the  loans  are  placed  through an automated underwriting system created by the
Federal  National  Mortgage  Association  ("Fannie  Mae")  called  "Desktop
Underwriter."   This  is  the  same system used by Fannie Mae in connection with
all  of  their  own  loan  purchases.  Secondly, all loans that pass the Desktop
Underwriter  test  are then screened by the mortgage insurance company personnel
as  to  their  compliance  to the Company's guidelines. A select number of these
loans are then subjected to an additional quality control procedure performed by
a  third party.  Additionally, all of the loans acquired through the Flow Method
are  assigned  a  "Risk  Evaluation  Score"  or  "Mortgage Score" by each of the
mortgage  insurance companies.  The risk score evaluates not only the borrower's
credit  but also the geographic location of the property, the economic viability
of  the  area,  the general market conditions and the loan product chosen by the
borrower.  The Company believes that obtaining risk scores will help in reducing
the  Company's  securitization  costs by insuring that the Company purchases the
highest  quality  mortgage  loans with the lowest risk possible.  As in the Bulk
Method, mortgage loans acquired through the Flow Method are acquired, generally,
with  the  servicing  rights  remaining with the originator/seller.  As with the
Bulk Method, in cases where the Company buys the servicing rights along with the
loans,  the Company contracts with a qualified loan servicer to perform the loan
servicing  function  for  a  fee.  The  Company  obtains  representations  and
warranties  from each seller or program participant stating that each loan meets
the  Company's  underwriting  standards  and other requirements.  As in the Bulk
Method,  the  breach of such representations and warranties in regards to a loan
can  result  in  the  seller  having  an  obligation  to  repurchase  the  loan.

In  both  methods the Company uses its in-house staff as well as third party due
diligence providers to verify the credit quality of the borrowers as well as the
soundness  of  the  mortgage collateral securing the individual loans.  As added
security,  the  Company uses the services of a third party document custodian to
insure  the quality and accuracy of all individual mortgage loan documents which
are  then  held  in  safekeeping  with the third-party document custodian.  As a
result,  all  of  the  original individual loan documents that are signed by the
borrower,  other  than  the original credit verification documents, are examined
and  verified  by  the  custodian.

Securitization  of  ARM  and  Hybrid  ARM  Loans

The  Company  acquires  ARM  and  Hybrid  ARM  loans  for its portfolio with the
intention  of  securitizing them in such a way as to maximize the amount of high
quality  assets  that can be created from an accumulation of  the ARM and Hybrid
ARM  loans.  In order to facilitate the securitization of its loans, the Company
intends  to  create and retain a subordinate interest in the loans, to provide a
limited  amount  of credit enhancement, and then to purchase an insurance policy
from a third party financial guarantor that will "wrap" the remaining balance of
the  loans to a credit rating of AA or better.  Upon securitization, the Company
then  plans  to either own the high quality ARM certificates and the subordinate
certificates  in  its portfolio and finance the high quality certificates in the
repurchase  agreement  market,  or  to  utilize such ARM assets to collateralize
capital  markets  issued  debt  obligations with a credit rating of AA or better
from  a  Rating  Agency  as  an  alternative  financing source to the repurchase
agreement  market.


                                        5
<PAGE>
Financing  Strategies

The  Company  employs  a leveraging strategy to increase its assets by borrowing
against  its  ARM  assets  and then using the proceeds to acquire additional ARM
assets.  By  leveraging  its  portfolio  in  this manner, the Company expects to
maintain  an  equity-to-assets  ratio  between  8%  to  10%,  when measured on a
historical  cost  basis.  The  Company  believes  that  this level of capital is
sufficient  to  allow  the  Company  to  continue  to  operate  in interest rate
environments  in  which the Company's borrowing rates might exceed its portfolio
yield.  These  conditions  could occur when the interest rate adjustments on the
ARM  assets  lag  the  interest  rate  increases  in the Company's variable rate
borrowings  or  when the interest rate of the Company's variable rate borrowings
are  mismatched with the interest rate indices of the Company's ARM assets.  The
Company also believes that this capital level is adequate to protect the Company
from  having  to sell assets during periods when the value of its ARM assets are
declining.  During  the fourth quarter of 1998, the Company did sell some assets
in  order  to  increase its equity ratio from approximately 8% to over 9%, which
under  the  market  conditions at the time was a more appropriate level.  If the
ratio  of  the  Company's  equity-to-total assets, measured on a historical cost
basis,  falls  below  8%,  the  Company  will  take  action  to  increase  its
equity-to-assets  ratio  to  8%  of  total assets or greater, when measured on a
historical  cost  basis,  through  normal portfolio amortization, raising equity
capital,  sale  of  assets  or  other  steps  as  necessary.

The  Company's  ARM  assets are financed primarily at short-term borrowing rates
and  can  be  financed  utilizing  reverse  repurchase  agreements,  dollar-roll
agreements,  borrowings  under  lines  of  credit and other secured or unsecured
financings  which the Company may establish with approved institutional lenders.
Prior  to  1998,  reverse  repurchase  agreements had been the primary source of
financing  utilized  by  the  Company  to  finance its ARM assets.  In 1998, the
Company issued $1.1 billion of callable AAA rated notes in addition to utilizing
reverse  repurchase agreements to finance its assets.  Generally, upon repayment
of  each  reverse repurchase agreement, the ARM assets used to collateralize the
financing  will  immediately  be  pledged  to  secure  a  new reverse repurchase
agreement.  The  Company  has  established  lines  of  credit and collateralized
financing  agreements  with  twenty-four  different  financial  institutions.

Reverse  repurchase  agreements  take the form of a simultaneous sale of pledged
assets  to a lender at an agreed upon price in return for the lender's agreement
to resell the same assets back to the borrower at a future date (the maturity of
the borrowing) at a higher price.  The price difference is the cost of borrowing
under  these  agreements.  In  the  event  of  the insolvency or bankruptcy of a
lender  during  the  term  of  a reverse repurchase agreement, provisions of the
Federal  Bankruptcy  Code,  if applicable, may permit the lender to consider the
agreement to resell the assets to be an executory contract that, at the lender's
option,  may  be either assumed or rejected by the lender.  If a bankrupt lender
rejects  its  obligation  to resell pledged assets to the Company, the Company's
claim  against  the lender for the damages resulting therefrom may be treated as
one of many unsecured claims against the lender's assets.  These claims would be
subject to significant delay and, if and when payments are received, they may be
substantially  less  than  the  damages  actually  suffered  by the Company.  To
mitigate  this  risk the Company enters into collateralized borrowings with only
financially  sound  institutions approved by the Board of Directors, including a
majority of unaffiliated directors, and monitors the financial condition of such
institutions  on  a  regular,  periodic  basis.

The  Company,  commencing  in 1998, also utilizes capital market transactions by
issuing debt collateralized by specific pools of ARM assets that are placed in a
trust.  The  financing  of  ARM assets in this way eliminates the risk of margin
calls  on the financing of those ARM assets and limits the Company's exposure to
credit  risk  on  the  ARM  and Hybrid ARM loans collateralizing such debt.  The
Company  receives  a  credit  rating on the debt based on the quality of the ARM
assets,  amount  of  any credit enhancement obtained and subordination levels of
the debt proscribed by the rating agency(ies), all of which affects the interest
rate  at  which  the debt can be issued.  The principal and interest payments on
the debt are paid by the trust out of the cash flows received on the collateral.
By  utilizing  such a structure, the Company can issue either floating rate debt
indexed  to various indices that more closely matches the characteristics of the
collateralized  ARM assets, depending upon market constraints and conditions, or
fixed rate debt that corresponds to the characteristics of collateralized Hybrid
ARM  loans.


                                        6
<PAGE>
The  Company also enters into financing facilities for whole loans.  The Company
uses  these  credit  lines to finance its acquisition of whole loans while it is
accumulating  loans  for  securitization  or  until  more permanent financing is
arranged  in  a  capital  markets collateralized debt transaction.  In 1998, the
Company  utilized  two whole loan financing facilities that provided the Company
with  uncommitted  lines of credit based on the market value of its whole loans.
Uncommitted  lines  of credit are generally less expensive than a committed line
of credit, but during periods of market turmoil, uncommitted lines of credit can
be  terminated  by  the  counterparty with little notice to the Company and at a
time  when  the  Company  would have difficulty in replacing the line of credit.
Therefore, beginning in 1999, the Company has decided to negotiate and pay a fee
for  committed facilities as well as continue to utilize uncommitted facilities.
During  January  1999,  the  Company  entered into one committed facility in the
amount  of  $150,000,000,  which the Company can increase to $300,000,000 for an
additional  fee,  and is negotiating a number of other committed and uncommitted
facilities.

The  Company  mitigates  its  interest-rate  risk  from  borrowings by selecting
maturities  that approximately match the interest-rate adjustment periods on its
ARM assets.  Accordingly, borrowings bear variable or short-term fixed (one year
or  less)  interest  rates.  Generally,  the  borrowing  agreements  require the
Company  to  deposit  additional  collateral  in  the  event the market value of
existing  collateral  declines,  which,  in  dramatically  rising  interest rate
markets,  could  require  the  Company  to sell assets to reduce the borrowings.

The  Company's  Bylaws limit borrowings, excluding the collateralized borrowings
in  the  form of reverse repurchase agreements, dollar-roll agreements and other
forms  of collateralized borrowings discussed above, to no more than 300% of the
Company's  net assets, on a consolidated basis, unless approved by a majority of
the unaffiliated directors.  This limitation generally applies only to unsecured
borrowings  of  the  Company.  For this purpose, the term "net assets" means the
total  assets  (less  intangibles)  of  the  Company  at  cost, before deducting
depreciation  or  other non-cash reserves, less total liabilities, as calculated
at  the  end  of  each  quarter in accordance with generally accepted accounting
principles.  Accordingly,  the  300% limitation on unsecured borrowings does not
affect  the  Company's  ability  to finance its total assets with collateralized
borrowings.

Hedging  Strategies

The  Company makes use of hedging transactions to mitigate the impact of certain
adverse  changes  in interest rates on its net interest income.  In general, ARM
assets  have a maximum lifetime interest rate cap, or ceiling, meaning that each
ARM  asset  contains a contractual maximum rate.  The borrowings incurred by the
Company  to  finance  its  ARM  assets  portfolio  are not subject to equivalent
interest  rate  caps.  Accordingly,  the  Company  purchases  interest  rate cap
agreements  ("Cap  Agreements")  to  prevent  the Company's borrowing costs from
exceeding  the  lifetime  maximum  interest  rate  on its ARM assets.  These Cap
Agreements  have  the  effect of offsetting a portion of the Company's borrowing
costs  if  prevailing  interest  rates  exceed  the  rate  specified  in the Cap
Agreement.  A  Cap  Agreement  is  a contractual agreement for which the Company
pays  a  fee,  which  may at times be financed, typically to either a commercial
bank  or  investment  banking firm.  Pursuant to the terms of the Cap Agreements
owned  as  of  December  31, 1998, the Company will receive cash payments if the
one-month,  three-month  or  six-month  LIBOR  index  increases  above  certain
specified  levels,  which  range  from 7.50% to 13.00% and average approximately
10.10%.  The  fair  value  of  these  Cap Agreements also tends to increase when
general  market  interest rates increase and decrease when market interest rates
decrease, helping to partially offset changes in the fair value of the Company's
ARM  assets.

In  addition,  ARM assets are generally subject to periodic caps.  Periodic caps
generally  limit  the  maximum  interest rate coupon change on any interest rate
coupon adjustment date to either a maximum of 1% per semiannual adjustment or 2%
per  annual  adjustment.  The  borrowings  incurred  by  the Company do not have
similar periodic caps.  The Company generally does not hedge against the risk of
its borrowing costs rising above the periodic interest rate cap level on the ARM
assets  because  the  contractual  future  interest  rate adjustments on the ARM
assets will cause their interest rates to increase over time and reestablish the
ARM  assets'  interest  rate  to a spread over the then current index rate.  The
Company  attempts  to  mitigate  the  effect  of  periodic caps in several ways.
First,  the  yield on the Company's ARM assets can change by more that the 1% or
2%  per  periodic  interest  rate  adjustment  limitation  depending  upon  how
prepayment  activity  changes  as interest rates change.  Secondly, during 1998,
the  Company  began to acquired variable rate CMOs and CBOs ("Floaters"), Hybrid
ARMs  and  certain  other  ARM  loans  that  do  not have a periodic cap.  As of
December  31, 1998, approximately $622.9 million of the Company's ARM securities
and $909.2 million of the Company's ARM loans did not have periodic caps or were
Hybrid  ARMs,  representing  approximately  36%  of  total  ARM  assets.


                                        7
<PAGE>
The  Hybrid  ARMs  have  an  initial  fixed rate period, generally 3 to 5 years.
Since the Company's borrowings are generally short-term, the Company enters into
interest  rate swap agreements that hedge a portion of the fixed rate period, so
that  the  unhedged  fixed  rate period is no more than one year.  In accordance
with  the  terms  of  these  swap  agreements,  the Company pays a fixed rate of
interest  during  the term of the agreements, and receives a payment that varies
monthly  with the one month LIBOR Index.  Due to the longer term nature of these
agreements  and because the hedged Hybrid ARMs are amortizing based on homeowner
scheduled  payments  and  unscheduled  prepayments, the Company generally enters
into  both a swap that amortizes at an agreed upon single prepayment rate and an
additional  swap  that  amortizes at a prepayment rate which the Company has the
option  to  change  monthly  within  a  range  of  rates.

The Company also enters into interest rate swap agreements to manage the average
interest  rate  reset period on its borrowings.  In accordance with the terms of
the  swap  agreements, the Company pays a fixed rate of interest during the term
of  the agreements and receives a payment that varies monthly with the one month
LIBOR Index.  These agreements have the effect of fixing the Company's borrowing
costs  on  a  similar amount of swaps owned by the Company and, as a result, the
Company  reduces  the  interest rate variability of its borrowings.  The Company
may  also use interest rate swap agreements from time to time to change from one
interest rate index to another interest rate index and thus decrease further the
basis  risk  between the Company's interest yielding assets and the financing of
such  assets.

The  ARM  assets  held by the Company were generally purchased at prices greater
than  par.  The  Company  is  amortizing the premiums paid for these assets over
their  expected lives using the level yield method of accounting.  To the extent
that  the prepayment rate on the Company's ARM assets differs from expectations,
the  Company's  net  interest  income  will  be affected.  Prepayments generally
increase  when  mortgage  interest  rates  fall  below the interest rates on ARM
loans.  To  the  extent there is an increase in prepayment rates, resulting in a
shortening  of the expected lives of the Company's ARM assets, the Company's net
income  and,  therefore,  the  amount available for dividends could be adversely
affected.  To  mitigate  the adverse effect of an increase in prepayments on the
Company's ARM assets, the Company has purchased ARM assets at prices at or below
par,  however  the  Company's portfolio of ARM assets is currently held at a net
premium.  The  Company  may  also  purchase  limited amounts of "principal only"
mortgage  derivative  assets backed by either fixed-rate mortgages or ARM assets
as  a  hedge  against the adverse effect of increased prepayments.  To date, the
Company  has  not  purchased  any  "principal  only" mortgage derivative assets.

The  Company  may enter into other hedging-type transactions designed to protect
its  borrowings  costs  or  portfolio  yields  from interest rate changes.  Such
transactions may include the purchase or sale of interest rate futures contracts
or  options  on  interest rate futures contracts.  The Company may also purchase
"interest  only"  mortgage  derivative  assets  or other derivative products for
purposes of mitigating risk from interest rate changes.  The Company has not, to
date,  entered  into  these  types of transactions, but may do so in the future.
The  Company  will not invest in any futures transactions unless the Company and
Thornburg  Mortgage  Advisory  Corporation  (the  "Manager") are exempt from the
registration  requirements  of  the Commodities Exchange Act or otherwise comply
with  the  provisions  of  that  Act.

Hedging transactions currently utilized by the Company generally are designed to
protect  the  Company's  net  interest  income  during  periods of rising market
interest  rates.  The Company does not intend to hedge for speculative purposes.
Further,  no hedging strategy can completely insulate the Company from risk, and
certain  of the federal income tax requirements that the Company must satisfy to
qualify  as  a  REIT  limit  the  Company's  ability to hedge, particularly with
respect  to  hedging  against periodic cap risk.  The Company carefully monitors
and  may have to limit its hedging strategies to ensure that it does not realize
excessive hedging income, or hold hedging assets having excess value in relation
to  total  assets.  See  "Federal  Income  Tax Considerations - Requirements for
Qualification  as  a  REIT".

Operating  Restrictions

The  Board of Directors has established the Company's operating policies and any
revisions  in  the operating policies and strategies require the approval of the
Board  of Directors, including a majority of the unaffiliated directors.  Except
as otherwise restricted, the Board of Directors has the power to modify or alter
the operating policies without the consent of shareholders.  Developments in the
market  which  affect  the operating policies and strategies mentioned herein or
which  change  the  Company's  assessment  of  the market may cause the Board of
Directors  (including  a  majority of the unaffiliated directors)  to revise the
Company's  operating  policies  and  financing  strategies.

In the event the rating of an ARM security held by the Company is reduced by the
Rating  Agencies to below Investment Grade after acquisition by the Company, the
asset  may  be  retained  in  the  Company's investment portfolio if the Manager
recommends  that  it be retained and the recommendation is approved by the Board
of  Directors  (including  a  majority  of  the  unaffiliated  directors).


                                        8
<PAGE>
The  Company has elected to qualify as a REIT for tax purposes.  The Company has
adopted  certain  compliance  guidelines  which  include  restrictions  on  the
acquisition, holding and sale of assets.  Prior to the acquisition of any asset,
the  Company  determines  whether  such  asset will constitute a "Qualified REIT
Asset" as defined by the Internal Revenue Code of 1986, as amended (the "Code").
Substantially  all the assets that the Company has acquired and will acquire for
investment  are  expected  to  be Qualified REIT Assets.  This policy limits the
investment  strategies  that  the  Company  may  employ.

The  Company  closely  monitors  its purchases of ARM assets and the income from
such assets, including from its hedging strategies, so as to ensure at all times
that  it  maintains  its qualification as a REIT.  The Company developed certain
accounting systems and testing procedures with the help of qualified accountants
and tax experts to facilitate its ongoing compliance with the REIT provisions of
the  Code.  See  "Federal  Income  Tax  Considerations  -  Requirements  for
Qualification  as  a REIT".  No changes in the Company's investment policies and
operating  policies and strategies, including credit criteria for mortgage asset
investments,  may  be  made  without  the  approval  of  the  Company's Board of
Directors,  including  a  majority  of  the  unaffiliated  directors.

The  Company  at  all  times intends to conduct its business so as not to become
regulated  as  an  investment  company under the Investment Company Act of 1940.
The  Investment  Company Act exempts entities that are "primarily engaged in the
business  of  purchasing or otherwise acquiring mortgages and other liens on and
interests  in  real  estate"  ("Qualifying  Interests").  Under  current
interpretation  of the staff of the SEC, in order to qualify for this exemption,
the  Company  must  maintain  at  least 55% of its assets directly in Qualifying
Interests.  In  addition,  unless  certain  mortgage  assets  represent  all the
certificates  issued  with  respect  to  an  underlying  pool of mortgages, such
mortgage  assets  may be treated as assets separate from the underlying mortgage
loans  and, thus, may not be considered Qualifying Interests for purposes of the
55%  requirement.  The  Company  closely  monitors  its  compliance  with  this
requirement  and  intends to maintain its exempt status.  Up to the present, the
Company  has  been  able to maintain its exemption through the purchase of whole
pool  government  agency  and  privately  issued  ARM  securities and loans that
qualify  for  the  exemption.  See  "Portfolio of Mortgage Assets - Pass-Through
Certificates  -  Privately  Issued  ARM  Pass-Through  Certificates".

The  Company  does  not  purchase any assets from or enter into any servicing or
administrative  agreements  (other  than  the  Management  Agreement)  with  any
entities  affiliated  with  the  Manager.  Any  changes  in this policy would be
subject  to  approval  by  the  Board  of Directors, including a majority of the
unaffiliated  directors.


                          PORTFOLIO OF MORTGAGE ASSETS

As of December 31, 1998, ARM assets comprised approximately 98% of the Company's
total  assets.  The  Company  has  invested  in  the following types of mortgage
assets  in  accordance  with  the operating policies established by the Board of
Directors  and  described  in  "Business  -  Operating Policies and Strategies -
Operating  Restrictions".

PASS-THROUGH  CERTIFICATES

The  Company's  investments  in mortgage assets are concentrated in High Quality
ARM  pass-through certificates which account for approximately 90% of ARM assets
held.  These  High  Quality  ARM  pass-through  certificates  consist  of Agency
Certificates  and  privately  issued ARM pass-through certificates that meet the
High  Quality credit criteria.  These High Quality ARM pass-through certificates
acquired  by  the  Company  represent  interests  in ARM loans which are secured
primarily  by  first  liens  on  single-family  (one-to-four  units) residential
properties,  although the Company may also acquire ARM pass-through certificates
secured  by liens on other types of real estate-related properties.  The Company
also  includes  in  this  category of assets a portion of the ARM and Hybrid ARM
loans  that  have  been  deposited in a trust and held as collateral for its AAA
notes  payable in the amount equivalent to the AAA portion of the debt issued by
the  trust.  The ARM pass-through certificates, including the ARM and Hybrid ARM
loans  collateralizing  AAA notes payable, acquired by the Company are generally
subject  to periodic interest rate adjustments, as well as periodic and lifetime
interest  rate  caps  which limit the amount an ARM security's interest rate can
change  during  any  given  period.


                                        9
<PAGE>
The  following  is a discussion of each type of pass-through certificate held by
the  Company  as  of  December  31,  1998:

FHLMC  ARM  Programs

FHLMC is a shareholder-owned government sponsored enterprise created pursuant to
an  Act  of Congress on July 24, 1970.  The principal activity of FHLMC consists
of  the  purchase  of  first lien, conventional residential mortgages, including
both whole loans and participation interests in such mortgages and the resale of
the  loans and participations in the form of guaranteed mortgage assets.  During
1998, FHLMC issued $7.2 billion of FHLMC ARM certificates and as of December 31,
1998,  there  was  $37.5  billion  of  all  types  of  FHLMC  ARM  certificates
outstanding,  of  which  FHLMC  held  $9.8  billion  in  its  own  portfolio.

Each  FHLMC  ARM  Certificate  issued  to  date has been issued in the form of a
pass-through  certificate  representing  an  undivided interest in a pool of ARM
loans  purchased  by  FHLMC.  The  ARM  loans  included  in  each pool are fully
amortizing, conventional mortgage loans with original terms to maturity of up to
40  years  secured  by  first  liens  on  one-to-four  unit  family  residential
properties  or  multi-family  properties.  The  interest  rate paid on FHLMC ARM
Certificates  adjust  periodically  on  the first day of the month following the
month  in  which  the  interest  rates  on the underlying mortgage loans adjust.

FHLMC  guarantees  to  each holder of its ARM Certificates the timely payment of
interest  at  the  applicable  pass-through  rate and ultimate collection of all
principal  on the holder's pro rata share of the unpaid principal balance of the
related  ARM  loans,  but  does  not  guarantee  the timely payment of scheduled
principal  of the underlying mortgage loans.  The obligations of FHLMC under its
guarantees  are  solely  those of FHLMC and are not backed by the full faith and
credit  of  the  U.S.  Government.  If  FHLMC  were  unable  to  satisfy  such
obligations,  distributions  to  holders of FHLMC ARM Certificates would consist
solely  of  payments  and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC ARM Certificates would be
affected  by  delinquent  payments  and  defaults  on  such  mortgage  loans.

FNMA  ARM  Programs

FNMA  is  a  federally  chartered  and privately owned corporation organized and
existing  under  the  Federal  National  Mortgage Association Charter Act.  FNMA
provides  funds  to  the  mortgage  market primarily by purchasing home mortgage
loans  from  mortgage  loan  originators,  thereby  replenishing their funds for
additional  lending.  FNMA  established  its  first  ARM  programs  in  1982 and
currently  has  several ARM programs under which ARM certificates may be issued,
including  programs  for  the  issuance of assets through REMICs under the Code.
During  1998,  FNMA  issued  $14.0  billion  of  FNMA ARM certificates and as of
December 31, 1998, there was $59.0 billion of all types of FNMA ARM certificates
outstanding,  of  which  FNMA  held  $11.9  billion  in  its  own  portfolio.

Each  FNMA  ARM  Certificate  issued  to  date  has been issued in the form of a
pass-through  certificate representing a fractional undivided interest in a pool
of  ARM  loans  formed  by  FNMA.  The ARM loans included in each pool are fully
amortizing  conventional  mortgage  loans  secured  by  a  first  lien on either
one-to-four  family  residential  properties  or  multi-family  properties.  The
original  terms  to  maturities of the mortgage loans generally do not exceed 40
years.  FNMA  has  issued  several  different  series of ARM Certificates.  Each
series  bears  an initial interest rate and margin tied to an index based on all
loans  in  the  related  pool,  less  a  fixed percentage representing servicing
compensation  and  FNMA's  guarantee  fee.

FNMA  guarantees to the registered holder of a FNMA ARM Certificate that it will
distribute  amounts  representing  scheduled principal and interest (at the rate
provided  by  the  FNMA  ARM  Certificate)  on  the  mortgage  loans in the pool
underlying  the  FNMA  ARM  Certificate,  whether  or not received, and the full
principal  amount  of  any  such  mortgage  loan foreclosed or otherwise finally
liquidated,  whether  or  not  the  principal  amount is actually received.  The
obligations  of  FNMA  under its guarantees are solely those of FNMA and are not
backed by the full faith and credit of the U.S. Government.  If FNMA were unable
to  satisfy  such obligations, distributions to holders of FNMA ARM Certificates
would consist solely of payments and other recoveries on the underlying mortgage
loans  and,  accordingly,  monthly  distributions  to  holders  of  FNMA  ARM
Certificates  would  be  affected  by  delinquent  payments and defaults on such
mortgage  loans.


                                       10
<PAGE>
Privately  Issued  ARM  Pass-Through  Certificates

Privately  issued  ARM  Pass-Through  Certificates are structured similar to the
Agency  Certificates  discussed  above  but  are  issued  by originators of, and
investors  in,  mortgage loans, including savings and loan associations, savings
banks,  commercial  banks,  mortgage banks, investment banks and special purpose
subsidiaries  of  such  institutions.  Privately  issued  ARM  pass-through
certificates  are  usually  backed  by  a  pool  of  non-conforming conventional
adjustable-rate  mortgage  loans  and  are generally structured with one or more
types  of  credit  enhancement,  including  pool  insurance,  guarantees,  or
subordination.  Accordingly,  the privately issued ARM pass-through certificates
typically  are  not guaranteed by an entity having the credit status of FHLMC or
FNMA.

Privately  issued ARM pass-through certificates credit enhanced by mortgage pool
insurance  provide  the  Company with an alternative source of ARM assets (other
than  Agency  ARM  assets)  that meet the Qualifying Interests test for purposes
maintaining  the  Company's  exemption under the Investment Company Act of 1940.
Since  the  inception  of the Company in 1993, most of the providers of mortgage
pool  insurance  have  stopped providing such insurance.  Therefore, the Company
has  increased its investment in Agency ARM securities and in whole loans as its
primary  sources  of  Qualifying  Interests  in  real  estate.

COLLATERALIZED  MORTGAGE  OBLIGATIONS  ("CMOS"), COLLATERALIZED BOND OBLIGATIONS
("CBOS")  AND  MULTICLASS  PASS-THROUGH  ASSETS

CMOs  are debt obligations, ordinarily issued in series and most commonly backed
by  a  pool  of  fixed rate mortgage loans or pass-through certificates, each of
which  consists  of several serially maturing classes.  The CBOs acquired by the
Company, like CMOs, are debt obligations, but, in the case of  CBOs, are secured
by  security  interests  in  portfolios  of  high  quality,  low  duration,
mortgage-backed,  asset-backed  and  other  fixed  and  floating rate securities
managed  by third-parties.  The Company only acquires CBO's that have portfolios
that  consist  primarily of either real estate qualifying assets or high quality
mortgage  backed  securities.  Multiclass  pass-through  securities  are  equity
interests in a trust composed of similar underlying mortgage assets.  Generally,
principal  and  interest  payments  received  on the underlying mortgage-related
assets  securing  a  series  of  CMOs  or multiclass pass-through securities are
applied to principal and interest due on one or more classes of the CMOs of such
series or to pay scheduled distributions of principal and interest on multiclass
pass-throughs.  In  a  CBO transaction, principal and interest payments are used
to  pay current period interest and any excess is reinvested into the portfolio.
CBOs typically don't amortize monthly, rather they mature on a specific maturity
date.  Scheduled  payments  of  principal  and  interest on the mortgage-related
assets  and  other  collateral  securing  a  series  of CMOs, CBOs or multiclass
pass-throughs are intended to be sufficient to make timely payments of principal
and  interest  on  such  issues  or  securities and to retire each class of such
obligations  at  their  stated  maturity.

Multiclass  pass-through  securities  backed by ARM assets or ARM loans owned by
the  Company are typically structured into classes designated as senior classes,
mezzanine classes and subordinated classes.  The Company also owns variable rate
classes  of  CMOs  and  CBOs  that are backed by both fixed- and adjustable-rate
mortgages.

The  senior  classes  in a multiclass pass-through security generally have first
priority  over  all  cash flows and consequently have the least amount of credit
risk  since  principal  losses  are generally covered by mortgage pool insurance
policies  or  are  charged  against  the  subordinated  classes  in  order  of
subordination.  As  a  result  of these features, the senior classes receive the
highest  credit  rating  from  Rating Agencies of the series of classes for each
multiclass  pass-through  security.

The  mezzanine  classes  of  a multiclass pass-through security generally have a
slightly  greater  risk  of  principal  loss  than the senior classes since they
provide  some  credit  enhancement to the senior classes.  In most, but not all,
instances, mezzanine classes participate on a pro-rata basis with senior classes
in  their  right  to  receive  cash  flow and have expected lives similar to the
senior  classes.  In other instances, mezzanine classes are subordinate in their
right  to  receive  cash  flow  and  have average lives that are longer than the
senior  classes.  However,  in  all  cases,  a  mezzanine class has a similar or
slightly  lower  credit  rating  than the senior class from the Rating Agencies.
Generally,  the  mezzanine  classes that the Company has acquired are rated High
Quality.

Subordinated  classes  are  junior  in  the  right  to  receive payment from the
underlying  mortgages  to  other  classes of a multiclass pass-through security.
The  subordination  provides  credit  enhancement  to  the  senior and mezzanine
classes.  Subordinated  classes  may be at risk for some payment failures on the
mortgage  loans  securing  or  underlying  such assets and generally represent a
greater  level  of  credit  risk as they are responsible for bearing the risk of
credit loss on all of the outstanding loans underlying a CMO, CBO or multi-class
pass-through.  As  a  result  of being subject to more credit risk, subordinated
classes generally have lower credit ratings relative to the senior and mezzanine
classes.


                                       11
<PAGE>
The  Subordinated classes which the Company has acquired were all rated at least
Investment  Grade  at the time of purchase by one of the Rating Agencies, and in
certain cases are High Quality, or were created as part of the Company's process
of  securitizing  whole loans.  The Subordinated classes acquired by the Company
in  the  open  market  are  limited  in amount and bear yields which the Company
believes  are  commensurate  with the increased risks involved.  In general, the
Company  acquires  subordinated classes when they are seasoned and when the more
senior  classes  of  the multi-class security have been paid down to levels that
mitigate  the  risk  of  non-payment  on  the  subordinate  classes.

The  market  for  Subordinated  classes  is  not  extensive  and at times may be
illiquid.  In  addition,  the  Company's ability to sell Subordinated classes is
limited  by  the REIT Provisions of the Code.  The Company has not purchased any
Subordinated  classes  that  are  not  Qualified  REIT Assets.  The Subordinated
classes  acquired  by the Company, which are not High Quality, together with the
Company's  other  investments  in  Other  Investment  assets,  may  not,  in the
aggregate,  comprise  more than 30% of the Company's total assets, in accordance
with  the  Company's  investment  policy.

The  variable  rate  classes of CMOs and CBOs, or Floaters, owned by the Company
generally  float  at  a  spread  to  the one-month LIBOR index and are backed by
mortgages that are either fixed-rate or are adjustable-rate mortgages indexed to
the  one-year  U.  S.  Treasury  yield  or  a  Cost  of  Funds  index.

ARM  AND  HYBRID  ARM  LOANS

The ARM and Hybrid ARM loans the Company has acquired are all first mortgages on
single-family  residential  properties.  Some  have additional collateral in the
form  of  pledged  financial  assets  that  provides the Company with additional
credit  protection  in  exchange for a simpler application and approval process.
The  Company  acquires  loans  are  underwritten  to "A" quality standards.  The
Company  considers  loans to be "A" quality when they are underwritten in such a
way as to assure that the mortgages are protected by adequate borrower income to
make  the  required  loan  payment, adequate verifiable equity in the underlying
property, and by the borrower's willingness and ability to repay the mortgage as
demonstrated  by  a  good  credit history.  As a result, the loans are generally
fully  documented loans to borrowers with good credit histories, adequate income
to support the monthly mortgage payment, adequate assets to close the loan, with
80%  or  lower  effective  loan-to-value ratios based on independently appraised
property  values  or  are  seasoned  loans  with over five years or more of good
payment  history.

When  acquiring ARM and Hybrid ARM loans, either originated specifically for the
Company or when the Company acquires pools of loans in bulk, the Company focuses
its  attention on key aspects of a borrower's profile and the characteristics of
a mortgage loan product that the Company believes are most important in insuring
excellent  loan  performance  and  minimal  credit exposure.  The Company's loan
programs  focus  on  larger down payments, excellent borrower credit history (as
measured  by  a  credit  report and a credit score) and a conservative appraisal
process.  If  an  ARM  or  Hybrid ARM loan acquired has a loan to property value
that  is  above  80%,  then the borrower is required to pay for private mortgage
insurance  providing  additional  protection to the Company against credit risk.
The  loans  acquired  have  original maturities of forty years or less.  The ARM
and  Hybrid ARM loans are either fully amortizing or are interest only for up to
ten  years  and  fully  amortizing  thereafter.  All  ARM loans acquired bear an
interest  rate that is tied to an interest rate index and some have periodic and
lifetime  constraints  on  how  much  the  loan  interest rate can change on any
predetermined  interest  rate reset date.  In general, the interest rate on each
ARM  loan  resets  at  a  frequency  that  is  either  monthly, semi-annually or
annually.  The  indices  the ARM loans are tied to are generally a U.S. Treasury
Bill  index, LIBOR, Certificate of Deposit, a Cost of Funds index or Prime.  The
Hybrid  ARM loans have an initial fixed rate period, generally 3 to 5 years, and
then  they  convert  to  an  ARM loan with the features of an ARM loan described
above.


                                       12
<PAGE>
                                  RISK FACTORS

FORWARD-LOOKING  STATEMENTS

     In  accordance  with  the  Private Securities Litigation Reform Act of 1995
(the  "1995  Act"),  the  Company can obtain a "Safe Harbor" for forward-looking
statements  by identifying those statements and by accompanying those statements
with  cautionary  statements  which  identify  factors  that  could cause actual
results  to  differ  from those in the forward-looking statements.  Accordingly,
the  following  information  contains or may contain forward-looking statements:
(1)  information included in this Annual Report on Form 10-K, including, without
limitation,  statements  made  regarding  investments  in ARM securities and ARM
loans, and Hybrid ARM loans, hedging, leverage, interest rates and statements in
Item  7, Management's Discussion and Analysis of Financial Condition and Results
of  Operations,  (2)  information included in future filings by the Company with
the Securities and Exchange Commission including, without limitation, statements
with  respect to growth, projected revenues, earnings, returns and yields on its
portfolio  of mortgage assets, the impact of interest rates, costs, and business
strategies  and  plans,  and  (3)  information contained in the Company's Annual
Report  or  other written material, releases and oral statements issued by or on
behalf  of,  the Company, including, without limitation, statements with respect
to  growth,  projected revenues, net income, returns and yields on its portfolio
of  mortgage assets, the impact of interest rates, costs and business strategies
and  plans.

     The  following  is  a summary of the factors the Company believes important
and  that  could cause actual results to differ from the Company's expectations.
The  Company is publishing these factors pursuant to the 1995 Act.  Such factors
should  not be construed as exhaustive or as an admission regarding the adequacy
of  disclosure  made by the Company prior to the effective date of the 1995 Act.
Readers  should  understand that many factors govern whether any forward-looking
statement  will  be  or  can  be achieved.  Any one of those factors could cause
actual  results  to  differ materially from those projected.  No assurance is or
can  be  given  that  any important factor set forth below will be realized in a
manner  so  as to allow the Company to achieve the desired or projected results.
The  words  "believe,"  "except,"  "anticipate,"  "intend,"  "aim,"  "will," and
similar words identify forward-looking statements.  The Company cautions readers
that  the  following important factors, among others, could affect the Company's
actual  results  and  could  cause  the Company's actual consolidated results to
differ materially from those expressed in any forward-looking statements made by
or  on  behalf  of  the  Company.

-     A  Dramatic  Increase  in  Short-term  Interest  Rates

-     The  Effectiveness  of  Using Various Interest Rate Derivative Instruments
      for  Hedging  ARM  Assets  or  Borrowing  Costs

-     The Ability to Acquire Attractively Priced and Underwritten ARM and Hybrid
      ARM  Loans  and  Securities

-     Interest  Rate Repricing Mismatch Between Asset Yields and Borrowing Rates

-     A  Decline  in  the  Market Value of ARM Securities, Which Would Result in
      Margin  Calls

-     Unanticipated  Levels  of  Prepayment  Rates

-     A  Flattening  or Inversion of the Yield Curve Between Short and Long-Term
      Interest  Rates

-     The  Use  of  Substantial  Borrowed  Funds  to  Enhance  Returns

-     Risk  of  Credit  Loss  Associated  with  Acquiring,  Accumulating  and
      Securitizing  ARM  Loans

-     Interest  Rate  Risks  Associated  with any Future Unhedged Portion of the
      Fixed  Term  of  Hybrid  ARMs

-     The  Loss  of  Key  Personnel

-     Fundamental  Changes  in  Investment  Policies  and  Strategies

-     Fluctuations  or  Variability  of  Dividend  Distributions

-     Capital  Stock  Price  Volatility


                                       13
<PAGE>
                                   COMPETITION

In  acquiring  ARM  assets,  the  Company  competes  with  other mortgage REITs,
investment  banking  firms,  savings  and  loan  associations,  banks,  mortgage
bankers, insurance companies, mutual funds, other lenders, FNMA, FHLMC and other
entities  purchasing  ARM assets, many of which have greater financial resources
than  the  Company.  The existence of these competitive entities, as well as the
possibility  of  additional  entities  forming  in  the future, may increase the
competition  for  the  acquisition  of ARM assets resulting in higher prices and
lower  yields  on  such  mortgage  assets.


                                    EMPLOYEES

As  of  December  31,  1998,  the  Company had no employees.  Thornburg Mortgage
Advisory  Corporation  (the  "Manager") carries out the day to day operations of
the  Company, subject to the supervision of the Board of Directors and under the
terms  of  a  management  agreement  discussed  below.

THE  MANAGEMENT  AGREEMENT

On  June  17,  1994, the Company renewed its management agreement with Thornburg
Mortgage  Advisory Corporation (the "Management Agreement"), the  Manager, for a
term  of  five years, with an annual review required each year.  On December 15,
1995,  the Agreement was amended to provide that in the event a person or entity
obtains  more than 20% of the Company's common stock, if the Company is combined
with  another  entity, or if the Company terminates the Agreement other than for
cause,  the  Company  is obligated to acquire substantially all of the assets of
the  Manager  through an exchange of shares with a value based on a formula tied
to  the  Manager's  net  profits.  The  Company  has  the right to terminate the
Management Agreement upon the occurrence of certain specific events, including a
material  breach  by  the  Manager  of any provision contained in the Management
Agreement.

The Manager at all times is subject to the supervision of the Company's Board of
Directors  and has only such functions and authority as the Company may delegate
to  it.  The Manager is responsible for the day-to-day operations of the Company
and  performs such services and activities relating to the assets and operations
of  the  Company  as  may  be  appropriate.

The  Manager receives a per annum base management fee on a declining scale based
on  average shareholders' equity, adjusted for liabilities that are not incurred
to  finance  assets  ("Average  Shareholders'  Equity"  or "Average Net Invested
Assets"  as  defined in the Agreement), payable monthly in arrears.  The Manager
is  also entitled to receive, as incentive compensation for each fiscal quarter,
an  amount  equal  to  20%  of  the  Net Income of the Company, before incentive
compensation, in excess of the amount that would produce an annualized Return on
Equity equal to 1% over the Ten Year U.S. Treasury Rate. For further information
regarding  the  base  management  fee,  incentive  compensation  and  applicable
definitions,  see  the  Company's Proxy Statement dated March 29, 1999 under the
caption  "Certain  Relationships  and  Related  Transactions".

Subject  to  the  limitations  set  forth  below, the Company pays all operating
expenses  except those specifically required to be paid by the Manager under the
Management Agreement.  The operating expenses required to be paid by the Manager
include the compensation of the Company's officers and the cost of office space,
equipment  and other personnel required for the Company's day-to-day operations.
The  expenses  that  will  be  paid  by  the  Company  will include issuance and
transaction  costs  incident  to  the  acquisition, disposition and financing of
investments, regular legal and auditing fees and expenses, the fees and expenses
of  the  Company's  directors,  the  costs  of  printing and mailing proxies and
reports  to  shareholders,  the fees and expenses of the Company's custodian and
transfer  agent,  if any, and reimbursement of any obligation of the Manager for
any  New  Mexico Gross Receipts Tax liability.  The expenses required to be paid
by  the Company which are attributable to the operations of the Company shall be
limited  to  an  amount  per  year equal to the greater of 2% of the Average Net
Invested Assets of the Company or 25% of the Company's Net Income for that year.
The  determination  of  Net  Income  for  purposes  of  calculating  the expense
limitation  will  be  the  same  as  for  calculating  the  Manager's  incentive
compensation  except that it will include any incentive compensation payable for
such  period.  Expenses  in  excess  of such amount will be paid by the Manager,
unless  the  unaffiliated  directors  determine  that,  based  upon  unusual  or
non-recurring  factors,  a higher level of expenses is justified for such fiscal
year.  In  that  event,  such  expenses  may  be  recovered  by  the  Manager in
succeeding  years  to  the extent that expenses in succeeding quarters are below
the  limitation of expenses.  The Company, rather than the Manager, will also be
required  to  pay expenses associated with litigation and other extraordinary or
non-recurring  expenses.  Expense reimbursement will be made monthly, subject to
adjustment  at  the  end  of  each  year.


                                       14
<PAGE>
The  transaction  costs  incident  to  the  acquisition  and  disposition  of
investments,  the  incentive  compensation and the New Mexico Gross Receipts Tax
liability  will  not  be  subject  to  the  2% limitation on operating expenses.
Expenses  excluded  from the expense limitation are those incurred in connection
with the servicing of mortgage loans, the raising of capital, the acquisition of
assets,  interest  expenses,  taxes  and  license  fees,  non-cash costs and the
incentive  management  fee.


                        FEDERAL INCOME TAX CONSIDERATIONS

GENERAL

The Company has elected to be treated as a REIT for federal income tax purposes.
In  brief,  if certain detailed conditions imposed by the REIT provisions of the
Code are met, electing entities that invest primarily in real estate investments
and  mortgage loans, and that otherwise would be taxed as corporations are, with
certain  limited  exceptions,  not taxed at the corporate level on their taxable
income  that  is  currently  distributed  to their shareholders.  This treatment
eliminates  most of the "double taxation" (at the corporate level and then again
at  the shareholder level when the income is distributed) that typically results
from  the  use  of  corporate  investment  vehicles.

In  the  event that the Company does not qualify as a REIT in any year, it would
be subject to federal income tax as a domestic corporation and the amount of the
Company's after-tax cash available for distribution to its shareholders would be
reduced.  The  Company  believes  it  has  satisfied  the  requirements  for
qualification  as a REIT since commencement of its operations in June 1993.  The
Company  intends  at  all  times to continue to comply with the requirements for
qualification  as  a  REIT  under  the  Code,  as  described  below.

REQUIREMENTS  FOR  QUALIFICATION  AS  A  REIT

To  qualify  for  tax  treatment as a REIT under the Code, the Company must meet
certain  tests  which  are  described  briefly  below.

Ownership  of  Common  Stock

For  all taxable years after the first taxable year for which a REIT election is
made,  the  Company's  shares  of capital stock must be held by a minimum of 100
persons  for  at least 335 days of a 12 month year (or a proportionate part of a
short  tax  year).  In  addition,  at  all  times during the second half of each
taxable  year, no more than 50% in value of the capital stock of the Company may
be  owned  directly  or indirectly by five or fewer individuals.  The Company is
required  to maintain records regarding the actual and constructive ownership of
its  shares, and other information, and to demand statements from persons owning
above  a  specified  level of the REIT's shares (as long as the Company has over
200  or  more  shareholders,  only  persons  holding 1% or more of the Company's
outstanding  shares  of capital stock) regarding their ownership of shares.  The
Company  must  keep  a  list  of  those shareholders who fail to reply to such a
demand.

The  Company is required to use the calendar year as its taxable year for income
purposes.

Nature  of  Assets

On  the  last  day  of  each  calendar  quarter at least 75% of the value of the
Company's  assets must consist of Qualified REIT Assets, government assets, cash
and  cash  items.  The Company expects that substantially all of its assets will
continue to be Qualified REIT Assets.  On the last day of each calendar quarter,
of  the investments in assets not included in the foregoing 75% assets test, the
value  of  securities issued by any one issuer may not exceed 5% in value of the
Company's  total  assets  and  the  Company may not own more than 10% of any one
issuer's  outstanding voting securities.  Pursuant to its compliance guidelines,
the Company intends to monitor closely the purchase and holding of its assets in
order  to  comply  with  the  above  assets  tests.


                                       15
<PAGE>
Sources  of  Income

The  Company  must  meet  the  following  separate income-based tests each year:

     1.     THE 75% TEST.     At least 75% of the Company's gross income for the
taxable  year  must  be  derived  from  Qualified REIT Assets including interest
(other  than  interest based in whole or in part on the income or profits of any
person)  on  obligations  secured  by mortgages on real property or interests in
real  property.  The  investments that the Company has made and will continue to
make  will  give  rise  primarily  to mortgage interest qualifying under the 75%
income  test.

     2.     THE  95%  TEST.     In  addition to deriving 75% of its gross income
from the sources listed above, at least an additional 20% of the Company's gross
income  for  the  taxable  year  must  be  derived  from  those sources, or from
dividends,  interest  or  gains  from  the sale or disposition of stock or other
assets that are not dealer property.  The Company intends to limit substantially
all  of  the  assets  that  it  acquires  (other than stock in certain affiliate
corporations  as  discussed  below) to Qualified REIT Assets.  The policy of the
Company  to maintain REIT status may limit the type of assets, including hedging
contracts  and  other  assets,  that  the  Company  otherwise  might  acquire.

Distributions

The Company must distribute to its shareholders on a pro rata basis each year an
amount  equal  to  at  least  (i)  95% of its taxable income before deduction of
dividends  paid  and  excluding net capital gain, plus (ii) 95% of the excess of
the  net income from foreclosure property over the tax imposed on such income by
the  Code,  less (iii) any "excess noncash income".  The Company intends to make
distributions  to  its  shareholders  in  sufficient  amounts  to  meet this 95%
distribution  requirement.

The  Service  has  ruled that if a REIT's dividend reinvestment plan (the "DRP")
allows  shareholders  of the REIT to elect to have cash distributions reinvested
in  shares  of the REIT at a purchase price equal to at least 95% of fair market
value  on  the distribution date, then such cash distributions qualify under the
95%  distribution  test.  The  Company  believes that its DRP complies with this
ruling.

TAXATION  OF  THE  COMPANY'S  SHAREHOLDERS

For  any  taxable  year  in  which  the Company is treated as a REIT for federal
income  purposes,  amounts distributed by the Company to its shareholders out of
current  or  accumulated  earnings  and  profits  will  be  includable  by  the
shareholders  as ordinary income for federal income tax purposes unless properly
designated  by  the  Company  as  capital  gain dividends.  Distributions of the
Company  will  not  be  eligible  for  the  dividends  received  deduction  for
corporations.  Shareholders  may  not deduct any net operating losses or capital
losses  of  the  Company.

If  the Company makes distributions to its shareholders in excess of its current
and  accumulated  earnings  and  profits, those distributions will be considered
first  a  tax-free  return of capital, reducing the tax basis of a shareholder's
shares  until  the  tax  basis is zero.  Such distributions in excess of the tax
basis  will  be  taxable as gain realized from the sale of the Company's shares.
The Company will withhold 30% of dividend distributions to shareholders that the
Company  knows to be foreign persons unless the shareholder provides the Company
with  a  properly  completed  IRS form for claiming the reduced withholding rate
under  an  applicable  income  tax  treaty.

The  Clinton Administration has introduced a proposal in the fiscal 2000 federal
budget  that  would limit the aggregate value of businesses undertaken by a REIT
through  taxable  subsidiaries  to  5%  or less of the REIT's total assets.  The
Company  may  from  time to time hold, through one or more taxable subsidiaries,
assets  that,  if  held directly by the Company, could otherwise generate income
that would have an adverse effect on the Company's qualification as a REIT or on
certain  classes of the Company's shareholders.  The Company does not reasonably
expect  that  the value of any such taxable subsidiaries, in the aggregate, ever
to  exceed  5%  of  the  Company's  assets  and  therefore  the Company does not
anticipate  that  the  proposal, if enacted, would have a material effect on the
Company's  operations.

The  provisions  of  the Code are highly technical and complex.  This summary is
not  intended  to  be  a detailed discussion of all applicable provisions of the
Code,  the  rules  and regulations promulgated thereunder, or the administrative
and  judicial  interpretations  thereof.  The  Company has not obtained a ruling
from the Internal Revenue Service with respect to tax considerations relevant to
its  organization  or operation, or to an acquisition of its common stock.  This
summary  is  not  intended to be a substitute for prudent tax planning, and each
shareholder  of the Company is urged to consult its own tax advisor with respect
to these and other federal, state and local tax consequences of the acquisition,
ownership  and  disposition  of shares of stock of the Company and any potential
changes  in  applicable  law.


                                       16
<PAGE>
ITEM  2.     PROPERTIES

     The  Company's  principal  executive  offices  are located in Santa Fe, New
Mexico  and  are  provided  by  the  Manager  in  accordance with the Management
Agreement.  The  Company's  two  subsidiaries  have  their  principal offices in
Irvine,  California.

ITEM  3.     LEGAL  PROCEEDINGS

     At  December 31, 1998, there were no pending legal proceedings to which the
Company  was  a  party  or  of  which  any  of  its  property  was  subject.

ITEM  4.     SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

     No  matters  were  submitted to a vote of the Company's shareholders during
the  fourth  quarter  of  1998.


                                       17
<PAGE>
                                     PART II

ITEM  5.     MARKET  FOR  REGISTRANT'S  COMMON  EQUITY  AND  RELATED SHAREHOLDER
             MATTERS

The  Company's  common  stock is traded on the New York Stock Exchange under the
trading symbol "TMA".  As of January 31, 1999, the Company had 21,989,679 shares
of  common  stock issued and 21,489,663 shares of common stock outstanding which
were held by 1,161 holders of record and approximately 17,355 beneficial owners.

The  following  table  sets  forth, for the periods indicated, the high, low and
closing sales prices per share of common stock as reported on the New York Stock
Exchange  composite  tape  and  the  cash dividends declared per share of common
stock.

<TABLE>
<CAPTION>
                                                                        Cash
                                                 Stock Prices         Dividends
                                        ----------------------------  Declared
1998                                      High        Low     Close   Per Share
----                                    ---------  ---------  ------  --------
<S>                                     <C>        <C>        <C>     <C>
Fourth Quarter ended December 31, 1998     9 1/2      5 5/8    7 5/8  $  0.23 
Third Quarter ended September 30, 1998    13 5/8      7 3/16   9       -   (1)
Second Quarter ended June 30, 1998 . .    16 1/8     10 1/2   11 7/8  $  0.30 
First Quarter ended March 31, 1998 . .    18 1/2     14 3/4   15 7/8  $ 0.375 

1997
----

Fourth Quarter ended December 31, 1997    22 1/4     15 7/8   16 1/2  $  0.50 
Third Quarter ended September 30, 1997    24 9/16    20       21      $  0.50 
Second Quarter ended June 30, 1997 . .    22 1/8     17 3/4   21 1/2  $  0.49 
First Quarter ended March 31, 1997 . .    22 7/8     18 3/4   19      $  0.48 

1996
----

Fourth Quarter ended December 31, 1996    21 1/2     16 1/8   21 3/8  $  0.45 
Third Quarter ended September 30, 1996    17 5/8     14 7/8   16 1/4  $  0.40 
Second Quarter ended June 30, 1996 . .    17         14 1/8   16 1/4  $  0.40 
First Quarter ended March 31, 1996 . .    16 5/8     14 1/8   14 3/8  $  0.40 
<FN>
----------------
(1)     On  August  17,  1998,  the  Company's Board of Directors announced that
dividends  on  common  stock,  in  the  future,  would  be  declared  after each
quarter-end  rather  than  during the applicable quarter.  The fourth quarter of
1998  dividend  was  declared  in  January  1999  and  paid  in  February  1999.
</TABLE>

The Company intends to pay quarterly dividends and to make such distributions to
its  shareholders  in  such amounts that all or substantially all of its taxable
income  each  year  (subject  to  certain  adjustments) is distributed, so as to
qualify  for  the  tax  benefits  accorded  to  a  REIT  under  the  Code.  All
distributions  will  be  made  by  the Company at the discretion of the Board of
Directors  and  will  depend  on  the  earnings  and  financial condition of the
Company,  maintenance  of  REIT  status  and  such other factors as the Board of
Directors  may  deem  relevant  from  time  to  time.

DIVIDEND  REINVESTMENT  PLAN

The Company has a Dividend Reinvestment and Stock Purchase Plan (the "DRP") that
allows both common and preferred shareholders to have their dividends reinvested
in  additional  shares  of  common stock and to purchase additional shares.  The
common  stock  to be acquired for distribution under the DRP may be purchased at
the Company's discretion from the Company at a discount from the then prevailing
market  price or in the open market.  Shareholders and non-shareholders also can
make  additional  purchases of stock monthly, subject to a minimum of $100 ($500
for  non-shareholders)  and a maximum of $5,000 for each optional cash purchase.
Continental Stock Transfer & Trust Company (the "Agent"), the Company's transfer
agent,  is  the  Trustee  and  administrator of the DRP.  Additional information
about  the  details  of the DRP and a prospectus are available from the Agent or
the  Company.  Shareholders  who  own stock that is registered in their own name
and  want  to participate must deliver a completed enrollment form to the Agent.
Forms  are available from the Agent or the Company.   Shareholders who own stock
that is registered in a name other than their own (e.g., broker or bank nominee)
and want to participate must either request the broker or nominee to participate
on  their  behalf or request that the broker or nominee re-register the stock in
the  shareholder's  name  and  deliver a completed enrollment form to the Agent.


                                       18
<PAGE>
ITEM  6.     SELECTED  FINANCIAL  DATA

The  following  selected  financial  data  are  derived  from  audited financial
statements  of  the  Company  for the years ended December 31, 1998, 1997, 1996,
1995  and  1994.  The selected financial data should be read in conjunction with
the  more  detailed  information contained in the Financial Statements and Notes
thereto  and  "Management's  Discussion and Analysis of Financial Conditions and
Results  of  Operations"  included  elsewhere  in  this  Form  10-K  (Amounts in
thousands,  except  per  share  data).

<TABLE>
<CAPTION>
OPERATIONS STATEMENT HIGHLIGHTS
                                         1998      1997      1996      1995      1994
                                       --------  --------  --------  --------  --------
<S>                                    <C>       <C>       <C>       <C>       <C>
Net interest income . . . . . . . . .  $31,040   $49,064   $30,345   $13,496   $13,055 
Net income. . . . . . . . . . . . . .  $22,695   $41,402   $25,737   $10,452   $11,946 
Basic earnings per share. . . . . . .  $  0.75   $  1.95   $  1.73   $  0.88   $  1.02 
Diluted earnings per share. . . . . .  $  0.75   $  1.94   $  1.73   $  0.88   $  1.02 
Average common shares . . . . . . . .   21,488    18,048    14,874    11,927    11,759 
Distributable income per common share  $  0.84   $  1.98   $  1.76   $  0.92   $  1.02 
Dividends declared per common share .  $ 0.905   $  1.97   $  1.65   $  0.93   $  1.00 
Noninterest expense to average assets     0.13%     0.21%     0.21%     0.13%     0.11%
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET HIGHLIGHTS
                                                                            As of December 31
                                                     ---------------------------------------------------------------
                                                        1998         1997         1996         1995         1994
                                                     -----------  -----------  -----------  -----------  -----------
<S>                                                  <C>          <C>          <C>          <C>          <C>
Adjustable-rate mortgage assets . . . . . . . . . .  $4,268,417   $4,638,694   $2,727,875   $1,995,287   $1,727,469 
Total assets. . . . . . . . . . . . . . . . . . . .  $4,344,633   $4,691,115   $2,755,358   $2,017,985   $1,751,832 
Shareholders' equity  (1) . . . . . . . . . . . . .  $  395,484   $  380,658   $  238,005   $  182,312   $  180,035 
Historical book value per share (2) . . . . . . . .  $    15.34   $    15.53   $    14.67   $    14.96   $    15.29 
Market value adjusted book value per share (3). . .  $    11.45   $    14.42   $    13.70   $    13.16   $    10.19 
Number of common shares outstanding . . . . . . . .      21,490       20,280       16,219       12,191       11,773 
Yield on ARM assets . . . . . . . . . . . . . . . .        5.86%        6.38%        6.64%        6.73%        5.66%
Yield on net int.-earning assets (Portfolio Margin)        0.61%        0.96%        1.34%        1.11%        0.17%
Return on average common equity . . . . . . . . . .        4.80%       12.72%       11.68%        5.81%        6.94%
<FN>
---------------------------------------------------
(1)     Shareholders'  equity  before  unrealized  market  value  adjustments.
(2)     Shareholders'  equity  before  unrealized  market  value  adjustments, excluding preferred stock, divided by
        common  shares  outstanding.
(3)     Shareholders'  equity,  excluding  preferred  stock,  divided  by  common  shares  outstanding.
</TABLE>


                                       19
<PAGE>
ITEM  7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             RESULTS  OF  OPERATIONS


OVERVIEW  OF  FOURTH  QUARTER  1998  EVENTS  IN  THE  MORTGAGE  MARKET

Like  most other mortgage finance companies, the Company was affected by turmoil
in  the global and domestic financial markets during the fourth quarter of 1998.
Due  to  turbulent market conditions, the Company saw its portfolio asset values
decline,  its  margin  requirements  for  financing  certain  of  its ARM assets
increase,  especially  with  respect to its non-agency portfolio, and the market
value  of  its  hedging  instruments decline, which required the Company to post
additional  collateral  and  caused the Company difficulty in financing its less
than  AA  rated  assets at acceptable valuations.  Additionally, due to the high
level  of  prepayments on its agency securities, which the Company must fund out
of  its  excess  liquidity prior to receipt of payments from FNMA and FHLMC, and
the  heightened sense of risk aversion on the part of the Company's lenders, the
Company's  level  of available excess cash and liquid securities diminished from
levels maintained in prior periods.  All of these factors combined to reduce the
level  of  liquidity available to the Company during the fourth quarter of 1998.
The  Company  undertook  several measures to increase its liquidity during these
difficult  market conditions.  First, the Company requested that its lenders not
make  margin calls on its loans backed by agency securities until the applicable
payments  had  been  received  by  the  Company.  Several lenders agreed to this
request.  Second,  the  Company undertook the sale of certain assets in order to
reduce its asset portfolio.  Accordingly, during the fourth quarter, the Company
sold  $421.2  million of ARM assets and recorded a loss on sale of $4.1 million.
Of  this  loss amount, $3.4 million is related to $155 million of ARM securities
that  are  indexed  to  the  one-year U.S. Treasury index and which, as a group,
prepaid  at  an annualized  rate of 49% during October and had a yield below the
Company's  cost of funds.  The Company believes that by selecting these specific
ARM  securities  for  sale, it not only increased its liquidity, but it improved
the future return on its ARM securities portfolio.  Lastly, the Company financed
the  majority  of  its  whole  loans  and commitments to purchase whole loans by
issuing  $1.1  billion  of  AAA  rated notes, callable monthly, in a securitized
financing  transaction  in the fourth quarter of 1998.  This financing benefited
the  Company by providing the Company with a capital efficient method to finance
its  whole  loan  assets  over  year  end  and  allows  the  Company to call the
transaction  and  refinance  the loans at a lower interest rate in early 1999 if
market conditions improve.  However, the cost of this financing was greater than
current  financing  rates available to the Company for whole loans and therefore
adversely  affected  earnings  in  the  fourth quarter of 1998 and possibly will
continue  to  do  so  during the first half of 1999.  All of these measures were
successful  in maintaining the Company's liquidity throughout the fourth quarter
of  1998  and  the  Company  entered  1999 with a much improved liquidity level.

FINANCIAL  CONDITION

At  December  31,  1998, the Company held total assets of $4.345 billion, $4.268
billion  of  which  consisted of ARM assets.  That compares to $4.691 billion in
total  assets  and  $4.639  billion  of  ARM assets at December 31, 1997.  Since
commencing  operations,  the Company has purchased either ARM securities (backed
by  agencies  of  the  U.S.  government  or privately-issued, generally publicly
registered,  mortgage  assets,  most of which are rated AA or higher by at least
one  of  the  Rating  Agencies) or ARM loans generally originated to "A" quality
underwriting  standards.  At  December 31, 1998, 95.9% of the assets held by the
Company,  including  cash  and  cash  equivalents, were High Quality assets, far
exceeding  the  Company's  investment policy minimum requirement of investing at
least  70%  of  its  total  assets  in High Quality ARM assets and cash and cash
equivalents.  Of the ARM assets currently owned by the Company, 90.0% are in the
form  of  adjustable-rate pass-through certificates or ARM loans.  The remainder
are floating rate classes of CMOs (5.8%) or investments in floating rate classes
of  CBOs  (4.2%)  backed  primarily  by  mortgaged-backed  securities.


                                       20
<PAGE>
The following table presents a schedule of ARM assets owned at December 31, 1998
and December 31, 1997 classified by High Quality and Other Investment assets and
further  classified  by  type  of  issuer  and  by  ratings  categories.

<TABLE>
<CAPTION>
                     ARM ASSETS BY ISSUER AND CREDIT RATING
                          (Dollar amounts in thousands)

                                  December 31, 1998        December 31, 1997
                             --------------------------  ---------- -----------
                                Carrying     Portfolio    Carrying   Portfolio
                                 Value          Mix        Value        Mix
                             --------------  ----------  ----------  ----------
<S>                          <C>             <C>         <C>         <C>
HIGH QUALITY:
 FHLMC/FNMA . . . . . . . .  $   2,072,871        48.6%  $3,117,937       67.2%
 Privately Issued:
   AAA/Aaa Rating . . . . .   1,398,659 (1)       32.8      476,615       10.3 
   AA/Aa Rating . . . . . .        597,493        14.0      782,206       16.8 
                             --------------  ----------  ----------  ----------
     Total Privately Issued      1,996,152        46.8    1,258,821       27.1 
                             --------------  ----------  ----------  ----------

     Total High Quality . .      4,069,023        95.4    4,376,758       94.3 
                             --------------  ----------  ----------  ----------

OTHER INVESTMENT:
 Privately Issued:
   A Rating . . . . . . . .         40,591         1.0      115,055        2.5 
   BBB/Baa Rating . . . . .         88,273         2.1       17,625        0.4 
   BB/Ba Rating and Other .      44,120 (1)        0.9       10,269        0.2 
 Whole loans. . . . . . . .         26,410         0.6      118,987        2.6 
                             --------------  ----------  ----------  ----------
     Total Other Investment        199,394         4.6      261,936        5.7 
                             --------------  ----------  ----------  ----------

     Total ARM Portfolio. .  $   4,268,417       100.0%  $4,638,694      100.0%
                             ==============  ==========  ==========  ==========
<FN>
--------------
(1)   AAA  Rating  category  includes  $1.020  billion  of whole loans that have
been  credit  enhanced  by  an insurance policy purchased from a third-party and
credit  support  from  an  unrated  subordinated  certificate  for $32.4 million
included  in BB/Ba Rating and Other category and that are held as collateral for
callable  AAA  notes.
</TABLE>

As  of  December  31,  1998,  the  Company had reduced the cost basis of its ARM
securities by a total of $1,242,000 due to potential future credit losses (other
than  temporary declines in fair value).  The Company is providing for potential
future  credit losses on two securities that have an aggregate carrying value of
$11.8  million,  which represent less than 0.3% of the Company's total portfolio
of ARM assets.  Although both of these assets continue to perform, there is only
minimal remaining credit support to mitigate the Company's exposure to potential
future  credit  losses.

Additionally,  during  1998,  the  Company  recorded  a  $762,000  provision for
potential  credit  losses  on its loan portfolio, although no actual losses have
been  realized  in  the  loan  portfolio  to date.  As of December 31, 1998, the
Company's  ARM loan portfolio included eight loans that are considered seriously
delinquent  (60  days  or  more  delinquent)  with  an aggregate balance of $5.0
million.  The  average  original  effective  loan-to-value  ratio on these eight
delinquent  loans  is  approximately  62%.  The  Company  estimates  that  the
realizable  value  of  each of the single family homes backing these loans to be
more than the value of the individual loans and, therefore, the Company does not
expect to realize a loss on any of these delinquent loans.  The Company's credit
reserve  policy  regarding  ARM  loans is to record a monthly provision of 0.15%
(annualized rate) on the outstanding principal balance of loans (including loans
securitized  by  the  Company  for  which  the  Company  has retained first loss
exposure),  subject  to adjustment on certain loans or pools of loans based upon
factors such as, but not limited to, age of the loans, borrower payment history,
low  loan-to-value  ratios  and quality of underwriting standards applied by the
originator.


                                       21
<PAGE>
The  following table classifies the Company's portfolio of ARM assets by type of
interest  rate  index.

<TABLE>
<CAPTION>
                                   ARM ASSETS BY INDEX
                              (Dollar amounts in thousands)

                                              December 31, 1998       December 31, 1997
                                           ----------------------  ----------------------
                                            Carrying   Portfolio    Carrying   Portfolio
                                             Value        Mix        Value        Mix
                                           ----------  ----------  ----------  ----------
<S>                                        <C>         <C>         <C>         <C>
ARM ASSETS:
    INDEX:
     One-month LIBOR. . . . . . . . . . .  $  556,574       13.0%  $  115,198        2.5%
     Three-month LIBOR. . . . . . . . . .     181,143        4.2       31,215        0.7 
     Six-month LIBOR. . . . . . . . . . .     939,824       22.0    1,489,802       32.1 
     Six-month Certificate of Deposit . .     313,268        7.3      278,386        6.0 
     Six-month Constant Maturity Treasury      49,023        1.2       66,669        1.4 
     One-year Constant Maturity Treasury.   1,479,054       34.7    2,271,914       49.0 
     Cost of Funds. . . . . . . . . . . .     268,486        6.3      385,510        8.3 
                                           ----------  ----------  ----------  ----------
                                            3,787,372       88.7    4,638,694      100.0 
                                           ----------  ----------  ----------  ----------

HYBRID ARM ASSETS . . . . . . . . . . . .     481,045       11.3            -          - 
                                           ----------  ----------  ----------  ----------
                                           $4,268,417      100.0%  $4,638,694      100.0%
                                           ==========  ==========  ==========  ==========
</TABLE>

The ARM portfolio had a current weighted average coupon of 7.28% at December 31,
1998.  This consisted of an average coupon of 6.96% on the hybrid portion of the
portfolio  and  an average coupon of 7.32% on the rest of the portfolio.  If the
non-hybrid  portion  of  the  portfolio  had  been "fully indexed," the weighted
average  coupon  would  have  been  approximately  6.79%, based upon the current
composition  of  the  portfolio  and the applicable indices.  As of December 31,
1997,  the  ARM  portfolio  had  a weighted average coupon of 7.56%.  If the ARM
portfolio  had been "fully indexed," the weighted average coupon would have been
approximately  7.64%,  based  upon  the  composition  of  the  portfolio and the
applicable  indices  at  that  time.  The  Company did not own any hybrids as of
December  31, 1997.  The lower average coupon on the ARM portfolio as of the end
of  1998  compared  to 1997 is reflective of the overall lower interest rates in
the  U.S.  economy  during  these  respective  periods.

At  December  31, 1998, the current yield of the ARM assets portfolio was 5.86%,
compared  to  6.38%  as  of  December 31, 1997, with an average term to the next
repricing  date  of 253 days as of December 31, 1998, compared to 110 days as of
December  31, 1997.  The increase in the number of days until the next repricing
of  the ARMs is primarily due to the hybrid loans acquired by the Company during
1998,  which,  in  general,  do  not  reprice for three to five years from their
origination  date  and have an average remaining fixed rate period of 4.3 years.
The current yield includes the impact of the amortization of applicable premiums
and  discounts, the cost of hedging, the amortization of the deferred gains from
hedging  activity  and  the  impact  of  principal  payment  receivables.

The  reduction  in  the yield as of December 31, 1998,  compared to December 31,
1997,  is  primarily because of a combination of a lower average interest coupon
on  the  ARM  portfolio  by  0.28%,  as stated above, and the higher rate of ARM
portfolio prepayments as of the end of 1998 compared to the end of 1997.  During
the  fourth  quarter of 1998 the rate of prepayments had slowed to 29%, but this
was  higher  than  the  24%  experienced during the fourth quarter of 1997.  The
higher level of prepayments increased the amount of premium amortization expense
and increased the impact of non-interest earning assets in the form of principal
payment  receivables.  Higher  premium  amortization  and  a  higher  balance of
principal  payment  receivables decreased the ARM portfolio yield by 0.24% as of
the  end  of  1998  compared  to  the  end  of  1997.


                                       22
<PAGE>
The  following  table  presents various characteristics of the Company's ARM and
Hybrid ARM loan portfolio as of December 31, 1998.  This information pertains to
both  the loans held for securitization and the loans held as collateral for the
callable  AAA  notes  payable.

<TABLE>
<CAPTION>
                ARM AND HYBRID ARM LOAN PORTFOLIO CHARACTERISTICS

                              Average      High       Low
                             ---------  -----------  ------
<S>                          <C>        <C>          <C>
  Unpaid principal balance.  $277,276   $3,450,000   $ 278 
  Coupon rate on loans. . .      7.50%        9.63%   5.00%
  Pass-through rate . . . .      7.15%        9.23%   4.73%
  Pass-through margin . . .      2.20%        5.18%   0.48%
  Lifetime cap. . . . . . .     13.04%       16.75%   9.75%
  Original Term (months). .       333          480     120 
  Remaining Term (months) .       319          358      93 
</TABLE>
<TABLE>
<CAPTION>
<S>                           <C>             <C>                       <C>
  Geographic Distribution (Top 5 States):     Property type:
    California . . . . . . .  21.87%            Single-family           65.23%
    Florida. . . . . . . . .  12.96             DeMinimus PUD           20.00 
    Georgia. . . . . . . . .   7.06             Condominium              9.59 
    New York . . . . . . . .   6.96             Other                    5.18 
    Colorado . . . . . . . .   4.42

  Occupancy status:. . . . .                  Loan purpose:
    Owner occupied . . . . .  84.14%            Purchase                57.60%
    Second home. . . . . . .  11.38             Cash out refinance      23.78
    Investor . . . . . . . .   4.48             Rate & term refinance   18.62

  Documentation type:. . . .                  Periodic Cap:
    Full/Alternative . . . .  95.73%            None                    49.04%
    Other. . . . . . . . . .   4.27             2.00%                   49.33 
                                                0.50%                    1.63 
  Average effective original
  loan-to-value: . . . . . .  67.55%
</TABLE>

During the year ended December 31, 1998, the Company purchased $1.502 billion of
ARM  securities,  93.7% of which were High Quality assets, and $1.092 billion of
ARM loans generally originated to "A" quality underwriting standards or seasoned
loans  with  over  five  years  of good payment history and/or low loan-to-value
ratios.  Of  the  ARM assets acquired during 1998, approximately 33% were Hybrid
ARMs,  32%  were indexed to LIBOR, 13% were indexed to U.S. Treasury bill rates,
12%  were  indexed to a Cost of Funds Index, 9% were indexed to a Certificate of
Deposit  Index  and the remaining 1% to other indices.  During 1998, the Company
began  the  acquisition  of Hybrid ARM assets that have an interest rate that is
fixed for an initial period of time, generally 3 to 5 years, and then convert to
an  adjustable-rate  for  the  balance  of  the  term  of the loan.  The Company
emphasized  purchasing assets during 1998 at substantially lower prices relative
to  par  in  order  to  reduce the potential impact of future prepayments.  As a
result,  the  Company emphasized the acquisition of ARM and Hybrid ARM loans and
high  quality  floating  rate  collateralized mortgage and bond obligations.  In
doing  so, the average premium paid for ARM assets acquired in 1998 was 1.09% of
par as compared to 3.29% of par in 1997 when the Company emphasized the purchase
of  seasoned  ARM  assets.

The  Company  sold  ARM  assets in the amount of $932.3 million at a net loss of
$278,000  during  1998.  As  discussed  earlier,  a large portion of these sales
occurred  in  the  fourth  quarter  during a period of time when liquidity was a
problem for the mortgage finance industry.  During this period, the Company sold
$421.2  million  of  ARM  securities  at a net loss of $4.1 million.  During the
prior  nine  months,  the Company had sold $511.1 million of ARM assets at a net
gain  of $3.8 million.  These sales during the first nine months of 1998 reflect
the  Company's desire to manage the portfolio with a view to enhancing the total
return of the portfolio.  The Company monitors the performance of its individual
ARM  assets and generally sells an asset when there is an opportunity to replace
it  with  an  ARM  asset  that  has  an  expected higher long-term yield or more
attractive  interest  rate  characteristics.  The  Company  is  presented  with
investment  opportunities  in  the  ARM  assets  market  on  a  daily  basis and
management  evaluates such opportunities against the performance of its existing
portfolio.  At  times,  the  Company  is  able to identify opportunities that it
believes  will  improve  the total return of its portfolio by replacing selected
assets.  In  managing  the  portfolio,  the  Company may realize either gains or
losses  in  the  process  of  replacing  selected  assets.


                                       23
<PAGE>
For the quarter ended December 31, 1998, the Company's mortgage assets paid down
at an approximate average annualized constant prepayment rate of 29% compared to
24%  during  the  same  period of 1997.  The annualized constant prepayment rate
averaged  approximately  31% during the full year of 1998 compared to 22% during
1997.  When  prepayment  experience  exceeds  expectations  due  to  sustained
increased  prepayment  activity, the Company has to amortize its premiums over a
shorter  time  period, resulting in a reduced yield to maturity on the Company's
ARM  assets.  Conversely,  if  actual  prepayment  experience  is  less than the
assumed  constant  prepayment rate, the premium would be amortized over a longer
time  period, resulting in a higher yield to maturity.  The Company monitors its
prepayment  experience on a monthly basis in order to adjust the amortization of
the  net  premium,  as  appropriate.

The  fair  value  of  the  Company's  portfolio  of  ARM  assets  classified  as
available-for-sale  declined by 2.10% from a negative adjustment of 0.52% of the
portfolio  as  of  December  31,  1997,  to a negative adjustment of 2.62% as of
December 31, 1998.  This price decline was primarily because of a decline in the
levels of liquidity in the mortgage market, the impact of market difficulties in
financing  mortgage  assets,  a  widening of credit spreads relative to treasury
yields  due  to uncertainties regarding future economic activity in the U.S. and
global  economies  and because of increased future prepayment expectations which
have  the  effect of shortening the average life of the Company's ARM assets and
decreasing  their  fair  value.  The  amount  of the negative adjustment to fair
value  on  the  ARM assets classified as available-for-sale increased from $21.7
million  as  of December 31, 1997, to $83.2 million as of December 31, 1998.  As
of  December  31,  1998,  all  of the Company's ARM securities are classified as
available-for-sale  and  are  carried  at  their  fair  value.

The Company has purchased Cap Agreements in order to limit its exposure to risks
associated  with  the  lifetime  interest  rate  caps  of  its ARM assets should
interest  rates  rise  above specified levels.  The Cap Agreements act to reduce
the  effect  of  the  lifetime or maximum interest rate cap limitation.  The Cap
Agreements  purchased  by  the Company will allow the yield on the ARM assets to
continue  to rise in a high interest rate environment just as the Company's cost
of  borrowings  would  continue  to  rise,  since the borrowings do not have any
interest rate cap limitation.  At December 31, 1998, the Cap Agreements owned by
the  Company  had a remaining notional balance of $4.026 billion with an average
final  maturity of 2.3 years, compared to a remaining notional balance of $4.156
billion  with  an  average  final  maturity  of  3.1 years at December 31, 1997.
Pursuant  to  the  terms  of  the  Cap Agreements, the Company will receive cash
payments  if the one-month, three-month or six-month LIBOR index increases above
certain  specified  levels,  which  range  from  7.50%  to  13.00%  and  average
approximately  10.10%.  The  fair  value  of  these Cap Agreements also tends to
increase  when  general  market interest rates increase and decrease when market
interest  rates  decrease, helping to partially offset changes in the fair value
of  the  Company's  ARM assets.  At December 31, 1998, the fair value of the Cap
Agreements  was  $1.5  million, $6.8 million less than the amortized cost of the
Cap  Agreements.


                                       24
<PAGE>
The  following  table  presents  information  about  the Company's Cap Agreement
portfolio  as  of  December  31,  1998:

<TABLE>
<CAPTION>
                    CAP AGREEMENTS STRATIFIED BY STRIKE PRICE
                          (Dollar amounts in thousands)

   Hedged     Weighted    Cap Agreement                    Weighted
 ARM Assets    Average      Notional                        Average
Balance (1)   Life Cap     Balance (2)    Strike Price   Remaining Term
------------  ---------  ---------------  -------------  --------------
<S>           <C>        <C>              <C>            <C>
$    439,159      9.12%  $       433,261          7.50%       1.3 Years
     533,267     10.13           534,804          8.00              3.3
     175,811     10.70           181,896          8.50              1.2
     276,916     11.22           274,910          9.00              1.0
     144,468     11.38           144,819          9.50              1.8
     318,654     11.78           315,879         10.00              3.4
     428,068     12.09           432,183         10.50              1.9
     363,355     12.48           361,297         11.00              2.9
     553,091     13.06           554,112         11.50              3.5
     344,475     14.20           538,616         12.00              2.1
      49,410     16.41           164,969         12.50              1.4
           -         -            89,283         13.00              1.1
------------  ---------  ---------------  -------------  --------------
$  3,626,674     11.70%  $     4,026,029         10.10%       2.3 Years
============  =========  ===============  =============  ==============
<FN>
------------
(1)  Excludes  ARM  assets  that  do  not have life caps or are hybrids that are
match  funded  during  a  fixed  rate  period,  in accordance with the Company's
investment  policy.
(2)  As  of  December  31,  1998,  the  Company  was $399.4 million over hedged,
primarily because of the ARM asset sales that occurred during the fourth quarter
of  1998.  The  Company  has  retained  these Cap Agreements to hedge its future
acquisitions  which it expects to make during 1999.  The retained Cap Agreements
have  a  carrying  value  of  $0.
</TABLE>

As  of  December  31,  1998, the Company was a counterparty to nineteen interest
rate  swap  agreements  ("Swaps") having an aggregate notional balance of $1.473
billion.  As  of  year-end, these Swaps had a weighted average remaining term of
16.5  months.  In accordance with these Swaps, the Company will pay a fixed rate
of  interest  during  the  term of these Swaps and receive a payment that varies
monthly  with  the  one-month  LIBOR  rate.  As  a result of entering into these
Swaps,  the  Company  has  reduced  the interest rate variability of its cost to
finance its ARM assets by increasing the average period until the next repricing
of  its  borrowings  from  26  days  to  204 days.  Fourteen of these Swaps were
entered  into  in  connection with the Company's acquisition of Hybrid ARM loans
and  commitments  to purchase Hybrid ARM loans.  These fourteen Swaps that hedge
the  fixed rate portion of the Company's Hybrid ARM loans (to within one year of
the  first  interest  rate  reset)  had  a  notional  balance of $523 million at
year-end  and  an  average maturity of 44.0 months.  The other five swaps with a
notional  balance  of  $950  million  were  entered  into  for  the  purpose  of
lengthening the average next re-pricing date of the Company's borrowings to more
closely match the re-pricing characteristics of the Company's ARM assets.  These
five  swaps  mature  during  the  first  quarter  of  1999.

RESULTS  OF  OPERATIONS  -  1998  COMPARED  TO  1997

For  the year ended December 31, 1998, the Company's net income was $22,695,000,
or $0.75 per share (Basic EPS), based on a weighted average of 21,488,000 shares
outstanding.  That  compares  to  $41,402,000,  or  $1.95 per share (Basic EPS),
based  on a weighted average of 18,048,000 shares outstanding for the year ended
December  31,  1997.  Net  interest  income  for  the  year totaled $31,040,000,
compared  to  $49,064,000  for  the same period in 1997.  Net interest income is
comprised  of  the  interest  income  earned  on  portfolio assets less interest
expense  from  borrowings.  During  1998, the Company recorded a net loss on the
sale  of  ARM  securities of $278,000 as compared to a gain of $1,189,000 during
1997.  Additionally,  during  1998,  the  Company  reduced  its earnings and the
carrying  value  of  its ARM assets by reserving $2,032,000 for potential credit
losses,  compared  to  $886,000  during 1997.  During 1998, the Company incurred
operating  expenses  of  $6,035,000,  consisting  of  a  base  management fee of
$4,142,000,  a performance-based fee of $759,000 and other operating expenses of
$1,134,000.  During 1997, the Company incurred operating expenses of $7,965,000,
consisting  of  a  base management fee of $3,664,000, a performance-based fee of
$3,363,000  and  other operating expenses of $938,000.  Total operating expenses
decreased as a percentage of average assets to 0.13% for 1998, compared to 0.21%
for  1997,  primarily due to the elimination of the performance-based fee during
the  last  three  quarters  of  1998.


                                       25
<PAGE>
The  Company's  return  on  average  common  equity was 4.80% for the year ended
December  31, 1998 compared to 12.72% for the year ended December 31, 1997.  The
primary  reasons for the lower return on average common equity are the Company's
lower interest rate spread, discussed further below and the net loss recorded in
1998  on  the  sale  of  ARM  securities,  which  were partially offset by lower
operating  expenses.

The  table below highlights the historical trend and the components of return on
average  common equity (annualized) and the 10-year U. S. Treasury average yield
during  each  respective  quarter  which is applicable to the computation of the
performance  fee:

<TABLE>
<CAPTION>
                                      COMPONENTS OF RETURN ON AVERAGE COMMON EQUITY (1)

                                                                                                                  ROE in
                                                                                                                 Excess of
                  Net                 Gain (Loss)                                            Net       10-Year    10-Year
               Interest    Provision    on ARM       G & A      Performance   Preferred    Income/    US Treas.   US Treas.
For The         Income/   For Losses/   Sales/   Expense (2)/       Fee/      Dividend/     Equity     Average     Average
Quarter Ended   Equity       Equity     Equity      Equity         Equity       Equity      (ROE)       Yield       Yield
-------------  ---------  ------------  -------  -------------  ------------  ----------  ----------  ----------  ----------
<S>            <C>        <C>           <C>      <C>            <C>           <C>         <C>         <C>         <C>
Mar 31, 1996.     13.37%            -     0.03%          1.04%         1.27%          -       11.08%       5.90%       5.18%
Jun 30, 1996.     13.14%            -        -           1.00%         0.92%          -       11.22%       6.72%       4.50%
Sep 30, 1996.     13.42%         0.34%    0.88%          1.03%         1.07%          -       11.86%       6.78%       5.08%
Dec 31, 1996.     14.99%         1.32%    1.38%          1.46%         1.23%          -       12.37%       6.35%       6.02%
Mar 31, 1997.     18.85%         0.32%    0.01%          1.65%         1.43%       2.07%      13.40%       6.55%       6.85%
Jun 30, 1997.     19.48%         0.34%    0.03%          1.81%         1.25%       2.67%      13.45%       6.71%       6.74%
Sep 30, 1997.     17.66%         0.30%    0.45%          1.64%         1.24%       2.23%      12.70%       6.26%       6.44%
Dec 31, 1997.     15.62%         0.33%    1.06%          1.59%         1.01%       2.12%      11.63%       5.92%       5.71%
Mar 31, 1998.     14.13%         0.48%    1.89%          1.62%         0.94%       2.06%      10.91%       5.60%       5.31%
Jun 30, 1998.      9.15%         0.53%    1.76%          1.58%         0.00%       1.96%       6.83%       5.60%       1.23%
Sep 30, 1998.      6.82%         0.66%    0.89%          1.54%         0.00%       1.97%       3.54%       5.24%      -1.70%
Dec 31, 1998.      7.27%         0.76%   -4.88%          1.57%         0.00%       2.01%      -1.95%       4.66%      -6.61%
<FN>
-------------
(1)     Average  common  equity  excludes  unrealized  gain  (loss)  on  available-for-sale  ARM  securities.
(2)     Excludes  performance  fees.
</TABLE>

The  decline in the Company's return on common equity from the fourth quarter of
1997  to  the  fourth quarter of 1998 is primarily due to the decline in the net
interest  spread  between  the  Company's  interest-earning  assets  and
interest-bearing  liabilities, an increase in the Company's provision for losses
and  the  impact  of  a  net  loss on ARM sales as compared to a net gain on ARM
sales.  This  decline in net return on common equity was partially offset by the
elimination  of  the performance-based fee.  The decline in the Company's return
on common equity from the third quarter of 1998 to the fourth quarter of 1998 is
primarily due to the impact of a net loss on ARM sales as compared to a net gain
on  ARM  sales  and  an  increase  in  the Company's provision for losses.  This
decline  was  partially offset by an increase in the net interest spread between
the  Company's  interest-earning  assets  and  interest-bearing  liabilities.


                                       26
<PAGE>
The following table presents the components of the Company's net interest income
for  the  years  ended  December  31,  1998  and  1997:

<TABLE>
<CAPTION>
                   COMPARATIVE NET INTEREST INCOME COMPONENTS
                          (Dollar amounts in thousands)

                                          1998       1997
                                        ---------  ---------
<S>                                     <C>        <C>
  Coupon interest income on ARM assets  $335,983   $271,170 
  Amortization of net premium. . . . .   (46,101)   (21,343)
  Amortization of Cap Agreements . . .    (5,444)    (5,313)
  Amort. of deferred gain from hedging     1,889      1,992 
  Cash and cash equivalents. . . . . .       705      1,215 
                                        ---------  ---------
    Interest income. . . . . . . . . .   287,032    247,721 
                                        ---------  ---------

  Reverse repurchase agreements. . . .   251,462    197,006 
  Callable AAA notes payable . . . . .     2,811          - 
  Other borrowings . . . . . . . . . .       632        969 
  Interest rate swaps. . . . . . . . .     1,087        682 
                                        ---------  ---------
    Interest expense . . . . . . . . .   255,992    198,657 
                                        ---------  ---------

  Net interest income. . . . . . . . .  $ 31,040   $ 49,064 
                                        =========  =========
</TABLE>

As  presented in the table above, the Company's net interest income decreased by
$18.0  million  in  1998 compared to 1997, primarily because the amortization of
net premium increased by $24.8 million.  In 1998 the amortization of net premium
was  13.7%  of coupon interest income on ARM assets as compared to 7.9% in 1997,
reflecting,  in  part, the increased rate of ARM prepayments in 1998 as compared
to  1997.

The  following  table  reflects  the  average  balances for each category of the
Company's  interest  earning  assets  as  well as the Company's interest bearing
liabilities,  with  the  corresponding effective rate of interest annualized for
the  years  ended  December  31,  1998  and  1997:

<TABLE>
<CAPTION>
                               AVERAGE BALANCE AND RATE TABLE
                               (Dollar amounts in thousands)

                                              For the Year Ended       For the Year Ended
                                               December 31, 1998       December  31,  1997
                                            -----------------------  ----------------------
                                              Average    Effective    Average    Effective
                                              Balance       Rate      Balance       Rate
                                            -----------  ----------  ----------  ----------
<S>                                         <C>          <C>         <C>         <C>
  Interest Earning Assets:
    Adjustable-rate mortgage assets. . . .  $4,800,772        5.96%  $3,755,064       6.56%
    Cash and cash equivalents. . . . . . .      16,214        4.35       21,774       5.57 
                                            -----------  ----------  ----------  ----------
                                             4,816,986        5.96    3,776,838       6.56 
                                            -----------  ----------  ----------  ----------
  Interest Bearing Liabilities:
    Borrowings . . . . . . . . . . . . . .   4,430,167        5.78    3,446,913       5.76 
                                            -----------  ----------  ----------  ----------
  Net Interest Earning Assets and Spread .  $  386,819        0.18%  $  329,925       0.80%
                                            ===========  ==========  ==========  ==========

  Yield on Net Interest Earning Assets (1)                    0.64%                   1.30%
                                                         ==========              ==========
<FN>
(1)     Yield  on  Net  Interest  Earning  Assets  is  computed  by dividing annualized net
interest  income  by  the  average  daily  balance  of  interest  earning  assets.
</TABLE>

As  a  result of the yield on the Company's interest-earning assets declining to
5.96%  during  1998  from  6.56%  during  1997  and  the Company's cost of funds
increasing  to  5.78%  during  1998  from 5.76% during 1997, net interest income
decreased by $18,024,000.  This decrease in net interest income is a combination
of rate and volume variances.  There was a combined unfavorable rate variance of
$23,332,000,  which  was  almost  entirely  the  result  of a lower yield on the
Company's ARM assets portfolio and other interest-earning assets.  The increased
average size of the Company's portfolio during 1998 compared to 1997 contributed
to  higher net interest income in the amount of $5,310,000.  The average balance
of the Company's interest-earning assets was $4.817 billion during 1998 compared
to  $3.777  billion  during  1997  --  an  increase  of  28%.


                                       27
<PAGE>
The  following  table  highlights  the components of net interest spread and the
annualized  yield  on  net interest-earning assets as of each applicable quarter
end:

<TABLE>
<CAPTION>

                COMPONENTS OF NET INTEREST SPREAD AND YIELD ON NET INTEREST EARNING ASSETS (1)
                                         (Dollar amounts in millions)

                Average                ARM Assets             Yield on                      Yield on
                           ----------------------------------
                Interest   Wgt. Avg.    Weighted              Interest              Net    Net Interest
  As of the     Earning  Fully Indexed   Average      Yield    Earning   Cost of  Interest   Earning
Quarter Ended    Assets     Coupon       Coupon      Adj. (2)  Assets    Funds     Spread    Assets
-------------  ----------  --------  --------------  --------  -------  --------  --------  --------- 
<S>            <C>         <C>       <C>             <C>       <C>      <C>       <C>       <C>
Mar 31, 1996.  $  2,025.8     7.56%           7.48%     0.99%    6.49%     5.60%     0.89%      1.32%
Jun 30, 1996.     2,248.2     7.83%           7.28%     0.85%    6.43%     5.59%     0.84%      1.32%
Sep 30, 1996.     2,506.0     7.80%           7.31%     0.80%    6.51%     5.71%     0.80%      1.32%
Dec 31, 1996.     2,624.4     7.61%           7.57%     0.93%    6.64%     5.72%     0.92%      1.34%
Mar 31, 1997.     2,950.6     7.93%           7.53%     0.89%    6.65%     5.67%     0.98%      1.54%
Jun 30, 1997.     3,464.1     7.75%           7.57%     0.90%    6.67%     5.77%     0.90%      1.39%
Sep 30, 1997.     4,143.7     7.63%           7.65%     1.07%    6.58%     5.79%     0.79%      1.22%
Dec 31, 1997.     4,548.9     7.64%           7.56%     1.18%    6.38%     5.91%     0.47%      0.96%
Mar 31, 1998.     4,859.7     7.47%           7.47%     1.23%    6.24%     5.74%     0.50%      0.92%
Jun 30, 1998.     4,918.3     7.51%           7.44%     1.50%    5.94%     5.81%     0.13%      0.56%
Sep 30, 1998.     4,963.7     6.97%           7.40%     1.52%    5.88%     5.78%     0.09%      0.46%
Dec 31, 1998.     4,526.2     6.79%           7.28%     1.42%    5.86%     5.94%    -0.08%      0.61%
<FN>
------------
(1)     Yield  on  Net  Interest  Earning Assets is computed by dividing annualized net interest income by the
average  daily  balance  of  interest  earning  assets.
(2)     Yield  adjustments  include  the  impact  of  amortizing  premiums  and discounts, the cost of hedging
activities,  the  amortization  of  deferred gains from hedging activities and the impact of principal payment
receivables.  The  following  table presents these components of the yield adjustments for the dates presented
in  the  table  above:
</TABLE>
<TABLE>
<CAPTION>
               COMPONENTS OF THE YIELD ADJUSTMENTS  ON ARM ASSETS

                           Impact of                Amort. of
               Premium/    Principal              Deferred Gain      Total
As of the      Discount    Payments     Hedging    from Hedging      Yield
Quarter Ended   Amort.    Receivable   Activity      Activity     Adjustment
-------------  ---------  -----------  ---------  --------------  -----------
<S>            <C>        <C>          <C>        <C>             <C>
Mar 31, 1996.      0.77%        0.11%      0.31%         (0.20)%        0.99%
Jun 30, 1996.      0.67%        0.07%      0.27%         (0.16)%        0.85%
Sep 30, 1996.      0.57%        0.08%      0.25%         (0.10)%        0.80%
Dec 31, 1996.      0.69%        0.09%      0.23%         (0.08)%        0.93%
Mar 31, 1997.      0.63%        0.13%      0.19%         (0.07)%        0.89%
Jun 30, 1997.      0.66%        0.13%      0.16%         (0.05)%        0.90%
Sep 30, 1997.      0.85%        0.12%      0.15%         (0.05)%        1.07%
Dec 31, 1997.      0.94%        0.14%      0.14%         (0.04)%        1.18%
Mar 31, 1998.      0.98%        0.16%      0.13%         (0.04)%        1.23%
Jun 30, 1998.      1.24%        0.17%      0.13%         (0.04)%        1.50%
Sep 30, 1998.      1.25%        0.18%      0.13%         (0.04)%        1.52%
Dec 31, 1998.      1.18%        0.14%      0.14%         (0.04)%        1.42%
</TABLE>

As  of  December  31,  1998,  the  Company's  yield on its ARM assets portfolio,
including  the impact of the amortization of premiums and discounts, the cost of
hedging, the amortization of deferred gains from hedging activity and the impact
of  principal  payment  receivables, was 5.86%, compared to 6.38% as of December
31,  1997-- a decrease of 0.52%.  The Company's cost of funds as of December 31,
1998,  was  5.94%,  compared  to 5.91% as of December 31, 1997 -- an increase of
0.03%.  As  a  result  of these changes, the Company's net interest spread as of
December  31,  1998  was -0.08%, compared to 0.47% as of December 31, 1997.  The
decline in the net interest spread is largely attributable to the decline in the
ARM  portfolio yield which is primarily the result of the lower average interest
coupon  and  the  higher  level  of  premium  amortization.  The increase in the
Company's  cost  of  funds as of year end is generally the impact of the rate on
the  newly issued callable AAA notes payable.  The notes were issued on December
18,  1998 at a time when finance rates are generally seasonably high, reflecting
the  mortgage  finance  market's reluctance to finance assets over year-end, and
the  notes  were  issued  at a time when mortgage finance spreads were unusually
wide  due  to  the liquidity crises discussed earlier.   Subsequent to year-end,
the rate on the callable AAA notes, which floats with one-month LIBOR, decreased
by  0.68%.


                                       28
<PAGE>
The  Company's  net  interest spread declined from 0.47% as of December 31, 1997
to  -0.08%  as  of  December  31,  1998.  The primary reasons for these declines
continues  to  be the relationship between the one-year U. S. Treasury yield and
LIBOR  and  the  impact  of the increased rate of ARM prepayments as well as the
impact  of  issuing the callable AAA notes close to year-end.  From December 31,
1997  to  December  31,  1998,  the  one-year  U.S.  Treasury  yield declined by
approximately  0.98%,  from  5.51% to 4.53%, while LIBOR rates applicable to the
Company's  borrowings  decreased  by only 0.70%, from 5.77% to 5.07%, creating a
negative  index  spread as of December 31, 1998 of -0.54% compared to a negative
index  spread  as  of  December  31,  1997  of -0.26%.  As of December 31, 1998,
approximately 35% of the Company's ARM assets were indexed to the one-year U. S.
Treasury  bill  yield, down from approximately 49% as of December 31, 1997, and,
therefore,  the  yield  on  such assets declined with the index.  To put this in
historical  perspective,  the  one-year U.S. Treasury bill yield had a spread of
-0.26%  to the average of the one- and three-month LIBOR rate as of December 31,
1997,  compared  to  having  a  spread  of -0.02% at December 31, 1996, -.06% on
average  during  1997, 0.04% on average during 1996 and -0.07% on average during
1995.  For the five-year period from 1993 to 1997, the average spread was 0.15%.
The  average  spread  during  the three month period ended December 31, 1998 was
-0.93%,  which  was  substantially  worse  than  the  average  spread during the
previous  quarter  of  -0.53%  or in the second quarter of 1998 when the average
spread  was  -0.27%.  The  Company  does  not  know  when or if the relationship
between  the  one-year  U.  S.  Treasury  bill  yield  and  LIBOR will return to
historical  norms,  but  the  Company's  spreads are expected to improve if that
occurs.  As  of  the middle of March 1999, the one-year U.S. Treasury bill yield
and  LIBOR spread had improved back to approximately -.25%.  The Company is also
continuing  to  decrease  its  exposure  to  the  one-year  U. S. Treasury/LIBOR
relationship by reducing the portion of the portfolio indexed to the one-year U.
S.  Treasury  rate  and  financed with LIBOR.  The Company's ARM portfolio yield
also  was lower as of December 31, 1998 compared to December 31, 1997 because of
an  increase in the amortization of the net premium on ARM assets which reflects
an increase in the average rate of prepayments on the ARM portfolio.  During the
fourth  quarter  of  1998,  the average prepayment rate was 29%, compared to 24%
during  the  comparable  period in 1997.  The impact of this was to increase the
average  amount of non-interest-earning assets in the form of principal payments
receivable  as  well  as to increase the amortization expense related to writing
off  the  Company's premiums and discounts.  The Company generally amortizes its
premiums  and  discounts on a monthly basis based on the most recent three-month
average  of  the  prepayment  rate  of  its  ARM  assets,  thereby adjusting its
amortization  to  current  market conditions, which is reflected in the yield of
the  ARM  portfolio.  As  of  December 31, 1998, the yield adjustment related to
premium  amortization  amounted  to  1.18%  compared to 0.94% as of December 31,
1997.  As  discussed  above, the Company's net spread of -.08% also reflects the
cost of the callable AAA notes which were issued on December 18, 1998 and had an
interest rate of 6.32% as of year-end, which has subsequently declined to a rate
of  5.64%  in  January  and  which  will continue to float with one-month LIBOR.

The  Company's  provision for losses has increased with the acquisition of whole
loans.  The provision for loan losses is based on an annualized rate of 0.15% on
the  outstanding  principal  balance  of  loans as of each month-end, subject to
certain  adjustments as discussed above.  As of December 31, 1998, the Company's
whole  loans,  including  those  held  as  collateral for the AAA notes payable,
accounted for 24.5% of the Company's portfolio of ARM assets compared to 2.6% as
of  December  31,  1997.  To  date,  the  Company has not experienced any actual
losses  in its whole loan portfolio, but based on industry standards, losses are
expected  and  are  being  provided  for  as  the  portfolio  ages.

During  1998, the Company realized a net loss from the sale of ARM securities in
the  amount  of $278,000 compared to a gain of $1,189,000 during 1997.  The 1998
sales generally fall into two categories.  During the first nine months of 1998,
the  Company  realized  a  net  gain  on  the  sale  of ARM assets in the amount
$3,780,000  as  part of the Company's ongoing portfolio management.  These sales
reflect  the  Company's  desire to manage the portfolio with a view to enhancing
the  total  return  of the portfolio over the long-term while generating current
earnings  during  this  period  of fast prepayments and narrow interest spreads.
The  Company  monitors  the  performance  of  its  individual  ARM  assets  and
selectively  sells  an  asset when there is an opportunity to replace it with an
ARM  asset  that  has  an  expected  higher  long-term  yield or more attractive
interest  rate  characteristics.  The  Company sold $511.8 million of ARM assets
during  the  first nine months of 1998, most which were either indexed to a Cost
of  Funds index, the one-year U. S. Treasury index or were prepaying faster than
expected.  During  the  first nine months of 1998 when the Company sold selected
assets,  it was able to reinvest the proceeds in ARM assets that were indexed to
indices  preferred  by  the  Company and at prices that reflected current market
assumptions  regarding  prepayments speeds and interest rates and thus far, as a
whole, they have been performing better than the portfolio acquired before 1998.
During  the  fourth  quarter  of  1998,  the Company sold assets for the primary
purpose  of maintaining adequate levels of liquidity at a time when the mortgage
finance  market  experienced  a  sudden  liquidity crises and, thus, was able to
avoid  the  forced  liquidation  of  any  of  its  assets  by  mortgage  finance
counterparties.  However, the Company realized a net loss of $4,059,000 on these
sales.  Although  the  Company  is never pleased when it has to sell assets at a
loss,  the  Company  was  very pleased with the response of its mortgage finance
counterparties  to  the high credit quality and highly liquid characteristics of
the  Company's  ARM  portfolio in that all of the Company's counterparties, upon
review  of  the  company's  ARM  portfolio and investment policies, continued to
provide  financing  at  reasonable collateral values and reasonable requirements
for  over  collateralization.


                                       29
<PAGE>
As a REIT, the Company is required to declare dividends amounting to 85% of each
year's  taxable  income  by  the  end of each calendar year and to have declared
dividends  amounting  to  95% of its taxable income for each year by the time it
files  its  applicable  tax  return  and,  therefore,  generally  passes through
substantially  all of its earnings to shareholders without paying federal income
tax  at  the  corporate  level.  As  of  December  31,  1998,  the  Company  had
distributed all of its cumulative taxable income to its shareholders.  Since the
Company,  as a REIT, pays its dividends based on taxable earnings, the dividends
may  at  times  be  more  or  less  than reported earnings.  The following table
provides  a  reconciliation  between the Company's earnings as reported based on
generally accepted accounting principles and the Company's taxable income before
its'  common  dividend  deduction:

<TABLE>
<CAPTION>
           RECONCILIATION OF REPORTED NET INCOME TO TAXABLE NET INCOME
                          (Dollar amounts in thousands)

                                            Years Ending December 31,
                                            -------------------------
                                                 1998      1997
                                               --------  --------
<S>                                            <C>       <C>
Net income. . . . . . . . . . . . . . . . . .  $22,695   $41,402 
 Additions:
 Provision for credit losses. . . . . . . . .    2,032       886 
 Net compensation related items . . . . . . .      165      (195)
 Non-deductible capital losses. . . . . . . .      278         - 
   Deductions:
        Dividend on Series A Preferred Shares   (5,009)   (6,251)
       Actual credit losses on ARM securities   (1,766)      (96)
                                               --------  --------
Taxable net income. . . . . . . . . . . . . .  $18,395   $35,746 
                                               ========  ========
</TABLE>

On  August  17,  1998,  the  Company  announced  that its Board of Directors had
approved  a  rescheduling  of  the  Company's  quarterly  board meetings and the
declaration, record and payment dates of its regular cash dividend on its common
stock.  Under the new schedule, the Board of Directors will meet after the close
of  each quarter end, so the Board can review actual quarterly financial results
as  they  consider  the  declaration  of  common dividends.  This action is also
expected  to provide a modest benefit to the financial results of the Company as
the  Company  will  be  able  to  retain  earnings  over each quarter end and to
leverage  this  additional  capital  for  an extended period of time, generating
additional  income for shareholders when the additional assets are invested at a
positive  effective  margin.  This  action does not effect the dividend dates in
connection  with  the  Company's Series A 9.68% Cumulative Convertible Preferred
Shares.

For  the year ended December 31, 1998, the Company's ratio of operating expenses
to  average  assets was 0.13% compared to 0.21% for 1997.  The Company's expense
ratios  are among the lowest of any company investing in mortgage assets, giving
the Company what it believes to be a significant competitive advantage over more
traditional  mortgage  portfolio  lending institutions such as banks and savings
and  loans.  This competitive advantage enables the Company to operate with less
risk,  such  as  credit and interest rate risk, and still generate an attractive
long-term  return  on  equity  when  compared to these more traditional mortgage
portfolio  lending  institutions.  The  Company  pays the Manager an annual base
management  fee, generally based on average shareholders' equity, not assets, as
defined  in  the  Management  Agreement,  payable monthly in arrears as follows:
1.1%  of  the  first  $300 million of Average Shareholders' Equity, plus 0.8% of
Average  Shareholders'  Equity above $300 million.  Since this management fee is
based  on shareholders' equity and not assets, this fee increases as the Company
successfully  accesses  capital markets and raises additional equity capital and
is,  therefore,  managing  a  larger amount of invested capital on behalf of its
shareholders.  In  order  for the Manager to earn a performance fee, the rate of
return  on the shareholders' investment, as defined in the Management Agreement,
must  exceed the average ten-year U.S. Treasury rate during the quarter plus 1%.
During  1998, as the Company's return on shareholders' equity declined, compared
to  1997,  the  performance fee also declined, to an annualized 0.02% of average
assets  compared to 0.09% during 1997.  As presented in the following table, the
performance  fee is a variable expense that fluctuates with the Company's return
on  shareholders'  equity  relative  to  the average 10-year U.S. Treasury rate.


                                       30
<PAGE>
The  following  table  highlights the quarterly trend of operating expenses as a
percent  of  average  assets:

<TABLE>
<CAPTION>
                       ANNUALIZED OPERATING EXPENSE RATIOS

               Management Fee &         Total
For The         Other Expenses/   Performance Fee/   G & A Expense/
Quarter Ended   Average Assets     Average Assets    Average Assets
-------------  -----------------  -----------------  ---------------
<S>            <C>                <C>                <C>
Mar 31, 1996.              0.09%              0.12%            0.21%
Jun 30, 1996.              0.10%              0.09%            0.19%
Sep 30, 1996.              0.10%              0.10%            0.20%
Dec 31, 1996.              0.13%              0.11%            0.24%
Mar 31, 1997.              0.14%              0.11%            0.25%
Jun 30, 1997.              0.13%              0.09%            0.22%
Sep 30, 1997.              0.12%              0.09%            0.21%
Dec 31, 1997.              0.12%              0.05%            0.17%
Mar 31, 1998.              0.10%              0.06%            0.16%
Jun 30, 1998.              0.10%              0.00%            0.10%
Sep 30, 1998.              0.10%              0.00%            0.10%
Dec 31, 1998.              0.11%              0.00%            0.11%
</TABLE>

RESULTS  OF  OPERATIONS  -  1997  COMPARED  TO  1996

For  the year ended December 31, 1997, the Company's net income was $41,402,000,
or $1.95 per share (Basic EPS), based on a weighted average of 18,047,955 shares
outstanding.  That  compares  to  $25,737,000,  or  $1.73 per share (Basic EPS),
based  on a weighted average of 14,873,700 shares outstanding for the year ended
December  31,  1996.  This  61%  increase  in  earnings  --  a 13% increase on a
per-share  basis -- was achieved despite a 21% increase in the average number of
shares  outstanding  during  the  two periods.  Net interest income for the year
totaled  $49,064,000,  compared  to  $30,345,000 for the same period in 1996, an
increase of 62%.  Net interest income is comprised of the interest income earned
on mortgage investments less interest expense from borrowings.  During 1997, the
Company  recorded a gain on the sale of ARM securities of $1,189,000 as compared
to  a  gain  of  $1,362,000 during 1996.  Additionally, during 1997, the Company
reduced  its  earnings  and  the  carrying  value of its ARM assets by reserving
$886,000  for potential credit losses, compared to $990,000 during 1996.  During
1997,  the  Company  incurred  operating expenses of $7,965,000, consisting of a
base  management  fee  of  $3,664,000, a performance-based fee of $3,363,000 and
other  operating  expenses  of  $938,000.  During  1996,  the  Company  incurred
operating  expenses  of  $4,980,000,  consisting  of  a  base  management fee of
$1,872,000,  a  performance-based fee of $2,462,000 and other operating expenses
of $646,000.  Total operating expenses decreased as a percentage of net interest
income  to  16.2%  for 1997, compared to 16.4% for 1996, thereby contributing to
the  Company's  improved  net  earnings.

The  Company's  return  on average common equity for the year ended December 31,
1997  was  12.72%,  compared  to  11.68%  for  the  same  period  in  1996.


                                       31
<PAGE>
The following table presents the components of the Company's net interest income
for  the  years  ended  December  31,  1997  and  1996:

<TABLE>
<CAPTION>
                   COMPARATIVE NET INTEREST INCOME COMPONENTS
                          (Dollar amounts in thousands)

                                          1997       1996
                                        ---------  ---------
<S>                                     <C>        <C>
  Coupon interest income on ARM assets  $271,170   $165,105 
  Amortization of net premium. . . . .   (21,343)   (12,466)
  Amortization of Cap Agreements . . .    (5,313)    (5,313)
  Amort. of deferred gain from hedging     1,992      3,433 
  Cash and cash equivalents. . . . . .     1,215        752 
                                        ---------  ---------
    Interest income. . . . . . . . . .   247,721    151,511 
                                        ---------  ---------

  Reverse repurchase agreements. . . .   197,006    118,752 
  Other borrowings . . . . . . . . . .       969      1,332 
  Interest rate swaps. . . . . . . . .       682      1,082 
                                        ---------  ---------
    Interest expense . . . . . . . . .   198,657    121,166 
                                        ---------  ---------
  Net interest income. . . . . . . . .  $ 49,064   $ 30,345 
                                        =========  =========
</TABLE>

Despite  the  fact that the Company's cost of funds increased from 5.67% in 1996
to  5.76%  in  1997,  its  net  interest  income increased during this same time
period,  primarily  due  to  the increased size of the Company's portfolio.  Net
interest  income  increased  by  $18,719,000, which is a combination of rate and
volume  variances.  There  was  a  combined favorable rate variance of $623,000,
which  consisted of a favorable variance of $2,691,000 resulting from the higher
yield  on  the  Company's ARM assets portfolio and other interest-earning assets
and  an  unfavorable  variance  of  $2,068,000 resulting from an increase in the
Company's  cost of funds.  The increased average size of the Company's portfolio
during  1997  compared  to 1996 contributed to higher net interest income in the
amount  of  $18,096,000.  The  average balance of the Company's interest-earning
assets  was $3.777 billion during 1997 compared to $2.351 billion during 1996 --
an  increase  of  61%.

The  Company's  ARM  assets  portfolio  generated  a yield of 6.56% during 1997,
compared  to  6.45%  during  1996.  The  Company's cost of funds during 1997 was
5.76%, compared to 5.67% during 1996, primarily as a result of higher short-term
interest  rates  available  to  the Company for financing purposes.  Despite the
fact  that  the  Company's  cost  of  funds  increased, the Company's net spread
increased  to  0.80%  for 1997 from a spread of 0.78% for 1996 -- an increase of
0.02%.  The  Company's  yield on net interest-earning assets, which includes the
impact  of  shareholders'  equity,  rose  to 1.30% for 1997 from 1.29% for 1996.


                                       32
<PAGE>
The  following  table  reflects  the  average  balances for each category of the
Company's  interest-earning  assets  as  well  as the Company's interest-bearing
liabilities with the corresponding effective rate of interest annualized for the
years  ended  December  31,  1997,  and  December  31,  1996:

<TABLE>
<CAPTION>
                              AVERAGE BALANCE AND RATE TABLE
                              (Dollar amounts in thousands)

                                            For the Year Ended       For the Year Ended
                                             December 31, 1997       December 31, 1996
                                          -----------------------  ----------------------
                                            Average    Effective    Average    Effective
                                            Balance       Rate      Balance       Rate
                                          -----------  ----------  ----------  ----------
<S>                                       <C>          <C>         <C>         <C>
Interest-Earning Assets:
 Adjustable-rate mortgage assets . . . .  $3,755,064        6.56%  $2,336,900       6.45%
 Cash and cash equivalents . . . . . . .      21,774        5.57       14,200       5.29 
                                          -----------  ----------  ----------  ----------
                                           3,776,838        6.56    2,351,100       6.45 
                                          -----------  ----------  ----------  ----------
Interest-Bearing Liabilities:
 Borrowings. . . . . . . . . . . . . . .   3,446,913        5.76    2,138,236       5.67 

                                          -----------  ----------  ----------  ----------
Net Interest-Earning Assets and Spread .  $  329,925        0.80%  $  212,864       0.78%
                                          ===========  ==========  ==========  ==========

Yield on Net Interest-Earning Assets (1)                    1.30%                   1.29%
                                                       ==========              ==========
<FN>
----------------------------------------
(1)     Yield  on  Net  Interest-Earning  Assets  is  computed by dividing annualized net
        interest  income  by  the  average  daily  balance  of  interest-earning  assets.
</TABLE>

As  of  the  end  of  1997,  the  Company's  yield  on its ARM assets portfolio,
including  the impact of the amortization of premiums and discounts, the cost of
hedging, the amortization of deferred gains from hedging activity and the impact
of  principal payment receivables, was 6.38%, compared to 6.64% as of the end of
1996  --  a  decrease  of 0.26%.  The Company's cost of funds as of December 31,
1997,  was  5.91%,  compared  to 5.72% as of December 31, 1996 -- an increase of
0.19%.  This increase was primarily the result of financing a portion of the ARM
portfolio  over  1997  year-end  at  a  time when LIBOR interest rates increased
suddenly  late  in November due to year-end pressures.  Fortunately the Company,
expecting  this  to  occur,  already  had  financed  most  of its portfolio over
year-end  before  the  LIBOR  increase  and,  thus,  was  able to avoid the full
potential  impact.  Subsequent  to year-end, LIBOR interest rates have generally
returned  to their previous level, which will be reflected in first quarter 1998
interest rate spreads.  As a result of these changes, the Company's net interest
spread  as of the end of 1997 was 0.47%, compared to 0.92% as of the end of 1996
--  a  decrease  of  0.45%.

During  1997, the Company realized a net gain from the sale of ARM securities in
the  amount  of  $1,189,000,  compared  to  a  gain  of  $1,362,000 during 1996.
Additionally,  the  Company recorded a provision for credit losses in the amount
of  $886,000  during the year ended December 31, 1997, although the Company only
incurred  actual  credit  losses  of  $96,000  during  the  year,  compared to a
provision for credit losses in the amount of $990,000 during 1996 with no actual
credit  losses.  The  Company  provided for additional credit losses because its
review of underlying ARM collateral indicates potential for some loss on two ARM
securities,  which, at December 31, 1997 were being carried at a market value of
$13.1  million,  or 0.3% of the Company's ARM portfolio.  The Company also has a
policy  to  regularly  record  a  provision  for  possible  credit losses on its
portfolio  of  ARM  loans.

For  both  years  ended  December  31,  1997  and  1996,  the Company's ratio of
operating expenses to average assets was 0.21%.  The Company's operating expense
ratio  is  well  below  the average of other more traditional mortgage portfolio
lending  institutions such as banks and savings and loans.  The Company pays the
Manager  an annual base management fee, generally based on average shareholders'
equity,  not  assets, as defined in the Management Agreement, payable monthly in
arrears  as  follows:  1.1%  of  the first $300 million of Average Shareholders'
Equity,  plus  0.8%  of  Average Shareholders' Equity above $300 million.  Since
this  management  fee  is based on shareholders' equity and not assets, this fee
increases  as  the  Company  successfully  accesses  capital  markets and raises
additional  equity  capital  and  is,  therefore,  managing  a  larger amount of
invested  capital  on  behalf  of its shareholders.  In order for the Manager to
earn  a  performance fee, the rate of return on the shareholders' investment, as
defined  in  the  Management  Agreement,  must  exceed the average ten-year U.S.
Treasury  rate  during  the  quarter plus 1%.  During 1997, the Manager earned a
performance  fee of $3,363,000.  During 1997, after paying this performance fee,
the  Company's  return on common equity was 12.72%.  See Note 7 to the Financial
Statements  for  a  discussion  of  the  management  fee  formulas.


                                       33
<PAGE>
MARKET  RISKS

The  market  risk  management  discussion  and  the  amounts  estimated from the
analysis  that follows are forward-looking statements regarding market risk that
assume  that certain adverse market conditions occur.  Actual results may differ
materially  from  these  projected  results  due to changes in the Company's ARM
portfolio  and borrowings mix and due to developments in the domestic and global
financial  and  real  estate  markets.  The  analytical  methods utilized by the
Company  to  assess  and  mitigate  these  market risks should not be considered
projections  of  future  events  or  operating  performance.

As  a  financial  institution  that has only invested in U.S. dollar denominated
instruments,  primarily  residential mortgage instruments, and has only borrowed
money  in  the  domestic  market, the Company is not subject to foreign currency
exchange  or commodity price risk, but rather the Company's market risk exposure
is  limited  solely to interest rate risk.  Interest rate risk is defined as the
sensitivity  of  the  Company's  current  and  future  earnings to interest rate
volatility,  variability of spread relationships and the difference in repricing
intervals  between  the  Company's  assets  and liabilities.  Interest rate risk
impacts  the Company's interest income, interest expense and the market value on
a  large  portion  of  the  Company's assets and liabilities.  The management of
interest  rate  risk  attempts  to  maximize earnings and to preserve capital by
minimizing  the  negative  impacts of changing market rates, asset and liability
mix  and  prepayment  activity.

The table below presents the Company's consolidated interest rate risk using the
static  gap  methodology.  This  method  reports the difference between interest
rate  sensitive assets and liabilities at specific points in time as of December
31,  1998, based on the earlier of term to repricing or the term to repayment of
the  of  the  asset  or  liability.  The  table  does  not  include  assets  and
liabilities  that  are  not interest rate sensitive such as payment receivables,
prepaid expenses, payables and accrued expenses.  The table provides a projected
repricing  or  maturity based on scheduled rate adjustments, scheduled payments,
and  estimated prepayments.  For many of the Company's assets and certain of the
Company's liabilities, the maturity date is not determinable with certainty.  In
general, the Company's ARM assets can be prepaid before contractual amortization
and/or maturity.  Likewise, the Company's callable AAA rated notes are paid down
as  the  related ARM asset collateral pays down.  The static gap report reflects
the  Company's  investment  policy  that  allows for only the acquisition of ARM
assets  that  reprice  within  one year or Hybrids ARMs that are match funded to
within  one-year  of  their  initial  repricing.

The  difference  between assets and liabilities repricing or maturing in a given
period  is  one  approximate  measure of interest rate sensitivity.  More assets
than  liabilities  repricing  in a period (a positive gap) implies earnings will
rise  as  interest  rates  rise  and  decline  as  interest rates decline.  More
liabilities  repricing  than assets (a negative gap) implies declining income as
rates rise and increasing income as rates decline.  The static gap analysis does
not take into consideration constraints on the repricing of the interest rate of
ARM  assets  in a given period resulting from periodic and lifetime cap features
nor  the  behavior  of  various  indexes  applicable to the Company's assets and
liabilities.  Different  interest  rate  indexes  exhibit  different  degrees of
volatility  in  the  same  interest rate environment due to other market factors
such  as,  but  not  limited  to,  government  fiscal  policies,  market concern
regarding  potential  credit  losses,  changes  in  spread  relationships  among
different  indexes  and  global  market  disruptions.

The  use  of  interest  rate  instruments  such  as Swaps and Cap Agreements are
integrated  into  the  Company's  interest  rate  risk management.  The notional
amounts  of  these instruments are not reflected in the Company's balance sheet.
The  Swaps  are  included  in  the  static  gap report for purposes of analyzing
interest  rate  risk  because  they  have  the affect of adjusting the repricing
characteristics  of  the  Company's  liabilities.  The  Cap  Agreements  are not
considered  in  a static gap report because they do not effect the timing of the
repricing  of the instruments they hedge, but rather they, in effect, remove the
limit  on  the  amount  of  interest  rate change that can occur relative to the
applicable  hedged  asset.


                                       34
<PAGE>
<TABLE>
<CAPTION>
                              INTEREST RATE SENSITIVITY GAP ANALYSIS
                                   (Dollar amounts in millions)

December  31,  1998
                                                       Over 3      Over 6
                                        3 Months     Months to   Months to     Over
                                         or less      6 Months     1 Year     1 Year      Total
                                      ------------  -----------  ---------  ---------  ----------
<S>                                   <C>           <C>          <C>        <C>        <C>
Interest-earning assets:
  ARM securities . . . . . . . . . .  $ 1,722,897   $  907,114   $620,671   $      -   $3,250,682
  ARM loans. . . . . . . . . . . . .      413,743      137,813     45,923          -      597,479
  Hybrid ARM loans . . . . . . . . .       20,422       22,552     44,834    393,038      480,846
  Cash and cash equivalents. . . . .       36,431            -          -          -       36,431
                                      ------------  -----------  ---------  ---------  ----------
    Total interest-earning assets. .    2,193,493    1,067,479    711,428    393,038    4,365,438
                                      ------------  -----------  ---------  ---------  ----------

Interest-bearing liabilities:
  Reverse repurchase agreements. . .    2,867,207            -          -          -    2,867,207
  Callable AAA notes . . . . . . . .    1,131,007            -          -          -    1,131,007
  Other borrowings . . . . . . . . .           83          602        712        632        2,029
  Swaps. . . . . . . . . . . . . . .   (1,249,843)     774,983     58,062    416,798            -
                                      ------------  -----------  ---------  ---------  ----------
    Total interest-bearing
      liabilities. . . . . . . . . .    2,748,454      775,585     58,774    417,430    4,000,243
                                      ------------  -----------  ---------  ---------  ----------

Interest rate sensitivity gap. . . .  $  (554,961)  $  291,894   $652,654   $(24,392)  $  365,195
                                      ============  ===========  =========  =========  ==========

Cumulative interest rate
sensitivity gap. . . . . . . . . . .  $  (554,961)  $ (263,067)  $389,587   $365,195 
                                      ============  ===========  =========  =========            

Cumulative interest rate sensitivity
gap as a percentage of total assets
before market value adjustments. . .      (12.53)%      (5.94)%      8.79%      8.25%
                                      ============  ===========  =========  =========            
</TABLE>

Although  the  static gap methodology is widely accepted in identifying interest
rate  risk,  it does not take into consideration changes that may occur such as,
but  not  limited to, changes in investment and financing strategies, changes in
market  spreads  and  relationships  among different indexes, changes in hedging
strategy,  changes  in  prepayment  speeds  and  changes  in  business  volumes.
Accordingly,  the  Company makes extensive usage of an earnings simulation model
to  analyze  its level of interest rate risk.  This analytical technique used to
measure  and  manage  interest  rate  risk  includes  the  impact  of  all
on-balance-sheet  and  off-balance-sheet  financial  instruments.

There  are  a  number  of  key  assumptions made in using the Company's earnings
simulation  model.  These  key  assumptions include changes in market conditions
that effect interest rates, the pricing of ARM products, the availability of ARM
products,  the  availability  and the cost of financing for ARM products.  Other
key  assumptions  made  in using the simulation model include prepayment speeds,
management's  investment,  financing  and hedging strategies and the issuance of
new  equity.  The Company typically runs the simulation model under a variety of
hypothetical  business  scenarios  that  may  include  different  interest  rate
scenarios,  different  investment strategies, different prepayment possibilities
and  other  scenarios that provide the Company with a range of possible earnings
outcomes  in order to assess potential interest rate risk.  The assumptions used
represent  the  Company's  estimate  of the likely effect of changes in interest
rates  and  do  not necessarily reflect actual results.  The earnings simulation
model  takes  into  account periodic and lifetime caps embedded in the Company's
ARM  assets  in  determining  the  earnings  at  risk.

At  December  31,  1998,  based  on the earnings simulation model, the Company's
potential earnings at risk to a gradual, parallel 100 basis point rise in market
interest  rates  over the next twelve months was approximately 6.3% of projected
1998  net  income.  The  assumptions  used  in the earnings simulation model are
inherently  uncertain and as a result, the analysis cannot precisely predict the
impact of higher interest rates on net income.  Actual results would differ from
simulated  results  due  to  timing,  magnitude  and  frequency of interest rate
changes,  changes  in prepayment speed other than what was assumed in the model,
changes  in  other  market  conditions  and  management strategies to offset its
potential  exposure,  among  other factors.  This measure of risk represents the
Company's  exposure to higher interest rates at a particular point in time.  The
Company's actual risk is always changing.  The Company continuously monitors the
Company's risk profile as it changes and alters its strategies as appropriate in
its  view  of  the likely course of interest rates and other developments in the
Company's  business.


                                       35
<PAGE>
LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's  primary  source  of  funds  for the year ended December 31, 1998
consisted  of  reverse  repurchase agreements, which totaled $2.867 billion, and
callable  AAA notes, which had a balance of $1.127 billion.  The Company's other
significant  sources  of  funds  for  the year ended December 31, 1998 consisted
primarily  of  payments  of  principal  and  interest from its ARM assets in the
amount  of  $2.1 billion and proceeds from the sale of ARM assets in the amounts
of  $932.0  million.  In  the future, the Company expects its primary sources of
funds  will  consist  of  borrowed  funds  under  reverse  repurchase  agreement
transactions  with  one-  to  twelve-month  maturities, capital market financing
transactions  collateralized  by  ARM  and  hybrid  loans, proceeds from monthly
payments  of  principal  and interest on its ARM assets portfolio and occasional
asset  sales.  The  Company's  liquid  assets generally consist of unpledged ARM
assets,  cash  and  cash  equivalents.

Total  borrowings incurred at December 31, 1998, had a weighted average interest
rate  of  5.84%.  The  reverse  repurchase  agreements  had  a  weighted average
remaining  term to maturity of 2.0 months and the callable AAA notes payable had
a  final  maturity  of January 25, 2029, but will be paid down as the ARM assets
collateralizing  the  notes  are  paid  down.  As  of  December 31, 1998, $1.147
billion  of  the Company's borrowings were variable-rate term reverse repurchase
agreements.  Term  reverse  repurchase  agreements are committed financings with
original  maturities  that  range  from three months to two years.  The interest
rates  on  these  term  reverse  repurchase agreements are indexed to either the
one-, three- or six-month LIBOR rate and reprice accordingly.  The interest rate
on  the  callable AAA notes adjusts monthly based on changes in one-month LIBOR.

The Company has arrangements to enter into reverse repurchase agreements with 24
different  financial  institutions  and on December 31, 1998, had borrowed funds
with 16 of these firms. Because the Company borrows money under these agreements
based  on the fair value of its ARM assets and because changes in interest rates
can  negatively  impact  the  valuation  of  ARM assets, the Company's borrowing
ability  under these agreements could be limited and lenders may initiate margin
calls  in  the  event  interest  rates  change or the value of the Company's ARM
assets  decline  for  other reasons.  Additionally, certain of the Company's ARM
assets  are  rated  less than AA by the Rating Agencies (approximately 4.0%) and
have  less  liquidity  than  assets that are rated AA or higher.  Other mortgage
assets  which  are rated AA or higher by the Rating Agencies derive their credit
rating based on a mortgage pool insurer's rating.  As a result of either changes
in  interest  rates,  credit  performance of a mortgage pool or a downgrade of a
mortgage  pool  issuer, the Company may find it difficult to borrow against such
assets  and, therefore, may be required to sell certain mortgage assets in order
to  maintain  liquidity.  If required, these sales could be at prices lower than
the  carrying  value  of  the  assets, which would result in losses.  During the
fourth quarter of 1998, as discussed earlier, the Company maintained an adequate
level  of  liquidity by selling certain ARM securities.  The Company believes it
will  continue to have sufficient liquidity to meet its future cash requirements
from  its primary sources of funds for the foreseeable future without needing to
sell  assets.

The Company, by issuing the callable AAA notes, has financed $1.1 billion of its
ARM  assets  in  a  structure  that  is  not  subject  to margin calls.  In this
structure,  the  financing of these assets is not based on their market value or
subject  to  subsequent changes in mortgage credit markets as is the case of the
reverse  repurchase  agreement arrangements.  The Company has retained a call on
both  the  notes  and  the  collateral in the event the Company should choose to
refinance  these  ARM  assets  in  a  different  manner.

As  of December 31, 1998, the Company had one whole loan financing facility with
an  uncommitted  borrowing capacity of $250,000,000.  The Company had no balance
borrowed against this facility as of year-end.  This facility matured on January
8,  1999  and  has  been  subsequently  re-negotiated for an additional one year
period.  Under the new agreement in effect as of January 8, 1999, the whole loan
financing  facility  is a committed facility in an amount of up to $150,000,000,
with  an  option  to  increase  the amount to $300,000,000.  The Company is also
negotiating  to enter into one other committed whole loan financing facility and
three  uncommitted  whole  loan  financing facilities in order to facilitate its
acquisitions  of  whole  loans  in  a  prudent  manner.


                                       36
<PAGE>
In  December 1996, the Company's Registration Statement on Form S-3, registering
the  sale  of  up  to $200 million of additional equity securities, was declared
effective  by  the  Securities  and  Exchange  Commission.  This  registration
statement  includes  the  possible  issuances  of common stock, preferred stock,
warrants  or  shareholder rights.  As of December 31, 1998, the Company had $109
million  of  its  securities  registered for future sale under this Registration
Statement.

On  July  13,  1998,  the  Board of Directors approved a common stock repurchase
program  of  up  to  500,000  shares  at  prices  below  book  value, subject to
availability of shares and other market conditions.   On September 18, 1998, the
Board  of  Directors  expanded this program by approving the repurchase of up to
1,000,000  shares  at  prices  below  book  value.  To  date,  the  Company  has
repurchased  500,016  shares  at  an  average  price  of  $9.28  per  share.

The  Company  has  a  Dividend  Reinvestment and Stock Purchase Plan (the "DRP")
designed to provide a convenient and economical way for existing shareholders to
automatically  reinvest their dividends in additional shares of common stock and
for  new  and  existing  shareholders  to  purchase  shares at a discount to the
current market price of the common stock, as defined in the DRP.  As a result of
participation  in  the  DRP  during  the  first half of 1998, the Company issued
1,581,550  new  shares  of common stock and received $24.4 million of new equity
capital.   During  the  second half of 1998, the Company purchased shares in the
open  market  on  behalf  of  the participants in its DRP instead of issuing new
shares  below  book  value.  In  accordance with the terms and conditions of the
DRP,  the  Company  pays  the  brokerage  commission  in  connection  with these
purchases.

EFFECTS  OF  INTEREST  RATE  CHANGES

Changes  in interest rates impact the Company's earnings in various ways.  While
the  Company  only  invests  in ARM assets, rising short-term interest rates may
temporarily  negatively  affect  the  Company's  earnings and conversely falling
short-term interest rates may temporarily increase the Company's earnings.  This
impact  can  occur  for  several  reasons  and  may  be  mitigated  by portfolio
prepayment  activity  as  discussed below.  First, the Company's borrowings will
react  to changes in interest rates sooner than the Company's ARM assets because
the  weighted average next repricing date of the borrowings is usually a shorter
time  period.  Second,  interest  rates on ARM loans are generally limited to an
increase  of  either 1% or 2% per adjustment period (commonly referred to as the
periodic  cap)  and  the  Company's  borrowings do not have similar limitations.
Third,  the  Company's  ARM  assets lag changes in the indices due to the notice
period  provided  to  ARM  borrowers  when the interest rates on their loans are
scheduled  to change.  The periodic cap only affects the Company's earnings when
interest  rates  move  by  more  than  1%  per  six-month period or 2% per year.

Interest  rate  changes  may also impact the Company's ARM assets and borrowings
differently  because  the  Company's  ARM  assets are indexed to various indices
whereas  the  interest  rate  on  the  Company's  borrowings generally move with
changes in LIBOR.  Although the Company has always favored acquiring LIBOR based
ARM assets in order to reduce this risk, LIBOR based ARMs are not generally well
accepted  by  home owners in the U.S.  As a result, the Company has acquired ARM
assets indexed to a mix of indices in order to diversify its exposure to changes
in  LIBOR  in  contrast  to  changes  in  other indices.  During times of global
economic  instability, U.S. Treasury rates generally decline because foreign and
domestic  investors  generally  consider  U.S. Treasury instruments to be a safe
haven  for investments.  The Company's ARM assets indexed to U.S. Treasury rates
then  decline  in  yield  as  U.S. Treasury rates decline, whereas the Company's
borrowings  and other ARM assets may not be affected by the same pressures or to
the  same  degree.  As  a  result,  the Company's income can improve or decrease
depending on the relationship between the various indices that the Company's ARM
assets  are  indexed  to  compared  to  changes  in the Company's cost of funds.

The rate of prepayment on the Company's mortgage assets may increase if interest
rates  decline,  or  if the difference between long-term and short-term interest
rates diminishes.  Increased prepayments would cause the Company to amortize the
premiums  paid  for  its mortgage assets faster, resulting in a reduced yield on
its mortgage assets.  Additionally, to the extent proceeds of prepayments cannot
be reinvested at a rate of interest at least equal to the rate previously earned
on  such  mortgage  assets,  the  Company's  earnings may be adversely affected.

Conversely, the rate of prepayment on the Company's mortgage assets may decrease
if  interest  rates  rise, or if the difference between long-term and short-term
interest  rates  increases.  Decreased  prepayments  would  cause the Company to
amortize  the  premiums  paid  for  its  ARM  assets  over a longer time period,
resulting  in  an  increased yield on its mortgage assets.  Therefore, in rising
interest  rate  environments where prepayments are declining, not only would the
interest rate on the ARM assets portfolio increase to re-establish a spread over
the  higher  interest  rates,  but  the  yield  also  would  rise  due to slower
prepayments.  The  combined  effect  could significantly mitigate other negative
effects  that  rising  short-term  interest  rates  might  have  on  earnings.


                                       37
<PAGE>
Lastly,  because  the Company only invests in ARM assets and approximately 8% to
10%  of  such  mortgage  assets  are  purchased  with  shareholders' equity, the
Company's  earnings  over  time  will  tend  to  increase following periods when
short-term  interest  rates  have  risen  and  decrease  following  periods when
short-term  interest  rates have declined.  This is because the financed portion
of  the  Company's  portfolio of ARM assets will, over time, reprice to a spread
over  the  Company's cost of funds, while the portion of the Company's portfolio
of ARM assets that are purchased with shareholders' equity will generally have a
higher  yield in a higher interest rate environment and a lower yield in a lower
interest  rate  environment.

YEAR  2000  ISSUES

The  Year  2000 issues involve both hardware design flaws in which many computer
systems,  and machines that use computer chips, will not correctly recognize the
date  beginning  in  the  Year 2000 and, additionally, software applications and
compilers that do not use a four-digit reference to years which might not behave
as  intended once the Year 2000 is reached.  Three general areas of concern are:
1)  clocks built into computers and computer chips that will rollover to 1900 or
1980  instead  of  2000,  2) purchased software that does not recognize the Year
2000 as a leap year or that does not use a four-digit reference to years, and 3)
internally  developed  applications  that  do not store the year as a four-digit
year.  The  Company invests in assets and enters into agreements that employ the
use  of  dates  and  is, therefore, concerned about the ability of equipment and
computer  programs  to  interpret  dates  or  recognize  dates  accurately.

In  consideration  of the Year 2000 issues, the Manager has reviewed the ability
of  its  own  computers  and  computer programs to properly recognize and handle
dates in the Year 2000.  Through the normal upgrading of computer equipment, the
Manager  has  already  replaced all computers that were not Year 2000 compliant.
The  software  used  by the Company has been internally developed using products
that are Year 2000 compliant.  The Manager has also reviewed all the date fields
embedded  in its internally developed spreadsheets, databases and other programs
and  has  determined  that  all  such  programs  are  using  four-digit years in
references  to dates.  Therefore, the Company believes that all of its equipment
and  internal  systems  are  ready  for the Year 2000.  To date, the Manager has
incurred  all  costs  in  order  for  the  Company  to  be  Year 2000 compliant.

The  Company believes that most of its exposure to Year 2000 issues involves the
readiness of third parties such as, but not limited to, loan servicers, security
master servicers, security paying agents and trustees, its stock transfer agent,
its securities custodian, the counterparties on its various financing agreements
and hedging contracts and vendors.  The Manager, at its expense, is conducting a
survey,  which is expected to be completed during the first half of 1999, of all
such  third  parties  to try to determine the readiness of such third parties to
handle Year 2000 dates and to try to determine the potential impact of Year 2000
issues.  The  Company  cannot  be certain that such a survey will fully identify
all  Year  2000  issues  or  to  fully  access  the  potential  problems or loss
associated  with  Year  2000  issues  or  that  any failure by these other third
parties  to  resolve  Year  2000  issues would not have an adverse effect on the
Company's  operations  and  financial  condition.  The  Company  and the Manager
believe that they are spending the appropriate and necessary resources to try to
identify  Year 2000 issues and to resolve them or to mitigate the impact of them
to  the  best  of  their  ability  as  they are identified.  The Company has not
developed  likely worst case scenarios nor contingency plans for such scenarios.

OTHER  MATTERS

The  Company  calculates  its  Qualified REIT Assets, as defined in the Internal
Revenue  Code of 1986, as amended (the "Code"), to be 99.1% of its total assets,
compared  to  the Code requirement that at least 75% of its total assets must be
Qualified  REIT  Assets.  The  Company  also  calculates  that 99.8% of its 1998
revenue qualifies for the 75% source of income test and 100% of its 1998 revenue
qualifies  for  the 95% source of income test under the REIT rules.  The Company
also  met  all REIT requirements regarding the ownership of its common stock and
the  distributions  of  its net income.  Therefore, as of December 31, 1998, the
Company believes that it will continue to qualify as a REIT under the provisions
of  the  Code.

The  Company  at  all  times intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act of 1940.  If
the Company were to become regulated as an investment company, the Company's use
of  leverage would be substantially reduced.  The Investment Company Act exempts
entities  that are "primarily engaged in the business of purchasing or otherwise
acquiring  mortgages  and  other  liens  on  and  interests  in  real  estate"
("Qualifying Interests").  Under current interpretation of the staff of the SEC,
in  order  to qualify for this exemption, the Company must maintain at least 55%
of  its  assets  directly  in Qualifying Interests.  In addition, unless certain
mortgage  assets  represent  all  the  certificates  issued  with  respect to an
underlying  pool  of  mortgages,  such  mortgage assets may be treated as assets
separate  from  the  underlying  mortgage loans and, thus, may not be considered
Qualifying  Interests  for  purposes of the 55% requirement.  As of December 31,
1998,  the  Company  calculates  that it is in compliance with this requirement.


                                       38
<PAGE>
ITEM  7A.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

     The information called for by Item 7A is incorporated by reference from the
information  in  Item  7  under  the caption "Market Risk" set forth on pages 34
through  36  in  this  Form  10-K

ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

     The financial statements of the Company, the related notes and schedules to
the financial statements, together with the Independent Auditor's Report thereon
are  set  forth  on  pages  F-3  through  F-23  in  this  Form  10-K.

ITEM  9.     CHANGES  IN  AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL  DISCLOSURE.

     None.


                                    PART  III

ITEM  10.     DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

     The  information required by Item 10 is incorporated herein by reference to
the  definitive  Proxy  Statement  dated  March  29,  1999  pursuant  to General
Instruction  G(3).

ITEM  11.     EXECUTIVE  COMPENSATION

     The  information required by Item 11 is incorporated herein by reference to
the  definitive  Proxy  Statement  dated  March  29,  1999  pursuant  to General
Instruction  G(3).

ITEM  12.     SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

     The  information required by Item 12 is incorporated herein by reference to
the  definitive  Proxy  Statement  dated  March  29,  1999  pursuant  to General
Instruction  G(3).

ITEM  13.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     The  information required by Item 13 is incorporated herein by reference to
the  definitive  Proxy  Statement  dated  March  29,  1999  pursuant  to General
Instruction  G(3).


                                       39
<PAGE>
                                    PART  IV

ITEM  14.     EXHIBITS,  FINANCIAL  STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  Documents  filed  as  part  of  this  report:

          1.   The  following Financial Statements of the Company are included
               in  Part  II,  Item  8  of  this  Annual  Report  on  Form-K:

               Independent  Auditors'  Report;
               Consolidated  Balance  Sheets  as  of December 31, 1998 and 1997;
               Consolidated  Statements  of  Operations  for  the  years  ended
               December  31,  1998,  1997  and  1996;
               Consolidated  Statements  of  Shareholders'  Equity for the years
               ended  December  31,  1998,  1997  and  1996;
               Consolidated  Statements  of  Cash  Flows  for  the  years  ended
               December  31,  1998,  1997  and  1996  and
               Notes  to  Consolidated  Financial  Statements.

          2.   Schedules  to  Consolidated  Financial  Statements:

               All  consolidated  financial  statement schedules are included in
               Part  II,  Item  8  of  this  Annual  Report  on  Form-K.

          3.   Exhibits:

               See  "Exhibit  Index".

     (b)  Reports  on  Form  8-K:

               None


                                       40
<PAGE>
                      THORNBURG MORTGAGE ASSET CORPORATION
                                AND SUBSIDIARIES


                        CONSOLIDATED FINANCIAL STATEMENTS

                                       AND

                          INDEPENDENT AUDITOR'S REPORT



                           For Inclusion in Form 10-K

                                   Filed with

                       Securities and Exchange Commission

                                December 31, 1998


<PAGE>
<TABLE>
<CAPTION>
                      THORNBURG MORTGAGE ASSET CORPORATION
                                AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                PAGE
                                                ----
<S>                                             <C>
FINANCIAL STATEMENTS:

Independent Auditor's Report . . . . . . . . .  F-3

Consolidated Balance Sheets. . . . . . . . . .  F-4

Consolidated Statements of Operations. . . . .  F-5

Consolidated Statement of Shareholders' Equity  F-6

Consolidated Statements of Cash Flows. . . . .  F-7

Notes to Consolidated Financial Statements . .  F-8

FINANCIAL STATEMENT SCHEDULE:

Schedule IV - Mortgage Loans on Real Estate. .  F-22
</TABLE>


                                      F-2
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT










To  the  Board  of  Directors
Thornburg  Mortgage  Asset  Corporation
Santa  Fe,  New  Mexico

     We  have  audited the accompanying consolidated balance sheets of Thornburg
Mortgage Asset Corporation and subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, shareholders' equity and cash
flows  for each of the three years in the period ended December 31, 1998.  These
financial  statements  are  the responsibility of the Company's management.  Our
responsibility  is  to express an opinion on these financial statements based on
our  audits.

     We  conducted  our  audits  in  accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing  the  accounting  principles  used  and  significant estimates made by
management,  as well as evaluating the overall financial statement presentation.
We  believe  that  our  audits  provide  a  reasonable  basis  for  our opinion.

     In  our  opinion,  the  consolidated financial statements referred to above
present  fairly,  in  all material respects, the financial position of Thornburg
Mortgage  Asset  Corporation  and subsidiaries as of December 31, 1998 and 1997,
and  the  results of their operations and their cash flows for each of the three
years  in  the  period  ended  December  31,  1998  in conformity with generally
accepted  accounting  principles.

     Our  audits  were  made  for the purpose of forming an opinion on the basic
financial  statements  taken  as  a  whole.  The  supplemental  Schedule  IV  is
presented  for  purposes  of  complying  with  the  Securities  and  Exchange
Commission's  rules  and  is not a part of the basic financial statements.  This
schedule  has been subjected to the auditing procedures applied in our audits of
the  basic  financial  statements  and,  in our opinion, is fairly stated in all
material  respects  in  relation  to  the  basic financial statements taken as a
whole.




                                              /s/  McGLADREY  &  PULLEN,  LLP

                                              McGLADREY  &  PULLEN,  LLP

New  York,  New  York
January  20  ,  1999


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                         THORNBURG MORTGAGE ASSET CORPORATION
                                   AND SUBSIDIARIES

                              CONSOLIDATED BALANCE SHEETS
                                (Amounts in thousands)
                                                                    December 31
                                                              ------------------------
                                                                 1998         1997
                                                              -----------  -----------
<S>                                                           <C>          <C>
ASSETS
  Adjustable-rate mortgage ("ARM") assets (Notes 2 and 3)
    ARM securities . . . . . . . . . . . . . . . . . . . . .  $3,094,657   $4,519,707 
    Collateral for callable collateralized notes . . . . . .   1,147,350            - 
    ARM loans held for securitization. . . . . . . . . . . .      26,410      118,987 
                                                              -----------  -----------
                                                               4,268,417    4,638,694 

  Cash and cash equivalents (Note 3) . . . . . . . . . . . .      36,431       13,780 
  Accrued interest receivable. . . . . . . . . . . . . . . .      37,939       38,353 
  Prepaid expenses and other . . . . . . . . . . . . . . . .       1,846          289 
                                                              -----------  -----------
                                                              $4,344,633   $4,691,116 
                                                              ===========  ===========


  LIABILITIES

  Reverse repurchase agreements (Note 3) . . . . . . . . . .  $2,867,207   $4,270,170 
  Callable collateralized notes (Note 3) . . . . . . . . . .   1,127,181            - 
  Other borrowings (Note 3). . . . . . . . . . . . . . . . .       2,029       10,018 
  Accrued interest payable . . . . . . . . . . . . . . . . .      31,514       39,749 
  Dividends payable (Note 5) . . . . . . . . . . . . . . . .       1,670       11,810 
  Accrued expenses and other . . . . . . . . . . . . . . . .       3,209        1,215 
                                                              -----------  -----------
                                                               4,032,810    4,332,962 
                                                              -----------  -----------


  COMMITMENTS (Note 2)


  SHAREHOLDERS' EQUITY (Note 5)

  Preferred stock: par value $.01 per share;
     2,760 shares authorized; 9.68% Cumulative
     Convertible Series A, 2,760 and 2,760 issued
     and outstanding, respectively; aggregate preference in
     liquidation $69,000 . . . . . . . . . . . . . . . . . .      65,805       65,805 
  Common stock: par value $.01 per share;
     47,240 shares authorized, 21,990 and 20,280 shares
     issued and 21,490 and 20,280 outstanding, respectively.         220          203 
  Additional paid-in-capital . . . . . . . . . . . . . . . .     341,756      315,240 
  Accumulated other comprehensive income (loss). . . . . . .     (82,148)     (19,445)
  Notes receivable from stock sales. . . . . . . . . . . . .      (4,632)      (2,698)
  Retained earnings (deficit). . . . . . . . . . . . . . . .      (4,512)        (951)
  Treasury stock: at cost, 500 and 0 shares respectively . .      (4,666)           - 
                                                              -----------  -----------
                                                                 311,823      358,154 
                                                              -----------  -----------

                                                              $4,344,633   $4,691,116 
                                                              ===========  ===========
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                      THORNBURG MORTGAGE ASSET CORPORATION
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands, except per share data)

                                                     Year ended December 31
                                              ----------------------------------
                                                 1998        1997        1996
                                              ----------  ----------  ----------
<S>                                           <C>         <C>         <C>
Interest income from ARM assets and cash . .  $ 287,032   $ 247,721   $ 151,511 
Interest expense on borrowed funds . . . . .   (255,992)   (198,657)   (121,166)
                                              ----------  ----------  ----------
 Net interest income . . . . . . . . . . . .     31,040      49,064      30,345 
                                              ----------  ----------  ----------

Gain (loss) on sale of ARM assets. . . . . .       (278)      1,189       1,362 
Provision for credit losses. . . . . . . . .     (2,032)       (886)       (990)
Management fee (Note 7). . . . . . . . . . .     (4,142)     (3,664)     (1,872)
Performance fee (Note 7) . . . . . . . . . .       (759)     (3,363)     (2,462)
Other operating expenses . . . . . . . . . .     (1,134)       (938)       (646)
                                              ----------  ----------  ----------

 NET INCOME. . . . . . . . . . . . . . . . .  $  22,695   $  41,402   $  25,737 
                                              ==========  ==========  ==========



Net income . . . . . . . . . . . . . . . . .  $  22,695   $  41,402   $  25,737 
Dividend on preferred stock. . . . . . . . .     (6,679)     (6,251)          - 
                                              ----------  ----------  ----------

Net income available to common shareholders.  $  16,016   $  35,151   $  25,737 
                                              ==========  ==========  ==========

Basic earnings per share . . . . . . . . . .  $    0.75   $    1.95   $    1.73 
                                              ==========  ==========  ==========

Diluted earnings per share . . . . . . . . .  $    0.75   $    1.94   $    1.73 
                                              ==========  ==========  ==========

Average number of common shares outstanding.     21,488      18,048      14,874 
                                              ==========  ==========  ==========
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                                     THORNBURG MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                              Three Years Ended December 31, 1998
                                     (Dollar amounts in thousands, except per share data)

                                                                                Notes
                                                                     Accum.    Receiv-
                                                           Addit-     Other     able
                                       Pref-               ional    Compre-     From     Retained                Compre-
                                       erred     Common   Paid-in    hensive    Stock    Earnings/    Treasury   hensive
                                       Stock     Stock    Capital    Income     Sales    (Deficit)     Stock     Income     Total
                                      -------  --------  --------  ---------  --------  ----------  ----------  ---------  ---------
<S>                                   <C>      <C>       <C>       <C>        <C>       <C>         <C>         <C>        <C>
Balance, December 31, 1995 . . . . .  $     -  $    122  $175,708  $(14,826)  $     -   $    (527)  $       -              $160,477
Comprehensive income:
   Net income. . . . . . . . . . . .                                                       25,737               $ 25,737     25,737
   Other comprehensive income:
      Available-for-sale assets:
      Fair value adjustment, net
     of amortization . . . . . . . .        -         -         -     6,028         -           -           -      6,028      6,028
    Deferred gain on sale of
     hedges, net of amortization . .        -         -         -    (2,468)        -           -           -     (2,468)    (2,468)
                                                                                                                ---------
   Other comprehensive income. . . .                                                                            $ 29,297 
                                                                                                                =========
Issuance of common
Issuance of common stk.   (Note 5) .        -        40    57,469         -         -           -           -                57,509
Dividends declared on common
 stock - $1.65 per share . . . . . .        -         -         -         -         -     (25,085)          -               (25,085)
                                      -------  --------  --------  ---------  --------  ----------  ----------             ---------
Balance, December 31, 1996 . . . . .        -       162   233,177   (11,266)        -         125           -               222,198
Comprehensive income:
   Net income. . . . . . . . . . . .                                                       41,402                          $ 41,402
   Other comprehensive income:
      Available-for-sale assets:
      Fair value adjustment, net
     of amortization . . . . . . . .        -         -         -    (6,697)        -           -           -     (6,697)    (6,697)
    Deferred gain on sale of
     hedges, net of amortization . .        -         -         -    (1,482)        -           -           -     (1,482)    (1,482)
                                                                                                                ---------
   Other comprehensive loss. . . . .                                                                            $(33,223)
                                                                                                                =========
Series A preferred stock issued,
 Net of issuance cost   (Note 5) . .   65,805         -         -         -         -           -           -                65,805
Issuance of common
Issuance of common stk.   (Note 5) .        -        41    82,063         -    (2,698)          -           -                79,406
Dividends declared on preferred
 stock - $2.265 per share. . . . . .        -         -         -         -         -      (6,251)          -                (6,251)
Dividends declared on common
 stock - $1.97per share. . . . . . .        -         -         -         -         -     (36,227)          -               (36,227)
                                      -------  --------  --------  ---------  --------  ----------  ----------             ---------
Balance, December 31, 1997 . . . . .   65,805       203   315,240   (19,445)   (2,698)       (951)          -               358,154
Comprehensive income:
   Net income. . . . . . . . . . . .                                                       22,695               $ 22,695     22,695
   Other comprehensive income:
      Available-for-sale assets:
      Fair value adjustment, net
     of amortization . . . . . . . .        -         -         -   (61,157)        -           -           -    (61,157)   (61,157)
    Deferred gain on sale of
     hedges, net of amortization . .        -         -         -    (1,546)        -           -           -     (1,546)    (1,546)
   Other comprehensive loss. . . . .                                                                            $(40,008)
                                                                                                                =========
Issuance of common stk.   (Note 5) .        -        17    26,259         -    (1,934)          -           -                24,342
Purchase of treasury stock (Note 5).        -         -         -         -         -           -      (4,666)               (4,666)
Interest from notes receivable from
     stock sales . . . . . . . . . .                                                          257                               257
Dividends declared on preferred
 stock - $2.42 per share . . . . . .        -         -         -         -         -      (6,679)          -                (6,679)
Dividends declared on common
 stock - $0.905 per share. . . . . .        -         -         -         -         -     (19,577)          -               (19,577)
                                      -------  --------  --------  ---------  --------  ----------  ----------             ---------
Balance, December 31, 1998 . . . . .  $65,805  $    220  $341,756  $(82,148)  $(4,632)  $  (4,512)  $  (4,666)             $311,823
                                      =======  ========  ========  =========  ========  ==========  ==========             =========
<FN>
See  Notes  to  Consolidated  Financial  Statements.
</TABLE>


                                      F-6
<PAGE>
<TABLE>
<CAPTION>
                                    THORNBURG MORTGAGE ASSET CORPORATION
                                              AND SUBSIDIARIES

                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (Dollar amounts in thousands)

                                                                             Year ended December 31
                                                                    ----------------------------------------
                                                                        1998          1997          1996
                                                                    ------------  ------------  ------------
<S>                                                                 <C>           <C>           <C>
Operating Activities:
 Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    22,695   $    41,402   $    25,737 
 Adjustments to reconcile net income to
   net cash provided by operating activities:
   Amortization. . . . . . . . . . . . . . . . . . . . . . . . . .       49,657        24,665        14,346 
   Net realized (gain) loss from investing activities. . . . . . .        2,310          (303)         (372)
   Decrease (increase) in accrued interest receivable. . . . . . .          414       (14,789)       (4,785)
   Decrease (increase) in prepaid expenses and other . . . . . . .       (1,557)          (62)           33 
   Increase (decrease) in accrued interest payable . . . . . . . .       (8,235)       21,002         8,840 
   Increase (decrease) in accrued expenses and other . . . . . . .        1,994           101           433 
                                                                    ------------  ------------              
     Net cash provided by operating activities . . . . . . . . . .       67,278        72,016        44,232 
                                                                    ------------  ------------  ------------

Investing Activities:
 Available-for-sale securities:
   Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1,501,961)   (2,929,746)   (1,583,678)
   Proceeds on sales . . . . . . . . . . . . . . . . . . . . . . .      929,999       190,196       277,594 
   Proceeds from calls . . . . . . . . . . . . . . . . . . . . . .      138,926        67,202 
   Principal payments. . . . . . . . . . . . . . . . . . . . . . .    1,635,298       756,379       441,722 
 Held-to-maturity securities:
   Principal payments. . . . . . . . . . . . . . . . . . . . . . .       16,152        63,120       111,684 
 Collateral for callable collateralized bonds:
   Principal payments. . . . . . . . . . . . . . . . . . . . . . .       13,416             -             - 
 ARM Loans:
   Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1,092,238)     (123,211)            - 
   Principal payments. . . . . . . . . . . . . . . . . . . . . . .      115,081         4,092             - 
   Proceeds on sales . . . . . . . . . . . . . . . . . . . . . . .        2,043             -             - 
 Purchase of interest rate cap and floor agreements. . . . . . . .       (1,081)       (4,074)         (631)
                                                                    ------------  ------------  ------------
     Net cash provided by (used in) investing activities . . . . .      255,635    (1,976,042)     (753,309)
                                                                    ------------  ------------  ------------

Financing Activities:

Net borrowings from (repayments of) reverse repurchase agreements.   (1,402,963)    1,811,038       678,278 
 Net borrowings from callable collateralized notes . . . . . . . .    1,127,181             -             - 
 Repayments of other borrowings. . . . . . . . . . . . . . . . . .       (7,989)       (4,169)       (4,259)
 Proceeds from preferred stock issued. . . . . . . . . . . . . . .            -        65,805             - 
 Proceeds from common stock issued . . . . . . . . . . . . . . . .       24,342        79,406        57,509 
 Purchase of treasury stock. . . . . . . . . . . . . . . . . . . .       (4,666)            -             - 
 Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . .      (36,396)      (37,967)      (22,418)
 Interest from notes receivable from stock sales . . . . . . . . .          229             -             - 
                                                                    ------------  ------------  ------------
   Net cash provided by (used in) financing activities . . . . . .     (300,262)    1,914,113       709,110 
                                                                    ------------  ------------  ------------

Net increase (decrease) in cash and cash equivalents . . . . . . .       22,651        10,087            33 

Cash and cash equivalents at beginning of period . . . . . . . . .       13,780         3,693         3,660 
                                                                    ------------  ------------  ------------
Cash and cash equivalents at end of period . . . . . . . . . . . .  $    36,431   $    13,780   $     3,693 
                                                                    ============  ============  ============
<FN>
Supplemental disclosure of cash flow information and non-cash investing and financing activities are
included in Notes 2 and 3.
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                      F-7
<PAGE>
                      THORNBURG MORTGAGE ASSET CORPORATION
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1.  ORGANIZATION  AND  SIGNIFICANT  ACCOUNTING  POLICIES

Thornburg  Mortgage  Asset  Corporation  (the  "Company")  was  incorporated  in
Maryland  on  July 28, 1992.  The Company commenced its operations of purchasing
and  managing  for  investment a portfolio of adjustable-rate mortgage assets on
June 25, 1993, upon receipt of the net proceeds from the initial public offering
of  the  Company's  common  stock.

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

CASH  AND  CASH  EQUIVALENTS

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

BASIS  OF  PRESENTATION

The  consolidated  financial  statements include the accounts of the Company and
its  wholly  owned  special  purpose  finance  subsidiaries,  Thornburg Mortgage
Funding  Corporation and Thornburg Mortgage Acceptance Corporation.  The Company
formed  these  entities  in  connection  with  the  issuance  of  the  callable
collateralized  notes  discussed  in Note 3.  All material intercompany accounts
and  transactions  are  eliminated  in  consolidation.

ADJUSTABLE-RATE  MORTGAGE  ASSETS

     The  Company's adjustable-rate mortgage ("ARM") assets are comprised of ARM
securities,  ARM loans and collateral for callable AAA notes payable, which also
consists  of  ARM  securities  and  ARM  loans.

In  the  second  quarter  of  1998,  the  Company  decided  to change its policy
regarding  its  classification  of ARM securities such that each ARM security is
classified  as  available-for-sale.  The  Company changed its policy because the
remaining  amount  of ARM securities classified as held-to-maturity had become a
relatively  small  percentage  of the portfolio, less than 8% of assets at March
31,  1998,  and  because  it  is  apparent that as more mortgage REITs have been
formed,  that  it  is  industry  practice  to  carry  all mortgage securities as
available-for-sale.  The Company had not classified any ARM securities purchased
since  1994  as  held-to-maturity  and  does  not expect to do so in the future.
Management  has  made the determination that all of its ARM securities should be
designated as available-for-sale in order to be prepared to respond to potential
future  opportunities in the market, to sell ARM securities in order to optimize
the  portfolio's  total  return and to retain its ability to respond to economic
conditions that might require the Company to sell assets in order to maintain an
appropriate  level  of  liquidity.  Since  all  ARM securities are designated as
available-for-sale,  they  are reported at fair value, with unrealized gains and
losses  excluded  from  earnings and reported in accumulated other comprehensive
income  as  a  separate  component  of  shareholders'  equity.

Management  has  the  intent and ability to hold the Company's ARM loans for the
foreseeable future and until maturity or payoff.  Therefore, they are carried at
their  unpaid  principal  balances,  net  of unamortized premium or discount and
allowance  for  loan  losses.

The  collateral for the callable AAA notes includes ARM securities and ARM loans
which  are  accounted for in the same manner as the ARM securities and ARM loans
that  are  not  held  as  collateral.

Premiums  and  discounts  associated  with  the  purchase  of the ARM assets are
amortized  into interest income over the lives of the assets using the effective
yield  method  adjusted  for  the  effects  of  estimated  prepayments.


                                      F-8
<PAGE>
ARM  asset transactions are recorded on the date the ARM assets are purchased or
sold.  Purchases  of  new  issue  ARM  assets  are recorded when all significant
uncertainties regarding the characteristics of the assets are removed, generally
shortly  before  settlement  date.  Realized  gains  and  losses  on  ARM  asset
transactions  are  determined  on  the  specific  identification  basis.

CREDIT  RISK

The  Company  limits  its  exposure  to  credit  losses  on its portfolio of ARM
securities  by  only  purchasing  ARM  securities  that have an investment grade
rating  at  the time of purchase and have some form of credit enhancement or are
guaranteed by an agency of the federal government.  An investment grade security
generally  has  a security rating of BBB or Baa or better by at least one of two
nationally  recognized  rating  agencies,  Moody's  Investor  Services,  Inc. or
Standard  & Poor's, Inc. (the "Rating Agencies").  Additionally, the Company has
also purchased ARM loans and limits its exposure to credit losses by restricting
its  whole  loan  purchases  to  ARM  loans  generally originated to "A" quality
underwriting  standards  or  loans  that have at least five years of pay history
and/or  low  loan  to  property  value  ratios.  The  Company further limits its
exposure  to  credit  losses  by  limiting  its  investment  in investment grade
securities  that  are  rated  A, or equivalent, BBB, or equivalent, or ARM loans
originated  to  "A"  quality  underwriting standards ("Other Investments") to no
more  than  30%  of  the  portfolio.

The  Company  monitors  the  delinquencies and losses on the underlying mortgage
loans  backing  its  ARM  assets.  If  the  credit performance of the underlying
mortgage  loans  is  not as expected, the Company makes a provision for possible
credit  losses  at a level deemed appropriate by management to provide for known
losses  as  well  as  unidentified  losses  in  its  ARM  assets portfolio.  The
provision  is based on management's assessment of numerous factors affecting its
portfolio  of  ARM  assets  including,  but  not  limited  to,  current economic
conditions,  delinquency  status,  credit losses to date on underlying mortgages
and  remaining  credit  protection.  The provision for ARM securities is made by
reducing the cost basis of the individual security for the decline in fair value
which  is other than temporary, and the amount of such write-down is recorded as
a  realized  loss,  thereby reducing earnings.  The Company also makes a monthly
provision  for  possible credit losses on its portfolio of ARM loans which is an
increase  to  the  reserve for possible loan losses.  The provision for possible
credit  losses  on loans is based on loss statistics of the real estate industry
for  similar loans, taking into consideration factors including, but not limited
to,  underwriting  characteristics,  seasoning,  geographic location and current
economic  conditions.  When  a  loan  or  a  portion  of  a loan is deemed to be
uncollectible,  the  portion  deemed  to be uncollectible is charged against the
reserve  and  subsequent  recoveries,  if  any,  are  credited  to  the reserve.

Credit  losses  on  pools  of  loans  that  are held as collateral for AAA notes
payable  are  also  covered  by  third party insurance policies that protect the
Company  from  credit  losses  above  a  specified level, limiting the Company's
exposure  to credit losses on such loans.  The Company makes a monthly provision
for possible credit losses on these loans the same as it does for loans that are
not held as collateral for AAA notes payable, except,  taking into consideration
its  maximum  exposure.

Provisions for credit losses do not reduce taxable income and thus do not affect
the  dividends  paid by the Company to shareholders in the period the provisions
are  taken.  Actual  losses  realized by the Company do reduce taxable income in
the  period  the  actual loss is realized and would affect the dividends paid to
shareholders  for  that  tax  year.

DERIVATIVE  FINANCIAL  INSTRUMENTS

INTEREST  RATE  CAP  AGREEMENTS

The  Company  purchases  interest  rate cap agreements (the "Cap Agreements") to
limit  the Company's risks associated with the lifetime or maximum interest rate
caps  of  its ARM assets should interest rates rise above specified levels.  The
Cap  Agreements  reduce the effect of the lifetime cap feature so that the yield
on  the  ARM  assets will continue to rise in high interest rate environments as
the  Company's  cost  of  borrowings  also  continue  to  rise.


                                      F-9
<PAGE>
Under  policies  in  effect  prior to the second quarter of 1998, Cap Agreements
classified  as a hedge against held-to-maturity assets were initially carried at
their  fair  value  as of the time the Cap Agreements and the related assets are
designated  as  held-to-maturity with an adjustment to equity for any unrealized
gains  or  losses  at the time of the designation.  Any adjustment to equity was
thereafter  amortized  into  interest  income  as a yield adjustment in a manner
consistent with the amortization of any premium or discount.  All Cap Agreements
are  now classified as a hedge against available-for-sale assets and are carried
at  their  fair  value  with  unrealized gains and losses reported as a separate
component of equity, consistent with the reporting of such assets.  The carrying
value of the Cap Agreements are included in ARM securities on the balance sheet.
The  Company  purchases  Cap  Agreements by incurring a one-time fee or premium.
The  amortization  of  the  premium  paid  for the Cap Agreements is included in
interest  income as a contra item (i.e., expense) and, as such, reduces interest
income  over  the  lives  of  the  Cap  Agreements.

Realized  gains  and losses resulting from the termination of the Cap Agreements
that  were  hedging  assets  classified  as held-to-maturity were deferred as an
adjustment  to  the carrying value of the related assets and are being amortized
into  interest  income over the terms of the related assets.  Realized gains and
losses resulting from the termination of such agreements that are hedging assets
classified  as available-for-sale are initially reported in a separate component
of  equity,  consistent  with  the reporting of those assets, and are thereafter
amortized  as  a  yield  adjustment.

INTEREST  RATE  SWAP  AGREEMENTS

The  Company  enters  into  interest rate swap agreements in order to manage its
interest  rate  exposure  when  financing  its  ARM  assets.  In  general,  swap
agreements  have  been utilized by the Company in two ways.  One way has been to
use  swap  agreements  as a cost effective way to lengthen the average repricing
period  of  its  variable  rate and short term borrowings.  Additionally, as the
Company  acquires hybrid assets, it also enters into swap agreements in order to
manage  the  interest  rate  repricing  mismatch  (the  difference  between  the
remaining  fixed-rate  period  of  a  hybrid  and the maturity of the fixed-rate
liability  funding  a  hybrid) to approximately one year.  Revenues and expenses
from the interest rate swap agreements are accounted for on an accrual basis and
recognized  as  a  net  adjustment  to  interest  expense.

INCOME  TAXES

The  Company  has elected to be taxed as a Real Estate Investment Trust ("REIT")
and  complies  with  the  provisions  of  the  Internal Revenue Code of 1986, as
amended (the "Code") with respect thereto.  Accordingly, the Company will not be
subject  to Federal income tax on that portion of its income that is distributed
to  shareholders  and as long as certain asset, income and stock ownership tests
are  met.

NET  EARNINGS  PER  SHARE

Basic  EPS  amounts  are computed by dividing net income (adjusted for dividends
declared  on  preferred  stock)  by the weighted average number of common shares
outstanding.  Diluted EPS amounts assume the conversion, exercise or issuance of
all  potential common stock instruments unless the effect is to reduce a loss or
increase  the  earnings  per  common  share.


                                      F-10
<PAGE>
Following  is  information  about the computation of the earnings per share data
for  the  years  ended  December  31,  1998, 1997 and 1996 (Amounts in thousands
except  per  share  data):

<TABLE>
<CAPTION>
                                                     Earnings
                                  Income    Shares  Per Share
                                ----------  ------  ----------
<S>                             <C>         <C>     <C>
                 1998 
Net income . . . . . . . . . .  $  22,695 

Less preferred stock dividends     (6,679)
                                ----------                    

Basic EPS, income available to
 common shareholders . . . . .     16,016   21,488  $     0.75
                                                    ==========

Effect of dilutive securities:

 Stock options . . . . . . . .          -        -
                                ----------  ------
Diluted EPS. . . . . . . . . .  $  16,016   21,488  $     0.75
                                ==========  ======  ==========

                 1997 
Net income . . . . . . . . . .  $  41,402 

Less preferred stock dividends     (6,251)
                                ----------                    

Basic EPS, income available to
 common shareholders . . . . .     35,151   18,048  $     1.95
                                                    ==========

Effect of dilutive securities:

 Stock options . . . . . . . .          -      110
                                ----------  ------
Diluted EPS. . . . . . . . . .  $  35,151   18,158  $     1.94
                                ==========  ======  ==========

                 1996 
Net income . . . . . . . . . .  $  25,737 

Less preferred stock dividends          - 
                                ----------                    

Basic EPS, income available to
 common stockholders . . . . .     25,737   14,874  $     1.73
                                                    ==========

Effect of dilutive securities:

 Stock options . . . . . . . .          -       37
                                ----------  ------
Diluted EPS. . . . . . . . . .  $  25,737   14,911  $     1.73
                                ==========  ======  ==========
</TABLE>

The  Company  has  granted  options to directors and officers of the Company and
employees of the Manager to purchase 59,784 in 1998, 240,320 in 1997 and 169,099
shares  of  common  stock in 1996 at average prices of $14.82, $20.89 and $15.44
per share during the years ended December 31, 1998, 1997 and 1996, respectively.
The conversion of preferred stock was not included in the computation of diluted
EPS  for  any  year  because  such  conversion  would  increase the diluted EPS.

USE  OF  ESTIMATES

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


                                      F-11
<PAGE>
RECENT  ACCOUNTING  PRONOUNCEMENTS

In  June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130,  Reporting  Comprehensive  Income.  This  statement  requires  companies to
classify  items  of  other  comprehensive  income,  such as unrealized gains and
losses  on  available-for-sale  securities,  by  their  nature  in  a  financial
statement  and  display  the  accumulated  balance of other comprehensive income
separately  from  retained earnings and additional paid-in capital in the equity
section  of  a  statement  of  financial  position.  The  Company  adopted  this
statement  in  the  first  quarter  of  1998.

In  June  1998,  the  FASB  issued  SFAS  No.  133,  Accounting  for  Derivative
Instruments  and  Hedging  Activities.  SFAS  No. 133 established a framework of
accounting  rules  that  standardize accounting and reporting for all derivative
instruments  and  is  effective for financial statements issued for fiscal years
beginning  after  June  15,  1999.  The  Statement  requires that all derivative
financial  instruments be carried on the balance sheet at fair value.  Currently
the  only  derivative instruments that are not on the Company's balance sheet at
fair  value  are interest rate swap agreements.  The fair value of interest rate
swap  agreements  is  disclosed  in Note 4, Fair Value of Financial Instruments.
The  Company  believes  that its use of interest rate swap agreements qualify as
cash-flow  hedges as defined in the statement.  Therefore, the effective portion
of the hedge's change in the fair value of these derivatives instruments will be
recorded  in  other  comprehensive  income  and  the ineffective portion will be
included  in earnings when the Company adopts the statement in the first quarter
of  its  fiscal  2000  year.

In  October  1998,  the FASB issued SFAS No. 134, Accounting for Mortgage-Backed
Securities  Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise.  This Statement, which is effective for the first
fiscal  quarter beginning after December 15, 1998, provides guidance to mortgage
banking  entities  who  securitize mortgage loans such that their accounting for
securitized  loans  will  be  the  same  as  their  accounting  for  marketable
securities.  The  Company  has already been accounting for its securitized loans
in  a manner consistent with the new statement  and therefore expects no changes
to  its financial position or results of operations as a result of adopting SFAS
No.  134.


                                      F-12
<PAGE>
NOTE  2.  ADJUSTABLE-RATE  MORTGAGE  ASSETS  AND  INTEREST  RATE  CAP  AND FLOOR
          AGREEMENTS

The  following  tables  present the Company's ARM assets as of December 31, 1998
and  December 31, 1997.  The ARM securities classified as available-for-sale are
carried  at  their  fair  value,  while  the  ARM  securities  classified  as
held-to-maturity in 1997 and ARM loans are carried at their amortized cost basis
(dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
December  31,  1998:

                                         ARM Securities
                               -----------------------------------
                                Available-   Held-to-               Collateral for
                                for-Sale    Maturity      Total      Notes Payable   ARM Loans
                               -----------  ---------  -----------  ---------------  ---------
<S>                            <C>          <C>        <C>          <C>              <C>
Principal balance outstanding  $3,070,107   $       -  $3,070,107   $    1,131,007   $26,161 
Net unamortized premium . . .      86,956           -      86,956           17,112       324 
Deferred gain from hedging. .        (613)          -        (613)               -         - 
Allowance for losses. . . . .      (1,242)          -      (1,242)            (729)      (75)
Cap Agreements. . . . . . . .       8,302           -       8,302              440         - 
Principal payment receivable.      14,330           -      14,330                          - 
                               -----------  ---------  -----------  ---------------  --------
  Amortized cost, net . . . .   3,177,840           -   3,177,840        1,147,830    26,410 
                               -----------  ---------  -----------  ---------------  --------
Gross unrealized gains. . . .       1,070           -       1,070               38        53 
Gross unrealized losses . . .     (84,253)          -     (84,253)          (7,606)      (87)
                               -----------  ---------  -----------  ---------------  --------
  Fair value. . . . . . . . .  $3,094,657   $       -  $3,094,657   $    1,140,262   $26,376 
                               ===========  =========  ===========  ===============  ========

  Carrying value. . . . . . .  $3,094,657   $       -  $3,094,657   $    1,147,350   $26,410 
                               ===========  =========  ===========  ===============  ========
</TABLE>
<TABLE>
<CAPTION>
December  31,  1997:

                                          ARM Securities
                               ------------------------------------
                                Available-   Held-to-                Collateral for
                                for-Sale     Maturity      Total     Notes Payable   ARM Loans
                               -----------  ----------  -----------  --------------  ---------
<S>                            <C>          <C>         <C>          <C>             <C>
Principal balance outstanding  $3,984,770   $ 386,290   $4,371,060   $            -  $115,996 
Net unamortized premium . . .     119,133       5,025      124,158                -     3,033 
Deferred gain from hedging. .           -      (1,217)      (1,217)               -         - 
Allowance for losses. . . . .      (1,739)          -       (1,739)               -       (42)
Cap Agreements. . . . . . . .      11,144       2,160       13,304                -         - 
Principal payment receivable.      32,337       3,545       35,882                -         - 
                               -----------  ----------  -----------  --------------  ---------
  Amortized cost, net . . . .   4,145,645     395,803    4,541,448                -   118,987 
                               -----------  ----------  -----------  --------------  ---------
Gross unrealized gains. . . .      11,075       5,609       16,684                -         - 
Gross unrealized losses . . .     (32,816)     (2,859)     (35,675)               -         - 
                               -----------  ----------  -----------  --------------  ---------
  Fair value. . . . . . . . .  $4,123,904   $ 398,553   $4,522,457   $            -  $118,987 
                               ===========  ==========  ===========  ==============  =========

  Carrying value. . . . . . .  $4,123,904   $ 395,803   $4,519,707   $            -  $118,987 
                               ===========  ==========  ===========  ==============  =========
</TABLE>

During  1998,  the Company realized $4,634,000 in gains and $4,912,000 in losses
on the sale of $932.3 million of ARM securities and ARM loans.  During 1997, the
Company  realized  $2,179,000  in  gains  and  $990,000 in losses on the sale of
$189.0  million  of  ARM  securities,  and  during  1996,  the  Company realized
$1,427,000  in  gains and $65,000 in losses on the sale of $276.4 million of ARM
securities.  All  of  the  ARM  securities  sold  were  classified  as
available-for-sale.  During  1998,  approximately  $379  million  securities
previously  classified  as  held-to-maturity  were  reclassified  as
available-for-sale.

As  of  December  31,  1998,  the  Company had reduced the cost basis of its ARM
securities  due to potential future credit losses (other than temporary declines
in  fair  value) in the amount of $1,242,000.  At December 31, 1998, the Company
is  providing  for  potential  future  credit  losses on two assets that have an
aggregate carrying value of $11.8 million, which represent less than 0.3% of the
Company's  total  portfolio  of ARM assets.  Both of these assets are performing
and  one has some remaining credit support that mitigates the Company's exposure
to  potential  future credit losses.  Additionally, during 1998, the Company, in
accordance with its credit policies, recorded a $762,000 provision for potential
credit  losses  on  its  loan  portfolio,  although  no  actual losses have been
realized  in  the  loan  portfolio  to  date.


                                      F-13
<PAGE>
The  following  tables summarize ARM loan delinquency information as of December
31,  1998  and  1997  (dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
     1998
     ----

                    Loan     Loan    Percent of    Percent of
Delinquency Status  Count  Balance    ARM Loans   Total Assets
------------------  -----  --------  -----------  -------------
<S>                 <C>    <C>       <C>          <C>
  30 to 59 days. .      4  $  1,138        0.11%          0.03%
  60 to 89 days. .      2       423        0.04           0.01 
  90 days or more.      1     3,450        0.32           0.08 
  In foreclosure .      5     1,097        0.10           0.02 
                    -----  --------  -----------  -------------
                       12  $  6,108        0.57%          0.14%
                    =====  ========  ===========  =============
</TABLE>
<TABLE>
<CAPTION>
     1997
     ----

                    Loan     Loan    Percent of    Percent of
Delinquency Status  Count  Balance    ARM Loans   Total Assets
------------------  -----  --------  -----------  -------------
<S>                 <C>    <C>       <C>          <C>
  30 to 59 days. .      -  $      -           -              - 
  60 to 89 days. .      1       215        0.19%          0.00%
  90 days or more.      1       167        0.14           0.00 
  In foreclosure .      -         -           -              - 
                    -----  --------  -----------  -------------
                        2  $    382        0.33%          0.01%
                    =====  ========  ===========  =============
</TABLE>

The  following table summarizes the activity for the allowance for losses on ARM
loans  for  the  year  ended
December  31,  1998  and  1997  (dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
                      1998   1997
                      -----  -----
<S>                   <C>    <C>
Beginning balance. .  $  42  $   0
Provision for losses    762     42
Charge-offs, net . .      0      0
                      -----  -----
Ending balance . . .  $ 804  $  42
                      =====  =====
</TABLE>

As  of December 31, 1998, the Company had commitments to purchase $102.1 million
of  ARM  loans.

The average effective yield on the ARM assets owned was 5.86% as of December 31,
1998 and 6.38% as of December 31, 1997.  The average effective yield is based on
historical  cost  and  includes the amortization of the net premium paid for the
ARM  assets  and  the  Cap  Agreements,  the  impact  of  ARM  principal payment
receivables  and  the  amortization  of  deferred  gains  from hedging activity.

As  of  December  31,  1998 and December 31, 1997, the Company had purchased Cap
Agreements  with  a  remaining  notional  amount  of  $4.026  billion and $4.156
billion,  respectively.  The  notional  amount  of  the Cap Agreements purchased
decline  at  a  rate that is expected to approximate the amortization of the ARM
assets.  Under  these  Cap  Agreements,  the  Company will receive cash payments
should  the  one-month,  three-month  or  six-month  London InterBank Offer Rate
("LIBOR")  increase  above  the contract rates of the Cap Agreements which range
from 7.50% to 13.00% and average approximately 10.10%.  The Company's ARM assets
portfolio  had  an  average  lifetime  interest  rate  cap  of  11.70%.  The Cap
Agreements  had  an  average maturity of 2.3 years as of December 31, 1998.  The
initial  aggregate  notional  amount  of  the  Cap  Agreements  declines  to
approximately  $3.485  billion  over  the period of the agreements, which expire
between  1999 and 2004.  The Company purchased these Cap Agreements by incurring
a  one-time  fee,  or  premium.  The premium is amortized, or expensed, over the
lives  of  the Cap Agreements and decreases interest income on the Company's ARM
assets  during  the  period of amortization.  The Company has credit risk to the
extent  that  the  counterparties  to  the  cap  agreements do not perform their
obligations  under  the  Cap  Agreements.  If one of the counterparties does not
perform,  the  Company would not receive the cash to which it would otherwise be
entitled  under  the conditions of the Cap Agreement.  In order to mitigate this
risk  and  to  achieve  competitive  pricing,  the  Company has entered into Cap
Agreements  with  six different counterparties, five of which are rated AAA, and
one  is  rated  AA.


                                      F-14
<PAGE>
NOTE  3.  REVERSE  REPURCHASE  AGREEMENTS, CALLABLE COLLATERALIZED NOTES PAYABLE
          AND  OTHER  BORROWINGS

The  Company  has  entered into reverse repurchase agreements to finance most of
its  ARM  assets.  The  reverse  repurchase agreements are short-term borrowings
that  are  secured  by  the  market  value  of the Company's ARM assets and bear
interest  rates  that  have  historically  moved in close relationship to LIBOR.

As  of  December 31, 1998, the Company had outstanding $2.867 billion of reverse
repurchase  agreements  with  a  weighted  average borrowing rate of 5.62% and a
weighted  average  remaining  maturity  of 2.0 months.  As of December 31, 1998,
$1.147  billion  of  the  Company's  borrowings  were variable-rate term reverse
repurchase  agreements  with original maturities that range from three months to
two  years.  The  interest rates of these term reverse repurchase agreements are
indexed  to  either  the  one-,  three-  or  six-month  LIBOR  rate  and reprice
accordingly.  The  reverse  repurchase  agreements  at  December  31,  1997 were
collateralized  by ARM assets with a carrying value of $3.005 billion, including
accrued  interest  and  cash  in  the  amount  of  $22.4  million.

At  December  31,  1998,  the  reverse  repurchase  agreements had the following
remaining  maturities  (dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
<S>                 <C>
Within 30 days . .  $1,440,407
31 to 89 days. . .     748,095
90 days or greater     678,705
                    ----------
                    $2,867,207
                    ==========
</TABLE>

As  of December 31, 1998, the Company had one whole loan financing facility with
an  uncommitted  borrowing capacity of $250,000,000.  The Company had no balance
borrowed against this facility as of year-end.  This facility matured on January
8,  1999  and  has  been  subsequently  re-negotiated for an additional one year
period.  Under the new agreement in effect as of January 8, 1999, the whole loan
financing  facility  is a committed facility in an amount of up to $150,000,000,
with  an  option  to  increase  this  amount  to  $300,000,000.

On December 18, 1998, the Company, through a special purpose finance subsidiary,
issued  $1.144 billion of callable AAA notes payable ("Notes") collateralized by
ARM  loans  with a principal balance of $1.049 billion and ARM securities with a
balance  of  $128.3  million.  As part of this transaction, the Company retained
ownership  of  a  subordinated certificate in the amount of $32.4 million, which
represents  the  Company's  maximum  exposure  to  credit  losses  on  the loans
collateralizing  the Notes.  As of December 31, 1998, the Notes had a balance of
$1.127 billion and an interest rate of 6.32%.  The interest rate adjusts monthly
at  one-month LIBOR plus 0.70% through November 1999 and at one-month LIBOR plus
1.40%  thereafter.  The Notes mature on January 25, 2029 and are callable by the
Company or Bear Stearns, one of the underwriters, monthly, although Bear Stearns
has  indicated it does not intend to exercise its ability to call the collateral
prior  to May 1999.  The Company may call either the collateral or the Notes, at
its  option.  In connection with the issuance of the Notes, the Company incurred
costs  of  $3.9  million  which is being amortized over the expected life of the
Notes.  Since  the  Notes  are  paid  down  as  the  collateral  pays  down, the
amortization  of the issuance cost will be adjusted periodically based on actual
payment  experience.  If  the  collateral  pays  down  faster  than  currently
estimated,  then  the  amortization  of  the issuance cost will increase and the
effective  cost  of  the  Notes will increase and, conversely, if the collateral
pays  down  slower  than  currently estimated, then the amortization of issuance
cost  will  be decreased and the effective cost of the Notes will also decrease.

As  of  December  31,  1998, the Company was a counterparty to nineteen interest
rate  swap  agreements  ("Swaps") having an aggregate notional balance of $1.473
billion.  As  of  year-end, these Swaps had a weighted average remaining term of
16.5  months.  In accordance with these Swaps, the Company will pay a fixed rate
of  interest  during  the  term of these Swaps and receive a payment that varies
monthly  with  the  one-month  LIBOR  rate.  As  a result of entering into these
Swaps,  the  Company  has  reduced  the interest rate variability of its cost to
finance  its  ARM  securities  by  increasing  the average period until the next
repricing  of  its borrowings from 26 days to 204 days.  Fourteen of these Swaps
were  entered  into in connection with the Company's acquisition of hybrid loans
and  commitments  to  acquire hybrid loans.  These fourteen Swaps that hedge the
fixed  rate  portion  of  the  Company's hybrid loans (to within one year of the
first  interest  rate  reset) had a notional balance of $523 million at year-end
and  an  average  maturity  of 44.0 months.  The Swaps at December 31, 1998 were
collateralized  by  ARM  assets with a carrying value of $0.9 million, including
accrued  interest.


                                      F-15
<PAGE>
As  of December 31, 1998, the Company had financed a portion of its portfolio of
interest rate cap agreements with $2.0 million of other borrowings which require
quarterly  or semi-annual payments until the year 2000.  These borrowings have a
weighted  average  fixed  rate  of interest of 7.87% and have a weighted average
remaining  maturity  of 1.4 years. The other borrowings financing cap agreements
at December 31, 1998 were collateralized by ARM securities with a carrying value
of  $3.1 million, including accrued interest.  The aggregate maturities of these
other  borrowings  are  as  follows  (dollars  in  thousands):

          1999         $ 1,397
          2000             632
                       -------
                       $ 2,029
                       =======

The  total  cash paid for interest was $267.9 million, $177.9 million and $112.2
million  for  1998,  1997  and  1996  respectively.

NOTE  4.  FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

The  following  table presents the carrying amounts and estimated fair values of
the  Company's financial instruments at December 31, 1998 and December 31, 1997.
FASB  Statement  No. 107, Disclosures About Fair Value of Financial Instruments,
defines  the  fair  value  of  a financial instrument as the amount at which the
instrument  could be exchanged in a current transaction between willing parties,
other  than  in  a  forced  or  liquidation  sale (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                   December 31, 1998        December 31, 1997
                                -----------------------  -----------------------
                                 Carrying       Fair       Carrying     Fair
                                  Amount       Value       Amount       Value
                                -----------  ----------  -----------  ----------
<S>                             <C>          <C>         <C>          <C>
Assets:
 ARM assets. . . . . . . . . .  $4,266,497   $4,259,374  $4,634,612   $4,639,513
 Cap Agreements. . . . . . . .       1,920        1,920       4,082        1,931

Liabilities:
 Callable collateralized notes   1,127,181    1,127,181           -            -
 Other borrowings. . . . . . .       2,029        2,077      10,018       10,321
 Swap agreements . . . . . . .         (87)       7,326         (50)         184
</TABLE>

The  above  carrying  amounts for assets are combined in the balance sheet under
the  caption  adjustable-rate  mortgage  assets.  The carrying amount for assets
categorized  as  available-for-sale  is  their  fair  value whereas the carrying
amount  for  assets held-to-maturity or held for the foreseeable future is their
amortized  cost.

The  fair values of the Company's ARM securities and cap agreements are based on
market  prices  provided  by certain dealers who make markets in these financial
instruments  or  third-party pricing services.  The fair values for ARM loans is
determined  by  the  Company  by  using  the same pricing models employed by the
Company  in  the  process  of  determining  a price to bid for loans in the open
market,  taking  into  consideration the aggregated characteristics of groups of
loans  such  as,  but  not limited to, collateral type, index, margin, life cap,
periodic  cap, underwriting standards, age and delinquency experience.  The fair
value  of  the Company's long-term debt and interest rate swap agreements, which
are off-balance sheet financial instruments, are based on market values provided
by  dealers  who  are  familiar  with  the  terms of the long-term debt and swap
agreements.  The  fair values reported reflect estimates and may not necessarily
be  indicative  of  the  amounts  the  Company could realize in a current market
exchange.  Cash  and  cash  equivalents, interest receivable, reverse repurchase
agreements, callable collateralized notes and other liabilities are reflected in
the  financial statements at their amortized cost, which approximates their fair
value  because  of  the  short-term  nature  of  these  instruments.


                                      F-16
<PAGE>
NOTE  5.  COMMON  AND  PREFERRED  STOCK

In  January  1997,  the  Company  issued  2,760,000  shares  of  Series  A 9.68%
Cumulative  Convertible  Preferred Stock at a price of $25 per share pursuant to
its Registration Statement on Form S-3 declared effective in December 1996.  Net
proceeds from this issuance totaled $65.8 million.  The dividends are cumulative
commencing  on  the  issue  date  and  are  payable  quarterly, in arrears.  The
dividends  per share are equal to the greater of (i) $0.605 per quarter, or (ii)
the  quarterly  dividend  declared on the Company's common stock.  Each share is
convertible  at  the  option  of the holder at any time into one share of common
stock.  The preferred shares are redeemable by the Company on and after December
31,  1999,  in  whole  or in part, as follows: (i) for one share of common stock
plus  accumulated,  accrued  but  unpaid dividends, provided that for 20 trading
days  within  any period of 30 consecutive trading days the closing price of the
common  stock equals or exceeds the conversion price of $25, or (ii) for cash at
the  issue  price  of  $25,  plus  any accumulated, accrued but unpaid dividends
through  the  redemption  date.  In the event of liquidation, the holders of the
preferred  shares  will be entitled to receive out of the assets of the Company,
prior to any distribution to the common shareholders, the issue price of $25 per
share  in  cash,  plus  any  accumulated,  accrued  and  unpaid  dividends.

During  1998,  the  Company  issued  1,581,550  shares of common stock under its
Dividend Reinvestment and Stock Purchase Plan and received net proceeds of $24.4
million.  During  1997,  the Company issued 912,590 shares of common stock under
this  plan  and  received  net  proceeds  of $18.0 million, and during 1996, the
Company  issued  347,434 shares of common stock under this plan and received net
proceeds  of  $5.4  million.

During  1998, stock options for 128,377 shares of common stock were exercised at
an average price of $15.23 and $2.0 million of notes receivable were executed in
connection  with  the exercise of these options.  During 1997, stock options for
186,071  shares  of  common  stock were exercised at an average price of $15.71.
The  Company  received  net  proceeds of $0.2 million, and $2.7 million of notes
receivable  were  executed  in  connection with the exercise of certain options.
During  1996,  stock options for 23,595 shares of common stock were exercised at
an  average  price  of  $15.41  that  generated  net  proceeds  of $0.4 million.

On  July  13,  1998,  the  Board of Directors approved a common stock repurchase
program  of  up  to  500,000  shares  at  prices  below  book  value, subject to
availability of shares and other market conditions.   On September 18, 1998, the
Board of Directors expanded this program by approving the repurchase of up to an
additional  500,000  shares.  To date, the company has repurchased 500,016 at an
average  price  of  $9.28  per  share.

During  the  Company's  1998  fiscal  year,  the  Company  declared dividends to
shareholders  totaling  $0.905  per  common  share, all of which was paid during
1998,  and  $2.42  per preferred share, of which $1.815 was paid during 1998 and
$0.605 was paid on January 11, 1999.  During the Company's 1997 fiscal year, the
Company  declared  dividends to shareholders totaling $1.97 per common share, of
which  $1.47  was  paid  during 1997 and $0.50 was paid on January 12, 1998, and
$2.265  per  preferred share, of which $1.66 was paid during 1997 and $0.605 was
paid  on  January  12, 1998.  During the Company's 1996 fiscal year, the Company
declared  dividends  to  shareholders  totaling $1.65 per common share, of which
$1.20  was paid during 1996 and $0.45 was paid on January 12, 1997.  For federal
income  tax  purposes,  $0.0638 of the 1998 common stock dividends was return of
capital  and  not  taxable,  $0.01 of the 1997 common stock dividend was capital
gains  subject  to a maximum tax rate of 28%, and $0.05 of the 1997 common stock
dividend  was  capital  gains subject to a maximum tax rate of 20%, and $0.03 of
the  1996  common  stock dividend was long-term capital gains.  In addition, the
preferred  dividend  paid  on  January  11,  1999  will  be  taken as a dividend
deduction  on  the Company's 1999 income tax return and is therefore not taxable
income  for  preferred  shareholders until 1999.  The remainder of the dividends
paid  for  fiscal years 1998, 1997 and 1996 was ordinary income to the Company's
common  and  preferred  shareholders.

NOTE  6.  STOCK  OPTION  PLAN

The  Company has a Stock Option and Incentive Plan (the "Plan") which authorizes
the  granting of options to purchase an aggregate of up to 1,800,000 shares, but
not  more  than 5% of the outstanding shares of the Company's common stock.  The
Plan  authorizes  the  Board  of  Directors,  or  a  committee  of  the Board of
Directors,  to  grant  Incentive Stock Options ("ISOs") as defined under section
422  of  the Internal Revenue Code of 1986, as amended, options not so qualified
("NQSOs"),  Dividend  Equivalent  Rights  ("DERs"),  Stock  Appreciation  Rights
("SARs"),  and  Phantom  Stock  Rights  ("PSRs").


                                      F-17
<PAGE>
The  exercise  price for any options granted under the Plan may not be less than
100%  of the fair market value of the shares of the common stock at the time the
option is granted.  Options become exercisable six months after the date granted
and  will  expire  ten  years  after the date granted, except options granted in
connection  with  an offering of convertible preferred stock, in which case such
options  become  exercisable  if  and  when  the  convertible preferred stock is
converted  into  common  stock.

The  Company issued DERs at the same time as ISOs and NQSOs based upon a formula
defined  in the Plan.  During 1998 the number of DERs issued was based on 35% of
the  ISOs and NQSOs granted during 1998.  The number of PSRs issued are based on
the  level of the Company's dividends and on the price of the Company's stock on
the  related  dividend payment date and is equivalent to the cash that otherwise
would  be  paid on the outstanding DERs and previously issued PSRs.  The Company
recorded an expense associated with the DERs and the PSRs of $11,000 and $32,000
for  the  years  ended  December  31,  1998  and  1997,  respectively.

Notes  receivable  from stock sales has resulted from the Company selling shares
of  common  stock through the exercise of stock options. The notes have maturity
terms  ranging  from  3 years to 9 years and accrue interest at rates that range
from  5.40%  to  6.00%  per  annum.  In  addition,  the  notes are full recourse
promissory  notes  and are secured by a pledge of the shares of the Common Stock
acquired.  Interest, which is credited to paid-in-capital, is payable quarterly,
with  the  balance  due  at the maturity of the notes.  The payment of the notes
will be accelerated only upon the sale of the shares of Common Stock pledged for
the notes.  The notes may be prepaid at any time at the option of each borrower.
As  of December 31, 1998, there were $4.6 million of notes receivable from stock
sales  outstanding.

The  Company  adopted  the  disclosure-only provisions of Statement of Financial
Accounting  Standards  No.  123,  "Accounting  for  Stock-Based  Compensation."
Accordingly,  no  compensation  cost has been recognized for the Company's stock
option  plan.  Had  compensation  cost  for the Company's stock option plan been
determined  based  on  the fair value at the grant date for awards in 1998, 1997
and  1996  consistent  with  the  provisions  of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated  in the table below.  The fair value of each option grant is estimated
on  the  date  of  grant  using  the  Black-Scholes option-pricing model (dollar
amounts  in  thousands,  except  per  share  data).

<TABLE>
<CAPTION>
                               1998       1997       1996
                             ---------  ---------  ---------
<S>                          <C>        <C>        <C>
Net income - as reported. .  $ 22,695   $ 41,402   $ 25,737 
Net income - pro forma. . .    22,629     41,093     25,551 

Basic EPS - as reported . .      0.75       1.95       1.73 
Basic EPS - pro forma . . .      0.74       1.93       1.72 

Diluted EPS - as reported .      0.75       1.94       1.73 
Diluted EPS - pro forma . .      0.74       1.92       1.71 

Assumptions:
    Dividend yield. . . . .     10.00%     10.00%     10.00%
    Expected volatility . .     25.60%     21.50%     23.30%
    Risk-free interest rate      5.68%      6.40%      6.52%
    Expected lives. . . . .   7 years    7 years    7 years 
</TABLE>


                                      F-18
<PAGE>
Information  regarding  options  is  as  follows:

<TABLE>
<CAPTION>
                                           1998                  1997                1996
                                 ---------------------  -------------------  -------------------
                                              Weighted              Weighted             Weighted
                                              Average                Average             Average
                                              Exercise              Exercise             Exercise
                                   Shares      Price      Shares      Price     Shares     Price
                                 ----------  ---------  ----------  --------  ---------  --------
<S>                              <C>         <C>        <C>         <C>       <C>        <C>
Outstanding, beginning of year.    680,995   $  17.353    626,746   $ 15.510   482,078   $ 15.529
Granted . . . . . . . . . . . .     59,784      14.817    240,320     20.888   169,099     15.439
Exercised . . . . . . . . . . .   (128,377)     15.234   (186,071)    15.711   (23,595)    15.407
Expired . . . . . . . . . . . .          -           -          -          -      (836)    14.375
                                 ----------  ---------  ----------  --------  ---------  --------
Outstanding, end of year. . . .    612,402   $  17.549    680,995   $ 17.353   626,746   $ 15.511
                                 ==========  =========  ==========  ========  =========  ========

Weighted average fair value of
options granted during the year  $    1.22              $    1.29             $   1.10 

Options exercisable at year end    479,482                476,875              613,413 
</TABLE>

The  following  table  summarizes information about stock options outstanding at
December  31,  1998:

<TABLE>
<CAPTION>
                                          Options Outstanding      Options Exercisable
                                        -----------------------  ----------------------
                                         Weighted
                                          Average     Weighted                Weighted
                                         Remaining     Average                Average
                             Options    Contractual   Exercise   Exercisable  Exercise
Range of Exercise Prices   Outstanding   Life (Yrs)     Price    At 12/31/98    Price
-------------------------  -----------  ------------  ---------  -----------  ---------
<S>                        <C>          <C>           <C>        <C>          <C>
9.375 - $12.4375 . . . .       20,049           9.6  $  11.953        3,049  $  12.388
14.375 - $16.125 . . . .      321,061           5.7     15.342      321,061     15.342
17.500 - $20.000 . . . .      183,092           8.2     19.588       67,172     18.876
    $22.625. . . . . . .       88,200           8.5     22.625       88,200     22.625
-------------------------  -----------  ------------  ---------  -----------  ---------
$9.375 - $22.625 . . . .      612,402           6.9     17.549      479,482     17.158
=========================  ===========  ============  =========  ===========  =========
</TABLE>

NOTE  7.  TRANSACTIONS  WITH  AFFILIATES

The Company has a Management Agreement (the "Agreement") with Thornburg Mortgage
Advisory  Corporation  ("the  Manager").  Under the terms of this Agreement, the
Manager,  subject  to  the  supervision  of the Company's Board of Directors, is
responsible  for  the management of the day-to-day operations of the Company and
provides  all  personnel and office space.  The Agreement provides for an annual
review  by the unaffiliated directors of the Board of Directors of the Manager's
performance  under  the  Agreement.

The  Company  pays  the  Manager  an annual base management fee based on average
shareholders'  equity, adjusted for liabilities that are not incurred to finance
assets  ("Average  Shareholders'  Equity"  or  "Average  Net Invested Assets" as
defined  in  the  Agreement)  payable monthly in arrears as follows: 1.1% of the
first  $300  million  of  Average  Shareholders'  Equity,  plus  0.8% of Average
Shareholders'  Equity  above  $300  million.

For  the  years  ended  December  31,  1998, 1997 and 1996, the Company paid the
Manager  $4,142,000, $3,664,000 and $1,872,000, respectively, in base management
fees  in  accordance  with  the  terms  of  the  Agreement.

The Manager is also entitled to earn performance based compensation in an amount
equal  to  20%  of the Company's annualized net income, before performance based
compensation,  above  an  annualized Return on Equity equal to the ten year U.S.
Treasury  Rate plus 1%.  For purposes of the performance fee calculation, equity
is  generally  defined  as  proceeds  from  issuance  of  common  stock  before
underwriter's discount and other costs of issuance, plus retained earnings.  For
the  years  ended December 31, 1998, 1997 and 1996, the Company paid the Manager
$759,000,  $3,363,000  and  $2,462,000,  respectively,  in  performance  based
compensation  in  accordance  with  the  terms  of  the  Agreement.


                                      F-19
<PAGE>
NOTE  8.  NET  INTEREST  INCOME  ANALYSIS

The  following  table  summarizes  the  amount  of  interest income and interest
expense  and  the average effective interest rate for the periods ended December
31,  1998,  1997  and  1996  (dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
                                                 1998                 1997              1996
                                          -------------------  ------------------  ---------------
                                                     Average              Average            Average
                                           Amount      Rate      Amount     Rate    Amount     Rate
                                          ---------  --------  ---------  -------  --------  -------
<S>                                       <C>        <C>       <C>        <C>      <C>       <C>
Interest Earning Assets:
 ARM assets. . . . . . . . . . . . . . .  $286,327      5.96%  $246,507     6.56%  $150,759    6.45%
 Cash and cash equivalents . . . . . . .       705      4.35      1,214     5.57        752    5.29 
                                           287,032      5.96    247,721     6.56    151,511    6.44 
                                          ---------  --------  ---------  -------  --------  -------
Interest Bearing Liabilities:
 Borrowings. . . . . . . . . . . . . . .   255,992      5.78    198,657     5.76    121,166    5.67 
                                          ---------  --------  ---------  -------  --------  -------

Net Interest Earning Assets and Spread .  $ 31,040      0.18%  $ 49,064     0.80%  $ 30,345    0.77%
                                          =========  ========  =========  =======  ========  =======

Yield on Net Interest Earning Assets (1)                0.64%               1.30%              1.29%
                                                     ========             =======            =======
<FN>
----------------------------------------
(1)  Yield  on  Net Interest Earning Assets is computed by dividing annualized net interest income
     by  the  average  daily  balance  of  interest  earning  assets.
</TABLE>

The  following  table  presents  the  total  amount  of  change  in  interest
income/expense  from  the  table  above and presents the amount of change due to
changes  in  interest rates versus the amount of change due to changes in volume
(dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
                                   1998 versus 1997             1997 versus 1996
                            ------------------------------  ------------------------
                              Rate      Volume     Total     Rate   Volume    Total
                            ---------  --------  ---------  ------  -------  -------
<S>                         <C>        <C>       <C>        <C>     <C>      <C>
Interest Income:
 ARM assets. . . . . . . .  $(22,549)  $62,368   $ 39,819   $2,651  $93,097  $95,748
 Cash and cash equivalents      (266)     (242)      (508)      40      422      462
                            ---------  --------  ---------  ------  -------  -------
                             (22,815)   62,126     39,311    2,691   93,519   96,210
                            ---------  --------  ---------  ------  -------  -------
Interest Expense:
 Borrowings. . . . . . . .       518    56,817     57,335    2,068   75,423   77,491
                            ---------  --------  ---------  ------  -------  -------

Net interest income. . . .  $(23,333)  $ 5,309   $(18,024)  $  623  $18,096  $18,719
                            =========  ========  =========  ======  =======  =======
</TABLE>


                                      F-20
<PAGE>
NOTE  9.  SUMMARIZED  QUARTERLY  RESULTS  (UNAUDITED)

The  following is a presentation of the quarterly results of operations (amounts
in  thousands,  except  per  share  amounts):

<TABLE>
<CAPTION>
                                                    Year Ended December 31, 1998
                                              ------------------------------------------
                                               Fourth      Third     Second      First
                                               Quarter    Quarter    Quarter    Quarter
                                              ---------  ---------  ---------  ---------
<S>                                           <C>        <C>        <C>        <C>
Interest income from ARM assets and cash . .  $ 65,446   $ 72,252   $ 73,019   $ 76,315 
Interest expense on borrowed funds . . . . .   (59,402)   (66,458)   (65,243)   (64,889)
                                              ---------  ---------  ---------  ---------
 Net interest income . . . . . . . . . . . .     6,044      5,794      7,776     11,426 
                                              ---------  ---------  ---------  ---------

Gain (loss) on ARM assets. . . . . . . . . .    (4,689)       194      1,044      1,141 

General and administrative expenses. . . . .    (1,309)    (1,310)    (1,345)    (2,071)

Dividend on preferred stock. . . . . . . . .    (1,669)    (1,670)    (1,670)    (1,670)
                                              ---------  ---------  ---------  ---------
 Net income available to common shareholders  $ (1,623)  $  3,008   $  5,805   $  8,826 
                                              =========  =========  =========  =========

Basic EPS. . . . . . . . . . . . . . . . . .  $  (0.08)  $   0.14   $   0.27   $   0.42 
                                              =========  =========  =========  =========

Diluted EPS. . . . . . . . . . . . . . . . .  $  (0.08)  $   0.14   $   0.27   $   0.42 
                                              =========  =========  =========  =========

Average number of common shares outstanding.    21,490     21,858     21,796     20,797 
                                              =========  =========  =========  =========
</TABLE>

<TABLE>
<CAPTION>
                                                     Year Ended December 31, 1997
                                              ------------------------------------------
                                               Fourth      Third     Second      First
                                               Quarter    Quarter    Quarter    Quarter
                                              ---------  ---------  ---------  ---------
<S>                                           <C>        <C>        <C>        <C>
Interest income from ARM assets and cash . .  $ 73,011   $ 68,088   $ 57,623   $ 48,999 
Interest expense on borrowed funds . . . . .   (60,680)   (54,862)   (45,448)   (37,667)
                                              ---------  ---------  ---------  ---------
 Net interest income . . . . . . . . . . . .    12,331     13,226     12,175     11,332 
                                              ---------  ---------  ---------  ---------

Gain (loss) on ARM assets. . . . . . . . . .       566        112       (189)      (186)

General and administrative expenses. . . . .    (2,047)    (2,156)    (1,911)    (1,851)

Dividend on preferred stock. . . . . . . . .    (1,670)    (1,670)    (1,670)    (1,241)
                                              ---------  ---------  ---------  ---------
 Net income available to common shareholders  $  9,180   $  9,512   $  8,405   $  8,054 
                                              =========  =========  =========  =========

Basic EPS. . . . . . . . . . . . . . . . . .  $   0.46   $   0.50   $   0.50   $   0.49 
                                              =========  =========  =========  =========

Diluted EPS. . . . . . . . . . . . . . . . .  $   0.46   $   0.49   $   0.50   $   0.49 
                                              =========  =========  =========  =========

Average number of common shares outstanding.    19,860     19,152     16,817     16,311 
                                              =========  =========  =========  =========
</TABLE>


                                      F-21
<PAGE>
                   SCHEDULE IV - Mortgage Loans on Real Estate

Column A, Description:  The Company's whole loan portfolio at December 31, 1998,
which  consists of only first mortgages on single-family residential housing, is
stratified  as  follows  (dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
       Column A (continued)          Column  B  Column  C    Column  G         Column  H
-----------------------------------  ---------  ---------  -------------  ---------------------
    Description (4)

                                                                          Principal Amount of
      Range of              Number                Final     Carrying        Loans Subject to
  Carrying Amounts           of       Interest  Maturity    Amount of          Delinquent
    of Mortgages            Loans       Rate       Date    Mortgages (3)  Principal or Interest
------------------------  ---------  ---------  ---------  -------------  ---------------------
<S>                       <C>         <C>          <C>      <C>           <C>
ARM Loans:
            $    0 - 250         931  5.73 - 8.98  Various  $   123,067   $                 827
               251 - 500         498  5.23 - 8.48  Various      174,335                     932
               501 - 750         157  5.98 - 8.73  Various       96,788                     644
             751 - 1,000          78  5.86 - 8.11  Various       71,221
              over 1,000          86  5.73 - 8.36  Various      129,613                   3,450
                          ----------                        ------------  ---------------------
                               1,750                            595,024                   5,853
                          ----------                        ------------  ---------------------
Hybrid Loans:
                 0 - 250       1,418   4.73 - 9.23  Various     184,056                     255
               251 - 500         465   5.61 - 7.98  Various     164,727 
               501 - 750          95   5.61 - 7.73  Various      57,186 
             751 - 1,000          41   6.11 - 7.98  Various      37,219 
              over 1,000          15   5.98 - 7.48  Various      23,481 
                          ----------                        ------------  ---------------------
                               2,034                            466,669                     255
                          ----------                        ------------  ---------------------
              Premium                                            17,436
Allowance for losses (2)                                           (804)
                          ----------                        ------------  ---------------------
                               3,784                        $ 1,078,325   $               6,108
                          ==========                        ============  =====================
</TABLE>

Notes:
(1)     Reconciliation  of  carrying  amounts  of  mortgage  loans:

          Balance at December 31, 1997. .  $  118,987
            Additions during 1998:
            Loan purchases. . . . . . . .   1,092,238

            Deductions during 1998:
              Collections of principal. .     128,079
              Cost of mortgage loans sold       2,043
              Provision for losses. . . .         762
              Amortization of premium . .       2,016
                                           ----------
                                              132,900
                                           ----------
          Balance at December 31, 1998. .  $1,078,325
                                           ==========

(2)     The provision for losses is based on management's assessment of various
        factors.
(3)     Cost  for  Federal  income  taxes  is  the  same.
(4)     The  geographic  distribution  of  the Company's whole loan portfolio at
        December  31,  1998  is  as  follows:

                                      F-22
<PAGE>
<TABLE>
<CAPTION>
                         Number of
  State or Territory       Loans     Carrying Amount
-----------------------  ----------  ----------------
<S>                      <C>         <C>
Arizona . . . . . . . .         92   $        25,087
California. . . . . . .        559           232,178
Colorado. . . . . . . .        112            46,930
Connecticut . . . . . .         67            29,295
Florida . . . . . . . .        554           137,587
Georgia . . . . . . . .        241            74,916
Illinois. . . . . . . .        189            36,189
Massachusetts . . . . .         84            28,868
Michigan. . . . . . . .        186            31,894
Missouri. . . . . . . .        225            46,515
New Jersey. . . . . . .        154            44,361
New York. . . . . . . .        287            73,875
Pennsylvania. . . . . .         67            17,376
Texas . . . . . . . . .        129            33,138
Washington. . . . . . .         69            21,460
Other states, less than
    60 loans each . . .        769           182,024
Premium . . . . . . . .                       17,436 
Allowance for losses. .                         (804)
                         ----------  ----------------
TOTAL . . . . . . . . .      3,784   $     1,078,325
                         ==========  ================
</TABLE>


                                      F-23
<PAGE>
                                   SIGNATURES


Pursuant  to  the  requirements  of Section 13 or 15(d) of the Securities Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the  undersigned,  thereunto  duly  authorized.

                                   THORNBURG MORTGAGE ASSET CORPORATION
                                   (Registrant)


Dated: March 26, 1999              /s/ Garrett Thornburg
                                   ---------------------------------------
                                   Garrett Thornburg
                                   Chairman of the Board of Directors and
                                   Chief Executive Officer
                                   (Principal Executive Officer)


Dated: March 26, 1999             /s/ Richard P. Story
                                   ---------------------------------------
                                   Richard P. Story
                                   Chief Financial Officer and Treasurer
                                   (Principal Accounting Officer)

Pursuant  to  the  requirements of the Securities and Exchange Act of 1934, this
report  has  been  signed  below  by  the  following  persons  on  behalf of the
registrant  and  in  the  capacities  and  on  the  dates  indicated.

<TABLE>
<CAPTION>
       Signature               Capacity               Date
----------------------  -----------------------  --------------
<S>                     <C>                      <C>
/s/ Garrett Thornburg   Chairman of the Board,   March 26, 1999
----------------------                                         
Garrett Thornburg       Director and Chief
                        Executive Officer

/s/ Larry A. Goldstone  President, Director and  March 26, 1999
----------------------                                         
Larry A. Goldstone      Chief Operating Officer

/s/ David A. Ater       Director                 March 26, 1999
----------------------                                         
David A. Ater

/s/ Joseph H. Badal     Director                 March 26, 1999
----------------------                                         
Joseph H. Badal

/s/ Owen M. Lopez       Director                 March 26, 1999
----------------------                                         
Owen M. Lopez

/s/ James H. Lorie      Director                 March 26, 1999
----------------------                                         
James H. Lorie

/s/ Stuart C. Sherman   Director                 March 26, 1999
----------------------                                         
Stuart C. Sherman
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                              Exhibit Index

                                                                                            Sequentially
                                                                                              Numbered
Exhibit Number                                   Exhibit Description                            Page
--------------  --------------------------------------------------------------------------  ------------
<C>             <S>                                                                         <C>

  1.1           Sales Agency Agreement (a)

  3.1           Articles of Incorporation of the Registrant (b)

  3.1.1         Articles of Amendment to Articles of Incorporation dated June 29, 1995 (c)

  3.1.2         Articles Supplementary dated January 21, 1997 (d)

  3.2           Amended and Restated Bylaws of the Registrant (e)

  4.1           Specimen Common Stock Certificates (b)

  4.2           Specimen Preferred Stock Certificates (d)

  10.1          Management Agreement between the Registrant and Thornburg Mortgage
                Advisory Corporation dated June 17, 1994 (e)

  10.1.1        Amendment to Management Agreement dated June 16, 1995 (a)

  10.1.2        Amendment to Management Agreement dated December 15, 1995 (f)

  10.1.3        Amendment to Management Agreement dated September 18, 1996 (g)

  10.1.4        Amendment to Management Agreement dated October 1, 1998 *                             69

  10.2          Form of Servicing Agreement (b)

  10.3          Form of 1992 Stock Option and Incentive Plan as amended and
                restated March 14, 1997 (h)

  10.3.1        Amendment dated December 16, 1997 to the amended and restated
                 1992 Stock Option and Incentive Plan  (i)

  10.4          Form of Dividend Reinvestment and Stock Purchase Plan (j)

  10.5          Trust Agreement dated as of December 1, 1998 *                                        71

  10.6          Indenture Agreement dated as of December 1, 1998 *                                   105

  10.7          Sales and Service Agreement dated as of December 1, 1998 *                           145

  22.           Notice and Proxy Statement for the Annual Meeting of Shareholders to be
                held on April 30, 1998 (k)

  27            Financial Data Schedule *                                                            187
<FN>
---------------
*     Being  filed  herewith.
(a)   Previously  filed  with  Registrant's Form 8-K dated October 10, 1995 and incorporated herein by
      reference  pursuant  to  Rule  12b-32.
(b)   Previously  filed  as  part  of Form S-11 which went effective on June 18, 1993 and incorporated
      herein  by  reference  pursuant  to  Rule  12b-32.
(c)   Previously  filed  with  Registrant's  Form  10-Q dated June 30, 1995 and incorporated herein by
      reference  pursuant  to  Rule  12b-32.
(d)   Previously filed as part of Form 8-A dated January 17, 1997 and incorporated herein by reference
      pursuant  to  Rule  12b-32.
(e)   Previously  filed  as  part  of Form S-8 dated July 1, 1994 and incorporated herein by reference
      pursuant  to  Rule  12b-32.
(f)   Previously  filed with Registrant's Form 10-K dated December 31, 1995 and incorporated herein by
      reference  pursuant  to  Rule  12b-32.


<PAGE>
(g)   Previously filed with Registrant's Form 10-Q dated September 30, 1996 and incorporated herein by
      reference  pursuant  to  Rule  12b-32.
(h)   Previously  filed with Registrant's Form 10-K dated December 31, 1996 and incorporated herein by
      reference  pursuant  to  Rule  12b-32.
(i)   Previously  filed with Registrant's Form 10-K dated December 31, 1997 and incorporated herein by
      reference  pursuant  to  Rule  12b-32.
(j)   Previously  filed  as  Exhibit  4  to  Registrant's  registration  statement  on Form S-3D dated
      September  24,  1997  and  incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(k)   Previously  filed  on  March  30,  1998  and  incorporated by reference pursuant to Rule 12-b32.
</TABLE>


<PAGE>