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,  1999

                                       OR

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

       FOR  THE  TRANSITION  PERIOD  FROM                TO

                     COMMISSION FILE NUMBER:       001-11914

                      THORNBURG MORTGAGE ASSET CORPORATION
                        (DBA   THORNBURG MORTGAGE, INC.)
              (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                               87501
          SANTA  FE,  NEW  MEXICO                            (Zip  Code)

                    (Address  of  principal  executive  offices)


               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  February  29,  2000,  the aggregate market value of the voting stock held by
non-affiliates  was $166,836,664, based on the closing price of the common stock
on  the  New  York  Stock  Exchange.

Number  of shares of Common Stock outstanding at February 29 , 2000:  21,489,663

DOCUMENTS  INCORPORATED  BY  REFERENCE:

     Portions of the  Registrant's  definitive  Proxy  Statement dated March 27,
     2000,  issued in connection  with the Annual Meeting of Shareholders of the
     Registrant to be held on April 27, 2000, are incorporated by reference into
     Parts I and III.


<PAGE>






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                                        2
<PAGE>
<TABLE>
<CAPTION>
                      THORNBURG MORTGAGE ASSET CORPORATION
                         (dba THORNBURG MORTGAGE, INC.)
                          1999 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS


                                     PART I


                                                                           Page
                                                                           ----
<S>                   <C>                                                  <C>

ITEM 1.               BUSINESS                                                4

ITEM 2.               PROPERTIES                                             21

ITEM 3.               LEGAL PROCEEDINGS                                      21

ITEM 4.               SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    21

                                     PART II

ITEM 5.               MARKET FOR REGISTRANT'S COMMON EQUITY
                      AND RELATED SHAREHOLDER MATTERS                        22

ITEM 6.               SELECTED FINANCIAL DATA                                23

ITEM 7.               MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                      FINANCIAL CONDITION AND RESULTS OF OPERATIONS          24

ITEM 7A.              QUANTITATIVE AND QUALITATIVE DISCLOSURE
                      ABOUT MARKET RISKS                                     44

ITEM 8.               FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA            44

ITEM 9.               CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                      ACCOUNTING AND FINANCIAL DISCLOSURE                    44

                                     PART III

ITEM 10.              DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT     45

ITEM 11.              EXECUTIVE COMPENSATION                                 45

ITEM 12.              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                      MANAGEMENT                                             45

ITEM 13.              CERTAIN RELATIONSHIPS AND  RELATED TRANSACTIONS        45

                                     PART IV

ITEM 14.              EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                      REPORTS ON FORM 8-K                                    45

FINANCIAL STATEMENTS                                                        F-1

SIGNATURES

EXHIBIT INDEX
</TABLE>


                                        3
<PAGE>
                                     PART I


ITEM  1.     BUSINESS

GENERAL

Thornburg Mortgage Asset Corporation, including 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.
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".  The Company has two REIT qualified subsidiaries
which  are  involved  in financing its  mortgage loan assets.  The two financing
subsidiaries,  Thornburg  Mortgage  Funding  Corporation  and Thornburg Mortgage
Acceptance  Corporation,  are consolidated in the Company's financial statements
and  federal  and  state  tax  returns.  In  1999, the Company formed a new REIT
qualified  subsidiary,  Thornburg  Mortgage Home Loans, Inc., to originate loans
for  the  Company  according to the Company's underwriting guidelines.  This new
subsidiary did not commence any operations in 1999 but is expected to during the
first  half  of  2000.

Acquisition  of  FASLA  Holding  Company

On  December  23,  1999, the Company and Thornburg Mortgage Advisory Corporation
(the  "Manager")  entered  into  an agreement to purchase FASLA Holding Company,
whose principal holding is First Arizona Savings, a privately held Phoenix-based
federally  chartered  thrift  institution with six retail branch offices and, at
the  time, approximately $138 million in assets.  The cash purchase price is $15
million,  subject  to  certain  adjustments.  The  acquisition  is  subject  to
regulatory  approval  which  is  expected  to  be  received by mid-2000.  Due to
ownership restrictions in the current Internal Revenue Code applicable to REITs,
the  purchase  has  been  structured  such  that the Company will pay 95% of the
purchase price for preferred stock of FASLA Holding Company which will represent
95%  of the economic interests in FASLA Holding Company and the Manager will pay
5%  of  the  purchase  price for common shares with 100% of the voting rights of
FASLA  Holding  Company  which  will represent 5% of the economic value of FASLA
Holding  Company.  In  this  structure,  FASLA  Holding  Company  would  be  an
unconsolidated  qualified  taxable REIT subsidiary of the Company.  During 1999,
legislation  was  enacted by the U.S. Congress, effective January 1, 2001,  that
will  permit  REITs  to  have  100% ownership in qualified taxable subsidiaries,
subject  to certain limitations, that would allow the Company and the Manager to
alter  this  structure such that FASLA Holding Company may become a wholly-owned
taxable  subsidiary  of  the  Company  that  would be consolidated for financial
statement  purposes.

The  primary  purpose  of  this  acquisition  is  to  obtain  nationwide lending
authority  in  order to expand the Company's acquisition channels for ARM loans.
As  a  federally  chartered  thrift  institution,  First Arizona Savings has the
authority to be a nationwide lender.  The Company intends to initiate a mortgage
banking  division  within  First  Arizona Savings that would originate loans for
sale  to  the  Company,  based upon the Company's underwriting standards and ARM
product  designs.  It  will  also  likely  offer  other  standard loan products,
including  fixed-rate  loans,  that  would be originated and sold to third party
investors.  The  Company  expects  to  avoid  establishing  an  expensive
infrastructure  involving  substantial  fixed  costs  generally  associated with
operating  a  mortgage  banking operation by utilizing private-label "fee based"
third-party  vendors  who  (1)  specialize  in  the underwriting, processing and
closing  of  mortgage  loans and (2) a sub-servicer to provide the capability to
service  the  loans  originated.  The Company believes these third-party service
providers  have developed both efficiencies and expertise through specialization
that  afford  the  Company  an opportunity to enter the mortgage origination and
loan  servicing  business in a cost effective manner with very little "up front"
investment.


                                        4
<PAGE>
The  Company  also expects to continue operating First Arizona Savings as a full
service  community  bank  within  its current local market areas.  First Arizona
Savings has traditionally been an originator of single-family residential loans,
both  permanent  and  construction,  based  on  underwriting  standards that are
similar  to the Company's.  First Arizona Savings has generally retained ARM and
Hybrid  ARM  loans  for  its portfolio and have sold a significant percentage of
their  fixed-rate  loan  production to FHLMC.  First Arizona's primary source of
funds  has  been  retail deposits and a limited amount of Federal Home Loan Bank
advances.  The Company believes this business model is a consistent extension of
the  Company's  existing  business  model  that  emphasizes  high credit quality
lending  and  prudent  interest  rate  risk  management.  Further,  the  Company
believes  that  by  utilizing  third-party  service provider specialists for the
mortgage  banking  division,  the  Company  will  be  able  to operate very cost
effectively  with minimal capital at risk consistent with the Company's existing
business  model.

Thornburg  Brand  Development

In  1999,  the  Company  instituted a new marketing approach in conjunction with
affiliates  aimed at developing brand recognition of the Thornburg name.  In the
process, the Company has refined its marketing message and updated the Company's
logo  and  corporate  literature.  The  Company  began doing business as ("dba")
Thornburg  Mortgage,  Inc.  as  of  October 14, 1999.  In conjunction with these
efforts,  the Board of Directors approved an amendment to the Company's Articles
of  Incorporation  to  formally  change  the  name  of  the Company to Thornburg
Mortgage,  Inc.  which  will be voted on by the shareholders at the Shareholders
Meeting  scheduled  for  April 27, 2000.  This new name more accurately reflects
the  expanded  business  of  the  Company  from  purely  an  asset  manager to a
value-added  operating enterprise that originates and services mortgage loans as
well  as  manages  a  portfolio  of  high  quality mortgage assets on a low cost
basis.

OPERATING  POLICIES  AND  STRATEGIES

Investment  Strategies

Historically,  the  Company  has  relied  solely  on  an  investment strategy 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.  In  1999,  the  Company  expanded its acquisition strategy to
include  acquiring  assets that meet Thornburg underwriting guidelines through a
new  correspondent lending program which currently includes approximately thirty
financial  institutions  approved by the Company.  By increasing its sources for
mortgage  loans,  the  Company  expects  to  enhance its ability to acquire high
quality  assets  at  attractive  prices.

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 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.

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  are typically 30 year loans that have a fixed rate of interest for
an  initial  period,  generally  3  to  10  years,  and  then  convert  to  an
adjustable-rate for the balance of the term of the Hybrid ARM.   In keeping with
the  Company's  policy  of  minimizing  interest rate risk in its portfolio, the
Hybrid  ARMs are generally financed with fixed rate debt for the period in which
their  interest  rate  is  fixed.  See  "Hedging  Strategies".

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
a  duration  of  no more than one year.  On June 15, 1999 the Company's Board of


                                        5
<PAGE>
Directors expanded the Company's investment policy to include the acquisition of
Hybrid  ARMs  with fixed-rate periods of up to ten years from the previous limit
of  five  years.  Hybrid ARMs with fixed-rate periods of greater than five years
are  further  limited  to no more than 10% of the Company's ARM assets.  As with
all  its Hybrid ARMs, the Company will hedge the interest rate risk of financing
the  longer  Hybrid  ARMs  consistent with its hedging strategies.  See "Hedging
Strategies".

The  Company's  investment policy requires the Company 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.

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, acquires individual loans
directly  from loan originators, and intends to begin offering mortgage loans on
a retail basis.  All loans acquired are intended to be securitized and then held
in the ARM securities portfolio as high quality assets.  Acquiring ARM loans for
securitization  is  expected  to  benefit  the Company by providing: (i) greater
control  over  the quality and types of ARM assets acquired; (ii) the ability to
acquire  ARM  assets  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


                                        6
<PAGE>
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
the  Bulk  Method,  the  loans  are originated using the seller's loan products,
programs  and  underwriting  guidelines  Additionally,  the credit review of the
borrower,  the  appraisal of the property and the quality control procedures are
performed  by the originator.  The Company generally only considers the purchase
of  loans  when all of the borrowers have had their incomes and assets verified,
their  credit  checked 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 application
processing  and loan closing methodologies used by the originators in qualifying
a  borrower  for a loan.  In addition, the Company utilizes its own personnel to
re-review  some  of the individual loans in order to insure the highest possible
loan  quality.  The Company generally does not review all of the loans in a bulk
package  of  loans,  but rather selects loans for underwriting review based upon
specific  criteria such as property location, loan size, effective loan-to-value
ratios,  borrowers'  credit  score 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  seller'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 began utilizing in the first half of 1999,
the  Company  acquires  mortgage  loans  from  correspondent  lenders  using the
Company's  internally  developed  loan programs and underwriting criteria.  This
means that the correspondent originates the individual loans using the Company's
established credit and program guidelines.  All correspondents are pre-qualified
by  the Company to determine their financial strength and the soundness of their
own  established  in-house  mortgage procedures.  Each borrower's credit and the
value  of  each  property is underwritten by the correspondents to the Company's
specifications.  This  is  the  same  process used by originators/sellers in the
Bulk  Method  except  that in the Flow Method all of the application processing,
loan  underwriting, credit approval and appraisal guidelines have been developed
by  the  Company  to  meet  the  Company's  own  credit  criteria  and portfolio
requirements.

Prior  to  closing,  all  of  the  loans  acquired  in  the Flow Method are then
subjected to further credit review by mortgage insurance companies that also use
the  Company's  guidelines  to  review  the  loans to insure product quality and
compliance  with  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  higher  risk/higher LTV loans are placed through an
automated  underwriting  system  created  by Fannie Mae ("FNMA") called "Desktop
Underwriter."   This  is  the  same system used by Fannie Mae in connection with
all  of  their own loan purchases.  Secondly, all loans are then screened by the
mortgage insurance company personnel to verify their compliance to the Company's
guidelines.  After closing, a select number of these loans are then subjected to
an  additional  quality  control  review  performed by a third party which again
verifies  that  the  loan was properly underwritten and to confirm that the loan
documents are complete and properly executed.  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.

Mortgage  loans  acquired through the Flow Method are acquired, generally, with
the  servicing  rights remaining with the originator/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.
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.  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
credit underwriters 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,
verified  and  held  by  the  custodian.


                                        7
<PAGE>
The  Company's  retail  lending  strategy is to utilize technology to become the
mortgage  lender  of  the  future,  which is a low cost, low overhead, efficient
lender  that  provides  attractive and innovative mortgage products, competitive
mortgage  rates,  and  a  high  level  of  customer  service.  By  eliminating
intermediaries  between  the  borrower  and the Company, an investor in mortgage
assets,  the Company expects to originate loans at attractive prices while still
offering  borrowers  attractive  mortgage  rates.  In  expanding into the retail
origination  business, the Company intends to continue its strategy of acquiring
only  "A"  quality  mortgages  with  the same emphasis on loan quality as in its
current  loan  acquisition  activities.

 In 2000, the Company expects to begin originating loans directly with borrowers
using two origination channels.  One channel the Company expects to employ is to
originate loans using a telemarketing operation, where borrowers will be able to
call  the  Company,  or  its  representatives,  inquire  about loan products and
interest  rates,  seek advice and counseling regarding qualifying for a loan and
the  approval  process.  Prospective  borrowers will be able to apply for a loan
over  the  telephone  and  receive  pre-approval before the call is complete.  A
completed  mortgage  loan  application  along  with  a  request  for  additional
supporting  documentation will be sent to the borrower for signature.  Thornburg
Mortgage  loan  processors, or their third party agents, will be responsible for
working  with  the  borrower to complete the processing of the loan application,
obtain  a  final  loan  approval  and  schedule  the  loan  for  closing.

The  second  channel the Company expects to employ is to originate loans through
the  Company's website.  In this instance, prospective borrowers will be able to
look  up  mortgage  loan  product  and  interest  rate  information  through the
Company's  website,  seek  an  on-line  pre-approval  of their loan and submit a
mortgage  loan  application  for  processing,  underwriting and closing.  Once a
mortgage  loan  application  has  been  submitted,  a  Thornburg  Mortgage
representative  will  be  assigned  the  responsibility  for completing the loan
process  on  behalf  of  the  borrower.

The  Company  expects  to  begin  originating loans through one or both of these
channels  during  the  first  half  of  2000.  Initially, the Company intends to
originate  mortgage  loans  through Thornburg Mortgage Home Loans, Inc., a newly
created  subsidiary  of  Thornburg Mortgage, Inc. licensed to originate loans in
the  state of New Mexico, and which is also able to originate loans in Colorado,
Utah  and  Texas.  In the latter half of 2000, the Company intends to expand its
direct  origination capability to a nationwide program upon approval and closing
of  the  Company's acquisition of First Arizona Savings.  Once the First Arizona
Savings  acquisition  closes,  the  Company  will then have a nationwide lending
license  in  order  to  pursue  its  objectives.

The  mortgage  origination  process  is  a  labor  intensive, document intensive
business  that  requires  significant  back  office  systems and personnel.  The
Company  is  in  the  process  of  contracting  with a third party "back office"
mortgage  service  provider  who  would  provide  all  of  the  loan processing,
underwriting,  documentation  and  closing  functions  required to originate and
close mortgage loans.  Additionally, this third party service provider will also
staff  a  mortgage  loan call center for the benefit of Thornburg Mortgage.  The
third  party  service  provider will also build a "Thornburg Team" consisting of
loan counseling representatives, loan processors, underwriters and loan closers.
These  services will be provided on a "private label" basis, meaning that all of
these  representatives  will  identify  themselves  as  being Thornburg Mortgage
representatives.  The  benefit to Thornburg Mortgage of this arrangement is that
the  Company will pay for these services as it uses them, based on closed loans,
without  a  significant  investment  in  personnel,  systems,  office  space and
equipment.

For both of these origination channels, the Company expects that its prospective
borrowers  will be able to track the progress of their mortgage loan application
as  it  makes  its  way  through  processing, underwriting and closing using the
Thornburg  Mortgage website.  In this way, prospective borrowers will be able to
stay  fully  informed  regarding  the  status  of  their  loan  application.

The Company has also contracted with a third party to provide private label loan
servicing for loans which the Company originates.  This third party sub-servicer
will  collect  mortgage  loan  payments,  manage escrow accounts, provide coupon
payment  books  and  notices  to  borrowers,  offer  on-line  mortgage servicing
information  and  provide  customer  service,  loan collection, loss mitigation,
foreclosure,  bankruptcy  and  REO  management  services.  The  fees paid by the
Company  for this service are based on a fixed rate schedule based on the number
of  loans  serviced.  A  third  party  service provider using the name Thornburg
Mortgage  is  providing  all  of  these  loan-servicing  functions.

In  addition, the Company is in discussions with providers of web-based mortgage
origination  systems  which  are  paid  on a per closed loan basis.  The Company
intends to offer mortgages online utilizing third party, private label web-based
origination  systems  that  will  offer  the  Company's  mortgage  products,
underwritten  to  the  Company's  guidelines,  for  sale  to  the  Company.


                                        8
<PAGE>
Securitization  of  ARM  Loans

The  Company  acquires  ARM  loans  for  its  portfolio  with  the  intention of
securitizing  them  in  such  a  way  as  to maximize the amount of high quality
securities that can be created from an accumulation of  the ARM loans.  In order
to  facilitate  the securitization of its loans, the Company generally retains a
subordinate  interest  in  the  loans  which provides a limited amount of credit
enhancement,  and  often  purchases  an  insurance  policy  from  a  third party
financial  guarantor that "wraps" the remaining balance of the loans to a credit
rating  of  AA  or  better.  Upon securitization, the Company then owns the high
quality  ARM  securities  and  the subordinate certificates in its portfolio and
finances  the  high  quality  securities  in the repurchase agreement market, or
issues  debt  obligations  in  the  capital  markets as an alternative financing
source  to  the  repurchase  agreement  market.

In  1999,  the Company began securitizing its conforming balance loans through a
program  provided  by  FNMA.  See "FNMA Loan Programs".  The Company exchanged a
pool  of  its  loans  with  balances  no  greater  than  $242,000  for  a  FNMA
Mortgage-Backed  Security  or  MBS.  As  described  in  the "FNMA Loan Programs"
below, the Company receives an MBS which pays the Company interest and principal
derived  from  the  interest  and principal payments on the underlying mortgages
less  a  fee  paid  to the servicer of the loans and less a guaranty fee paid to
FNMA.  In this way, the Company no longer has any credit exposure to the pool of
mortgages  and  has  exchanged  the  pool of mortgages for a High Quality asset.

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%  and  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.  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.  Since 1998,
however,  the  Company  has diversified its financing sources by issuing debt in
the  capital  markets  as  described  below.  As  of  December 31, 1999, capital
markets debt represents 23% of the Company's total debt obligations.  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-five  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.


                                        9
<PAGE>
The  Company  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.

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 2000, the Company renewed one committed facility in the amount of
$150,000,000,  which  the Company can increase to $300,000,000 for an additional
fee,  and  has  other  uncommitted  facilities  in  place.

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, 1999, the Company will receive cash payments if the
applicable index, generally the one-month, three-month, six-month LIBOR index or
Prime,  increases  above  certain  specified  levels,  which range from 7.10% to
13.00%  and average approximately 9.96%.  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%


                                       10
<PAGE>
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, beginning in
1998,  the  Company  began  to acquire variable rate CMOs and CBOs ("Floaters"),
Hybrid  ARMs and certain other ARM loans that do not have a periodic cap.  As of
December  31, 1999, approximately $2.074 billion of the Company's ARM securities
and  ARM  loans  did  not  have  periodic caps or were Hybrid ARMs, representing
approximately  48%  of  total  ARM  assets.

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 limits 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 a duration of 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. The
Company generally enters into a swap that amortizes at an agreed upon prepayment
rate  based  on  the  Company's  estimate  of  the  expected  rate  of principal
amortization of the Hybrid ARMs being financed.  In similar fashion, the Company
has purchased Cap Agreements to limit the interest rate of financing Hybrid ARMs
during their fixed rate term, generally for three to ten years.  In general, the
cost  of  financing  Hybrid  ARMs hedged with Cap Agreements is capped at a rate
that  is  0.75%  to  1.00%  below  the  fixed  Hybrid  ARM  interest  rate.

The  Company  may  also  enter  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  also  enters  into  hedging  transactions  in  connection with the
purchase  of  Hybrid  ARMs  to minimize the impact of changes in financing rates
between  the  trade date and the settlement date.  Generally, the Company hedges
the  cost of obtaining future fixed-rate financing by entering into a commitment
to  sell  similar  duration fixed-rate mortgage-backed securities ("MBS") on the
trade  date  and settles the commitment by purchasing the same fixed-rate MBS on
the  purchase  date.  Realized  gains and losses are deferred and amortized as a
yield adjustment to the financing over the fixed-rate period of the Hybrid ARMs.

The  Company  may enter into other hedging-type transactions designed to protect
its  borrowings  costs  or  portfolio  yields  from  interest rate changes.  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.  In 1999, the Board of Directors approved an expansion of
the  financial  instruments  with  which  the  Company  currently implements its
hedging strategies.  In addition to the instruments described above, the Company
will  also  utilize  from  time to time futures contracts and options on futures


                                       11
<PAGE>
contracts  on  the  Eurodollar, Fed Funds, Treasury bills and Treasury notes and
similar  financial  instruments.  Utilization  of these instruments is dependent
upon the Company being properly registered and receiving an exemption from being
classified  as  a "Commodity Pool Operator" by the Commodities and Futures Trade
Commission.

Hedging transactions currently utilized by the Company generally are designed to
protect  the  Company's  net  interest  income during periods of changing 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).

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.


                                       12
<PAGE>
                          PORTFOLIO OF MORTGAGE ASSETS

As of December 31, 1999, ARM assets comprised approximately 99% 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 77% 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 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  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.

The  following  is a discussion of each type of pass-through certificate held by
the  Company  as  of  December  31,  1999:

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
1999,  FHLMC  purchased  $16.5  billion  of  ARM  loans  to  securitize into ARM


                                       13
<PAGE>
certificates  and  as of December 31, 1999, there was $35.1 billion of all types
of  FHLMC ARM certificates outstanding, of which FHLMC held $17.1 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  1999,  FNMA  issued  $11.8  billion  of  FNMA ARM certificates and as of
December  31,  1999,  FNMA  held  $13.4  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  term  to  maturity  of the mortgage loans generally does 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.

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.  Although, in 1999, the
Company  was  successful in negotiating a new pool insurance policy for a one of
the  privately-issued  ARM Pass-Through Certificates it purchased.   Since these
opportunities  are  rare, 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"), MULTICLASS PASS-THROUGH ASSETS AND
COLLATERALIZED  BOND  OBLIGATIONS  ("CBOS")

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.  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.

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.  In a CBO transaction, principal and
interest  payments  are  used  to  pay current period interest and any excess is
reinvested  into  the portfolio.  The amount of proceeds at maturity, on the CBO
classes  owned  by  the  Company,  is generally dependent upon the total rate of
return  performance  of  the  underlying  collateral  and  can result in a final
redemption  value  that  is  less  than  the face value of the investment.  CBOs
typically  don't  amortize  monthly,  rather  they mature on a specific maturity
date.


                                       14
<PAGE>
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  that  are  issued  by  FHLMC,  FNMA  and  other  private  issuers.

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.

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.  The Company acquires loans that are generally
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 borrower
has  adequate  verified  income  to  make  the  required  loan payment, adequate
verified  equity  in  the underlying property, and by the borrower's willingness


                                       15
<PAGE>
and  ability to repay the mortgage as demonstrated by a good credit history.  As
a result, the loans acquired by the Company 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 ARM loans
generally adjust based upon the following indices: a U.S. Treasury Bill index, a
LIBOR  index,  a  Certificate  of Deposit index, a Cost of Funds index or Prime.
The Hybrid ARM loans have an initial fixed rate period, generally 3 to 10 years,
and  then they convert to an ARM loan with the features of an ARM loan described
above.


                                       16
<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," "expect," "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

-     Uncertainty  Associated  With  New  Business  Lines

-     Additional  Investment  in  New  Business  Lines


                                       17
<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,  1999,  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  15,  1999, the Company renewed its management agreement with Thornburg
Mortgage  Advisory Corporation (the "Management Agreement"), the  Manager, for a
term  of  ten  years,  with an annual review required each year.  In addition to
extending  the  term,  the Management Agreement was amended to include a minimum
fee  to  be paid to the Manager upon termination.  The Management Agreement also
provides  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. In addition, during
1999,  the  two  wholly-owned REIT qualified subsidiaries of the Company entered
into  separate  Management Agreements with the Manager for additional management
services  for a combined amount of $1,250 per calendar quarter, paid in arrears.
For  further  information  regarding  the  base  management  fee,  incentive
compensation and applicable definitions, see the Company's Proxy Statement dated
March  27,  2000  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


                                       18
<PAGE>
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.

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 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 but fewer than 2,000 shareholders of record, 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.


                                       19
<PAGE>
At present, REITs are generally limited to holding non-voting preferred stock in
taxable  affiliates.  The recently enacted REIT Modernization Act, effective for
2001  and  thereafter,  includes provisions that will allow REITs to own some or
all  of  the stock of taxable subsidiaries.  In general, it limits the aggregate
value  of businesses undertaken by a REIT through taxable subsidiaries to 20% or
less  of the REIT's total assets.  Existing taxable subsidiaries will have to be
converted to qualified taxable REIT subsidiaries after December 31, 2000, unless
the  existing taxable subsidiary has been in place since July 12, 1999 and there
has been no material change in the taxable subsidiary's assets or business since
that  time.  As a result the Company will likely have to make an election on its
2001  tax  return  to  treat  FASLA Holding Company, Inc. as a qualified taxable
subsidiary.  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  such taxable subsidiaries, in the
aggregate,  ever to exceed 20% 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.

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 the distribution
requirement.  As  a result of legislation enacted in 1999 and effective for 2001
and  thereafter,  the  Company  will  have to distribute an amount calculated by
substituting  90%  for  95%  in  the  foregoing  formula.

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.


                                       20
<PAGE>
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  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.

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 wholly-owned  qualified REIT
          subsidiaries  have their principal offices in Santa Fe, New Mexico and
          are leased from the Manager.

ITEM  3.  LEGAL  PROCEEDINGS

          At December 31, 1999, 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 1999.


                                       21
<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 February 3, 2000, the Company had 21,489,663 shares
of  common  stock  outstanding  which  were  held by 1,030 holders of record and
approximately  15,449  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
1999                                       High        Low       Close      Per Share
----                                     --------  ----------  ----------  ------------
<S>                                     <C>  <C>   <C>  <C>    <C>  <C>    <C>
Fourth Quarter ended December 31, 1999    9  3/16    7  15/16    8    1/4  $   0.23 (1)
Third Quarter ended September 30, 1999   10   7/8    8    1/4    8  13/16  $   0.23
Second Quarter ended June 30, 1999       11   3/8    7   9/16   10         $   0.23
First Quarter ended March 31, 1999       10          7   7/16    8    5/8  $   0.23

1998
----

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                - (2)
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
<FN>
(1)  The fourth  quarter of 1999  dividend was declared in January 2000 and paid
     in February 2000.

(2)  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.
</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.


                                       22
<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, 1999, 1998, 1997,
1996  and  1995.  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

                                                           1999         1998         1997         1996         1995
                                                     -----------  -----------  -----------  -----------  -----------
<S>                                                  <C>          <C>          <C>          <C>          <C>
Net interest income                                  $   34,015   $   31,040   $   49,064   $   30,345   $   13,496
Net income                                           $   25,584   $   22,695   $   41,402   $   25,737   $   10,452
Basic earnings per share                             $     0.88   $     0.75   $     1.95   $     1.73   $     0.88
Diluted earnings per share                           $     0.88   $     0.75   $     1.94   $     1.73   $     0.88
Average common shares                                    21,490       21,488       18,048       14,874       11,927
Distributable income per common share                $     0.99   $     0.84   $     1.98   $     1.76   $     0.92
Dividends declared per common share                  $     0.92   $    0.905   $     1.97   $     1.65   $     0.93
Yield on net int.-earning assets (Portfolio Margin)        0.77%        0.64%        1.30%        1.29%        0.73%
Return on average common equity                            5.81%        4.80%       12.72%       11.68%        5.81%
Noninterest expense to average assets                      0.12%        0.13%        0.21%        0.21%        0.13%

BALANCE SHEET HIGHLIGHTS
                                                                             As of December 31
                                                           1999         1998         1997         1996         1995
                                                     -----------  -----------  -----------  -----------  -----------
Adjustable-rate mortgage assets                      $4,326,098   $4,268,417   $4,638,694   $2,727,875   $1,995,287
Total assets                                         $4,375,965   $4,344,633   $4,691,115   $2,755,358   $2,017,985
Shareholders' equity  (1)                            $  394,241   $  395,484   $  380,658   $  238,005   $  182,312
Historical book value per share (2)                  $    15.28   $    15.34   $    15.53   $    14.67   $    14.96
Market value adjusted book value per share (3)       $    11.40   $    11.45   $    14.42   $    13.70   $    13.16
Number of common shares outstanding                      21,490       21,490       20,280       16,219       12,191
Yield on ARM assets                                        6.38%        5.86%        6.38%        6.64%        6.73%
<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>


                                       23
<PAGE>
ITEM  7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             RESULTS  OF  OPERATIONS


ACQUISITION  OF  FASLA  HOLDING  COMPANY

On  December  23, 1999, the Company and the Manager entered into an agreement to
purchase  FASLA  Holding  Company,  whose  principal  holding  is  First Arizona
Savings,  a  privately held Phoenix-based federally chartered thrift institution
with  six  retail branch offices and, at that time, $138 million in assets.  The
cash  purchase  price  is  $15  million,  subject  to  certain adjustments.  The
acquisition  is  subject to regulatory approval which is expected to be received
by  mid-2000.

The  primary  purpose  of  this  acquisition  is  to  obtain  nationwide lending
authority  in  order to expand the Company's acquisition channels for ARM loans.
The Company intends to initiate a mortgage banking division within First Arizona
Savings  that  would  originate  loans  for  sale to the Company, based upon the
Company's underwriting standards and ARM product design.  It is also likely that
other  standard  loan  products, including fixed-rate loans, would be originated
and sold to third party investors.  The Company expects to avoid establishing an
expensive  infrastructure involving substantial fixed costs generally associated
with  operating  a  mortgage  banking  operation  by  utilizing  a  "fee  based"
third-party  vendor  who  specializes  in  private  label  loan  underwriting,
application  processing  and  the  loan  closing  process  and  by  utilizing  a
sub-servicer  to  service  the  loans  originated.  The  Company  believes these
third-party  service  providers  have  developed both efficiencies and expertise
through  specialization  that  afford  the  Company an opportunity to enter this
business in a cost effective manner with very little initial capital investment.

The  Company  also expects to continue operating First Arizona Savings as a full
service  community  bank  within  its current local market areas.  First Arizona
Savings has traditionally been an originator of single-family residential loans,
both  permanent  and  construction,  based  on  underwriting  standards that are
similar to the Company's and has generally retained ARM and Hybrid ARM loans for
its  portfolio  and  have sold a significant percentage of their fixed-rate loan
production  to  FHLMC.  First  Arizona's primary source of funds has been retail
deposits  and  a limited amount of Federal Home Loan Bank advances.  The Company
believes this business model is a consistent extension of the Company's existing
business  model that emphasizes high credit quality lending and prudent interest
rate  risk  management.  Further,  the  Company  believes  that  by  utilizing
third-party  service provider specialists for the mortgage banking division, the
Company  will  be  able to operate very cost effectively with minimal capital at
risk  consistent  with  the  Company's  existing  business  model.

Due  to  the  uncertainty of receiving regulatory approval and the timing of the
regulatory  decision,  the Company does not believe this acquisition will have a
material  effect  on the Company's operations during 2000.  Further, the Company
believes that the combination of the existing community-bank style of operations
and the effect of the projected mortgage banking operations will have a positive
effect  on  the  Company's  overall  operations  beginning  in  2001.

FINANCIAL  CONDITION

At  December  31,  1999, the Company held total assets of $4.376 billion, $4.326
billion  of  which  consisted of ARM assets.  That compares to $4.345 billion in
total  assets  and  $4.268  billion  of  ARM assets at December 31, 1998.  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, 1999, 95.4% 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, 80.6% are in the
form  of  adjustable-rate pass-through certificates or ARM loans.  The remainder
are  floating  rate  classes  of  CMOs  (15.5%)  or investments in floating rate
classes  of  CBOs  (3.9%)  backed  primarily  by  mortgaged-backed  securities.


                                       24
<PAGE>
The following table presents a schedule of ARM assets owned at December 31, 1999
and December 31, 1998 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, 1999            December 31, 1998
                             -------------------------  -------------------------
                               Carrying     Portfolio     Carrying     Portfolio
                                 Value         Mix          Value         Mix
                             -------------  ----------  -------------  ----------
<S>                          <C>            <C>         <C>            <C>
HIGH QUALITY:
 FHLMC/FNMA                  $  2,068,152        47.8%  $  2,072,871        48.6%
 Privately Issued:
   AAA/Aaa Rating             1,585,099(1)       36.6    1,398,659(1)       32.8
   AA/Aa Rating                   459,858        10.6        597,493        14.0
                             -------------  ----------  -------------  ----------
     Total Privately Issued     2,044,957        47.2      1,996,152        46.8
                             -------------  ----------  -------------  ----------

                             -------------  ----------  -------------  ----------
     Total High Quality         4,113,109        95.0      4,069,023        95.4
                             -------------  ----------  -------------  ----------

OTHER INVESTMENT:
 Privately Issued:
   A Rating                        49,995         1.2         40,591         1.0
   BBB/Baa Rating                  84,929         2.0         88,273         2.1
   BB/Ba Rating and Other        46,963(1)        1.1       44,120(1)        0.9
 Whole loans                       31,102         0.7         26,410         0.6
                             -------------  ----------  -------------  ----------
     Total Other Investment       212,989         5.0        199,394         4.6
                             -------------  ----------  -------------  ----------

     Total ARM Portfolio     $  4,326,098       100.0%  $  4,268,417       100.0%
                             =============  ==========  =============  ==========
<FN>
     (1)     The  AAA  Rating category includes $781.8 million and $1.020 billion
of  whole  loans  as  of December 31, 1999 and 1998, respectively, that have been
credit  enhanced  to AAA by a combination of an insurance policy purchased from a
third-party  and  an  unrated subordinated certificate retained by the Company in
the  amount  of  $32.3  and  $32.4  million  as  of  December  31, 1999 and 1998,
respectively.  The  subordinated  certificate is included in the BB/Ba Rating and
Other  category.
</TABLE>

As  of  December  31,  1999,  the  Company had reduced the cost basis of its ARM
securities  by  a total of $1,930,000 due to estimated credit losses (other than
temporary  declines  in  fair  value).  The  Company  is providing for estimated
credit  losses  on  two securities that have an aggregate carrying value of $9.9
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 credit
losses.

Additionally,  during  1999,  the  Company  recorded  a $1,404,000 provision for
estimated  credit  losses  on its loan portfolio, although no actual losses have
been  realized  in  the  loan  portfolio  to date.  As of December 31, 1999, the
Company's  ARM  loan  portfolio  included 11 loans that are considered seriously
delinquent  (60  days  or  more  delinquent)  with  an aggregate balance of $5.6
million.  The  ARM  loan  portfolio  also  includes  two  real estate properties
("REO")  that  the  Company  owns  as  the  result of the foreclosure process in
connection  with  two  loans  that  total  $1.0  million.  The  average original
effective  loan-to-value ratio of the 11 delinquent loans and two REO properties
is  approximately  65%  and  the  Company believes that its current reserves for
credit  losses are more than adequate to cover probable credit losses from these
assets.  The  Company's credit reserve policy regarding ARM loans is to record a
provision  based  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,  historical  loss  experience,  current  economic
conditions  and  quality  of  underwriting  standards applied by the originator.


                                       25
<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, 1999       December 31, 1998
                                           ----------------------  ----------------------
                                            Carrying   Portfolio    Carrying   Portfolio
                                             Value        Mix        Value        Mix
                                           ----------  ----------  ----------  ----------
<S>                                        <C>         <C>         <C>         <C>
ARM ASSETS:
    INDEX:
     One-month LIBOR                       $  680,449       15.7%  $  556,574       13.0%
     Three-month LIBOR                        170,384        3.9      181,143        4.2
     Six-month LIBOR                          626,616       14.5      939,824       22.0
     Six-month Certificate of Deposit         304,621        7.0      313,268        7.3
     Six-month Constant Maturity Treasury      37,781        0.9       49,023        1.2
     One-year Constant Maturity Treasury    1,359,229       31.4    1,479,054       34.7
     Cost of Funds                            213,800        5.0      268,486        6.3
                                           ----------  ----------  ----------  ----------
                                            3,392,880       78.4    3,787,372       88.7
                                           ----------  ----------  ----------  ----------

HYBRID ARM ASSETS                             933,218       21.6      481,045       11.3
                                           ----------  ----------  ----------  ----------
                                           $4,326,098      100.0%  $4,268,417      100.0%
                                           ==========  ==========  ==========  ==========
</TABLE>

The ARM portfolio had a current weighted average coupon of 7.08% at December 31,
1999.  This consisted of an average coupon of 6.54% on the hybrid portion of the
portfolio  and  an average coupon of 7.22% 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  7.79%, based upon the current
composition  of  the  portfolio  and the applicable indices.  As of December 31,
1998,  the ARM portfolio had a weighted average coupon of 7.28%.  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 composition of the portfolio and
the  applicable  indices  at  the  time.  The  lower  average  coupon on the ARM
portfolio  as  of  the end of 1999 compared to 1998 is reflective of the overall
lower  interest  rates  in  the  U.S.  economy  during these respective periods,
although  by  the  end  of  1999, interest rates in the U.S. had risen above the
rates  prevailing  during most of 1998 and 1999 and the average interest rate on
the  ARM  portion of the portfolio is expected to rise during 2000 to the "fully
indexed"  rate.

At  December  31, 1999, the current yield of the ARM assets portfolio was 6.38%,
compared  to  5.86%  as  of  December 31, 1998, with an average term to the next
repricing  date  of 344 days as of December 31, 1999, compared to 253 days as of
December  31, 1998.  The increase in the number of days until the next repricing
of  the  ARMs is primarily due to the hybrid ARMs acquired by the Company during
1999,  which,  in  general,  do  not  reprice for three to five years from their
origination  date  and have an average remaining fixed rate period of 3.9 years.
As  of  the end of 1999, hybrid ARMs comprised 21.6% of the total ARM portfolio,
up  from  11.3%  as  of  the  end  of 1998.  The Company finances its hybrid ARM
portfolio  with  longer  term  borrowings such that the duration mismatch of the
hybrid  ARMs  and the corresponding borrowings is one year or less.  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 increase in the yield of 0.52% as of December 31, 1999, compared to December
31, 1998, is primarily due to the decreased rate of ARM portfolio prepayments as
of  the  end  of  1999 compared to the end of 1998, the effect of owning the ARM
portfolio  at  a  lower price as of the end of 1999 compared to the end of 1998,
and  the higher level of overall U.S. interest rates as of the end of 1999 which
is  used  in  the  computation of the current yield to determine the appropriate
amount  of  net  premium  amortization.  These  favorable factors were partially
offset  by  the  0.20%  decrease in the weighted average coupon discussed above.
During  the  fourth  quarter  of 1999 the rate of prepayments had slowed to 16%,
compared  to  the  29% CPR experienced during the fourth quarter of 1998.  As of
the end of 1999, the net premium on the total ARM portfolio amounted to 1.95% of
the  principal balance outstanding, compared to 2.47% as of the end of 1998.  As
of  the  end  of 1999, the Company's non-hybrid portion of its ARM portfolio was
less  than "fully indexed" by 0.57%, compared to being more than "fully indexed"
at  the  end of 1998 by 0.53%.  This resulted in less premium amortization as of
the  end  of 1999 in order to achieve the appropriate portfolio long-term yield,
which  is  a  calculation  based  on  current  interest  rates  and the expected


                                       26
<PAGE>
remaining  life  of the portfolio.  The lower level of prepayments decreased the
amount  of premium amortization expense and decreased the impact of non-interest
earning  assets  in  the  form  of principal payment receivables.  These factors
increased the ARM portfolio yield by 0.72% as of the end of 1999 compared to the
end  of  1998.

The  following  table  presents various characteristics of the Company's ARM and
Hybrid ARM loan portfolio as of December 31, 1999.  This information pertains to
loans  held  for  securitization, loans held as collateral for the notes payable
and  loans  TMA  has  securitized  for  its  own portfolio for which the Company
retained  credit  loss  exposure.

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


                              Average      High        Low
                             ---------  -----------  -------
<S>                          <C>        <C>          <C>
  Unpaid principal balance   $273,989   $3,450,000   $7,587
  Coupon rate on loans           7.22%        9.63%    5.00%
  Pass-through rate              6.84%        9.23%    4.63%
  Pass-through margin            1.90%        5.06%    0.48%
  Lifetime cap                  12.88%       16.75%    9.75%
  Original Term (months)          339          480       72
  Remaining Term (months)         316          359       33
</TABLE>


<TABLE>
<CAPTION>
<S>                                      <C>     <C>                     <C>
Geographic Distribution (Top 5 States):          Property type:
  California                             21.07%  Single-family           65.26%
  Florida                                11.88   DeMinimus PUD           20.19
  New York                                7.01   Condominium              9.41
  Georgia                                 6.70   Other                    5.14
  New Jersey                              4.97

Occupancy status:                                Loan purpose:
  Owner occupied                         84.09%  Purchase                56.06%
  Second home                            11.27   Cash out refinance      25.36
  Investor                                4.64   Rate & term refinance   18.58

Documentation type:                              Periodic Cap:
  Full/Alternative                       95.01%  None                    57.31%
  Other                                   4.99   2.00%                   40.91
                                                 1.00%                    0.53
Average effective original                       0.50%                    1.25
  loan-to-value:                         67.94%
</TABLE>

During the year ended December 31, 1999, the Company purchased $1.244 billion of
ARM  securities,  98.0%  of which were High Quality assets, and $35.4 million of
ARM  loans  generally  originated to "A" quality underwriting standards.  Of the
ARM  assets  acquired  during 1999, approximately 51% were Hybrid ARMs, 22% were
indexed  to LIBOR, 17% were indexed to U.S. Treasury bill rates, 8% were indexed
to  a Certificate of Deposit Index and 2% were indexed to a Cost of Funds Index.
The  Company  emphasized purchasing assets during 1999 and 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  assets  and  high quality floating rate collateralized mortgage and
bond  obligations during this two year period.  In doing so, the average premium
paid  for  ARM  assets  acquired  in  1999  and 1998 was 0.45% and 1.09% of par,
respectively,  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 $18.6 million during 1999.  These
sales consisted of a mixture of securities and loans, that generally did not fit
the Company's current portfolio parameters, as well as one REO property.  During
1998,  the  Company sold $932.3 million of ARM assets.  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


                                       27
<PAGE>
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.

For the quarter ended December 31, 1999, the Company's mortgage assets paid down
at an approximate average annualized constant prepayment rate of 16% compared to
29%  during  the  same  period of 1998.  The annualized constant prepayment rate
averaged  approximately  24% during the full year of 1999 compared to 31% during
1998.  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  improved by 0.22% from a negative adjustment of 2.62% of the
portfolio  as  of  December  31,  1998,  to a negative adjustment of 2.40% as of
December  31,  1999.  This price improvement was primarily due to an improvement
in  the value of interest rate cap agreement values, which generally increase in
value  as  interest  rates  and  volatility  rise.  The  amount  of the negative
adjustment  to  fair  value  on  the ARM assets classified as available-for-sale
increased  from  $83.2  million  as of December 31, 1998, to $83.4 million as of
December  31,  1999.  The  size of the available-for-sale portfolio increased by
almost  10%,  which is why the negative adjustment as a percent of the portfolio
declined  when  the  amount  of the adjustment increased.  The fair value of the
Company's  portfolio  of  ARM  assets also excludes an adjustment for fair value
changes  in  Swap  Agreements, since the Swap Agreements hedge liabilities, i.e.
the  financing of Hybrid ARMs.  As of December 31, 1999, the unrecorded positive
fair value adjustment for Swap Agreements was $12.3 million.  As of December 31,
1999,  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 hedge exposure to changing
interest rates.  The majority of the Cap Agreements have been purchased to limit
the  Company's exposure to risks associated with the lifetime interest rate caps
of  its ARM assets should interest rates rise above specified levels.  These 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, 1999, the Cap
Agreements  owned  by  the  Company  that  are designated as a hedge against the
lifetime  interest  rate  cap  on ARM assets had a remaining notional balance of
$2.810  billion  with  an  average  final  maturity  of 2.2 years, compared to a
remaining  notional  balance of $4.026 billion with an average final maturity of
2.3  years at December 31, 1998.  Pursuant to the terms of these 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
7.10%  to  13.00% and average approximately 9.96%.  The Company has also entered
into  $134.6 million of Cap Agreements in connection with hedging the fixed rate
period  of  certain  of  its  Hybrid  ARM  assets.  In  doing  so,  the  Company
establishes a maximum cost of financing the Hybrid ARM assets during the term of
the  designated  Cap Agreements which generally corresponds to the initial fixed
rate term of Hybrid ARM assets.  The Cap Agreements hedging Hybrid ARM assets as
of  December  31,  1999 would receive cash payments if one-month LIBOR increases
above  certain  specified  levels,  which  range from 5.75% to 6.00%, and have a
remaining  average  term  of  3.5  years.  The fair value of 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, 1999, the fair value of the
Company's  Cap Agreements was $7.8 million, $2.6 million more than the amortized
cost  of  the  Cap  Agreements.


                                       28
<PAGE>
The  following  table  presents  information  about  the Company's Cap Agreement
portfolio  that  is designated as a hedge against the lifetime interest rate cap
on  ARM  assets  as  of  December  31,  1999:

<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      Strike Price   Remaining Term
------------  ---------  --------------  -------------  --------------
<S>           <C>        <C>             <C>            <C>
$    27,080       8.01%  $       26,000          7.10%       3.3 Years
    232,952       8.38          233,517          7.50              0.5
    515,776       9.92          516,963          8.00              2.3
    156,694      10.98          155,889          8.50              0.2
    120,078      11.30          120,324          9.00              0.7
     94,966      11.46           93,712          9.50              2.0
    302,184      11.58          301,978         10.00              2.4
    230,114      12.22          230,805         10.50              2.2
    260,879      12.46          260,104         11.00              4.0
    518,851      12.96          519,293         11.50              2.6
    186,529      13.67          187,475         12.00              3.8
     86,260      14.53           86,768         12.50              1.1
     72,344      16.06           77,106         13.00              0.1
------------  ---------  --------------  -------------  --------------
$ 2,804,707      11.65%  $    2,809,934          9.96%       2.2 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.
</TABLE>


As  of  December  31,  1999, the Company was a counterparty to nineteen interest
rate  swap  agreements  ("Swaps") having an aggregate notional balance of $694.2
million.  These  Swaps  had  a weighted average remaining term of 3.0 years.  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 and the Cap
Agreements that also hedge the fixed rate period of Hybrid ARMs, 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 23
days  to  258 days.  All of these Swaps were entered into in connection with the
Company's  acquisition  of  Hybrid  ARMs.  The Swaps hedge the cost of financing
Hybrid  ARMs  during  their  fixed  rate  term,  generally  three  to ten years.

RESULTS  OF  OPERATIONS  -  1999  COMPARED  TO  1998

For  the year ended December 31, 1999, the Company's net income was $25,584,000,
or $0.88 per share (Basic EPS), based on a weighted average of 21,490,000 shares
outstanding.  That  compares  to  $22,695,000,  or  $0.75 per share (Basic EPS),
based  on a weighted average of 21,488,000 shares outstanding for the year ended
December  31,  1998.  Net  interest  income  for  the  year totaled $34,015,000,
compared  to  $31,040,000  for  the same period in 1998.  Net interest income is
comprised  of  the  interest  income  earned  on  portfolio assets less interest
expense  from  borrowings.  During  1999, the Company recorded a net gain on the
sale of ARM assets of $47,000 as compared to a net loss of $278,000 during 1998.
Additionally,  during  1999,  the  Company reduced its earnings and the carrying
value  of  its  ARM  assets by reserving $2,867,000 for estimated credit losses,
compared to $2,032,000 during 1998.  During 1999, the Company incurred operating
expenses  of  $5,611,000,  consisting of a base management fee of $4,088,000 and
other  operating  expenses  of  $1,523,000.  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.  Total  operating  expenses  decreased  as  a  percentage of average
assets  to  0.12%  for  1999,  compared  to  0.13%  for  1998.


                                       29
<PAGE>
The  Company's  return  on  average  common  equity was 5.81% for the year ended
December  31,  1999 compared to 4.80% for the year ended December 31, 1998.  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, 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%            -        1.96%     6.83%       5.60%       1.23%
Sep 30, 1998       6.82%         0.66%    0.89%          1.54%            -        1.97%     3.54%       5.24%      -1.70%
Dec 31, 1998       7.27%         0.76%   -4.88%          1.57%            -        2.01%    -1.95%       4.66%      -6.61%
Mar 31, 1999       8.07%         0.84%       -           1.58%            -        2.05%     3.60%       4.98%      -1.38%
Jun 30, 1999      11.17%         0.85%    0.04%          1.70%            -        2.05%     6.60%       5.54%       1.06%
Sep 30, 1999      11.48%         0.94%    0.02%          1.76%            -        2.05%     6.75%       5.88%       0.87%
Dec 31, 1999      11.09%         0.89%    0.00%          1.86%            -        2.05%     6.29%       6.14%       0.15%
<FN>
(1)  Average common equity excludes unrealized gain (loss) on available-for-sale
     ARM securities.
(2)  Excludes performance fees.
</TABLE>

The increase in the Company's return on common equity from the fourth quarter of
1998  to  the  fourth quarter of 1999 is primarily due to the improvement in the
net  interest  spread  between  the  Company's  interest-earning  assets  and
interest-bearing  liabilities  and the impact of not having any significant gain
or  loss  on  ARM  sales  as  compared  to a net loss on ARM sales in the fourth
quarter  of  1998.  The  modest decline in the Company's return on common equity
from the third quarter of 1999 to the fourth quarter of 1999 is primarily due to
a  decrease in the Company's net interest income resulting from year-end and Y2K
financing  issues, which increased the Company's cost of funds during the fourth
quarter  of  1999.


                                       30
<PAGE>
The following table presents the components of the Company's net interest income
for  the  years  ended  December  31,  1999  and  1998:

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



                                        1999       1998
                                      ---------  ---------
<S>                                   <C>        <C>

Coupon interest income on ARM assets  $289,991   $335,983
Amortization of net premium            (26,634)   (46,101)
Amortization of Cap Agreements          (5,352)    (5,444)
Amort. of deferred gain from hedging       906      1,889
Cash and cash equivalents                1,454        705
                                      ---------  ---------
Interest income                        260,365    287,032
                                      ---------  ---------

Reverse repurchase agreements          163,807    251,462
Notes payable                           58,893      2,811
Other borrowings                           105        632
Interest rate swaps                      3,545      1,087
                                      ---------  ---------
Interest expense                       226,350    255,992
                                      ---------  ---------

Net interest income                   $ 34,015   $ 31,040
                                      =========  =========
</TABLE>

As  presented in the table above, the Company's net interest income increased by
$3.0  million in 1999 compared to 1998. Amortization of net premium decreased by
$19.5  million.  In  1999  the  amortization  of  net premium was 9.2% of coupon
interest income on ARM assets as compared to 13.7% in 1998, reflecting, in part,
the  decreased  rate  of  ARM  prepayments  in  1999  as  compared  to  1998.

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,  1999  and  1998:

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

                                           For the Year Ended     For the Year Ended
                                           December  31, 1999     December 31,  1998
                                          --------------------  ----------------------
                                            Average   Effective   Average    Effective
                                            Balance      Rate     Balance      Rate
                                          ----------  --------  ----------  ----------
<S>                                       <C>         <C>       <C>         <C>
Interest Earning Assets:
Adjustable-rate mortgage assets           $4,378,998     5.92%  $4,800,772       5.96%
Cash and cash equivalents                     21,679     4.71       16,214       4.35
                                          ----------  --------  ----------  ----------
                                           4,400,677     5.92    4,816,986       5.96
                                          ----------  --------  ----------  ----------
Interest Bearing Liabilities:
Borrowings                                 4,026,970     5.62    4,430,167       5.78
                                          ----------  --------  ----------  ----------

Net Interest Earning Assets and Spread    $  373,707     0.30%  $  386,819       0.18%
                                          ==========  ========  ==========  ==========

Yield on Net Interest Earning Assets (1)                 0.77%                   0.64%
                                                      ========              ==========
<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 Company's cost of funds declining to 5.62% during 1999 from
5.78%  during  1998, which was partially offset by a decline in the yield on the
Company's  interest-earning  assets to 5.92% during 1999 from 5.96% during 1998,
net  interest  income  increased  by  $2,975,000.  This increase in net interest
income is a combination of rate and volume variances.  There was a net favorable
rate  variance  of  $4,883,000, which was the result of the lower cost of funds,
partially  offset  by  the lower yield on the Company's ARM assets portfolio and
other  interest-earning  assets.  The  decreased  average  size of the Company's


                                       31
<PAGE>
portfolio  during  1999 compared to 1998 contributed to less net interest income
in  the  amount  of  $1,908,000.  The  average  balance  of  the  Company's
interest-earning  assets  was  $4.401  billion  during  1999  compared to $4.817
billion  during  1998  --  a  decrease  of  8.6%.

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)


                                    ARM  Assets
               Average   ----------------------------------  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, 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% (3)   0.47% (3)     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% (3)  -0.08% (3)     0.61%
Mar 31, 1999    4,196.4           6.85%     7.03%     1.31%     5.71%      5.36%       0.35%     0.63%
Jun 30, 1999    4,405.3           7.10%     6.85%     1.11%     5.74%      5.40%       0.34%     0.82%
Sep 30, 1999    4,552.1           7.20%     6.85%     0.76%     6.09%      5.74%       0.35%     0.82%
Dec 31, 1999    4,449.0           7.51%     7.08%     0.70%     6.38%  6.47% (3)  -0.09% (3)     0.81%
<FN>
(1)  Yield on Net Interest Earning Assets is computed by dividing annualized net
     interest income for the applicable  quarter by the average daily balance of
     interest earning assets during the quarter.
(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.
(3)  The year-end cost of funds and net interest spread are commonly effected by
     significant,  but generally  temporary,  year-end  pressures that raise the
     Company's  cost of  financing  mortgage  assets over  year-end.  The effect
     generally  begins during the latter part of November and continues  through
     January.
</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, 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%
Mar 31, 1999        1.09%        0.10%           0.15%        (0.03)%        1.31%
Jun 30, 1999        0.87%        0.13%           0.13%        (0.02)%        1.11%
Sep 30, 1999        0.51%        0.13%           0.13%        (0.01)%        0.76%
Dec 31, 1999        0.51%        0.09            0.11%        (0.01)%        0.70%
</TABLE>


                                       32
<PAGE>
As  of  December  31,  1999,  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 5.86% as of December
31, 1998-- an increase of 0.52%.  The Company's cost of funds as of December 31,
1999,  was  6.47%,  compared  to 5.94% as of December 31, 1998 -- an increase of
0.53%.  As  a  result  of these changes, the Company's net interest spread as of
December  31,  1999  was  -0.09%, compared to    -0.08% as of December 31, 1998.
The  increase  in  the  Company's  cost of funds as of year end is generally the
impact of year end pressures on short-term interest rates that were magnified by
concerns  regarding  Y2K that combined to cause a temporary rise in the interest
rate  on  the  Company's  borrowings.  The  Company's cost of funds reflects, in
part, the increase in one-month LIBOR that occurred at the end of November which
increased  by  approximately  0.87%  on  November 24, 1999.  During the month of
December, the Company's cost of funds increased by 0.46%.  By the end of January
2000,  the  Company's cost of funds had decreased by 0.44%, in part reflecting a
decrease  in one-month LIBOR at the end of December of approximately 0.65%.  The
Company's  portfolio  yield  is  not as sensitive to changes in one-month LIBOR.
The  Company's  portfolio yield increased by 0.10% in December and an additional
0.06%  by  the  end  of  January  2000.

Until  recently,  the  Company's  spreads  and  net  interest  income  had  been
negatively  impacted  since  early  1998 by the spread relationship between U.S.
Treasury  rates and LIBOR.  This spread relationship had negatively impacted the
Company  because  a  portion  of  the Company's ARM portfolio is indexed to U.S.
Treasury rates and the interest rates on all of the Company's borrowings tend to
change with changes in LIBOR.  During much of this period of time, U.S. Treasury
rates  decreased  significantly  whereas  LIBOR  had  not  decreased to the same
degree.  As  a  result, the Company had been reducing its exposure to ARM assets
that are indexed to U.S. Treasury rates through the product mix of its sales and
acquisitions  in  order  to  reduce the negative impact of this situation.  Over
recent  months,  the  relationship  between  U.S.  Treasury  rates and LIBOR has
improved,  although  the Company does not know if this improvement will continue
or  revert  back  to the relationship that existed during 1998 and much of 1999.
The  following  table  presents  historical  data  since  the  year  the Company
commenced  operations  regarding this relationship as well as data regarding the
percent  of  the Company's ARM portfolio that is indexed to U.S. Treasury rates.
As  presented  in the table below, the Company has reduced the proportion of its
ARM  portfolio  that  is indexed to U.S. Treasury rates to 31.4% at December 31,
1999  from  49.0%  as  of  the  end  of  1997.  The  data  is  as  follows:

<TABLE>
<CAPTION>
           ONE-YEAR U.S. TREASURY RATES COMPARED TO ONE- AND THREE-MONTH LIBOR RATES


                                                           Average Spread
                                                           Between 1 Year
                                                           U.S. Treasury      Percent of ARM
                       Average 1 Year   Average 1 and 3   Rates and 1 & 3   Portfolio Indexed to
                        U.S. Treasury     Month LIBOR       Month LIBOR         1 Year U.S.
For the Year Ended      Rates During      Rates During      Rates During     Treasury Rates at
December 31,               Period            Period            Period          End of Period
---------------------  ---------------  ----------------  ----------------  -------------------
<S>                    <C>              <C>               <C>               <C>

1993                             3.43%             3.25%             0.18%                20.9%
1994                             5.32%             4.61%             0.71%                15.5%
1995                             5.94%             6.01%            -0.07%                19.3%
1996                             5.52%             5.48%             0.04%                45.4%
1997                             5.63%             5.69%            -0.06%                49.0%
1998                             5.05%             5.57%            -0.52%                34.7%
1999                             5.08%             5.33%            -0.25%                31.4%

For the Quarter Ended
Mar 31, 1998                     5.32%             5.66%            -0.34%                44.3%
---------------------
Jun 30, 1998                     5.41%             5.68%            -0.27%                38.8%
Sep 30, 1998                     5.10%             5.62%            -0.52%                37.5%
Dec 31, 1998                     4.39%             5.32%            -0.93%                34.7%
Mar 31, 1999                     4.67%             4.98%            -0.31%                34.8%
Jun 30, 1999                     4.88%             5.02%            -0.14%                32.5%
Sep 30, 1999                     5.16%             5.36%            -0.20%                30.5%
Dec 31, 1999                     5.62%             5.96%            -0.34%                31.4%
</TABLE>


                                       33
<PAGE>
The  Company's  provision  for  losses  has  increased  with its acquisition and
securitization of whole loans.  The provision for estimated loan losses is based
on  a number of factors including, but not limited to, the outstanding principal
balance  of  loans,  historical  loss  experience,  current economic conditions,
borrower  payment  history,  age  of loans, loan-to-value ratios and underwriter
standards  applied  by  the  originator.  The  Company  includes the outstanding
balance  of  loans  which  it has securitized and retained an exposure to credit
losses,  although  the credit losses in certain securitization structures may be
limited  by third party credit enhancement agreements.  As of December 31, 1999,
the  Company's  whole  loans,  including  those held as collateral for the notes
payable  and  those  that  the  Company has securitized but retained credit loss
exposure, accounted for 25.7% of the Company's portfolio of ARM assets or $1.108
billion.  To  date,  the  Company  has  not experienced any actual losses in its
whole  loan  portfolio,  although losses are expected and are being estimated as
the  portfolio  ages.

During  1999, the Company realized a net gain from the sale of ARM assets in the
amount  of  $47,000  compared  to a net loss of $278,000 during 1998.  The sales
during  1999  were  a  combination of securities and loans that did not meet the
current  investment  criteria  for the Company's ARM portfolio and one sale of a
real  estate  property  that the Company acquired through foreclosure, which was
sold  for  a  $10,000  gain.  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 of
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  its  mortgage  finance  counterparties.  However,  the  Company
realized  a  net  loss  of  $4,059,000  on  these  sales.

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, 1999, the Company had met all of
the dividend distribution requirements of a REIT.  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,
                                               ------------------
                                                 1999      1998
                                               --------  --------
<S>                                            <C>       <C>
Net income                                     $25,584   $22,695
 Additions:
  Provision for credit losses                    2,867     2,032
  Net compensation related items                   362      (209)
  Non-deductible capital losses                    (47)      278
 Deductions:
  Dividend on Series A Preferred Shares          6,679)   (5,009)
  Actual credit losses on ARM securities          (776)   (1,766)
                                               --------  --------
Taxable net income available to common         $21,311   $18,021
                                               ========  ========
</TABLE>


                                       34
<PAGE>

For  the year ended December 31, 1999, the Company's ratio of operating expenses
to  average assets was 0.12% compared to 0.13% for 1998.  The primary reason for
the  decline  in  this ratio is that the Manager did not receive any performance
fee  in  1999  compared  to  earning a performance fee of $759,000 in 1998.  The
Company's  other  expenses did increase by approximately $389,000, primarily due
to  increased usage of legal services in connection with the Company's financing
and  securitization of loans and other general corporate matters.  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%. 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.

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, 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%                 -             0.10%
Sep 30, 1998               0.10%                 -             0.10%
Dec 31, 1998               0.11%                 -             0.11%
Mar 31, 1999               0.12%                 -             0.12%
Jun 30, 1999               0.12%                 -             0.12%
Sep 30, 1999               0.13%                 -             0.13%
Dec 31, 1999               0.13%                 -             0.13%
</TABLE>

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 estimated 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.


                                       35
<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 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
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>


                                       36
<PAGE>

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%.

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  primary  reasons  for  this  decline  in  the  net interest spread were 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
notes  payable  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 notes payable 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 a number of pertinent factors
as  discussed  above.  As  of  December  31,  1998,  the  Company's whole loans,
including those held as collateral for the 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, although losses are expected and are being estimated 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


                                       37
<PAGE>
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.

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.

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  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.  Developments  in  the  financial markets
include  the  likelihood  of  changing  interest  rates  and the relationship of
various  interest  rates  and their impact on the Company's ARM portfolio yield,
cost  of funds and cashflows.  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, the difference in repricing
intervals  between  the Company's assets and liabilities and the effect interest
rates may have on the Company's cashflows, especially ARM portfolio prepayments.
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,  1999, based on the earlier of term to repricing or the term to repayment of


                                       38
<PAGE>
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 AAA rated notes payable 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  a  duration  mismatch  of  one-year.

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  and  Caps  that  hedge the Company's Hybrid ARMs 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  that hedge the lifetime cap on the Company's
ARM  assets 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.


                                       39
<PAGE>
<TABLE>
<CAPTION>
                              INTEREST RATE SENSITIVITY GAP ANALYSIS
                                   (Dollar amounts in millions)


December 31, 1999
                                                     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                      $ 1,576,474   $  715,014   $587,926   $      -   $2,879,414
  ARM loans                               355,502       67,663     22,365          -      445,530
  Hybrid ARM loans                         44,469       55,214    114,353    741,908      955,944
  Cash and cash equivalents                10,234            -          -          -       10,234
                                      ------------  -----------  ---------  ---------  ----------
  Total interest-earning assets         1,986,679      837,891    724,644    741,908    4,291,122
                                      ------------  -----------  ---------  ---------  ----------

Interest-bearing liabilities:
  Reverse repurchase agreements         3,022,511            -          -          -    3,022,511
  Notes payable                           886,722            -          -          -      886,722
  Whole Loan Financing                     21,290            -          -          -       21,290
  Swaps                                  (819,840)      40,122     93,787    685,930            -
                                      ------------  -----------  ---------  ---------  ----------
  Total interest-bearing
  liabilities                           3,110,683       40,122     93,787    685,930    3,930,523
                                      ------------  -----------  ---------  ---------  ----------

Interest rate sensitivity gap         $(1,124,004)  $  797,769   $630,857   $ 55,978   $  360,599
                                      ============  ===========  =========  =========  ==========

Cumulative interest rate
sensitivity gap                       $(1,124,004)  $ (326,236)  $304,621   $360,599
                                      ============  ===========  =========  =========

Cumulative interest rate sensitivity
gap as a percentage of total assets
before market value adjustments           (25.21)%      (7.32)%      6.83%      8.09%
                                      ============  ===========  =========  =========
</TABLE>

The Company generally ends each year with a significant sensitivity to liability
repricing  due to year-end aberrations in the cost of financing mortgage assets.
Although the Company begins the process of financing many of its mortgage assets
over  year-end  as  early  as  the  third quarter, the Company has a significant
amount  of  assets  that are in term reverse repurchase agreements that re-price
monthly  as  does  the Company's notes payable, as well as other assets that are
not financed over year-end until close to the end of the year.  As a result, the
Company  typically  re-finances  assets  during the latter part of the year with
short  maturity  borrowings  in  order  to avoid locking in year-end rates for a
longer  maturity.  In  this  way,  assets that are financed close to year-end at
unusually  high  rates have an opportunity to be re-financed at lower rates soon
after  year-end,  which  has  been  a  common seasonal fluctuation applicable to
financing  mortgage  assets.

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


                                       40
<PAGE>
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,  1999,  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
1999  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.

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's  primary  source  of  funds  for the year ended December 31, 1999
consisted  of  reverse  repurchase agreements, which totaled $3.023 billion, and
notes  payable,  which  had  a  balance  of $886.7 million.  The Company's other
significant  sources  of  funds  for  the year ended December 31, 1999 consisted
primarily  of  payments  of  principal  and  interest from its ARM assets in the
amount  of  $1.275  billion.  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, 1999, had a weighted average interest
rate  of  6.50%.  The  reverse  repurchase  agreements  had  a  weighted average
remaining  term  to  maturity  of  1.6  months and the 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, 1999, $1.429
billion  of  the Company's borrowings were variable-rate term reverse repurchase
agreements.  The  Company's  term  reverse  repurchase  agreements are committed
financings  with  original  maturities  that  range from four months to fourteen
months.  The  interest  rates  on  these  term reverse repurchase agreements are
indexed  to  either  the one- or three-month LIBOR rate and reprice accordingly.
The  interest  rate  on  the  notes  payable adjusts monthly based on changes in
one-month  LIBOR.

The  Company  has  entered  into reverse repurchase agreements with 24 different
financial  institutions and on December 31, 1999, had borrowed funds with ten 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 4.3%) 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.  The Company had adequate
liquidity  throughout the year ended December 31, 1999.  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.

As  of December 31, 1999, the Company had $886.7 million of collateralized notes
payable  outstanding,  which  are  not  subject  to  margin  calls.  Due  to the
structure  of  the collateralized notes payable, their financing is not based on
market  value or subject to subsequent changes in mortgage credit markets, as is
the  case  of  the  reverse  repurchase  agreement  arrangements.

As of December 31, 1999, the Company had entered into three whole loan financing
facilities.  One  of  the  whole  loan  financing  facilities  has  a  committed
borrowing  capacity  of  $150 million, with an option to increase this amount to
$300  million.  This  facility  matured in January 2000, but was re-newed for an
additional  one-year  term  during  January 2000.  The second has an uncommitted
amount  of  borrowing  capacity  of $150 million and matures in April 2000.  The
third  facility  is  for an unspecified amount of uncommitted borrowing capacity
and  does  not  have  a  specific  maturity  date.  As of December 31, 1999, the
Company  had  $21.3  million  borrowed  against  these  whole  loan  financing
facilities.


                                       41
<PAGE>
On  December  23, 1999, the Company and the Manager entered into an agreement to
purchase  FASLA Holding Company for $15 million, subject to certain adjustments,
in  a  cash  transaction.  The  Company  expects to complete this acquisition by
mid-2000  or  during  the  third  quarter  of 2000, depending upon the timing of
receiving  regulatory  approval.  The  Company  expects  to  generate sufficient
working capital in advance of the purchase acquisition date in order to complete
the  acquisition  with  cash-on-hand.

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, 1999, the Company had $109
million  of  its  securities  registered for future sale under this Registration
Statement.

During  1998,  the Board of Directors approved a common stock repurchase program
of up to 1,000,000 shares at prices below book value, subject to availability of
shares  and  other market conditions.  The Company did not repurchase any shares
during  1999.  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, as defined in the DRP.
During  1999,  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  homeowners  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.


                                       42
<PAGE>
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.

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.

OTHER  MATTERS

The  Company  calculates  its  Qualified REIT Assets, as defined in the Internal
Revenue  Code of 1986, as amended (the "Code"), to be 99.6% 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 99.5% of its 1999
revenue qualifies for the 75% source of income test and 100% of its 1999 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, 1999, 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,
1999,  the  Company  calculates  that it is in compliance with this requirement.


                                       43
<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 38 through 41 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 Reports of
          Independent  Accountants  thereon  are set forth on pages F-3  through
          F-24 in this Form 10-K.

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

          On August 30, 1999, McGladrey & Pullen, LLP ("McGladrey")  voluntarily
          resigned as  independent  auditors of the Company as a result of their
          pending merger with H & R Block.

          None of the reports of McGladrey on the  financial  statements  of the
          Company for either of the past two fiscal  years  contained an adverse
          opinion or a disclaimer of opinion, or was qualified or modified as to
          uncertainty, audit scope or accounting principles.

          During the  Company's  two most  recent  fiscal  years and  subsequent
          interim period  preceding the termination of McGladrey,  there were no
          disagreements with McGladrey on any matter of accounting  principle or
          practices,  financial  statement  disclosure,  or  auditing  scope  or
          procedure, which disagreements, if not resolved to the satisfaction of
          McGladrey would have caused it to make reference to the subject matter
          of disagreement in connection with its report.

          None  of the  reportable  events  listed  in  Item  304 (a) (1) (v) of
          Regulation  S-K  occurred  with  respect  to the  Company  during  the
          Company's  two most recent  fiscal  years and the  subsequent  interim
          period preceding the termination of McGladrey.

          On August 30,  1999,  the Company , with the  approval of its Board of
          Directors, engaged PricewaterhouseCoopers LLP (PwC) as its independent
          auditors.

          During the Company's  two most recent fiscal years and the  subsequent
          interim period  preceding the  engagement of PwC,  neither the Company
          nor anyone on its behalf  consulted PwC regarding the  application  of
          accounting   principles  to  a  specified  completed  or  contemplated
          transaction or the type of audit opinion that might be rendered on the
          Company's  financial  statements,   and  no  written  or  oral  advice
          concerning  same was  provided  to the Company  that was an  important
          factor  considered  by the  Company in  reaching a decision  as to any
          accounting, auditing or financial reporting issue.


                                       44
<PAGE>
                                    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 27, 2000
          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 27, 2000
          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 27, 2000
          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 27, 2000
          pursuant to General Instruction G(3).

                                    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:


                    Reports of Independent Accountants;
                    Consolidated  Balance  Sheets as of  December  31,  1999 and
                    1998;
                    Consolidated  Statements of  Operations  for the years ended
                    December 31, 1999, 1998 and 1997;
                    Consolidated  Statements  of  Shareholders'  Equity  for the
                    years ended December 31, 1999, 1998 and 1997;
                    Consolidated  Statements  of Cash Flows for the years  ended
                    December 31, 1999, 1998 and 1997 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


                                       45
<PAGE>
                      THORNBURG MORTGAGE ASSET CORPORATION
                                AND SUBSIDIARIES

                         (DBA THORNBURG MORTGAGE, INC.)


                        CONSOLIDATED FINANCIAL STATEMENTS

                                       AND

                       REPORTS OF INDEPENDENT ACCOUNTANTS



                           For Inclusion in Form 10-K

                                   Filed with

                       Securities and Exchange Commission

                                December 31, 1999


<PAGE>
                      THORNBURG MORTGAGE ASSET CORPORATION
                                AND SUBSIDIARIES

                         (DBA THORNBURG MORTGAGE, INC.)

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                PAGE
                                                ----
<S>                                             <C>

FINANCIAL STATEMENTS:

Reports of Independent Accountants              F-3

Consolidated Balance Sheets                     F-5

Consolidated Statements of Operations           F-6

Consolidated Statement of Shareholders' Equity  F-7

Consolidated Statements of Cash Flows           F-8

Notes to Consolidated Financial Statements      F-9

FINANCIAL STATEMENT SCHEDULE:

Schedule IV - Mortgage Loans on Real Estate     F-23
</TABLE>


                                      F-2
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS




To  the  Board  of  Directors  and  Shareholders
Thornburg  Mortgage  Asset  Corporation

In  our  opinion, the accompanying consolidated balance sheet as of December 31,
1999  and the related consolidated statement of operations, shareholders' equity
and  cash flows present fairly, in all material respects, the financial position
of  Thornburg  Mortgage Asset Corporation (dba Thornburg Mortgage, Inc.) and its
subsidiaries at December 31, 1999, and the results of their operations and their
cash  flows  for  the  year  then ended in conformity with accounting principles
generally  accepted  in  the  United  States.  In  addition, in our opinion, the
accompanying  financial  statement  schedule  presents  fairly,  in all material
respects,  the  information  set forth therein when read in conjunction with the
related  consolidated  financial  statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management;
our  responsibility  is  to express an opinion on these financial statements and
the  financial statement schedule based on our audit.  We conducted our audit of
these statements in accordance with auditing standards generally accepted in the
United  States,  which  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,  assessing  the
accounting  principles  used  and  significant estimates made by management, and
evaluating  the  overall  financial statement presentation.  We believe that our
audit  provides  a  reasonable  basis  for  the  opinion  expressed  above.




/s/  PricewaterhouseCoopers  LLP




New  York,  New  York
January  21,  2000


                                      F-3
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS



To  the  Board  of  Directors  and  Shareholders
Thornburg  Mortgage  Asset  Corporation

We  have  audited  the  accompanying  consolidated  balance  sheet  of Thornburg
Mortgage Asset Corporation and its subsidiaries as of December 31, 1998, and the
related  consolidated  statements  of  operations, shareholders' equity and cash
flows  for  each  of the two 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 its subsidiaries at December 31, 1998 and the results of
their  operations  and  their cash flows for each of the two years in the period
ended  December  31  1998  in  conformity  with  generally  accepted  accounting
principles.



/s/   McGladrey  &  Pullen,  LLP




New  York,  New  York
January  20,  1999



                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                 THORNBURG MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
                            (DBA THORNBURG MORTGAGE, INC.)

                              CONSOLIDATED BALANCE SHEETS
                                (Amounts in thousands)


                                                                    December 31
                                                              ------------------------
                                                                 1999         1998
                                                              -----------  -----------
<S>                                                           <C>          <C>
ASSETS

Adjustable-rate mortgage ("ARM") assets (Notes 2 and 4)
   ARM securities                                             $3,391,467   $3,094,657
   Collateral for collateralized notes                           903,529    1,147,350
   ARM loans held for securitization                              31,102       26,410
                                                              -----------  -----------
                                                               4,326,098    4,268,417

   Cash and cash equivalents (Note 4)                             10,234       36,431
   Accrued interest receivable                                    31,928       37,939
   Prepaid expenses and other                                      7,705        1,846
                                                              -----------  -----------
                                                              $4,375,965   $4,344,633
                                                              ===========  ===========


LIABILITIES

   Reverse repurchase agreements (Note 4)                     $3,022,511   $2,867,207
   Collateralized notes payable (Note 4)                         886,722    1,127,181
   Other borrowings (Note 4)                                      21,289        2,029
   Payable for assets purchased                                  110,415            -
   Accrued interest payable                                       18,864       31,514
   Dividends payable (Note 6)                                      1,670        1,670
   Accrued expenses and other                                      3,607        3,209
                                                              -----------  -----------
                                                               4,065,078    4,032,810
                                                              -----------  -----------

COMMITMENTS (Note 2)

SHAREHOLDERS' EQUITY (Note 6)

  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 21,990 shares
     issued and 21,490 and 21,490 outstanding, respectively          220          220
   Additional paid-in-capital                                    342,026      341,756
   Accumulated other comprehensive income (loss)                 (82,489)     (82,148)
   Notes receivable from stock sales                              (4,632)      (4,632)
   Retained earnings (deficit)                                    (5,377)      (4,512)
   Treasury stock: at cost, 500 and 500 shares respectively       (4,666)      (4,666)
                                                              -----------  -----------
                                                                 310,887      311,823
                                                              -----------  -----------

                                                              $4,375,965   $4,344,633
                                                              ===========  ===========
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
              THORNBURG MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
                         (DBA THORNBURG MORTGAGE, INC.)

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


                                                    Year ended December 31
                                              ----------------------------------
                                                 1999        1998        1997
                                              ----------  ----------  ----------
<S>                                           <C>         <C>         <C>
Interest income from ARM assets and cash      $ 260,365   $ 287,032   $ 247,721
Interest expense on borrowed funds             (226,350)   (255,992)   (198,657)
                                              ----------  ----------  ----------
     Net interest income                         34,015      31,040      49,064
                                              ----------  ----------  ----------

Gain (loss) on sale of ARM assets                    47        (278)      1,189
Provision for credit losses                      (2,867)     (2,032)       (886)
Management fee (Note 8)                          (4,088)     (4,142)     (3,664)
Performance fee (Note 8)                              -        (759)     (3,363)
Other operating expenses                         (1,523)     (1,134)       (938)
                                              ----------  ----------  ----------

     NET INCOME                               $  25,584   $  22,695   $  41,402
                                              ==========  ==========  ==========



Net income                                    $  25,584   $  22,695   $  41,402
Dividend on preferred stock                      (6,679)     (6,679)     (6,251)
                                              ----------  ----------  ----------

Net income available to common shareholders   $  18,905   $  16,016   $  35,151
                                              ==========  ==========  ==========

Basic earnings per share                      $    0.88   $    0.75   $    1.95
                                              ==========  ==========  ==========

Diluted earnings per share                    $    0.88   $    0.75   $    1.94
                                              ==========  ==========  ==========

Average number of common shares outstanding      21,490      21,488      18,048
                                              ==========  ==========  ==========
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


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

                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                              Three Years Ended December 31, 1999
                                     (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, 1996 . . . . .  $     -  $    162  $233,177  $(11,266)  $     -   $     125   $       -              $222,198
Comprehensive income:
   Net income. . . . . . . . . . . .                                                       41,402               $ 41,402     41,402
   Other comprehensive income:
     Available-for-sale assets:
       Fair value adjustment, net. .        -         -         -    (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 6) . .   65,805         -         -         -         -           -           -                65,805
Issuance of common
Issuance of common stk. (Note 6) . .        -        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 - $1.97 per 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. .        -         -         -   (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 6) .        -        17    26,259         -    (1,934)          -           -                24,342
Purchase of Treasury stk. (Note 6) .        -         -         -         -         -           -      (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
Comprehensive income:
   Net income. . . . . . . . . . . .                                                       25,584               $ 25,584     25,584
   Other comprehensive income:
     Available-for-sale assets:
       Fair value adjustment, net. .        -         -         -       307         -           -           -        307        307
      Deferred gain on sale of
       hedges, net of amortization .        -         -         -      (648)        -           -           -       (648)      (648)
                                                                                                                ---------
   Other comprehensive income. . . .                                                                            $ 25,243)
                                                                                                                =========
Interest from notes receivable from
 stock sales . . . . . . . . . . . .                          270                                                               270
Dividends declared on preferred
 stock - $2.42 per share . . . . . .        -         -         -         -         -      (6,679)          -                (6,679)
Dividends declared on common
 stock - $0.92 per share. . . . . .        -         -         -         -         -      (19,770)          -               (19,770)
                                      -------  --------  --------  ---------  --------  ----------  ----------             ---------
Balance, December 31, 1998 . . . . .  $65,805  $    220  $342,026  $(82,489)  $(4,632)  $  (5,377)  $  (4,666)             $310,887
                                      =======  ========  ========  =========  ========  ==========  ==========             =========
</TABLE>
See  Notes  to  Consolidated  Financial  Statements.


                                      F-7
<PAGE>
<TABLE>
<CAPTION>
                            THORNBURG MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
                                       (DBA THORNBURG MORTGAGE, INC.)

                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (Dollar amounts in thousands)


                                                                             Year ended December 31
                                                                    ----------------------------------------
                                                                        1999          1998          1997
                                                                    ------------  ------------  ------------
<S>                                                                 <C>           <C>           <C>
Operating Activities:
 Net income                                                         $    25,584   $    22,695   $    41,402
 Adjustments to reconcile net income to
   net cash provided by operating activities:
   Amortization                                                          31,080        49,657        24,665
   Net realized (gain) loss from investing activities                     2,819         2,310          (303)
   Decrease (increase) in accrued interest receivable                     6,011           414       (14,789)
   Decrease (increase) in prepaid expenses and other                     (5,859)       (1,557)          (62)
   Increase (decrease) in accrued interest payable                      (12,650)       (8,235)       21,002
   Increase (decrease) in accrued expenses and other                        398         1,994           101
                                                                    ------------  ------------  ------------
     Net cash provided by operating activities                           47,383        67,278        72,016
                                                                    ------------  ------------  ------------

Investing Activities:
 Available-for-sale securities:
   Purchases                                                         (1,244,341)   (1,501,961)   (2,929,746)
   Proceeds on sales                                                      9,922       929,999       190,196
   Proceeds from calls                                                    6,234       138,926        67,202
   Principal payments                                                 1,026,098     1,635,298       756,379
 Held-to-maturity securities:
   Principal payments                                                         -        16,152        63,120
 Collateral for collateralized notes payable:
   Principal payments                                                   239,737        13,416             -
 ARM Loans:
   Purchases                                                            (35,417)   (1,092,238)     (123,211)
   Principal payments                                                     9,339       115,081         4,092
   Proceeds on sales                                                      8,775         2,043             -
 Purchase of interest rate cap and floor agreements                      (1,853)       (1,081)       (4,074)
                                                                    ------------  ------------  ------------
     Net cash provided by (used in) investing activities                 18,494       255,635    (1,976,042)
                                                                    ------------  ------------  ------------

Financing Activities:
Net borr. from (repayments of) reverse repurchase agreements
                                                                        155,304    (1,402,963)    1,811,038
 Net borr. from (repayments of) collateralized  notes                  (240,459)    1,127,181             -
 Net borr. from (repayments of) oth. borrowings                          19,260        (7,989)       (4,169)
 Proceeds from preferred stock issued                                         -             -        65,805
 Proceeds from common stock issued                                            -        24,342        79,406
 Purchase of treasury stock                                                   -        (4,666)            -
 Dividends paid                                                         (26,449)      (36,396)      (37,967)
 Interest from notes receivable from stock sales                            270           229             -
                                                                    ------------  ------------  ------------
   Net cash provided by (used in) financing activities                  (92,074)     (300,262)    1,914,113
                                                                    ------------  ------------  ------------

Net increase (decrease) in cash and cash equivalents                    (26,197)       22,651        10,087

Cash and cash equivalents at beginning of period                         36,431        13,780         3,693
                                                                    ------------  ------------  ------------
Cash and cash equivalents at end of period                          $    10,234   $    36,431   $    13,780
                                                                    ============  ============  ============

Supplemental disclosure of cash flow information and non-cash
 investing and financing activities are included in Notes 2 and 4.
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                      F-8
<PAGE>
              THORNBURG MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
                         (DBA THORNBURG MORTGAGE, INC.)

                   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
          Thornburg  Mortgage Asset Corporation (dba Thornburg  Mortgage,  Inc.)
          (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  collateralized  notes  payable
          discussed   in  Note  4.  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 notes payable, which also
          consists of ARM  securities  and ARM loans.  Included in the Company's
          ARM assets are hybrid ARM securities  and loans  ("Hybrid  ARMs") that
          have a fixed interest rate for an initial  period,  generally three to
          ten years, and then convert to an adjustable-rate  for their remaining
          term to maturity.

          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 notes payable  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.

          ARM asset  transactions  are  recorded  on the date the ARM assets are
          purchased or sold.  Purchases of new issue ARM  securities and all ARM
          loans are recorded when all  significant  uncertainties  regarding the
          characteristics  of the assets are removed  and, in the case of loans,
          underwriting  due  diligence  has been  completed,  generally  shortly
          before the  settlement  date.  Realized  gains and losses on ARM asset
          transactions are determined on the specific identification basis.


                                      F-9
<PAGE>
     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,  Standard  &  Poor's,  Inc.  or  Moody's
          Investor Services,  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, including the subordinate securities retained as
          part of the Company's securitization of loans into AAA securities.

          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 probable credit losses at a level deemed  appropriate by
          management  to provide for known  losses as well as  estimated  losses
          inherent  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 estimated credit losses
          on its  portfolio of ARM loans which is an increase to the reserve for
          possible loan losses.  The  provision  for estimated  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 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 estimated credit losses on these
          loans  the same as it does for loans  that are not held as  collateral
          for notes payable,  except,  it takes 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 manage  interest rate risk. To date,  most of the Cap
          Agreements  purchased  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.  In  similar
          fashion,  the  Company  has  purchased  Cap  Agreements  to limit  the
          financing  rate of the  Hybrid  ARMs  during  their  fixed  rate term,
          generally  for three to ten years.  In general,  the cost of financing
          Hybrid  ARMs hedged  with Cap  Agreements  is capped at a rate that is
          0.75% to 1.00% below the fixed Hybrid ARM interest rate.


                                      F-10
<PAGE>
          All   Cap    Agreements    are   classified   as   a   hedge   against
          available-for-sale  assets or ARM loans and are  carried at their fair
          value  with  unrealized  gains  and  losses  reported  as  a  separate
          component  of equity.  The  carrying  value of the Cap  Agreements  is
          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 Cap Agreements  that were hedging assets  classified as
          available-for-sale  were 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
          ARMs,  it also  enters  into swap  agreements  in order to manage  the
          interest rate repricing mismatch (the difference between the remaining
          duration  of a hybrid  and the  maturity  of the  borrowing  funding a
          Hybrid  ARM) to a  mismatched  duration of  approximately  one year or
          less. 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.

          All Swap  Agreements are  classified as a liability  hedge against the
          Company's borrowings.  As a result, the unrealized gains and losses on
          Swap Agreements are off balance sheet and are reported in Note 5.

          OTHER HEDGING ACTIVITY

          The Company also enters into hedging  transactions  in connection with
          the purchase of Hybrid ARMs between the trade date and the  settlement
          date. Generally, the Company hedges the cost of obtaining future fixed
          rate financing by entering into a commitment to sell similar  duration
          fixed-rate  mortgage-backed  securities  ("MBS") on the trade date and
          settles the  commitment by purchasing  the same  fixed-rate MBS on the
          purchase date. Realized gains and losses are deferred and amortized as
          a yield adjustment over the fixed rate period of the financing.

     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-11
<PAGE>
          Following is  information  about the  computation  of the earnings per
          share  data for the  years  ended  December  31,  1999,  1998 and 1997
          (Amounts in thousands except per share data):

<TABLE>
<CAPTION>
                                 Earnings
                                  Income    Shares  Per Share
                                ----------  ------  ----------
               1999
<S>                             <C>         <C>     <C>
Net income                      $  25,584

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

Basic EPS, income available to
 common shareholders               18,905   21,490  $     0.88
                                                    ==========

Effect of dilutive securities:

 Stock options                          -        -
                                ----------  ------

Diluted EPS                     $  18,905   21,490  $     0.88
                                ==========  ======  ==========

               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 stockholders               35,151   18,048  $     1.95
                                                    ==========

Effect of dilutive securities:

 Stock options                          -      110
                                ----------  ------

Diluted EPS                     $  35,151   18,158  $     1.94
                                ==========  ======  ==========
</TABLE>

          The Company  has  granted  options to  directors  and  officers of the
          Company and employees of the Manager to purchase  186,779,  59,784 and
          240,320 shares of common stock at average prices of $8.90,  $14.82 and
          $20.89 per share during the years ended  December  31, 1999,  1998 and
          1997, 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.

     RECENT ACCOUNTING PRONOUNCEMENTS

          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,
          2000. 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 5, 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 hedge


                                      F-12
<PAGE>
          portion of the  derivative  instrument's  change in fair value 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 2001 year.

     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.

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, 1999 and 1998. The ARM securities classified as available-for-sale
          are  carried at their fair  value,  while the ARM loans are carried at
          their amortized cost basis (dollar amounts in thousands):


<TABLE>
<CAPTION>
December  31,  1999:

                                  Available-
                                   for-Sale       Collateral for
                                ARM Securities    Notes Payable     ARM Loans      Total
                               ----------------  ----------------  -----------  -----------
<S>                            <C>               <C>               <C>          <C>
Principal balance outstanding  $     3,388,160   $       890,701   $   31,649   $4,310,510
Net unamortized premium                 70,409            14,045         (445)      84,009
Deferred gain from hedging                (351)                -            -         (351)
Allowance for losses                    (1,930)           (2,106)        (102)      (4,138)
Cap agreements                           4,923               320            -        5,243
Principal payment receivable            13,610               569            -       14,179
                               ----------------  ----------------  -----------  -----------
  Amortized cost, net                3,474,821           903,529       31,102    4,409,452
                               ----------------  ----------------  -----------  -----------
Gross unrealized gains                   5,462                29           65        5,556
Gross unrealized losses                (88,816)          (13,165)        (170)    (102,151)
                               ----------------  ----------------  -----------  -----------
  Fair value                   $     3,391,467   $       890,393   $   30,997   $4,312,857
                               ================  ================  ===========  ===========

  Carrying value               $     3,391,467   $       903,529   $   31,102   $4,326,098
                               ================  ================  ===========  ===========


December 31, 1998:

                                  Available-
                                   for-Sale       Collateral for
                                ARM Securities    Notes Payable     ARM Loans      Total
                               ----------------  ----------------  -----------  -----------
Principal balance outstanding  $     3,070,107   $     1,131,007   $   26,161   $4,227,275
Net unamortized premium                 86,956            17,112          324      104,392
Deferred gain from hedging                (613)                -            -         (613)
Allowance for losses                    (1,242)             (729)         (75)      (2,046)
Cap agreements                           8,302               440            -        8,742
Principal payment receivable            14,330                 -            -       14,330
                               ----------------  ----------------  -----------  -----------
  Amortized cost, net                3,177,840         1,147,830       26,410    4,352,080
                               ----------------  ----------------  -----------  -----------
Gross unrealized gains                   1,070                38           53        1,161
Gross unrealized losses                (84,253)           (7,606)         (87)     (91,946)
                               ----------------  ----------------  -----------  -----------
  Fair value                   $     3,094,657   $     1,140,262   $   26,376   $4,261,295
                               ================  ================  ===========  ===========

  Carrying value               $     3,094,657   $     1,147,350   $   26,410   $4,268,417
                               ================  ================  ===========  ===========
</TABLE>


          During  1999,  the  Company  realized  $52,000  in gains and $5,000 in
          losses on the sale of $18.6  million of ARM assets.  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,  and 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.


                                      F-13
<PAGE>
          All of the ARM securities sold were classified as  available-for-sale.
          During  1998,  approximately  $379  million of  securities  previously
          classified    as     held-to-maturity     were     reclassified     as
          available-for-sale.

          As of December 31, 1999, the Company had reduced the cost basis of its
          ARM  securities  due to estimated  credit losses (other than temporary
          declines in fair value) in the amount of  $1,930,000.  At December 31,
          1999,  the Company is providing  for  estimated  credit  losses on two
          assets that have an aggregate  carrying  value of $9.9 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 credit losses.
          Additionally,  during 1999, the Company, in accordance with its credit
          policies,  recorded a $1,404,000 provision for estimated credit losses
          on its loan portfolio, although no actual losses have been realized in
          the loan portfolio to date.

          The following tables summarize ARM loan delinquency  information as of
          December 31, 1999 and 1998 (dollar amounts in thousands):

<TABLE>
<CAPTION>

1999
----

                                         Percent
                     Loan      Loan      of ARM      Percent of
Delinquency Status   Count   Balance    Loans (1)   Total Assets
------------------  -------  --------  -----------  -------------
<S>                 <C>      <C>       <C>          <C>

60 to 89 days             1  $    110        0.01%          0.00%
90 days or more           -         -           -              -
In foreclosure           10     5,450        0.49           0.12
                    -------  --------  -----------  -------------
                         11  $  5,560        0.50%          0.12%
                    =======  ========  ===========  =============


1998
-------

                                         Percent
                     Loan      Loan      of ARM      Percent of
Delinquency Status   Count   Balance    Loans (1)   Total Assets
------------------  -------  --------  -----------  -------------
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
                    -------  --------  -----------  -------------
                          8  $  4,970        0.46%          0.11%
                    =======  ========  ===========  =============
<FN>
(1)  ARM loans  includes  loans that the Company has  securitized  and  retained
     first loss credit  exposure for total amounts of $1.108  billion and $1.085
     billion at December 31, 1999 and 1998, respectively.
</TABLE>

          The  following  table  summarizes  the activity for the  allowance for
          losses on ARM  loans for the year  ended  December  31,  1999 and 1998
          (dollar amounts in thousands):

<TABLE>
<CAPTION>
                       1999   1998
                      ------  -----
<S>                   <C>     <C>
Beginning balance     $  804  $  42
Provision for losses   1,404    762
Charge-offs, net           0      0
                      ------  -----
Ending balance        $2,208  $ 804
                      ======  =====
</TABLE>


          As of December 31, 1999, the Company owned two real estate  properties
          as a result of foreclosing on delinquent loans in the aggregate amount
          of $1.0 million,  which are included in collateral for  collateralized
          notes on the  balance  sheet.  The Company  believes  that its current
          level of reserves  are more than  adequate to cover  potential  losses
          from these properties.

          As of December  31,  1999,  the Company  had  commitments  to purchase
          $169.3 million of ARM securities, the terms of which were not final as
          of December 31, 1999, and $136.4 million of ARM loans.

          The average  effective  yield on the ARM assets  owned was 6.38% as of
          December  31,  1999 and 5.86% as of  December  31,  1998.  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.


                                      F-14
<PAGE>
          As of December  31,  1999 and 1998,  the  Company  had  purchased  Cap
          Agreements  with a  remaining  notional  amount of $2.945  billion and
          $4.026  billion,   respectively.   The  notional  amount  of  the  Cap
          Agreements   purchased   declines  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 5.75% to 13.00% and average  approximately  9.78%. Of
          the Cap Agreements  owned by the Company as of December 31, 1999, $135
          million  are  hedging  the cost of  financing  Hybrid  ARMs and $2.810
          billion are hedging the lifetime interest rate cap of ARM assets.  The
          Company's ARM assets portfolio, excluding ARM assets that don't have a
          lifetime  interest rate cap and Hybrid ARMs,  had an average  lifetime
          interest  rate  cap of  11.65%.  The  Cap  Agreements  had an  average
          maturity of 2.2 years as of December 31, 1999.  The initial  aggregate
          notional amount of the Cap Agreements declines to approximately $2.629
          billion over the period of the  agreements,  which expire between 2000
          and  2004.  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.

NOTE  3.  AGREEMENT  TO  PURCHASE  FASLA  HOLDING  COMPANY

          On December  23,  1999,  the Company and the Manager  entered  into an
          agreement to purchase FASLA Holding Company,  whose principal  holding
          is First Arizona  Savings,  a privately held  Phoenix-based  federally
          chartered  thrift  institution  with six  retail  branch  offices  and
          approximately  $138  million  in assets  for $15  million,  subject to
          certain adjustments. The acquisition is subject to regulatory approval
          which  is  expected  to be  received  by  mid-2000.  Due to  ownership
          restrictions  in the current  IRS tax code  applicable  to REITs,  the
          purchase has been structured such that the Company will pay 95% of the
          purchase price for preferred stock of FASLA Holding Company which will
          represent 95% of the economic  interests in FASLA Holding  Company and
          the Manager  will pay 5% of the  purchase  price for common  shares of
          FASLA Holding  Company which will be voting shares that will represent
          5% of the economic value of FASLA Holding Company.  In this structure,
          FASLA Holding  Company would be an  unconsolidated  qualified  taxable
          REIT subsidiary of the Company.  During 1999,  legislation was enacted
          by the U.S.  Congress,  effective  January 1, 2001,  that will  permit
          REITs  to have  100%  ownership  in  qualified  taxable  subsidiaries,
          subject to certain limitations,  that would permit the Company and the
          Manager to alter this  structure  such that FASLA Holding  Company may
          become a wholly-owned consolidated taxable subsidiary of the Company.

NOTE  4.  REVERSE  REPURCHASE AGREEMENTS, 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   securities   and  bear   interest   rates  that  have
          historically moved in close relationship to LIBOR.

          As of December 31, 1999, the Company had outstanding $3.023 billion of
          reverse  repurchase  agreements  with  a  weighted  average  effective
          borrowing cost of 6.30% and a weighted average  remaining  maturity of
          1.6 months.  As of December 31, 1999,  $1.429 billion of the Company's
          borrowings were variable-rate term reverse repurchase  agreements with
          original  maturities  that range from four months to fourteen  months.
          The interest  rates of these term reverse  repurchase  agreements  are
          indexed  to either  the one- or  three-month  LIBOR  rate and  reprice
          accordingly.  The reverse  repurchase  agreements at December 31, 1999
          were  collateralized  by ARM assets  with a  carrying  value of $3.225
          billion, including accrued interest.

          At December  31,  1999,  the  reverse  repurchase  agreements  had the
          following remaining maturities (dollar amounts in thousands):

<TABLE>
<CAPTION>
<S>                 <C>
Within 30 days      $1,404,255
31 to 89 days        1,037,952
90 days or greater     580,304
                    ----------
                    $3,022,511
                    ==========
</TABLE>


                                      F-15
<PAGE>
          As of December 31, 1999, the Company had entered into three whole loan
          financing facilities. One of the whole loan financing facilities has a
          committed  borrowing  capacity  of $150  million,  with an  option  to
          increase this amount to $300 million. This facility matured in January
          2000,  but was renewed for an additional  one-year term during January
          2000.  One has an  uncommitted  amount of  borrowing  capacity of $150
          million  and  matures  in April  2000.  The third  facility  is for an
          unspecified amount of uncommitted borrowing capacity and does not have
          a specific  maturity  date.  As of December 31, 1999,  the Company had
          $21.3 million borrowed  against these whole loan financing  facilities
          at an effective cost of 6.77%.  The amount  borrowed on the whole loan
          financing  agreements at December 31, 1999 were  collateralized by ARM
          loans  with a  carrying  value of  $22.5  million,  including  accrued
          interest.

          On December 18, 1998, the Company,  through a special  purpose finance
          subsidiary,   issued  $1.144   billion  of  notes  payable   ("Notes")
          collateralized  by ARM  loans  and  ARM  securities.  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, 1999,  the Notes had a
          net balance of $886.7  million,  an effective  interest cost of 7.17%,
          which changes each month at a spread to one-month  LIBOR.  These Notes
          were  collateralized  by ARM loans with a principal  balance of $801.8
          million and ARM securities with a balance of $121.1 million. The Notes
          mature on January 25, 2029 and are callable by the Company at par once
          the balance of the Notes is reduced to 25% of their original  balance.
          In connection  with the issuance and  modification  of the Notes,  the
          Company  incurred costs of  approximately  $6.0 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, 1999,  the Company was a  counterparty  to nineteen
          interest rate swap agreements  ("Swaps") having an aggregate  notional
          balance of $694.2 million.  As of December 31, 1999, these Swaps had a
          weighted average remaining term of 3.0 years. 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 and the
          Cap  Agreements  that also hedge the fixed rate period of Hybrid ARMs,
          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 23 days to 258 days.  All of these
          Swaps were entered into in connection  with the Company's  acquisition
          of Hybrid  ARMs.  The Swaps  hedge the cost of  financing  Hybrid ARMs
          during their fixed rate term, generally three to ten years. Due to the
          favorable  market value of the Swaps at December  31, 1999,  they were
          not collateralized by any ARM assets.

          The total cash paid for interest was $233.3  million,  $267.9  million
          and $177.9 million for 1999, 1998 and 1997 respectively.


                                      F-16
<PAGE>
NOTE  5.  FAIR  VALUE OF FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET CREDIT RISK

          The following  table presents the carrying  amounts and estimated fair
          values of the Company's financial instruments at December 31, 1999 and
          December 31, 1998.  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, 1999       December 31, 1998
                               -----------------------  -----------------------
                                Carrying      Fair       Carrying       Fair
                                 Amount       Value       Amount       Value
                               ----------  -----------  -----------  ----------
<S>                            <C>         <C>          <C>          <C>
Assets:
 ARM assets                    $4,318,301  $4,305,060   $4,266,497   $4,259,374
 Cap Agreements                     7,797       7,797        1,920        1,920

Liabilities:
 Collateralized notes payable     886,722     889,305    1,127,181    1,127,181
 Other borrowings                  21,289      21,289        2,029        2,077
 Swap agreements                      749     (11,527)         (87)       7,326
</TABLE>


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

          The fair values of the Company's ARM securities and cap agreements are
          generally  based on market prices provided by certain dealers who make
          markets  in  these  financial   instruments  or  third-party   pricing
          services.  If the fair  value  of an ARM  security  is not  reasonably
          available from a dealer or a third-party  pricing service,  management
          estimates the fair value based on  characteristics  of the security it
          receives from the issuer and available  market  information.  The fair
          values  for ARM loans is  estimated  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  collateralized  notes payable 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,  other  borrowings 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.

          The  Company's  transactions  in  interest  rate swap  agreements  and
          hedging   activity  using   commitments  to  sell  securities   create
          off-balance  -sheet risk. These instruments  involve market and credit
          risk that is not recognized on the balance  sheet.  The principal risk
          related to the swap agreements is the possibility  that a counterparty
          to the  agreement  may be unable or unwilling to meet the terms of the
          agreement. With respect to commitments to sell securities,  there is a
          risk  that  the  change  in the  value  of the  hedged  item  may  not
          substantially  offset the change in the value of the  commitment.  The
          Company  reduces  counterparty  risk  by  dealing  only  with  several
          experienced  counterparties  with AA or  better  credit  ratings  or a
          two-way collateral agreement is required.

NOTE  6.  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


                                      F-17
<PAGE>
          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. The
          Company has not, nor does it have any  currents  plans to exercise its
          redemption rights at this time.

          During  1999,  the  Company  did not issue any shares of common  stock
          under its Dividend  Reinvestment and Stock Purchase Plan. During 1998,
          the Company  issued  1,581,550  shares of common stock under this plan
          and  received  net proceeds of $24.4  million,  and during  1997,  the
          Company  issued  912,590  shares of common  stock  under this plan and
          received net proceeds of $18.0 million.

          During 1999,  there were no exercises of stock  options.  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.

          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.  The
          Company did not  repurchase any shares of common stock during 1999. To
          date, the Company has repurchased 500,016 shares of common stock under
          this program at an average price of $9.28 per share.

          The  following  table  presents  information  regarding  the Company's
          common and preferred  dividends  declared for the 1999,  1998 and 1997
          fiscal years:

<TABLE>
<CAPTION>
                                   28% (1)   20% (1)    Return
                       Ordinary    Capital   Capital      of
                        Income      Gains     Gains    Capital    Total
                       ---------  --------  --------  -------  ----------
<S>                    <C>        <C>       <C>       <C>      <C>

Common Dividends:
1999                   $ 0.9200   $      -  $      -  $     -  $0.920 (2)
1998                     0.8412          -         -   0.0638   0.905 (2)
1997                     1.9100       0.01      0.05        -   1.970 (2)

Preferred Dividends:
1999                   $  2.420   $      -  $      -  $     -  $2.420 (3)
1998                      2.420          -         -        -   2.420 (3)
1997                      2.265          -         -        -   2.265 (3)
<FN>
(1)  Maximum federal tax rate applicable to capital gains
(2)  $0.23 and $0.50 of  dividends  was paid in the  following  fiscal years for
     1999 and 1998, respectively.
(3)  $0.605,  $0.605 and $0.605 was paid in the following  fiscal year for 1999,
     1998, and 1997, respectively.
</TABLE>


          In addition,  the $0.605  preferred  dividend paid on January 10, 2000
          will be taken as a dividend deduction on the Company's 2000 income tax
          return and is therefore not taxable income for preferred  shareholders
          until 2000.

NOTE  7.  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-18
<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. 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 $92,000,  $11,000 and
          $32,000  for the  years  ended  December  31,  1999,  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,  1999,  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 1999,  1998 and 1997  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>
                                 1999       1998       1997
                             ---------  ---------  ---------
<S>                          <C>        <C>        <C>
Net income - as reported     $ 25,584   $ 22,695   $ 41,402
Net income - pro forma         25,428     22,629     41,093

Basic EPS - as reported          0.88       0.75       1.95
Basic EPS - pro forma            0.87       0.74       1.93

Diluted EPS - as reported        0.88       0.75       1.94
Diluted EPS - pro forma          0.87       0.74       1.92

Assumptions:
    Dividend yield              10.00%     10.00%     10.00%
    Expected volatility          30.1%     25.60%     21.50%
    Risk-free interest rate      5.48%      5.68%      6.40%
    Expected lives            7 years    7 years    7 years
</TABLE>


                                      F-19
<PAGE>
Information  regarding  options  is  as  follows:

<TABLE>
<CAPTION>
                                         1999                   1998                1997
                                 --------------------  -------------------  ------------------
                                             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     612,402  $  17.549    680,995   $17.353   626,746   $15.510
Granted                            186,779      8.897     59,784    14.817   240,320    20.888
Exercised                                -          -   (128,377)   15.234  (186,071)   15.711
Expired                              9,708     18.227          -         -         -         -
                                 ---------  ---------  ----------  -------  ---------  -------
Outstanding, end of year           789,473  $  15.494    612,402   $17.549   680,995   $17.353
                                 =========  =========  ==========  =======  =========  =======

Weighted average fair value of
options granted during the year  $    0.93             $     1.22           $    1.29

Options exercisable at year end    631,828                479,482             476,875
</TABLE>

          The  following  table  summarizes   information  about  stock  options
          outstanding at December 31, 1999:

<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 12/31/99    Price
-------------------------  -----------  ------------  ---------  -----------  ---------
<S>                        <C>          <C>           <C>        <C>          <C>

        $8.375 - $12.4375     205,086           9.4  $   9.194      160,086  $   9.425
        $14.375 - $16.125     320,428           4.6     15.343      320,428     15.343
        $17.500 - $20.000     178,279           7.2     19.586       65,634     18.876
                  $22.625      85,680           7.5     22.625       85,680     22.625
-------------------------  -----------  ------------  ---------  -----------  ---------
         $9.375 - $22.625     789,473           6.8     15.494      631,828     15.198
=========================  ===========  ============  =========  ===========  =========
</TABLE>

NOTE  8.  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.  In addition,  during 1999,  the two  wholly-owned  REIT
          qualified subsidiaries of the Company entered into separate Management
          Agreements with the Manager for additional  management  services for a
          combined amount of $1,250 per calendar quarter, paid in arrears.

          For the years ended December 31, 1999, 1998 and 1997, the Company paid
          the Manager $4,088,000,  $4,142,000 and $3,664,000,  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


                                      F-20
<PAGE>
          is generally  defined as proceeds from issuance of common stock before
          underwriter's  discount  and other costs of  issuance,  plus  retained
          earnings.  For the year 1999,  the Company did not pay the Manager any
          performance  based  compensation  because the Company's net income, as
          measured  by  Return on  Equity,  did not  exceed  the  ten-year  U.S.
          Treasury Rate plus 1%. For the years ended December 31, 1998 and 1997,
          the Company paid the Manager $759,000 and $3,363,000, respectively, in
          performance  based  compensation  in accordance  with the terms of the
          Agreement.

          Beginning  in  August  1999,  the  Company's  two  wholly-owned   REIT
          qualified subsidiaries entered into separate lease agreements with the
          Manager for office space in Santa Fe. During 1999, the combined amount
          of rent paid to the Manager was $10,000.

NOTE  9.  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, 1999,  1998 and 1997 (dollar  amounts in
          thousands):

<TABLE>
<CAPTION>
                                                  1999                 1998             1997
                                          -------------------  ----------------  ---------------
                                                      Average            Average         Average
                                           Amount      Rate     Amount    Rate    Amount   Rate
                                          ---------  --------  ---------  -----  --------  -----
<S>                                       <C>        <C>       <C>        <C>    <C>       <C>
Interest Earning Assets:
 ARM assets                               $258,911      5.92%  $286,327   5.96%  $246,507  6.56%
 Cash and cash equivalents                   1,454      4.71        705   4.35      1,214  5.57
                                          ---------  --------  ---------  -----  --------  -----
                                           260,365      5.92    287,032   5.96    247,721  6.56
                                          ---------  --------  ---------  -----  --------  -----
Interest Bearing Liabilities:
 Borrowings                                226,350      5.62    255,992   5.78    198,657  5.76
                                          ---------  --------  ---------  -----  --------  -----

Net Interest Earning Assets and Spread    $ 34,015      0.30%  $ 31,040   0.18%  $ 49,064  0.80%
                                          =========  ========  =========  =====  ========  =====

Yield on Net Interest Earning Assets (1)                0.77%             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>


          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>
                                   1999 versus 1998               1998 versus 1997
                            ------------------------------  ------------------------------
                              Rate     Volume      Total      Rate      Volume     Total
                            --------  ---------  ---------  ---------  --------  ---------
<S>                         <C>       <C>        <C>        <C>        <C>       <C>
Interest Income:
 ARM assets                 $(2,477)  $(24,938)  $(27,415)  $(22,549)  $62,368   $ 39,819
 Cash and cash equivalents      382        366        748       (266)     (242)      (508)
                            --------  ---------  ---------  ---------  --------  ---------
                             (2,095)   (24,572)   (26,667)   (22,815)   62,126     39,311
                            --------  ---------  ---------  ---------  --------  ---------
Interest Expense:
 Borrowings                  (6,979)   (22,663)   (29,642)       518    56,817     57,335
                            --------  ---------  ---------  ---------  --------  ---------

Net interest income         $ 4,884   $ (1,909)  $  2,975   $(23,333)  $ 5,309   $(18,024)
                            ========  =========  =========  =========  ========  =========
</TABLE>


                                      F-21
<PAGE>
NOTE  10.  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, 1999
                                              ------------------------------------------
                                               Fourth      Third     Second      First
                                               Quarter    Quarter    Quarter    Quarter
                                              ---------  ---------  ---------  ---------
<S>                                           <C>        <C>        <C>        <C>
Interest income from ARM assets and cash      $ 69,678   $ 67,955   $ 63,087   $ 59,645
Interest expense on borrowed funds             (60,633)   (58,623)   (54,015    (53,079)
                                              ---------  ---------  ---------  ---------
 Net interest income                             9,045      9,332      9,072      6,566
                                              ---------  ---------  ---------  ---------

Gain (loss) on ARM assets                         (731)      (749)      (654)      (686)

General and administrative expenses             (1,518)    (1,428)    (1,384)    (1,281)

Dividend on preferred stock                     (1,669)    (1,670)    (1,670)    (1,670)
                                              ---------  ---------  ---------  ---------

 Net income available to common shareholders  $  5,127   $  5,485   $  5,364   $  2,929
                                              =========  =========  =========  =========

Basic EPS                                     $   0.24   $   0.26   $   0.25   $   0.14
                                              =========  =========  =========  =========

Diluted EPS                                   $   0.24   $   0.26   $   0.25   $   0.14
                                              =========  =========  =========  =========

Average number of common shares outstanding     21,490     21,490     21,490     21,490
                                              =========  =========  =========  =========
</TABLE>

<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>


                                      F-22
<PAGE>
                   SCHEDULE IV - Mortgage Loans on Real Estate


          Column A, Description:  The Company's whole loan portfolio at December
          31, 1999,  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)

             Range of           Number                Final       Carrying      Principal Amount of
          Carrying Amounts        of     Interest    Maturity    Amount of        Loans Subject to
           of Mortgages         Loans      Rate        Date    Mortgages (3)         Delinquent
                                                                               Principal or Interest
------------------------------  ------  -----------  --------  --------------  ----------------------
<S>                             <C>     <C>          <C>       <C>             <C>
ARM Loans:
               $       0 - 250     647  5.25 - 8.61  Various   $      85,921   $                  996
                     251 - 500     357  4.61 - 8.11  Various         125,010                      489
                     501 - 750     119  6.08 - 8.23  Various          72,936                      625
                   751 - 1,000      64  5.61 - 7.86  Various          57,985                        -
                    over 1,000      63  5.48 - 8.98  Various          93,648                    3,450
                                ------                         --------------  ----------------------
                                 1,250                               435,500                    5,560
                                ------                         --------------  ----------------------
Hybrid Loans:
                       0 - 250   1,172  5.38 - 9.23  Various         147,709                        -
                     251 - 500     432  5.25 - 8.13  Various         150,983                        -
                     501 - 750      73  5.38 - 7.88  Various          43,935                        -
                   751 - 1,000      31  5.63 - 7.78  Various          28,625                        -
                    over 1,000      16  5.98 - 7.48  Various          25,691                        -
                                ------                         --------------  ----------------------
                                 1,724                               396,943                        -
                                ------                         --------------  ----------------------

               Premium                                                13,599
     Allowance for losses (2)                                         (2,208)
                                ------                         --------------  ----------------------
                                 2,974                         $     843,834   $                5,560
                                ======                         ==============  ======================
<FN>
Notes:
(1)     Reconciliation  of  carrying  amounts  of  mortgage  loans:
</TABLE>

<TABLE>
<CAPTION>
<S>                                              <C>
  Balance at December 31, 1998                   $1,078,325
    Additions during 1999:
      Loan purchases                                 35,417

    Deductions during 1999:
      Collections of principal                      243,029
      Cost of mortgage loans sold                     8,767
      Cost of mortgage loans securitized             12,693
      Cost of mortgage loans transferred to REO       1,048
      Provision for losses                            1,404
      Amortization of premium                         2,967
                                                 ----------
                                                    269,908

  Balance at December 31, 1999                   $  843,834
                                                 ==========
<FN>
(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,  1999  is  as  follows:
</TABLE>


                                      F-23
<PAGE>
<TABLE>
<CAPTION>
                         Number of
State or Territory         Loans     Carrying Amount
-----------------------  ----------  -----------------
<S>                      <C>         <C>

Arizona                         75   $         21,068
California                     401            173,458
Colorado                        76             38,839
Connecticut                     54             21,385
Florida                        450            108,217
Georgia                        190             57,923
Illinois                        71             18,872
Massachusetts                   67             20,583
Michigan                       171             33,269
Missouri                       159             30,561
New Jersey                     140             40,323
New York                       255             62,713
Pennsylvania                    58             15,261
Texas                          103             25,140
Washington                      53             15,447
Other states, less than        651            149,384
    50 loans each
Premium                                        13,599
Allowance for losses                           (2,208)
                         ----------  -----------------
TOTAL                        2,974   $        843,834
                         ==========  =================
</TABLE>


                                      F-24
<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
                                    (dba  THORNBURG  MORTGAGE,  INC.)
                                    (Registrant)


Dated:  March  3,  2000             /s/  Garrett  Thornburg
                                    -----------------------
                                    Garrett  Thornburg
                                    Chairman  of  the  Board  of  Directors  and
                                    Chief  Executive  Officer
                                    (Principal  Executive  Officer)


Dated:  March  3,  2000             /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 3, 2000
----------------------
Garrett Thornburg       Director and Chief
                        Executive Officer

/s/ Larry A. Goldstone  President, Director and  March 3, 2000
----------------------
Larry A. Goldstone      Chief Operating Officer

/s/ David A. Ater       Director                 March 3, 2000
----------------------
David A. Ater

/s/ Joseph H. Badal     Director                 March 3, 2000
----------------------
Joseph H. Badal

/s/ Owen M. Lopez       Director                 March 3, 2000
----------------------
Owen M. Lopez

/s/ James H. Lorie      Director                 March 3, 2000
----------------------
James H. Lorie

/s/ Stuart C. Sherman   Director                 March 3, 2000
----------------------
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)

       3.2.1.1    Amendment to the Restated Bylaws of the Registrant (f)

           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 July 15, 1999 (g)

          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)

        10.3.2    Amendment dated April 15, 1999 to the amended and restated
                  1992 Stock Option and Incentive Plan  (g)

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

          10.5    Trust Agreement dated as of December 1, 1998 (k)

          10.6    Indenture Agreement dated as of December 1, 1998 (k)

          10.7    Sales and Service Agreement dated as of December 1, 1998 (k)

           22.    Notice and Proxy Statement for the Annual Meeting of Shareholders to be
                  held on April 27, 2000 (l)

            27    Financial Data Schedule *                                                     73
<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-Q dated September 30, 1999 and incorporated
        herein  by  reference  pursuant  to  Rule  12b-32.
(g)     Previously  filed  with Registrant's Form 10-Q dated June 30, 1999 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  with  Registrant's  Form  10-K dated December 31, 1998 and incorporated
        herein  by  reference  pursuant  to  Rule  12b-32.
(l)     Previously  filed on March 27, 2000 and incorporated by reference pursuant to Rule 12-b32.
</TABLE>


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