News Column

CHIMERA INVESTMENT CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

July 1, 2014

The following discussion of the Company's ("we" or "our") financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those statements included in Item 1 of this quarterly report on Form 10-Q.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this report that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words ''believe,'' ''expect,'' ''anticipate,'' ''estimate,'' ''plan,'' ''continue,'' ''intend,'' ''should,'' ''may,'' ''would,'' ''will'' or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, are forward-looking by their nature:



? our business and investment strategy;

? our ability to maintain existing financing arrangements and our ability to

obtain future financing arrangements;

? our ability to timely file our periodic reports with the Securities and

Exchange Commission, or SEC;

? our expectations regarding materiality or significance;

? the effectiveness of our disclosure controls and procedures;

? material weaknesses in our internal controls over financial reporting;

? additional information that may arise from the preparation of our financial

statements;



? inadequacy of or weakness in our internal controls over financial reporting of

which we are not currently aware or which have not been detected;

? general volatility of the securities markets in which we invest;

? the impact of and changes to various government programs;

? our expected investments;

? changes in the value of our investments;

? interest rate mismatches between our investments and our borrowings used to

finance such purchases; 36

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

? changes in interest rates and mortgage prepayment rates; ? effects of interest rate caps on our adjustable-rate investments; ? rates of default, delinquencies or decreased recovery rates on our investments;



? prepayments of the mortgage and other loans underlying our mortgage-backed

securities, or RMBS, or other asset-backed securities, or ABS;



? the degree to which our hedging strategies may or may not protect us from

interest rate volatility;



? the potential delisting of our common stock from the New York Stock Exchange,

or NYSE: ? impact of and changes in governmental regulations, tax law and rates, accounting guidance, and similar matters;



? availability of investment opportunities in real estate-related and other

securities; ? availability of qualified personnel;



? estimates relating to our ability to make distributions to our stockholders in

the future; ? our understanding of our competition;



? market trends in our industry, interest rates, the debt securities markets or

the general economy;



? our ability to maintain our classification as a real estate investment trust,

or REIT, for federal income tax purposes; and



? our ability to maintain our exemption from registration under the Investment

Company Act of 1940, as amended, or 1940 Act.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described under the caption ''Risk Factors'' in our 2013 Form 10-K. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 37 --------------------------------------------------------------------------------



Executive Summary

We are a Maryland corporation that commenced operations on November 21, 2007. We acquire, either directly or indirectly through our subsidiaries, residential mortgage-backed securities, or RMBS, residential mortgage loans, commercial mortgage loans, real estate related securities and various other asset classes. We are externally managed by Fixed Income Discount Advisory Company, which we refer to as FIDAC or our Manager. FIDAC is a fixed-income investment management company that is registered as an investment adviser with the SEC. FIDAC is a wholly owned subsidiary of Annaly Capital Management, Inc., or Annaly. FIDAC has a broad range of experience in managing investments in Agency RMBS, which are mortgage pass-through certificates, collateralized mortgage obligations, or CMOs, and other RMBS representing interests in or obligations backed by pools of mortgage loans issued or guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae, Non-Agency RMBS, collateralized debt obligations, or CDOs, and other real estate related investments. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. We intend to achieve this objective by investing in a diversified investment portfolio of RMBS, residential mortgage loans, real estate-related securities and various other asset classes, subject to maintaining our REIT status and exemption from registration under the 1940 Act. The RMBS, ABS, CMBS, and CDOs we purchase may include investment-grade and non-investment grade classes, including the BB-rated, B-rated and non-rated classes. We rely on our Manager's expertise in identifying assets within our target asset classes. Our Manager makes investment decisions based on various factors, including expected cash yield, relative value, risk-adjusted returns, current and projected credit fundamentals, current and projected macroeconomic considerations, current and projected supply and demand, credit and market risk concentration limits, liquidity, cost of financing and financing availability, as well as maintaining our REIT qualification and our exemption from registration under the 1940 Act. Over time, we will modify our investment allocation strategy as market conditions change to seek to maximize the returns from our investment portfolio. We believe this strategy, combined with our Manager's experience, will enable us to pay dividends and achieve capital appreciation through various changing interest rate and credit cycles and provide attractive long-term returns to investors.



Our targeted asset classes and the principal investments we have made and in which we may in the future invest are:

Asset Class Principal Investments RMBS ? Non-Agency RMBS, including investment-grade and non-investment grade classes, including the BB-rated, B-rated and non-rated classes ? Agency RMBS ? Interest-only ("IO") RMBS Residential ? Prime mortgage loans, which are mortgage Mortgage Loans loans that conform to the underwriting guidelines of Fannie Mae and Freddie Mac, which we refer to as Agency Guidelines; and jumbo prime mortgage loans, which are mortgage loans that conform to the Agency Guidelines except as to loan size Alt-A mortgage loans, which are mortgage loans that may have been originated using documentation standards that are less stringent than the documentation standards applied by certain other first lien mortgage loan purchase programs, such as the Agency Guidelines, but have one or more compensating factors such as a borrower with a strong credit or mortgage history or significant assets ? FHA/VA insured loans, which are mortgage loans that comply with the underwriting guidelines of the Federal Housing Administration (FHA) or Department of Veteran Affairs (VA) and which are guaranteed by the FHA or VA, respectively ? Mortgage servicing rights associated with residential mortgage loans, which reflect the value of the future stream of expected cash flows from the contractual rights to service a given pool of residential mortgage loans 38

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

Commercial ? First or second lien loans secured by Mortgage Loans multifamily properties, which are residential rental properties consisting of five or more dwelling units; and mixed residential or other commercial properties; retail properties; office properties; or industrial properties, which may or may not conform to the Agency Guidelines Other ? CMBS Asset-Backed Securities ? Debt and equity tranches of CDOs ? Consumer and non-consumer ABS, including investment-grade and non-investment grade classes, including the BB-rated, B-rated and non-rated classes Hedging ? Swaps Instruments ? Swaptions ? Futures ? Index options ? Mortgage options Since we commenced operations in November 2007, we have focused our investment activities on acquiring Non-Agency and Agency RMBS and on purchasing residential mortgage loans that have been originated by select originators, including the retail lending operations of leading commercial banks. Our investment portfolio at March 31, 2014 was weighted toward Non-Agency RMBS. At March 31, 2014, based on the amortized cost balance of our interest earning assets, approximately 51% of our investment portfolio was Non-Agency RMBS, 35% of our investment portfolio was Agency RMBS, and 14% of our investment portfolio was securitized residential mortgage loans. At December 31, 2013, based on the amortized cost balance of our interest earning assets, approximately 50% of our investment portfolio was Non-Agency RMBS, 36% of our investment portfolio was Agency RMBS, and 14% of our investment portfolio was securitized residential mortgage loans. We expect that over the near term, our investment portfolio will continue to be weighted toward Non-Agency RMBS, subject to maintaining our REIT qualification and our 1940 Act exemption. We have engaged in transactions with residential mortgage lending operations of leading commercial banks and other originators in which we identified and re-underwrote residential mortgage loans owned by such entities, and purchased and securitized such residential mortgage loans. In the past we have also acquired formerly AAA-rated Non-Agency RMBS and immediately re-securitized those securities. We sold the resulting AAA-rated super senior RMBS and retained the rated or unrated mezzanine RMBS. 39 -------------------------------------------------------------------------------- Our investment strategy is intended to take advantage of opportunities in the current interest rate and credit environment. We expect to adjust our strategy to changing market conditions by shifting our asset allocations across these various asset classes as interest rate and credit cycles change over time. We believe that our strategy, combined with FIDAC's experience, will enable us to pay dividends and achieve capital appreciation throughout changing market cycles. We expect to take a long-term view of assets and liabilities, and our reported earnings and estimates of the fair value of our investments at the end of a financial reporting period will not significantly impact our objective of providing attractive risk-adjusted returns to our stockholders over the long-term. We use leverage to seek to increase our potential returns and to finance the acquisition of our assets. Our income is generated primarily by the difference, or net spread, between the income we earn on our assets and the cost of our borrowings. We expect to finance our investments using a variety of financing sources including, when available, repurchase agreements, warehouse facilities and securitizations. We may manage our debt and interest rate risk by utilizing interest rate hedges, such as interest rate swaps, caps, options and futures to reduce the effect of interest rate fluctuations related to our financing sources. We have elected and believe we are organized and have operated in a manner that qualifies us to be taxed as a REIT under the Code. A REIT generally will not be subject to federal income tax on taxable income that is distributed to stockholders. Furthermore, substantially all of our assets consist of qualified REIT real estate assets (of the type described in Code Section 856(c)(5)). We calculate that at least 75% of our assets were qualified REIT assets, as defined in the Code, for the three months ended March 31, 2014 and the years ended December 31, 2013 and 2012. We also calculate that our revenues qualified for the 75% REIT income test and for the 95% REIT income test for the three months ended March 31, 2014 and years ended December 31, 2013 and 2012. We also met all REIT requirements regarding the ownership of our common stock and the distribution of our REIT taxable income. Therefore, for the three months ended March 31, 2014 and years ended December 31, 2013 and 2012, we believe that we qualified as a REIT under the Code. We operate our business to be exempt from registration under the 1940 Act, and therefore we are required to invest a substantial majority of our assets in loans secured by mortgages on real estate and real estate-related assets. Subject to maintaining our REIT qualification and our 1940 Act exemption, we do not have any limitations on the amounts we may invest in any of our targeted asset classes. Looking forward, we cannot predict the percentage of our assets that will be invested in each asset class or whether we will invest in other classes of investments. We may change our investment strategy and policies without a vote of our stockholders. 40

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



Net Income Summary

The table below presents our net income on a GAAP basis for the quarters ended March 31, 2014 and 2013. Net Income (Loss) (dollars in thousands) (unaudited) For the Quarter Ended March 31, 2014 March 31, 2013 Net Interest Income: Interest income $ 35,456 $ 29,067 Interest expense (1,726 ) (1,833 ) Interest income, Assets of consolidated VIEs 85,211 96,728 Interest expense, Non-recourse liabilities of consolidated VIEs (20,699 ) (26,996 ) Net interest income (expense) 98,242 96,966 Other-than-temporary impairments: Total other-than-temporary impairment losses (400 ) -



Portion of loss recognized in other comprehensive income (loss)

(1,134 ) (6,163 ) Net other-than-temporary credit impairment losses (1,534 ) (6,163 ) Other gains (losses): Net unrealized gains (losses) on derivatives (2,198 ) 5,402 Net realized gains (losses) on derivatives (5,748 ) (5,530 ) Net gains (losses) on derivatives (7,946 ) (128 ) Net unrealized gains (losses) on interest-only RMBS 15,010 (1,013 ) Net realized gains (losses) on sales of investments 8,377 6 Loss on extinguishment of Debt (2,184 ) - Total other gains (losses) 13,257 (1,135 ) Net investment income (loss) 109,965 89,668 Other expenses: Management fees 6,221 6,449 Expense recoveries from Manager (681 ) (1,855 ) Net management fees 5,540 4,594 Provision for loan losses, net 319 424 General and administrative expenses 3,736 4,847 Total other expenses 9,595 9,865 Income (loss) before income taxes 100,370 79,803 Income taxes 2 2 Net income (loss) $ 100,368 $ 79,801 For the quarter ended March 31, 2014, our net income was $100 million, or $0.10 per average basic common share, as compared to $80 million, or $0.08 per average basic common share, for the quarter ended March 31, 2013. The increase in earnings for the quarter ended March 31, 2014 over the same period of 2013 is primarily attributable to an increase in unrealized gains on interest-only RMBS of $16 million, lower net other-than-temporary credit impairment (OTTI) losses of $5 million, as well as realized gains on sales of investments of $8 million offset in part by greater unrealized losses on derivatives of $8 million.



We discuss the changes in our net income in greater detail in the discussion on our results of operations below.

Trends

We expect the results of our operations to be affected by various factors, many of which are beyond our control. Our results of operations will primarily depend on, among other things, the level of our net interest income, the market value of our assets, and the supply of and demand for such assets. Economic trends, both macro as well as those directly affecting the residential housing market, and the supply and demand of RMBS may affect our operations and financial results. We also evaluate market information regarding current residential mortgage loan underwriting criteria and loan defaults to manage our portfolio of assets, leverage, and debt. Our net interest income, which reflects the amortization of purchase premiums and accretion of discounts, varies primarily as a result of changes in interest rates, borrowing costs, credit impairment losses, and prepayment speeds, which is a measurement of how quickly borrowers pay down the unpaid principal balance on their mortgage loans. Further description of these factors is provided below. Prepayment Speeds. Prepayment speeds, as reflected by the Constant Prepayment Rate, or CPR, vary according to interest rates, the type of investment, conditions in financial markets, and other factors, none of which can be predicted with any certainty. In general, when interest rates rise, it is relatively less attractive for borrowers to refinance their mortgage loans, and as a result, prepayment speeds tend to decrease. When interest rates fall, prepayment speeds tend to increase. For mortgage loan and RMBS investments purchased at a premium, as prepayment speeds increase, the amount of income we earn decreases as the purchase premium on the bonds amortizes faster than expected. Conversely, decreases in prepayment speeds result in increased income and can extend the period over which we amortize the purchase premium. For mortgage loan and RMBS investments purchased at a discount, as prepayment speeds increase, the amount of income we earn increases from the acceleration of the accretion of the discount into interest income. Conversely, decreases in prepayment speeds result in decreased income as the accretion of the purchase discount into interest income occurs over a longer period. Recently, the correlation between interest rates and prepayment has not followed normal trends for certain asset classes. Due to economic hardship, some borrowers have been unable to refinance their loans as underwriting standards are more stringent and credit conditions remain restrictive. 41 -------------------------------------------------------------------------------- Rising Interest Rate Environment. As indicated above, as interest rates rise, prepayment speeds generally decrease. Rising interest rates, however, increase our financing costs which may result in a net negative impact on our net interest income. In addition, if we acquire Agency and Non-Agency RMBS collateralized by monthly reset adjustable-rate mortgages, or ARMs, and three- and five-year hybrid ARMs, such interest rate increases could result in decreases in our net investment income, as the increase in our adjustable rate assets may increase slower than our adjustable rate financing. We expect that our fixed-rate assets would decline in value in a rising interest rate environment and that our net interest spreads on fixed rate assets could decline in a rising interest rate environment to the extent such assets are financed with floating rate debt. Credit Risk. One of our strategic focuses is on acquiring distressed Non-Agency RMBS that have been downgraded because of defaults in the mortgages collateralizing such RMBS. When we acquire such RMBS we attempt to purchase it at a price such that its loss-adjusted return profile is in line with our targeted yields. We retain the risk of potential credit losses on all of the residential mortgage loans we hold in our portfolio as well as all of the Non-Agency RMBS. We attempt to mitigate credit risk in the asset selection process. Prior to the purchase of investments, we conduct a credit-risk based analysis of the collateral securing our investment that includes examining borrower characteristics, geographic concentrations, current and projected delinquencies, current and projected severities, and actual and expected prepayment speeds among other characteristics to estimate expected losses. We also acquire assets which we believe to be of high credit quality. Size of Investment Portfolio. The size of our investment portfolio, as measured by the aggregate unpaid principal balance of our mortgage loans and aggregate principal balance of our mortgage related securities and the other assets we own, is also a key revenue driver. Generally, as the size of our investment portfolio grows, the amount of interest income we receive increases. The larger investment portfolio, however, may result in increased expenses if we incur additional interest expense to finance the purchase of our assets.



Financial Condition

Estimated Economic Book Value

This Management Discussion and Analysis section contains analysis and discussion of financial information that utilizes or presents ratios based on GAAP book value. The table and discussion below present our estimated economic book value. We calculate and disclose this non-GAAP measurement because we believe it represents an estimate of the fair value of the assets we own or are able to dispose of, pledge, or otherwise monetize. The estimated economic book value should not be viewed in isolation and is not a substitute for book value computed in accordance with GAAP. GAAP requires us to consolidate certain securitizations and re-securitization transactions where we have determined that we are the primary beneficiary. In these transactions, we transferred assets to the trusts, which issued tranches of senior and subordinate notes or certificates. We sold the senior tranches and therefore have no continuing involvement in these trusts other than being a holder of notes or certificates issued by the trusts, with the same rights as other holders of the notes or certificates, except as it relates to certain VIEs collateralized by loans held for investment. As it relates solely to certain VIEs collateralized by loans held for investment, we have the ability to approve loan modifications and determine the course of action to be taken as it relates to loans in technical default, including whether or not to proceed with foreclosure. The notes and certificates we own that were issued by the trusts are largely subordinated interests in those trusts. The trusts have no recourse to our assets other than pursuant to a breach by us of the transaction documents related to the transfer of the assets by us to the trusts, but are presented as if we own 100% of the trust. 42

-------------------------------------------------------------------------------- For re-securitized RMBS transactions and loan securitizations, we present the pre-securitized assets transferred into the consolidated trusts in our Consolidated Statements of Financial Condition as Non-Agency RMBS transferred to consolidated variable interest entities or Securitized loans held for investment. Post securitization RMBS assets sold are presented as liabilities in our Consolidated Statements of Financial Condition as Securitized debt, collateralized by Non-Agency RMBS and Securitized debt, collateralized by loans held for investment. We have presented the underlying securities we transferred to the trusts for the calculation of GAAP book value at fair value and recorded the corresponding liability for the notes or certificates sold to third parties at amortized cost. Fair value adjustments that are not credit related are recorded in Other comprehensive income (loss). Credit related impairments are deemed other-than-temporary and are recorded in earnings. Because we are unable to dispose of, monetize or pledge the RMBS or loans we transferred into the trusts, we also present our estimated economic book value. We believe this measure represents the estimated value of the securities issued by these trusts that we own. In contrast to GAAP book value, our estimated economic book value considers only the assets we own or are able to dispose of, pledge, or otherwise monetize. To determine our estimated economic book value, we consider only the fair value of the notes or certificates issued by the securitization and re-securitization trusts that we actually own. Accordingly, our estimated economic book value does not include assets or liabilities for which we have no direct ownership, specifically the notes or certificates of the securitization and re-securitization trusts that were sold to third parties. At March 31, 2014, the difference between GAAP book value and estimated economic book value was determined to be $269 million, or $0.26 per share. At December 31, 2013, the difference between GAAP book value and estimated economic book value was determined to be $438 million, or $0.42 per share. This difference is primarily driven by the value of the RMBS assets we have retained in these re-securitization transactions as compared to the value of consolidated loans and securities net of RMBS assets sold, but treated as a secured financing and recorded at amortized cost on the statement of financial condition. In these re-securitization transactions, we retained the subordinated, typically non-rated, first loss notes or certificates issued by the securitization trusts. These securities are complex, typically locked out as to principal repayment, relatively illiquid, and do not necessarily appreciate or depreciate in tandem with the broader Non-Agency RMBS market or with the loans on securities owned by the trusts. The tables below present the adjustments to GAAP book value that we believe are necessary to adequately reflect our calculation of estimated economic book value as of March 31, 2014 and December 31, 2013. 43 -------------------------------------------------------------------------------- March



31, 2014

(dollars in



thousands, except per share data)

Estimated Economic GAAP Book Value Adjustments Book Value Assets: Non-Agency RMBS, at fair value Senior $ 187,095$ 587,289$ 774,384 Senior interest-only 258,803 66,619 325,422 Subordinated 474,786 1,293,767 1,768,553 Subordinated interest-only 16,018 263 16,281 RMBS transferred to consolidated VIEs 2,935,051 (2,935,051 ) - Agency RMBS, at fair value Pass-through 1,868,413 1,868,413 Interest-only 42,936 42,936 Securitized loans held for investment, net of allowance for loan losses 748,138 (748,138 ) - Other assets 175,790 - 175,790 Total assets $ 6,707,030$ (1,735,251 )$ 4,971,779 Liabilities: Repurchase agreements, Agency RMBS 1,561,920 - 1,561,920 Securitized debt, collateralized by Non-Agency RMBS 828,663 (828,663 ) - Securitized debt, collateralized by loans held for investment 637,190 (637,190 ) - Other liabilities 309,107 - 309,107 Total liabilities 3,336,880 (1,465,853 ) 1,871,027 Total stockholders' equity 3,370,150 (269,398 ) 3,100,452 Total liabilities and stockholders' equity $ 6,707,030$ (1,735,251 )$ 4,971,779 Book Value Per Share $ 3.28 $ (0.26 ) $ 3.02 December 31, 2013 (dollars in



thousands, except per share data)

Estimated Economic GAAP Book Value Adjustments Book Value Assets: Non-Agency RMBS, at fair value Senior $ 89,687 $ 12,365 $ 102,052 Senior interest-only 229,065 116,951 346,016 Subordinated 457,569 1,593,924 2,051,493 Subordinated interest-only 16,571 280 16,851 RMBS transferred to consolidated VIEs 2,981,571 (2,981,571 ) - Agency RMBS, at fair value Pass-through 1,954,796 - 1,954,796 Interest-only 42,782 - 42,782 Securitized loans held for investment, net of allowance for loan losses 783,484 (783,484 ) - Other assets 380,556 - 380,556 Total assets $ 6,936,081$ (2,041,535 )$ 4,894,546 Liabilities: Repurchase agreements, Agency RMBS 1,658,561 - 1,658,561 Securitized debt, collateralized by Non-Agency RMBS 933,732 (933,732 ) - Securitized debt, collateralized by loans held for investment 669,981 (669,981 ) - Other liabilities 342,297 - 342,297 Total liabilities 3,604,571 (1,603,713 ) 2,000,858 Total stockholders' equity 3,331,510 (437,822 ) 2,893,688 Total liabilities and stockholders' equity $ 6,936,081 $



(2,041,535 ) $ 4,894,546

Book Value Per Share $ 3.24 $ (0.42 ) $ 2.82 Our estimate of economic book value has important limitations. Our estimate of fair value is as of a point in time and subject to significant judgment, primarily the estimate of the fair value of the securities issued by the trusts which we own and can freely sell or pledge. Should we sell the assets in our portfolio, we may realize materially different proceeds from the sale than we have estimated as of the reporting date. The calculation of estimated economic book value described above is used by management to understand the fair value of the assets we own and the liabilities for which we are legally obligated, and is presented for informational use only. The estimated economic book value should not be viewed in isolation and is not a substitute for book value computed in accordance with GAAP.



Portfolio Review

During the quarter ended March 31, 2014, on an aggregate basis, we purchased $326 million, sold $244 million, and received $176 million in principal payments related to our Agency RMBS, Non-Agency RMBS, and loans held for investment. In addition, we used $142 million of proceeds from our assets to repay principal on our securitized debt. 44

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



The following table summarizes certain characteristics of our portfolio at March 31, 2014 and December 31, 2013.

March 31, 2014



December 31, 2013

Interest earning assets at period-end (1) $ 6,531,240 $



6,555,525

Interest bearing liabilities at period-end $ 3,027,773 $



3,262,274

Leverage at period-end 0.9.0:1 1.0:1 Leverage at period-end (recourse) 0.5:1 0.5:1



Portfolio Composition, at amortized cost

Non-Agency RMBS 51.6 % 49.8 % Senior 3.2 % 1.5 % Senior, interest only 5.4 % 5.1 % Subordinated 6.1 % 6.0 % Subordinated, interest only 0.2 % 0.3 % RMBS transferred to consolidated VIEs 36.6 % 36.9 % Agency RMBS 34.7 % 36.1 % Pass-through 34.0 % 35.3 % Interest-only 0.8 % 0.8 % Securitized loans 13.6 % 14.1 % Fixed-rate percentage of portfolio 74.9 % 76.3 % Adjustable-rate percentage of portfolio 25.1 % 23.7 %



(1) Excludes interest income on cash and cash equivalents.

The following table presents details of each asset class in our portfolio at March 31, 2014 and December 31, 2013. The principal or notional value represents the interest income earning balance of each class. The weighted average figures are weighted by each investment's respective principal/notional value in the asset class. March 31, 2014 Principal or Principal Notional Weighted Writedowns Value at Weighted Average Weighted Weighted Weighted During Period-End Average Weighted Weighted Yield at Average 3 Average 12 Average Weighted Weighted Period (dollars in Amortized Cost Average Fair Average Period-End Month CPR at Month CPR at Delinquency Average Loss Average Credit (dollars in thousands) Basis Value Coupon (1) Period-End Period-End Pipeline 60+ Severity (2) Enhancement thousands) Non-Agency Mortgage-Backed Securities Senior $ 265,883$ 67.74$ 70.37 1.3 % 5.6 % 8.5 % 12.9 % 34.8 % 69.7 % 12.6 % $ 824 Senior, interest only $ 6,571,076 $ 4.56 $ 3.94 1.3 % 13.6 % 12.7 % 15.3 % 22.5 % 51.1 % 0.0 % $ - Subordinated $ 815,296$ 41.62$ 58.23 3.0 % 12.5 % 15.0 % 18.7 % 17.8 % 50.1 % 12.3 % $ 6,758 Subordinated, interest only $ 269,946 $ 5.15 $ 5.93 1.7 % 8.8 % 12.5 % 17.4 % 15.3 % 45.0 % 0.0 % $ - RMBS transferred to consolidated variable interest entities $ 3,805,867$ 54.60$ 78.75 4.6 % 16.2 % 10.4 % 14.0 % 25.7 % 57.3 % 1.5 % $ (53,637 )Agency Mortgage-Backed Securities Pass-through $ 1,793,785$ 105.12$ 106.55 3.6 % 3.2 % 7.9 % 12.2 % NA NA 0.0 % $ - Interest-only $ 226,023$ 18.77$ 19.00 3.3 % 6.7 % 8.7 % 8.7 % NA NA 0.0 % $ - Securitized loans $ 741,708$ 102.08$ 99.08 4.7 % 3.7 % 15.4 % 28.4 % 1.4 % 22.0 % 16.8 % $ 365



(1) Bond Equivalent Yield at period end. Weighted Average Yield is calculated using each investment's respective amortized cost. (2) Calculated based on reported losses to date, utilizing widest data set available (i.e., life-time losses, 12-month loss, etc.)

December 31, 2013 Principal or Principal Notional Weighted Writedowns Value at Weighted Average Weighted Weighted Weighted During Period-End Average Weighted Weighted Yield at Average 3 Average 12 Average Weighted Weighted Period (dollars in Amortized Cost Average Fair Average Period-End Month CPR at Month CPR at Delinquency Average Loss Average Credit (dollars in thousands) Basis Value Coupon (1) Period-End Period-End Pipeline 60+ Severity (2) Enhancement thousands) Non-Agency Mortgage-Backed Securities Senior $ 128,217$ 69.27$ 69.95 1.4 % 5.9 % 12.1 % 15.1 % 38.0 % 63.3 % 8.3 % $ 297 Senior, interest only $ 5,742,781 $ 4.93 $ 3.99 1.4 % 17.2 % 15.2 % 16.8 % 19.9 % 51.1 % 0.0 % $ - Subordinated $ 830,632$ 40.96$ 55.09 2.9 % 13.5 % 17.0 % 19.6 % 16.2 % 49.6 % 12.6 % $ 6,563 Subordinated, interest only $ 274,462 $ 5.34 $ 6.04 1.7 % 9.0 % 17.0 % 18.1 % 15.4 % 45.0 % 0.0 % $ - RMBS transferred to consolidated variable interest entities $ 3,912,376$ 54.17$ 77.82 4.7 % 15.8 % 11.7 % 14.7 % 25.8 % 57.9 % 1.6 % $ 34,386



Agency Mortgage-Backed Securities

Pass-through $ 1,898,131$ 104.52$ 105.24 3.6 % 3.3 % 7.7 % 18.2 % NA NA 0.0 % $ - Interest-only $ 247,344$ 17.69$ 17.30 3.2 % 5.3 % 9.8 % 17.5 % NA NA 0.0 % $ - Securitized loans $ 776,074$ 102.12$ 98.26 4.7 % 3.5 % 18.3 % 36.4 % 1.5 % 22.3 % 16.4 % $ (6 )



(1) Bond Equivalent Yield at period end. Weighted Average Yield is calculated using each investment's respective amortized cost. (2) Calculated based on reported losses to date, utilizing widest data set available (i.e., life-time losses, 12-month loss, etc.)

Based on the projected cash flows for our Non-Agency RMBS that are not of high credit quality, a portion of the original purchase discount is designated as Accretable Discount, which reflects the purchase discount expected to be accreted into interest income, and a portion is designated as Non-Accretable Difference, which represents the contractual principal on the security that is not expected to be collected. The amount designated as Non-Accretable Difference may be adjusted over time, based on the actual performance of the security, its underlying collateral, actual and projected cash flow from such collateral, economic conditions and other factors. If the performance of a security is more favorable than previously estimated, a portion of the amount designated as Non-Accretable Difference may be accreted into interest income over time. Conversely, if the performance of a security is less favorable than previously estimated, the amounts designated as Non-Accretable Difference may increase, resulting in an OTTI loss. 45

-------------------------------------------------------------------------------- The following table presents changes to Accretable Discount and Non-Accretable Difference as it pertains to our entire Non-Agency RMBS portfolio for assets with purchase discounts during the previous five quarters. For the Quarter Ended December 31, September March 31, 2014 2013 30, 2013 June 30, 2013 March 31, 2013 (dollars in thousands) Accretable Discount Balance, beginning of period $ 996,694$ 1,012,513$ 1,026,921$ 1,088,157$ 1,115,268 Accretion of discount (40,304 ) (40,812 ) (40,001 ) (40,042 ) (39,326 ) Purchases 18,815 - - - 935 Sales (3,843 ) - (6,655 ) (46,125 ) (17 ) Transfers from credit reserve 31,666 28,962 35,054 30,744 18,419 Transfers to credit reserve (12,826 ) (3,969 ) (2,806 ) (5,813 ) (7,122 ) Balance, end of period $ 990,202$ 996,694$ 1,012,513$ 1,026,921$ 1,088,157 For the Quarter Ended December 31, September March 31, 2014 2013 30, 2013 June 30, 2013 March 31, 2013 (dollars in thousands) Non-Accretable Difference Balance, beginning of period $ 1,217,793$ 1,261,945$ 1,370,792$ 1,464,558$ 1,540,780 Principal Writedowns (47,079 ) (41,708 ) (93,054 ) (68,835 ) (72,055 ) Purchases 18,815 - - - 935 Sales (1,093 ) - - - 32 Net other-than-temporary credit impairment losses 1,534 22,549 16,455 - 6,163 Transfers from credit reserve (31,666 ) (28,962 ) (35,054 ) (30,744 ) (18,419 ) Transfers to credit reserve 12,826 3,969 2,806 5,813 7,122 Balance, end of period $ 1,171,130$ 1,217,793$ 1,261,945$ 1,370,792$ 1,464,558



Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, which requires the use of estimates and assumptions. Management has discussed and reviewed the development, selection, and disclosure of critical accounting estimates with the Company's Audit Committee. Management believes that the most critical accounting policies and estimates, since these estimates require significant judgment, are interest income and other-than-temporary impairment, or OTTI, on Non-Agency RMBS, the determination of the appropriate accounting model for Non-Agency RMBS, the impact of default and prepayment assumptions on RMBS, and fair value measurements. Financial results could be materially different if other methodologies were used or if management modified its assumptions. For a discussion of the Company's critical accounting policies and estimates, see "Critical Accounting Policies and Estimates" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.



Recent Accounting Pronouncements

Refer to Note 2(q) in the Notes to Consolidated Financial Statements for a discussion of accounting guidance recently adopted by the Company.

Results of operations for the quarters ended March 31, 2014 and 2013

Our primary source of income is interest income earned on our assets. Our economic net interest income equals interest income excluding interest earned on cash and cash equivalents less interest expense and realized losses on our interest rate hedges. For the purpose of computing economic net interest income and ratios relating to cost of funds measures throughout this section, interest expense includes net payments on interest rate hedges, including interest rate swaps and Treasury futures, which is presented as a part of Realized gains (losses) on derivatives in our Consolidated Statements of Operations and Comprehensive Income. Interest rate hedges are used to manage the increase in interest paid on repurchase agreements in a rising rate environment. Presenting the net contractual interest payments on interest rate hedges with the interest paid on interest-bearing liabilities reflects our total contractual interest payments. We believe this presentation is useful to investors because this presentation depicts the economic value of our investment strategy, by showing actual interest expense and net interest income. Where indicated, interest expense, including interest payments on interest rate hedges, is referred to as economic interest expense. Where indicated, net interest income reflecting interest payments on interest rate hedges, is referred to as economic net interest income. 46 -------------------------------------------------------------------------------- The following table reconciles the GAAP and non-GAAP measurements reflected in the Management's Discussion and Analysis of Financial Condition and Results of Operations. Add: Net Less: Net Realized Realized Economic GAAP GAAP Losses on Economic GAAP Net Losses on Net Interest Interest Interest Rate Interest Interest Interest Rate Interest Income Expense Hedges Expense Income Hedges Income (1) For the Quarter Ended March 31, 2014 $ 120,667$ 22,425 $ 6,351 $ 28,776$ 98,242 $ 6,351 $ 91,887 For the Quarter Ended December 31, 2013 $ 128,062$ 21,485 $ 1,926 $ 23,411$ 106,577 $ 1,926 $ 104,643 For the Quarter Ended September 30, 2013 $ 130,361$ 25,074 $ 6,981 $ 32,055$ 105,287 $ 6,981 $ 98,302 For the Quarter Ended June 30, 2013 $ 127,565$ 26,611 $ 5,391 $ 32,002$ 100,954 $ 5,391 $ 95,551 For the Quarter Ended March 31, 2013 $ 125,795$ 28,829 $ 5,530



$ 34,359$ 96,966 $ 5,530 $ 91,422 (1) Excludes interest income on cash and cash equivalents.

Economic Net Interest Income

The table below shows our average earning assets held, interest earned on assets, yield on average interest earning assets, average debt balance, economic interest expense, economic average cost of funds, economic net interest income, and net interest rate spread for the periods presented. For the Quarter Ended March 31, 2014 March 31, 2013 (dollars in thousands) Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost Assets: Interest-earning assets: Agency RMBS $ 1,977,915$ 16,040 3.24 % $ 1,639,377$ 13,485 3.29 % Non-Agency RMBS 779,927 19,412 9.96 % 621,769 15,568 10.02 %



Non-Agency RMBS

transferred to consolidated

VIEs 2,055,205 77,411 15.07 % 2,402,337 88,839 14.79 %



Securitized loans held for

investment 774,851 7,800 4.03 % 1,203,018 7,889 2.62 % Total $ 5,587,898$ 120,663 8.64 % $ 5,866,501$ 125,781 8.58 % Liabilities and stockholders' equity:



Interest-bearing liabilities:

Repurchase Agreements $ 1,610,241$ 8,077 2.01 % $ 1,474,200$ 7,363 2.00 %



Securitized debt,

collateralized by Non-Agency

RMBS 881,198 15,154 6.88 % 1,288,779 19,070 5.92 %



Securitized debt,

collateralized by loans 653,586 5,545 3.39 % 1,064,656 7,926 2.98 % Total $ 3,145,025$ 28,776 3.66 % $ 3,827,635$ 34,359 3.59 % Net economic interest income/net interest rate spread $ 91,887 4.98 % $ 91,422 4.99 % Net interest-earning assets/net interest margin $ 2,442,873 6.58 % $ 2,038,866 6.23 % Ratio of interest-earning assets to interest bearing liabilities 1.78 1.53 Our economic net interest income was $92 million for the quarter ended March 31, 2014 as compared to $91 million for the same period of 2013. Our net interest rate spread, which equals the yield on our average assets for this period less the economic average cost of funds for the period was unchanged in March 31, 2014 as compared to the same period of 2013. Our net interest margin, which equals the net economic interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, increased by 35 basis points for the quarter ended March 31, 2014 as compared to the same period of 2013 as our interest income remained consistent with the prior year on a lower average interest-earning asset total. While both our yield and our cost of financing have increased over the prior year, the net effect on our total interest rate spread was not significant. The ratio of our interest-earning assets to interest bearing liabilities was 1.78 at March 31, 2014 as compared to 1.53 as of March 31, 2013 as our interest-bearing liabilities decreased at a greater rate than our interest-earning assets. See further discussion of our interest income and cost of financing below. We expect going forward, that we will increase the leverage on our portfolio and increase our repurchase agreements and investments in both Agency and Non-Agency RMBS to take advantage of market conditions as they become available. 47 --------------------------------------------------------------------------------



Interest Income and Average Earning Asset Yield

Our average earning assets decreased by $279 million, or 5%, for the quarter ended March 31, 2014 as compared to the same period of 2013. Our interest earned on assets decreased by $5 million, or 4%, for the quarter ended March 31, 2014 as compared to the same period of 2013. The decline in our interest income is primarily due to a decline in our average interest-earning assets offset in part by an increase in the yield on our average interest-earning assets of 8 basis points for the quarter ended March 31, 2014 as compared to the same periods of 2013. The increase in yield is primarily due to declines in the total interest-earning assets of the higher yielding RMBS as our portfolio continues to be reduced by principal repayments on our investment portfolio. These funds are primarily used to repay our interest-bearing liabilities. Excess funds, including interest income, have been primarily reinvested in Agency RMBS, which provides lower yields. We expect that we will begin to increase earning assets during the remainder of 2014 by strategically investing in both Agency and Non-Agency RMBS securities where we determine that favorable opportunities exist. We expect that this will increase our interest earned on assets, however, it may reduce our overall yield on average interest earning assets.



Economic Interest Expense and the Cost of Funds

The borrowing rate at which we are able to finance our assets using repurchase agreements is typically correlated to LIBOR and the term of the financing. The table below shows our average borrowed funds, economic interest expense, average cost of funds (inclusive of realized losses on interest rate swaps), average one-month LIBOR, average six-month LIBOR, average one-month LIBOR relative to average six-month LIBOR, and average cost of funds relative to average one- and six- month LIBOR. Average One- Month LIBOR Average Cost Average Cost Average Average Relative to of Funds of Funds Economic Average One- Six- Average Six- Relative to Relative to Average Debt Interest Cost of Month Month Month Average One- Average Six- Balance Expense (1) Funds LIBOR LIBOR LIBOR Month LIBOR Month LIBOR (Ratios have been annualized, dollars in thousands) For The Quarter Ended March 31, 2014 $ 3,145,025$ 28,776 3.66 % 0.16 % 0.33 % (0.18 %) 3.50 % 3.33 % For The Quarter Ended December 31, 2013 $ 3,285,584$ 23,411 2.85 % 0.17 % 0.35 % (0.18 %) 2.68 % 2.50 % For The Quarter Ended September 30, 2013 $ 3,360,508$ 32,055 3.82 % 0.19 % 0.39 % (0.21 %) 3.63 % 3.42 % For The Quarter Ended June 30, 2013 $ 3,516,698$ 32,002 3.64 % 0.20 % 0.42 % (0.23 %) 3.44 % 3.22 % For The Quarter Ended March 31, 2013 $ 3,827,635$ 34,359 3.59 % 0.26 % 0.76 % (0.51 %) 3.33 %



2.83 % (1) Includes effect of realized losses on interest rate swaps and US treasury futures.

Average borrowed funds decreased by $683 million, or 18%, for the quarter ended March 31, 2014 as compared to the same period of 2013. Economic interest expense decreased by $6 million, or 16%, for the quarter ended March 31, 2014 as compared to the same period of 2013. The economic cost of funds decreased by 7 basis points for the quarter ended March 31, 2014 as compared to the same period of 2013. The changes in our total economic average cost of financing is primarily a result of an increase in the ratio of financing our portfolio using repurchase agreements rather than securitized debt collateralized by Non-Agency RMBS and loans. Average financing from repurchase agreements increased by $136 million, or 9%, from the quarter ended March 31, 2014 as compared to the same period of 2013. Whereas the average financing balances of securitized debt collateralized by Non-Agency RMBS and loans was reduced by $408 million, or 32%, and $411 million, or 39%, from the quarter ended March 31, 2014 as compared to the same period of 2013. We note that repurchase agreements generally have a lower interest rate than the secured debt, resulting in a lower economic interest expense as repurchase agreements become a larger portion of our overall financing. The overall decline in the average debt balances year over year was due to deleveraging the portfolio by using proceeds from repayments on our assets to repay debt balances and strategically selling assets and using these proceeds to reduce our outstanding debt. We expect that throughout the remainder of 2014, we will begin to increase our debt balances as we identify favorable opportunities to invest in both Agency and Non-Agency RMBS investments. We expect that this increased leverage will primarily be from increased financing using repurchase agreements; however, if opportunities present themselves, we may use secured debt to finance opportunities that we believe support such a transaction. 48 --------------------------------------------------------------------------------



Net other-than-temporary credit impairment losses

OTTI losses are generated when fair values decline below our amortized cost basis, an unrealized loss, and the expected future cash flows decline from prior periods, an adverse change. When an unrealized loss and an adverse change in cash flows occur, we will recognize an OTTI loss in earnings. In addition, if we intend to sell a security, or believe we will be required to sell, a security in an unrealized loss position, we will recognize an OTTI loss in earnings equal to the unrealized loss.



OTTI losses were $2 million and $6 million for the quarters ended March 31, 2014 and 2013, respectively.

Net gains (losses) on derivatives

Our derivative portfolio includes interest rate swaps, Treasury futures, and mortgage options. During the quarter ended March 31, 2014, we recognized net losses on derivatives of $8 million, an increase of $8 million over the same period of 2013 where total derivative losses were not significant. The net gains and losses on our derivatives include both unrealized and realized gains and losses. Realized gains and losses include the net cash paid and received on our interest rate swaps during the period as well as sales and settlements of our Treasury futures and mortgage options. Unrealized gains and losses include the change in market value, period over period, on our derivatives portfolio. We may or may not ultimately realize these unrealized derivative gains and losses depending on trade activity, changes in interest rates and the value of the underlying security. Our interest rate swaps and Treasury futures are used to economically hedge the effects of changes in interest rates on our portfolio specifically our floating rate debt. Therefore, we included the net realized losses of $6 million for both quarters ended March 31, 2014 and 2013 on these derivatives in our presentation of economic interest expense and economic net interest income in the tables and discussions above. As we do not elect to account for these as hedges for GAAP presentation, we present these gains and losses separately in the consolidated statements of operations and comprehensive income. The realized losses on our interest rate swaps and Treasury futures are primarily due to declines in interest rates year over year. We do not include any gains or losses on our mortgage options in our economic interest expense and economic net interest income as the mortgage options were sold for income generation and not as an economic hedge for changes in interest rates in our portfolio. As we identify opportunities in mortgage backed securities market, we may from time to time purchase or sell mortgage options, including both call and put options to take advantage of these opportunities. The realized gains on our mortgage options for the quarter ended March 31, 2014 was less than $1 million. We had no mortgage options during the quarter ended March 31, 2013.



Net unrealized gains (losses) on interest-only RMBS

Unrealized gains and losses on our Agency and Non-Agency IO RMBS portfolio represent the change in fair value the security from the prior period. All unrealized gains and losses on our Agency and Non-Agency IO RMBS portfolio are reflected in earnings. During the quarter ended March 31, 2014, we recorded $15 million in unrealized gains on our IO portfolio, compared to an unrealized loss of $1 million for the quarter ended March 31, 2013. IO securities represent the right to receive the interest on a pool of mortgage backed securities, including both Agency and Non-Agency mortgage pools. The fair value of IO RMBS securities are heavily impacted by changes in expected prepayment rates. When IO securities prepay, the holder of the IO security will receive less interest on the investment due to the reduced principal. Prepayment rates on our portfolio of IO RMBS securities have declined for the quarter ended March 31, 2014 as compared to the same period of 2013.



Gains and Losses on Sales of Assets and Loss on extinguishment of securitized debt

Realized gains on sales of investments were $8 million for the quarter ended March 31, 2014. There were no significant net gains on sales of investments for the quarter ended March 31, 2013. We do not forecast sales of investments as we generally expect to invest for long term gains, however, from time to time, we may sell assets to achieve targeted leverage ratios as well as for gains when prices indicate a sale is most beneficial to us, or is the most prudent course of action to maintain a targeted risk adjusted yield for our investors. From time to time, the Company may purchase outstanding debt of our consolidated VIEs. When the Company acquires debt, it extinguishes the outstanding debt and recognizes a gain or loss based on the difference between the carrying value of the debt and the cost to acquire the debt. During the quarter ended March 31, 2014, the company purchased securitized debt collateralized by non-agency RMBS. This acquisition resulted in a net loss of $2 million. The Company did not purchase any outstanding debt of its consolidated VIEs during the quarter ended March 31, 2013. 49

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



Net Management Fees and General and Administrative Expenses

The table below shows our total management fee and general and administrative, or G&A, expenses as compared to average total assets and average equity for the periods presented. Total Total Management Total Management Fee Management Fee Fee and G&A and G&A and G&A Expenses/Total Expenses/Average Expenses Assets Equity (Ratios have been annualized, dollars in thousands) For The Quarter Ended March 31, 2014 $ 9,276 0.54 % 1.11 % For The Quarter Ended December 31, 2013 $ 8,965 0.51 % 1.04 % For The Quarter Ended September 30, 2013 $ 9,112 0.51 % 1.01 % For The Quarter Ended June 30, 2013 $ 8,380 0.46 % 0.92 % For The Quarter Ended March 31, 2013 $ 9,441 0.50 % 1.05 % We incurred management fees of $6 million and $5 million for the quarters ended March 31, 2014 and 2013, respectively. These incurred management fees are net of reimbursements from our manager related to the amended management agreement. The management fee is based on our stockholders' equity as defined in the investment management agreement. See further discussion of the management fee, including amendments to the management agreement, as well as other agreements with our Manager in our discussion of related party transactions below. We expect that once we are current on our SEC filings, the management fees will increase.



G&A expenses were $4 million for the quarter ended March 31, 2014 as compared to $5 million for the quarter ended March 31, 2013. Our G&A expenses decreased primarily due to lower legal, accounting and consulting fees incurred.

Provision for Loan Losses

The provision for loan losses related to our securitized loans held for investment represents managements estimate of expected future losses on the securitized loans held. The provision in 2014 declined by an insignificant amount. We do not expect significant changes in our loan loss provision as the total loans held for investment portfolio continues to decline as a result of principal repayments.



Net Income (Loss) and Return on Average Equity

The table below shows our economic net interest income, realized gains (losses) on sale of assets and the credit related OTTI, realized and unrealized gains (losses) on interest rate swaps and IOs, total management fee and G&A expenses, and income tax, each as a percentage of average equity, and the return on average equity for the periods presented. Realized and Unrealized Gains Realized Gains (Losses) on Total (Losses) on Interest Rate Management Fee Economic Net Interest Sales and Swaps and & G&A Income Tax Income/Average Equity OTTI/Average IOs/Average Expenses/Average Benefit/Average Return on Average * Equity Equity Equity Equity Equity (Ratios have been annualized) For The Quarter Ended March 31, 2014 11.04 % 0.78 % 1.31 % (1.11 %) 0.00 % 11.98 % For The Quarter Ended December 31, 2013 13.13 % (3.12 %) 1.55 % (1.04 %) 0.00 % 8.39 % For The Quarter Ended September 30, 2013 11.33 % 0.27 % (3.10 %) (1.01 %) 0.00 % 7.49 % For The Quarter Ended June 30, 2013 10.50 % 6.14 % 0.02 % (0.92 %) 0.00 % 15.73 % For The Quarter Ended March 31, 2013 10.17 % (0.73 %) 0.49 % (1.05 %) 0.00 %



8.87 % * Includes effect of realized losses on interest rate swaps and US treasury futures.

Our net income was $100 million and $80 million for the quarters ended March 31, 2014 and 2013, respectively. Economic net interest income as a percentage of average equity increased by 87 basis points for the quarter ended March 31, 2014 as compared to the same period of 2013. The increase in our economic net interest income as a percentage of average equity is due to an increase in interest earned on assets on a lower average interest-earning assets year over year, offset partially by lower economic interest expense on a smaller average debt balance year over year. The return on average equity increased by 311 basis points for the quarter ended March 31, 2014 as compared to the same period of 2013. The increase in our return on average equity is primarily due higher income as a result of higher unrealized gains on IO RMBS and realized gain on sales of investments as compared to the prior period offset in part by lower net economic interest income. 50

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



Liquidity and Capital Resources

General

Liquidity measures our ability to meet cash requirements, including ongoing commitments to repay our borrowings, purchase RMBS, mortgage loans and other assets for our portfolio, pay dividends and other general business needs. Our principal sources of capital and funds for additional investments primarily include earnings from our investments, borrowings under securitizations and re-securitizations, repurchase agreements and other financing facilities, and proceeds from equity offerings. To meet our short term (one year or less) liquidity needs, we expect to continue to borrow funds in the form of repurchase agreements and, subject to market conditions, other types of financing. The terms of the repurchase transaction borrowings under our master repurchase agreements generally conform to the terms in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association, or SIFMA, as to repayment, margin requirements and the segregation of all securities we have initially sold under the repurchase transaction. In addition, each lender typically requires that we include supplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and conditions include changes to the margin maintenance requirements, cross default provisions, required haircuts (or the percentage that is subtracted from the value of RMBS that collateralizes the financing), purchase price maintenance requirements, and requirements that all disputes related to the repurchase agreement be litigated or arbitrated in a particular jurisdiction. These provisions may differ for each of our lenders. We also expect to meet our short term liquidity needs by relying on the cash flows generated by our investments. These cash flows are primarily comprised of monthly principal and interest payments received on our investments. We may also sell our investments and utilize those proceeds to meet our short term liquidity needs or enter into non-recourse financing of our assets through sales of securities to third parties of loan securitizations or RMBS re-securitization transactions, similar to transactions that we have completed in prior periods. Based on our current portfolio, leverage ratio and available borrowing arrangements, we believe our assets will be sufficient to enable us to meet anticipated short-term liquidity requirements. However, a decline in the value of our collateral could cause a temporary liquidity shortfall due to the timing of margin calls on the financing arrangements and the actual receipt of the cash related to principal paydowns. If our cash resources are at any time insufficient to satisfy our liquidity requirements, we may have to sell investments, potentially at a loss, or issue debt or additional equity securities in a common stock offering. To meet our longer term liquidity needs (greater than one year), we expect our principal sources of capital and funds to continue to be provided by earnings from our investments, borrowings under securitizations and re-securitizations, repurchase agreements and other financing facilities, as well as proceeds from equity offerings. As a result of our failure to file our SEC filings by the filing date required by the SEC (including the grace period permitted by Rule 12b-25 under the Securities Exchange Act of 1934, as amended), we are not eligible to file a new Form S-3 registration statement or use our existing Form S-3 registration statements to raise additional equity capital until filings with the SEC have been timely made for a full year. Our ineligibility to use Form S-3 during this time period will have a negative impact on our ability to quickly access the public capital markets because we would be required to file a long-form registration statement and wait for the SEC to declare such registration statement effective. In addition to the principal sources of capital described above, we may enter into warehouse facilities and use longer dated structured repurchase agreements. The use of any particular source of capital and funds will depend on market conditions, availability of these facilities, and the investment opportunities available to us. 51 --------------------------------------------------------------------------------



Current Period

We held cash and cash equivalents of approximately $41 million and $78 million at March 31, 2014 and December 31, 2013, respectively.

Our operating activities provided net cash of approximately $64 million for the quarters ended March 31, 2014 and 2013, respectively. The cash provided by operating activities was consistent quarter over quarter as the interest received, net of interest paid, for the quarter ended March 31, 2014 of $86 million was relatively consistent with the interest received, net of interest paid, for the quarter ended March 31, 2013 of $84 million. Our investing activities provided net cash of approximately $436 million and $469 million for the quarters ended March 31, 2014 and 2013, respectively. During the quarter ended March 31, 2014 we generated cash from sales of RMBS investments of $414 million and principal payments of $176 million related to all our investment assets offset by purchases of $154 million in RMBS securities. During the quarter ended March 31, 2013 we generated cash from principal payments of $476 million related to all our investment assets offset by purchases of $7 million in RMBS securities. Our financing activities used net cash of $537 million and $507 million for the quarters ended March 31, 2014 and 2013, respectively. The quarter ended March 31, 2014 reflected payments on securitized debt borrowings of $142 million, payment of dividends of $298 million and payments of the repurchase agreements, net of proceeds from repurchase agreements, of $97 million. The quarter ended March 31, 2013 reflected payments on repurchase agreements, net of proceeds from repurchase agreements, of $108 million, payments on securitized debt borrowings of $307 million and payments of dividends during the quarter of $92 million. As a result of our operating, investing and financing activities described above, our cash position declined from $78 million at December 31, 2013 to $41 million at March 31, 2014. We continue to redeploy cash into investments in both Agency and Non-Agency RMBS investments. We note that our investments in Non-Agency RMBS and Agency RMBS, at fair value, increased by $58 million during the quarter ended March 31, 2014, not including assets of consolidated VIEs. While our cash balances declined during the quarter, we believe that we maintain an appropriate level of liquidity, including $216 million of highly liquid Agency RMBS investments which are currently not pledged as collateral for our financing arrangements. Even though we have significant unrestricted Agency RMBS investments, we expect to meet our future cash needs primarily from principal and interest payments on our portfolio and do not anticipate we will need to sell unrestricted Agency RMBS investments to meet our liquidity needs. There were no secondary stock offerings during the quarters ended March 31, 2014 and 2013. There were no securitized debt borrowings during the quarters ended March 31, 2014 and 2013. Recourse leverage is 0.5:1 at March 31, 2014 and December 31, 2013. We expect to increase our recourse leverage as we finance additional purchases of Agency and Non-Agency RMBS through the reinvestment of proceeds received from principal and interest on our portfolio as well as increasing our financing, primarily through repurchase agreements. We expect to continue to finance our RMBS portfolio largely through repurchase agreements and loans through the securitization market. In addition, we may from time to time sell securities or issue debt as a source of cash to fund new purchases.



At March 31, 2014 and December 31, 2013, the remaining maturities on our RMBS repurchase agreements were as follows.

March 31, 2014 December 31, 2013 (dollars in thousands) Overnight $ - $ - 1-29 days 748,081 644,332 30 to 59 days 647,017 606,945 60 to 89 days 166,822 - 90 to 119 days - 129,049 Greater than or equal to 120 days - 278,235 Total $ 1,561,920 $ 1,658,561 We collateralize the repurchase agreements we use to finance our operations with our RMBS investments. Our counterparties negotiate a 'haircut' when we enter into a financing transaction, which varies from lender to lender. The size of the haircut reflects the perceived risk associated with holding the RMBS by the lender. The haircut provides lenders with a cushion for daily market value movements that reduce the need for a margin call to be issued or margin to be returned as normal daily increases or decreases in RMBS market values occur. At March 31, 2013, the weighted average haircut on our repurchase agreements was 4.8%. Despite the haircut, repurchase agreements subject us to two types of margin calls. First, there are monthly margin calls that are triggered as principal payments and pre-payments are received by us as these payments lower the value of the collateral. As a result, we expect to receive margin calls from our repurchase counterparties monthly simply due to the principal paydowns on our Agency RMBS. The monthly principal payments and pre-payments are not known in advance and vary depending on the behavior of the borrowers related to the underlying mortgages. Second, counterparties make margin calls or return margin as a result of normal daily increases or decreases in asset fair values. In addition, when financing assets using standard form of SIFMA Master Repurchase Agreements, the counterparty to the agreement typically nets its exposure to us on all outstanding repurchase agreements and issues margin calls if movement of the fair values of the assets in the aggregate exceeds their allowable exposure to us. A decline in asset fair values could create a margin call, or may create no margin call depending on the counterparty's specific policy. In addition, counterparties consider a number of factors, including their aggregate exposure to us as a whole and the number of days remaining before the repurchase transaction closes prior to issuing a margin call. See Note 5 to our Consolidated Financial Statements for a discussion on how we determine the fair values of the RMBS collateralizing our repurchase agreements. 52 -------------------------------------------------------------------------------- The table below presents our average daily repurchase balance and the repurchase balance at each period end for the periods presented. Our balance at period-end tends to have little fluctuation from the average daily balances except in periods where we are adjusting the size of our portfolio by using leverage. Our average repurchase agreement balance at March 31, 2014 increased compared to our average repurchase agreement balance for the quarter ended December 31, 2013 due to additional borrowings on our repurchase agreements in excess of repayments during the first quarter of 2014. The Company continues to deploy capital for strategic purchases of investments. Average Repurchase Repurchase Balance at Period Period Balance End (dollars in thousands)



Quarter End March 31, 2014$ 1,648,425 $ 1,561,920

Quarter Ended December 31, 2013$ 1,574,872 $ 1,658,561

Quarter Ended September 30, 2013$ 1,464,677 $ 1,589,325

Quarter Ended June 30, 2013$ 1,422,485 $ 1,478,141

Quarter Ended March 31, 2013$ 1,460,629 $ 1,420,375

We are not required to maintain any specific debt-to-equity ratio. We believe the appropriate leverage for the particular assets we are financing depends on the credit quality and risk of those assets. At March 31, 2014 and December 31, 2013 our total debt was approximately $3.0 billion and $3.3 billion, which represented a debt-to-equity ratio of approximately 0.9:1 and 1.0:1, respectively. We include repurchase agreements and securitized debt in the numerator of our debt-to-equity ratio and stockholders' equity as the denominator. We do not manage our portfolio to have a pre-designated amount of borrowings at quarter-end or year-end. Our borrowings at period end are a snapshot of borrowing as of a date, and this number should be expected to differ from average borrowings over the period. Our borrowings will change as we implement our portfolio and risk management strategies to address changing market conditions by increasing or decreasing leverage. Our borrowings may change during periods when we raise capital, and in certain instances we may purchase additional assets and increase borrowings prior to an expected capital raise. Since our average borrowings and period end borrowings can be expected to differ, we believe our average borrowings during a period provide a more accurate representation of our exposure to the risks associated with leverage.



Secured Debt Financing Transactions

We did not re-securitize any RMBS or jumbo prime residential mortgage loans during the quarters ended March 31, 2014 or 2013.

Exposure to European Financial Counterparties

A significant portion of our Agency RMBS is financed with repurchase agreements. We secure our borrowings under these agreements by pledging our Agency RMBS as collateral to the lender. The collateral we pledge exceeds the amount of the borrowings under each agreement, typically with the extent of over-collateralization being at least 3% of the amount borrowed. If the counterparty to the repurchase agreement defaults on its obligations and we are not able to recover our pledged assets, we are at risk of losing the over-collateralized amount. The amount of this exposure is the difference between the amount loaned to us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest receivable on such collateral. 53 -------------------------------------------------------------------------------- We also use interest rate swaps to manage our interest rate risks. Under these swap agreements, we pledge Agency RMBS as collateral as part of a margin arrangement for interest rate swaps that are in an unrealized loss position. If a swap counterparty were to default on its obligation, we would be exposed to a loss to the extent that the amount of our Agency RMBS pledged exceeded the unrealized loss on the associated swaps and we were not able to recover the excess collateral. Over the past several years, several large European financial institutions have experienced financial difficulty and have been either rescued by government assistance or by other large European banks or institutions. Some of these financial institutions or their U.S. subsidiaries have provided us financing under repurchase agreements or we have entered into interest rate swaps with such institutions. We have entered into repurchase agreements and/or interest rate swaps with six counterparties as of March 31, 2014 that are either domiciled in Europe or are a U.S.-based subsidiary of a European-domiciled financial institution. The following table summarizes our exposure to such counterparties at March 31, 2014: Repurchase Interest Exposure as a Number of Agreement Rate Swaps Percentage of Country Counterparties Financing at Fair Value Exposure (1) Total Assets (dollars in thousands) France 1 $ 139,344 $ (6 ) $ 15,184 0.23 % Germany 1 - (6,999 ) 1,941 0.03 % Netherlands 1 235,642 - 20,951 0.31 % Switzerland 2 304,519 (19,129 ) 29,260 0.44 % United Kingdom 1 190,915 - 14,539 0.22 % Total 6 $ 870,420$ (26,134 )$ 81,875 1.23 %



(1) Represents the amount of securities pledged as collateral to each counterparty less the aggregate of repurchase agreement financing and unrealized loss on swaps for each counterparty.

At March 31, 2014, we did not use credit default swaps or other forms of credit protection to hedge the exposures summarized in the table above.

If the European credit crisis continues to impact these major European financial institutions, it is possible that it will also impact the operations of their U.S. subsidiaries. Our financings and operations could be adversely affected by such events. We monitor our exposure to our repurchase agreement and swap counterparties on a regular basis, using various methods, including review of recent rating agency actions, financial relief plans, credit spreads or other developments and by monitoring the amount of cash and securities collateral pledged and the associated loan amount under repurchase agreements and/or the fair value of swaps with our counterparties. We make reverse margin calls on our counterparties to recover excess collateral as permitted by the agreements governing our financing arrangements or interest rate swaps, or may try to take other actions to reduce the amount of our exposure to a counterparty when necessary.



Stockholders' Equity

On January 28, 2011, we entered into an equity distribution agreement with FIDAC and UBS Securities LLC, or UBS. Through this agreement, we may sell through UBS, as our sales agent, up to 125,000,000 shares of our common stock in ordinary brokers' transactions at market prices or other transactions as agreed between us and UBS. We did not sell any shares of our common stock under the equity distribution agreement during the quarters ended March 31, 2014 or 2013.



During the quarter ended March 31, 2014 we declared dividends to common shareholders totaling $92 million, or $0.09 per share. During the quarter ended March 31, 2013, we declared dividends to common shareholders totaling $92 million, or $0.09 per share.

The Board of Directors has determined that there will be a quarterly dividend of $0.09 per share for the second, third and fourth quarters of 2014.

54 --------------------------------------------------------------------------------



There was no preferred stock issued or outstanding as of March 31, 2014 and December 31, 2013.

Related Party Transactions The Management Agreement On November 15, 2007 we entered into a management agreement with FIDAC, which provided for an initial term through December 31, 2010 with an automatic one-year extension option and subject to certain termination rights. In 2011 and 2010, we paid to our Manager a quarterly management fee equal to 1.50% per annum of our gross Stockholders' Equity (as defined in the management agreement). Effective November 28, 2012, the management fee was reduced to 0.75% per annum of gross Stockholders' Equity, which reduction will remain in effect until we are current on all of our filings required under applicable securities laws. We are obligated to reimburse our Manager for its costs incurred under the management agreement. In addition, the management agreement permits our Manager to require us to pay for its pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses that our Manager incurred in connection with our operations. These expenses are allocated between our Manager and us based on the ratio of the proportion of gross assets compared to the gross assets managed by our Manager as calculated at each quarter end. Together we will modify this allocation methodology, subject to the approval of our board of directors if the allocation becomes inequitable (i.e., if we become very highly leveraged compared to our Manager's other funds and accounts).



March 2013 Amendment to Management Agreement

Because of the Restatement Filing (as defined below), on March 8, 2013 we amended the management agreement. In the amendment, we memorialized the reduction in the management fee effective on November 28, 2012. Additionally, our Manager agreed to pay all past and future expenses that we and/or our Audit Committee incur to: (1) evaluate our accounting policy related to the application of GAAP to our Non-Agency RMBS portfolio (the Evaluation); (2) restate our financial statements for the period covering 2008 through 2011 as a result of the Evaluation (the Restatement Filing); and (3) investigate and evaluate any shareholder derivative demands arising from the Evaluation and/or the Restatement Filing (the Investigation); provided, however, that our Manager's obligation to pay expenses applies only to expenses not paid by our insurers under our insurance policies. Expenses shall include, without limitation, fees and costs incurred with respect to auditors, outside counsel, and consultants engaged by us and/or our Audit Committee for the Evaluation, Restatement Filing and the Investigation. The amended management agreement is automatically renewed for a one-year term on each anniversary date, although two-thirds of the independent directors or the holders of a majority of the outstanding shares of common stock (other than those held by Annaly or its affiliates) may elect to terminate the management agreement upon 30 days notice at any time in their sole discretion without the payment of a termination fee. Additionally, we may terminate the management agreement effective immediately if (i) our Manager engages in any act of fraud, misappropriation of funds, or embezzlement against us, (ii) there is an event of any gross negligence on the part of our Manager in the performance of its duties under the management agreement, (iii) there is a commencement of any proceeding relating to our Manager's bankruptcy or insolvency, (iv) there is a dissolution of our Manager, or (v) our Manager is convicted of (including a plea of nolo contendere) a felony.



Fees Paid Under the Management Agreement

The fees paid under the management agreement are detailed in the results of operations discussion above. In addition to these fees, our manager received expense reimbursement under the management agreement of $681 thousand and $2 million for the quarters ended March 31, 2014 and 2013, respectively. Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and employees who, notwithstanding that certain of them also are our officers, receive no cash compensation directly from us.



Clearing Fees

On March 1, 2011, we entered into an administrative services agreement with RCap Securities, Inc., or RCap. We use RCap, a SEC registered broker-dealer and a wholly-owned subsidiary of Annaly, to clear trades for us and RCap is paid customary fees in return for such services. RCap may also provide brokerage services to us from time to time. During the quarters ended March 31, 2014 and 2013, fees paid to RCap were $35 thousand and $34 thousand, respectively. 55 --------------------------------------------------------------------------------



Restricted Stock Grants

We granted 1,301,000 shares of restricted stock to employees of our Manager and its affiliates and members of our board of directors on January 2, 2008. During the quarters ended March 31, 2014 and 2013, 21,000 and 32,000 shares of restricted stock vested, respectively. At March 31, 2014 and December 31, 2013, there were approximately 326,000 and 384,000 unvested shares of restricted stock issued to employees of FIDAC, respectively. For the quarters ended March 31, 2014 and 2013, compensation expense associated with the amortization of the fair value of the restricted stock was approximately $68 thousand and $78 thousand, respectively.



Contractual Obligations and Commitments

The following tables summarize our contractual obligations at March 31, 2014 and December 31, 2013. The estimated principal repayment schedule of the securitized debt is based on expected cash flows of the residential mortgage loans or RMBS, as adjusted for expected principal writedowns on the underlying collateral of the debt. March 31, 2014 (dollars in thousands) Greater Than Within One One to Three Three to Five or Equal to Contractual Obligations Year Years Years Five Years Total Repurchase agreements for RMBS $ 1,561,920 $ - $ - $ - $ 1,561,920 Securitized debt 314,419 432,463 243,241 398,216 1,388,339 Interest expense on RMBS repurchase agreements (1) 2,208 - - - 2,208 Interest expense on securitized debt (1) 52,576 77,015 57,043 176,528 363,162 Total $ 1,931,123$ 509,478$ 300,284$ 574,744$ 3,315,629 (1) Interest is based on variable rates in effect as of March 31, 2014. December 31, 2013 (dollars in thousands) Greater Than Within One One to Three Three to Five or Equal to Contractual Obligations Year Years Years Five Years Total Repurchase agreements for RMBS $ 1,658,561 $ - $ - $ - $ 1,658,561 Securitized debt 370,250 497,943 264,456 396,916 1,529,565 Interest expense on RMBS repurchase agreements (1) 2,380 - - - 2,380 Interest expense on securitized debt (1) 57,546 80,446 58,620 178,391 375,003 Total $ 2,088,737$ 578,389 $



323,076 $ 575,307$ 3,565,509 (1) Interest is based on variable rates in effect as of December 31, 2013.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities.



Capital Requirements

At March 31, 2014 and December 31, 2013, we had no material commitments for capital expenditures.

Dividends

To qualify as a REIT, we must pay annual dividends to our stockholders of at least 90% of our taxable income (subject to certain adjustments). We intend to pay regular quarterly dividends to our stockholders. Before we pay any dividend, we must first meet any operating requirements and scheduled debt service on our financing facilities and other debt payable. 56 --------------------------------------------------------------------------------



Inflation

A significant portion of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with GAAP and our distributions will be determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification; in each case, our activities and financial condition are measured with reference to historical cost and/or fair market value without considering inflation.



Other Matters

We at all times intend to conduct our business so as not to become regulated as an investment company under the 1940 Act. If we were to become regulated as an investment company, our ability to use leverage would be substantially reduced. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer's total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis (the "40% test"). Excluded from the term "investment securities," among other things, are securities issued by majority-owned subsidiaries that rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act. Certain of our subsidiaries, including Chimera Asset Holding LLC and certain subsidiaries that we may form in the future, rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act. Section 3(c)(5)(C), as interpreted by the staff of the Securities and Exchange Commission (or the SEC), requires us to invest at least 55% of our assets in "mortgages and other liens on and interest in real estate" (or Qualifying Real Estate Assets) and at least 80% of our assets in Qualifying Real Estate Assets plus real estate related assets. The assets that we acquire, therefore, are limited by the provisions of and the rules and regulations promulgated under the Investment Company Act. On August 31, 2011, the SEC issued a concept release titled "Companies Engaged in the Business of Acquiring Mortgages and Mortgage-Related Instruments" (SEC Release No. IC-29778). Under the concept release, the SEC is reviewing interpretive issues related to the Section 3(c)(5)(C) exemption. We are monitoring developments related to this matter.



Based on our calculations, as of March 31, 2014 and December 31, 2013, we were in compliance with the exemption from registration provided by Section 3(c)(5)(C) and 3(a)(1)(C) of the Investment Company Act.

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the U.S. Commodity Futures Trading Commission, or CFTC, gained jurisdiction over the regulation of interest rate swaps. The CFTC has asserted that this causes the operators of mortgage real estate investment trusts that use swaps as part of their business model to fall within the statutory definition of Commodity Pool Operator, or CPO, and, absent relief from the Division or the Commission, to register as CPOs. On December 7, 2012, as a result of numerous requests for no-action relief from the CPO registration requirement for operators of mortgage real estate investment trusts, the Division of Swap Dealer and Intermediary Oversight of the CFTC issued no-action relief entitled "No-Action Relief from the Commodity Pool Operator Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate Investment Trusts" that permits a CPO to receive relief by filing a claim to perfect the use of the relief. A claim submitted by a CPO will be effective upon filing, so long as the claim is materially complete. The conditions that must be met to claim the relief are that the mortgage real estate investment trust must:



? Limit the initial margin and premiums required to establish its commodity

interest positions to no more than five percent of the fair market value of

the mortgage real estate investment trust's total assets;

? Limit the net income derived annually from its commodity interest positions

that are not qualifying hedging transactions to less than five percent of the

mortgage real estate investment trust's gross income; 57

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



? Ensure that interests in the mortgage real estate investment trust are not

marketed to the public as or in a commodity pool or otherwise as or in a

vehicle for trading in the commodity futures, commodity options, or swaps

markets; and ? Either:



o identify itself as a "mortgage REIT" in Item G of its last U.S. income tax

return on Form 1120-REIT; or



o if it has not yet filed its first U.S. income tax return on Form 1120-REIT,

disclose to its shareholders that it intends to identify itself as a "mortgage

REIT" in its first U.S. income tax return on Form 1120-REIT.

While we disagree that the CFTC's position that mortgage real estate investment trusts that use swaps as part of their business model fall within the statutory definition of a CPO, we have submitted a claim for the relief set forth in the no-action relief entitled "No-Action Relief from the Commodity Pool Operator Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate Investment Trusts" and believe we meet the criteria for such relief set forth therein.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters