• Focus on multiple sectors. Our Manager looks for attractive investment opportunities in all major sectors of the U.S. mortgage market. Our management team evaluates investment opportunities in residential mortgage loans and securities and across a wide spectrum of commercial property types. We believe this approach enables our Manager to identify attractive investments when it believes certain portions of the market are attractively priced or when investment opportunities in one or more sectors are scarce. By pursuing a broad investment strategy within the mortgage market, we believe our investment mortgage portfolio is less exposed to dislocations in specific sectors of the market. We believe a diversified investment portfolio outperforms the traditional single strategy portfolios in the REIT market, with returns that are more resistant to changes in the interest rate and consumer credit environment.

• Concurrent evaluation of interest rate and credit risk. Our Manager seeks to balance our portfolio with both credit risk-intensive assets and interest rate risk-intensive assets. Both of these primary risk types are evaluated against a common risk-adjusted return framework.

• Active hedging and rebalancing of portfolio. Our Manager periodically evaluates our portfolio against pre-established risk tolerances and will take corrective action through asset sales, asset acquisitions, and dynamic hedging activities to bring the portfolio back within these risk tolerances. We believe this approach generates more attractive long-term returns than an approach that either attempts to hedge away a majority of the interest rate or credit risk in the portfolio at the time of acquisition, on the one end of the risk spectrum, or a highly speculative approach that does not attempt to hedge any of the interest rate or credit risk in the portfolio, on the other end of the risk spectrum.

• Opportunistic approach to increased risk. Our Manager’s investment strategy is to preserve our ability to extend our risk taking capacity during periods of changing market fundamentals.

# Investment policies

We comply with investment policies and procedures and investment guidelines (our “Investment Policies”) that are approved by our board of directors and implemented by our Manager. Our Manager reports on our investment portfolio at each regularly scheduled meeting of our board of directors. Our independent directors do not review or approve individual investment, leverage or hedging decisions made by our Manager made in accordance with our Investment Policies.

Our Investment Policies include the following guidelines, among others:

• no investment shall be made that would cause us to fail to qualify as a REIT for federal income tax purposes;

• no investment shall be made that would cause us to be regulated as an investment company under the Investment Company Act;and

• our investments will be in our target assets.

Our Investment Policies may be changed by our board of directors without the approval of our stockholders.

# Our target assets

Our target asset classes and the principal investments in which we invest are as follows:

Asset Class	Principal Investments
Agency RMBS	• RMBS for which Ginnie Mae, Fannie Mae or Freddie Mac
guarantees payments of principal and interest on the securities
they issue.
Non-Agency RMBS	• Fixed and floating-rate residential Non-Agency RMBS, including
investment grade and non-investment grade classes. The
mortgage loan collateral for residential Non-Agency RMBS
consists of residential mortgage loans that do not generally
conform to underwriting guidelines issued by U.S. government
agencies or U.S. government-sponsored entities.
Other real estate-related assets and financial assets	• Fixed and floating-rate CMBS, including investment grade and
non-investment grade classes. CMBS are secured by, or evidence
ownership interest in, a sinlge commercial mortgage loan or a
pool of commercial mortgage loans.