Company: TWO-PC
Filing Date: 2025-05-08
Form Type: 424B5
Source: 0001104659-25-045688
Chunk: 104

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-05-08
Form: 424B5
Chunk 104
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#### Phantom Income
Due to the nature of the assets in which we will invest, we may be required to recognize taxable income from certain of our assets in advance of our receipt of cash flow on or proceeds from disposition of such assets, and we may be required to report taxable income in early periods that exceeds the economic income ultimately realized on such assets.

We may acquire mortgage-backed securities in the secondary market for less than their face amount. For example, it is likely that we will invest in assets, including mortgage-backed securities, requiring us to accrue original issue discount, or OID, or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets referred to as “phantom income.” We may also be required under the terms of the indebtedness that we incur to use cash received from interest payments to make principal payment on that indebtedness, with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.

Due to each of these potential differences between income recognition or expense deduction and related cash receipts or disbursements, there is a significant risk that we may have taxable income substantially in excess of cash available for distribution. In that event, we may need to borrow funds or take other actions to satisfy the REIT distribution requirements for the taxable year in which this “phantom income” is recognized. See “— Annual Distribution Requirements .”

#### Asset Tests
We, at the close of each calendar quarter, must also satisfy four tests relating to the nature of our assets.

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First, at least 75% of the value of our total assets must be represented by some combination of:

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cash and cash items;

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U.S. government securities;

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interests in real property;

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interests in mortgage loans secured by real property;

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stock (or transferable certificates of beneficial interest) in other REITs;

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debt instruments issued by publicly offered REITs; and

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regular or residual interests in a REMIC. However, if less than 95% of the assets of a REMIC consist of assets that are qualifying real estate-related assets under the U.S. federal income tax laws, determined as if we held such assets, we will be treated as holding our proportionate share of the assets of such REMIC.

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Second, the value of any one issuer’s securities owned by us may not exceed 5% of the