Exhibit 10.1
 
INVESTMENT MANAGEMENT AGREEMENT
 
THIS INVESTMENT MANAGEMENT AGREEMENT (the “Agreement”) is effective as of the
11th day of February 2011 (the “Effective Date”), by and between New York
Mortgage Trust Inc., a Maryland corporation (“NYMT”), and The Midway Group, LP,
a Delaware limited Partnership (“Midway” or the “Investment Manager”).
 
W I T N E S S E T H
WHEREAS, NYMT has entered into an agreement with JP Morgan Chase, N.A. to serve
as trustee or custodian (the “Custodian”) with respect to certain of NYMT’s
assets that will be held in a separate account (the “Separate Account”); and
 
WHEREAS, NYMT wishes to appoint Midway to manage the investment and reinvestment
of all of the assets held in the Separate Account subject to the investment
guidelines set forth in this Agreement, and Midway desires to accept such
appointment, all subject to the terms and conditions contained in this
Agreement.
 
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
other good and valuable consideration as set forth herein, the parties agree as
follows:
 
(1)  
Appointment of Midway as Investment Manager.

 
NYMT hereby appoints Midway as its investment manager with respect to the assets
contained in the Separate Account. As the investment manager for the Separate
Account, Midway has the authority to buy, sell and trade, and engage in other
transactions in, financial instruments for NYMT’s account. Midway agrees to
perform each of the duties set forth herein in good faith and in accordance with
commercially reasonable standards. Subject to the terms and conditions set forth
in this Agreement, which includes the Schedules attached hereto, Midway hereby
accepts such appointment.
 
(2)  
Duties and Authority of Investment Manager.

 
(a) Midway will provide NYMT with investment management services in accordance
with the terms and conditions contained in this Agreement and the requirements
of the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and
other applicable laws and regulations. Under this Agreement, Midway shall have
complete discretion and authority to manage the assets in the Separate Account
on NYMT’s behalf and at NYMT’s risk, subject to the written guidelines governing
the Separate Account set forth in Paragraph (3) of this Agreement (the
“Investment Guidelines”) and the other terms and conditions in this Agreement,
and is hereby appointed NYMT’s agent and Attorney-in-Fact for that purpose. As
such, Midway is authorized to perform the following, at NYMT’s expense, without
further approval from NYMT, except as expressly required by this Agreement or as
required by law: (i) to make all investment decisions; (ii) to buy, sell and
otherwise trade in securities; and (iii) to select brokers or dealers to execute
securities transactions. Midway shall be responsible solely for the investment
and reinvestment of assets in the Separate Account and shall have no duty to
inquire into or review the management or investment of other assets of NYMT.
NYMT hereby authorizes Midway to open brokerage accounts and to execute
documents in the name of, binding against and on behalf of NYMT for all purposes
necessary or desirable in Midway’s view to perform its obligations under this
Agreement. Midway agrees to provide NYMT with a copy of any agreement that
Midway executes on NYMT’s behalf within five (5) Business Days (as defined
herein) after execution by both parties.
 
 
 

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(b) In performing its duties and obligations under this Agreement, Midway may
contract with other entities, on commercially reasonable terms, to provide
services and/or support for the Separate Account.
 
(3)  
Investment Guidelines and Pari Passu Trading.

 
(a) Midway will invest the Separate Account assets as described in the section
entitled “Investment Objective and Strategy” in the Private Placement Memorandum
(“PPM”) for the Midway Market Neutral Fund (the “Fund”), a copy of which is set
forth on Exhibit A attached hereto (the “Investment Guidelines”), subject to
modification at NYMT’s direction to ensure NYMT’s continuous compliance with
applicable requirements under the United States Internal Revenue Code and the
rules and regulations thereunder for NYMT to maintain its status as a real
estate investment trust (“REIT”) and under the Investment Company Act of 1940,
as amended (the “Investment Company Act”) and the rules and regulations
thereunder for NYMT and its subsidiaries to maintain their exemption from
regulation as an investment company (such REIT and Investment Company Act
compliance requirements as referred to herein as the “Compliance Requirements”).
To the extent that, in order to meet such Compliance Requirements, NYMT directs
Midway to sell any security that has already been purchased in the Separate
Account, such instruction to sell must be received by Midway no later than five
(5) Business Days prior to the settlement date for the transaction. Midway
agrees to use its best efforts to comply with the Investment Guidelines. NYMT
acknowledges and agrees that, subject to the provisions of Paragraph (15)
herein, its only recourse should Midway fail to meet the Investment Guidelines
is termination of this Agreement pursuant to Paragraph (7) of this Agreement. If
Midway makes any changes to the Investment Guidelines, it shall provide NYMT
with the same notice and disclosure regarding such changes in the Investment
Guidelines as Midway provides to investors in the Fund regarding such changes.
Except to the extent necessary to comply with any applicable law, Midway shall
not make any material change to the Investment Guidelines unless it has given
NYMT at least seven (7) days prior written notice. Notwithstanding any changes
made to the Investment Guidelines for the Fund, no changes with respect to the
Investment Guidelines for the Separate Account shall be implemented unless NYMT
has consented to such changes in writing, with such consent not to be
unreasonably withheld. NYMT acknowledges that its failure to consent to changes
that Midway implements to the Investment Guidelines relating to the Fund will
result in Midway being unable to manage the Separate Account pari passu with the
Fund. NYMT further agrees to indemnify exculpate, and hold harmless Midway from
and against any loss or expense suffered or sustained as a result of or in
connection with Midway’s following NYMT’s directive to trade, or not to trade in
accordance with the Investment Guidelines.
 
(b) Subject to Paragraph (3)(a) above, Midway will manage the Separate Account
assets pari passu with its management of the Fund to the extent reasonably
practicable and consistent with the Investment Guidelines and Compliance
Requirements for the Fund and NYMT, and the size of the Separate Account. Trades
shall be allocated among NYMT, the Fund, any/or other fund or investment vehicle
managed by Midway as set forth in Paragraph (9) below.
 
 
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(c) The Investment Guidelines set forth in Paragraph (3)(a), including any
modifications directed by NYMT in order to satisfy the Compliance Requirements,
shall be applied at the time a transaction is entered into, regardless of later
market movements, and shall not be deemed breached as a result of changes in the
value or status of an investment following its acquisition. In the event that
the Separate Account, or any investment in the Separate Account, exceeds or
otherwise fails to comply with the Investment Guidelines or any modifications
directed by NYMT in order to satisfy the Compliance Requirements, Midway shall
take such corrective action as it deems advisable; provided, however, that NYMT
shall have the right to direct Midway to take any corrective action that NYMT
deems necessary or appropriate with respect to the Separate Account in order to
ensure the continued compliance with the Compliance Requirements. NYMT agrees to
indemnify exculpate, and hold harmless Midway from and against any loss or
expense suffered or sustained as a result of or in connection with Midway’s
following NYMT’s directive to take such corrective action.
 
(4)  
Funding of the Separate Account.

 
(a) Initial Funding
 
The Separate Account shall initially be capitalized with a $24 million capital
contribution by NYMT (the “Initial Investment”). The Initial Investment shall be
made on the first Business Day of the month immediately following the execution
of this Agreement. A Business Day is defined as any day on which the New York
Stock Exchange is open for business.
 
(b) Subsequent Funding
 
NYMT intends to invest a total of $200 million, including the Initial
Investment, in the Separate Account (the “Capital Commitment”) prior to the end
of the Initial Term (as defined below). NYMT will use its commercially
reasonable efforts to fund the Capital Commitment (each such funding a “Capital
Payment”) ratably over a two-year period in amounts of $25 million per quarter
(the “Capital Commitment Schedule”), subject to the investment performance,
capital raising, compliance and Board approval conditions described herein (the
“Capital Payment Conditions”). Subject to the Capital Payment Conditions, each
Capital Payment will be made on the first Business Day of each calendar quarter,
with the first such payment (after the Initial Investment) expected to occur on
April 1, 2011. The cumulative amount of Capital Payments, together with the
Initial Investment, that are funded shall be referred to as “Invested Capital.”
Notwithstanding the foregoing, for the purposes of calculating the Management
Fee, Adjusted Net Income, the weighted average of the Invested Capital, the High
Water Mark and the Incentive Fee (as each such term is defined herein), the
Initial Investment and each Capital Payment thereafter shall be treated as if
the first 50% of such Capital Payment was invested on the first Business Day of
the calendar month of the quarter in which such Capital Payment is funded and
the remaining 50% of such Capital Payment was invested on the first Business Day
of the second calendar month of the quarter in which such Capital Payment is
funded; provided, that for Capital Payments in amounts larger than $25 million,
Midway and NYMT will reach an agreement on the timing of the investment of such
funds prior to funding by NYMT of the Capital Payment.
 
 
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(c) Capital Payment Conditions
 
(i) Investment Performance Condition
 
If the annualized return on Invested Capital in the Separate Account for any
calendar quarter falls below 15% (the “Preferred Return,” NYMT shall have the
right to elect to forego the next quarterly Capital Payment (the “Investment
Performance Condition”). For example, if the annualized return for the first
quarter of 2011 falls below the Preferred Return, NYMT shall have the right to
elect not to make its April 1, 2011 Capital Payment, but the July 1, 2011
Capital Payment will not be affected by the first quarter 2011 return on
Invested Capital.  NYMT may, in its discretion, but shall not be required to,
contribute additional capital in subsequent quarters. For example, if NYMT
elects to forego its April 1, 2011 Capital Payment due to the failure of the
Separate Account to achieve the Preferred Return on an annualized basis for the
first quarter of 2011, NYMT would, in its discretion, have the right to elect to
invest additional capital above and beyond the $25 million Capital Payment
amount scheduled for July 1, 2011 if Midway generates an annualized return on
Invested Capital in the Separate Account equal to or greater than the Preferred
Return in the second quarter of 2011. An example of the Investment Performance
Condition calculation is set forth on Exhibit B.
 
(ii) Market Conditions, Regulatory Constraints and Board Approval
 
In addition to the Investment Performance Condition, the obligations of NYMT to
make Capital Payments in order to fund its Capital Commitment in accordance with
the Capital Commitment Schedule are subject to (a) NYMT successfully raising
sufficient equity capital to allow NYMT to meet the Capital Commitment Schedule;
(b) compliance by NYMT and its subsidiaries with the Compliance Requirements;
and (c) approval by NYMT’s Board of Directors of the use of proceeds raised from
any capital raising transaction undertaken or completed by NYMT to fund NYMT’s
Capital Commitment, it being understood that the Board of Directors shall have
the discretion, in the exercise of its fiduciary duties, to limit the amount of
net proceeds raised by NYMT in any capital raising transaction invested by NYMT
in the Separate Account.
 
(d) Capital Commitment Cancellation
 
If the cumulative return on Invested Capital within any calendar year declines
by 20%, or more, NYMT shall have the right to opt out of the remaining portion
of its Capital Commitment. While NYMT may opt out of its remaining Capital
Commitment, it agrees that the Separate Account will not be liquidated and that
NYMT will confer with Midway on the appropriate disposition of the assets in the
Separate Account. Midway and NYMT must agree on the best course of action to
liquidate the portfolio, a process which is not disruptive to the markets or to
Midway.
 
 
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(e) Reduction of Capital
 
NYMT will have the right to redeem Invested Capital in an amount equal to the
lesser of 10% of the Invested Capital or $10,000,000 as of the last calendar day
of the month, upon not less than seventy-five (75) days written notice; provided
that NYMT may not make more than one such redemption request in any seventy-five
(75) day period. Midway will have corresponding rights to reduce and return
capital in the Separate Account. All amounts returned to NYMT pursuant to this
provision shall be returned in cash, and Midway shall have the sole discretion
to determine which securities in the Separate Account shall be liquidated to
meet the redemption. The redemption rights specified above will not be
applicable to the Initial Investment during the Initial Term. However, any
subsequent Capital Payments will be subject to the above redemption rights.
 
(5)  
Brokerage Services.

 
(a) General
 
Midway will utilize the same broker-dealers, banks and other counterparties (the
“Counterparties”) as used from time to time for the Fund when executing
transactions for the Separate Account and will have sole discretion over the
selection of such Counterparties. Midway and any broker-dealer engaged by Midway
is authorized to combine purchase or sale orders on behalf of the Separate
Account together with orders for the Fund and/or any other funds or accounts
managed by Midway (including accounts in which Midway, the broker-dealer, their
respective affiliates, and/or their personnel have an interest), and to allocate
the securities or other assets so purchased or sold, on an average price basis
or other fair and consistent basis, among such accounts in accordance with and
subject to the provisions of Paragraph (9). In selecting a broker-dealer, Midway
will use its reasonable efforts to obtain best execution and will take into
account such relevant factors as (i) price; (ii) the broker-dealer’s facilities,
reliability and financial responsibility; and (iii) the ability of the
broker-dealer to effect securities transactions, particularly with regard to
such aspects as timing, order size and execution of orders.
 
(b) Agency Cross Trades
 
Cross transactions are transactions between the Separate Account, on the one
hand, and the Fund or another fund or account that is managed or advised by
Midway or one of Midway’s other investment advisory affiliates, on the other
hand (each a “Cross Transaction”). Midway is authorized to execute Cross
Transactions in accordance with applicable law and Midway’s internal compliance
policies. Midway agrees that it will only execute Cross Transactions when it
believes that the Cross Transaction is in the best interest of both parties to
the transaction. NYMT may at any time, upon written notice to Midway, revoke its
consent to Midway to execute Cross Transactions. In addition, unless approved in
advance by NYMT, all Cross Transactions must be effected at then-prevailing
market prices.
 
 
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(c) Custodian
 
The Manager shall not be liable to NYMT for any act or omission of the
Custodian.  NYMT has directed Midway to use JP Morgan Chase, N.A. as custodian
for the Separate Account. The Custodian shall hold the assets in a segregated
account. At no time will Midway have custody or physical control of the assets
in the Separate Account. NYMT will instruct the Custodian to provide Midway with
statements of account on a monthly basis. In addition, Midway shall have no
responsibility or liability with respect to any of the trustee/custodial
arrangements or the acts, omissions, or other conduct of the Custodian. Midway
will provide reasonable assistance to the Custodian in providing confirmations
and periodic reports on Separate Account activity to NYMT. Unless NYMT directs
otherwise, these confirmations and statements may be provided in an electronic
format.
 
(6)  
Representations and Warranties.

 
(a) Of both parties.
 
Each of NYMT and Midway represents and warrants to the other that:
 
(i) It is duly formed, validly existing and in good standing under the laws of
its jurisdiction of formation and is qualified to transaction business and is in
good standing in each other jurisdiction in which the nature or conduct of its
business requires such qualification and good standing, except where the failure
to be so qualified and in good standing would not materially and adversely
affect the rights, power and authority of the party to enter into this Agreement
and perform its obligations hereunder.
 
(ii) It has full power and authority to execute and deliver this Agreement and
perform its obligations hereunder. This Agreement has been duly and validly
authorized, executed and delivered on its behalf and is a binding and
enforceable agreement in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
of general application affecting the rights and remedies of creditors and
general principles of equity, Neither its entry into this Agreement nor its
performance of its obligations hereunder is or will be in violation or conflict
with its organizational documents or any provision of any applicable law,
regulation, rule or policy, or any agreement, indenture or any other instrument
to which it is a party or by which it is bound.
 
(iii) It has all governmental and regulatory licenses, registrations, consents,
permits and approvals required to perform its obligations under this Agreement,
other than any such approval as may be expressly specified herein as a condition
to the performance of any of its obligations to be performed hereunder after the
date hereof, and has at all times complied and will continue to comply with all
laws, regulations and rules applicable to its business. Notwithstanding the
foregoing, NYMT acknowledges that Midway is not currently registered with the
Securities and Exchange Commission as an investment adviser under the Advisers
Act; however, it does intend to so register as an investment adviser in 2011.
 
 
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(iv) There are no pending or, to such party’s knowledge, threatened actions,
suits, proceedings or investigations before or by any court, governmental or
administrative authority or agency, board of trade, self-regulatory body,
securities exchange or arbitration panel to which it or any of its subsidiaries
or principals is a party or to which its assets or business are subject, which
could reasonably be expected to have a material and adverse effect on its
condition (financial or otherwise), business or prospects or which could
reasonably be expected to materially impair its ability to perform its
obligations hereunder.
 
(v) If, at any time during the term of this Agreement, it discovers any facts or
circumstances that would make any of the foregoing representations and
warranties inaccurate, untrue or incomplete in any material respect, it will
provide prompt written notification to the other party of such facts or
circumstances in reasonable detail.
 
(b) Of Midway.
 
Midway represents and warrants to NYMT that:
 
(i) It is currently in the process of revising the PPM regarding the Fund.
Midway represents and warrants to NYMT that such revisions will not materially
alter the Investment Strategy as currently described therein. Midway further
represents and warrants that, once the revisions to the PPM are completed, all
information contained in the PPM regarding Midway and the Investment Strategy
will be true and complete as of the date on the cover page of the PPM. Midway
shall have no ongoing obligation to update and/or revise the PPM after that
date.
 
(ii) It will not undertake trading of commodities until any necessary
registrations have been obtained.
 
(c) Of NYMT.
 
NYMT represents and warrants to Midway that:
 
(i) It has such experience and knowledge in financial and business matters that
it is capable of evaluating the merits and risks of its investments and is able
to bear such risks, and has obtained, in its judgment, sufficient information to
evaluate the risks and merits of its own investments. NYMT has evaluated the
risks of the Investment Guidelines, including but not limited to those disclosed
in the PPM under “Risk Factors,” and has determined for itself that such
investments are suitable.
 
(ii) NYMT is an “accredited investor” as defined under Regulation D under the
Securities Act of 1933, as amended, and a “qualified eligible person” as defined
in Rule 4.7 promulgated under the Commodity Exchange Act, as amended (the “CE
Act”), and an “eligible contract participant” as defined in Section 1a(12) of
the CE Act.
 
 
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(iii) None of its assets are considered assets of an employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended.
 
(iv) It has adopted and implemented anti-money laundering policies, procedures
and controls in order to comply with, and will continue to comply in all
respects with, the requirements of applicable anti-money laundering laws, rules
and regulations (including, but not limited to, the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism (“USA Patriot”) Act of 2001 and the Bank Secrecy Act of 1970, as
amended) and will provide a copy thereof to Midway upon request. NYMT is not
involved in any anti-money laundering schemes, and the performance by Midway
hereunder will not breach any applicable laws, rules and regulations designed to
avoid money laundering. NYMT will deliver any further documentation reasonably
requested by Midway in connection with Midway’s efforts to comply with
applicable anti-money laundering laws, rules and regulations and the U.S.
Government’s anti-terrorism policy as set out in the recently adopted USA
Patriot Act.
 
(v) It understands the methods of compensation under this Agreement and
acknowledges that this Agreement constitutes an arm’s length agreement with
respect to the receipt by Midway of the Management Fee and the Incentive Fee.
 
(vi) It has not relied upon any information or statements at variance with, or
contrary to, anything set forth either in this Agreement or in sections of the
PPM expressly referred to herein in deciding to execute this Agreement and to
open the Separate Account; it understands that information in the PPM other than
those sections expressly referred to herein should not be considered applicable
to the Separate Account and that Midway is available to answer any questions
NYMT may have prior to operating or during the trading of the Separate Account.
 
(vii) Because all assets in the Separate Account will be assets of NYMT, NYMT
will have full responsibility for the payment of all taxes due with respect to
investment gains and income earned in the Separate Account.
 
(7)  
Term and Termination.

 
(a) Term and Termination
 
This Agreement shall continue in full force and effect from the Effective Date
for a period of two (2) years (the “Initial Term”). Thereafter, the Agreement
shall automatically renew for successive one (1) year terms (each a “Renewal
Term”, and collectively with the Initial Term, referred to herein as the
“Term”), unless either party provides the other with at least six (6) months
advance written notice of its intent to terminate the Agreement at the end of
the then current Term. The termination of this Agreement shall not affect any
obligation incurred or liability of any of the parties hereto with respect to
any transaction entered into, or liability or obligation incurred or assumed
hereunder or otherwise, in each case, in good faith prior to such termination.
 
 
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(b) Transition of Separate Account Upon Termination
 
If the Agreement is terminated by NYMT, Midway will liquidate the assets in the
Separate Account in an orderly fashion, in its sole discretion. If the Agreement
is terminated by Midway, Midway will, at NYMT’s direction, either (i) liquidate
the assets in the Separate Account in an orderly fashion; (ii) transfer the
assets in the Separate Account to another investment manager designated by NYMT;
or (iii) transfer the assets in the Separate Account to an NYMT account
designated by NYMT. The Incentive Fee (as defined in Paragraph (8)(b) below)
payable by NYMT will be payable as follows: (i) in the event of an orderly
liquidation by Midway of the assets in the Separate Account, the Incentive Fee
shall be based upon the net sale proceeds received from the liquidation of all
such assets; and (ii) in the event the assets in the Separate Account are
transferred to another investment manager or to NYMT, the Incentive Fee shall be
based upon the fair market value of the assets as of the date of the effective
date of the termination as determined in accordance with the valuation
procedures provided below with respect to quarterly performance numbers. For the
avoidance of doubt the Preferred Return and the Hurdle Rate shall cease to
accrue as of the date notice of termination is given. Midway will continue to
receive Management Fees on that portion of the capital that is still invested
(as opposed to liquidated).
 
(8)  
Fees and Expenses.

 
(a) Management Fee
 
NYMT will pay Midway a monthly management fee (the “Management Fee”) for its
investment management services. The Management Fee shall be paid monthly in
arrears in an amount equal to the product of (i) 1.50% of the amount of Invested
Capital in the Separate Account on the last Business Day of the previous month,
multiplied by (ii) 1/12th. As set forth in Paragraph (4)(b), for the purposes of
determining the Invested Capital in the Separate Account at any given time, the
parties agree that the Capital Commitment Schedule set forth therein shall
govern. Client authorizes the Custodian of the assets in the Separate Account to
pay the Management Fee for each month directly to Midway. Midway will submit to
NYMT a copy of its statement for the Management Fee at the same time the
statement is submitted to the Custodian. The statement will reflect the amount
of the fee, the value of NYMT’s Invested Capital on which the fee was based, and
the manner in which the fee was calculated. Midway will also instruct the
Custodian to send to NYMT a statement, at least monthly, indicating all amounts
disbursed from the Separate Account including the Management Fee paid to Midway.
NYMT is responsible for verifying the accuracy of the fee calculation, and for
advising Midway within fifteen (15) days of its receipt of such statement if it
believes that the Management Fee is not correct. If NYMT does not object in
writing to the calculation within fifteen (15) Business Days of receipt, the
calculation shall be deemed accepted.
 
 
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(b) Incentive Fee
 
Midway will be entitled to a quarterly incentive fee (the “Incentive Fee”) that
is calculated monthly and payable quarterly in arrears. The Incentive Fee
calculation shall be based upon the total market value of the net Invested
Capital in the Separate Account on the last Business Day of the quarter, subject
to a high water mark equal to a 10% return on Invested Capital (the “High Water
Mark”), and shall be payable in an amount equal to 40% of the dollar amount by
which Adjusted Net Income (as defined below) attributable to the Separate
Account, on a calendar 12-month basis and before the Incentive Fee, exceeds an
annual 15% rate of return on Invested Capital (the “Hurdle Rate”), with the
return rate for each calendar 12-month period (the “Calculation Period”)
determined by dividing (i) the Adjusted Net Income for the Calculation Period by
(ii) the weighted average of the Invested Capital paid into the Separate Account
during the Calculation Period. For the initial twelve (12) months, Adjusted Net
Income will be calculated on the basis of each of the previously completed
months on an annualized basis.
 
“Adjusted Net Income” is defined as net income (loss) calculated in accordance
with generally accepted accounting principles in the United States (“GAAP”),
excluding any unrealized gains and losses, after giving effect to all expenses
as set forth in Paragraphs (8)(c) and (8)(d) below.
 
All securities held in the Separate Account shall be valued in accordance with
GAAP, and in a manner consistent with the PPM for the Fund. As set forth in
Paragraph (4)(b), for the purposes of determining the Invested Capital in the
Separate Account at any given time, the parties agree that the Capital
Commitment Schedule set forth herein shall govern.
 
Like the Hurdle Rate, which is calculated on a calendar twelve (12) month basis,
the High Water Mark is calculated on a calendar twelve (12) month basis, and
shall reset every twenty-four (24) months. The High Water Mark will be a static
dollar figure that Midway will be required to recoup, to the extent there was a
deficit in the prior High Water Mark calculation period before it can receive an
Incentive Fee. For example, if in 2011, NYMT earns a return on Invested Capital
in the Separate Account of 8%, which is 2% short of the High Water Mark, and
this 2% deficit is equivalent to a dollar amount of $2 million, Midway would
have to earn net profit of $2 million to get above the High Water Mark before it
would be eligible again to receive an Incentive Fee. This is independent of the
new High Water Mark, which will have to be reached in the following year(s). An
illustration of how the High Water Mark is calculated is included on Exhibit B.
 
(c) Setup Expenses
 
NYMT will pay for all Separate Account setup costs including account fee setup
costs, repurchase agreement establishment costs, legal, software and other
start-up type costs. All expenses above $50,000 will be approved by NYMT prior
to incurrence. Upon request, Midway shall provide NYMT with commercially
reasonable written support for expenses incurred.
 
 
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(d) On-Going Expenses
 
NYMT acknowledges that the Separate Account will be charged for all direct
operating and transaction costs and expenses incurred in connection with the
management and administration of the Separate Account, including clerical,
mailing, printing, duplication and other operational expenses, clearing fees,
broker fees, repurchase interest expense, interest and commitment fees incurred
in connection with other investment-related financing costs and other similar
costs, as well as a pro rata portion of portfolio management software expenses
and data fees incurred by Midway, allocated based on Invested Capital under
management.
 
(9)  
Other Clients and Financial Activities.

 
Midway’s services are not exclusive. In addition to managing the Separate
Account, Midway manages the Fund and other private investment vehicles and
either Midway or an affiliate may, in the future, manage other private
investment funds or separate accounts. Midway and/or its affiliates may also
have an economic interest in other accounts. Some of these accounts or entities
may seek to acquire securities of an issuer in which the Separate Account has
invested and holds an interest or to acquire from the Separate Account some or
all of the securities of a particular issuer or may seek to dispose of
securities the Separate Account is seeking to acquire. Other accounts and
persons advised by Midway may have different investment objectives or
considerations than the Separate Account. Decisions as to purchases and sales
for each account are made separately and independently in light of the
objectives and purposes of each account and may differ, depending on the
account. In addition, Midway does not devote its full time to the management of
any account and devotes such time and attention to any account as it, in its
sole discretion, deems necessary for the management of such account.
 
Although Midway seeks to allocate investment opportunities in a manner which it
believes to be in the best interests of all the accounts involved and seeks to
allocate investment opportunities believed to be appropriate for both the
Separate Account, the Fund and the other investment funds and/or accounts that
are managed by Midway on an equitable basis, there can be no assurance that a
particular investment opportunity will be allocated in any particular manner.
 
NYMT understands that the ability of Midway or its affiliates to effect and/or
recommend certain transactions may be restricted by applicable regulatory
requirements in the United States and/or other countries or jurisdictions.
 
Notwithstanding the foregoing, during the Initial Term, Midway agrees not to
establish a separate account with any other publicly-listed residential or
commercial mortgage REIT as long as NYMT has capital invested in the Separate
Account.
 
 
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(10)  
Performance Reports.

 
Monthly performance numbers for the Separate Account will be supplied to NYMT
within ten (10) Business Days after month end. These performance numbers do not
require any independent marks. Quarterly performance numbers will be supplied to
NYMT within twenty (20) days after quarter end. For illiquid securities, at
least 70% will have at least two (2) independent dealer marks, and up to 30% can
have one (1) independent dealer mark. Annual performance numbers for the
Separate Account will be supplied to NYMT within thirty (30) days after
year-end. Each of the illiquid securities must have at least two (2) independent
dealer marks.
 
To assist institutional equity investors in understanding the basic nature of
the strategy employed in the Separate Account, Midway agrees to make a senior
portfolio manager available periodically, with at least five (5) Business Days’
advance notice, to participate in conference calls.
 
(11)  
IPO Right of First Refusal

 
From the Effective Date of this Agreement, until the Agreement is terminated by
either party, NYMT will have a right of first refusal to serve as the primary
sponsor of Midway, or an external vehicle wholly or partially managed by Midway,
in any initial public offering, should Midway in its sole discretion elect to
make such an offering.
 
(12)  
Confidentiality

 
NYMT agrees that it and its directors, officers, shareholders and employees (its
“affiliates”) will keep confidential and will not disclose to any third party,
other than NYMT’s accountants, legal counsel, financial advisors, consultants
and other representatives (“Representatives”) whom NYMT determines have a need
to know such information and then only to the extent such representatives agree
to keep the information confidential, the details of or any other information
pertaining to this Agreement, the terms of the Agreement, Midway’s identity as a
party to this Agreement, Midway’s trading or investment advice or activities
pertaining to the Separate Account (including, without limitation, the
Investment Guidelines of the PPM for the Fund, positions held or taken and
financial instruments traded in the Separate Account) or the dollar amount
committed to the Separate Account (the “Confidential information”), except to
the extent NYMT determines that such disclosure is (a) required in order to
enable NYMT to comply with its disclosure and reporting obligations under the
federal securities laws or to the extent otherwise required by law or (b)
advisable, based on the advice of NYMT’s underwriters or financial advisors, for
marketing purposes in connection with any capital raising transaction undertaken
by NYMT. NYMT further agrees that NYMT and its affiliates will not otherwise use
such information for its or their own gain or benefit (other than as provided in
the previous sentence), including trading for its or their own account. If NYMT
determines that such disclosure is required or advisable pursuant to the first
sentence of this paragraph, it will, to the extent legally permitted to do so,
provide Midway with reasonable advance notice of its intent to make the
disclosure, which in no event shall be less than two (2) Business Days, and will
consult with Midway regarding the purpose and content of such disclosure,
subject to the understanding and agreement of the parties hereto that NYMT shall
have sole discretion to make the final determination regarding such disclosure.
NYMT agrees that, unless required by law, judicial order, subpoena or in
connection with any regulatory investigation or inquiry, NYMT and its affiliates
will not disclose to any third party, other than NYMT’s Representatives whom
NYMT determines have a need to know such information and then only to the extent
such Representatives agree to keep the information confidential, information
regarding individual trades or trading activity or strategies pertaining to the
Separate Account (as distinguished from the broader investment strategy relating
to the Separate Account) undertaken by Midway in the Separate Account. For the
avoidance of doubt, except to the extent set forth in the first sentence of this
Paragraph (12), with respect to the Investment Guidelines of the PPM for the
Fund, under no circumstances shall NYMT disclose any information regarding the
Fund and/or any other fund managed by Midway.
 
 
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To the extent that NYMT elects to disclose the performance of the Separate
Account, it shall either do so using only materials prepared or approved by
Midway or, if it elects not to use materials prepared or approved by Midway,
then NYMT agrees to indemnify, exculpate, and hold harmless Midway from and
against any loss, damages or expense suffered or sustained as a result of or in
connection with NYMT’s disclosure of such performance.
 
NYMT expressly agrees that the obligations set forth herein are necessary and
reasonable to protect Midway, and further agrees to notify Midway of any breach
of its obligations under Paragraph (12) within two (2) Business Days of becoming
aware of the same. NYMT expressly agrees and acknowledges that monetary damages
may be inadequate to compensate Midway for any breach of any covenant or
agreement set forth in this Paragraph (12). NYMT hereby agrees and acknowledges
that any such violation or threatened violation may cause irreparable injury to
Midway and that, in addition to any other remedies that may be available, in
law, in equity or otherwise, Midway will be entitled to injunctive relief
against any breach or threatened breach of any terms set forth in this Paragraph
(12) or the continuation of any such breach, without the necessity of proving
actual damages. NYMT further agrees that it will indemnify and hold harmless
Midway for any losses, costs, damages, liabilities or expenses (including
reasonable fees and expenses of counsel) caused by or resulting from any use or
disclosure by NYMT or its affiliates of the confidential information.
 
In connection with any representative client listing, marketing and/or similar
materials, Midway may include NYMT’s name, the material terms of this Agreement
and the investment products/strategies provided by Midway to NYMT provided that
Midway provides NYMT with reasonable advance notice, which in no event shall be
less than two (2) Business Days, of its intent to make such disclosure and
consults with NYMT regarding the purpose and content of such disclosure, subject
to the understanding and agreement of the parties hereto that Midway shall have
discretion to make the final determination regarding such disclosure. In
addition, if either NYMT has itself publicly disclosed the material terms of
this Agreement, or Midway, in its sole discretion, determines that it is
required to make such disclosure to satisfy its own regulatory obligations,
Midway shall also be permitted to disclose the amount of NYMT’s assets under
management in the Separate Account, in either case provided that it provides
NYMT with reasonable advance notice, which in no event shall be less than two
(2) Business Days, of its intent to make such disclosure and consults with NYMT
regarding the purpose and content of such disclosure, subject to the
understanding and agreement of the parties hereto that Midway shall have
discretion to make the final determination regarding such disclosure.
 
 
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Unless NYMT instructs Midway otherwise, communications and other documents
and/or reports may be provided to NYMT in an electronic format. NYMT may revoke
this consent at any time upon written notice to Midway.
 
(13)  
Track Record

 
NYMT acknowledges that Midway owns all rights and interest in the historic
performance of the Separate Account achieved from the Effective Date of this
Agreement, that this is the performance history of Midway and/or its affiliates,
and NYMT and its affiliates hereby release Midway and its affiliates from any
claims that it owns, is responsible for generating or, subject to the provisions
of Paragraph (12) hereof, is otherwise entitled to use such performance history.
 
Notwithstanding the foregoing, if Midway elects to disclose the investment
performance of the Separate Account in any marketing materials at any time
during the Term of the Agreement, it shall have full discretion to do so,
provided that it provides NYMT with reasonable advance notice, which in no event
shall be less than two (2) Business Days, of its intent to make such disclosure
and consults with NYMT regarding the purpose and content of such disclosure,
subject to the understanding and agreement of the parties hereto that Midway
shall have discretion to make the final determination regarding such disclosure.
 
(14)  
Proxy Voting

 
Unless otherwise agreed in writing, Midway shall be responsible for exercising
any voting rights, consents, authorizations, elections or tender decisions, for
securities held in the Separate Account, provided that Midway timely receives
proxies or similar materials relating to such securities. Midway may use an
external service provider in fulfilling its obligations under this section.
Midway will not advise or act for NYMT in legal proceedings, including class
action litigations and bankruptcies, involving securities purchased in the
Separate Account.
 
(15)  
Liability and Indemnification

 
(a) Neither Midway nor any of its partners, officers, affiliates, employees and
agents or the legal representatives of any of them (the “Manager Parties”) shall
be liable to NYMT hereunder for any action taken or omitted to be taken or any
judgment made honestly and in good faith, in the absence of gross negligence,
fraud or willful misconduct. The Manager Parties shall not be liable for the
negligence, dishonesty or bad faith of any agent, provided that such agent was
selected, engaged or retained by the Manager with reasonable care. The Manager
may consult with counsel and accountants in respect of its obligations under
this Agreement and be fully protected and justified in any action or inaction
which is taken in accordance with the advice or opinion of such counsel or
accountants. All trading activity on behalf of the Separate Accounts shall be
for the account and risk of NYMT, and, except as otherwise provided herein,
Midway and its affiliates and their respective officers, directors, managers,
members, employees and agents (the “Manager Parties”) shall not incur any
liability for trading profits or losses resulting therefrom, or any expenses
related thereto. This Paragraph 15 shall be in addition to, and not limit, any
other provision of this Agreement which relieves Midway of any liability.
 
 
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(b) NYMT will exculpate, indemnify and hold harmless the Manager Parties (each,
a “Manager Indemnified Person”) from and against any loss or expense suffered or
sustained as a result of or in connection with Midway’s or their performance of
Midway’s or their obligations hereunder, including, without limitation, any
judgment, settlement, reasonable attorneys’ fees and other costs and expenses
incurred in connection with the defense of any actual or threatened action or
proceeding (collectively, “Losses”), provided such Manager Indemnified Person
acted honestly and in good faith, and, in the case of criminal proceedings, the
Manager Indemnified Person had no reasonable cause to believe such action or
inaction was unlawful. No indemnification may be made and each Manager
Indemnified Person shall reimburse NYMT to the extent of any indemnification
previously made in respect of any claim, issue or matter as to which the Manager
Indemnified Person shall have been adjudged to be liable for gross negligence,
fraud or willful misconduct in the performance of its duties to NYMT hereunder
or would not otherwise be entitled to be held harmless under Paragraph 15 hereof
unless, and only to the extent that, the court in which or the panel before
which such action or suit was brought determines that in view of all the
circumstances of the case, despite the adjudication of liability the indemnified
party is fairly and reasonably entitled to indemnity for those expenses which
the court deems proper.
 
(c) Promptly after receipt by an Indemnified Person of notice of the
commencement of an action, claim or proceeding as to which a claim for
indemnification under this Paragraph 15 may be made, the Indemnified Person
shall notify the Indemnifying Person in writing of the commencement of such
action, claim or proceeding; but the omission so to notify the Indemnifying
Person shall not relieve the Indemnifying Person from any liability which it may
have to the Indemnified Party unless the failure to so notify the Indemnifying
Person has a materially prejudicial effect against the Indemnifying Person.
 
(16)  
Notices

 
Any communication, notice or demand which any party may be required or may
desire to give or serve upon the other party shall be in writing and delivered
by courier service, postage prepaid mail or fax to the address set forth below
or a substituted address for which notice has been given in accordance with this
provision and shall be effective when delivered by hand via courier service,
three (3) days after being mailed by certified mail, and in the instance of fax
notice, when the transmitting machine signals the successful transmission of the
fax between 9:00 a.m. and 5:00 p.m. on a Business Day or at 9:00 a.m. on the
following Business Day if transmission is not within such hours on a Business
Day. In addition, any communication, notice or demand which any party may be
required or may desire to give or serve upon the other party may be made or
given in electronic .pdf form through an email transmission addressed to the
email address shown below for the recipient, provided the sender does not
receive any message indicating that the email transmission was not delivered
successfully.
 
 
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If to Midway:
 
Omar Qaiser
 
Chief Financial Officer
 
The Midway Group, LP
 
33 Whitehall Street, 22nd Floor
 
New York, New York 10004
 
Telephone: Facsimile: (212) 509-2570
 
E-Mail:  Omar@themidwaygroup.com
 
With a copy to: Wendy A. Lurie, Esq., General Counsel
 
E-Mail:  Wlurie@comcast.net
 
If to NYMT:
 
Steven R. Mumma
 
Chief Executive Officer
 
New York Mortgage Trust, Inc.
 
52 Vanderbilt Avenue Suite 403
 
New York New York 10017
 
Telephone: (212)792-1019
 
Facsimile: (212)655-6269
 
Email:  smumma@nymtrust.com
 
With a copy to:  Daniel M. LeBey, Esq. of Email: dlebey@hunton.com
 
(17)  
Governing Law

 
This Agreement shall be governed by and construed under the laws of the State of
New York without regard to choice of law principles
 
(18)  
Entire Agreement; Severability

 
This Agreement represents the entire Agreement between the parties and
supersedes all prior agreements with regard to the matters described herein and
may not be modified or amended except by writing signed by all parties. In the
event that any provision of this Agreement conflicts with the law under which
this Agreement is to be construed, or if any such provision is held invalid by a
court with jurisdiction over the parties to this Agreement, and the subject
matter of this Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the parties in
accordance with applicable law, and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect.
 
 
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(19)  
Arbitration

 
Any controversy or dispute between the parties arising out of any of the terms
or conditions of this Agreement shall be submitted to an independent
professional arbitration association in New York. Any arbitrator(s) selected
must have significant arbitration experience relating to the securities
industry. The parties shall select an arbitrator by mutual agreement within
thirty (30) days of the date of the demand for arbitration. If the parties are
unable to agree on the selection of an arbitrator within such time, each party
shall select an arbitrator and the two arbitrators shall select a third
arbitrator. Any of the two of the three arbitrators that agree shall decide the
matter. The cost of the arbitration shall be borne equally by the parties,
unless the arbitrator(s) order otherwise. The arbitration shall be binding with
no right of appeal.
 
(20)  
Paragraph Headings

 
Paragraph headings are for convenience only and shall not be relied upon in
construing this Agreement.
 
(21)  
Independence

 
Except as expressly provided herein, Midway is an independent contractor and
this Agreement does not establish a joint venture or partnership between Midway
and NYMT nor does it authorize any party to act as general agent, or to enter
into any contract or other agreement on behalf of any other party except as
specifically provided herein.
 
(22)  
Counterparts

 
This Agreement may be executed in counterparts, each of which shall be deemed to
be an original and all of which taken together shall be deemed a single
agreement.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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IN WITNESS WHEREOF, the parties have executed this Agreement effective on the
date first set forth above.
 

 
THE MIDWAY GROUP, LP
         
 
By:
/s/ Omar Qaiser      
Omar Qaiser
     
Chief Financial Officer
         

 

 
NEW YORK MORTGAGE TRUST, INC.
         
 
By:
/s/ Steven R. Mumma            
Steven R. Mumma
     
Chief Executive Officer
         

                                                  
 
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Exhibit A
 
PPM Investment Guidelines
 
As of August 2008
 

INVESTMENT OBJECTIVE AND STRATEGY
 

The methods and strategies described below are intended as generalities, are not
comprehensive, and are intended to give the Manager broad discretion in
identifying investment and trading opportunities. The Manager has the right to
alter its investment and trading strategies and priorities without prior notice
to the Company and the Members if it believes that such changes are appropriate
in view of the current or expected market, business or economic conditions.
 
Investment Objective
 
The Master Fund’s (and through its investment in the Master Fund, the Company’s)
investment objective is to achieve long-term capital appreciation while
emphasizing preservation of capital through the investment in fixed-income
securities and other related Financial Instruments.
 
The Master Fund will invest primarily in mortgage-related securities, contract
rights and derivatives, including mortgage-backed securities, CMOs, REMICs,
SMBSs (such as agency and non-agency IOs and POs) and other derivative
instruments. The Master Fund may also invest a portion of its assets in other
types of U.S. and non-U.S. sovereign debt instruments and other investment-grade
debt instruments and their related currencies as well as lower-grade securities.
The Master Fund may utilize other securities, options, cash instruments,
interest rate swaps, mortgage servicing rights, futures and other derivatives
for hedging purposes.
 
Due to the nature of the Master Fund’s investment program, the Master Fund may
be unable to immediately invest its cash in Financial Instruments. Uninvested
cash will be held in an interest-bearing account or otherwise be invested in
highly-liquid cash equivalents.
 
Description of Investments
 
Mortgage-Related Securities. A mortgage-related security is an interest in a
pool of mortgages. Most mortgage-related securities are mortgage pass-through
securities, which means that they provide investors with payments consisting of
both interest and principal as the mortgages in the underlying mortgage pool are
paid off. Other mortgage-related securities include collateralized mortgage
obligations, securities issued through REMICs and SMBSs.
 
 
 

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Mortgage Pass-Through Securities. Mortgage pass-through securities may be issued
or guaranteed by U.S. government agencies or instrumentalities, such as the
Government National Mortgage Association (“Ginnie Mae” or “GNMA”), the Federal
National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan
Mortgage Corporation (“Freddie Mac” or “FHLMC”), or by private originators of or
investors in mortgage loans, such as banks, mortgage lenders and other financial
institutions. Payments of principal and interest on Certificates issued by GNMA
(but not the market value of the Certificates themselves) are guaranteed by the
full faith and credit of the U.S. Government. FNMA and FHLMC obligations are not
backed by the full faith and credit of the U.S. Government, but are supported by
the instrumentalities’ right to borrow from the U.S. Treasury. Mortgage
pass-through securities issued by private (non-agency) issuers may have other
forms of credit enhancement.
 
Collateralized Mortgage Obligations. A CMO is a debt security that is backed by
a portfolio of mortgages or mortgage-backed securities. The issuer’s obligation
to make interest and principal payments is secured by the underlying portfolio
of mortgages or mortgage-backed securities. Also included within the category of
CMOs are PAC (Planned Amortization Class) Bonds, which are a type of CMO tranche
or series designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a predefined range.
 
Real Estate Mortgage Investment Conduits. A REMIC is a trust, partnership,
corporation, association or segregated pool of mortgages which has elected and
qualified to be treated as a REMIC under applicable U.S. tax rules. A REMIC must
consist of one or more classes of “regular interests,” some of which may be
adjustable rate, and a single class of “residual interests.” The different
classes may have different payment terms and rankings in terms of priority. To
qualify as a REMIC, substantially all the assets of the entity must be assets
principally secured, directly or indirectly, by interests in real property.
 
Stripped Mortgage-Backed Securities. SMBSs are securities representing interests
in a pool of mortgages the cash flow of which has been separated into its
interest and principal components. IOs (interest only securities) receive the
interest portion of the cash flow while POs (principal only securities) receive
the principal portion. SMBSs may be issued by U.S. government agencies or by
private (non-agency) issuers similar to those described with respect to CMOs and
REMICs.
 
CMO Residuals. The cash flow generated by the mortgage loans underlying a series
of CMOs is applied first to make required payments of principal of and interest
on the CMOs and second, if applicable, to pay the related administrative
expenses of the issuer. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making the foregoing payments,
including mortgage servicing contracts. The Master Fund may fail to recoup fully
its initial investment in a CMO residual. Some CMO residuals are subject to
certain restrictions on transferability and may have adverse tax consequences if
held by a non-U.S. person. Ownership of certain CMO residuals imposes liability
on the purchaser for certain of the expenses of the related CMO issuer.
 
Other Derivative Instruments. It is likely that other forms of mortgage-related
securities will be developed in the future. The Manager also expects that
markets for mortgage-related securities and derivatives outside the United
States will develop further. The Master Fund has complete flexibility to invest
in any such securities and derivative instruments which may be developed and
which may involve additional risks not described herein.
 
 
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Reverse Repurchase Agreements. The Master Fund leverages its investments by
entering into reverse repurchase agreements with respect to the types of
securities in which it invests.  A reverse repurchase agreement arises when the
Master Fund sells a security to a bank or brokerage firm and simultaneously
agrees to repurchase it on an agreed-upon future date. The repurchase price is
greater than the sale price, reflecting an agreed-upon market rate which is
effective for the period of time the buyer’s money is invested in the security
and which is not related to the coupon rate on the purchased security. The
Master Fund might suffer a loss in the event of a bankruptcy or default of a
bank or brokerage firm with which the Master Fund entered into a reverse
repurchase agreement.
 
Financial Futures Contracts. The Master Fund may purchase and sell financial
futures contracts from time to time in order to hedge all or part of its
underlying portfolio of mortgage-related securities, although it is not
obligated to do so. Financial futures contracts are contracts for the future
delivery of a financial instrument, such as a U.S. Treasury bill or bond.
Financial futures contracts combine the features of traditional commodity
futures trading with trading in government securities and other interest rate
sensitive instruments. The Master Fund may hedge against the possibility of an
increase or decrease in interest rates adversely affecting the value of
securities held in its portfolio by purchasing or selling a futures contract on
a specific debt security whose price is expected to reflect changes in interest
rates. However, if the Master Fund anticipates an increase in interest rates and
rates decrease instead, the Master Fund will lose part or all of the benefit of
the increased value of the securities which it has hedged because it will have
offsetting losses in its futures position. In addition, in such situations, if
the Master Fund has insufficient cash, it may have to sell Financial Instruments
to meet daily variation margin requirements at a time when it may be
disadvantageous to do so.
 
Option Trading. In general, an option gives the trader the right to acquire
(“call option”) or dispose of (“put option”) a security or commodity futures
contract at a fixed price before a specified date in the future. The Master Fund
may, but is not obligated to, purchase call options on financial futures
contracts to hedge against a decline in interest rates and/or purchase put
options on financial futures contracts to hedge its portfolio securities against
the risk of rising interest rates, although no assurance can be given that there
will be a correlation between price movements in the options on financial
futures and price movements in the portfolio securities of the Master Fund which
are the subject of the hedge. Option trading is highly leveraged, since the
option buyer must put up only the premium, normally a small amount relative to
the value of the underlying security or commodity futures contract, in order to
buy an option contract. A commodity option that is “out-of-the-money” and is not
offset by the time it expires becomes valueless.
 
Other Investments; Future Developments. The Master Fund may enter into interest
rate swap contracts and invest and trade in other debt securities and cash
instruments. The Master Fund may also take advantage of other opportunities in
the area of options, futures contracts and other synthetic or derivative
instruments which are not presently contemplated or which are not currently
available but which may be developed in the future and which may involve risks
not described herein.
 
 
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Modification of Trading Program. The Master Fund intends to maintain maximum
flexibility in its trading and investment strategy and may modify the Master
Fund’s investment objective and strategies if it believes that it is in the
Fund’s best interests to do so, without notice to, or prior consent of, the
Members.
 
Leverage
 
The Master Fund intends to borrow money from banks and other lenders and to
trade on margin to leverage its investments. The Master Fund may pledge its
assets as security for its borrowings. The leverage used on the Master Fund’s
investments (other than investments made for hedging purposes) generally will
not exceed 3:1; however, there may be occasional short-term increases in the
amount of leverage used due to major moves in the markets. Most of the Master
Fund’s borrowing will be short-term (less than 6 months) at commercial rates of
interest. The Master Fund may increase or decrease the amount of leverage it
uses at any time.
 
There can be no assurance that the Fund’s investment objective will be realized.
The success of the Fund depends on the ability of the Manager to select
Financial Instruments.
 
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