##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2011

OR



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

For the transition period from              to
            .

Commission file number 001-33740





LOGO

Cypress Sharpridge Investments, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Maryland                                                       |  | 20-4072657                       
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|437 Madison Avenue, 33rdFloor New York, New York               |  | 10022                            
|(Address of principal executive offices)                       |  | (Zip Code)                       

(212)
612-3210

(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Check one:



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

Indicate
the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                               |  |                              
|------------------------------ |  | -----------------------------
|Class                          |  | Outstanding at April 19, 2011
|Common Stock ($0.01 par value) |  | 82,566,553                   









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##### Table of Contents



Table of Contents



|         |  |                                                                                       |  |      |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                       |  | Page |   
|PART I.  |  | Financial Information                                                                 |  |      |    | 
|         |  |                                                                                      
|Item 1.  |  | Financial Statements                                                                  |  |      | 1  | 
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |      | 22 | 
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  |      | 37 | 
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  |      | 40 | 
|         |  |                                                                                      
|PART II. |  | Other Information                                                                     |  |      | 40 | 
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  |      | 40 | 
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  |      | 41 | 
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  |      | 41 | 
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  |      | 41 | 
|         |  |                                                                                      
|Item 4.  |  | (Removed and Reserved).                                                               |  |      | 41 | 
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  |      | 41 | 
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  |      | 41 | 
|         |  |                                                                                      
|         |  | SIGNATURES                                                                            |  |      | 42 | 



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##### Table of Contents

PART I. Financial Information



|Item 1. | Financial Statements
|------- | --------------------

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)



|                                                                                                                         |  |                |           |   |                    |   |           |  
|------------------------------------------------------------------------------------------------------------------------ |  | -------------- | --------- | - | ------------------ | - | --------- | -
|(In thousands, except per share numbers)                                                                                 |  | March 31, 2011 |           |   | December 31, 2010* |  
|ASSETS:                                                                                                                  |  |                |           |   |                    |   |           |  
|Investments in securities, at fair value (including net pledged assets of $5,657,798 and $3,671,582,
respectively)       |  | $              | 8,513,146 |   |                    | $ | 6,331,048 |  
|Interest rate swap contracts, at fair value                                                                              |  |                | 12,818    |   |                    |   | 9,113     |  
|Interest rate cap, at fair value                                                                                         |  |                | 31,863    |   |                    |   | 30,984    |  
|Cash and cash equivalents                                                                                                |  |                | 6,001     |   |                    |   | 1,510     |  
|Receivable for securities sold                                                                                           |  |                | 200,461   |   |                    |   |          |  
|Interest receivable                                                                                                      |  |                | 23,195    |   |                    |   | 16,183    |  
|Other assets                                                                                                             |  |                | 148       |   |                    |   | 429       |  
|                                                                                                                         |  |                |           |   |                    |   |           |  
|Total assets                                                                                                             |  |                | 8,787,632 |   |                    |   | 6,389,267 |  
|                                                                                                                         |  |                |           |   |                    |   |           |  
|                                                                                                                         |  |               
|LIABILITIES:                                                                                                             |  |                |           |   |                    |   |           |  
|Repurchase agreements                                                                                                    |  |                | 5,364,030 |   |                    |   | 3,443,843 |  
|Interest rate swap contracts, at fair value                                                                              |  |                | 4,622     |   |                    |   | 9,757     |  
|Payable for securities purchased                                                                                         |  |                | 2,384,991 |   |                    |   | 2,234,401 |  
|Distribution payable                                                                                                     |  |                | 49,536    |   |                    |   |          |  
|Accrued interest payable (including accrued interest on repurchase agreements of $1,336 and $1,084, respectively)        |  |                | 13,562    |   |                    |   | 9,412     |  
|Related party management fee payable                                                                                     |  |                | 1,032     |   |                    |   | 800       |  
|Accrued expenses and other liabilities                                                                                   |  |                | 593       |   |                    |   | 715       |  
|                                                                                                                         |  |                |           |   |                    |   |           |  
|Total liabilities                                                                                                        |  |                | 7,818,366 |   |                    |   | 5,698,928 |  
|                                                                                                                         |  |                |           |   |                    |   |           |  
|Contingencies (note 8)                                                                                                   |  |                |           |   |                    |   |           |  
|NET ASSETS                                                                                                               |  | $              | 969,266   |   |                    | $ | 690,339   |  
|                                                                                                                         |  |                |           |   |                    |   |           |  
|                                                                                                                         |  |               
|Net assets consist of:                                                                                                   |  |                |           |   |                    |   |           |  
|Common Stock, $0.01 par value, 500,000 shares authorized (82,559 and 59,551 shares issued and outstanding,
respectively) |  | $              | 826       |   |                    | $ | 596       |  
|Additional paid in capital                                                                                               |  |                | 1,015,141 |   |                    |   | 739,005   |  
|Accumulated deficit                                                                                                      |  |                | (46,701   | ) |                    |   | (49,262   | )
|                                                                                                                         |  |                |           |   |                    |   |           |  
|NET ASSETS                                                                                                               |  | $              | 969,266   |   |                    | $ | 690,339   |  
|                                                                                                                         |  |                |           |   |                    |   |           |  
|NET ASSET VALUE PER SHARE                                                                                                |  | $              | 11.74     |   |                    | $ | 11.59     |  
|                                                                                                                         |  |                |           |   |                    |   |           |  



|* | Derived from audited financial statements.
|- | ------------------------------------------



See notes to
financial statements.

1



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CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED SCHEDULES OF INVESTMENTS

MARCH 31, 2011 (UNAUDITED)

INVESTMENTS IN SECURITIESUNITED STATES
OF AMERICA



|                                               |  |             |         |  |            |   |         | 
|---------------------------------------------- |  | ----------- | ------- |  | ---------- | - | ------- | 
|(In thousands)                                 |  | Face Amount |         |  | Fair Value |  
|Fixed Income Securities - 878.3% (d)           |  |             |         |  |            |   |         | 
|Mortgage Pass-Through Agency RBBS - 875.8% (d) |  |             |         |  |            |   |         | 
|Fannie Mae Pools - 789.7% (d)                  |  |             |         |  |            |   |         | 
|3.000%, due 1/1/2041(a)(b)                     |  | $           | 49,695  |  |            | $ | 50,587  | 
|3.010%, due 10/1/2040(a)(b)                    |  |             | 57,178  |  |            |   | 58,106  | 
|3.040%, due 12/1/2040(a)(b)                    |  |             | 190,165 |  |            |   | 193,984 | 
|3.200%, due 5/1/2041(b)                        |  |             | 200,000 |  |            |   | 204,437 | 
|3.206%, due 12/1/2040(a)(b)                    |  |             | 96,716  |  |            |   | 99,278  | 
|3.208%, due 11/1/2040(a)(b)                    |  |             | 47,875  |  |            |   | 49,160  | 
|3.220%, due 7/1/2040(a)(b)                     |  |             | 45,984  |  |            |   | 47,330  | 
|3.241%, due 3/1/2041(a)(b)                     |  |             | 19,474  |  |            |   | 19,688  | 
|3.250%, due 4/1/2041(b)                        |  |             | 75,000  |  |            |   | 76,969  | 
|3.250%, due 5/1/2041(b)                        |  |             | 135,000 |  |            |   | 138,164 | 
|3.250%, due 5/1/2041(b)                        |  |             | 50,000  |  |            |   | 51,203  | 
|3.250%, due 11/1/2040(a)(b)                    |  |             | 49,182  |  |            |   | 50,018  | 
|3.300%, due 4/1/2041(b)                        |  |             | 25,000  |  |            |   | 25,695  | 
|3.300%, due 5/1/2041(b)                        |  |             | 60,000  |  |            |   | 61,519  | 
|3.308%, due 8/1/2040(a)(b)                     |  |             | 44,390  |  |            |   | 45,629  | 
|3.310%, due 4/1/2041(b)                        |  |             | 60,000  |  |            |   | 61,687  | 
|3.332%, due 9/1/2040(a)(b)                     |  |             | 47,307  |  |            |   | 48,669  | 
|3.351%, due 9/1/2040(a)(b)                     |  |             | 50,872  |  |            |   | 52,383  | 
|3.380%, due 4/1/2041(b)                        |  |             | 50,000  |  |            |   | 50,828  | 
|3.400%, due 5/1/2041(b)                        |  |             | 125,000 |  |            |   | 126,875 | 
|3.401%, due 4/1/2041(a)(b)                     |  |             | 60,018  |  |            |   | 60,924  | 
|3.464%, due 11/1/2040(a)(b)                    |  |             | 24,355  |  |            |   | 24,726  | 
|3.500%, due 1/1/2026(a)                        |  |             | 177,029 |  |            |   | 177,743 | 
|3.500%, due 1/1/2026(a)                        |  |             | 148,602 |  |            |   | 149,248 | 
|3.500%, due 2/1/2026(a)                        |  |             | 99,631  |  |            |   | 100,064 | 
|3.500%, due 2/1/2026(a)                        |  |             | 147,996 |  |            |   | 148,639 | 
|3.500%, due 2/1/2026(a)                        |  |             | 198,314 |  |            |   | 199,176 | 
|3.500%, due 3/1/2026(a)                        |  |             | 99,918  |  |            |   | 100,352 | 
|3.500%, due 3/1/2026(a)                        |  |             | 55,640  |  |            |   | 55,882  | 
|3.500%, due 3/1/2026(a)                        |  |             | 94,784  |  |            |   | 95,196  | 
|3.500%, due 12/1/2025(a)                       |  |             | 98,829  |  |            |   | 99,227  | 
|3.500%, due 12/1/2025(a)                       |  |             | 98,254  |  |            |   | 98,650  | 
|3.500%, due 4/1/2041                           |  |             | 200,000 |  |            |   | 200,500 | 
|3.505%, due 8/1/2040(a)(b)                     |  |             | 42,283  |  |            |   | 43,659  | 
|3.554%, due 7/1/2040(a)(b)                     |  |             | 18,350  |  |            |   | 18,739  | 
|3.560%, due 7/1/2040(a)(b)                     |  |             | 20,462  |  |            |   | 20,918  | 
|3.576%, due 8/1/2040(a)(b)                     |  |             | 46,259  |  |            |   | 47,245  | 
|3.592%, due 7/1/2039(a)(b)                     |  |             | 4,463   |  |            |   | 4,630   | 
|3.601%, due 8/1/2040(a)(b)                     |  |             | 45,773  |  |            |   | 46,842  | 
|3.605%, due 8/1/2040(a)(b)                     |  |             | 21,280  |  |            |   | 21,760  | 
|3.605%, due 10/1/2040(a)(b)                    |  |             | 57,836  |  |            |   | 59,069  | 
|3.651%, due 6/1/2040(a)(b)                     |  |             | 18,935  |  |            |   | 19,673  | 
|3.663%, due 7/1/2040(a)(b)                     |  |             | 41,636  |  |            |   | 42,770  | 
|3.667%, due 7/1/2040(a)(b)                     |  |             | 44,585  |  |            |   | 46,267  | 



See notes to
financial statements.

2



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##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED SCHEDULES OF INVESTMENTS  Continued

MARCH 31, 2011 (UNAUDITED)



|                            |  |             |         |  |            |   |         | 
|--------------------------- |  | ----------- | ------- |  | ---------- | - | ------- | 
|                            |  | Face Amount |         |  | Fair Value |  
|3.678%, due 8/1/2040(a)(b)  |  | $           | 45,946  |  |            | $ | 47,181  | 
|3.684%, due 5/1/2040(a)(b)  |  |             | 13,119  |  |            |   | 13,661  | 
|3.703%, due 8/1/2040(a)(b)  |  |             | 22,039  |  |            |   | 22,654  | 
|3.738%, due 5/1/2040(a)(b)  |  |             | 41,235  |  |            |   | 42,535  | 
|3.754%, due 9/1/2039(a)(b)  |  |             | 27,797  |  |            |   | 28,846  | 
|3.763%, due 8/1/2040(a)(b)  |  |             | 12,732  |  |            |   | 13,122  | 
|3.825%, due 7/1/2040(a)(b)  |  |             | 42,610  |  |            |   | 44,021  | 
|3.960%, due 10/1/2039(a)(b) |  |             | 36,275  |  |            |   | 37,786  | 
|3.976%, due 9/1/2039(a)(b)  |  |             | 17,899  |  |            |   | 18,699  | 
|4.000%, due 1/1/2025(a)     |  |             | 39,274  |  |            |   | 40,427  | 
|4.000%, due 1/1/2025(a)     |  |             | 62,240  |  |            |   | 64,078  | 
|4.000%, due 1/1/2026(a)     |  |             | 49,312  |  |            |   | 50,768  | 
|4.000%, due 1/1/2026        |  |             | 49,696  |  |            |   | 51,094  | 
|4.000%, due 2/1/2025(a)     |  |             | 41,637  |  |            |   | 42,867  | 
|4.000%, due 2/1/2026(a)     |  |             | 54,682  |  |            |   | 56,313  | 
|4.000%, due 2/1/2026(a)     |  |             | 43,855  |  |            |   | 45,164  | 
|4.000%, due 2/1/2026(a)     |  |             | 15,267  |  |            |   | 15,722  | 
|4.000%, due 2/1/2026(a)     |  |             | 100,028 |  |            |   | 103,013 | 
|4.000%, due 3/1/2025(a)     |  |             | 41,472  |  |            |   | 42,697  | 
|4.000%, due 3/1/2026(a)     |  |             | 27,217  |  |            |   | 28,029  | 
|4.000%, due 3/1/2026(a)     |  |             | 203,228 |  |            |   | 209,293 | 
|4.000%, due 3/1/2026(a)     |  |             | 46,848  |  |            |   | 48,246  | 
|4.000%, due 3/1/2026(a)     |  |             | 50,210  |  |            |   | 51,709  | 
|4.000%, due 4/1/2026        |  |             | 101,646 |  |            |   | 104,505 | 
|4.000%, due 9/1/2030        |  |             | 93,581  |  |            |   | 93,981  | 
|4.000%, due 9/1/2030(a)     |  |             | 22,105  |  |            |   | 22,200  | 
|4.000%, due 10/1/2024(a)    |  |             | 10,495  |  |            |   | 10,803  | 
|4.000%, due 10/1/2025(a)    |  |             | 27,140  |  |            |   | 27,942  | 
|4.000%, due 10/1/2025(a)    |  |             | 28,648  |  |            |   | 29,494  | 
|4.000%, due 10/1/2025(a)    |  |             | 48,449  |  |            |   | 49,879  | 
|4.000%, due 10/1/2030(a)    |  |             | 49,218  |  |            |   | 49,429  | 
|4.000%, due 10/1/2030(a)    |  |             | 74,067  |  |            |   | 74,384  | 
|4.000%, due 10/1/2030(a)    |  |             | 72,957  |  |            |   | 73,269  | 
|4.000%, due 10/1/2030(a)    |  |             | 74,101  |  |            |   | 74,418  | 
|4.000%, due 11/1/2025(a)    |  |             | 48,377  |  |            |   | 49,806  | 
|4.000%, due 11/1/2025(a)    |  |             | 49,156  |  |            |   | 50,607  | 
|4.000%, due 11/1/2025(a)    |  |             | 9,807   |  |            |   | 10,097  | 
|4.000%, due 12/1/2025(a)    |  |             | 24,723  |  |            |   | 25,454  | 
|4.000%, due 12/1/2025(a)    |  |             | 73,834  |  |            |   | 76,015  | 
|4.000%, due 12/1/2025(a)    |  |             | 30,029  |  |            |   | 30,916  | 
|4.000%, due 12/1/2025(a)    |  |             | 30,606  |  |            |   | 31,295  | 
|4.000%, due 12/1/2030(a)    |  |             | 74,814  |  |            |   | 75,135  | 
|4.000%, due 4/1/2041        |  |             | 398,354 |  |            |   | 409,309 | 
|4.052%, due 6/1/2039(a)(b)  |  |             | 17,892  |  |            |   | 18,722  | 
|4.098%, due 9/1/2039(a)(b)  |  |             | 22,176  |  |            |   | 23,174  | 
|4.500%, due 6/1/2025(a)     |  |             | 31,750  |  |            |   | 33,361  | 
|4.500%, due 2/1/2026(a)     |  |             | 57,418  |  |            |   | 60,297  | 
|4.500%, due 3/1/2024(a)     |  |             | 14,381  |  |            |   | 15,102  | 



See notes to
financial statements.

3



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##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED SCHEDULES OF INVESTMENTS  Continued

MARCH 31, 2011 (UNAUDITED)



|                                                            |  |             |           |  |            |   |           | 
|----------------------------------------------------------- |  | ----------- | --------- |  | ---------- | - | --------- | 
|                                                            |  | Face Amount |           |  | Fair Value |  
|4.500%, due 3/1/2025(a)                                     |  | $           | 48,017    |  |            | $ | 50,454    | 
|4.500%, due 3/1/2026(a)                                     |  |             | 75,865    |  |            |   | 79,692    | 
|4.500%, due 4/1/2025(a)                                     |  |             | 32,337    |  |            |   | 33,978    | 
|4.500%, due 4/1/2030(a)                                     |  |             | 28,538    |  |            |   | 29,520    | 
|4.500%, due 5/1/2023(a)                                     |  |             | 25,861    |  |            |   | 27,166    | 
|4.500%, due 6/1/2024(a)                                     |  |             | 17,319    |  |            |   | 18,187    | 
|4.500%, due 8/1/2024(a)                                     |  |             | 13,856    |  |            |   | 14,551    | 
|4.500%, due 9/1/2024(a)                                     |  |             | 19,849    |  |            |   | 20,844    | 
|4.500%, due 10/1/2024(a)                                    |  |             | 32,322    |  |            |   | 33,942    | 
|4.500%, due 10/1/2024(a)                                    |  |             | 35,334    |  |            |   | 37,105    | 
|4.500%, due 10/1/2024(a)                                    |  |             | 28,993    |  |            |   | 30,446    | 
|4.500%, due 10/1/2030(a)                                    |  |             | 49,249    |  |            |   | 50,943    | 
|4.500%, due 11/1/2024(a)                                    |  |             | 45,312    |  |            |   | 47,583    | 
|4.500%, due 11/1/2030(a)                                    |  |             | 49,922    |  |            |   | 51,639    | 
|4.500%, due 5/1/2030(a)                                     |  |             | 46,939    |  |            |   | 48,554    | 
|5.000%, due 4/1/2041                                        |  |             | 500,000   |  |            |   | 523,047   | 
|5.000%, due 6/1/2041                                        |  |             | 100,000   |  |            |   | 103,922   | 
|5.500%, due 2/1/2041(a)                                     |  |             | 74,874    |  |            |   | 80,158    | 
|5.500%, due 5/1/2040(a)                                     |  |             | 97,089    |  |            |   | 104,062   | 
|5.500%, due 12/1/2038(a)                                    |  |             | 21,510    |  |            |   | 23,028    | 
|5.500%, due 4/1/2041                                        |  |             | 200,000   |  |            |   | 213,875   | 
|                                                            |  |             |           |  |            |   |           | 
|Total Fannie Mae Pools                                      |  |             | 7,457,598 |  |            |   | 7,654,323 | 
|                                                            |  |             |           |  |            |   |           | 
|Freddie Mac Pools - 70.1% (d)                               |  |             |           |  |            |   |           | 
|3.056%, due 1/1/2041(a)(b)                                  |  |             | 44,989    |  |            |   | 45,917    | 
|3.208%, due 12/1/2040(b)                                    |  |             | 48,904    |  |            |   | 50,286    | 
|3.247%, due 2/1/2041(b)                                     |  |             | 41,128    |  |            |   | 41,795    | 
|3.248%, due 1/1/2041(a)(b)                                  |  |             | 49,872    |  |            |   | 50,334    | 
|3.249%, due 12/1/2040(a)(b)                                 |  |             | 49,329    |  |            |   | 50,552    | 
|3.500%, due 4/1/2026(a)                                     |  |             | 200,160   |  |            |   | 201,124   | 
|4.000%, due 10/1/2025(a)                                    |  |             | 69,031    |  |            |   | 71,069    | 
|4.500%, due 1/1/2025(a)                                     |  |             | 31,313    |  |            |   | 32,848    | 
|4.500%, due 2/1/2025(a)                                     |  |             | 41,485    |  |            |   | 43,584    | 
|4.500%, due 5/1/2025(a)                                     |  |             | 18,282    |  |            |   | 19,207    | 
|4.500%, due 7/1/2024(a)                                     |  |             | 41,591    |  |            |   | 43,630    | 
|4.500%, due 12/1/2024(a)                                    |  |             | 14,175    |  |            |   | 14,870    | 
|4.500%, due 12/1/2024(a)                                    |  |             | 13,658    |  |            |   | 14,327    | 
|                                                            |  |             |           |  |            |   |           | 
|Total Freddie Mac Pools                                     |  |             | 663,917   |  |            |   | 679,543   | 
|                                                            |  |             |           |  |            |   |           | 
|Ginnie Mae Pools - 16.0% (d)                                |  |             |           |  |            |   |           | 
|3.500%, due 7/20/2040(a)(b)                                 |  |             | 82,626    |  |            |   | 85,117    | 
|3.500%, due 7/20/2040(a)(b)                                 |  |             | 48,575    |  |            |   | 50,039    | 
|4.000%, due 1/20/2040(a)(b)                                 |  |             | 19,293    |  |            |   | 20,177    | 
|                                                            |  |             |           |  |            |   |           | 
|Total Ginnie Mae Pools                                      |  |             | 150,494   |  |            |   | 155,333   | 
|                                                            |  |             |           |  |            |   |           | 
|Total Mortgage Pass-Through Agency RMBS (cost - $8,477,737) |  |             | 8,272,009 |  |            |   | 8,489,199 | 
|                                                            |  |             |           |  |            |   |           | 
|Collateralized Loan Obligation Securities - 2.5%(d)         |  |             |           |  |            |   |           | 
|AMMC CLO V LTD(c)                                           |  |             | 2,249     |  |            |   | 1,507     | 
|AMMC CLO VII, LTD(c)                                        |  |             | 3,900     |  |            |   | 3,042     | 
|ARES VIR CLO, LTD(c)(e)                                     |  |             | 3,775     |  |            |   | 1,510     | 



See notes to
financial statements.

4



---

##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED SCHEDULES OF INVESTMENTS  Continued

MARCH 31, 2011 (UNAUDITED)



|                                                                        |  |                |           |  |            |   |           |  
|----------------------------------------------------------------------- |  | -------------- | --------- |  | ---------- | - | --------- | -
|                                                                        |  | Face Amount    |           |  | Fair Value |  
|BALLYROCK CLO 2006-2, LTD(c)                                            |  | $              | 4,270     |  |            | $ | 4,398     |  
|CARLYLE HIGH YIELD PARTNERS VIII, LTD(c)                                |  |                | 3,000     |  |            |   | 2,370     |  
|EATON VANCE CDO IX, LTD(c)                                              |  |                | 2,500     |  |            |   | 2,413     |  
|FLAGSHIP CLO V, LTD(c)                                                  |  |                | 3,750     |  |            |   | 3,244     |  
|PHOENIX CLO II, LTD (formerly AVENUE CLO V)(c)                          |  |                | 2,000     |  |            |   | 1,640     |  
|PRIMUS CLO I, LTD(c)                                                    |  |                | 2,500     |  |            |   | 2,163     |  
|TRIMARAN CLO VII, LTD(c)                                                |  |                | 2,000     |  |            |   | 1,660     |  
|                                                                        |  |                |           |  |            |   |           |  
|Total Collateralized Loan Obligation Securities (cost - $20,074)        |  |                | 29,944    |  |            |   | 23,947    |  
|                                                                        |  |                |           |  |            |   |           |  
|Total Investments in Securities (cost - $8,497,811)                     |  | $              | 8,301,953 |  |            | $ | 8,513,146 |  
|                                                                        |  |                |           |  |            |   |           |  
|                                                                        |  |               
|                                                                        |  | NotionalAmount |           |  | Fair Value |  
|Interest Rate Cap Contracts - 3.3%(d)                                   |  |                |           |  |            |   |           |  
|December 2014 Expiration, Cap Rate 2.0725%                              |  | $              | 200,000   |  |            | $ | 4,862     |  
|October 2015 Expiration, Cap Rate 1.4275%                               |  |                | 300,000   |  |            |   | 15,790    |  
|November 2015 Expiration, Cap Rate 1.3600%                              |  |                | 200,000   |  |            |   | 11,211    |  
|                                                                        |  |                |           |  |            |   |           |  
|Total Interest Rate Cap Contracts (Cost, $16,600)                       |  | $              | 700,000   |  |            | $ | 31,863    |  
|                                                                        |  |                |           |  |            |   |           |  
|                                                                        |  |               
|                                                                        |  | NotionalAmount |           |  | Fair Value |  
|Interest Rate Swap Contracts - 0.8%(d)                                  |  |                |           |  |            |   |           |  
|May 2013 Expiration, Pay Rate 1.6000%, Receive Rate 3-Month LIBOR       |  | $              | 100,000   |  |            | $ | (1,192    | )
|June 2013 Expiration, Pay Rate 1.3775%, Receive Rate 3-Month LIBOR      |  |                | 300,000   |  |            |   | (1,930    | )
|July 2013 Expiration, Pay Rate 1.365%, Receive Rate 3-Month LIBOR       |  |                | 300,000   |  |            |   | (1,684    | )
|December 2013 Expiration, Pay Rate 1.2640%, Receive Rate 3-Month LIBOR  |  |                | 400,000   |  |            |   | 981       |  
|December 2013 Expiration, Pay Rate 1.2813%, Receive Rate 3-Month LIBOR  |  |                | 500,000   |  |            |   | 1,013     |  
|December 2013 Expiration, Pay Rate 1.3088%, Receive Rate 3-Month LIBOR  |  |                | 400,000   |  |            |   | 505       |  
|December 2013 Expiration, Pay Rate 1.3225%, Receive Rate 3-Month LIBOR  |  |                | 400,000   |  |            |   | 361       |  
|April 2014 Expiration, Pay Rate 1.6700%, Receive Rate 3-Month LIBOR(f)  |  |                | 250,000   |  |            |   | (28       | )
|July 2014 Expiration, Pay Rate 1.7200%, Receive Rate 3-Month LIBOR      |  |                | 100,000   |  |            |   | (253      | )
|July 2014 Expiration, Pay Rate 1.7325%, Receive Rate 3-Month LIBOR      |  |                | 250,000   |  |            |   | (577      | )
|August 2014 Expiration, Pay Rate 1.3530%, Receive Rate 3-Month LIBOR    |  |                | 200,000   |  |            |   | 2,322     |  
|September 2014 Expiration, Pay Rate 1.3120%, Receive Rate 3-Month LIBOR |  |                | 500,000   |  |            |   | 7,497     |  
|October 2014 Expiration, Pay Rate 1.1725%, Receive Rate 3-Month LIBOR   |  |                | 240,000   |  |            |   | 4,928     |  
|February 2015 Expiration, Pay Rate 2.1450%, Receive Rate 3-Month LIBOR  |  |                | 500,000   |  |            |   | (3,747    | )
|                                                                        |  |                |           |  |            |   |           |  
|Total Interest Rate Swap Contracts (Cost, $0)                           |  | $              | 4,440,000 |  |            | $ | 8,196     |  
|                                                                        |  |                |           |  |            |   |           |  



LEGEND



|(a) | Securities or a portion of the securities are pledged as collateral for repurchase agreements or interest rate swap contracts.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(b) | The coupon rate shown on floating or adjustable rate securities represents the rate at March 31, 2011.
|--- | ------------------------------------------------------------------------------------------------------

|(c) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may only be resold in transactions exempt from
registration, normally to qualified institutional buyers. At March 31, 2011, the fair value of these securities amounted to $23,947 or 2.5% of net assets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Percentage of net assets.
|--- | -------------------------

|(e) | Non-income producing security.
|--- | ------------------------------

|(f) | Interest rate swap contains a one-time option to cancel at $0.
|--- | --------------------------------------------------------------



See notes to
financial statements.

5



---

##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED SCHEDULES OF INVESTMENTS  (Continued)

DECEMBER 31, 2010 (UNAUDITED)*

INVESTMENTS IN SECURITIESUNITED
STATES OF AMERICA





|                                               |  |             |         |  |            |   |         | 
|---------------------------------------------- |  | ----------- | ------- |  | ---------- | - | ------- | 
|(In thousands)                                 |  | Face Amount |         |  | Fair Value |  
|Investments in Securities - 917.1% (d)         |  |             |         |  |            |   |         | 
|Mortgage Pass-Through Agency RMBS - 914.1% (d) |  |             |         |  |            |   |         | 
|Fannie Mae Pools - 802.1% (d)                  |  |             |         |  |            |   |         | 
|3.000%, due 1/1/2041(a)(b)                     |  | $           | 50,363  |  |            | $ | 51,416  | 
|3.013%, due 10/1/2040(a)(b)                    |  |             | 59,284  |  |            |   | 60,418  | 
|3.042%, due 12/1/2040(b)                       |  |             | 194,331 |  |            |   | 199,189 | 
|3.210%, due 11/1/2040(a)(b)                    |  |             | 49,731  |  |            |   | 50,957  | 
|3.212%, due 12/1/2040(a)(b)                    |  |             | 100,076 |  |            |   | 103,078 | 
|3.233%, due 7/1/2040(a)(b)                     |  |             | 47,318  |  |            |   | 48,667  | 
|3.251%, due 11/1/2040(a)(b)                    |  |             | 49,712  |  |            |   | 50,762  | 
|3.309%, due 8/1/2040(a)(b)                     |  |             | 47,107  |  |            |   | 48,594  | 
|3.336%, due 9/1/2040(a)(b)                     |  |             | 48,525  |  |            |   | 49,858  | 
|3.340%, due 9/1/2040(a)(b)                     |  |             | 55,821  |  |            |   | 57,416  | 
|3.462%, due 11/1/2040(a)(b)                    |  |             | 24,735  |  |            |   | 25,193  | 
|3.500%, due 12/1/2025(a)                       |  |             | 100,441 |  |            |   | 101,367 | 
|3.500%, due 1/1/2026(a)                        |  |             | 179,924 |  |            |   | 181,582 | 
|3.500%, due 12/1/2025                          |  |             | 4,139   |  |            |   | 4,177   | 
|3.500%, due 12/1/2025                          |  |             | 16,274  |  |            |   | 16,424  | 
|3.500%, due 12/1/2025(a)                       |  |             | 99,910  |  |            |   | 100,831 | 
|3.500%, due 1/1/2026                           |  |             | 150,000 |  |            |   | 151,031 | 
|3.500%, due 2/1/2026                           |  |             | 550,000 |  |            |   | 552,234 | 
|3.500%, due 3/1/2026                           |  |             | 150,000 |  |            |   | 150,094 | 
|3.500%, due 4/1/2026                           |  |             | 400,000 |  |            |   | 399,031 | 
|3.506%, due 8/1/2040(a)(b)                     |  |             | 48,469  |  |            |   | 50,032  | 
|3.558%, due 7/1/2040(a)(b)                     |  |             | 22,367  |  |            |   | 22,890  | 
|3.571%, due 7/1/2040(a)(b)                     |  |             | 19,640  |  |            |   | 20,085  | 
|3.579%, due 8/1/2040(a)(b)                     |  |             | 49,287  |  |            |   | 50,415  | 
|3.605%, due 10/1/2040(a)(b)                    |  |             | 59,742  |  |            |   | 61,158  | 
|3.605%, due 8/1/2040(a)(b)                     |  |             | 21,609  |  |            |   | 22,104  | 
|3.615%, due 8/1/2040(a)(b)                     |  |             | 48,456  |  |            |   | 49,631  | 
|3.648%, due 6/1/2040(a)(b)                     |  |             | 19,497  |  |            |   | 20,224  | 
|3.664%, due 7/1/2040(a)(b)                     |  |             | 45,354  |  |            |   | 46,987  | 
|3.676%, due 7/1/2039(a)(b)                     |  |             | 6,108   |  |            |   | 6,364   | 
|3.679%, due 7/1/2040(a)(b)                     |  |             | 46,360  |  |            |   | 47,667  | 
|3.683%, due 8/1/2040(a)(b)                     |  |             | 47,674  |  |            |   | 48,944  | 
|3.688%, due 5/1/2040(a)(b)                     |  |             | 13,923  |  |            |   | 14,464  | 
|3.694%, due 8/1/2040(a)(b)                     |  |             | 23,798  |  |            |   | 24,437  | 
|3.755%, due 5/1/2040(a)(b)                     |  |             | 46,830  |  |            |   | 48,486  | 
|3.771%, due 8/1/2040(a)(b)                     |  |             | 14,108  |  |            |   | 14,524  | 
|3.776%, due 9/1/2039(a)(b)                     |  |             | 29,583  |  |            |   | 30,984  | 
|3.830%, due 7/1/2040(a)(b)                     |  |             | 46,251  |  |            |   | 47,773  | 
|3.974%, due 10/1/2039(a)(b)                    |  |             | 38,779  |  |            |   | 40,546  | 
|3.983%, due 9/1/2039(a)(b)                     |  |             | 18,868  |  |            |   | 19,789  | 
|4.000%, due 12/1/2025(a)                       |  |             | 25,104  |  |            |   | 25,951  | 
|4.000%, due 12/1/2030(a)                       |  |             | 75,493  |  |            |   | 76,497  | 
|4.000%, due 1/1/2026(a)                        |  |             | 50,369  |  |            |   | 52,069  | 
|4.000%, due 12/1/2025(a)                       |  |             | 75,088  |  |            |   | 77,623  | 



See notes to
financial statements.

6



---

##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED SCHEDULES OF INVESTMENTS  Continued

DECEMBER 31, 2010 (UNAUDITED)*



|                           |  |             |           |  |            |   |           | 
|-------------------------- |  | ----------- | --------- |  | ---------- | - | --------- | 
|                           |  | Face Amount |           |  | Fair Value |  
|4.000%, due 12/1/2025      |  | $           | 30,566    |  |            | $ | 31,598    | 
|4.000%, due 1/1/2026       |  |             | 50,444    |  |            |   | 51,510    | 
|4.000%, due 12/1/2025      |  |             | 31,096    |  |            |   | 31,859    | 
|4.000%, due 12/1/2024(a)   |  |             | 22,837    |  |            |   | 23,554    | 
|4.000%, due 10/1/2024(a)   |  |             | 11,035    |  |            |   | 11,382    | 
|4.000%, due 1/1/2025(a)    |  |             | 41,384    |  |            |   | 42,683    | 
|4.000%, due 1/1/2025(a)    |  |             | 65,069    |  |            |   | 67,265    | 
|4.000%, due 2/1/2025(a)    |  |             | 43,086    |  |            |   | 44,540    | 
|4.000%, due 3/1/2025(a)    |  |             | 43,404    |  |            |   | 44,869    | 
|4.000%, due 9/1/2030(a)    |  |             | 96,940    |  |            |   | 98,229    | 
|4.000%, due 9/1/2030(a)    |  |             | 23,974    |  |            |   | 24,293    | 
|4.000%, due 10/1/2025(a)   |  |             | 27,531    |  |            |   | 28,460    | 
|4.000%, due 10/1/2030(a)   |  |             | 49,695    |  |            |   | 50,356    | 
|4.000%, due 10/1/2030(a)   |  |             | 74,994    |  |            |   | 75,992    | 
|4.000%, due 10/1/2030(a)   |  |             | 74,413    |  |            |   | 75,402    | 
|4.000%, due 10/1/2025(a)   |  |             | 29,823    |  |            |   | 30,830    | 
|4.000%, due 10/1/2030(a)   |  |             | 74,750    |  |            |   | 75,744    | 
|4.000%, due 10/1/2025(a)   |  |             | 49,680    |  |            |   | 51,356    | 
|4.000%, due 11/1/2025(a)   |  |             | 49,461    |  |            |   | 51,130    | 
|4.000%, due 11/1/2025(a)   |  |             | 50,118    |  |            |   | 51,810    | 
|4.000%, due 11/1/2025(a)   |  |             | 9,941     |  |            |   | 10,277    | 
|4.000%, due 2/1/2026       |  |             | 100,000   |  |            |   | 102,734   | 
|4.063%, due 6/1/2039(a)(b) |  |             | 19,102    |  |            |   | 20,082    | 
|4.096%, due 9/1/2039(a)(b) |  |             | 24,491    |  |            |   | 25,701    | 
|4.500%, due 5/1/2024(a)    |  |             | 12,186    |  |            |   | 12,856    | 
|4.500%, due 6/1/2024(a)    |  |             | 20,005    |  |            |   | 20,980    | 
|4.500%, due 5/1/2024(a)    |  |             | 13,063    |  |            |   | 13,700    | 
|4.500%, due 6/1/2024(a)    |  |             | 17,943    |  |            |   | 18,817    | 
|4.500%, due 9/1/2024(a)    |  |             | 21,594    |  |            |   | 22,647    | 
|4.500%, due 9/1/2024(a)    |  |             | 21,095    |  |            |   | 22,123    | 
|4.500%, due 10/1/2024(a)   |  |             | 36,292    |  |            |   | 38,062    | 
|4.500%, due 9/1/2024(a)    |  |             | 1,937     |  |            |   | 2,031     | 
|4.500%, due 11/1/2024(a)   |  |             | 11,631    |  |            |   | 12,198    | 
|4.500%, due 10/1/2024(a)   |  |             | 38,299    |  |            |   | 40,166    | 
|4.500%, due 11/1/2024(a)   |  |             | 49,978    |  |            |   | 52,415    | 
|4.500%, due 10/1/2024(a)   |  |             | 29,910    |  |            |   | 31,368    | 
|4.500%, due 4/1/2030(a)    |  |             | 28,916    |  |            |   | 29,998    | 
|4.500%, due 5/1/2030(a)    |  |             | 48,182    |  |            |   | 49,984    | 
|4.500%, due 6/1/2025(a)    |  |             | 33,361    |  |            |   | 35,050    | 
|4.500%, due 10/1/2030(a)   |  |             | 49,664    |  |            |   | 51,522    | 
|4.500%, due 11/1/2030(a)   |  |             | 50,338    |  |            |   | 52,221    | 
|4.500%, due 2/1/2026       |  |             | 300,000   |  |            |   | 314,109   | 
|5.500%, due 9/1/2023(a)    |  |             | 32,265    |  |            |   | 34,714    | 
|5.500%, due 2/1/2041       |  |             | 200,000   |  |            |   | 213,594   | 
|6.000%, due 5/1/2037(a)    |  |             | 8,749     |  |            |   | 9,401     | 
|6.000%, due 4/1/2038(a)    |  |             | 14,299    |  |            |   | 15,555    | 
|                           |  |             |           |  |            |   |           | 
|Total Fannie Mae Pools     |  |             | 5,403,989 |  |            |   | 5,537,130 | 
|                           |  |             |           |  |            |   |           | 



See notes to
financial statements.

7



---

##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED SCHEDULES OF INVESTMENTS  Continued

DECEMBER 31, 2010 (UNAUDITED)*



|                                                                  |  |                |           |  |            |   |           |  
|----------------------------------------------------------------- |  | -------------- | --------- |  | ---------- | - | --------- | -
|                                                                  |  | Face Amount    |           |  | Fair Value |  
|Freddie Mac Pools - 88.6% (d)                                     |  |                |           |  |            |   |           |  
|3.052%, due 1/1/2041(a)(b)                                        |  | $              | 45,411    |  |            | $ | 46,424    |  
|3.200%, due 12/1/2040(a)(b)                                       |  |                | 50,012    |  |            |   | 51,281    |  
|3.247%, due 12/1/2040(b)                                          |  |                | 49,646    |  |            |   | 50,980    |  
|3.500%, due 3/1/2026                                              |  |                | 200,000   |  |            |   | 199,938   |  
|4.000%, due 10/1/2025(a)                                          |  |                | 73,474    |  |            |   | 75,689    |  
|4.500%, due 7/1/2024(a)                                           |  |                | 48,351    |  |            |   | 50,527    |  
|4.500%, due 2/1/2025(a)                                           |  |                | 43,717    |  |            |   | 45,739    |  
|4.500%, due 12/1/2024(a)                                          |  |                | 15,509    |  |            |   | 16,207    |  
|4.500%, due 12/1/2024(a)                                          |  |                | 15,096    |  |            |   | 15,775    |  
|4.500%, due 1/1/2025(a)                                           |  |                | 33,201    |  |            |   | 34,696    |  
|4.500%, due 5/1/2025(a)                                           |  |                | 18,565    |  |            |   | 19,423    |  
|5.500%, due 9/1/2023(a)                                           |  |                | 4,998     |  |            |   | 5,360     |  
|                                                                  |  |                |           |  |            |   |           |  
|Total Freddie Mac Pools                                           |  |                | 597,980   |  |            |   | 612,039   |  
|                                                                  |  |                |           |  |            |   |           |  
|Ginnie Mae Pools - 23.4% (d)                                      |  |                |           |  |            |   |           |  
|3.500%, due 7/20/2040(a)(b)                                       |  |                | 84,444    |  |            |   | 87,841    |  
|3.500%, due 7/20/2040(a)(b)                                       |  |                | 49,868    |  |            |   | 51,874    |  
|4.000%, due 1/20/2040(a)(b)                                       |  |                | 20,627    |  |            |   | 21,686    |  
|                                                                  |  |                |           |  |            |   |           |  
|Total Ginnie Mae Pools                                            |  |                | 154,939   |  |            |   | 161,401   |  
|                                                                  |  |                |           |  |            |   |           |  
|Total Mortgage Pass-Through Agency RMBS (cost - $6,308,441)       |  |                | 6,156,908 |  |            |   | 6,310,570 |  
|                                                                  |  |                |           |  |            |   |           |  
|                                                                  |  |               
|Collateralized Loan Obligation Securities - 3.0%(d)               |  |                |           |  |            |   |           |  
|AMMC CLO V LTD(c)                                                 |  |                | 2,249     |  |            |   | 1,349     |  
|AMMC CLO VII, LTD(c)                                              |  |                | 3,900     |  |            |   | 2,578     |  
|ARES VIR CLO, LTD(c)(e)                                           |  |                | 3,775     |  |            |   | 1,623     |  
|BALLYROCK CLO 2006-2, LTD(c)                                      |  |                | 4,270     |  |            |   | 3,843     |  
|CARLYLE HIGH YIELD PARTNERS VIII, LTD(c)                          |  |                | 3,000     |  |            |   | 2,250     |  
|EATON VANCE CDO IX, LTD(c)                                        |  |                | 2,500     |  |            |   | 1,915     |  
|FLAGSHIP CLO V, LTD(c)                                            |  |                | 3,750     |  |            |   | 2,363     |  
|PHOENIX CLO II, LTD (formerly AVENUE CLO V)(c)(e)                 |  |                | 2,000     |  |            |   | 1,127     |  
|PRIMUS CLO I, LTD(c)                                              |  |                | 2,500     |  |            |   | 1,750     |  
|TRIMARAN CLO VII, LTD(c)                                          |  |                | 2,000     |  |            |   | 1,680     |  
|                                                                  |  |                |           |  |            |   |           |  
|Total Collateralized Loan Obligation Securities (cost - $21,183)  |  |                | 29,944    |  |            |   | 20,478    |  
|                                                                  |  |                |           |  |            |   |           |  
|Total Investments in Securities (cost - $6,329,624)               |  | $              | 6,186,852 |  |            | $ | 6,331,048 |  
|                                                                  |  |                |           |  |            |   |           |  
|                                                                  |  |               
|                                                                  |  | NotionalAmount |           |  | Fair Value |  
|Interest Rate Cap Contracts - 4.5%(d)                             |  |                |           |  |            |   |           |  
|December 2014 Expiration, Cap Rate 2.073%                         |  | $              | 200,000   |  |            | $ | 4,752     |  
|October 2015 Expiration, Cap Rate 1.428%                          |  |                | 300,000   |  |            |   | 15,340    |  
|November 2015 Expiration, Cap Rate 1.360%                         |  |                | 200,000   |  |            |   | 10,892    |  
|                                                                  |  |                |           |  |            |   |           |  
|Total Interest Rate Cap Contracts (Cost, $17,560)                 |  | $              | 700,000   |  |            | $ | 30,984    |  
|                                                                  |  |                |           |  |            |   |           |  
|                                                                  |  |               
|                                                                  |  | NotionalAmount |           |  | Fair Value |  
|                                                                  |  |               
|Interest Rate Swap Contracts  (0.1)%(d)                          |  |                |           |  |            |   |           |  
|May 2013 Expiration, Pay Rate 1.600%, Receive Rate 3-Month LIBOR  |  | $              | 100,000   |  |            | $ | (1,496    | )
|June 2013 Expiration, Pay Rate 1.378%, Receive Rate 3-Month LIBOR |  |                | 300,000   |  |            |   | (2,718    | )
|July 2013 Expiration, Pay Rate 1.365%, Receive Rate 3-Month LIBOR |  |                | 300,000   |  |            |   | (2,484    | )



See notes to
financial statements.

8



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##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED SCHEDULES OF INVESTMENTS  Continued

DECEMBER 31, 2010 (UNAUDITED)*



|                                                                                        |  |                |           |  |           |   |        |  
|--------------------------------------------------------------------------------------- |  | -------------- | --------- |  | --------- | - | ------ | -
|                                                                                        |  | NotionalAmount |           |  | FairValue |  
|December 2013 Expiration, Pay Rate 1.3088%, Receive Rate 3-Month LIBOR                  |  | $              | 400,000   |  |           | $ | (776   | )
|December 2013 Expiration, Pay Rate 1.2813%, Receive Rate 3-Month LIBOR                  |  |                | 500,000   |  |           |   | (539   | )
|December 2013 Expiration, Pay Rate 1.2640%, Receive Rate 3-Month LIBOR                  |  |                | 400,000   |  |           |   | (255   | )
|December 2013 Expiration, Pay Rate 1.3225%, Receive Rate 3-Month LIBOR                  |  |                | 400,000   |  |           |   | (904   | )
|July 2014 Expiration, Pay Rate 1.7200%, Receive Rate 3-Month LIBOR                      |  |                | 100,000   |  |           |   | (733   | )
|July 2014 Expiration, Pay Rate 1.7325%, Receive Rate 3-Month LIBOR                      |  |                | 250,000   |  |           |   | (1,787 | )
|August 2014 Expiration, Pay Rate 1.353%, Receive Rate 3-Month LIBOR                     |  |                | 200,000   |  |           |   | 1,529  |  
|September 2014 Expiration, Pay Rate 1.312%, Receive Rate 3-Month LIBOR                  |  |                | 500,000   |  |           |   | 5,460  |  
|October 2014 Expiration, Pay Rate 1.1725%, Receive Rate 3-Month LIBOR                   |  |                | 240,000   |  |           |   | 4,059  |  
|                                                                                        |  |                |           |  |           |   |        |  
|Total Unrealized Appreciation (Depreciation) on Interest Rate Swap Contracts (Cost, $0) |  | $              | 3,690,000 |  |           | $ | (644   | )
|                                                                                        |  |                |           |  |           |   |        |  



LEGEND



|* | Derived from audited financial statements.
|- | ------------------------------------------

|(a) | Securities or a portion of the securities are pledged as collateral for repurchase agreements or interest rate swap contracts.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(b) | The coupon rate shown on floating or adjustable rate securities represents the rate at December 31, 2010.
|--- | ---------------------------------------------------------------------------------------------------------

|(c) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may only be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31, 2010, the fair value of these securities amounted to $20,478 or 3.0% of net assets.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Percentage of net assets.
|--- | -------------------------

|(e) | Non-income producing security.
|--- | ------------------------------



See notes to
financial statements.

9



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##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                                     |  |                              |         |   |      |   |         |  
|-------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                     |  | Three Months Ended March 31, |        
|(In thousands, except per share numbers)                             |  | 2011                         |         |   | 2010 |  
|INVESTMENT INCOME - Interest income                                  |  | $                            | 40,980  |   |      | $ | 16,937  |  
|                                                                     |  |                              |         |   |      |   |         |  
|EXPENSES:                                                            |  |                              |         |   |      |   |         |  
|Interest                                                             |  |                              | 3,104   |   |      |   | 986     |  
|Management fees                                                      |  |                              | 2,840   |   |      |   | 1,076   |  
|Related party management compensation                                |  |                              | 544     |   |      |   | 331     |  
|General, administrative and other                                    |  |                              | 1,034   |   |      |   | 825     |  
|                                                                     |  |                              |         |   |      |   |         |  
|Total expenses                                                       |  |                              | 7,522   |   |      |   | 3,218   |  
|                                                                     |  |                              |         |   |      |   |         |  
|Net investment income                                                |  |                              | 33,458  |   |      |   | 13,719  |  
|                                                                     |  |                              |         |   |      |   |         |  
|GAINS AND (LOSSES) FROM INVESTMENTS:                                 |  |                              |         |   |      |   |         |  
|Net realized gain (loss) on investments                              |  |                              | 5,909   |   |      |   | (7,253  | )
|Net unrealized appreciation (depreciation) on investments            |  |                              | 13,911  |   |      |   | 13,717  |  
|                                                                     |  |                              |         |   |      |   |         |  
|Net gain (loss) from investments                                     |  |                              | 19,820  |   |      |   | 6,464   |  
|                                                                     |  |                              |         |   |      |   |         |  
|GAINS AND (LOSSES) FROM SWAP AND CAP CONTRACTS:                      |  |                              |         |   |      |   |         |  
|Net swap and cap interest income (expense)                           |  |                              | (11,859 | ) |      |   | (3,294  | )
|Net unrealized appreciation (depreciation) on swap and cap contracts |  |                              | 10,678  |   |      |   | (6,746  | )
|                                                                     |  |                              |         |   |      |   |         |  
|Net gain (loss) from swap and cap contracts                          |  |                              | (1,181  | ) |      |   | (10,040 | )
|                                                                     |  |                              |         |   |      |   |         |  
|NET INCOME                                                           |  | $                            | 52,097  |   |      | $ | 10,143  |  
|                                                                     |  |                              |         |   |      |   |         |  
|NET INCOME PER COMMON SHARE BASIC & DILUTED                          |  | $                            | 0.74    |   |      | $ | 0.54    |  
|                                                                     |  |                              |         |   |      |   |         |  



See notes to
financial statements.

10



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##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)



|                                                          |  |                                  |         |  
|--------------------------------------------------------- |  | -------------------------------- | ------- | -
|(In thousands)                                            |  | Three Months EndedMarch 31, 2011 |        
|Net income:                                               |  |                                  |         |  
|Net investment income                                     |  | $                                | 33,458  |  
|Net realized gain (loss) on investment securities         |  |                                  | 5,909   |  
|Net unrealized appreciation (depreciation) on investments |  |                                  | 13,911  |  
|Net gain (loss) on swap and cap contracts                 |  |                                  | (1,181  | )
|                                                          |  |                                  |         |  
|Net income                                                |  |                                  | 52,097  |  
|                                                          |  |                                  |         |  
|                                                          | 
|Capital transactions:                                     |  |                                  |         |  
|Net proceeds from issuance of common shares               |  |                                  | 275,822 |  
|Distributions to shareholders                             |  |                                  | (49,536 | )
|Amortization of related party compensation                |  |                                  | 544     |  
|                                                          |  |                                  |         |  
|Increase in net assets from capital transactions          |  |                                  | 226,830 |  
|                                                          |  |                                  |         |  
|Total increase in net assets                              |  |                                  | 278,927 |  
|                                                          | 
|Net assets:                                               |  |                                  |         |  
|Beginning of period                                       |  |                                  | 690,339 |  
|                                                          |  |                                  |         |  
|End of period                                             |  | $                                | 969,266 |  
|                                                          |  |                                  |         |  



See notes to
financial statements.

11



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##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                              |  |                              |            |   |      |   |            |  
|----------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                              |  | Three Months Ended March 31, |           
|(In thousands)                                                                |  | 2011                         |            |   | 2010 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |  |                              |            |   |      |   |            |  
|Net income                                                                    |  | $                            | 52,097     |   |      | $ | 10,143     |  
|Adjustments to reconcile net income to net cash used in operating activities: |  |                              |            |   |      |   |            |  
|Purchase of investment securities                                             |  |                              | (2,755,907 | ) |      |   | (281,251   | )
|Proceeds from disposition of investment securities                            |  |                              | 402,841    |   |      |   | 186,004    |  
|Principal repayments of investment securities                                 |  |                              | 184,984    |   |      |   | 144,651    |  
|Amortization of related party compensation                                    |  |                              | 544        |   |      |   | 330        |  
|Amortization of premiums on investment securities                             |  |                              | 5,804      |   |      |   | 2,241      |  
|Amortization of premiums on interest rate cap contracts                       |  |                              | 960        |   |      |   |           |  
|Net realized (gain) loss on investment securities                             |  |                              | (5,909     | ) |      |   | 7,253      |  
|Net unrealized (appreciation) depreciation on swap and cap contracts          |  |                              | (10,678    | ) |      |   | 6,746      |  
|Net unrealized (appreciation) depreciation on investments                     |  |                              | (13,911    | ) |      |   | (13,717    | )
|Change in assets and liabilities:                                             |  |                              |            |   |      |   |            |  
|Receivable for securities sold                                                |  |                              | (200,461   | ) |      |   | (22,103    | )
|Interest receivable                                                           |  |                              | (7,012     | ) |      |   | 79         |  
|Other assets                                                                  |  |                              | 281        |   |      |   | (85        | )
|Payable for securities purchased                                              |  |                              | 150,590    |   |      |   | (147,448   | )
|Accrued interest payable                                                      |  |                              | 4,150      |   |      |   | 1,535      |  
|Related party management fee payable                                          |  |                              | 232        |   |      |   | (3         | )
|Accrued expenses and other liabilities                                        |  |                              | (122       | ) |      |   | (55        | )
|                                                                              |  |                              |            |   |      |   |            |  
|Net cash used in operating activities                                         |  |                              | (2,191,517 | ) |      |   | (105,680   | )
|                                                                              |  |                              |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |  |                              |            |   |      |   |            |  
|Proceeds from repurchase agreements                                           |  |                              | 7,963,285  |   |      |   | 4,110,678  |  
|Repayments of repurchase agreements                                           |  |                              | (6,043,099 | ) |      |   | (3,995,796 | )
|Net proceeds from issuance of common shares                                   |  |                              | 275,822    |   |      |   |           |  
|Distributions paid                                                            |  |                              |           |   |      |   | (10,316    | )
|                                                                              |  |                              |            |   |      |   |            |  
|Net cash provided by financing activities                                     |  |                              | 2,196,008  |   |      |   | 104,566    |  
|                                                                              |  |                              |            |   |      |   |            |  
|Net increase (decrease) in cash and cash equivalents                          |  |                              | 4,491      |   |      |   | (1,114     | )
|CASH AND CASH EQUIVALENTS - Beginning of period                               |  |                              | 1,510      |   |      |   | 1,890      |  
|                                                                              |  |                              |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS - End of period                                     |  | $                            | 6,001      |   |      | $ | 776        |  
|                                                                              |  |                              |            |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                            |  |                              |            |   |      |   |            |  
|Interest paid                                                                 |  | $                            | 11,616     |   |      | $ | 3,109      |  
|                                                                              |  |                              |            |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH FLOW INFORMATION:                         |  |                              |            |   |      |   |            |  
|Distributions declared, not yet paid                                          |  | $                            | 49,536     |   |      | $ | 10,318     |  
|                                                                              |  |                              |            |   |      |   |            |  



See notes to
financial statements.

12



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##### Table of Contents

CYPRESS SHARPRIDGE INVESTMENTS, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION

Cypress Sharpridge Investments, Inc. (the
Company) was formed as a Maryland corporation on January 3, 2006, and commenced operations on February 10, 2006. The Company is externally managed and advised by Cypress Sharpridge Advisors LLC (the Manager), a
Delaware limited liability company, pursuant to a management agreement (the Management Agreement). The Manager is a joint venture between Cypress CSI Advisors LLC, a sponsor of private equity funds and leveraged buyouts of U.S. companies
in the industrial, consumer, media and financial sectors, and Sharpridge Capital Management, L.P., a fixed income asset management company. Certain individuals associated with Cypress CSI Advisors LLC and Sharpridge Capital Management, L.P. serve on
the Companys board of directors and the Managers investment committee.

The Company has elected to be taxed and
intends to continue to qualify as a real estate investment trust (REIT) and is required to comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), with respect thereto. The Companys
strategy had been to invest a majority of its capital in residential mortgage-backed securities that are issued and guaranteed by a federally chartered corporation (Agency RMBS), such as the Federal National Mortgage Association
(Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), or an agency of the U.S. government such as the Government National Mortgage Association (Ginnie Mae), and subordinated tranches of
asset-backed securities, including collateralized debt or loan obligations (CLOs). In March 2008, the board of directors amended the investment guidelines, pursuant to which the Company was mandated to invest exclusively in Agency RMBS.
In March 2010, the board of directors further amended the investment guidelines so that the Company may also invest in collateralized mortgage obligations issued by Fannie Mae, Freddie Mac or Ginnie Mae. The Companys common stock trades on the
New York Stock Exchange under the symbol CYS.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for investment companies
(GAAP) and the instructions to Form 10-Q and Article 10, Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The interim unaudited financial statements should be read in conjunction with the Companys audited financial
statements as of and for the year ended December 31, 2010, included in the annual report on Form 10-K. The results for interim periods are not necessarily indicative of the results to be expected for the fiscal year.

Segment Reporting

The Company operates as a single segment reporting to the Chief Executive Officer, who manages the entire investment portfolio.

Use of Estimates

The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those management estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash held in banks and highly liquid investments with original maturities of three months or less. Interest income earned on cash and cash equivalents is
recorded in interest income.

Interest Rate Swap and Cap Contracts

The Company utilizes interest rate swaps and caps to hedge the interest rate risk associated with the financing of its portfolio.
Specifically, the Company seeks to hedge the exposure to potential interest rate mismatches between the interest earned on investments and the borrowing costs caused by fluctuations in short term interest rates. In a simple interest rate swap, one
investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a
floating rate. In a simple interest rate cap, one investor pays a premium for a notional principal amount based on a capped interest rate (the cap rate). When the floating interest rate (the floating rate) exceeds the cap
rate, the investor receives a payment from the cap counterparty equal to the difference between the floating rate and the cap rate on the same notional principal amount for a specified period of time. Alternatively, an investor may receive a premium
and pay the difference in cap rate and floating rate. Interest rate swaps and caps are asset/liability management tools.



13



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##### Table of Contents

During the term of the interest rate swap or cap, the Company makes or receives periodic
payments and unrealized gains or losses are recorded as a result of marking the swap and cap to their fair value. When the swap or cap is terminated, the Company records a realized gain or loss equal to the difference between the proceeds from (or
cost of) the closing transaction and the Companys cost basis in the contract, if any. The periodic payments, amortization of premiums on cap contracts and any realized or unrealized gains or losses are reported under gains and losses from swap
and cap contracts in the statement of operations. Swaps involve a risk that interest rates will move contrary to the Companys expectations, thereby increasing its payment obligation.

The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 946,
Clarification of the Scope of Audit and Accounting Guide Investment Companies(ASC 946), prior to its deferral in February 2008. Under ASC 946, the Company uses financial reporting for investment companies, and accordingly, its
investments, including its interest rate swap and cap contracts, are carried at fair value with changes in fair value included in earnings. Consequently, there is no impact to designating interest rate swaps and caps as cash flow or fair value
hedges under GAAP.

The Company is exposed to credit loss in the event of nonperformance by the counterparty to the
swap or cap, limited to any gains recognized. However, as of March 31, 2011 and December 31, 2010 the Company did not anticipate nonperformance by any counterparty. Should interest rates move unexpectedly, the Company may not achieve the
anticipated benefits of the interest rate swap or cap and may realize a loss.

Investment Valuation

Valuation of the Companys investments is determined by the Manager. Investments are valued using third-party pricing services and
dealer quotes. The third-party pricing services use pricing models that incorporate such factors as coupons, primary and secondary mortgage rates, prepayment speeds, spread to the Treasury curves and interest rate swap curves, convexity, duration,
periodic and life caps and credit enhancement. The dealer quotes incorporate common market pricing methods, including a spread measurement to the Treasury curves or interest rate swap curve as well as underlying characteristics of the particular
security including coupon, periodic and life caps, rate reset period, issuer, additional credit support and expected life of the security. The Manager reviews all prices used to ensure that current market conditions are represented. This review
includes comparisons of similar market transactions, alternative third-party pricing services and dealer quotes, or comparisons to a pricing model. The resulting unrealized gains and losses are reflected in the statement of operations.

Agency RMBS

The Companys investments in Agency RMBS consist of whole-pool pass-through certificates backed by fixed rate, monthly reset adjustable-rate loans (ARMs) and hybrid ARMs, the principal
and interest of which is guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Hybrid ARMs have interest rates that have an initial fixed period (typically three, five, seven or ten years) and thereafter reset at regular intervals in a manner similar
to ARMs.

Forward Settling Transactions

The Company may engage in forward settling transactions. The Company records forward settling transactions on the trade date and maintains security positions such that sufficient liquid assets will be
available to make payment on the settlement date for the securities purchased. Securities purchased on a forward settling basis are carried at fair value and begin earning interest on the settlement date. Losses may occur on these transactions due
to changes in market conditions or the failure of counterparties to perform under the contract. The Company may transact in To-Be-Announced Securities (TBAs). As with other forward settling transactions, a seller agrees to issue TBAs at
a future date. However, the seller does not specify the particular securities to be delivered. Instead, the Company agrees to accept any security that meets specified terms such as issuer, interest rate and terms of underlying mortgages. The Company
records TBAs on the trade date utilizing information associated with the specified terms of the transaction as opposed to the specific mortgages. TBAs are carried at fair value and begin earning interest on the settlement date. Losses may occur due
to the fact that the actual underlying mortgages received may be less favorable than those anticipated by the Company. As of March 31, 2011 and December 31, 2010, the Company had pledged Agency RMBS with a fair value of $2.2 million and
$10.1 million, respectively, on its open forward settling and TBA transactions.

Collateralized Debt or Loan Obligations

The Company has investments in Collateralized debt obligations and collateralized loan obligations (collectively
CLOs), which are securities backed by pools of variously rated loans or bonds. Underwriters of CLOs package a large and diversified pool of loans or bonds, including high risk, high yield bonds, which is then separated into
tiers. Typically, the top tier represents the last tier to take losses and therefore the lowest risk and pays the lower interest rate; a middle tier would take losses prior to the top tier and therefore has more risk than the top tier so
it pays a higher rate than the top tier; the bottom tier takes losses first and therefore represents the highest risk and, instead of receiving a fixed interest rate, may receive the residual interest payments from the pool.



14



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##### Table of Contents

Repurchase Agreements

Repurchase agreements are borrowings which are collateralized by the Companys Agency RMBS and are carried at their amortized cost,
which approximates their fair value due to their short term nature, generally 30-90 days. The Company has not elected to fair value these liabilities under ASC 825 Financial Instruments, and consequently has not included these in any ASC 820
Fair Value Measurements and Disclosures. Should fair value be elected under ASC 825, such liabilities would be included in the leveling tables required under ASC 820. The Companys repurchase agreement counterparties are large
institutional dealers in fixed income securities. Collateral is valued daily and counterparties may require additional collateral when appropriate. At March 31, 2011 and December 31, 2010, Agency RMBS owned with a fair value of
approximately $5,647.7 million and $3,657.2 million, respectively, have been pledged as collateral for repurchase agreements for which the counterparty has the right to sell or repledge.

Investment Transactions and Income

The Company records its transactions in securities on a trade date basis. Realized gains and losses on securities transactions are recorded on an identified cost basis. Interest income and expense are
recorded on the accrual basis.Interest income on Agency RMBS is accrued based on outstanding principal amount of the securities and their contractual terms. Interest on CLOs is accrued at a rate determined based on estimated future cash
flows and adjusted prospectively as future cash flow amounts are recast. For CLOs placed on nonaccrual status or when the Company cannot reliably estimate cash flows, the cost recovery method is used. Amortization of premium and accretion of
discount are recorded using the yield to maturity method, and are included in interest income in the statement of operations.

Share-Based Compensation

The Company accounts for share-based compensation issued to its non-management directors and executive officers and certain officers and employees of its Manager and its sub-advisors and other individuals
who provide services to the Company, as designated by its Manager (Manager Designees), using the fair value based methodology prescribed by ASC 718, Share-Based Payment (ASC 718). Compensation cost related to
restricted common stock and common stock options issued to the Manager Designees is initially measured at estimated fair value at the grant date, and is remeasured on subsequent dates to the extent the awards are unvested. Compensation cost related
to non-management directors is measured at its estimated fair value at the grant date and amortized and expensed over the vesting period. The Company has elected to use the straight line method pursuant to ASC 718 to amortize compensation expense
for the restricted common stock and common stock options granted to the Manager Designees.

Income Taxes

The Company has elected to be taxed as a REIT and intends to continue to comply with provisions of the Code with respect thereto. As a
REIT, the Company generally will not be subject to federal or state income tax. To maintain its qualification as a REIT, the Company must distribute at least 90% of its REIT taxable income to its stockholders and meet certain other tests relating to
assets and income.

Earnings Per Share (EPS)

Basic EPS is computed using the two class method by dividing net income (loss) after adjusting for the impact of unvested stock awards
deemed to be participating securities, by the weighted average number of common shares outstanding calculated excluding unvested stock awards. Diluted EPS is computed by dividing net income (loss), after adjusting for the impact of unvested stock
awards deemed to be participating securities, by the weighted average number of common shares outstanding calculated excluding unvested stock awards, giving effect to common stock options and warrants, if they are not anti-dilutive. See note 3 for
EPS computations.

Recent Accounting Pronouncements

The FASB has recently issued or discussed a number of proposed standards on such topics as financial statement presentation, revenue
recognition, financial instruments, hedging, contingencies and fair value. Some of the proposed changes are potentially significant and could have a material impact on the Companys reporting. The Company has not yet fully evaluated
the potential impact of these proposals but will make such an evaluation as the standards are finalized.



15



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##### Table of Contents

3. EARNINGS PER SHARE

Components of the computation of basic and diluted EPS were as follows (in thousands, except per share numbers):



|                                             |  |                              |         |   |      |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                             |  | Three Months Ended March 31, |        
|                                             |  | 2011                         |         |   | 2010 |  
|Net income                                   |  | $                            | 52,097  |   |      | $ | 10,143  |  
|Less dividends paid:                         |  |                              |         |   |      |   |         |  
|Common shares                                |  |                              | (49,068 | ) |      |   | (10,013 | )
|Unvested shares                              |  |                              | (468    | ) |      |   | (305    | )
|                                             |  |                              |         |   |      |   |         |  
|Undistributed earnings                       |  | $                            | 2,561   |   |      |   | (175    | )
|                                             |  |                              |         |   |      |   |         |  
|                                             |  |                             
|Basic weighted average shares outstanding:   |  |                              |         |   |      |   |         |  
|                                             |  |                             
|Common shares                                |  |                              | 70,153  |   |      |   | 18,207  |  
|                                             |  |                              |         |   |      |   |         |  
|                                             |  |                             
|Basic earnings per common share:             |  |                              |         |   |      |   |         |  
|Distributed earnings                         |  | $                            | 0.70    |   |      | $ | 0.55    |  
|Undistributed earnings                       |  |                              | 0.04    |   |      |   | (0.01   | )
|                                             |  |                              |         |   |      |   |         |  
|Basic earnings per common share              |  | $                            | 0.74    |   |      | $ | 0.54    |  
|                                             |  |                              |         |   |      |   |         |  
|                                             |  |                             
|Diluted weighted average shares outstanding: |  |                              |         |   |      |   |         |  
|Common shares                                |  |                              | 70,153  |   |      |   | 18,207  |  
|Net effect of dilutive warrants(1)           |  |                              | 2       |   |      |   | 13      |  
|                                             |  |                              |         |   |      |   |         |  
|                                             |  |                              | 70,155  |   |      |   | 18,220  |  
|                                             |  |                              |         |   |      |   |         |  
|                                             |  |                             
|Diluted earnings per common share:           |  |                              |         |   |      |   |         |  
|Distributed earnings                         |  | $                            | 0.70    |   |      | $ | 0.55    |  
|Undistributed earnings                       |  |                              | 0.04    |   |      |   | (0.01   | )
|                                             |  |                              |         |   |      |   |         |  
|Diluted earnings per common share            |  | $                            | 0.74    |   |      | $ | 0.54    |  
|                                             |  |                              |         |   |      |   |         |  



|(1) | The impact of equity instruments is not included in the computation of EPS for periods in which their inclusion would be anti-dilutive. For the
three months ended March 31, 2011 and 2010, the Company had an aggregate of 131,000 stock options outstanding with a weighted average exercise price of $30.00 that were not included in the calculation of EPS for the three months ended
March 31, 2011 and 2010, as their inclusion would have been anti-dilutive. These equity instruments may have a dilutive impact on future EPS.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4. INVESTMENTS IN SECURITIES AND INTEREST RATE SWAP AND CAP CONTRACTS

The
Companys valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Companys market assumptions. ASC 820
classifies these inputs into the following hierarchy:

Level 1 InputsQuoted prices for identical
instruments in active markets.

Level 2 InputsQuoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 InputsInstruments with primarily unobservable value drivers.

The following tables provide a summary of the Companys assets and liabilities that are measured at fair value on a recurring basis
as of March 31, 2011 and December 31, 2010:

March 31, 2011



|                                |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 
|------------------------------- | ------- | ----------------------------- | - | ------- |  | - | --------- |  |  | ----- | ------ |  |  | - | --------- | 
|                                |         | Fair Value Measurements Using |  
|                                | Level 1 |                               |   | Level 2 |  |   | Level 3   |  |  | Total |       
|                                |         | (in thousands)                |  
|Assets                          |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 
|Agency RMBS                     |         | $                             |  |         |  | $ | 8,489,199 |  |  | $     |       |  |  | $ | 8,489,199 | 
|CLOs                            |         |                               |  |         |  |   |          |  |  |       | 23,947 |  |  |   | 23,947    | 
|Interest rate cap contracts     |         |                               |  |         |  |   | 31,863    |  |  |       |       |  |  |   | 31,863    | 
|Interest rate swap contracts(a) |         |                               |  |         |  |   | 12,818    |  |  |       |       |  |  |   | 12,818    | 
|                                |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 
|Total                           |         | $                             |  |         |  | $ | 8,533,880 |  |  | $     | 23,947 |  |  | $ | 8,557,827 | 
|                                |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 



16



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|                             |         |                               |   |         |  |   |         |  |  |       |   |  |  |   |       | 
|---------------------------- | ------- | ----------------------------- | - | ------- |  | - | ------- |  |  | ----- | - |  |  | - | ----- | 
|                             |         | Fair Value Measurements Using |  
|                             | Level 1 |                               |   | Level 2 |  |   | Level 3 |  |  | Total |  
|                             |         | (in thousands)                |  
|Liabilities                  |         |                               |   |         |  |   |         |  |  |       |   |  |  |   |       | 
|Interest rate swap contracts |         | $                             |  |         |  | $ | 4,622   |  |  | $     |  |  |  | $ | 4,622 | 
|                             |         |                               |   |         |  |   |         |  |  |       |   |  |  |   |       | 

December 31, 2010



|                                |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 
|------------------------------- | ------- | ----------------------------- | - | ------- |  | - | --------- |  |  | ----- | ------ |  |  | - | --------- | 
|                                |         | Fair Value Measurements Using |  
|                                | Level 1 |                               |   | Level 2 |  |   | Level 3   |  |  | Total |       
|                                |         | (in thousands)                |  
|Assets                          |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 
|Agency RMBS                     |         | $                             |  |         |  | $ | 6,310,570 |  |  | $     |       |  |  | $ | 6,310,570 | 
|CLOs                            |         |                               |  |         |  |   |          |  |  |       | 20,478 |  |  |   | 20,478    | 
|Interest rate cap contracts     |         |                               |  |         |  |   | 30,984    |  |  |       |       |  |  |   | 30,984    | 
|Interest rate swap contracts(a) |         |                               |  |         |  |   | 9,113     |  |  |       |       |  |  |   | 9,113     | 
|                                |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 
|Total                           |         | $                             |  |         |  | $ | 6,350,667 |  |  | $     | 20,478 |  |  | $ | 6,371,145 | 
|                                |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 
|                                |         |                               |   |        
|Liabilities                     |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 
|Interest rate swap contracts    |         | $                             |  |         |  | $ | 9,757     |  |  | $     |       |  |  | $ | 9,757     | 
|                                |         |                               |   |         |  |   |           |  |  |       |        |  |  |   |           | 



|(a) | Subject to master netting arrangements
|--- | --------------------------------------

The table below presents a reconciliation of changes in assets classified as Level 3 in the Companys financial statements for the three months ended March 31, 2011. There were no changes in the
three months ended March 31, 2010. A discussion of the method of fair valuing these assets is included above in Investment Valuation. Net unrealized appreciation (depreciation) on the assets is included in net unrealized
appreciation (depreciation) on investments in the statement of operations.

Fair Value Reconciliation, Level 3

(in thousands)



|                                                     |  |                                  |        |  
|---------------------------------------------------- |  | -------------------------------- | ------ | -
|                                                     |  | Three Months EndedMarch 31, 2011 |       
|CLOs                                                 |  |                                  |        |  
|Beginning balance Level 3 assets                     |  | $                                | 20,478 |  
|Change in net unrealized appreciation (depreciation) |  |                                  | 4,577  |  
|Cash payments recorded as a reduction of cost basis  |  |                                  | (1,108 | )
|Transfers into Level 3                               |  |                                  |       |  
|                                                     |  |                                  |        |  
|Ending balance Level 3 assets                        |  | $                                | 23,947 |  
|                                                     |  |                                  |        |  

The Agency RMBS portfolio consisted of Agency RMBS as follows:

March 31, 2011



|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  
|---------------------- |  | -------------- | --------- |  | ---------- | - | --------- | ---------------- |  | - | ------ |  |  | ------ | ------ |  | ------ |  | ---- | --- |  |  | ---- | - |  |  | ---- | -
|                       |  | Par Value      |           |  | Fair Value |   |           | Weighted Average | 
|Asset Type             |  | (in thousands) |           |  | Cost/Par   |   |           | FairValue/Par    |  |   | MTR(1) |  |  | Coupon |        |  | CPR(2) | 
|15 Year Fixed Rate     |  | $              | 4,033,535 |  |            | $ | 4,123,587 |                  |  | $ | 102.21 |  |  | $      | 102.23 |  |        |  | N/A  |     |  |  | 3.88 | % |  |  | 11.0 | %
|20 Year Fixed Rate     |  |                | 635,489   |  |            |   | 643,471   |                  |  |   | 102.36 |  |  |        | 101.26 |  |        |  | N/A  |     |  |  | 4.14 | % |  |  | 3.9  | %
|30 Year Fixed Rate     |  |                | 993,473   |  |            |   | 1,048,091 |                  |  |   | 104.36 |  |  |        | 105.50 |  |        |  | N/A  |     |  |  | 5.20 | % |  |  | 33.2 | %
|Hybrid ARMs            |  |                | 2,609,512 |  |            |   | 2,674,050 |                  |  |   | 102.24 |  |  |        | 102.47 |  |        |  | 62.9 |     |  |  | 3.37 | % |  |  | 14.4 | %
|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  
|                       |  |                |           |  |            |   |          
|Total/Weighted Average |  | $              | 8,272,009 |  |            | $ | 8,489,199 |                  |  | $ | 102.49 |  |  | $      | 102.63 |  |        |  | 62.9 | (3) |  |  | 3.90 | % |  |  | 11.4 | %
|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  

December 31, 2010



|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  
|---------------------- |  | -------------- | --------- |  | ---------- | - | --------- | ---------------- |  | - | ------ |  |  | ------ | ------ |  | ------ |  | ---- | --- |  |  | ---- | - |  |  | ---- | -
|                       |  | Par Value      |           |  | Fair Value |   |           | Weighted Average | 
|Asset Type             |  | (in thousands) |           |  | Cost/Par   |   |           | FairValue/Par    |  |   | MTR(1) |  |  | Coupon |        |  | CPR(2) | 
|15 Year Fixed Rate     |  | $              | 3,549,194 |  |            | $ | 3,622,862 |                  |  | $ | 102.16 |  |  | $      | 102.08 |  |        |  | N/A  |     |  |  | 3.87 | % |  |  | 23.1 | %
|20 Year Fixed Rate     |  |                | 647,360   |  |            |   | 660,237   |                  |  |   | 102.38 |  |  |        | 101.99 |  |        |  | N/A  |     |  |  | 4.14 | % |  |  | 6.9  | %
|30 Year Fixed Rate     |  |                | 223,047   |  |            |   | 238,549   |                  |  |   | 105.60 |  |  |        | 106.95 |  |        |  | N/A  |     |  |  | 5.55 | % |  |  | 28.2 | %
|Hybrid ARMs            |  |                | 1,737,307 |  |            |   | 1,788,922 |                  |  |   | 102.70 |  |  |        | 102.97 |  |        |  | 63.2 |     |  |  | 3.43 | % |  |  | 18.4 | %
|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  
|                       |  |                |           |  |            |   |          
|Total/Weighted Average |  | $              | 6,156,908 |  |            | $ | 6,310,570 |                  |  | $ | 102.46 |  |  | $      | 102.50 |  |        |  | 63.2 | (3) |  |  | 3.83 | % |  |  | 18.9 | %
|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  



17



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|(1) | Months to Reset is the number of months remaining before the fixed rate on a hybrid ARM becomes a variable rate. At the end of the fixed
period, the variable rate will be determined by the margin and the pre-specified caps of the ARM. After the fixed period, 100% of the hybrid ARMS in the portfolio reset annually.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | CPR, or Constant Prepayment Rate, is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction
of the remaining principal is prepaid each month or year. Specifically, the constant prepayment rate is an annualized version of the prior three month prepayment rate. Securities with no prepayment history are excluded from this calculation.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Weighted average months to reset of our Hybrid ARM portfolio.
|--- | -------------------------------------------------------------

As of March 31, 2011 and December 31, 2010, the Companys Agency RMBS were purchased at a net premium to their par value
due to the average interest rates on these investments being higher than prevailing market rates. As of March 31, 2011 and December 31, 2010, approximately $206.3 million and $152.7 million, respectively, of unamortized premium was
included in the cost basis of the securities.

Actual maturities of Agency RMBS are generally shorter than stated contractual
maturities (which range up to 30 years), as they are affected by the contractual lives of the underlying mortgages, periodic payments and prepayments of principal. As of March 31, 2011 and December 31, 2010, the average final contractual
maturity of the Companys Agency RMBS portfolio is in year 2032 and 2031, respectively. Based on current estimates, the Agency RMBS will have a weighted average expected life of less than five years. Interest income on Agency RMBS for the three
months ended March 31, 2011 and 2010 was $40.0 million and $16.4 million, respectively.

In order to mitigate its
interest rate exposure, the Company enters into interest rate swap and cap contracts. The Company did not enter into or terminate any interest rate swap or cap contracts during the three months ended March 31, 2010. Below is a summary of the
Companys interest rate swap and cap contracts transacted during the three months ended March 31, 2011 (in thousands).



|                                  |  |             |  |          |         | 
|--------------------------------- |  | ----------- |  | -------- | ------- | 
|Three Months Ended March 31,
2011 | 
|Trade Date                        |  | Transaction |  | Notional |        
|February 2011                     |  | Opened      |  | $        | 500,000 | 
|March 2011                        |  | Opened      |  |          | 250,000 | 
|                                  |  |             |  |          |         | 
|Net Increase                      |  |             |  | $        | 750,000 | 
|                                  |  |             |  |          |         | 

As of March 31, 2011 and December 31, 2010, the Company had net pledged Agency RMBS and U.S
Treasury securities with a fair value of $7.9 million and $4.3 million, respectively, as collateral on interest rate swap and cap contracts. Below is a summary of our interest rate swap and cap contracts open as of March 31, 2011 and
December 31, 2010 and for the three months ended March 31, 2011 and 2010 (dollars in thousands):



|                                                                   |  |                 |           |  |            |   |        |                                              |  |            
|------------------------------------------------------------------ |  | --------------- | --------- |  | ---------- | - | ------ | -------------------------------------------- |  | -----------
|Derivatives not designated as hedging
instruments under ASC 815(a)
|Interest Rate Swaps                                                |  | Notional Amount |           |  | Fair Value |   |        | Statement of Assets and Liabilities Location
|March 31, 2011                                                     |  | $               | 2,890,000 |  |            | $ | 12,818 |                                              |  | Assets     
|March 31, 2011                                                     |  |                 | 1,550,000 |  |            |   | (4,622 | )                                            |  | Liabilities
|December 31, 2010                                                  |  |                 | 2,140,000 |  |            |   | 9,113  |                                              |  | Assets     
|December 31, 2010                                                  |  |                 | 1,550,000 |  |            |   | (9,757 | )                                            |  | Liabilities
|                                                                   |  |                 |          
|Interest Rate Caps                                                 |  | Notional Amount |           |  | Fair Value |   |        | Statement of Assets and Liabilities Location
|March 31, 2011                                                     |  | $               | 700,000   |  |            | $ | 31,863 |                                              |  | Assets     
|December 31, 2010                                                  |  |                 | 700,000   |  |            |   | 30,984 |                                              |  | Assets     



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##### Table of Contents

|                                                                   |  |                                                               |  |                                                            |        |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------------------------------------------- |  | ---------------------------------------------------------- | ------ | - |  | - | ------- | -
|Derivatives not designated as hedging
Instruments under ASC
815(a) |  | Location of Gain or (Loss)
Recognized in Income on Derivative |  | Amount of Gain or (Loss)Recognized in Income on Derivative |       
|                                                                   |  | Three Months Ended March 31,                                  | 
|                                                                   |  | 2011                                                          |  |                                                            | 2010   |  
|Interest rate swap and cap contracts                               |  | Net gain (loss) from swap and cap contracts                   |  | $                                                          | (1,181 | ) |  | $ | (10,040 | )
|                                                                   |  |                                                               |  |                                                            |        |   |  |   |         |  



|(a) | See note 2 for additional information on the Companys purpose for entering into interest rate swaps and caps and the decision not to designate
them as hedging instruments.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Credit Risk

At March 31, 2011 and December 31, 2010, the Company continued to minimize its exposure to credit losses on its mortgage assets
by purchasing Agency RMBS. The payment of principal and interest on Agency RMBS is guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae. In September 2008, both Freddie Mac and Fannie Mae were placed in the conservatorship of the United States
government. While it is hoped that the conservatorship will help stabilize Freddie Macs and Fannie Maes losses and overall financial position, there can be no assurance that it will succeed or that, if necessary, Freddie Mac or Fannie
Mae will be able to satisfy their guarantees of Agency RMBS.

The Companys CLOs do not have the backing of Fannie Mae,
Freddie Mac or Ginnie Mae. Payment of principal and interest is dependent on the performance of the underlying loans, which are subject to borrower default and possible losses.

5. BORROWINGS

The Company leverages its Agency RMBS portfolio through the
use of repurchase agreements. Each of the borrowing vehicles used by the Company bears interest at floating rates based on a spread above or below the London InterBank Offered Rate (LIBOR). The fair value of borrowings under repurchase
agreements approximates their carrying amount due to the short-term nature of these financial instruments.

Certain
information with respect to the Companys borrowings is summarized in the following tables. Each of the borrowings listed is contractually due in one year or less (dollars in thousands).



|                                              |  |   |           |  
|--------------------------------------------- |  | - | --------- | -
|March 31, 2011                                |  |   |          
|Outstanding borrowings                        |  | $ | 5,364,030 |  
|Interest accrued thereon                      |  | $ | 1,336     |  
|Weighted average borrowing rate               |  |   | 0.29      | %
|Weighted average remaining maturity (in days) |  |   | 35.6      |  
|Fair value of the collateral(1)               |  | $ | 5,647,701 |  
|                                              | 
|December 31, 2010                             |  |   |          
|Outstanding borrowings                        |  | $ | 3,443,843 |  
|Interest accrued thereon                      |  | $ | 1,084     |  
|Weighted average borrowing rate               |  |   | 0.32      | %
|Weighted average remaining maturity (in days) |  |   | 39.3      |  
|Fair value of the collateral(1)               |  | $ | 3,657,185 |  



|(1) | Collateral for borrowings consists of Agency RMBS.
|--- | --------------------------------------------------

At March 31, 2011 and December 31, 2010, the Company did not have any repurchase agreements where the amount at risk exceeded 10% of net assets.

6. SHARE CAPITAL

The
Company authorized 500,000,000 shares of common stock having par value of $0.01 per share. As of March 31, 2011 and December 31, 2010, the Company had issued and outstanding 82,559,479 and 59,550,836 shares of common stock, respectively,
and warrants to purchase an additional 15,200 shares of common stock. The Company issued 23,008,643 and 40,794,324 shares of common stock during the three months ended March 31, 2011 and year ended December 31, 2010, respectively.



19



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##### Table of Contents

Below is a description of the warrants outstanding at March 31, 2011 and
December 31, 2010:

March 31, 2011 and December 31, 2010



|               |  |                                  |        |  |                |   |       | 
|-------------- |  | -------------------------------- | ------ |  | -------------- | - | ----- | 
|Expiration     |  | Additional sharesof common stock |        |  | Exercise Price |  
|April 30, 2011 |  |                                  | 15,200 |  |                | $ | 11.00 | 

The Company also
authorized 50,000,000 shares of preferred stock having a par value of $0.01 per share. As of March 31, 2011 and December 31, 2010, no such shares were issued or outstanding.

On February 15, 2011, the Company closed a public offering of 23,000,000 shares of its common stock at a public offering price of
$12.35 per share for total net proceeds of approximately $275.8 million, after the underwriting discount and commissions and expenses.

The Company sponsors a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of common stock by reinvesting some or all of the cash dividends
received on shares of common stock. This plan became effective on June 22, 2010. Stockholders may also make optional cash purchases of shares of common stock subject to certain limitations detailed in the plan prospectus. From
June 22, 2010 to December 31, 2010 the Company issued 607,902 shares under the plan raising approximately $8.0 million of net proceeds. For the three months ended March 31, 2011 the Company issued 1,659 shares under the plan raising
approximately $21.1 thousand of net proceeds. As of March 31, 2011 and December 31, 2010, there were approximately 9.4 million shares available for issuance under this plan.

7. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

The Manager manages
the Companys day-to-day operations, subject to the direction and oversight of the Companys board of directors. The Management Agreement was executed on February 10, 2006. The initial term of the Management Agreement expired on
December 31, 2008, and it has been automatically renewed each year for a one-year term. The current term will expire on December 31, 2011. Going forward, the Management Agreement will be automatically renewed for a one-year term each
anniversary date thereafter unless notice of non-renewal is given to the Company by the Manager. The Companys independent directors review the Managers performance annually, and the Management Agreement may be terminated upon the
affirmative vote of at least two-thirds of our independent directors, or by a vote of the holders of a majority of the outstanding shares of our common stock. In the event the Management Agreement is terminated as described above, the Company shall
pay to the Manager a termination fee in accordance with the provisions of the Management Agreement. In the event the Company elects to internalize its management, the Management Agreement shall terminate without payment of any termination fee to the
Manager.

The Management Agreement provides, among other things, that the Company pays to the Manager, in exchange for
managing the day-to-day operations of the Company, certain fees and reimbursements, consisting of a base management fee and reimbursement for out-of-pocket and certain other costs incurred by the Manager and on behalf of the Company. The base
management fee, which is paid monthly, was equal to 1/12 of (A) 1.50% of the first $250,000,000 of Net Assets (as defined in the Management Agreement), (B) 1.25% of such Net Assets that are greater than $250,000,000 and less than or equal
to $500,000,000, and (C) 1.00% of such Net Assets that are greater than $500,000,000. The Company is also required to reimburse the Manager for its pro-rata portion of rent, utilities, legal and investment services, market information systems
and research publications and materials. In addition, the Company recognized share-based compensation expense related to common stock options and restricted common stock granted to the Companys executive officers and Manager Designees, which
is included in related party management compensation on the statement of operations.

For the three months ended
March 31, 2011 and 2010, the Company incurred the following in base management fees and expense reimbursement (in thousands):



|                      |  |                              |       |  |      |   |       | 
|--------------------- |  | ---------------------------- | ----- |  | ---- | - | ----- | 
|                      |  | Three months ended March 31, |      
|                      |  | 2011                         |       |  | 2010 |  
|Base Management Fees  |  | $                            | 2,689 |  |      | $ | 937   | 
|Expense Reimbursement |  |                              | 151   |  |      |   | 139   | 
|                      |  |                              |       |  |      |   |       | 
|Total                 |  | $                            | 2,840 |  |      | $ | 1,076 | 
|                      |  |                              |       |  |      |   |       | 

8. CONTINGENCIES

The Company enters into certain contracts that contain a variety of indemnifications, principally with the Manager and brokers. The maximum potential amount of future payment the Company could be required
to make under these indemnification provisions is unknown. The Company has not incurred any costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the estimated fair value of these agreements is minimal.
Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2011 and December 31, 2010.



20



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##### Table of Contents

9. FINANCIAL HIGHLIGHTS

In accordance with financial reporting requirements applicable to investment companies, the Company has included below certain financial highlight information for the three months ended March 31,
2011 and 2010:



|                                                                                    |  |                              |       |      |      |   |       |     
|----------------------------------------------------------------------------------- |  | ---------------------------- | ----- | ---- | ---- | - | ----- | ----
|                                                                                    |  | Per Share                    |      
|                                                                                    |  | Three months ended March 31, |      
|                                                                                    |  | 2011                         |       |      | 2010 |  
|Net asset value, beginning of period                                                |  | $                            | 11.59 |      |      | $ | 13.02 |     
|Net income (loss):                                                                  |  |                              |       |      |      |   |       |     
|Net investment income                                                               |  |                              | 0.47  | (a)  |      |   | 0.73  | (a) 
|Net gain (loss) from investments and swap and cap contracts                         |  |                              | 0.26  | (a)  |      |   | (0.19 | )(a)
|                                                                                    |  |                              |       |      |      |   |       |     
|Net income (loss)                                                                   |  |                              | 0.73  |      |      |   | 0.54  |     
|                                                                                    |  |                              |       |      |      |   |       |     
|Capital transactions:                                                               |  |                              |       |      |      |   |       |     
|Distributions to shareholders                                                       |  |                              | (0.70 | )(a) |      |   | (0.55 | )(a)
|Issuance of common shares and amortization of related party management compensation |  |                              | 0.12  | (a)  |      |   | 0.02  | (a) 
|                                                                                    |  |                              |       |      |      |   |       |     
|Net decrease in net asset value from capital transactions                           |  |                              | (0.58 | )    |      |   | (0.53 | )   
|                                                                                    |  |                              |       |      |      |   |       |     
|Net asset value, end of period                                                      |  | $                            | 11.74 |      |      | $ | 13.03 |     
|                                                                                    |  |                              |       |      |      |   |       |     
|Total return (%)                                                                    |  |                              | 7.33  | %(b) |      |   | 4.30  | %(b)
|Ratios to Average Net Assets                                                        |  |                              |       |      |      |   |       |     
|Expenses before interest expense                                                    |  |                              | 2.11  | %(c) |      |   | 3.63  | %(c)
|Total expenses                                                                      |  |                              | 3.64  | %(c) |      |   | 5.23  | %(c)
|Net investment income                                                               |  |                              | 16.18 | %(c) |      |   | 22.31 | %(c)



21



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|(a) | Calculated based on average shares outstanding during the period. Average shares outstanding include vested and unvested restricted shares and differs from weighted
average shares outstanding used in calculating EPS (see note 3).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Calculated based on net asset value per share. Not computed on an annualized basis.
|--- | -----------------------------------------------------------------------------------

|(c) | Computed on an annualized basis.
|--- | --------------------------------

10.
SUBSEQUENT EVENTS

On April 1, 2011, an aggregate of 7,074 shares of restricted common stock were granted to certain
directors as a portion of their compensation for serving on the Companys board of directors.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

In this Quarterly Report on Form 10-Q, we refer to Cypress Sharpridge Investments, Inc. as we, us, our
company, or our, unless we specifically state otherwise or the context indicates otherwise. The following defines certain of the commonly used terms in this quarterly report on Form 10-Q: RMBS refers to residential
mortgage-backed securities; agency securities or Agency RMBS refers to our RMBS that are issued or whose principal and interest payments are guaranteed by a federally chartered corporation, such as the Federal National Mortgage Association
(Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), or an agency of the U.S. government, such as the Government National Mortgage Association (Ginnie Mae); ARMs refers to adjustable-rate
mortgage loans that typically have interest rates that adjust annually to an increment over a specified interest rate index; and hybrids refers to ARMs that have interest rates that are fixed for a specified period of time and, thereafter, generally
adjust annually to an increment over a specified interest rate index.

The following discussion should be read in
conjunction with our financial statements and accompanying notes included in Item 1 of this quarterly report on Form 10-Q as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed on February 8, 2011.

Forward Looking Statements

When used in this Quarterly Report on Form 10-Q, in future filings with the Securities and Exchange Commission (SEC) or in press releases or other written or oral communications,
statements which are not historical in nature, including those containing words such as believe, expect, anticipate, estimate, plan, continue, intend,
should, may or similar expressions, are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and, as such, may involve known and unknown risks, uncertainties and assumptions. The forward-looking statements we make in this Quarterly Report on Form 10-Q include, but are not limited to, statements about the
following:



| |  |  | increases in interest rates and inflation;
| | - |  | ------------------------------------------



| |  |  | our investment, financing and hedging strategy and the success of these strategies;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the effect of increased prepayment rates on our portfolio;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to convert our assets into cash or extend the financing terms related to our assets;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | our ability to quantify risks based on historical experience;
| | - |  | -------------------------------------------------------------



| |  |  | our ability to be taxed as a real estate investment trust (REIT) and to maintain an exemption from registration under the Investment
Company Act of 1940, as amended (the Investment Company Act);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our assessment of counterparty risk;
| | - |  | ------------------------------------



| |  |  | our liquidity;
| | - |  | --------------



| |  |  | our asset valuation policies;
| | - |  | -----------------------------



| |  |  | our distribution policy; and
| | - |  | ----------------------------



| |  |  | the effect of recent U.S. Government actions on the housing and credit markets.
| | - |  | -------------------------------------------------------------------------------



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Forward-looking statements are based on our beliefs, assumptions and expectations of our
future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are
known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. The following factors could cause actual results to vary from our
forward-looking statements:



| |  |  | the factors referenced in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, including those set forth under the section
captioned Risk Factors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our investment, financing and hedging strategy;
| | - |  | ----------------------------------------------------------



| |  |  | the adequacy of our cash flow from operations and borrowings to meet our short term liquidity requirements;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the liquidity of our portfolio;
| | - |  | -------------------------------



| |  |  | unanticipated changes in our industry, interest rates, the credit markets, the general economy or the real estate market;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in interest rates and the market value of our Agency RMBS;
| | - |  | ------------------------------------------------------------------



| |  |  | changes in the prepayment rates on the mortgage loans underlying our Agency RMBS;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | our ability to borrow to finance our assets;
| | - |  | --------------------------------------------



| |  |  | changes in government regulations affecting our business;
| | - |  | ---------------------------------------------------------



| |  |  | our ability to maintain our qualification as a REIT for federal income tax purposes;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | our ability to maintain our exemption from registration under the Investment Company Act; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | risks associated with investing in real estate assets, including changes in business conditions and the general economy.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

These and other risks, uncertainties and factors, including those described elsewhere in this report, could cause our actual results to
differ materially from those projected in any forward-looking statements we make. All forward-looking statements speak only as of the date on which they are made. New risks and uncertainties arise over time and it is not possible 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.

Overview

We are a
specialty finance company created with the objective of achieving consistent risk-adjusted investment income. We seek to achieve this objective by investing, on a leveraged basis, in Agency RMBS. In addition, our investment guidelines permit
investments in collateralized mortgage obligations issued by a government agency or a government sponsored entity that are collectively by Agency RMBS (CMOs), although we had not invested in any CMOs as of March 31, 2011. We are
currently managed by Cypress Sharpridge Advisors LLC, a joint venture between affiliates of The Cypress Group and Sharpridge Capital Management, L.P. We commenced operations in February 2006 and completed our initial public offering in June 2009.
Our common stock is traded on the New York Stock Exchange under the symbol CYS.

We earn investment income from
our investment portfolio, and we use leverage to seek to enhance our returns. Our net investment income is generated primarily from the difference, or net spread, between the interest income we earn on our investment portfolio and the cost of our
borrowings and hedging activities. The amount of net investment income we earn on our investments depends in part on our ability to control our financing costs, which comprise a significant portion of our operating expenses. Although we leverage our
portfolio investments in Agency RMBS to seek to enhance our potential returns, leverage also may exacerbate losses.

While we
use hedging to mitigate some of our interest rate risk, we do not hedge all of our exposure to changes in interest rates. This is because there are practical limitations on our ability to insulate our portfolio from all potential negative
consequences associated with changes in short term interest rates in a manner that will allow us to seek attractive spreads on our portfolio.

In addition to investing in issued pools of Agency RMBS, we regularly utilize forward settling transactions, including forward-settling purchases of Agency RMBS where the pool is
to-be-announced, or TBAs. Pursuant to these TBA transactions, we agree to purchase, for future delivery, Agency RMBS with certain principal and interest terms and certain types of underlying collateral, but the particular Agency RMBS to
be delivered is not identified until shortly before the TBA settlement date. For our other forward settling transactions, we agree to purchase, for future delivery, Agency RMBS; however, unlike our TBAs, these forward settling transactions reference
an identified Agency RMBS.

On February 15, 2011, the Company successfully completed a public offering of
23,000,000 shares of common stock, raising approximately $275.8 million of net proceeds, bringing the total number of shares of common stock outstanding to 82,559,479 at March 31, 2011.



23



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##### Table of Contents

We have elected to be taxed as a REIT and have complied, and intend to continue to comply,
with the provisions of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code) with respect thereto. Accordingly, we do not expect to be subject to federal income tax on our REIT taxable income that we currently
distribute to our stockholders if certain asset, income and ownership tests and recordkeeping requirements are fulfilled. Even if we maintain our qualification as a REIT, we may be subject to some federal, state and local taxes on our income.

Factors that Affect our Results of Operations and Financial Condition

A variety of industry and economic factors may impact our results of operations and financial condition. These factors include:



| |  |  | interest rate trends;
| | - |  | ---------------------



| |  |  | prepayment rates on mortgages underlying our Agency RMBS, and credit trends insofar as they affect prepayment rates;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | competition for investments in Agency RMBS;
| | - |  | -------------------------------------------



| |  |  | actions taken by the U.S. Federal Reserve and the U.S. Treasury; and
| | - |  | --------------------------------------------------------------------



| |  |  | other market developments.
| | - |  | --------------------------

In addition, a variety of factors relating to our business may also impact our results of operation and financial condition. These factors include:



| |  |  | our degree of leverage;
| | - |  | -----------------------



| |  |  | our access to funding and borrowing capacity;
| | - |  | ---------------------------------------------



| |  |  | our borrowing costs;
| | - |  | --------------------



| |  |  | our hedging activities;
| | - |  | -----------------------



| |  |  | changes in the credit ratings of the securities in our portfolio;
| | - |  | -----------------------------------------------------------------



| |  |  | the market value of our investments; and
| | - |  | ----------------------------------------



| |  |  | the REIT requirements and the requirements to qualify for a registration exemption under the Investment Company Act.
| | - |  | --------------------------------------------------------------------------------------------------------------------

We anticipate that, for any period during which changes in the interest rates earned on our assets do not coincide with interest rate
changes on the corresponding liabilities, such assets will reprice more slowly than the corresponding liabilities. Consequently, changes in interest rates, particularly short term interest rates, may significantly influence our net investment
income.

Our net investment income may be affected by a difference between actual prepayment rates and our projections.
Prepayments on loans and securities may be influenced by changes in market interest rates and homeowners ability and desire to refinance their mortgages. To the extent we have acquired assets at a premium or discount to par value, changes in
prepayment rates may impact our anticipated yield.

Trends and Recent Market Impacts

The following trends and recent market impacts may also affect our business:

Interest Rates and Liquidity

Currently the U.S. economy appears to
be in a weak recovery with little or inflationary pressures. As a result, the U.S. Federal Funds Target Rate has remained at 0-0.25%, with no change since mid-December 2008. Since December 2009, 30-Day LIBOR has also remained low, though the rate
reached 0.348% at June 30, 2010. The availability of repurchase agreement financing is stable with interest rates between 0.27% and 0.30% for 30-90 day repurchase agreements. The following table shows 30-Day LIBOR, 3-Month LIBOR and the U.S.
Federal Funds Target Rate at the end of each respective fiscal quarter:



|                   |  |              |       |   |               |  |       |                           |  |  |      |  
|------------------ |  | ------------ | ----- | - | ------------- |  | ----- | ------------------------- |  |  | ---- | -
|Date               |  | 30-Day LIBOR |       |   | 3-Month LIBOR |  |       | Federal Funds Target Rate | 
|March 31, 2011     |  |              | 0.243 | % |               |  | 0.303 | %                         |  |  | 0.25 | %
|December 31, 2010  |  |              | 0.261 | % |               |  | 0.303 | %                         |  |  | 0.25 | %
|September 30, 2010 |  |              | 0.256 | % |               |  | 0.290 | %                         |  |  | 0.25 | %
|June 30, 2010      |  |              | 0.348 | % |               |  | 0.534 | %                         |  |  | 0.25 | %
|March 31, 2010     |  |              | 0.249 | % |               |  | 0.292 | %                         |  |  | 0.25 | %
|December 31, 2009  |  |              | 0.231 | % |               |  | 0.251 | %                         |  |  | 0.25 | %

Source: Bloomberg



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##### Table of Contents

Longer-term interest rates fell sharply in 2010. Rates on three-year interest rate swaps,
currently one of our primary hedging vehicles, decreased by 78 basis points during the year ended December 31, 2010, from 2.06% to 1.28%; however these rates have increased in recent months, moving to 1.57% at March 31, 2011. Meanwhile,
3-Month LIBOR, which is the rate used to calculate the interest payments we receive on interest rate swaps and interest rate caps, if any, also increased during the year ended December 31, 2010 by five basis points, ending the year at 0.303%
and remaining at 0.303% at March 31, 2011.

In August 2010 yields on Agency RMBS fell to their lowest levels in more than
a year, with prices reaching record highs. While the yield on a par-priced Fannie Mae Agency RMBS backed by 30 year fixed rate mortgage loans went as low as 3.29% at August 31, 2010, by March 31, 2011 it had risen to 4.30%, only 26 basis
points lower than the 4.56% yield at December 31, 2009.

Yields on U.S. Treasury securities followed a similar trend as
Agency RMBS with the yield on five year U.S. Treasury notes falling to as low as 1.16% at October 31, 2010 but increasing to 2.28% at March 31, 2011, 26 basis points lower than the 2.54% yield at March 31, 2010. The following table
illustrates this situation by comparing market levels for two benchmark securities, the yield on five year U.S. Treasury Notes and the price of 15 year Fannie Mae 4.5% Agency RMBS:



|                   |  |                              |      |   |                                                     |   |         | 
|------------------ |  | ---------------------------- | ---- | - | --------------------------------------------------- | - | ------- | 
|Date               |  | Five Year U.S. Treasury Note |      |   | Market Prices of 15 Year Fannie Mae 4.5%Agency RMBS |  
|March 31, 2011     |  |                              | 2.28 | % |                                                     | $ | 104.672 | 
|December 31, 2010  |  |                              | 2.01 | % |                                                     | $ | 104.797 | 
|September 30, 2010 |  |                              | 1.26 | % |                                                     | $ | 105.203 | 
|June 30, 2010      |  |                              | 1.77 | % |                                                     | $ | 105.484 | 
|March 31, 2010     |  |                              | 2.54 | % |                                                     | $ | 103.672 | 
|December 31, 2009  |  |                              | 2.68 | % |                                                     | $ | 102.984 | 

Source: Bloomberg

One of the main factors impacting market prices during the first three months of 2010 was the U.S. Federal Reserves program to
purchase Agency RMBS, which commenced in January 2009 and was terminated on March 31, 2010. In total, $1.25 trillion of Agency RMBS was purchased. The market expectation was that when this program terminated, the demand for these securities
would decrease and likely reduce the market price for Agency RMBS. However, we continue to see strong demand as these securities remain desirable assets in the current economic environment.

Prepayment Rates and Loan Buy-back Programs

In early March 2010,
both Freddie Mac and Fannie Mae announced they would purchase from the pools of mortgage loans underlying RMBS that they issued, all mortgage loans that are more than 120 days delinquent. The impact of these programs thus far is reflected in the
constant prepayment rate, or CPR, of our portfolio. Because a substantial portion of our portfolio consists of Agency RMBS backed by 15 year fixed rate mortgage loans, which have low delinquency rates, these programs have not caused a significant
increase in the CPR of our portfolio.

During the year ended December 31, 2010, the prepayment rates changed primarily in
line with the delinquent loan purchase programs described above. During the first three months of 2011, prepayment rates on Agency RMBS have decreased as mortgage rates increased. The following table shows the prepayment rates for Fannie Mae Agency
RMBS backed by 15 year and 30 year fixed rate mortgages:



|        |  |        |      |   |        |  |      |        |  |  |        |   |  |        |      |   |        |  |      |        |  |  |        |   |  |        |      |   |        |  |      |        |  |  |        |   |  |  |      |   |  |  |      |   |  |  |      |  
|------- |  | ------ | ---- | - | ------ |  | ---- | ------ |  |  | ------ | - |  | ------ | ---- | - | ------ |  | ---- | ------ |  |  | ------ | - |  | ------ | ---- | - | ------ |  | ---- | ------ |  |  | ------ | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|        |  | Jan-10 |      |   | Feb-10 |  |      | Mar-10 |  |  | Apr-10 |   |  | May-10 |      |   | Jun-10 |  |      | Jul-10 |  |  | Aug-10 |   |  | Sep-10 |      |   | Oct-10 |  |      | Nov-10 |  |  | Dec-10 |  
|15 Year |  |        | 13.9 | % |        |  | 12.1 | %      |  |  | 15.5   | % |  |        | 15.7 | % |        |  | 16.5 | %      |  |  | 16.8   | % |  |        | 16.8 | % |        |  | 21.4 | %      |  |  | 23.0   | % |  |  | 24.1 | % |  |  | 25.3 | % |  |  | 24.6 | %
|30 Year |  |        | 15.4 |   |        |  | 14.7 |        |  |  | 27.7   |   |  |        | 28.9 |   |        |  | 28.1 |        |  |  | 17.5   |   |  |        | 18.5 |   |        |  | 23.6 |        |  |  | 24.9   |   |  |  | 25.6 |   |  |  | 27.0 |   |  |  | 25.8 |  
|        |  |        |      |   |        |  |      |        |  |  |        |  
|        |  | Jan-11 |      |   | Feb-11 |  |      | Mar-11 |  |  |        |   |  |        |      |   |        |  |      |        |  |  |        |   |  |        |      |   |        |  |      |        |  |  |        |  
|15 Year |  |        | 17.8 | % |        |  | 13.6 | %      |  |  | 13.7   | % |  |        |      |   |        |  |      |        |  |  |        |   |  |        |      |   |        |  |      |        |  |  |        |   |  |  |      |   |  |  |      |   |  |  |      |  
|30 Year |  |        | 19.5 |   |        |  | 15.5 |        |  |  | 15.4   |   |  |        |      |   |        |  |      |        |  |  |        |   |  |        |      |   |        |  |      |        |  |  |        |   |  |  |      |   |  |  |      |   |  |  |      |  



25



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##### Table of Contents

LOGO

Government Activity

In February 2011, the U.S. Department of the Treasury along with the U.S. Department of Housing and Urban Development released a report titled Reforming Americas Housing Finance Market
to Congress outlining recommendations for reforming the U.S. housing system, specifically Fannie Mae and Freddie Mac, and transforming the governments involvement in the housing market. It is unclear how future legislation may impact the
housing finance market and the investing environment for Agency RMBS as the method of reform is undecided and has not yet been defined by the regulators.

In November 2010, the U.S. Federal Reserve announced a program to purchase an additional $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75
billion per month. One of the effects of this program may be to increase the price of Agency RMBS, which may also decrease our net interest margin. Once the program is terminated it may cause a decrease in demand for these securities, which likely
would reduce their market price.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and
Consumer Protection Act, or the Act. This legislation aims to restore responsibility and accountability to the financial system. It is unclear how this legislation may impact the borrowing environment, investing environment for Agency RMBS and
interest rate swaps and other derivatives as much of the Acts implementation has not yet been defined by the regulators.

Certain programs initiated by the U.S. Government, through the Federal Housing Administration (FHA) and the Federal Deposit
Insurance Corporation (FDIC), to provide homeowners with assistance in avoiding residential mortgage loan foreclosures are currently in effect. The programs may involve, among other things, the modification of mortgage loans to reduce
the principal amount of the loans or the rate of interest payable on the loans, or to extend the payment terms of the loans. One such program is the Hope for Homeowners program, which is effective from October 1, 2008 through September 30,
2011 and will enable certain distressed borrowers to refinance their mortgages into FHA-insured loans. In addition, in February 2009, the U.S. Treasury announced the Homeowner Affordability and Stability Plan (HASP), which is a
multi-faceted plan that also is intended to prevent residential mortgage foreclosures. While the effect of these programs has not been as extensive as originally expected, the effect of such programs as the Hope for Homeowners program and HASP for
holders of Agency RMBS could be that such holders would experience changes in the anticipated yields of their Agency RMBS due to (i) increased prepayment rates on their Agency RMBS and (ii) lower interest and principal payments on their
Agency RMBS.

Credit Spreads

Over the past few years, the credit markets generally experienced tightening credit spreads (specifically, spreads between U.S. Treasury securities and other securities that are identical in all
respects except for ratings) mainly due to the strong demand for lending opportunities. Generally, when credit spreads tighten, the value of Agency RMBS increases, which results in an increase in our book value. Due to these tightening credit
spreads our book value has increased. If credit spreads were to widen, we expect the market value of Agency RMBS would decrease, which could reduce our book value, but also create an attractive opportunity to reinvest principal and interest from our
existing portfolio as well as deploy new capital into higher-yielding Agency RMBS.



26



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##### Table of Contents

For a discussion of additional risks relating to our business see Risk Factors
disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed on February 8, 2011.

Financial
Condition

As of March 31, 2011 and December 31, 2010, the Agency RMBS in our portfolio were purchased at a net
premium to their par value due to the average interest rates on these investments being higher than prevailing market rates. As of March 31, 2011 and December 31, 2010, we had approximately $206.3 million and $152.7 million, respectively,
of unamortized premium included in the cost basis of our investments.

As of March 31, 2011 and December 31, 2010,
our Agency RMBS portfolio consisted of the following assets:

March 31, 2011



|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  
|---------------------- |  | -------------- | --------- |  | ---------- | - | --------- | ---------------- |  | - | ------ |  |  | ------ | ------ |  | ------ |  | ---- | --- |  |  | ---- | - |  |  | ---- | -
|                       |  | Par Value      |           |  | Fair Value |   |           | Weighted Average | 
|Asset Type             |  | (in thousands) |           |  | Cost/Par   |   |           | FairValue/Par    |  |   | MTR(1) |  |  | Coupon |        |  | CPR(2) | 
|15 Year Fixed Rate     |  | $              | 4,033,535 |  |            | $ | 4,123,587 |                  |  | $ | 102.21 |  |  | $      | 102.23 |  |        |  | N/A  |     |  |  | 3.88 | % |  |  | 11.0 | %
|20 Year Fixed Rate     |  |                | 635,489   |  |            |   | 643,471   |                  |  |   | 102.36 |  |  |        | 101.26 |  |        |  | N/A  |     |  |  | 4.14 | % |  |  | 3.9  | %
|30 Year Fixed Rate     |  |                | 993,473   |  |            |   | 1,048,091 |                  |  |   | 104.36 |  |  |        | 105.50 |  |        |  | N/A  |     |  |  | 5.20 | % |  |  | 33.2 | %
|Hybrid ARMs            |  |                | 2,609,512 |  |            |   | 2,674,050 |                  |  |   | 102.24 |  |  |        | 102.47 |  |        |  | 62.9 |     |  |  | 3.37 | % |  |  | 14.4 | %
|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  
|                       |  |                |           |  |            |   |          
|Total/Weighted Average |  | $              | 8,272,009 |  |            | $ | 8,489,199 |                  |  | $ | 102.49 |  |  | $      | 102.63 |  |        |  | 62.9 | (3) |  |  | 3.90 | % |  |  | 11.4 | %
|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  

December 31, 2010



|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  
|---------------------- |  | -------------- | --------- |  | ---------- | - | --------- | ---------------- |  | - | ------ |  |  | ------ | ------ |  | ------ |  | ---- | --- |  |  | ---- | - |  |  | ---- | -
|                       |  | Par Value      |           |  | Fair Value |   |           | Weighted Average | 
|Asset Type             |  | (in thousands) |           |  | Cost/Par   |   |           | FairValue/Par    |  |   | MTR(1) |  |  | Coupon |        |  | CPR(2) | 
|15 Year Fixed Rate     |  | $              | 3,549,194 |  |            | $ | 3,622,862 |                  |  | $ | 102.16 |  |  | $      | 102.08 |  |        |  | N/A  |     |  |  | 3.87 | % |  |  | 23.1 | %
|20 Year Fixed Rate     |  |                | 647,360   |  |            |   | 660,237   |                  |  |   | 102.38 |  |  |        | 101.99 |  |        |  | N/A  |     |  |  | 4.14 | % |  |  | 6.9  | %
|30 Year Fixed Rate     |  |                | 223,047   |  |            |   | 238,549   |                  |  |   | 105.60 |  |  |        | 106.95 |  |        |  | N/A  |     |  |  | 5.55 | % |  |  | 28.2 | %
|Hybrid ARMs            |  |                | 1,737,307 |  |            |   | 1,788,922 |                  |  |   | 102.70 |  |  |        | 102.97 |  |        |  | 63.2 |     |  |  | 3.43 | % |  |  | 18.4 | %
|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  
|                       |  |                |           |  |            |   |          
|Total/Weighted Average |  | $              | 6,156,908 |  |            | $ | 6,310,570 |                  |  | $ | 102.46 |  |  | $      | 102.50 |  |        |  | 63.2 | (3) |  |  | 3.83 | % |  |  | 18.9 | %
|                       |  |                |           |  |            |   |           |                  |  |   |        |  |  |        |        |  |        |  |      |     |  |  |      |   |  |  |      |  



|(1) | Months to Reset is the number of months remaining before the fixed rate on a hybrid ARM becomes a variable rate. At the end of the fixed
period, the variable rate will be determined by the margin and the pre-specified caps of the ARM. After the fixed period, 100% of the hybrid ARMS in the portfolio reset annually.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | CPR or Constant Prepayment Rate, is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of
the remaining principal is prepaid each month or year. Specifically, the constant prepayment rate is an annualized version of the prior three month prepayment rate. Securities with no prepayment history are excluded from this calculation.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Weighted average months to reset of our Hybrid ARM portfolio.
|--- | -------------------------------------------------------------

Actual maturities of Agency RMBS are generally shorter than stated contractual maturities (which range up to 30 years), as they are
affected by the contractual lives of the underlying mortgages, periodic payments and prepayments of principal. As of March 31, 2011 and December 31, 2010, the average final contractual maturity of the mortgage portfolio is in year 2032 and
2031, respectively.

The average expected life of our Agency RMBS reflects the estimated average period of time the securities
in the portfolio will remain outstanding. The average expected lives of our Agency RMBS do not exceed five years, based upon prepayment models obtained through subscription-based financial information service providers. The prepayment model
considers current yield, forward yield, steepness of the yield curve, current mortgage rates, the mortgage rate of the outstanding loan, loan age, margin and volatility. The actual lives of the Agency RMBS in our investment portfolio could be longer
or shorter than those estimates depending on the actual prepayment rates experienced over the lives of the applicable securities. As of March 31, 2011 and December 31, 2010 we had CLOs with a fair value of $23.9 million and $20.5 million,
respectively.

Hedging Instruments

We generally intend to hedge as much of the interest rate risk we determine is in the best interests of our stockholders. Our policies do not contain specific requirements as to the percentages or amount
of interest rate risk that our Manager is required to hedge. No assurance can be given that our hedging activities will have the desired beneficial impact on our results of operations or financial condition.



27



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Interest rate hedging may fail to protect or could adversely affect us because, among other
things:



| |  |  | interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | due to prepayments on assets and repayments of debt securing such assets, the duration of the hedge may not match the duration of the related liability
or asset;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the credit quality of the hedging counterparty may be downgraded to such an extent that it impairs our ability to sell or assign our side of the
hedging transaction; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the hedging counterparty may default on its obligation to pay.
| | - |  | --------------------------------------------------------------

We engage in interest rate swaps and caps as a means of mitigating our interest rate risk on forecasted interest expense associated with
repurchase agreements for the term of the swap contract. An interest rate swap is a contractual agreement entered into by two counterparties under which each agrees to make periodic payments to the other for an agreed period of time based upon a
notional amount of principal. Under the most common form of interest rate swap, commonly known as a fixed-floating interest rate swap, a series of fixed interest rate payments on a notional amount of principal is exchanged for a series of floating
interest rate payments on such notional amount. In a simple interest rate cap, one investor pays a premium for a notional principal amount based on a capped interest rate (the cap rate). When the floating interest rate (the
floating rate) exceeds the cap rate, the investor receives a payment from the cap counterparty equal to the difference between the floating rate and the cap rate on the same notional principal amount for a specified period of time.
Alternatively, an investor may receive a premium and pay the difference in cap rate and floating rate.

At March 31,
2011, we were a party to 14 interest rate swaps and three interest rate caps (whereby we will receive interest payments when three-month LIBOR exceeds the cap rate) with maturities between May 2013 and November 2015 with an aggregate notional amount
of $5,140.0 million and a fair value of approximately $40.1 million. At December 31, 2010, we were a party to 12 interest rate swaps and three interest rate caps (whereby we will receive interest payments when three-month LIBOR exceeds the cap
rate) with maturities between May 2013 and November 2015 with an aggregate notional amount of $4,390.0 million and a fair value of approximately $30.3 million. As of March 31, 2011 and December 31, 2010, the weighted average fixed rate on
our interest rate swaps was 1.460% and 1.354%, respectively. As of March 31, 2011 and December 31, 2010 the weighted average cap rate on our interest rate caps was 1.593%.

The current fair value of interest rate swaps and caps is heavily dependent on the current market fixed rate, the corresponding term
structure of floating rates (known as the yield curve) as well as the expectation of changes in future floating rates. As expectations of future floating rates change, the fair value of interest rate swaps changes.

Liabilities

We
have entered into repurchase agreements to finance some of our purchases of Agency RMBS. These agreements are secured by our Agency RMBS and bear interest at rates that have historically moved in close relationship to LIBOR. At March 31, 2011,
we had approximately $5,364.0 million of liabilities pursuant to repurchase agreements with 20 counterparties that had weighted average interest rates of approximately 0.29%, and maturities of between eight and 76 days. In addition, as of
March 31, 2011, we had approximately $2,385.0 million in payables for securities purchased. A portion of the payable for securities purchased will be financed through repurchase agreements. At December 31, 2010, we had approximately
$3,443.8 million of liabilities pursuant to repurchase agreements with 20 counterparties that had weighted-average interest rates of approximately 0.32%, and maturities of between seven and 80 days. In addition, as of December 31, 2010 we had
approximately $2,234.4 million in payables for securities purchased. Because we measure leverage as total liabilities divided by net assets, the approximately $2,385.0 million and $2,234.4 million payable for securities purchased is included in our
March 31, 2011 and December 31, 2010 leverage ratio of 8.1 to 1 and 8.3 to 1, respectively. Below is a summary of our payable for securities purchased as of March 31, 2011 and December 31, 2010 (In thousands).



28



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##### Table of Contents

March 31, 2011



|                               |  |             |           |  |           |   |           |         |  |   |           | 
|------------------------------ |  | ----------- | --------- |  | --------- | - | --------- | ------- |  | - | --------- | 
|Forward Settling Purchases     |  | Settle Date |           |  | Par Value |   |           | Payable | 
|FNMA - 30 Year 5.5% Fixed      |  |             | 4/13/2011 |  |           | $ | 200,000   |         |  | $ | 211,585   | 
|FNMA - 30 Year 5.0% Fixed      |  |             | 4/13/2011 |  |           |   | 250,000   |         |  |   | 258,424   | 
|FNMA - 15 Year 3.5% Fixed      |  |             | 4/18/2011 |  |           |   | 200,000   |         |  |   | 199,831   | 
|FNMA - 15 Year 4.0% Fixed      |  |             | 4/18/2011 |  |           |   | 49,696    |         |  |   | 50,749    | 
|FNMA - 15 Year 4.0% Fixed      |  |             | 4/18/2011 |  |           |   | 250,000   |         |  |   | 255,121   | 
|FNMA - 30 Year 5.0% Fixed      |  |             | 4/18/2011 |  |           |   | 250,000   |         |  |   | 258,950   | 
|FNMA - 15 Year 4.0% Fixed      |  |             | 4/18/2011 |  |           |   | 148,354   |         |  |   | 150,292   | 
|FNMA - 15 Year 4.0% Fixed      |  |             | 4/18/2011 |  |           |   | 101,646   |         |  |   | 102,973   | 
|FNMA - 30 Year 3.3% Hybrid ARM |  |             | 4/26/2011 |  |           |   | 60,000    |         |  |   | 61,298    | 
|FNMA - 30 Year 3.3% Hybrid ARM |  |             | 4/26/2011 |  |           |   | 25,000    |         |  |   | 25,465    | 
|FNMA - 30 Year 3.3% Hybrid ARM |  |             | 4/26/2011 |  |           |   | 75,000    |         |  |   | 76,301    | 
|FNMA - 30 Year 3.4% Hybrid ARM |  |             | 4/26/2011 |  |           |   | 50,000    |         |  |   | 50,848    | 
|FNMA - 30 Year 3.3% Hybrid ARM |  |             | 5/23/2011 |  |           |   | 50,000    |         |  |   | 50,719    | 
|FNMA - 30 Year 3.4% Hybrid ARM |  |             | 5/25/2011 |  |           |   | 125,000   |         |  |   | 125,352   | 
|FNMA - 30 Year 3.3% Hybrid ARM |  |             | 5/25/2011 |  |           |   | 60,000    |         |  |   | 61,012    | 
|FNMA - 30 Year 3.2% Hybrid ARM |  |             | 5/26/2011 |  |           |   | 200,000   |         |  |   | 205,063   | 
|FNMA - 30 Year 3.3% Hybrid ARM |  |             | 5/31/2011 |  |           |   | 135,000   |         |  |   | 136,951   | 
|FNMA - 30 Year 5.0% Fixed      |  |             | 6/13/2011 |  |           |   | 100,000   |         |  |   | 104,057   | 
|                               |  |             |           |  |           |   |           |         |  |   |           | 
|Total                          |  |             |           |  |           | $ | 2,329,696 |         |  | $ | 2,384,991 | 
|                               |  |             |           |  |           |   |           |         |  |   |           | 

December 31, 2010



|                                |  |             |           |  |           |   |           |         |  |   |           | 
|------------------------------- |  | ----------- | --------- |  | --------- | - | --------- | ------- |  | - | --------- | 
|Forward Settling Purchases      |  | Settle Date |           |  | Par Value |   |           | Payable | 
|FNMA - 15 Year 3.5% Fixed       |  |             | 1/19/2011 |  |           | $ | 150,000   |         |  | $ | 154,622   | 
|FNMA - 15 Year 4.0% Fixed       |  |             | 1/19/2011 |  |           |   | 31,096    |         |  |   | 32,008    | 
|FNMA - 30 Year 3.25% Hybrid ARM |  |             | 1/25/2011 |  |           |   | 49,646    |         |  |   | 51,433    | 
|FNMA - 30 Year 5.5% Fixed       |  |             | 2/10/2011 |  |           |   | 200,000   |         |  |   | 212,556   | 
|FNMA - 15 Year 3.5% Fixed       |  |             | 2/15/2011 |  |           |   | 550,000   |         |  |   | 563,952   | 
|FNMA - 15 Year 4.0% Fixed       |  |             | 2/15/2011 |  |           |   | 100,000   |         |  |   | 103,835   | 
|FNMA - 15 Year 4.5% Fixed       |  |             | 2/15/2011 |  |           |   | 300,000   |         |  |   | 313,627   | 
|FNMA - 15 Year 3.5% Fixed       |  |             | 3/16/2011 |  |           |   | 150,000   |         |  |   | 150,934   | 
|FHLMC - 15 Year 3.5% Fixed      |  |             | 3/16/2011 |  |           |   | 200,000   |         |  |   | 200,260   | 
|FNMA - 15 Year 3.5% Fixed       |  |             | 4/18/2011 |  |           |   | 400,000   |         |  |   | 399,661   | 
|FNMA - 15 Year 4.0% Fixed       |  |             | 4/18/2011 |  |           |   | 50,444    |         |  |   | 51,513    | 
|                                |  |             |           |  |           |   |           |         |  |   |           | 
|Total                           |  |             |           |  |           | $ | 2,181,186 |         |  | $ | 2,234,401 | 
|                                |  |             |           |  |           |   |           |         |  |   |           | 

Summary Financial Data



|                                                                     |  |                              |         |   |      |   |         |  
|-------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                     |  | Three Months Ended March 31, |        
|(dollars in thousands)                                               |  | 2011                         |         |   | 2010 |  
|Investment income - Interest income                                  |  |                              |         |   |      |   |         |  
|Interest Income - Agency RMBS                                        |  | $                            | 40,033  |   |      | $ | 16,393  |  
|Interest Income - CLOs, Structured Notes & Cash Equivalents          |  |                              | 947     |   |      |   | 544     |  
|                                                                     |  |                              |         |   |      |   |         |  
|Total interest income                                                |  |                              | 40,980  |   |      |   | 16,937  |  
|                                                                     |  |                              |         |   |      |   |         |  
|EXPENSES:                                                            |  |                              |         |   |      |   |         |  
|Interest expense                                                     |  |                              | 3,104   |   |      |   | 986     |  
|Operating expenses                                                   |  |                              | 4,418   |   |      |   | 2,232   |  
|                                                                     |  |                              |         |   |      |   |         |  
|Total expenses                                                       |  |                              | 7,522   |   |      |   | 3,218   |  
|                                                                     |  |                              |         |   |      |   |         |  
|Net investment income                                                |  |                              | 33,458  |   |      |   | 13,719  |  
|                                                                     |  |                              |         |   |      |   |         |  
|Net gain (loss) from investments                                     |  |                              | 19,820  |   |      |   | 6,464   |  
|                                                                     |  |                              |         |   |      |   |         |  
|GAINS AND (LOSSES) FROM SWAP AND CAP CONTRACTS:                      |  |                              |         |   |      |   |         |  
|Net swap and cap interest income (expense)                           |  |                              | (11,859 | ) |      |   | (3,294  | )
|Net unrealized appreciation (depreciation) on swap and cap contracts |  |                              | 10,678  |   |      |   | (6,746  | )
|                                                                     |  |                              |         |   |      |   |         |  
|Net gain (loss) from swap and cap contracts                          |  |                              | (1,181  | ) |      |   | (10,040 | )
|                                                                     |  |                              |         |   |      |   |         |  
|NET INCOME                                                           |  | $                            | 52,097  |   |      | $ | 10,143  |  
|                                                                     |  |                              |         |   |      |   |         |  
|Net income per common share (diluted)                                |  | $                            | 0.74    |   |      | $ | 0.54    |  
|                                                                     |  |                              |         |   |      |   |         |  



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Summary Financial Data



|                                     |  |                              |           |   |      |   |           |  
|------------------------------------ |  | ---------------------------- | --------- | - | ---- | - | --------- | -
|                                     |  | Three Months Ended March 31, |          
|(dollars in thousands)               |  | 2011                         |           |   | 2010 |  
|Distributions per common share       |  | $                            | 0.60      |   |      | $ | 0.55      |  
|                                     |  |                              |           |   |      |   |           |  
|                                     |  |                             
|Key Portfolio Statistics*            |  |                              |           |   |      |   |           |  
|Average Agency RMBS(1)               |  | $                            | 4,962,719 |   |      | $ | 1,723,303 |  
|Average repurchase agreements(2)     |  |                              | 4,207,234 |   |      |   | 1,524,644 |  
|Average net assets(3)                |  |                              | 838,593   |   |      |   | 249,412   |  
|Average yield on Agency RMBS(4)      |  |                              | 3.27      | % |      |   | 3.86      | %
|Average cost of funds and hedge(5)   |  |                              | 1.44      | % |      |   | 1.14      | %
|Interest rate spread net of hedge(6) |  |                              | 1.83      | % |      |   | 2.72      | %
|Operating expense ratio(7)           |  |                              | 2.11      | % |      |   | 3.63      | %
|Leverage ratio (at period end)(8)    |  |                              | 8.1:1     |   |      |   | 6.5:1     |  



|(1) | Our average Agency RMBS for the period was calculated by averaging the month end cost basis of our settled Agency RMBS during the period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(2) | Our average repurchase agreements for the period were calculated by averaging the month end repurchase agreement balance during the period.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Our average net assets for the period were calculated by averaging the month end net assets during the period.
|--- | --------------------------------------------------------------------------------------------------------------

|(4) | Our average yield on Agency RMBS for the period was calculated by dividing our interest income from Agency RMBS by our average Agency RMBS.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Our average cost of funds and hedge for the period was calculated by dividing our total interest expense, including our net swap and cap interest income (expense), by
our average repurchase agreements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Our interest rate spread net of hedge for the period was calculated by subtracting our average cost of funds and hedge from our average yield on Agency RMBS.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Our operating expense ratio is calculated by dividing operating expenses by average net assets.
|--- | -----------------------------------------------------------------------------------------------

|(8) | Our leverage ratio was calculated by dividing total liabilities by net assets.
|--- | ------------------------------------------------------------------------------

|* | All percentages are annualized.
|- | -------------------------------

Core
Earnings:

Core Earnings represents a non-GAAP financial measure and is defined as net income (loss) excluding net realized
gain (loss) on investments, net unrealized appreciation (depreciation) on investments, net realized gain (loss) on termination of swap contracts and unrealized appreciation (depreciation) on swap and cap contracts. In order to evaluate the effective
yield of the portfolio, management uses Core Earnings to reflect the net investment income of our portfolio as adjusted to reflect the net swap and cap interest income (expense). Core Earnings allows management to isolate the interest income
(expense) associated with our swaps and caps in order to monitor and project our borrowing costs and interest rate spread. In addition, management utilizes Core Earnings as a key metric in conjunction with other portfolio and market factors to
determine the appropriate leverage and hedging ratios, as well as the overall structure of the portfolio.

We adopted
Accounting Standards Codification (ASC) 946, Clarification of the Scope of Audit and Accounting Guide Investment Companies(ASC 946),prior to its deferral in February 2008, while most, if not all, other public
companies that invest only in Agency RMBS have not adopted ASC 946. Under ASC 946, we use the financial reporting specified for investment companies, and accordingly, our investments are carried at fair value with changes in fair value included in
earnings. Most other public companies that invest only in Agency RMBS include most changes in the fair value of their investments within shareholders equity, not in earnings. As a result, investors are not able to readily compare our results
of operations to those of most of our competitors. We believe that the presentation of our Core Earnings is useful to investors because it provides a means of comparing our Core Earnings to those of our competitors. In addition, because Core
Earnings isolates the net swap and cap interest income (expense) it provides investors with an additional metric to identify trends in our portfolio as they relate to the interest rate environment.

The primary limitation associated with Core Earnings as a measure of our financial performance over any period is that it excludes the
effects of net realized gain (loss) from investments. In addition, our presentation of Core Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, Core Earnings should not be
considered as a substitute for our GAAP net income (loss) as a measure of our financial performance or any measure of our liquidity under GAAP.





|                                                                     |  |                              |         |   |      |   |        |  
|-------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------ | -
|                                                                     |  | Three Months Ended March 31, |        
|                                                                     |  | 2011                         |         |   | 2010 |  
|Non-GAAP Reconciliation:                                             |  |                              |         |   |      |   |        |  
|NET INCOME                                                           |  | $                            | 52,097  |   |      | $ | 10,143 |  
|Net (gain) loss from investments                                     |  |                              | (19,820 | ) |      |   | (6,464 | )
|Net unrealized (appreciation) depreciation on swap and cap contracts |  |                              | (10,678 | ) |      |   | 6,746  |  
|                                                                     |  |                              |         |   |      |   |        |  
|Core Earnings                                                        |  | $                            | 21,599  |   |      | $ | 10,425 |  
|                                                                     |  |                              |         |   |      |   |        |  



30



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##### Table of Contents

Results of Operations

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

Net Income.Net income increased $42.0 million to $52.1 million for the three months ended March 31, 2011, compared to net income of $10.1 million for the three months ended March 31,
2010. The major components of this increase are detailed below.

Net Gain (Loss) From Investments. Net gain from
investments increased by $13.4 million to $19.8 million for the three months ended March 31, 2011, compared to $6.4 million for the three months ended March 31, 2010. This increase was primarily the result of forward purchases made with
the proceeds of both the December 2010 and February 2011 public offerings. A component of the Companys net income (loss) for the three months ended March 31, 2011 was appreciation on forward settling purchases (also referred to as
drop income) that was accounted for as net gain (loss) from investments on our statement of operations and therefore excluded from our Core Earnings. During the three months ended March 31, 2011 we made forward purchases of
approximately $2.6 billion and generated unrealized appreciation of approximately $22.1 million.

Net Gain (Loss) from Swap
and Cap Contracts. Net loss from swap and cap contracts decreased by $8.9 million to a loss of $1.2 million for the three months ended March 31, 2011, compared to a loss of $10.1 million for the three months ended March 31, 2010.
The net gain (loss) on swap contracts was primarily due to the change in swap rates combined with the change in the size of our interest rate swap and cap portfolio. During the three months ended March 31, 2011 we added net $750.0 million
notional amount of interest rate swaps and caps, ending the period with an aggregate notional amount of $5,140.0 million. During the three months ended March 31, 2010 we had no change in notional amount of interest rate swaps, ending the period
with an aggregate notional amount of $740.0 million. During the three months ended March 31, 2011 and 2010, three year swap rates increased by 29 basis points and decreased by 25 basis points, respectively.

LOGO

Interest Income. Interest income, which consists of interest income on Agency RMBS,
subordinated tranches of CLOs, structured notes and short term investments, increased by $24.1 million to $41.0 million for the three months ended March 31, 2011, as compared to $16.9 million for the three months ended March 31, 2010. The
change in interest income was primarily due to the increased size of our portfolio. During the three months ended March 31, 2011 our average Agency RMBS portfolio was $4,962.7 million, compared to $1,723.3 million during the three months ended
March 31, 2010. However, the increased income due to the size of our portfolio was offset by the decrease in the average yield on Agency RMBS. During the three months ended March 31, 2011 and 2010, our average yield on Agency RMBS was
3.27% and 3.86%, respectively.

Interest on CLOs is accrued at a rate determined based on estimated future cash flows and
adjusted prospectively as future cash flow amounts are recast. When the Company cannot reliably estimate cash flows for CLOs, a nonaccrual (cost recovery) recognition



31



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##### Table of Contents

method is used. Interest income on subordinated tranches of CLOs increased to $0.9 million for the three months ended March 31, 2011, compared to $0.5 million for the three months ended
March 31, 2010. Additionally, for the three months ended March 31, 2011 the Company received $1.1 million of distributions from CLOs that were accounted for as a reduction of the cost basis and thereby excluded from our interest income and
Core Earnings. This compared to $0.5 million for the three months ended March 31, 2010.

Total
Expenses. Interest expense increased $2.1 million to $3.1 million for the three months ended March 31, 2011, as compared to $1.0 million for the three months ended March 31, 2010. The increase was due to the increase in our
average repurchase agreements. During the three months ended March 31, 2011 and 2010, our average repurchase agreements were $4,207.2 million and $1,524.6 million, respectively. In addition, we had an average rate on our repurchase agreements
of 0.30% and 0.26% during the three months ended March 31, 2011 and 2010, respectively.

Operating Expenses.For
the three months ended March 31, 2011, operating expenses increased by $2.2 million to $4.4 million compared to $2.2 million for the three months ended March 31, 2010. However, expenses as a percentage of net assets decreased significantly
during the three months ended March 31, 2011 to 2.11% compared to 3.63% during the three months ended March 31, 2010. The primary reason for the decrease was that we had a larger asset base resulting from the public offerings during 2010
and in February 2011. Our average net assets were $838.6 million and $249.4 million for the three months ended March 31, 2011 and 2010, respectively. Operating expenses consist of management fees payable to our Manager in accordance with our
management agreement, amortization related to restricted stock and stock options granted to our executive officers, certain officers and employees of our Manager and its sub-advisors and other individuals who provide services to us, as designated by
our Manager, and our independent directors, directors fees, insurance premium expenses for directors and officers insurance and other general and administrative expenses, including legal and accounting fees.

Contractual Obligations and Commitments

The base management fee under our management agreement is payable monthly in arrears in an amount equal to 1/12thof (a) 1.50% of the first $250,000,000 of our net assets, (b) 1.25% of our net assets that are greater than
$250,000,000 and less than or equal to $500,000,000, and (c) 1.00% of our net assets that are greater than $500,000,000. Pursuant to that agreement, our Manager is also entitled to receive, in certain circumstances, a termination fee and
reimbursement of certain expenses as described therein. Such fees and expenses do not have fixed and determinable payments.

We had the following contractual obligations under repurchase agreements as of March 31, 2011 and December 31, 2010 (dollar
amounts in thousands):



|                   |  |                   |           |  |                                  |  |      |                              |  |   |                             |  |  |   |           | 
|------------------ |  | ----------------- | --------- |  | -------------------------------- |  | ---- | ---------------------------- |  | - | --------------------------- |  |  | - | --------- | 
|                   |  | March 31, 2011    |          
|                   |  | Balance           |           |  | Weighted AverageContractual Rate |  |      | ContractualInterest Payments |  |   | Total
ContractualObligation | 
|Within 30 days     |  | $                 | 2,823,245 |  |                                  |  | 0.29 | %                            |  | $ | 1,158                       |  |  | $ | 2,824,404 | 
|30 days to 60 days |  |                   | 1,357,724 |  |                                  |  | 0.30 |                              |  |   | 852                         |  |  |   | 1,358,576 | 
|60 days to 90 days |  |                   | 1,183,061 |  |                                  |  | 0.29 |                              |  |   | 828                         |  |  |   | 1,183,888 | 
|                   |  |                   |           |  |                                  |  |      |                              |  |   |                             |  |  |   |           | 
|                   |  | $                 | 5,364,030 |  |                                  |  | 0.29 | %                            |  | $ | 2,838                       |  |  | $ | 5,366,868 | 
|                   |  |                   |           |  |                                  |  |      |                              |  |   |                             |  |  |   |           | 
|                   | 
|                   |  | December 31, 2010 |          
|                   |  | Balance           |           |  | Weighted AverageContractual Rate |  |      | ContractualInterest Payments |  |   | Total ContractualObligation | 
|Within 30 days     |  | $                 | 1,291,544 |  |                                  |  | 0.33 | %                            |  | $ | 614                         |  |  | $ | 1,292,158 | 
|30 days to 60 days |  |                   | 1,499,864 |  |                                  |  | 0.32 |                              |  |   | 1,135                       |  |  |   | 1,500,999 | 
|60 days to 90 days |  |                   | 652,435   |  |                                  |  | 0.32 |                              |  |   | 520                         |  |  |   | 652,955   | 
|                   |  |                   |           |  |                                  |  |      |                              |  |   |                             |  |  |   |           | 
|                   |  | $                 | 3,443,843 |  |                                  |  | 0.32 | %                            |  | $ | 2,269                       |  |  | $ | 3,446,112 | 
|                   |  |                   |           |  |                                  |  |      |                              |  |   |                             |  |  |   |           | 



32



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##### Table of Contents

We enter into interest rate swap and cap contracts as a means of mitigating our interest
rate risk on forecasted interest expense associated with repurchase agreements for the term of the swap or cap contract. At March 31, 2011 and December 31, 2010, we had the following interest rate swap and cap contracts (dollars in
thousands):

As of March 31, 2011



|                                       |  |            |                |  |          |  |        |                  |  |  |          |   |  |       |           |  |  |   |        |  
|-------------------------------------- |  | ---------- | -------------- |  | -------- |  | ------ | ---------------- |  |  | -------- | - |  | ----- | --------- |  |  | - | ------ | -
|Interest Rate Swaps                    |  | Expiration |                |  | Fixed    |  |        | Floating         |  |  | Notional |   |  | Fair  |          
|Counterparty                           |  | Date       |                |  | Pay Rate |  |        | Receive 
Rate(1) |  |  | Amount   |   |  | Value |          
|The Royal Bank of Scotland plc         |  |            | May 2013       |  |          |  | 1.6000 | %                |  |  | 0.3105   | % |  | $     | 100,000   |  |  | $ | (1,192 | )
|The Royal Bank of Scotland plc         |  |            | June 2013      |  |          |  | 1.3775 | %                |  |  | 0.3070   | % |  |       | 300,000   |  |  |   | (1,930 | )
|The Royal Bank of Scotland plc         |  |            | July 2013      |  |          |  | 1.3650 | %                |  |  | 0.3031   | % |  |       | 300,000   |  |  |   | (1,684 | )
|Goldman Sachs                          |  |            | December 2013  |  |          |  | 1.2640 | %                |  |  | 0.3090   | % |  |       | 400,000   |  |  |   | 981    |  
|The Royal Bank of Scotland plc         |  |            | December 2013  |  |          |  | 1.2813 | %                |  |  | 0.3090   | % |  |       | 500,000   |  |  |   | 1,013  |  
|Goldman Sachs                          |  |            | December 2013  |  |          |  | 1.3088 | %                |  |  | 0.3095   | % |  |       | 400,000   |  |  |   | 505    |  
|Deutsche Bank Group                    |  |            | December 2013  |  |          |  | 1.3225 | %                |  |  | 0.3090   | % |  |       | 400,000   |  |  |   | 361    |  
|Deutsche Bank Group(2)                 |  |            | April 2014     |  |          |  | 1.6700 | %                |  |  | 0.3030   | % |  |       | 250,000   |  |  |   | (28    | )
|The Royal Bank of Scotland plc         |  |            | July 2014      |  |          |  | 1.7200 | %                |  |  | 0.3045   | % |  |       | 100,000   |  |  |   | (253   | )
|Nomura Global Financial Products, Inc. |  |            | July 2014      |  |          |  | 1.7325 | %                |  |  | 0.3031   | % |  |       | 250,000   |  |  |   | (577   | )
|Deutsche Bank Group                    |  |            | August 2014    |  |          |  | 1.3530 | %                |  |  | 0.3140   | % |  |       | 200,000   |  |  |   | 2,322  |  
|Goldman Sachs                          |  |            | September 2014 |  |          |  | 1.3120 | %                |  |  | 0.3090   | % |  |       | 500,000   |  |  |   | 7,497  |  
|Deutsche Bank Group                    |  |            | October 2014   |  |          |  | 1.1725 | %                |  |  | 0.3028   | % |  |       | 240,000   |  |  |   | 4,928  |  
|Goldman Sachs                          |  |            | February 2015  |  |          |  | 2.1450 | %                |  |  | 0.3120   | % |  |       | 500,000   |  |  |   | (3,747 | )
|                                       |  |            |                |  |          |  |        |                  |  |  |          |   |  |       |           |  |  |   |        |  
|Total                                  |  |            |                |  |          |  |        |                  |  |  |          |   |  | $     | 4,440,000 |  |  | $ | 8,196  |  
|                                       |  |            |                |  |          |  |        |                  |  |  |          |   |  |       |           |  |  |   |        |  



|                               |  |            |               |  |          |  |        |          |  |   |         |  |  |   |        | 
|------------------------------ |  | ---------- | ------------- |  | -------- |  | ------ | -------- |  | - | ------- |  |  | - | ------ | 
|Interest Rate Caps             |  | Expiration |               |  |          |  |        | Notional |  |   | Fair    | 
|Counterparty                   |  | Date       |               |  | Cap Rate |  |        | Amount   |  |   | Value   | 
|The Royal Bank of Scotland plc |  |            | December 2014 |  |          |  | 2.0725 | %        |  | $ | 200,000 |  |  | $ | 4,862  | 
|The Royal Bank of Scotland plc |  |            | October 2015  |  |          |  | 1.4275 | %        |  |   | 300,000 |  |  |   | 15,790 | 
|The Royal Bank of Scotland plc |  |            | November 2015 |  |          |  | 1.3600 | %        |  |   | 200,000 |  |  |   | 11,211 | 
|                               |  |            |               |  |          |  |        |          |  |   |         |  |  |   |        | 
|Total                          |  |            |               |  |          |  |        |          |  | $ | 700,000 |  |  | $ | 31,863 | 
|                               |  |            |               |  |          |  |        |          |  |   |         |  |  |   |        | 

As of December 31, 2010



|                                       |  |                |  |          |        |   |                  |  |        |          |  |   |           |  |  |   |        |  
|-------------------------------------- |  | -------------- |  | -------- | ------ | - | ---------------- |  | ------ | -------- |  | - | --------- |  |  | - | ------ | -
|Interest Rate Swaps                    |  | Expiration     |  | Fixed    |        |   | Floating         |  |        | Notional |  |   | Fair      | 
|Counterparty                           |  | Date           |  | Pay Rate |        |   | Receive 
Rate(1) |  |        | Amount   |  |   | Value     | 
|The Royal Bank of Scotland plc         |  | May 2013       |  |          | 1.6000 | % |                  |  | 0.2875 | %        |  | $ | 100,000   |  |  | $ | (1,496 | )
|The Royal Bank of Scotland plc         |  | June 2013      |  |          | 1.3775 | % |                  |  | 0.3028 | %        |  |   | 300,000   |  |  |   | (2,718 | )
|The Royal Bank of Scotland plc         |  | July 2013      |  |          | 1.3650 | % |                  |  | 0.2891 | %        |  |   | 300,000   |  |  |   | (2,484 | )
|Goldman Sachs                          |  | December 2013  |  |          | 1.3088 | % |                  |  | 0.3016 | %        |  |   | 400,000   |  |  |   | (776   | )
|The Royal Bank of Scotland plc         |  | December 2013  |  |          | 1.2813 | % |                  |  | 0.3019 | %        |  |   | 500,000   |  |  |   | (539   | )
|Goldman Sachs                          |  | December 2013  |  |          | 1.2640 | % |                  |  | 0.3019 | %        |  |   | 400,000   |  |  |   | (255   | )
|Deutsche Bank Group                    |  | December 2013  |  |          | 1.3225 | % |                  |  | 0.3019 | %        |  |   | 400,000   |  |  |   | (904   | )
|The Royal Bank of Scotland plc         |  | July 2014      |  |          | 1.7200 | % |                  |  | 0.3028 | %        |  |   | 100,000   |  |  |   | (733   | )
|Nomura Global Financial Products, Inc. |  | July 2014      |  |          | 1.7325 | % |                  |  | 0.2891 | %        |  |   | 250,000   |  |  |   | (1,787 | )
|Deutsche Bank Group                    |  | August 2014    |  |          | 1.3530 | % |                  |  | 0.2844 | %        |  |   | 200,000   |  |  |   | 1,529  |  
|Goldman Sachs                          |  | September 2014 |  |          | 1.3120 | % |                  |  | 0.3028 | %        |  |   | 500,000   |  |  |   | 5,460  |  
|Deutsche Bank Group                    |  | October 2014   |  |          | 1.1725 | % |                  |  | 0.2906 | %        |  |   | 240,000   |  |  |   | 4,059  |  
|                                       |  |                |  |          |        |   |                  |  |        |          |  |   |           |  |  |   |        |  
|Total                                  |  |                |  |          |        |   |                  |  |        |          |  | $ | 3,690,000 |  |  | $ | (644   | )
|                                       |  |                |  |          |        |   |                  |  |        |          |  |   |           |  |  |   |        |  



|                               |  |               |  |          |        |   |          |   |         |       |  |   |        | 
|------------------------------ |  | ------------- |  | -------- | ------ | - | -------- | - | ------- | ----- |  | - | ------ | 
|Interest Rate Caps             |  | Expiration    |  |          |        |   | Notional |   |         | Fair  | 
|Counterparty                   |  | Date          |  | Cap Rate |        |   | Amount   |   |         | Value | 
|The Royal Bank of Scotland plc |  | December 2014 |  |          | 2.0725 | % |          | $ | 200,000 |       |  | $ | 4,752  | 
|The Royal Bank of Scotland plc |  | October 2015  |  |          | 1.4275 | % |          |   | 300,000 |       |  |   | 15,340 | 
|The Royal Bank of Scotland plc |  | November 2015 |  |          | 1.3600 | % |          |   | 200,000 |       |  |   | 10,892 | 
|                               |  |               |  |          |        |   |          |   |         |       |  |   |        | 
|Total                          |  |               |  |          |        |   |          | $ | 700,000 |       |  | $ | 30,984 | 
|                               |  |               |  |          |        |   |          |   |         |       |  |   |        | 



|(1) | Resets quarterly to 3-Month LIBOR
|--- | ---------------------------------

|(2) | Interest rate swap contains a one-time option to cancel at $0.
|--- | --------------------------------------------------------------



33



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##### Table of Contents

We enter into certain contracts that contain a variety of indemnification obligations,
principally with our Manager, brokers and counterparties to interest rate swap contracts and repurchase agreements. The maximum potential future payment amount we could be required to pay under these indemnification obligations is unlimited. We have
not incurred any costs to defend lawsuits or settle claims related to these indemnification obligations. As a result, the estimated fair value of these agreements is minimal. Accordingly, we recorded no liabilities for these agreements as of
March 31, 2011 and December 31, 2010. In addition, as of March 31, 2011 and December 31, 2010, we had a $2,385.0 million and $2,234.4 million payable for securities purchased, respectively, a portion of which will be financed
through repurchase agreements. Because we measure leverage as total liabilities divided by net assets, the amount of payable for securities purchased is included in our March 31, 2011 and December 31, 2010 leverage ratio of 8.1 to 1 and
8.3 to 1, respectively. A summary of our payable for securities purchased as of March 31, 2011 and December 31, 2010 is included in the Financial ConditionLiabilities section.

Off-Balance Sheet Arrangements

As of March 31, 2011 and December 31, 2010, we did not maintain any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance, or special purpose or variable interest entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, as of March 31, 2011 and December 31, 2010,
we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or had any intent to provide funding to any such entities.

Liquidity and Capital Resources

On June 30,
2010, September 24, 2010, December 15, 2010 and February 15, 2011, the Company closed public offerings of 10,925,000, 14,950,000, 13,972,500 and 23,000,000 shares of its common stock, respectively, at a public offering price
of $12.50, $12.95, $12.46 and $12.35 per share, respectively, for total net proceeds of approximately $129.4 million, $184.7 million, $166.9 million and $275.8 million, respectively, after the underwriting discount and commissions and expenses.

During the three months ended March 31, 2011 and 2010, our operations used net cash of $2,191.5 million and $105.7
million, respectively. During the three months ended March 31, 2011 and 2010, we had net purchases of securities (net of purchases, sales and principal repayments) of $2,168.1 million and net sales of securities of $49.4 million, respectively.
The increase in net purchases of securities was the result of investing the $275.8 million of total net proceeds of the February 15, 2011 public offering and maintaining our leverage ratio.

We held cash and cash equivalents of $6.0 million and $1.5 million at March 31, 2011 and December 31, 2010, respectively.
As of March 31, 2011, our source of funds, excluding our equity offerings, consisted of net proceeds from repurchase agreements totaling $5,364.0 million, with a weighted average borrowing rate of 0.29%, which we used to finance the
acquisition of Agency RMBS. As of March 31, 2011, we had established 32 borrowing arrangements with various investment banking firms and other lenders, 20 of which had outstanding borrowings. In addition, during the three months ended
March 31, 2011, we raised a total of approximately $275.8 million in net proceeds from the issuance of common stock. As of December 31, 2010, our source of funds, excluding our equity offerings, consisted of net proceeds from repurchase
agreements totaling $3,443.8 million, with a weighted average borrowing rate of 0.32%, which we used to finance the acquisition of Agency RMBS. We expect to continue to borrow funds primarily in the form of repurchase agreements. As of
December 31, 2010, we had established 28 borrowing arrangements with various investment banking firms and other lenders, 20 of which had outstanding borrowings. In addition, during the year ended December 31, 2010, we raised a total of
approximately $489.1 million in net proceeds from the issuance of common stock.

Additionally, we sponsor a dividend
reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of common stock by reinvesting some or all of the cash dividends received on shares of common stock. This plan became effective on June 22,
2010. Stockholders may also make optional cash purchases of shares of common stock subject to certain limitations detailed in the plan prospectus. From June 22, 2010 to December 31, 2010, we issued 607,902 shares under the plan raising
approximately $8.0 million of net proceeds. For the three months ended March 31, 2011, we issued 1,659 shares under the plan raising approximately $21.1 thousand in net proceeds. As of March 31, 2011 and December 31, 2010, there were
approximately 9.4 million shares available for issuance under this plan.



34



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##### Table of Contents

The following tables present certain information regarding our risk exposure on our
repurchase agreements as of March 31, 2011 and December 31, 2010 (dollars in thousands):



|                                      |  |                            |           |  |            |  |       |                     |  |   |                                |  |  |  |    | 
|------------------------------------- |  | -------------------------- | --------- |  | ---------- |  | ----- | ------------------- |  | - | ------------------------------ |  |  |  | -- | 
|Counterparty                          |  | TotalOutstandingBorrowings |           |  | % of Total |  |       | Amount At Risk 
(1) |  |   | WeightedAverageMaturityin Days | 
|Bank of America Securities LLC        |  | $                          | 263,501   |  |            |  | 4.9   | %                   |  | $ | 14,617                         |  |  |  | 18 | 
|Barclays Capital, Inc.                |  |                            | 403,806   |  |            |  | 7.5   |                     |  |   | 24,835                         |  |  |  | 26 | 
|BNP Paribas Securities Corp           |  |                            | 236,198   |  |            |  | 4.4   |                     |  |   | 11,985                         |  |  |  | 62 | 
|Cantor Fitzgerald & Co.               |  |                            | 414,585   |  |            |  | 7.7   |                     |  |   | 22,231                         |  |  |  | 42 | 
|Citigroup Global Markets, Inc.        |  |                            | 200,359   |  |            |  | 3.7   |                     |  |   | 10,685                         |  |  |  | 60 | 
|Credit Suisse Securities (USA) LLC    |  |                            | 320,312   |  |            |  | 6.0   |                     |  |   | 13,789                         |  |  |  | 15 | 
|Daiwa Securities America, Inc.        |  |                            | 346,559   |  |            |  | 6.5   |                     |  |   | 19,059                         |  |  |  | 59 | 
|Deutsche Bank Securities, Inc.        |  |                            | 275,208   |  |            |  | 5.1   |                     |  |   | 17,431                         |  |  |  | 60 | 
|Goldman Sachs & Co.                   |  |                            | 388,753   |  |            |  | 7.3   |                     |  |   | 21,234                         |  |  |  | 15 | 
|Guggenheim Liquidity Services, LLC    |  |                            | 232,985   |  |            |  | 4.4   |                     |  |   | 13,296                         |  |  |  | 46 | 
|ING Financial Markets LLC             |  |                            | 259,330   |  |            |  | 4.8   |                     |  |   | 13,515                         |  |  |  | 11 | 
|LBBW Securities LLC                   |  |                            | 195,494   |  |            |  | 3.7   |                     |  |   | 11,332                         |  |  |  | 51 | 
|MF Global Securities Inc.             |  |                            | 120,418   |  |            |  | 2.2   |                     |  |   | 6,096                          |  |  |  | 61 | 
|Mitsubishi UFJ Securities (USA), Inc. |  |                            | 344,496   |  |            |  | 6.4   |                     |  |   | 17,545                         |  |  |  | 53 | 
|Mizuho Securities USA, Inc.           |  |                            | 135,213   |  |            |  | 2.5   |                     |  |   | 7,290                          |  |  |  | 18 | 
|Nomura Securities International, Inc. |  |                            | 279,711   |  |            |  | 5.2   |                     |  |   | 15,543                         |  |  |  | 19 | 
|South Street Securities LLC           |  |                            | 471,702   |  |            |  | 8.8   |                     |  |   | 31,644                         |  |  |  | 44 | 
|The Royal Bank of Scotland PLC        |  |                            | 212,896   |  |            |  | 4.0   |                     |  |   | 14,143                         |  |  |  | 8  | 
|UBS Securities LLC                    |  |                            | 164,317   |  |            |  | 3.1   |                     |  |   | 10,641                         |  |  |  | 15 | 
|Wells Fargo Securities, LLC           |  |                            | 98,187    |  |            |  | 1.8   |                     |  |   | 3,070                          |  |  |  | 19 | 
|                                      |  |                            |           |  |            |  |       |                     |  |   |                                |  |  |  |    | 
|Total                                 |  | $                          | 5,364,030 |  |            |  | 100.0 | %                   |  | $ | 299,981                        |  |  |  |    | 
|                                      |  |                            |           |  |            |  |       |                     |  |   |                                |  |  |  |    | 

December 31, 2010



|                                      |  |                            |           |  |            |  |       |                     |  |   |                                |  |  |  |    | 
|------------------------------------- |  | -------------------------- | --------- |  | ---------- |  | ----- | ------------------- |  | - | ------------------------------ |  |  |  | -- | 
|Counterparty                          |  | TotalOutstandingBorrowings |           |  | % of Total |  |       | Amount at Risk 
(1) |  |   | WeightedAverageMaturityin Days | 
|Bank of America Securities LLC        |  | $                          | 162,617   |  |            |  | 4.7   | %                   |  | $ | 9,756                          |  |  |  | 18 | 
|Barclays Capital, Inc.                |  |                            | 275,316   |  |            |  | 8.0   |                     |  |   | 18,522                         |  |  |  | 29 | 
|BNP Paribas Securities Corp.          |  |                            | 210,840   |  |            |  | 6.1   |                     |  |   | 13,885                         |  |  |  | 75 | 
|Cantor Fitzgerald & Co.               |  |                            | 317,137   |  |            |  | 9.2   |                     |  |   | 19,620                         |  |  |  | 49 | 
|Citigroup Global Markets, Inc.        |  |                            | 58,587    |  |            |  | 1.7   |                     |  |   | 2,778                          |  |  |  | 20 | 
|Credit Suisse Securities (USA) LLC    |  |                            | 199,352   |  |            |  | 5.8   |                     |  |   | 16,299                         |  |  |  | 41 | 
|Daiwa Securities America, Inc.        |  |                            | 80,058    |  |            |  | 2.3   |                     |  |   | 3,975                          |  |  |  | 7  | 
|Deutsche Bank Securities, Inc.        |  |                            | 292,920   |  |            |  | 8.5   |                     |  |   | 17,830                         |  |  |  | 45 | 
|Goldman Sachs & Co.                   |  |                            | 395,996   |  |            |  | 11.5  |                     |  |   | 26,487                         |  |  |  | 57 | 
|Guggenheim Liquidity Services, LLC    |  |                            | 151,671   |  |            |  | 4.4   |                     |  |   | 9,414                          |  |  |  | 46 | 
|ING Financial Markets LLC             |  |                            | 82,701    |  |            |  | 2.4   |                     |  |   | 4,517                          |  |  |  | 74 | 
|Jefferies & Company, Inc.             |  |                            | 35,937    |  |            |  | 1.1   |                     |  |   | 1,835                          |  |  |  | 11 | 
|LBBW Securities LLC                   |  |                            | 157,277   |  |            |  | 4.6   |                     |  |   | 11,607                         |  |  |  | 45 | 
|MF Global Securities Inc.             |  |                            | 135,766   |  |            |  | 4.0   |                     |  |   | 6,141                          |  |  |  | 30 | 
|Mitsubishi UFJ Securities (USA), Inc. |  |                            | 120,487   |  |            |  | 3.5   |                     |  |   | 6,451                          |  |  |  | 20 | 
|Mizuho Securities USA, Inc.           |  |                            | 145,028   |  |            |  | 4.2   |                     |  |   | 9,190                          |  |  |  | 18 | 
|Nomura Securities International, Inc. |  |                            | 167,506   |  |            |  | 4.9   |                     |  |   | 10,791                         |  |  |  | 34 | 
|The Royal Bank of Scotland PLC        |  |                            | 221,348   |  |            |  | 6.4   |                     |  |   | 15,879                         |  |  |  | 7  | 
|South Street Securities LLC           |  |                            | 159,807   |  |            |  | 4.6   |                     |  |   | 14,002                         |  |  |  | 46 | 
|UBS Securities LLC                    |  |                            | 73,492    |  |            |  | 2.1   |                     |  |   | 4,736                          |  |  |  | 46 | 
|                                      |  |                            |           |  |            |  |       |                     |  |   |                                |  |  |  |    | 
|Total                                 |  | $                          | 3,443,843 |  |            |  | 100.0 | %                   |  | $ | 223,715                        |  |  |  |    | 
|                                      |  |                            |           |  |            |  |       |                     |  |   |                                |  |  |  |    | 



|(1) | Equal to the fair value of pledged securities plus accrued interest income, minus the sum of repurchase agreement liabilities and accrued interest
expense.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



35



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##### Table of Contents

Our repurchase agreements do not include substantive provisions other than those covenants
and other customary provisions contained in the standard master repurchase agreement as published by the Bond Market Association (now the Securities Industry and Financial Markets Association). The repurchase agreements generally require us to
transfer additional securities to the counterparty in the event the value of the securities then held by the counterparty in the margin account falls below specified levels and contain events of default in cases where we breach our obligations under
the agreement. We receive margin calls from our repurchase agreement counterparties from time to time in the ordinary course of business similar to other entities in the specialty finance business. As of March 31, 2011 and December 31,
2010, we had approximately $634.4 million and $423.4 million, respectively, in Agency RMBS, U.S. Treasury securities and cash and cash equivalents available to satisfy future margin calls. To date, we have maintained sufficient liquidity to meet
margin calls, and we have never been unable to satisfy a margin call, although no assurance can be given that we will be able to satisfy requests from our lenders to post additional collateral in the future.

An event of default or termination event under the standard master repurchase agreement would give our counterparty the option to
terminate all repurchase transactions existing with us and make any amount due by us to the counterparty to be payable immediately.

We have made and intend to continue to make regular quarterly distributions of all or substantially all of our REIT taxable income to holders of our common stock. In order to qualify as a REIT and to
avoid federal corporate income tax on the income that we distribute to our stockholders, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital
gain, on an annual basis. This requirement can impact our liquidity and capital resources.

For our short term (one year or
less) and long term liquidity, we also rely on the cash flow from operations, primarily monthly principal and interest payments to be received on our Agency RMBS, as well as any primary securities offerings authorized by our board of directors.

Based on our current portfolio, leverage rate and available borrowing arrangements, we believe that our cash flow from
operations and the utilization of borrowings will be sufficient to enable us to meet anticipated short term (one year or less) liquidity requirements such as to fund our investment activities, pay fees under our management agreement, fund our
distributions to stockholders and for general corporate expenses. However, an increase in prepayment rates substantially above our expectations could cause a temporary liquidity shortfall due to the timing of the necessary 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 issue debt or additional equity securities or sell
Agency RMBS in our portfolio. If required, the sale of Agency RMBS at prices lower than their amortized cost would result in realized losses. We believe that we have additional capacity through repurchase agreements to leverage our equity further
should the need for additional short term (one year or less) liquidity arise.

Our ability to meet our long term (greater than
one year) liquidity and capital resource requirements will be subject to obtaining additional debt financing and equity capital. We may increase our capital resources by obtaining long term credit facilities or making public or private offerings of
equity or debt securities, possibly including classes of preferred stock, common stock, commercial paper, medium-term notes, CDOs, collateralized mortgage obligations and senior or subordinated notes. Such financing will depend on market conditions
for capital raises and for the investment of any proceeds. If we are unable to renew, replace or expand our sources of financing on substantially similar terms, it may have an adverse effect on our business and results of operations.

We generally seek to borrow between six and 10 times the amount of our net assets. At March 31, 2011 and December 31, 2010, our
total liabilities were $7,818.4 million and $5,698.9 million, respectively, which represented a leverage ratio of 8.1 to 1 and 8.3 to 1, respectively.



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Qualitative and Quantitative Disclosures about Short-Term Borrowings

The following table discloses quantitative disclosures about our short-term borrowings under repurchase agreements during the three months
ended March 31, 2011 and 2010.



|                                        |  |                             |         |   |      |   |         |  
|--------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                        |  | Three Months EndedMarch 31, |        
|(In millions)                           |  | 2011                        |         |   | 2010 |  
|Outstanding at period end               |  | $                           | 5,364.0 |   |      | $ | 1,487.6 |  
|Weighted average rate at period end     |  |                             | 0.29    | % |      |   | 0.26    | %
|Average outstanding during period(1)    |  | $                           | 4,207.2 |   |      | $ | 1,524.6 |  
|Weighted average rate during period     |  |                             | 0.30    | % |      |   | 0.26    | %
|Largest month end balance during period |  | $                           | 5,364.0 |   |      | $ | 1,665.1 |  



|(1) | Calculated based on the average month end balance during the period.
|--- | --------------------------------------------------------------------

During the three months ended March 31, 2011, our repurchase agreement balance increased during the end of the year due to an
increase in our capital base that allowed us to finance additional asset purchases. Our net assets as of March 31, 2011 were $969.2 million compared to the average during the three months ended March 31, 2011 of $838.6 million. During the
three months ended March 31, 2011, the rate on our repurchase agreements remained relatively stable. During the three months ended March 31, 2010, our repurchase agreement balance remained relatively stable as did the average rate during
the period.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more than inflation. Changes in interest
rates do not necessarily correlate with inflation rates or changes in inflation rates. Our financial statements are prepared in accordance with GAAP and our distributions are determined by our board of directors based in part on our REIT taxable
income as calculated according to the requirements of the Internal Revenue Code; in each case, our activities and balance sheet are measured with reference to fair value without considering inflation.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

As of March 31, 2011 and December 31, 2010, the primary component of our market risk was interest rate risk, as described below. While we do not seek to avoid risk completely, we do believe that
risk can be quantified from historical experience and seek to actively manage risk, to earn sufficient compensation to justify taking risks and to maintain capital levels consistent with the risks we undertake. Our board of directors has a risk
management committee that oversees our risk management process. See Business-Risk Management in our annual report on Form 10-K for the fiscal year ended December 31, 2010 for a further discussion of our risk management committee and
risk mitigation practices.

Interest Rate Risk

We are subject to interest rate risk in connection with our investments in Agency RMBS collateralized by ARMs, hybrid ARMs and fixed rate
mortgage loans and our related debt obligations, which are generally repurchase agreements of limited duration that are periodically refinanced at current market rates. We seek to mitigate this risk through utilization of derivative contracts,
primarily interest rate swap and cap agreements.

Effect on Net Investment Income. We fund our investments in long
term Agency RMBS collateralized by ARMs, hybrid ARMs and fixed rate mortgage loans with short term borrowings under repurchase agreements. During periods of rising interest rates, the borrowing costs associated with those Agency RMBS tend to
increase while the income earned on such Agency RMBS (during the fixed rate component of such securities) may remain substantially unchanged. This results in a narrowing of the net interest spread between the related assets and borrowings and may
even result in losses.

We are a party to the interest rate swap and contracts as of March 31, 2011 and December 31,
2010 described in detail under Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Commitments in this quarterly report on Form 10-Q.

Hedging techniques are partly based on assumed levels of prepayments of our Agency RMBS. If prepayments are slower or faster than
assumed, the life of the Agency RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions.

Occasionally we invest in Agency RMBS collateralized by ARMs which are based on mortgages whose coupon rates reset monthly based on the
Monthly Treasury Average, or MTA. However, our borrowing costs pursuant to our repurchase agreements



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are generally based on 30-day LIBOR, which may change more quickly than the MTA index. Hence, in a rapidly rising interest rate environment, we would expect our net interest margin to decrease,
temporarily. In a falling interest rate environment, we would expect our net interest margin to rise temporarily. For a discussion of the effects of interest rate changes on our Agency RMBS collateralized by hybrid ARMs and fixed rate mortgages, see
Extension Risk.

Effect on Fair Value. Another component of interest rate risk is the
effect changes in interest rates will have on the fair value of our assets. We face the risk that the fair value of our assets will increase or decrease at different rates than that of our liabilities, including our hedging instruments.

We primarily assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. Duration
essentially measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various third-party financial models and empirical data. Different models and methodologies can produce
different duration numbers for the same securities.

Extension Risk. We invest in Agency RMBS collateralized by
hybrid ARMs, which have interest rates that are fixed for the first few years of the loan (typically three, five, seven or 10 years) and thereafter reset periodically on the same basis as Agency RMBS collateralized by ARMs. We compute the projected
weighted average life of our Agency RMBS collateralized by hybrid ARMs based on assumptions regarding the rate at which the borrowers will prepay the underlying mortgages. In general, when Agency RMBS collateralized by fixed rate or hybrid ARMs are
acquired with borrowings, we may, but are not required to, enter into an interest rate swap agreement or other hedging instrument that effectively fixes our borrowing costs for a period close to the anticipated weighted average life of the fixed
rate portion of the related Agency RMBS. This strategy is designed to protect us from rising interest rates by fixing our borrowing costs for the duration of the fixed rate period of the collateral underlying the related Agency RMBS.

We have structured our swaps to expire in conjunction with the estimated weighted average life of the fixed period of the mortgages
underlying our Agency RMBS portfolio. However, in a rising interest rate environment, the weighted average life of the fixed rate mortgages underlying our Agency RMBS could extend beyond the term of the swap agreement or other hedging instrument.
This could have a negative impact on our results from operations, as borrowing costs would no longer be fixed after the term of the hedging instrument while the income earned on the remaining Agency RMBS would remain fixed for a period of time. This
situation may also cause the market value of our Agency RMBS to decline, with little or no offsetting gain from the related hedging transactions. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could
cause us to incur losses.

Interest Rate Cap Risk. Both the ARMs and hybrid ARMs that collateralize our Agency
RMBS are typically subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the securitys interest yield may change during any given period. However, our borrowing costs will not be subject to similar
restrictions. Therefore, in a period of increasing interest rates, the interest costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our Agency RMBS would effectively be limited by caps. This problem
will be magnified to the extent that we acquire Agency RMBS that are collateralized by hybrid ARMs that are not fully indexed. In addition, the underlying mortgages may be subject to periodic payment caps that result in some portion of the interest
being deferred and added to the principal outstanding. This could result in our receipt of less cash income on our Agency RMBS than we need in order to pay the interest cost on our related borrowings. These factors could lower our net investment
income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations.

Interest Rate Mismatch Risk. We intend to fund a substantial portion of our acquisitions of Agency RMBS with borrowings that, after the effect of hedging, have interest rates based on indices
and repricing terms similar to, but of somewhat shorter maturities than, the interest rate indices and repricing terms of the Agency RMBS. Thus, we anticipate that in most cases the interest rate indices and repricing terms of our Agency RMBS and
our funding sources will not be identical, thereby creating an interest rate mismatch between assets and liabilities. Therefore, our cost of funds would likely rise or fall more quickly than would our earnings rate on assets. During periods of
changing interest rates, such interest rate mismatches could negatively impact our financial condition, cash flows and results of operations. To mitigate interest rate mismatches, we may utilize the hedging strategies discussed above.

Our analysis of risks is based on our Managers experience, estimates, models and assumptions. These analyses rely on models which
utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of investment decisions by our management may produce results that differ significantly from the estimates and assumptions used in our models
and the projected results reflected herein.

Prepayment Risk

Prepayments are the full or partial repayment of principal prior to the original contractual maturity of a mortgage loan and typically
occur due to refinancing of mortgage loans. Prepayment rates for existing Agency RMBS generally increase when prevailing mortgage interest rates fall. In addition, prepayment rates on Agency RMBS collateralized by ARMs and hybrid ARMs generally



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increase when the difference between long term and short term interest rates declines or becomes negative. Some ARMs underlying our Agency RMBS may bear initial teaser mortgage interest rates
that are lower than their fully-indexed rates, which refers to the applicable index rates plus a margin. In the event that such an ARM is prepaid prior to or soon after the time of adjustment to a fully-indexed rate, the holder of the related Agency
RMBS would have held such security while it was less profitable and lost the opportunity to receive interest at the fully-indexed rate over the expected life of the Agency RMBS. We currently do not own any Agency RMBS collateralized by ARMs with
teaser mortgage interest rates. Additionally, we currently own Agency RMBS that were purchased at a premium. The prepayment of such Agency RMBS at a rate faster than anticipated would result in a write-off of any remaining capitalized premium
amount.

In early March 2010, both Freddie Mac and Fannie Mae announced they would purchase from the pools of mortgage loans
underlying RMBS that they issued, all mortgage loans that are more than 120 days delinquent. The impact of these programs thus far is reflected in the constant prepayment rate, or CPR, of our portfolio. Because a substantial portion of our portfolio
consists of Agency RMBS backed by 15 year fixed rate mortgage loans, which have low delinquency rates, these programs have not caused a significant increase in the CPR of our portfolio.

Our Manager seeks to mitigate our prepayment risk by investing in Agency RMBS with (i) a variety of prepayment characteristics,
(ii) prepayment prohibitions and penalties and (iii) prepayment protections, as well as by balancing Agency RMBS purchased at a premium with Agency RMBS purchased at a discount.

Effect on Fair Value and Net Income

Another component of interest
rate risk is the effect changes in interest rates will have on the fair value of our assets and our net income, exclusive of the effect of changes in fair value on our net income. We face the risk that the fair value of our assets and net investment
income will increase or decrease at different rates than that of our liabilities, including our hedging instruments.

We
primarily assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. Duration essentially measures the market price volatility of financial instruments as interest rates change. We generally calculate
duration using various financial models and empirical data. Different models and methodologies can produce different duration numbers for the same securities.

The following sensitivity analysis table shows the estimated impact of our interest rate-sensitive investments and repurchase agreement liabilities on the fair value and net income, exclusive of the
effect of changes in fair value on our net income, at March 31, 2011 and December 31, 2010, assuming a static portfolio and that rates instantaneously fall 25, 50 and 75 basis points and rise 25, 50 and 75 basis points.

March 31, 2011



|                         |  |                                                 |       |   |                                     |  |        |  
|------------------------ |  | ----------------------------------------------- | ----- | - | ----------------------------------- |  | ------ | -
|Change in Interest Rates |  | Projected Change in theFair Value of Our Assets |       |   | Projected Change inOur NetIncome(1) | 
|- 75 basis points        |  |                                                 | 2.85  | % |                                     |  | 3.33   | %
|- 50 basis points        |  |                                                 | 1.96  | % |                                     |  | 2.22   | %
|- 25 basis points        |  |                                                 | 1.00  | % |                                     |  | 1.11   | %
|No Change                |  |                                                 | 0.00  | % |                                     |  | 0.00   | %
|+ 25 basis points        |  |                                                 | -1.05 | % |                                     |  | -5.55  | %
|+ 50 basis points        |  |                                                 | -2.14 | % |                                     |  | -11.09 | %
|+ 75 basis points        |  |                                                 | -3.25 | % |                                     |  | -16.64 | %

December 31, 2010



|                         |  |                                                 |       |   |                                     |  |        |  
|------------------------ |  | ----------------------------------------------- | ----- | - | ----------------------------------- |  | ------ | -
|Change in Interest Rates |  | Projected Change in theFair Value of Our Assets |       |   | Projected Change inOur NetIncome(1) | 
|- 75 basis points        |  |                                                 | 2.79  | % |                                     |  | 1.69   | %
|- 50 basis points        |  |                                                 | 1.93  | % |                                     |  | 0.97   | %
|- 25 basis points        |  |                                                 | 0.99  | % |                                     |  | 0.26   | %
|No Change                |  |                                                 | 0.00  | % |                                     |  | 0.00   | %
|+ 25 basis points        |  |                                                 | -1.03 | % |                                     |  | -4.05  | %
|+ 50 basis points        |  |                                                 | -2.01 | % |                                     |  | -7.64  | %
|+ 75 basis points        |  |                                                 | -3.19 | % |                                     |  | -11.22 | %



|(1) | Exclusive of the changes in fair value on net income
|--- | ----------------------------------------------------



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While the charts above reflect the estimated immediate impact of interest rate increases and
decreases on a static portfolio, we rebalance our portfolio from time to time either to take advantage or minimize the impact of changes in interest rates. Additionally, the effects of interest rate changes on our portfolio illustrated in the above
chart do not take into account the effect that our hedging instruments, mainly interest rate swaps and caps, would have on the fair value of our portfolio, but does take into account the effect that our hedging instruments, would have on our net
income, exclusive of the effect of changes in fair value on our net income. Generally, our interest rate swaps reset in the quarter following changes in interest rates. It is important to note that the impact of changing interest rates on fair value
and net income can change significantly when interest rates change beyond 75 basis points from current levels. Therefore, the volatility in the fair value of our assets could increase significantly when interest rates change beyond 75 basis points.
In addition, other factors impact the fair value of and net income from our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market
conditions. Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets and our net income would likely differ from that shown above, and such difference might be material and adverse to our
stockholders.

Risk Management

Our board of directors exercises its oversight of risk management in many ways, including through its Risk Management Committee. The Risk Management Committee was established to oversee our senior
managements and our Managers risk-related responsibilities, including reviewing management policies and performance against these policies and related benchmarks.

As part of our risk management process, our Manager seeks to actively manage the interest rate, liquidity, prepayment and counterparty risks associated with our Agency RMBS portfolio. Our Manager seeks to
mitigate our interest rate risk exposure by entering into various hedging instruments in order to minimize our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs.

Our Manager seeks to mitigate our liquidity risks by monitoring our liquidity position on a daily basis and maintaining a prudent level
of leverage, which we currently consider to be between 6 and 10 times the amount of net assets in our overall portfolio, based on current market conditions and various other factors, including the health of the financial institutions that lend to us
under our repurchase agreements and the presence of special liquidity programs provided by domestic and foreign central banks.

Our Manager seeks to mitigate our prepayment risk by investing in Agency RMBS with (i) a variety of prepayment characteristics,
(ii) prepayment prohibitions and penalties and (iii) prepayment protections, as well as by balancing Agency RMBS purchased at a premium with Agency RMBS purchased at a discount.

Our Manager seeks to mitigate our counterparty risk by (i) diversifying our exposure across a broad number of counterparties,
(ii) limiting our exposure to any one counterparty and (iii) monitoring the financial stability of our counterparties.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation
of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2011. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2011, our Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

There have been no
changes in our internal controls over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

The
Company and the Manager are not currently subject to any material legal proceedings.



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|Item 1A. | Risk Factors
|-------- | ------------

There have
been no material changes from the risk factors disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on February 8, 2011.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | (Removed and Reserved).
|------- | -----------------------



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------

(a)
Exhibits.



|               |  |                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description of Exhibit                                                                                                                             
|               | 
|31.1*          |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes  Oxley Act of 2002                                               
|               | 
|31.2*          |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes  Oxley Act of 2002                                               
|               | 
|32.1**         |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes  Oxley Act of 2002
|               | 
|32.2**         |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes  Oxley Act of 2002



|* | Filed herewith.
|- | ---------------

|** | Furnished herewith.
|-- | -------------------

|
|



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.



|                      |  |                                      |  |                                                               
|--------------------- |  | ------------------------------------ |  | --------------------------------------------------------------
|                      |  | CYPRESS SHARPRIDGE INVESTMENTS, INC.
|                      |  |                                     
|Dated: April 21, 2011 |  | BY:                                  |  | /s/ FRANCES R. SPARK                                          
|                      |  |                                      |  | Frances R. Spark                                              
|                      |  |                                      |  | Chief Financial Officer and Treasurer                         
|                      |  |                                      |  | (Principal Financial Officer and Principal Accounting Officer)



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EXHIBIT INDEX



|              |  |                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                        
|              | 
|31.1*         |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes  Oxley Act of 2002                                               
|              | 
|31.2*         |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes  Oxley Act of 2002                                               
|              | 
|32.1**        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes  Oxley Act of 2002
|              | 
|32.2**        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes  Oxley Act of 2002



|* | Filed herewith.
|- | ---------------

|** | Furnished herewith.
|-- | -------------------



43