<SEC-DOCUMENT>0000950123-13-001058.txt : 20130530
<SEC-HEADER>0000950123-13-001058.hdr.sgml : 20130530

<ACCEPTANCE-DATETIME>20130214171226

<PRIVATE-TO-PUBLIC>

ACCESSION NUMBER:		0000950123-13-001058

CONFORMED SUBMISSION TYPE:	DRS/A

PUBLIC DOCUMENT COUNT:		4

FILED AS OF DATE:		20130214

<PUBLIC-REL-DATE>20130401

DATE AS OF CHANGE:		20130501


FILER:


	COMPANY DATA:	

		COMPANY CONFORMED NAME:			Ellington Residential Mortgage REIT

		CENTRAL INDEX KEY:			0001560672

		STANDARD INDUSTRIAL CLASSIFICATION:	REAL ESTATE INVESTMENT TRUSTS [6798]

		IRS NUMBER:				460687599

		STATE OF INCORPORATION:			MD

		FISCAL YEAR END:			1231



	FILING VALUES:

		FORM TYPE:		DRS/A

		SEC ACT:		1933 Act

		SEC FILE NUMBER:	377-00014

		FILM NUMBER:		13615845



	BUSINESS ADDRESS:	

		STREET 1:		53 FOREST AVENUE

		CITY:			OLD GREENWICH

		STATE:			CT

		ZIP:			06870

		BUSINESS PHONE:		(203) 698-1200



	MAIL ADDRESS:	

		STREET 1:		53 FOREST AVENUE

		CITY:			OLD GREENWICH

		STATE:			CT

		ZIP:			06870



</SEC-HEADER>

<DOCUMENT>
<TYPE>DRS/A
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<HTML><HEAD>
<TITLE>Draft Registration Statement - Amendment No. 2 to Form S-11</TITLE>
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<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The registrant is submitting this draft registration statement confidentially as an
&#147;emerging growth company&#148; </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>pursuant to Section&nbsp;6(e) of the Securities Act of 1933. </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>As submitted with the Securities and Exchange Commission on February 14, 2013 </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Registration Statement No.&nbsp;377-00014 </B></FONT></P> <P STYLE="font-size:4px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<P STYLE="line-height:0px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="5"><B>United States </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="5"><B>Securities and Exchange Commission </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="3"><B>Washington, D.C. 20549
</B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="5"><B>Pre-Effective Amendment No. 2 </B></FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="5"><B>to </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="5"><B>Form S-11 </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="3"><B><I>FOR REGISTRATION UNDER </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="3"><B><I>THE SECURITIES ACT OF 1933 </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="3"><B><I>OF SECURITIES OF CERTAIN REAL
ESTATE COMPANIES </I></B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="6"><B>Ellington Residential Mortgage REIT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>(Exact Name of Registrant as Specified in Its Governing Instruments) </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center>
<P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Ellington
Residential Mortgage REIT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>53 Forest Avenue </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Old Greenwich, CT 06870 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>(203)&nbsp;698-1200 </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant&#146;s Principal Executive Offices)
</B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Laurence Penn </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Ellington Residential Mortgage REIT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>53 Forest Avenue </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Old Greenwich, CT 06870 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>(203)&nbsp;698-1200 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Name, Address, Including Zip Code and Telephone
Number, Including Area Code, of Agent for Service) </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center>
<P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Copies to:
</I></B></FONT></P>
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<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Daniel M. LeBey, Esq.</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Paul Tropp, Esq.</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Christopher C. Green, Esq.</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Fried, Frank, Harris, Shriver &amp; Jacobson LLP</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Hunton&nbsp;&amp; Williams LLP</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>One New York Plaza</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Riverfront Plaza, East Tower</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>New York, New York 10004</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>951 E. Byrd Street</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Tel (212) 859-8000</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Richmond, Virginia 23219</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Fax (212) 859-4000</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Tel (804)&nbsp;788-8200</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Fax (804)&nbsp;788-8218</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD></TR>
</TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Approximate date of commencement of proposed sale to the public</B>: As soon as practicable after the registration statement becomes
effective. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act, check the following box:&nbsp;&nbsp;<FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT> </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check
the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;&nbsp;<FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT> </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;&nbsp;<FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT> </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;&nbsp;<FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT> </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If delivery of this prospectus is expected to be made pursuant to Rule 434, check the following box.&nbsp;&nbsp;<FONT
STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">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 &#147;large accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule 12b-2 of the Exchange Act.
</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Large&nbsp;accelerated&nbsp;filer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Accelerated&nbsp;filer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD></TR>
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<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-accelerated filer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#120;</FONT>&nbsp;&nbsp;(Do not check if a smaller reporting company)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Smaller&nbsp;reporting&nbsp;Company</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD></TR>
</TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>CALCULATION OF REGISTRATION FEE </B></FONT></P> <P STYLE="font-size:4px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR STYLE="font-size:1px">
<TD COLSPAN="5" VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD></TR>
<TR>
<TD VALIGN="bottom" ALIGN="center" STYLE="BORDER-TOP:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Title of Each Class of</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Securities to be Registered</B></FONT></P></TD>
<TD VALIGN="bottom" STYLE="BORDER-LEFT:1px solid #000000; BORDER-TOP:1px solid #000000"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center" STYLE="BORDER-TOP:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Proposed</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Maximum</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Aggregate</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Offering&nbsp;Price(1)(2)</B></FONT></P></TD>
<TD VALIGN="bottom" STYLE="BORDER-LEFT:1px solid #000000; BORDER-TOP:1px solid #000000"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center" STYLE="BORDER-TOP:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Amount&nbsp;of</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Registration&nbsp;Fee(1)</B></FONT></P></TD></TR>
<TR>
<TD VALIGN="top" STYLE="BORDER-TOP:1px solid #000000"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Common Shares of Beneficial Interest, $0.01 par value per share</FONT></P></TD>
<TD VALIGN="bottom" STYLE="BORDER-LEFT:1px solid #000000; BORDER-TOP:1px solid #000000"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center" STYLE="BORDER-TOP:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" STYLE="BORDER-LEFT:1px solid #000000; BORDER-TOP:1px solid #000000"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center" STYLE="BORDER-TOP:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD COLSPAN="5" VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD></TR>
<TR STYLE="font-size:1px">
<TD COLSPAN="5" VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD></TR>
</TABLE>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. </FONT></TD></TR></TABLE>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(2)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Includes the offering price of common shares that may be purchased by the underwriters upon the exercise of their over-allotment option. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become effective in accordance with Section&nbsp;8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section&nbsp;8(a), shall determine. </B></FONT></P> <P STYLE="font-size:8px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<P STYLE="line-height:0px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P>

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<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Arial Narrow" SIZE="2" COLOR="#de1a1e"><B>The information in this preliminary prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted. </B></FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:ARIAL" SIZE="2"><B>Preliminary Prospectus </B></FONT></P>  <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:ARIAL" SIZE="2">SUBJECT TO
COMPLETION, DATED FEBRUARY 14, 2013 </FONT></P>  <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:ARIAL" SIZE="5">Shares </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:ARIAL" SIZE="6"><B>Ellington Residential Mortgage REIT </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:ARIAL" SIZE="5">Common Shares </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:15%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:ARIAL" SIZE="2">This is the initial public offering of Ellington Residential Mortgage REIT. We are offering
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of our common shares of beneficial interest, $0.01 par value per share, or common shares. Prior to this offering, there has been no public market for our common shares. We
intend to apply to list our common shares on the New York Stock Exchange under the symbol &#147;EARN.&#148; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:ARIAL" SIZE="2">We were formed in August
2012 to specialize in acquiring, investing in and managing residential mortgage- and real estate-related assets. Our primary objective is to generate attractive current yields and risk-adjusted total returns for our shareholders by making
investments that we believe compensate us appropriately for the risks associated with them. We seek to attain this objective by constructing and actively managing a portfolio comprised primarily of RMBS, with a significant emphasis on RMBS for which
the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:ARIAL" SIZE="2">We were formed
through an initial strategic venture between affiliates of Ellington Management Group, L.L.C., an investment management firm and registered investment adviser with a 17-year history of investing in a broad spectrum of mortgage-backed securities and
related derivatives, with an emphasis on the RMBS market, and a group of funds managed by an affiliate of The Blackstone Group LP, a leading investment and advisory firm. In September 2012, we received combined initial capital commitments from these
initial investors of $105.0 million, of which approximately $31.5 million was funded on September&nbsp;25, 2012. We expect that these initial investors will fund their remaining capital commitments through one or more private placements prior to or
concurrently with this offering. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:ARIAL" SIZE="2">We will elect and intend to qualify to be taxed as a real estate investment trust for U.S. federal
income tax purposes, or a REIT. To assist us in qualifying as a REIT, among other purposes, our declaration of trust generally limits beneficial and constructive ownership of our shares by any person to no more than 9.8% in value or in number of
shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares. In addition, our declaration of trust contains various other restrictions on the ownership and transfer of our shares. See &#147;Description of
Our Shares of Beneficial Interest&#151;Restrictions on Ownership and Transfer.&#148; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:ARIAL" SIZE="2">We are an &#147;emerging growth company&#148; under
the federal securities laws, and as such we have elected to comply with certain reduced public company reporting requirements in this prospectus and in future filings. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:ARIAL" SIZE="2">The underwriters have an option to purchase a maximum of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional common shares to cover over-allotments of shares. </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:ARIAL" SIZE="2"><B>Investing in our common shares involves risk. See &#147;<A HREF="#toc428125_3">Risk Factors</A>&#148; beginning on page 21. </B></FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="49%"></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:ARIAL" SIZE="1"><B>Price to<BR>Public</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:ARIAL" SIZE="1"><B>Underwriting<BR>Discounts&nbsp;and<BR>Commissions</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:ARIAL" SIZE="1"><B>Proceeds<BR>to Issuer</B></FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px; margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:ARIAL" SIZE="2">Per Share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px; margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:ARIAL" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:ARIAL" SIZE="2">Delivery of the common shares will be made on or about
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:ARIAL" SIZE="2">Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to
the contrary is a criminal offense. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="33%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="33%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD></TR>


<TR>
<TD VALIGN="top"><FONT STYLE="font-family:ARIAL" SIZE="5"><B>Credit Suisse</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" ALIGN="right"><FONT STYLE="font-family:ARIAL" SIZE="5"><B>Deutsche&nbsp;Bank&nbsp;Securities</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:ARIAL" SIZE="5"><B>Citigroup</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" ALIGN="right"><FONT STYLE="font-family:ARIAL" SIZE="5"><B>UBS Investment Bank</B></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:ARIAL" SIZE="2">The date of this prospectus
is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2013 </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>You should rely only on the information contained in this document. We have not
authorized anyone to provide information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. </B></FONT></P>
<P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc"></A>TABLE OF CONTENTS </B></FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;
</P><DIV STYLE="position:relative;float:left; margin-right:1%; width:48%;padding-right:9px;padding-bottom:8px;overflow:hidden;padding-top:3px">

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<TR>
<TD WIDTH="90%"></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Page</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_1">S<SMALL>UMMARY</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_2">T<SMALL>HE</SMALL> O<SMALL>FFERING</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">19</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_3">R<SMALL>ISK</SMALL> F<SMALL>ACTORS</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">21</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_4">S<SMALL>PECIAL</SMALL> N<SMALL>OTE</SMALL> R<SMALL>EGARDING</SMALL> F<SMALL>ORWARD</SMALL>-L<SMALL>OOKING</SMALL> S<SMALL>TATEMENTS
</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">55</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_5">U<SMALL>SE</SMALL> <SMALL>OF</SMALL> P<SMALL>ROCEEDS</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">58</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_6">D<SMALL>ILUTION</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">59</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_7">D<SMALL>ISTRIBUTION</SMALL> P<SMALL>OLICY</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">60</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_8">C<SMALL>APITALIZATION</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">61</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_8a">S<SMALL>ELECTED</SMALL> F<SMALL>INANCIAL</SMALL> I<SMALL>NFORMATION</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">62</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_9">M<SMALL>ANAGEMENT</SMALL>&#146;<SMALL>S</SMALL> D<SMALL>ISCUSSION</SMALL> <SMALL>AND</SMALL> A<SMALL>NALYSIS
</SMALL> <SMALL>OF</SMALL> F<SMALL>INANCIAL</SMALL> C<SMALL>ONDITION</SMALL> <SMALL>AND</SMALL> R<SMALL>ESULTS</SMALL> <SMALL>OF</SMALL> O<SMALL>PERATIONS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">63</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_10">B<SMALL>USINESS</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">72</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_11">M<SMALL>ANAGEMENT</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">88</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_12">O<SMALL>UR</SMALL> M<SMALL>ANAGER</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> M<SMALL>ANAGEMENT</SMALL> A<SMALL>GREEMENT
</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">92</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR></TABLE>
</DIV><DIV STYLE="position:relative;float:right; width:48%;padding-right:9px;padding-bottom:8px;overflow:hidden;padding-top:3px">

<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="90%"></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>

<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Page</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_13">C<SMALL>ERTAIN</SMALL> R<SMALL>ELATIONSHIPS</SMALL> <SMALL>AND</SMALL> R<SMALL>ELATED</SMALL> P<SMALL>ARTY
</SMALL> T<SMALL>RANSACTIONS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">105</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_14">P<SMALL>RINCIPAL</SMALL> S<SMALL>HAREHOLDERS</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">107</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_15">D<SMALL>ESCRIPTION</SMALL> <SMALL>OF</SMALL> O<SMALL>UR</SMALL> S<SMALL>HARES</SMALL> <SMALL>OF</SMALL> B<SMALL>ENEFICIAL
</SMALL> I<SMALL>NTEREST</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">108</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_16">S<SMALL>HARES</SMALL> E<SMALL>LIGIBLE</SMALL> <SMALL>FOR</SMALL> F<SMALL>UTURE</SMALL> S<SMALL>ALE</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">113</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_17">C<SMALL>ERTAIN</SMALL> P<SMALL>ROVISIONS</SMALL> <SMALL>OF</SMALL> M<SMALL>ARYLAND</SMALL> L<SMALL>AW</SMALL> <SMALL>AND
</SMALL> <SMALL>OF</SMALL> O<SMALL>UR</SMALL> D<SMALL>ECLARATION</SMALL> <SMALL>OF</SMALL> T<SMALL>RUST</SMALL> <SMALL>AND</SMALL> B<SMALL>YLAWS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">114</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_18">O<SMALL>PERATING</SMALL> P<SMALL>ARTNERSHIP</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> P<SMALL>ARTNERSHIP
</SMALL> A<SMALL>GREEMENT</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">119</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_19">M<SMALL>ATERIAL</SMALL> U.S. F<SMALL>EDERAL</SMALL> I<SMALL>NCOME</SMALL> T<SMALL>AX</SMALL> C<SMALL>ONSIDERATIONS
</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_20">U<SMALL>NDERWRITING</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">151</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_21">L<SMALL>EGAL</SMALL> M<SMALL>ATTERS</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">155</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_22">E<SMALL>XPERTS</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">155</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_23">W<SMALL>HERE</SMALL> Y<SMALL>OU</SMALL> C<SMALL>AN</SMALL> F<SMALL>IND</SMALL> M<SMALL>ORE</SMALL> I<SMALL>NFORMATION</SMALL> </A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">155</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#toc428125_24">I<SMALL>NDEX</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL></A><SMALL></SMALL></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-1</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
</TABLE>  </DIV><div style="clear:both; height:0px; font-size:0px">&nbsp;</div>
 <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Until
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2013, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer&#146;s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">i </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>GLOSSARY </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Agency&#148;</B> means a U.S.&nbsp;government agency, such as Ginnie Mae, or a federally chartered corporation, such as Fannie Mae or Freddie Mac, which guarantees payments of principal and
interest on MBS. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Agency certificates&#148;</B> means Ginnie Mae, Fannie Mae or Freddie Mac certificates. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Agency RMBS&#148;</B> means government agency RMBS, which are mortgage pass-through certificates backed by pools of residential mortgage loans
issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. Our Agency RMBS may also consist of Agency CMOs, which are securities that are structured interests in Agency-backed mortgage pass-through certificates. See definition of
&#147;CMO,&#148; below. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Alt-A mortgage loans&#148;</B> means residential mortgage loans made to borrowers whose qualifying mortgage
characteristics do not conform to Agency underwriting guidelines. Generally, Alt-A mortgage loans allow homeowners to qualify for a mortgage loan with reduced or alternate forms of documentation. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;ARMs&#148;</B> means adjustable-rate residential mortgage loans. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;CMO&#148;</B> means a collateralized mortgage obligation. CMOs are structured instruments representing interests in specified mortgage loan collateral. CMO securitizations consist of multiple
classes, or tranches, of securities, with each tranche having specified characteristics, based on the rules described in the securitization documents governing the division of the monthly principal and interest distributions, including prepayments,
from the underlying mortgage collateral among the various tranches. Interest-only securities, or &#147;IOs,&#148; are CMOs that only receive interest payments while principal-only securities, or &#147;POs,&#148; receive only principal payments.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;conforming loans&#148;</B> means residential mortgage loans that conform to the Agency underwriting guidelines and meet the funding
criteria of Fannie Mae and Freddie Mac. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Fannie Mae&#148;</B> means the Federal National Mortgage Association. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;FDIC&#148; </B>means the Federal Deposit Insurance Corporation. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;FHA&#148;</B> means the Federal Housing Administration. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;FHFA&#148;</B>&nbsp;means the U.S. Federal Housing Finance Agency. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Freddie Mac&#148;</B> means the Federal Home Loan Mortgage Corporation. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;FRMs&#148;</B> means fixed-rate residential mortgage loans. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Ginnie Mae&#148;</B> means the Government National Mortgage Association, a wholly-owned corporate instrumentality of the United States of America within the U.S.&nbsp;Department of Housing and
Urban Development. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;GSE&#148;</B> means a government-sponsored enterprise. When we refer to GSEs, we mean Fannie Mae, Freddie Mac or
Ginnie Mae. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;highly rated&#148;</B> tranches of MBS refer to those tranches which we consider to be the more senior tranches of a
given securitization. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;hybrid ARMs&#148;</B> means residential mortgage loans that have interest rates that are fixed for a specified
period of time (typically three, five, seven or ten years) and, thereafter, adjust to an increment over a specified interest rate index. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;IIOs&#148;</B> means inverse interest-only securities. These debt securities receive no principal payments and have a coupon rate which has an
inverse relationship to its reference index. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;IO strips&#148;</B> are a type of stripped security. IO strips receive a specified
portion of the interest on the underlying assets. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;inverse floaters&#148; </B>are a type of debt security with a coupon rate which
has an inverse relationship to its reference index. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ii </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;jumbo mortgage loans&#148;</B> means residential mortgage loans with an original principal balance
in excess of the maximum amount permitted by the Agency underwriting guidelines. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;manufactured homes&#148; </B>means housing units
that are largely assembled in factories and then transported to sites of use. Manufactured housing loans include both manufactured housing installment sales contracts secured by security interests in manufactured homes (and, in some cases, by liens
on the real estate on which the manufactured homes are located) and mortgage loans secured by first liens on the real estate on which manufactured homes are permanently affixed. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;MBS&#148;</B> means mortgage-backed securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;mortgage loans&#148;</B> means
loans secured by real estate with a right to receive the payment of principal and interest on the loan (including servicing fees). </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;MSRs&#148; </B>are mortgage servicing rights. Our investments in MSRs will typically consist of investments in the monthly interest payments
collected from a pool of mortgage loans, net of a base fee paid to a sub-servicer, as well as the obligations associated with being a servicer, to the extent they are not subcontracted. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Neg-Am ARMs&#148; </B>means ARMs that allow unpaid accrued interest to be capitalized monthly and added back to the loan&#146;s outstanding principal balance. This negative amortization only
occurs in loans where the monthly payment does not cover the amount of interest due for that period. Such mortgage loans typically employ (i)&nbsp;a &#147;recast date&#148; before which the outstanding principal loan balance is permitted to
negatively amortize but after which it is not, and (ii)&nbsp;a principal balance cap based on federal and state legislation. Neg-Am ARMs are typically made to borrowers in high-cost areas because monthly mortgage payments are relatively low for
these loans, and are made for the purposes of cash management and increased payment flexibility. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;non-Agency RMBS&#148;</B> means MBS
that are not issued or guaranteed by an Agency, including investment grade (AAA through BBB rated) and non-investment grade (BB rated through unrated) classes. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;PO strips&#148;</B> are a type of stripped security. PO strips receive a specified portion of the principal on the underlying assets. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;prime mortgage loans&#148;</B> means residential mortgage loans that generally conform to Agency underwriting guidelines. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;prime jumbo mortgage loans&#148;</B> means mortgage loans that generally conform to Agency underwriting guidelines, except that the mortgage balance exceeds the maximum amount permitted by Agency
underwriting guidelines. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>&#147;</I></B><B>residential mortgage pass-through certificates&#148;</B> represent interests in
&#147;pools&#148; of mortgage loans secured by residential real property where payments of both interest and principal (including principal prepayments), on the underlying residential mortgage loans are made monthly to holders of the certificates,
in effect &#147;passing through&#148; monthly payments made by the individual borrowers on the mortgage loans that underlie the securities, net of fees paid to the issuer/guarantor and servicers of the securities. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;RMBS&#148; </B>means MBS backed by residential mortgage loans. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;second lien mortgage loan&#148;</B> means a mortgage loan that is subordinate to the primary mortgage loan on a property. The second lien mortgage loan can be in the form of a revolving home
equity line of credit or in a closed-end non-revolving loan. In the event of a default or a bankruptcy of the borrower, the second lien mortgage loan will not be paid off until the first lien mortgage loan is paid off. The subordination inherent in
the second lien mortgage loan and the resulting difficulty in asset recovery following a bankruptcy makes this type of loan a greater risk to lenders, and consequently such loans generally carry higher interest rates than first lien mortgage loans.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;SIFMA&#148; </B>means the Securities Industry and Financial Markets Association. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;single family residential&#148;</B> means residential single family one to four unit homes, that can be owner occupied primary residences,
second homes, or investment properties, that can be detached homes, condominiums or planned-unit-development properties. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;stripped
securities&#148;</B> are MBS structured with two or more classes that receive different distributions of principal or interest on a pool of Agency certificates, whole loans or private pass-through MBS. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">iii
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;subprime mortgage loans&#148;</B> means residential mortgage loans that have been originated using
underwriting standards that are less restrictive than those used in underwriting conforming loans and Alt-A mortgage loans. These lower standards permit loans to be made to borrowers having low credit scores and/ or imperfect or impaired credit
histories (including outstanding judgments or prior bankruptcies), loans with no income disclosure or verification, and loans with high loan-to-value ratios. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;TBAs&#148;</B> means forward-settling Agency RMBS where the pool is &#147;to-be-announced.&#148; In a TBA, a buyer will 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. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;Treasury&#148;</B> means the U.S. Department of Treasury. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;VA&#148; </B>means
the Department of Veterans Affairs. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>&#147;whole loans&#148;</B> means direct investments in whole residential mortgage loans, as opposed
to investments in CMOs or other structured products that are backed by such loans. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">iv </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_1"></A>SUMMARY </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>This summary highlights information contained elsewhere in this prospectus. It is not complete and may not contain all of the
information that you should consider before making an investment in our common shares. You should read carefully the more detailed information set forth under &#147;Risk Factors&#148; and the other information included in this prospectus. Except
where the context suggests otherwise, &#147;EARN,&#148; &#147;we,&#148; &#147;us&#148; and &#147;our&#148; refer to Ellington Residential Mortgage REIT and its subsidiaries, our &#147;Manager&#148; refers to Ellington Residential Mortgage Management
LLC, our external manager, and &#147;Ellington&#148; refers to Ellington Management Group, L.L.C. and its affiliated investment advisory firms, including our Manager. In certain instances, references to our Manager and services to be provided to us
by our Manager may also include services provided by Ellington and its other affiliates from time to time. References to &#147;Blackstone&#148; mean The Blackstone Group LP. The &#147;Blackstone Funds&#148; means the group of funds that are managed
by an affiliate of Blackstone and that have made a substantial capital commitment to our company. Unless indicated otherwise, the information in this prospectus assumes no exercise of the underwriters&#146; over-allotment option described on the
cover page of this prospectus. </I></FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Company </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ellington Residential Mortgage REIT is a Maryland real estate investment trust formed in August 2012 that specializes in acquiring, investing in and managing residential mortgage- and real estate-related
assets. Our primary objective is to generate attractive current yields and risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the risks associated with them. We seek to attain this
objective by constructing and actively managing a portfolio comprised primarily of RMBS, with a significant emphasis on Agency RMBS. We also may opportunistically acquire and manage other types of residential mortgage-related and real estate-related
asset classes, such as residential whole mortgage loans, MSRs, and residential real properties. We believe that being able to combine Agency RMBS with non-Agency RMBS and other residential mortgage and real estate-related asset classes enables us to
balance a range of mortgage-related risks. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We were formed through an initial strategic venture among affiliates of Ellington,
an investment management firm and registered investment adviser with a 17-year history of investing in a broad spectrum of MBS and related derivatives, with an emphasis on the RMBS market, and the Blackstone Funds. In September 2012, we received
combined initial capital commitments from these initial investors of $105.0 million, of which approximately $31.5 million was funded on September&nbsp;25, 2012, with affiliates of Ellington retaining a commitment of $3.5 million and the Blackstone
Funds retaining a commitment of $70.0 million. As of September&nbsp;30, 2012, we had deployed these funds in approximately $5.0 million of non-Agency RMBS. We expect that the remaining portion of the aggregate capital commitment of our initial
investors will be funded through one or more additional private placements of common shares prior to or concurrently with the completion of this offering. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The members of our management team are Michael Vranos, founder and Chief Executive Officer of Ellington, who serves as our Co-Chief Investment Officer; Laurence Penn, Vice Chairman of Ellington, who
serves as our President and Chief Executive Officer; Mark Tecotzky, a Managing Director of Ellington, who serves as our Co-Chief Investment Officer; Paul Asaro, Chief Financial Officer of Ellington, who serves as our interim Chief Financial Officer
and Treasurer; and Daniel Margolis, General Counsel of Ellington, who serves as our Secretary. Each of these individuals is an officer of our Manager. We currently do not have any employees. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will elect and intend to qualify to be taxed as a real estate investment trust, or &#147;REIT,&#148; for U.S. federal income tax
purposes and to maintain our exclusion from regulation under the Investment Company Act of 1940, as amended, or the &#147;Investment Company Act.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our Manager and Ellington </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are externally managed and advised by our
Manager, an affiliate of Ellington, pursuant to a management agreement. Our Manager was formed solely to serve as our manager and does not have any other clients. In addition, our Manager does not have any employees of its own and instead relies on
the employees of Ellington to perform its obligations to us. </FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">1 </FONT></P>


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  <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager is responsible for administering our business activities and day-to-day
operations and, pursuant to a services agreement between our Manager and Ellington, relies on the resources of Ellington to support our operations. See &#147;Certain Relationships and Related Party Transactions&#151;Services Agreement&#148; for a
description of the terms of the services agreement between our Manager and Ellington. Ellington has established portfolio management resources for each of our targeted asset classes and an established infrastructure supporting those resources.
Ellington has extensive experience in buying, selling, analyzing and structuring fixed income securities throughout various market cycles, including the severe economic downturn that began in 2007. During the economic downturn, market conditions
adversely affected both (i) the credit performance and valuations of assets targeted by many of Ellington&#146;s clients at that time, especially non-Agency RMBS, and (ii) the cost and availability of financing for those assets, primarily in the
form of reverse repos and securitizations. In particular, the economic downturn resulted in a severely illiquid market for many mortgage-related instruments, as evidenced by significantly greater difficulty buying and selling such instruments, and
significant volatility and uncertainty in valuations. As a result of these developments, certain of the clients managed by Ellington experienced declines in value with respect to the assets in which they were invested. Although economic conditions
continue to improve, the asset classes that we are targeting are sensitive to economic downturns and adverse conditions in the mortgage and residential markets may affect our portfolio. See &#147;Risk Factors&#151;Risks Related To Our
Business&#151;Difficult conditions in the mortgage and residential real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest and these conditions may persist for the foreseeable
future.&#148; </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Through our relationship with our Manager, we benefit from Ellington&#146;s highly analytical investment
processes, broad-based deal flow, extensive relationships in the financial community, financial and capital structuring skills, investment surveillance capabilities and operational expertise. Ellington&#146;s analytic approach to the investment
process involves collection of substantial amounts of data regarding historical performance of RMBS collateral and RMBS market transactions and other mortgage- and real estate-related assets. Ellington analyzes this data to identify possible trends
and develops financial models used to support the investment and risk management process. In addition, throughout Ellington&#146;s 17-year history of investing in RMBS and related derivatives, it has developed strong relationships with a wide range
of dealers and other market participants that provide Ellington access to a broad range of trading opportunities and market information. In addition, our Manager provides us with access to a wide variety of asset acquisition and disposition
opportunities and information that assist us in making asset management decisions across our targeted asset classes, which we believe provides us with a significant competitive advantage. We also benefit from Ellington&#146;s finance, accounting,
operational, legal, compliance and administrative functions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, Ellington employed over 110
employees and had assets under management of over $4.7 billion, comprised of our company and various other investment vehicles, including Ellington Financial LLC, a specialty finance company listed on the NYSE (NYSE:EFC). </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Initial Investors </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In September 2012, we received combined initial capital commitments from affiliates of Ellington and the Blackstone Funds of $105.0
million, of which approximately $31.5 million was funded on September&nbsp;25, 2012, with affiliates of Ellington retaining a commitment of $3.5 million and the Blackstone Funds retaining a commitment of $70.0 million. We expect that these initial
investors will fund their remaining capital commitment through one or more private placements prior to or concurrently with this offering. The Blackstone Funds are managed by an affiliate of Blackstone, a leading investment and advisory firm.
Blackstone seeks to create positive economic impact and long-term value for its investors, the companies it invests in, the companies it advises and the broader global economy. Blackstone does this through the commitment of its extraordinary people
and flexible capital. Blackstone&#146;s alternative asset management businesses, which collectively had total assets under management of $166&nbsp;billion as of December&nbsp;31, 2011, include the management of private equity funds, real estate
funds, hedge fund solutions, and credit businesses. Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Market Opportunity </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Trends in RMBS </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to acquire and actively manage a portfolio of Agency and non-Agency RMBS, with a significant emphasis on Agency RMBS. We believe that those two markets offer attractive opportunities.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Agency RMBS</I>. Even though we remain in
a low interest rate environment, mortgage principal prepayment rates are much lower than historical precedent would predict. Additionally, there is significant dispersion in prepayment rates across different pools of mortgage loans, caused in large
part by differences in underlying pool attributes (such as loan characteristics) and servicer behavior. As a result, and based on our prepayment projections, we expect to target pools that we believe (1)&nbsp;will generate attractive yields,
(2)&nbsp;will have less prepayment sensitivity to government policy shocks, and/or (3)&nbsp;will create opportunities for trading gains once the market recognizes their fundamental value, which for newer pools may come only after several months,
when actual prepayment experience can be observed. We believe that our Manager&#146;s research team, its proprietary prepayment models, and its extensive databases remain essential tools in Ellington&#146;s implementation of this strategy. In
addition, as a result of the persistent impact on the mortgage market of the recent credit crisis, as evidenced by more stringent underwriting standards, declining home values and negative equity in homes, there has generally been a muted borrower
response to the current historically low mortgage rates, thereby enhancing the value of Agency RMBS. We believe that our </FONT></P>
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current Agency RMBS strategy will benefit from the current market environment characterized by a substantial continuous supply of Agency RMBS securities, favorable yield spreads, relatively low
financing and hedging costs, and ample availability of leverage. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Non-Agency RMBS</I>. We believe that the long-term
fundamental prospects for non-Agency RMBS are attractive. Our view is based on an overall better outlook for home prices in non-judicial foreclosure states, low absolute prices on certain riskier vintage securities, favorable default and delinquency
trends and improving economic conditions. We also believe that the non-Agency RMBS markets exhibit positive long-term technical trends. Although ratings-based capital requirements reduced the demand by banks for non-Agency RMBS over the past few
years, the U.S. Federal Reserve&#146;s recently released Simplified Supervisory Formula Approach is expected to reduce the anticipated required capital charge substantially for such securities. This recently released proposal will not take full
effect for some time, but the implied effective increased bank buying power for the sector is significant. In addition, there is robust demand for non-Agency RMBS from a variety of sources, including insurance companies, money managers, distressed
funds, and other REITs. Meanwhile, the Maiden Lane non-Agency RMBS auctions have been completed and there is significantly less distressed supply in the RMBS market. We expect this supply-demand relationship, coupled with the continuing decline in
the total outstanding amount of non-Agency RMBS, and the ability to modestly leverage non-Agency assets, will provide continued support for non-Agency RMBS. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Evolving Housing Market and Mortgage Landscape </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">While the housing
market continues to stabilize and improve in many regions, the mortgage market continues to evolve quickly, and we believe that there are likely to be significant opportunities to capitalize on changes in the mortgage market overall and on the
dispersion in performance among different securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We believe that the federal government&#146;s evolving role in the
housing market will continue to create opportunities for private capital. While the exact fate and role of Fannie Mae and Freddie Mac remain uncertain, each has been mandated to reduce its MBS portfolio by at least 15%&nbsp;per year and together,
the two had collectively reduced their MBS portfolios by over $289.0 billion in the two years ending December&nbsp;31, 2011, in the process adding a meaningful amount of supply to the market. Fannie Mae and Freddie Mac, together with the FHA and VA,
continue to dominate the mortgage origination markets, purchasing or guaranteeing&#151;and thereby assuming most of the credit risk on&#151;the vast majority of mortgages originated in recent years. As long as these governmental entities are willing
and able to assume this credit risk at levels that effectively price private capital out of the market, we expect this concentration to continue. However, there are continued efforts to wind down these governmental entities and if and when these
governmental entities&#146; roles as the primary sources of mortgage credit and primary bearers of mortgage risk is ultimately reduced, we expect that mortgage risk on new originations will become attractively priced again, and that there will be
significant opportunities for private capital to assume mortgage credit risk to a much larger extent. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The third round of
quantitative easing announced in September 2012 involves the U.S. Federal Reserve&#146;s purchases of Agency RMBS at a pace of $40 billion per month; however, this buying program generally targets the cheapest-to-deliver pass-throughs with coupons
at the prevailing mortgage rates, leaving behind pools with collateral characteristics believed to mitigate or reduce prepayment risk, which may offer greater relative value. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">There are many additional governmental policy actions proposed to stimulate and support home price recovery, to increase the availability
of mortgage credit, and to encourage the re-entry of private capital into the U.S. mortgage market that may benefit non-Agency RMBS and our business. Against this favorable policy back-drop, these opportunities would come available at a time when
the financing environment remains very attractive as the U.S. Federal Reserve continues to keep interest rates at nearly zero, resulting in a relatively steep yield curve. We believe the subdued economic recovery should cause these conditions to
persist for the near term. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Other Opportunities </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The current market landscape is also generating new opportunities in other mortgage-related strategies such as those involving whole
mortgage loans, MSRs and single-family housing. These strategies require substantial </FONT></P>
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infrastructure to model and manage and, therefore, pose a serious barrier to entry for inexperienced investment managers. We believe that our Manager&#146;s proprietary research, models and
analytics, trading and structuring expertise, risk management and asset-sourcing capabilities will allow us to be flexible in identifying these opportunities and capitalizing on them to complement our core Agency and non-Agency RMBS strategies. To
the extent we acquire MSRs, it may be necessary to hold such assets through a taxable REIT subsidiary, or &#147;TRS.&#148; As a result, a portion of the income from such assets may be subject to U.S. corporate income tax. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Strategy </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend
to capitalize on the current market opportunity by utilizing an opportunistic strategy that we believe will enable us to generate attractive current yields and risk-adjusted total returns for our shareholders. In particular, our strategy will
consist of: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">utilizing an investment model that focuses on security selection and allocates capital to assets that balance a range of mortgage-related risks;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">constructing and actively managing a hybrid investment portfolio comprised primarily of Agency RMBS and, to a lesser extent, non-Agency RMBS, designed
to: </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">take advantage of opportunities in the Agency RMBS market by acquiring Agency RMBS on a leveraged basis; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">take advantage of opportunities in the non-Agency residential mortgage market by purchasing investment grade and non-investment grade non-Agency RMBS,
including senior and subordinated securities; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">opportunistically acquiring and managing other mortgage- and real estate-related assets, such as MSRs, residential whole mortgage loans and residential
real properties that we would hold for appreciation and/or current income; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">opportunistically mitigating our interest rate and prepayment risk and, to a lesser extent, credit risk, by using a variety of hedging instruments.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our strategy is adaptable to changing market environments, subject to compliance with the income and other
tests that will allow us to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes and to maintain our exclusion from regulation as an investment company under the Investment Company Act. As a result, although we
intend to focus on the acquisition and management of Agency RMBS and non-Agency RMBS, and to a lesser extent, residential whole mortgage loans, MSRs and residential real properties, our acquisition and management decisions will depend on prevailing
market conditions and our targeted asset classes may vary over time in response to market conditions. To the extent that we acquire MSRs, it may be necessary to hold such assets through a TRS. As a result, a portion of the income from such assets
may be subject to U.S. corporate income tax. Our Manager is authorized to follow very broad investment guidelines and, as a result, we cannot predict our portfolio composition. We may change our strategy and policies without a vote of our
shareholders. Moreover, although our independent trustees will periodically review our investment guidelines and our portfolio, they generally will not review our proposed asset acquisitions or asset management decisions. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We believe that our Manager is uniquely qualified to implement our strategy. Our strategy is consistent with Ellington&#146;s investment
approach, which is based on its distinctive strengths in sourcing, analyzing, trading and hedging complex MBS. </FONT></P>
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<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We believe the following competitive strengths uniquely position us to implement our business strategy: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Leading and Experienced Management Team</I>. We believe that the extensive experience of our officers and the officers and employees of Ellington
and our Manager provides us with access to investment opportunities and management expertise across our targeted asset classes. Certain of our officers were founding principals of Ellington and each of these officers has over 25 years of experience
in the mortgage securities business with both buy side and sell side experience. Included among the members of our management team are the former heads of RMBS origination and trading, whole loan MBS origination and trading and fixed income research
and quantitative systems at Kidder Peabody. One of the founding principals of Ellington and also our President and Chief Executive Officer, Mr.&nbsp;Penn, worked for ten years at Lehman Brothers, where, prior to joining Ellington in 1995 shortly
after its inception, he co-headed Lehman Brothers&#146; trading desk for CMOs. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Access to an Established Asset Manager with an Extensive Infrastructure</I>. We expect to benefit substantially from our relationship with our
Manager and Ellington by having access to Ellington&#146;s investment ideas, proprietary research, models and analytics, trading and structuring expertise, risk management and asset-sourcing capabilities. We believe this relationship will provide us
with unique insights into attractive opportunities and access to market information that enhances our ability to make decisions regarding our combined Agency RMBS and non-Agency RMBS portfolio, which we believe is a significant competitive
advantage. Furthermore, we believe that Ellington&#146;s extensive experience in buying, selling, analyzing and structuring fixed income securities, coupled with its broad access to market information and trading flows, provides us with a steady
flow of opportunities to acquire assets with favorable trade executions. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Expertise in Prepayment, Interest Rate and Credit Modeling and Investing</I>. We expect to benefit from Ellington&#146;s proprietary analytical
models and investment infrastructure, which were developed utilizing more than 17 years of experience by Ellington, a leading participant in the markets we intend to target. Ellington&#146;s investment process emphasizes the quantitative assessment
of interest rate risk, prepayment risk and, where applicable, credit risk, both on a portfolio basis and a security-by-security basis. This process relies on the sophisticated quantitative tools and methodologies that are the foundation of
Ellington&#146;s investment technique and asset surveillance. We believe that Ellington has differentiated itself with its long experience in investing and leveraging large pools of capital in complex mortgage and derivative instruments, through
various economic and business cycles. We believe that access to Ellington&#146;s proprietary models and modeling capabilities provides us with a substantial competitive advantage over most other market participants. </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Disciplined Security Selection Process</I>. We intend to use a disciplined approach to security selection as a fundamental component of our asset
acquisition strategy. Ellington maintains an extensive loan-level database that allows it to perform in-depth analysis. Ellington&#146;s proprietary analytics allow it to analyze securities individually based upon, among other things, available
borrower credit information and property attributes. In order to generate attractive current yields and risk-adjusted returns on our investments, we intend to construct a portfolio with a focus on managing the various associated risks, such as
duration and cash flow risk, including by selecting securities that have favorable prepayment characteristics and through the liability hedging strategy we will employ. In addition, we intend to actively and opportunistically manage the portfolio as
market conditions permit. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Strong Risk Management and Risk Mitigation Focus</I>. Risk management is one of Ellington&#146;s core competencies and we implement techniques that
are intended to mitigate the risks inherent in our business. In addition, our disciplined security selection process and our concentrated focus on managing our duration risk are also important components of what we believe to be our competitive
advantages in our primary RMBS asset classes. Ellington has several employees dedicated to compliance and risk management, including its chief compliance officer. See &#147;&#151;Risk Management&#151;Liquidity Management.&#148;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Strong Sponsorship and Alignment of Interests Between Our Shareholders and Our Manager</I>. We were founded with investment and organizational
assistance from affiliates of Blackstone and Ellington. Blackstone is a leading investment and advisory firm. In September 2012, we received combined initial capital commitments from affiliates of Ellington and the Blackstone Funds of $105.0
million, of </FONT></P></TD></TR></TABLE>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">5 </FONT></P>


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<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P><FONT STYLE="font-family:Times New Roman" SIZE="2">
which approximately $31.5 million was funded on September&nbsp;25, 2012, with affiliates of Ellington retaining a commitment of $3.5 million and the Blackstone Funds retaining a commitment of
$70.0 million. We expect that these initial investors will fund their remaining capital commitments through one or more private placements prior to or concurrently with this offering. These investments will result in affiliates of our Manager and
the Blackstone Funds owning approximately &nbsp;&nbsp;&nbsp;&nbsp;% and &nbsp;&nbsp;&nbsp;&nbsp;%, respectively, of our outstanding common shares upon completion of this offering. In addition, two individuals affiliated with Blackstone serve on our
Board of Trustees and one individual affiliated with Ellington serves on our Board of Trustees. Furthermore, these investors have agreed not to sell or otherwise transfer any of our common shares for a period of
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;months after the completion of this offering. We believe that the ownership of our common shares by affiliates of our sponsors, including affiliates of our Manager, will further
align our Manager&#146;s interests with our shareholders&#146; interests. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Targeted Asset Classes </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our targeted asset classes currently include: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="51%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="47%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:38pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Asset Class</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Principal Assets</B></FONT></P></TD></TR>


<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency RMBS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;Agency RMBS collateralized by either fixed rate mortgage loans,
adjustable rate mortgage loans or hybrid mortgage loans, or derivatives thereof, including:</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;whole pool mortgage pass-through certificates;</FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;Agency CMOs,
including IOs, POs, IIOs, and inverse floaters; and</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:1px; margin-left:4.00em; text-indent:-1.50em"><FONT
STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;TBAs.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-Agency RMBS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;RMBS backed by prime jumbo, Alt-A, manufactured housing and subprime
mortgages;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;RMBS backed by fixed rate mortgages, ARMs, Option-ARMs and Hybrid ARMs;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;RMBS backed by first lien and second lien mortgages;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;Investment grade and non-investment grade securities;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;Senior and subordinated securities; and</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;Non-Agency CMOs, including IOs, POs, IIOs and inverse floaters.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Other</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;Residential whole mortgage loans;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;MSRs;</FONT></P></TD></TR></TABLE>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">6 </FONT></P>


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<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="51%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="47%"></TD></TR>

<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:38pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Asset Class</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Principal Assets</B></FONT></P></TD></TR>


<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;Residential real properties; and</FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:1px; margin-left:3.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;Other
mortgage- and real estate-related assets, including asset backed securities and certain hedging transactions.</FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Portfolio </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our portfolio consisted of the following investments as of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2012: </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="65%"></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Current<BR>Principal</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Fair<BR>Value</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Average<BR>Price</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Cost</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Average<BR>Cost</B></FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Agency RMBS</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency 30 Year Fixed RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency 15 Year Fixed RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency Hybrid/ARM RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Non-Agency RMBS</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subprime</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Alt-A</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Prime RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Other Target Asset Classes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE>    <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Investment Process </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our investment process benefits from the resources and professionals of our Manager and Ellington. The process is managed by an investment and risk management committee, which includes, among others, the
following officers of our Manager: Messrs. Vranos, Penn and Tecotzky. These officers of our Manager also serve as our Co-Chief Investment Officer, President and Chief Executive Officer and Co-Chief Investment Officer, respectively. The investment
and risk management committee operates under investment guidelines and meet periodically to develop a set of preferences for the composition of our portfolio. The primary focus of the investment and risk management committee is to review and approve
our investment policies and our portfolio composition and related compliance with our guidelines. Under the management agreement between us and our Manager, our Manager has the authority to enter into transactions consistent with our investment
guidelines, subject to the oversight of our Board of Trustees. Any transactions deviating in a material way from these guidelines must be approved by our Board of Trustees. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Risk Management </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Risk management is a cornerstone of Ellington&#146;s
portfolio management process. Ellington&#146;s risk management infrastructure system includes &#147;ELLiN,&#148; a proprietary portfolio management system that Ellington uses for all of its accounts, which provides real-time and batch reporting to
all departments at Ellington, including trading, research, risk management, finance, operations, accounting and compliance. We will benefit from Ellington&#146;s comprehensive risk management infrastructure and ongoing assessment of both portfolio
and operational risks. In addition, we will utilize derivatives and other hedging instruments to opportunistically manage our interest rate risk. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our Hedging Strategy </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subject to qualifying and maintaining our
qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we may utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk
and other risks. For example, we intend to opportunistically hedge interest rate risk by entering into interest rate swaps, Eurodollar futures, TBA transactions, and other hedging instruments, and for the purposes of the REIT qualification tests, we
will generally seek to designate these instruments as hedging our reverse repurchase agreement indebtedness. Finally, although we do not intend to operate our non-Agency RMBS investment strategy on a credit-hedged basis in general, we may
selectively use credit default swaps to hedge non-Agency credit risk. </FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">7 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Financing Strategies and Use of Leverage </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the
particular characteristics of our portfolio, availability of financing and market conditions. Our borrowings will primarily consist of reverse repurchase agreements collateralized by our Agency RMBS and non-Agency RMBS. The terms of these reverse
repurchase agreements may require additional collateral to be posted with our counterparties from time to time as a result of a margin call. See &#147;Risk Factors&#151;Risks Related to Our Business&#151;Adverse market developments could cause our
lenders to require us to pledge additional assets as collateral. If our assets were insufficient to meet these collateral requirements, we might be compelled to liquidate particular assets at inopportune times and at unfavorable prices.&#148;
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We currently have master repurchase agreements in place with six reverse repurchase agreement counterparties, and we are in
active discussions with additional reverse repurchase agreement counterparties. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our use of leverage, especially in order to
increase the amount of assets supported by our capital base, may have the effect of increasing losses when these assets underperform. Our investment policies require no minimum or maximum leverage and our Manager&#146;s investment and risk
management committee will have the discretion, without the need for further approval by our Board of Trustees, to change both our overall leverage and the leverage used for individual asset classes. Because our strategy is flexible, dynamic and
opportunistic, our overall leverage will vary over time. As a result, we do not have a targeted debt-to-equity ratio, although we currently expect that our debt-to-equity ratio initially will be within a range of 6:1 to 10:1 for our Agency RMBS and
0:1 to 2:1 for our non-Agency RMBS. To the extent we employ leverage with respect to other mortgage and real-estate related investments we may make from time to time, we do not expect the debt-to-equity ratio on those investments to exceed 1:1.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Formation and Structure </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We were formed as a Maryland real estate investment trust in August 2012, and we completed a private placement of common shares in September 2012 through an initial strategic venture among affiliates of
Ellington and the Blackstone Funds. We have received combined equity capital commitments from these initial investors of $105.0 million, of which approximately $31.5 million was funded on September&nbsp;25, 2012, pursuant to a private placement of
our common shares to these investors for a price of $20.00 per share. We expect that the remaining portion of the aggregate capital commitments of these initial investors will be funded through one or more additional private placements of common
shares prior to or concurrently with the completion of this offering. Of the total equity capital commitments by, and common shares that we have issued and sold to date to our initial shareholders, approximately 95% is allocated to the Blackstone
Funds and approximately 5% is allocated to affiliates of Ellington. Following the completion of this offering, we expect the Blackstone Funds to hold approximately &nbsp;&nbsp;&nbsp;&nbsp;% of our common shares, and affiliates of Ellington to hold
approximately &nbsp;&nbsp;&nbsp;&nbsp;% of our common shares. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will elect and intend to qualify to be taxed as a REIT
commencing with our short taxable year ending December&nbsp;31, 2013. Our qualification as a REIT, and maintenance of such qualification, will depend on our ability to meet, on a continuing basis, various complex requirements under the Internal
Revenue Code of 1986, as amended, or the &#147;Code,&#148; relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the concentration of ownership of our capital shares.
We believe that, commencing with our short taxable year ending December&nbsp;31, 2013, we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code and we intend to operate in a manner that will
enable us to meet the requirements for qualification and taxation as a REIT commencing with our short taxable year ending December&nbsp;31, 2013. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">As a REIT, we generally will not be subject to U.S. federal income tax on the REIT taxable income that we currently distribute to our shareholders, but taxable income generated by any TRS that we may form
or acquire will be subject to federal, state and local income tax. Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute annually at least 90% of their REIT taxable
income to their shareholders. If we failed to qualify as a REIT in any calendar year and did not qualify for certain statutory relief provisions, our income would be subject to U.S. federal income tax, and we would likely be precluded from
qualifying for treatment as a REIT until the fifth calendar year following the year in which we failed to qualify. Even if we qualify as a REIT, we may still be subject to certain federal, state and local taxes on our income and assets and to U.S.
federal income and excise taxes on our undistributed income. </FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">8 </FONT></P>


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<div style ="BORDER-BOTTOM:1pt solid #000000;BORDER-LEFT:1pt solid #000000;BORDER-RIGHT:1pt solid #000000;BORDER-TOP:1pt solid #000000;MARGIN-LEFT:0px;MARGIN-RIGHT:0px;WIDTH:100%"><div style="width:97%; margin-top:1.5%; margin-left:1.5%; margin-right:-1.25%">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following chart illustrates our organizational structure immediately following
completion of this offering (assuming no exercise by the underwriters of their over-allotment option): </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center">


<IMG SRC="g428125tx_009.jpg" ALT="LOGO">
 </P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">(Footnotes appear on the next page) </FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">9 </FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


<div style ="BORDER-BOTTOM:1pt solid #000000;BORDER-LEFT:1pt solid #000000;BORDER-RIGHT:1pt solid #000000;BORDER-TOP:1pt solid #000000;MARGIN-LEFT:0px;MARGIN-RIGHT:0px;WIDTH:100%"><div style="width:97%; margin-top:1.5%; margin-left:1.5%; margin-right:-1.25%">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">EMG Holdings, L.P. is a holding company that beneficially owns a majority ownership interest in Ellington and other Ellington affiliates, including our Manager. VC
Investments L.L.C. is the general partner of EMG Holdings, L.P. and is also the managing member of Ellington and of the Ellington affiliate that owns 100% of the ownership interests in our Manager, and as such controls each of these entities. The
limited partners of EMG Holdings L.P. include Mr. Vranos and certain other Ellington principals. Mr. Vranos beneficially owns a controlling interest in VC Investments L.L.C. </FONT></TD></TR></TABLE>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(2)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager is a wholly-owned subsidiary of an Ellington affiliate that is controlled by EMG Holdings, L.P. and VC Investments L.L.C. VC Investments L.L.C. is the
general partner of EMG Holdings, L.P. and is also the managing member of Ellington and of the Ellington affiliate that owns our Manager. The Blackstone Funds that currently own approximately 95% of our outstanding common shares (and which are
expected to own &nbsp;&nbsp;&nbsp;&nbsp;% of our outstanding common shares following this offering) also hold special non-voting membership interests in the Ellington affiliate that owns our Manager, which entitle the holders thereof to a profits
interest in such Ellington affiliate based on the management fees we pay to our Manager. </FONT></TD></TR></TABLE>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(3)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington Residential Mortgage LP is our operating partnership. We hold all of our assets and conduct all of our operations primarily through subsidiaries of our
operating partnership. Through EARN OP GP LLC, our wholly owned subsidiary, we are the sole general partner of our operating partnership. See &#147;Operating Partnership and the Partnership Agreement.&#148; </FONT></TD></TR></TABLE>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(4)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">We expect EARN Securities LLC, EARN CMO LLC and EARN TRS LLC to qualify for the exclusion from regulation as an investment company provided by Section&nbsp;3(c)(7) of
the Investment Company Act. </FONT></TD></TR></TABLE>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(5)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">We expect EARN Mortgage LLC to qualify for the exclusion from regulation as an investment company provided by Section&nbsp;3(c)(5)(C) of the Investment Company Act. As
a result at least 55% of this subsidiary&#146;s assets on an unconsolidated basis are expected to be whole pool pass-through securities. </FONT></TD></TR></TABLE> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our Management Agreement </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In September 2012, we and each of our current
subsidiaries entered into a management agreement with our Manager pursuant to which our Manager is required to manage our business affairs in conformity with policies and investment guidelines that are approved and monitored by our Board of
Trustees. Our Manager will be subject to the direction and oversight of our Board of Trustees. Our Manager will be responsible for, among other things: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the identification, selection, purchase and sale of our portfolio investments; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our financing and risk management activities; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">providing us with investment advisory services; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">providing us with a management team and appropriate personnel. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, our Manager is responsible for our day-to-day operations and will perform (or cause to be performed) such services and
activities relating to our assets and operations as may be necessary or appropriate. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Term and Termination</I>. The initial
term of the management agreement will expire in September 2017 and will be automatically renewed for a one-year term on such date and on each anniversary of such date thereafter unless terminated as described below. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Either we or our Manager may elect not to renew the management agreement upon expiration of its initial term or any renewal term by
providing written notice of non-renewal at least 180 days, but not more than 270 days, before expiration. In the event we elect not to renew the term, we will be required to pay our Manager a termination fee equal to five percent (5%)&nbsp;of our
shareholders&#146; equity as of the end of the month preceding the date on which the term of the management agreement is terminated. No termination fee will be due to the Manager if the Manager determines not to renew or to terminate the management
agreement unless we have defaulted on the management agreement. The Manager is entitled to terminate the management agreement and receive the termination fee upon 60 days prior written notice of termination to us in the event that we have defaulted
in the performance or observance of any material term, condition, or covenant in the management agreement and such default has continued for a period of 30 days after written notice specifying such default and requesting that the default be remedied
in such 30 day period. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We have the right to terminate the management agreement for cause, as defined in the management
agreement, at any time during the term upon 30 days&#146; prior written notice, without payment of any termination fee. </FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">10 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Following the completion of this offering, our Board of Trustees will review our
Manager&#146;s performance annually and, as a result of such review, upon the affirmative vote of at least two-thirds of the members of our Board of Trustees or of the holders of a majority of our outstanding common shares, we may terminate the
management agreement based upon a determination that our Manager&#146;s performance has been unsatisfactory and materially detrimental to us or a determination by our independent trustees that the management fees payable to our Manager are not fair,
subject to the right of our Manager to prevent such a termination by agreeing to a reduction of the management fees payable to our Manager. Upon any termination of the management agreement based on unsatisfactory performance or unfair management
fees, we are required to pay our Manager the termination fee described above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager may terminate the management
agreement, without payment of the termination fee, in the event we become regulated as an investment company under the Investment Company Act. Our Manager may also terminate the management agreement upon 60 days&#146; written notice if we default in
the performance of any material term of the management agreement and the default continues for a period of 30 days after written notice to us, whereupon we would be required to pay our Manager the termination fee described above. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following table summarizes the fees and expense reimbursements that we are required to pay to our Manager. Our Manager is not
entitled to receive any incentive fee under the management agreement. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="35%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="31%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:17pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Type</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:39pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Description</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:30pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Payment</B></FONT></P></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Management fee</FONT><FONT STYLE="font-family:Times New Roman" SIZE="1"><SUP STYLE="vertical-align:baseline; position:relative; bottom:.8ex">(1)</SUP></FONT><FONT
STYLE="font-family:Times New Roman" SIZE="2"></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.50% per annum of our shareholders&#146; equity, with shareholders&#146; equity being calculated, as of the end of any fiscal quarter,
as (a) the sum of (1) the net proceeds from any issuances of common shares or other equity securities of our company or our operating partnership (without double counting) since inception, plus (2) our and our operating partnership&#146;s (without
double counting) retained earnings or accumulated deficit calculated in accordance with GAAP at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior
periods), less (b) any amount that we or our operating partnership has paid to repurchase common shares, limited partnership interests in our operating partnership or other equity securities since inception. Shareholders&#146; equity excludes (1)
any unrealized gains, losses or other non&shy;cash items that have impacted shareholders&#146; equity as reported in our financial statements prepared in accordance with GAAP, regardless of whether such items are included in net income, and (2)
one-time events pursuant to changes in GAAP, and certain non-cash items not otherwise described above in each case, after discussions between our Manager and our independent trustees and approval by a majority of our independent trustees.</FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our shareholders&#146; equity, for purposes of calculating the management fee, could
be greater or less than the amount of shareholders&#146; equity shown on our financial statements.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Quarterly in arrears in cash</FONT></TD></TR></TABLE>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">11 </FONT></P>



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<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="35%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="31%"></TD></TR>

<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:17pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Type</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:39pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Description</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:30pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Payment</B></FONT></P></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Assuming (i) the sale of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; common shares in this offering (which assumes no exercise of the underwriters&#146;
over-allotment option) and the sale of an additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; common shares to our initial investors through one or more private placements prior to or concurrent with this offering and
(ii) we issue no additional equity during the year ending December 31, 2013, we estimate the management fee payable to our Manager for the year ending December 31, 2013 will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
million.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Expense reimbursement</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Reimbursement of documented expenses incurred by our Manager on our behalf, including among others: (i) documented cost of certain legal, accounting, due diligence tasks and other
services performed by our Manager&#146;s or Ellington&#146;s employees and services that outside professionals or outside consultants otherwise would perform; and (ii) costs of the wages, salaries and benefits incurred by our Manager if our Manager
elects to provide us with a dedicated chief financial officer, controller, internal legal counsel and/or investor relations professional (or a pro rata portion of the costs of the wages, salaries and benefits incurred by our Manager with respect to
such personnel, if our Manager elects to provide a partially dedicated chief financial officer, controller, internal legal counsel and/or investor relations professional, based on the percentage of their working time and efforts spent on matters
related to our company). The amount of any wages, salaries and benefits paid or reimbursed with respect to any dedicated or partially dedicated officers that our Manager elects to provide to us will be subject to the approval of the Compensation
Committee of our Board of Trustees.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Quarterly in cash</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Termination fee</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Termination fee equal to five percent (5%) of our shareholders&#146; equity (as defined above next to &#147;Management Fee&#148;), calculated as of the end of the most recently
completed fiscal month prior to the date of termination.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon any termination of the management agreement by us, other than for cause, any non-renewal of the management agreement by us or any termination of the management agreement by our
Manager due to our material breach of the management agreement.</FONT></TD></TR>
</TABLE> <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
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<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Blackstone Funds hold special non-voting membership interests in the Ellington affiliate that owns our Manager, which entitle the holders thereof to receive
distributions equal to a percentage of the management fees we pay to our Manager. </FONT></TD></TR></TABLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">See &#147;Our Manager and the Management Agreement&#151;The Management Agreement&#148;
for a more detailed description of the terms of the Management Agreement. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Services Agreement </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager and Ellington are parties to a services agreement, pursuant to which Ellington is required to provide to our Manager the
personnel, services and resources as needed by our Manager to enable our Manager to carry out its obligations and responsibilities under the management agreement. We are a named third-party beneficiary to the services agreement and, as a result,
have, as a non-exclusive remedy, a direct right of action against Ellington in the event of any breach by our Manager of any of its duties, obligations or agreements under the management agreement that arise out of or result from any breach by
Ellington of its obligations under the services agreement. The services agreement will terminate upon the termination of the management agreement. Pursuant to the services agreement, our Manager makes certain payments to Ellington in connection with
the services provided. Our Manager and Ellington are under common ownership and control. As a result, all management fee compensation earned by our Manager and all service agreement fees earned by Ellington accrue to the common benefit of the owners
of our Manager and Ellington, namely EMG Holdings, L.P. and VC Investments L.L.C., other than in respect of the special non-voting membership interests that the Blackstone Funds hold in the Ellington affiliate that owns our Manager, which entitle
the holders thereof to receive distributions equal to a percentage of the management fees we pay to our Manager. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Conflicts of Interest;
Equitable Allocation of Opportunities </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington manages various funds, accounts, and other vehicles, which we sometimes
refer to as &#147;clients,&#148; that have strategies that are similar to, or overlap with, our strategy including Ellington Financial LLC, a specialty finance company listed on the NYSE. As of September&nbsp;30, 2012, Ellington had over $4.7
billion of total assets under management, excluding our assets, and the vast majority of these clients are permitted to and do invest in our target assets. These clients have agreed to pay Ellington a base management fee based upon net asset value
for assets under management or committed capital. In addition, while our Manager is not entitled to receive an incentive fee under the terms of the management agreement, certain of these clients have agreed to pay Ellington incentive fees that are
based upon achievement of certain profit thresholds. For example, pursuant to the terms of the management agreement between Ellington and Ellington Financial LLC, Ellington is entitled to receive a quarterly base management fee in an amount equal to
1.50% per annum of Ellington Financial LLC&#146;s shareholders&#146; equity (calculated in accordance with GAAP) as of the end of each fiscal quarter (before deductions for base management fees and incentive fees payable with respect to such fiscal
quarter), subject to certain adjustments. In addition to the base management fees, Ellington Financial LLC pays Ellington an incentive fee payable in an amount equal to 25% of the dollar amount by which adjusted net income (as defined in the
Ellington Financial LLC management agreement) exceeds an annual rate of return equal to the greater of (A) 9% and (B) 3% plus the ten-year Treasury rate. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ellington will make available to our Manager all opportunities to acquire assets that it determines, in its reasonable and good faith judgment, based on our objectives, policies and strategies, and other
relevant factors, to be appropriate for us in accordance with Ellington&#146;s written investment allocation policy, subject to the exception that we might not participate in each such opportunity, but will on an overall basis equitably participate
with Ellington&#146;s other accounts in all such opportunities. Ellington&#146;s investment and risk management committee and its compliance committee (headed by its chief compliance officer) are responsible for monitoring the administration of, and
facilitating compliance with, Ellington&#146;s investment allocation policy. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Because the Agency pass-through certificates,
Agency and non-Agency CMOs and certain other asset classes in which we intend to invest are typically available only in specified quantities and are also targeted assets for certain other Ellington accounts, Ellington often is not able to buy as
much of these assets as required to satisfy the needs of all its accounts. In these cases, Ellington&#146;s investment allocation policy typically allocates such assets to multiple accounts in proportion to their needs and available capital.
Ellington may at times allocate opportunities on a preferential basis above the proportion of available capital to accounts that are in a &#147;start-up&#148; or &#147;ramp-up&#148; phase. In addition, the policy permits departure from such
proportional allocation under certain other circumstances, for example when such allocation would result in an inefficiently small amount of the security being purchased for an account. In that case, the policy allows for a protocol of allocating
assets so that, on an overall basis, each account is treated equitably. A departure from this policy would be permitted to allow us to maintain our exclusion from regulation as an investment company under the Investment Company Act, or to maintain
compliance with other applicable regulations, guidelines or restrictions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Other policies of Ellington that our Manager
applies to the management of our company include controls for: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Cross Transactions</I>. Cross transactions are defined as transactions between us or one of our subsidiaries, on the one hand, and an account (other
than us or one of our subsidiaries) managed by Ellington or our Manager, on the other hand. It is Ellington&#146;s policy to engage in a cross transaction only when the transaction is in the best interests of, and is consistent with the objectives
and policies of, both accounts </FONT></P></TD></TR></TABLE>
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<TD VALIGN="top"> <P><FONT STYLE="font-family:Times New Roman" SIZE="2">
involved in the transaction. Pursuant to the terms of the management agreement, our Manager may enter into cross transactions where it acts on our behalf and where Ellington or our Manager acts
on behalf of the other party to the transaction; provided, however, that our Manager will not enter into any cross transactions on our behalf unless the cross transaction involves a &#147;level one&#148; asset for GAAP accounting purposes which is
being crossed at market prices, or the cross transaction has received approval of a majority of our independent trustees. Although we believe such restrictions on our Manager&#146;s ability to engage in cross transactions on our behalf mitigate many
risks, cross transactions, even at market prices, may potentially create a conflict of interest between our Manager&#146;s and our officers&#146; duties to and interests in us and their duties to and interests in the other party. Subject to our
Board of Trustees authorizing such action and upon written notice to our Manager, we may at any time revoke our consent to our Manager&#146;s executing cross transactions. Prior to reaching a determination to revoke our consent, we expect that our
board of trustees would consider and discuss information gathered by it from our Manager and other advisors it elects to rely on with respect to our and our Manager&#146;s experience with cross transactions and such other factors that our Board
deems relevant at the applicable time. Additionally, unless approved in advance by a majority of our independent trustees or pursuant to and in accordance with a policy that has been approved by a majority of our independent trustees, all cross
transactions must be effected at the then-prevailing market prices. Pursuant to our Manager&#146;s current policies and procedures, assets for which there are no readily observable market prices may be purchased or sold in cross transactions
(i)&nbsp;at prices based upon third party bids received through auction, (ii)&nbsp;at the average of the highest bid and lowest offer quoted by third party dealers, or (iii)&nbsp;according to another pricing methodology approved by our
Manager&#146;s chief compliance officer. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Principal Transactions</I>. Principal transactions are defined as transactions between Ellington or our Manager (or any related party of Ellington
or our Manager, which includes employees of Ellington and our Manager and their families), on the one hand, and us or one of our subsidiaries, on the other hand. Certain cross transactions may also be considered principal transactions whenever our
Manager or Ellington (or any related party of Ellington or our Manager, which includes employees of Ellington and our Manager and their families) have a substantial ownership interest in one of the transacting parties. Our Manager is only authorized
to execute principal transactions with the prior approval of a majority of our independent trustees and in accordance with applicable law. Such prior approval includes approval of the pricing methodology to be used, including with respect to assets
for which there are no readily observable market prices. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Investment in Other Ellington Accounts</I>. Pursuant to our management agreement, if we invest in any other investment fund or other investment for
which Ellington or one of its affiliates receives management, origination or structuring fees, the management fee payable by us to our Manager will be reduced by an amount equal to the applicable portion (as described in the management agreement) of
any such management, origination or structuring fees. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Split Price Executions</I>. Pursuant to our management agreement, our Manager is authorized to combine purchase or sale orders on our behalf
together with orders for other accounts managed by Ellington, our Manager or their affiliates and allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent basis, among such accounts.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager is authorized to follow very broad investment guidelines. Our Board of Trustees will
periodically review our investment guidelines and our portfolio. However, our Board of Trustees generally will not review our proposed asset acquisitions, dispositions or other management decisions. In addition, in conducting periodic reviews, our
Board of Trustees will rely primarily on information provided to them by our Manager. Furthermore, our Manager may arrange for us to use complex strategies or to enter into complex transactions that may be difficult or impossible to unwind by the
time they are reviewed by our Board of Trustees. Our Manager has great latitude within our broad investment guidelines to determine the types of assets it may decide are proper for purchase by us. The management agreement with our Manager does not
restrict the ability of its officers and employees from engaging in other business ventures of any nature, whether or not such ventures are competitive with our business. We may acquire assets from entities affiliated with our Manager, even where
the assets were originated by such entities. Affiliates of our Manager may also provide services to entities in which we have invested. </FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our executive officers and the officers and employees of our Manager are also officers
and employees of Ellington, and, with the exception of those officers that are dedicated to us, we compete with other Ellington accounts for access to these individuals. We have not adopted a policy that expressly prohibits our trustees, officers,
security holders or affiliates from having a direct or indirect pecuniary interest in any asset to be acquired or disposed of by us or any of our subsidiaries or in any transaction to which we or any of our subsidiaries is a party or has an
interest, nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. However, our code of business conduct and ethics contains a conflicts of interest
policy that prohibits our trustees, officers and employees, as well as employees of our Manager who provide services to us, from engaging in any transaction that involves an actual or apparent conflict of interest with us, absent approval by the
Board of Trustees or except as expressly set forth above or as provided in the management agreement between us and our Manager. In addition, nothing in the management agreement binds or restricts our Manager or any of its affiliates, officers or
employees from buying, selling or trading any securities or commodities for their own accounts or for the accounts of others for whom our Manager or any of its affiliates, officers or employees may be acting. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Tax Status </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will
elect and intend to qualify to be taxed as a REIT commencing with our short taxable year ending December&nbsp;31, 2013. Our qualification as a REIT, and maintenance of such qualification, will depend upon our ability to meet, on a continuing basis,
various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distributions to our shareholders and the concentration of ownership of our capital shares.
We believe that, commencing with our short-taxable year ending December&nbsp;31, 2013, we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and we intend to operate in a manner that will
enable us to meet the requirements for qualification and taxation as a REIT commencing with our short taxable year ending December&nbsp;31, 2013. In connection with this offering of our common shares, we will receive an opinion from
Hunton&nbsp;&amp; Williams LLP to the effect that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our intended method of operation will enable us to meet the requirements
for qualification and taxation as a REIT. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Distribution Policy </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To qualify as a REIT, we must distribute annually to our shareholders an amount at least equal to 90% of our REIT taxable income,
determined without regard to the deduction for dividends paid and excluding any net capital gain. We currently expect to distribute substantially all of our REIT taxable income to our shareholders. We will be subject to income tax on our taxable
income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income are not distributed by specified dates. See &#147;Material U.S. Federal Income Tax Considerations.&#148; Income as computed for purposes
of the foregoing tax rules will not necessarily correspond to our income as determined for financial reporting purposes. Our cash available for distribution may be less than the amount required to meet the distribution requirements for REITs under
the Code, and we may be required to borrow money, sell assets or make taxable distributions of our shares or debt securities to satisfy the distribution requirements. Additionally, we may pay future distributions from the proceeds from this offering
or other securities offerings and thus all or a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The timing and frequency of distributions will be determined by our Board of Trustees based upon a variety of factors deemed relevant by our trustees, including restrictions under applicable law, capital
requirements of our company and the REIT requirements of the Code. Distributions to our shareholders generally will be taxable to our shareholders as ordinary income, although a portion of such distributions may be designated by us as long-term
capital gain or qualified dividend income or may constitute a return of capital. We will furnish annually to each of our shareholders a statement setting forth distributions paid during the preceding year and their U.S. federal income tax treatment.
For a discussion of the U.S. federal income tax treatment of our distributions, see &#147;Material U.S. Federal Income Tax Considerations.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Restrictions on Ownership and Transfer </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Due to limitations on the
concentration of ownership of REIT stock imposed by the Code, effective upon the completion of this offering and subject to certain exceptions, our declaration of trust will provide that no person may beneficially or constructively own more than
9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares. See &#147;Description of Our Shares of Beneficial Interest&#151;Restrictions on Ownership and Transfer.&#148;
</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust also prohibits any person from, among other matters:
</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">beneficially or constructively owning or transferring our shares if such ownership or transfer would result in our being &#147;closely held&#148;
within the meaning of Section&nbsp;856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT, effective upon the completion of this
offering; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">transferring our shares if such transfer would result in our shares being owned by less than 100 persons. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees may, in its sole discretion, exempt (prospectively or retroactively) a person from the 9.8% ownership limit and
other restrictions in our declaration of trust and may establish or increase an excepted holder percentage limit for such person if our Board of Trustees obtains such representations, covenants and undertakings as it deems appropriate in order to
conclude that granting the exemption and/or establishing or increasing the excepted holder percentage limit will not cause us to lose our qualification as a REIT. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust also provides that any ownership or purported transfer of our shares in violation of the foregoing restrictions will result in the shares owned or transferred in such violation
being automatically transferred to a charitable trust for the benefit of a charitable beneficiary and the purported owner or transferee acquiring no rights in such shares, except that any transfer that results in the violation of the restriction
relating to our shares being beneficially owned by fewer than 100 persons will be void <I>ab initio</I>. If the transfer to the trust is ineffective for any reason to prevent a violation of the restriction, the transfer that would have resulted in
such violation will be void <I>ab initio</I>. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Exclusion From Regulation Under the Investment Company Act </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to conduct our operations so that neither we nor any of our subsidiaries is required to register as an investment company under
the Investment Company Act. We are organized as a holding company and conduct our businesses primarily through our operating partnership and its wholly-owned subsidiaries. We intend to conduct our operations so that we do not come within the
definition of an investment company. Some of our subsidiaries will rely on Section 3(c)(5)(C), a provision designed for companies primarily engaged in the mortgage business. The SEC or its staff could provide more specific guidance about our
exclusions from the definition of investment company. In fact, in August 2011, the SEC published a concept release asking for comments on various aspects of Section 3(c)(5)(C). The loss of our exception from this definition, and thus our ability to
avoid regulation pursuant to the Investment Company Act could require us to restructure our operations, sell certain of our assets or abstain from the purchase of certain assets, which could have an adverse effect on our financial condition and
results of operations. For additional information see &#147;Business&#151;Investment Company Act Exclusion.&#148; </FONT></P>  <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Implications of
Being an Emerging Growth Company </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We qualify as an &#147;emerging growth company,&#148; as defined in the Jumpstart our
Business Startups Act of 2012, or the &#147;JOBS Act.&#148; An emerging growth company may take advantage of specified reduced reporting requirements and are relieved of certain other significant requirements that are otherwise generally applicable
to public companies. As an emerging growth company, among other things: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">we are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial
reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">we are permitted to provide less extensive disclosure about our executive compensation arrangements; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">we are not required to give our shareholders non-binding advisory votes on executive compensation or golden parachute arrangements; and
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">we have elected to use an extended transition period for complying with new or revised accounting standards. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We
would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our common shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt
securities over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. </FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">16 </FONT></P>



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<div style ="BORDER-BOTTOM:1pt solid #000000;BORDER-LEFT:1pt solid #000000;BORDER-RIGHT:1pt solid #000000;BORDER-TOP:1pt solid #000000;MARGIN-LEFT:0px;MARGIN-RIGHT:0px;WIDTH:100%"><div style="width:97%; margin-top:1.5%; margin-left:1.5%; margin-right:-1.25%">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Summary Risk Factors </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">An investment in our common shares involves risks. You should consider carefully the risks discussed below and described more fully along with other risks under &#147;Risk Factors&#148; in this prospectus
before investing our common shares. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the
relationship between Fannie Mae, Freddie Mac and Ginnie Mae and the U.S. government, may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders.
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets have resulted in a significant
contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets in which we invest. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mortgage loan modification programs, refinancing programs and future legislative action may adversely affect the value of, and the returns on, our
Agency RMBS. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interest rate mismatches between the Agency RMBS in which we intend to invest and our borrowings may reduce our net interest margin during periods of
changing interest rates. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Increased levels of prepayments on the mortgages underlying our Agency RMBS might decrease net interest income or result in a net loss.
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our intended use of leverage could have a negative impact on our business. </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to finance our acquisitions of target assets using short-term financing and thus will be exposed to changes in the availability of financing.
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Adverse market developments could cause our lenders to require us to pledge additional assets as collateral. If our assets were insufficient to meet
these collateral requirements, we might be compelled to liquidate particular assets at inopportune times and at unfavorable prices. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Hedging against interest rate exposure may not completely insulate us from interest rate risk and could materially adversely affect our business,
financial condition and results of operations and our ability to pay distributions to our shareholders. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">The residential mortgage loans in which we intend to invest and that underlie the non-Agency RMBS in which we invest, and other mortgage-related assets
in which we may opportunistically invest, are subject to risk of default, among other risks, and could result in losses. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">The mortgage loans underlying our non-Agency RMBS are subject to defaults, foreclosure timeline extension, fraud and residential price depreciation and
unfavorable modification of loan principal amount, interest rate and amortization of principal, which could result in losses to us. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will be highly dependent on communications and information systems operated by third parties, and systems failures could significantly disrupt our
business. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will be dependent on our Manager and certain key personnel of Ellington that will be provided to us through our Manager, and we may not find a
suitable replacement if our Manager terminates the management agreement or such key personnel are no longer available to us. </FONT></P></TD></TR></TABLE>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">17 </FONT></P>



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<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">The management agreement with our Manager was not negotiated on an arm&#146;s-length basis and may not be as favorable to us as if it had been
negotiated with an unaffiliated third party and may be costly and difficult to terminate, including in the event of a non-renewal of the management agreement or a termination for poor performance. </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Failure to qualify, or maintain our qualification, as a REIT would subject us to U.S. federal income tax, which could adversely affect the value of our
common shares and would substantially reduce the cash available for distribution to our shareholders. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Loss of our exclusion from regulation as an investment company under the Investment Company Act could require us to restructure our operations, sell
certain of our assets or abstain from the purchase of certain assets, which could have an adverse effect on our financial condition and results of operations. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our Offices </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our principal executive offices are located at 53 Forest
Avenue, Old Greenwich, Connecticut 06870. Our telephone is (203)&nbsp;698-1200 and our website is <I>www.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.com</I>. The offices of
Ellington and our Manager are located at the same address. Information on our website and the website of Ellington or any of its affiliates is not incorporated into this prospectus. </FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">18 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_2"></A>THE OFFERING </B></FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="38%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="59%"></TD></TR>


<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Common shares offered by us</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares (plus up to an additional
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares that we may issue and sell upon the exercise by the underwriters of their over-allotment option).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Common shares to be outstanding after completion of this offering</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT><FONT STYLE="font-family:Times New Roman" SIZE="1"><SUP
STYLE="vertical-align:baseline; position:relative; bottom:.8ex">(1)</SUP></FONT><FONT STYLE="font-family:Times New Roman" SIZE="2"></FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Use of proceeds</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">We estimate that the net proceeds we will receive from this offering will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million (or approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million if the underwriters fully exercise their over-allotment option), after deducting the underwriting discounts and commissions and estimated organization and offering expenses payable by
us.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to deploy the net proceeds of this offering as follows:</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:2.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;approximately &nbsp;&nbsp;&nbsp;&nbsp;% to &nbsp;&nbsp;&nbsp;&nbsp;% in Agency RMBS
backed by 30-year fixed rate mortgages;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:2.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;approximately &nbsp;&nbsp;&nbsp;&nbsp;% to &nbsp;&nbsp;&nbsp;&nbsp;% in Agency RMBS
backed by 15-year fixed rate mortgages;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:2.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;approximately &nbsp;&nbsp;&nbsp;&nbsp;% to &nbsp;&nbsp;&nbsp;&nbsp;% in Agency RMBS
backed by Hybrid/ARM mortgages; and</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:2.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;approximately &nbsp;&nbsp;&nbsp;&nbsp;% to &nbsp;&nbsp;&nbsp;&nbsp;% in non-Agency RMBS
backed by Subprime/Alt-A/Prime mortgages and in our other target assets.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">We expect to deploy at least 80% of the net proceeds of this offering in Agency RMBS backed by 30-year and 15-year fixed rate mortgages.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our asset acquisition decisions will be based on market conditions and other factors that our Manager deems relevant at the applicable time. We expect to borrow against our Agency
RMBS securities through reverse repurchase agreements and use the proceeds of the borrowings to acquire additional assets. We reserve the right to change our targeted allocation at any time and from time to time, depending on prevailing market
conditions, including, among other things, the pricing and supply of Agency RMBS, the performance of our portfolio and the availability and terms of financing and our assessment of actual or potential governmental policy changes or interventions.
Over time, we expect to deploy or redeploy our capital in a more diversified portfolio of our target assets that may include MSRs and other mortgage- and real estate-related assets. We may also use the net proceeds of this offering for general
corporate purposes. See &#147;Use of Proceeds.&#148;</FONT></TD></TR>
</TABLE>  <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Includes, in addition to the common shares offered by us in this offering, 1,575,000 common shares issued in connection with our initial capitalization and up to
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional common shares that we expect to issue and sell to our initial investors in one or more private placements prior to or concurrently with this offering. Excludes
up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional common shares that we may issue and sell upon any exercise by the underwriters of their over-allotment option. </FONT></TD></TR></TABLE>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

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<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
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<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="59%"></TD></TR>


<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ownership and transfer restrictions</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">To assist us in qualifying as a REIT, among other purposes, our declaration of trust generally limits beneficial and constructive ownership by any person to no more than 9.8% in
value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares. In addition, our declaration of trust contains various other restrictions on the ownership and transfer of our shares. See
&#147;Description of Our Shares of Beneficial Interest&#151;Restrictions on Ownership and Transfer.&#148;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Proposed NYSE symbol</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#147;EARN&#148;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Risk factors</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Investing in our common shares involves risks. See &#147;Risk Factors&#148; and other information in this prospectus for a discussion of factors you should consider carefully before
investing in our common shares.</FONT></TD></TR>
</TABLE>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P></div></div>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_3"></A>RISK FACTORS </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>An investment in our common shares involves significant risks. Before making an investment decision, you should carefully consider the
following risks in addition to the other information contained in this prospectus. The risks discussed in this prospectus can materially adversely affect our business, financial condition, liquidity, results of operations and ability to pay
dividends. This could cause the value of our common shares to decline significantly, and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute
forward-looking statements. Please refer to the section entitled &#147;Special Note Regarding Forward-Looking Statements.&#148; </I></FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Risks Related To Our Business </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We have a limited operating history and may not be able
to operate our business successfully or generate sufficient revenue to make or sustain distributions to our shareholders. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We commenced operations beginning in September 2012. As a result, we have a limited operating history. We cannot assure you that we will
be able to operate our business successfully or implement our operating policies and strategies. The results of our operations depend on several factors, including the availability of opportunities for the acquisition of target assets, the level and
volatility of interest rates, the availability of adequate short and long-term financing, conditions in the financial markets and general economic conditions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Difficult conditions in the mortgage and residential real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest and these conditions may
persist for the foreseeable future. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our business is materially affected by conditions in the residential mortgage market,
the residential real estate market, the financial markets and the economy in general. Concerns about the residential mortgage market and a declining real estate market, as well as inflation, energy costs, geopolitical issues, concerns over the
creditworthiness of governments worldwide and the stability of the global banking system, unemployment and the availability and cost of credit have contributed to increased volatility and diminished expectations for the economy and markets going
forward. In particular, the residential mortgage market in the U.S. has experienced a variety of difficulties and changed economic conditions, including defaults, credit losses and liquidity concerns. Certain commercial banks, investment banks and
insurance companies have announced extensive losses from exposure to the residential mortgage market. These factors have impacted investor perception of the risk associated with RMBS, other real estate-related securities and various other asset
classes in which we may invest. As a result, values for RMBS, other real estate-related securities and various other asset classes in which we may invest have experienced volatility. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">For now (and for the foreseeable future), homeowner access to residential mortgage loans has been substantially limited. Lending
standards have become significantly more stringent than in past periods, and access to many mortgage products has been severely curtailed or eliminated. This financing limitation has had an impact on new demand for homes, has lowered homeownership
rates and is weighing heavily on home price performance. There is a strong correlation between home price depreciation and mortgage loan delinquencies. Furthermore, investor perception of the risks associated with RMBS, residential mortgage loans,
real estate-related securities and various other assets that we acquire has been negatively impacted by the continued adverse developments in the broader residential mortgage market, which has caused the values of these assets to experience high
volatility. The further deterioration of the mortgage market and investor perception of the risks associated with RMBS, residential mortgage loans, real estate-related securities and various other assets that we acquire could materially adversely
affect our business, financial condition and results of operations and our ability to make distributions to our shareholders. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">21 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We depend on third-party service providers, including mortgage servicers, for a variety of services
related to our non-Agency RMBS and whole mortgage loans we may acquire. We are, therefore, subject to the risks associated with third-party service providers. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We depend on a variety of services provided by third-party service providers related to our non-Agency RMBS and whole mortgage loans we may acquire. We rely on the mortgage servicers who service the
mortgage loans backing our non-Agency RMBS to, among other things, collect principal and interest payments on the underlying mortgages and perform loss mitigation services. Our mortgage servicers and other service providers to our non-Agency RMBS,
such as trustees, bond insurance providers and custodians, may not perform in a manner that promotes our interests. In addition, recent legislation intended to reduce or prevent foreclosures through, among other things, loan modifications may reduce
the value of mortgage loans backing our non-Agency RMBS or whole mortgage loans that we acquire. Mortgage servicers may be incentivized by the federal government to pursue such loan modifications, as well as forbearance plans and other actions
intended to prevent foreclosure, even if such loan modifications and other actions are not in the best interests of the beneficial owners of the mortgage loans. In addition to the recent legislation that creates financial incentives for mortgage
loan servicers to modify loans and take other actions that are intended to prevent foreclosures, legislation has recently been adopted that creates a safe harbor from liability to creditors for servicers that undertake loan modifications and other
actions that are intended to prevent foreclosures. Finally, recent laws delay the initiation or completion of foreclosure proceedings on specified types of residential mortgage loans (some for a limited period of time) or otherwise limit the ability
of mortgage servicers to take actions that may be essential to preserve the value of the mortgage loans underlying the mortgage servicing rights. Any such limitations are likely to cause delayed or reduced collections from mortgagors and generally
increase servicing costs. As a result of these recent legislative actions, the mortgage loan servicers on which we rely may not perform in our best interests or up to our expectations. If our third-party service providers do not perform as expected,
as highlighted in recent press reports concerning certain foreclosure proceedings and investigations, our business, financial condition, results of operations and ability to make distributions to our shareholders may be materially adversely
affected. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We may be affected by deficiencies in foreclosure practices of third parties, as well as related delays in the foreclosure
process. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">One of the biggest risks overhanging the RMBS market has been uncertainty around the timing and ability of
servicers to remove delinquent borrowers from their homes, so that they can liquidate the underlying properties and ultimately pass the liquidation proceeds through to RMBS holders. Given the magnitude of the housing crisis, and in response to the
well-publicized failures of many servicers to follow proper foreclosure procedures (such as involving &#147;robo-signing&#148;), mortgage servicers are being held to much higher foreclosure-related documentation standards than they previously were.
However, because many mortgages have been transferred and assigned multiple times (and by means of varying assignment procedures) throughout the origination, warehouse and securitization processes, mortgage servicers are generally having much more
difficulty furnishing the requisite documentation to initiate or complete foreclosures. This leads to stalled or suspended foreclosure proceedings, and ultimately additional foreclosure-related costs. Foreclosure-related delays also tend to increase
ultimate loan loss severities as a result of property deterioration, amplified legal and other costs, and other factors. Servicers have generally maintained that most of their problems are process-oriented and can be fixed in the near term; however,
many factors delaying foreclosure, such as borrower lawsuits and judicial backlog and scrutiny, are outside of servicers&#146; control and have delayed, and will likely continue to delay, foreclosure processing in both judicial states (where
foreclosures require court involvement) and non-judicial states. The risk of extended foreclosure timelines is very difficult to quantify, and uncertainty has often been magnified by court cases with conflicting outcomes. Recent announcements of
deficiencies in foreclosure documentation by, among others, several large mortgage servicers have raised various concerns relating to foreclosure practices. A number of mortgage servicers have temporarily suspended foreclosure proceedings in some or
all states in which they do business while they review and correct their foreclosure practices. In addition, on February&nbsp;9, 2012, a group consisting of state attorneys general and state bank and mortgage regulators in 49 states reached a
settlement with the largest mortgage servicers regarding foreclosure practices in the states&#146; various jurisdictions. The extension of foreclosure timelines also increases the inventory backlog of distressed homes on the market and creates
greater uncertainty about housing prices. Prior to making investments in RMBS or residential whole loans, we expect our Manager to carefully consider many factors, including housing prices and foreclosure timelines, and estimate loss assumptions.
The concerns about deficiencies in foreclosure practices of servicers and related delays in the foreclosure process may impact our loss assumptions and affect the values of, and our returns on, our investments in RMBS and residential whole loans.
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">22 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in
laws and regulations affecting the relationship between Fannie Mae, Freddie Mac and Ginnie Mae and the Federal Government, may materially adversely affect our business, financial condition and results of operations and our ability to make
distributions to our shareholders. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The payments we receive on our Agency RMBS depend upon a steady stream of payments by
borrowers on the underlying mortgages and such payments are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Fannie Mae and Freddie Mac are GSEs, but their guarantees are not backed by the full faith and credit of the United States. Ginnie Mae,
which guarantees MBS backed by federally insured or guaranteed loans primarily consisting of loans insured by the FHA or guaranteed by the VA, is part of a U.S. government agency and its guarantees are backed by the full faith and credit of the
United States. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">During 2008, there were increased market concerns about Fannie Mae&#146;s and Freddie Mac&#146;s ability to
withstand future credit losses associated with securities held in their investment portfolios, and on which they provide guarantees, without the direct support of the Federal Government. In September 2008 Fannie Mae and Freddie Mac were placed into
the conservatorship of the Federal Housing Finance Agency, or &#147;FHFA,&#148; their federal regulator, pursuant to its powers under The Federal Housing Finance Regulatory Reform Act of 2008, a part of the Housing and Economic Recovery Act of 2008.
Under this conservatorship, Fannie Mae and Freddie Mac are required to reduce the amount of mortgage loans they own or for which they provide guarantees on Agency RMBS. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In addition to the FHFA becoming the conservator of Fannie Mae and Freddie Mac, (i)&nbsp;the U.S. Treasury and FHFA entered into preferred stock purchase agreements with Fannie Mae and Freddie Mac
pursuant to which the U.S. Treasury ensures that each of Fannie Mae and Freddie Mac maintains a positive net worth through 2012; (ii)&nbsp;the U.S. Treasury established a secure lending credit facility for Fannie Mae, Freddie Mac, and the FHFA to
serve as a liquidity backup; and (iii)&nbsp;the U.S. Treasury initiated a program to purchase RMBS issued by Fannie Mae and Freddie Mac. Although the U.S. government has committed to support the positive net worth of Fannie Mae and Freddie Mac,
through preferred stock purchases as necessary, through 2012, there can be no assurance that these actions will be adequate for their needs, and there is no guarantee of capital support beyond that date (despite that it is projected that they will
need such support). These agreements, as amended, also require the reduction of Fannie Mae&#146;s and Freddie Mac&#146;s mortgage and Agency securities portfolios (they must be reduced by at least 15% each year until their respective mortgage assets
reach $250 billion). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship, the Secretary of the
U.S. Treasury noted that the guarantee structure of Fannie Mae and Freddie Mac required examination and that changes in the structures of the entities were necessary to reduce risk to the financial system. The future roles of Fannie Mae and Freddie
Mac could be significantly reduced and the nature of their guarantees could be considerably limited relative to historical measurements or even eliminated. The U.S. Treasury could also stop providing financial support for Fannie Mae and Freddie Mac
in the future. The substantial financial assistance provided by the Federal Government to Fannie Mae and Freddie Mac, especially in the course of their being placed into conservatorship and thereafter, together with the substantial financial
assistance provided by the Federal Government to the mortgage-related operations of other GSEs and government agencies, such as the FHA, the VA, and Ginnie Mae, has stirred debate among many federal policymakers over the continued role of the
Federal Government in providing such financial support for the mortgage-related GSEs in particular, and for the mortgage and housing markets in general. In fact, in February 2011, the U.S. Treasury released a white paper entitled &#147;Reforming
America&#146;s Housing Finance Market&#148; in which the U.S. Treasury outlined three possible options for reforming the Federal Government&#146;s role in housing finance. Under each option, the role of the Federal Government in the mortgage market
would be reduced. Each of Fannie Mae, Freddie Mac and Ginnie Mae could be dissolved and the Federal Government could determine to stop providing liquidity support of any kind to the mortgage market. If Fannie Mae, Freddie Mac or Ginnie Mae were
eliminated, or their structures were to change radically or the Federal Government significantly reduced its support for any or all of them, we may be unable or significantly limited in our ability to acquire Agency RMBS, which would drastically
reduce the amount and type of Agency RMBS available for purchase which, in turn, could materially adversely affect our ability to maintain our exclusion from regulation as an investment company under the Investment Company Act. Moreover, any changes
to the nature of the guarantees provided by, or laws affecting, </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
Fannie Mae, Freddie Mac and Ginnie Mae could materially adversely affect the credit quality of the guarantees, could increase the risk of loss on purchases of Agency RMBS issued by these GSEs and
could have broad adverse market implications for the Agency RMBS they currently guarantee. Any action that affects the credit quality of the guarantees provided by Fannie Mae, Freddie Mac and Ginnie Mae could materially adversely affect the value of
our Agency RMBS. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, we expect to rely on our Agency RMBS (as well as non-Agency RMBS and other securities) as
collateral for our financings under the reverse repurchase agreements that we have entered, or will enter, into. Any decline in their value, or perceived market uncertainty about their value, would make it more difficult for us to obtain financing
on our Agency RMBS on acceptable terms or at all, or to maintain compliance with the terms of any financing transactions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The downgrade of
the U.S. government&#146;s or certain European countries&#146; credit ratings and any future downgrades of the U.S. government&#146;s or certain European countries&#146; credit ratings may materially adversely affect our business, financial
condition and results of operations. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">On August&nbsp;5, 2011, Standard&nbsp;&amp; Poor&#146;s downgraded the U.S.
government&#146;s credit rating for the first time in history. Because Fannie Mae and Freddie Mac are in conservatorship of the U.S. government, downgrades to the U.S. government&#146;s credit rating could impact the credit risk associated with
Agency RMBS and, therefore, decrease the value of the Agency RMBS in which we expect to invest. In addition, the downgrade of the U.S. government&#146;s credit rating and the credit ratings of certain European countries has created broader financial
turmoil and uncertainty, which has recently weighed heavily on the global banking system. Therefore, the recent downgrade of the U.S. government&#146;s credit rating and the credit ratings of certain European countries and any future downgrades of
the U.S. government&#146;s credit rating or the credit ratings of certain European countries may materially adversely affect our business, financial condition and results of operations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Interest rate mismatches between our assets and any borrowings used to fund purchases of our assets may reduce our income during periods of changing interest rates. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Some of our assets are fixed-rate securities or have a fixed rate component (such as RMBS backed by hybrid ARMs). This means that the
interest we earn on these assets will not vary over time based upon changes in a short-term interest rate index. Although the interest we earn on our RMBS backed by ARMs generally will adjust for changing interest rates, such interest rate
adjustments may not occur as quickly as the interest rate adjustments to any related borrowings, and such interest rate adjustments will generally be subject to interest rate caps, which potentially could cause such RMBS to acquire many of the
characteristics of fixed-rate securities if interest rates were to rise above the cap levels. We intend to fund our fixed-rate target assets with short-term borrowings. Therefore, to the extent we finance our assets with floating-rate debt or debt
with shorter maturities, such as reverse repurchase agreements, there will be an interest rate mismatch between our assets and liabilities. The use of interest rate hedges also will introduce the risk of other interest rate mismatches and exposures,
as will the use of other financing techniques. During periods of changing interest rates, these mismatches could cause our business, financial condition and results of operations and ability to make distributions to our shareholders to be materially
adversely affected. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Additionally, to the extent cash flows from RMBS are reinvested in new RMBS, the spread between the
yields of the new RMBS and available borrowing rates may decline, which could reduce our net interest margin or result in losses. Any one of the foregoing risks could materially adversely affect our business, financial condition and results of
operations and our ability to pay distributions to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Certain actions by the U.S. Federal Reserve could cause a flattening
of the yield curve, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our shareholders. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">On September&nbsp;21, 2011, the U.S. Federal Reserve announced &#147;Operation Twist,&#148; a program by which it purchased, by the end
of December 2012, more than $650 billion of U.S. Treasury securities with remaining maturities between six and 30 years and sold an equal amount of U.S. Treasury securities with remaining maturities of three years or less.
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">24 </FONT></P>



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  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
In December 2012, in an effort to keep long-term interest rates at low levels, the U.S. Federal Reserve announced an expansion of its asset buying program starting in January 2013, at which time
it would commence outright purchases of longer-term U.S. Treasury securities at a pace of $45 billion per month. This new U.S. Treasury securities purchase program replaces &#147;Operation Twist,&#148; which expired in December 2012. On January 30,
2013, the U.S Federal Reserve affirmed its intention to continue this policy. The effect of Operation Twist or the securities purchase program that replaced it could be a flattening in the yield curve, which could result in increased prepayment
rates due to lower long-term interest rates and a narrowing of our net interest margin. Consequently, these securities purchase programs and any other future securities purchase programs by the U.S. Federal Reserve could materially adversely affect
our business, financial condition and results of operations and our ability to pay distributions to our shareholders. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Mortgage loan
modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In the second half of 2008, the Federal Government, through the U.S. Treasury, FHA and the FDIC, commenced implementation of programs designed to provide homeowners with assistance in avoiding
foreclosure. The programs 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. Extension and expansion
of these programs and adoption of new mortgage loan modification programs have been regularly discussed as part of the ongoing debate regarding the country&#146;s housing market including most recently as part of President Obama&#146;s
&#147;Blueprint for an America Built to Last,&#148; announced as part of his January 2012 State of the Union address. It is likely that loan modifications would result in interest rate reductions or principal reductions on some of the mortgage loans
that back our RMBS. However, it is also likely that loan modifications would result in increased prepayments on some RMBS. See below &#147;&#151;Prepayment rates can change, adversely affecting the performance of our assets,&#148; for information
relating to the impact of prepayments on our business. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Congress and various state and local legislatures are considering, and
in the future may consider, legislation, which, among other provisions, would permit limited assignee liability for certain violations in the mortgage loan origination process, and would allow judicial modification of loan principal in the event of
personal bankruptcy. We cannot predict whether or in what form Congress or the various state and local legislatures may enact legislation affecting our business or whether any such legislation will require us to change our practices or make changes
in our portfolio in the future. These changes, if required, could materially adversely affect our business, results of operations and financial condition and our ability to make distributions to our shareholders, particularly if we make such changes
in response to new or amended laws, regulations or ordinances in any state where we acquire a significant portion of our mortgage loans, or if such changes result in us being held responsible for any violations in the mortgage loan origination
process. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Especially with non-Agency RMBS, a significant number of loan modifications with respect to a given security,
including, but not limited to, those related to principal forgiveness and coupon reduction, resulting in increased prepayment rates, could negatively impact the realized yields and cash flows on such security. These loan modification programs, as
well as future legislative or regulatory actions, including amendments to the bankruptcy laws, that result in the modification of outstanding mortgage loans may adversely affect the value of, and the returns on, our assets, which, in turn, could
materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>The use by certain municipalities of the power of eminent domain as a way to aid homeowners with &#147;underwater&#148; mortgages could cause the holders of those mortgages, or of non-Agency RMBS
backed by those mortgages, to incur losses. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A few municipalities, most notably in California, have recently announced
that they are exploring using the power of eminent domain to seize certain mortgages as a way to aid homeowners with &#147;underwater&#148; mortgages (i.e., who owe more than the properties&#146; values). Under this controversial concept, which it
has been asserted would only be applied to mortgages held in private label securitization trusts (and in particular not those not backed by Fannie Mae or Freddie Mac, or held directly by banks), the municipality would first seize qualifying
mortgages using eminent domain power, then offer homeowners new loans (usually pursuant to an FHA-sponsored refinance program) from new lenders, with reduced principal balances that were at or even below the current property values. Although by law,
the owners of the seized mortgages would have to receive &#147;fair market value&#148; as compensation for the seizure, it is possible that such seizures would not result in fair compensation to the owners of the seized mortgages and would lead to
severe losses to the holders of those mortgages, or of non-Agency RMBS backed by those mortgages. </FONT></P>
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In addition, the use of eminent domain in this manner could have a negative impact on mortgage markets generally and on the availability of credit as originators adjusted their underwriting
standards to contemplate the potential use of this power. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Prepayment rates can change, adversely affecting the performance of our assets.
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The frequency at which prepayments (including both voluntary prepayments by borrowers and liquidations due to defaults
and foreclosures) occur on mortgage loans underlying RMBS is affected by a variety of factors, including the prevailing level of interest rates as well as economic, demographic, tax, social, legal, and other factors. Generally, borrowers tend to
prepay their mortgages when prevailing mortgage rates fall below the interest rates on their mortgage loans. When borrowers prepay their mortgage loans at rates that are faster or slower than expected, it results in prepayments that are faster or
slower than expected on the related RMBS. These faster or slower than expected payments may adversely affect our profitability. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may purchase securities or loans that have a higher interest rate than the then prevailing market interest rate. In exchange for this
higher interest rate, we may pay a premium to par value to acquire the security or loan. In accordance with GAAP, we amortize this premium over the expected term of the security or loan based on our prepayment assumptions. If a security or loan is
prepaid in whole or in part at a faster than expected rate, however, we must expense all or a part of the remaining unamortized portion of the premium that was paid at the time of the purchase, which will adversely affect our profitability.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We also may purchase securities or loans that have a lower interest rate than the then prevailing market interest rate. In
exchange for this lower interest rate, we may pay a discount to par value to acquire the security or loan. We accrete this discount over the expected term of the security or loan based on our prepayment assumptions. If a security or loan is prepaid
at a slower than expected rate, however, we must accrete the remaining portion of the discount at a slower than expected rate. This will extend the expected life of investment portfolio and result in a lower than expected yield on securities and
loans purchased at a discount to par. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Prepayment rates generally increase when interest rates fall and decrease when interest
rates rise, but changes in prepayment rates are difficult to predict. Prepayments can also occur when borrowers sell the property and use the sale proceeds to prepay the mortgage as part of a physical relocation or when borrowers default on their
mortgages and the mortgages are prepaid from the proceeds of a foreclosure sale of the property. Fannie Mae and Freddie Mac will generally, among other conditions, purchase mortgages that are 120 days or more delinquent from mortgage-backed
securities trusts when the cost of guaranteed payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in their portfolios. Consequently, prepayment rates also may
be affected by conditions in the housing and financial markets, which may result in increased delinquencies on mortgage loans, the government-sponsored entities, cost of capital, general economic conditions and the relative interest rates on fixed
and adjustable rate loans, which could lead to an acceleration of the payment of the related principal. Additionally, changes in the government-sponsored entities&#146; decisions as to when to repurchase delinquent loans can materially impact
prepayment rates. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The adverse effects of prepayments may impact us in various ways. First, particular investments may
experience outright losses, as in the case of IOs and IIOs in an environment of faster actual or anticipated prepayments. Second, particular investments may under-perform relative to any hedges that our Manager may have constructed for these assets,
resulting in a loss to us. In particular, prepayments (at par) may limit the potential upside of many RMBS to their principal or par amounts, whereas their corresponding hedges often have the potential for unlimited loss. Furthermore, to the extent
that faster prepayment rates are due to lower interest rates, the principal payments received from prepayments will tend to be reinvested in lower-yielding assets, which may reduce our income in the long run. Therefore, if actual prepayment rates
differ from anticipated prepayment rates our business, financial condition and results of operations and ability to make distributions to our shareholders could be materially adversely affected. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Interest rate caps on the ARMs and hybrid ARMs that back our RMBS may reduce our net interest margin
during periods of rising interest rates. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">ARMs and hybrid ARMs are typically subject to periodic and lifetime interest
rate caps. Periodic interest rate caps limit the amount an interest rate can increase during any given period. Lifetime interest rate caps limit the amount an interest rate can increase through the maturity of the loan. We may fund our RMBS with
borrowings that typically are not subject to similar restrictions. Accordingly, in a period of rapidly increasing interest rates, our financing costs could increase without limitation while caps could limit the interest we earn on the ARMs and
hybrid ARMs that will back our RMBS. This problem is magnified for ARMs and hybrid ARMs that are not fully indexed because such periodic interest rate caps prevent the coupon on the security from fully reaching the specified rate in one reset.
Further, some ARMs and hybrid ARMs may be subject to periodic payment caps that result in a portion of the interest being deferred and added to the principal outstanding. As a result, we may receive less cash income on RMBS backed by ARMs and hybrid
ARMs than necessary to pay interest on our related borrowings. Interest rate caps on RMBS backed by ARMs and hybrid ARMs could reduce our net interest margin if interest rates were to increase beyond the level of the caps, which could materially
adversely affect our business, financial condition and results of operations and our ability to pay distributions to our shareholders. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Changes in the underwriting standards by Freddie Mac or Fannie Mae could have an adverse impact on Agency mortgage investments in which we may invest
or make it more difficult to acquire attractive non-Agency mortgage investments. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In April 2010, Freddie Mac and Fannie
Mae announced tighter underwriting guidelines for ARMs and hybrid interest-only ARMs in particular. Specifically, Freddie Mac announced that it would no longer purchase interest-only mortgages and Fannie Mae changed its eligibility criteria for
purchasing and securitizing ARMs to protect consumers from potentially dramatic payment increases. Our targeted assets include adjustable-rate mortgages and hybrid ARMs. Tighter underwriting standards by Freddie Mac or Fannie Mae could reduce the
supply of ARMs, resulting in a reduction in the availability of the asset class. More lenient underwriting standards could also substantially reduce the supply and attractiveness of investments in non-Agency MBS. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The failure of servicers to service effectively the mortgage loans underlying the RMBS in our investment portfolio or any mortgage loans we own would
materially and adversely affect us. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Most securitizations of residential mortgage loans require a servicer to manage
collections on each of the underlying loans. Both default frequency and default severity of loans may depend upon the quality of the servicer. If servicers are not vigilant in encouraging borrowers to make their monthly payments, the borrowers may
be far less likely to make these payments, which could result in a higher frequency of default. If servicers take longer to liquidate non-performing assets, loss severities may tend to be higher than originally anticipated. The failure of servicers
to effectively service the mortgage loans underlying the RMBS in our investment portfolio or any mortgage loans we own could negatively impact the value of our investments and our performance. Servicer quality is of prime importance in the default
performance of RMBS. Many servicers have gone out of business in recent years, requiring a transfer of servicing to another servicer. This transfer takes time and loans may become delinquent because of confusion or lack of attention. When servicing
is transferred, servicing fees may increase, which may have an adverse effect on the credit support of RMBS held by us. In the case of pools of securitized loans, servicers may be required to advance interest on delinquent loans to the extent the
servicer deems those advances recoverable. In the event the servicer does not advance funds, interest may be interrupted even on more senior securities. Servicers may also advance more than is in fact recoverable once a defaulted loan is disposed,
and the loss to the trust may be greater than the outstanding principal balance of that loan (greater than 100% loss severity). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our
Manager relies on analytical models and other data to analyze potential asset acquisition and disposition opportunities and to manage our portfolio. These models could cause us to purchase assets that do not meet our expectations or to make asset
management decisions that are not in line with our strategy. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager relies on analytical models (both proprietary
and third-party models) of Ellington and information and data supplied by third parties. These models and data may be used to value assets or potential asset acquisitions and dispositions and also in connection with our asset management activities.
If Ellington&#146;s models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon could expose us to </FONT></P>
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potential risks. Our Manager&#146;s reliance on Ellington&#146;s models and data may induce it to purchase certain assets at prices that are too high, sell certain other assets at prices that are
too low or miss favorable opportunities altogether. Similarly, any hedging activities that are based on faulty models and data may prove to be unsuccessful. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Some models, such as prepayment models or mortgage default models, may be predictive in nature. The use of predictive models has inherent risks. For example, such models may incorrectly forecast future
behavior, leading to potential losses. In addition, the predictive models used by our Manager may differ substantially from those models used by other market participants, with the result that valuations based on these predictive models may be
substantially higher or lower for certain assets than actual market prices. Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily
on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, or deep economic recessions or
depressions), such models must employ greater degrees of extrapolation, and are therefore more speculative and of more limited reliability. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">All valuation models rely on correct market data inputs. If incorrect market data is entered into even a well-founded valuation model, the resulting valuations will be incorrect. However, even if market
data is input correctly, &#147;model prices&#148; will often differ substantially from market prices, especially for securities with complex characteristics or whose values are particularly sensitive to various factors. If our market data inputs are
incorrect or our model prices differ substantially from market prices, our business, financial condition and results of operations and our ability to make distributions to our shareholders could be materially adversely affected. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Valuations of some of our assets will be inherently uncertain, may be based on estimates, may fluctuate over short periods of time and may differ from
the values that would have been used if a ready market for these assets existed. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">While, in many cases, our determination
of the fair value of our assets will be based on valuations provided by third-party dealers and pricing services, we will value assets based upon our judgment, and such valuations may differ from those provided by third-party dealers and pricing
services. Valuations of certain assets are often difficult to obtain or unreliable. In general, dealers and pricing services heavily disclaim their valuations. Additionally, dealers may claim to furnish valuations only as an accommodation and
without special compensation, and so they may disclaim any and all liability for any direct, incidental or consequential damages arising out of any inaccuracy or incompleteness in valuations, including any act of negligence or breach of any
warranty. Depending on the complexity and illiquidity of an asset, valuations of the same asset can vary substantially from one dealer or pricing service to another. The valuation process has been particularly difficult recently because market
events have made valuations of certain assets unpredictable, and the disparity of valuations provided by third-party dealers has widened. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our business, financial condition and results of operations and our ability to make distributions to our shareholders could be materially adversely affected if our fair value determinations of these
assets were materially higher than the values that would exist if a ready market existed for these assets. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Increases in interest rates
could adversely affect the value of our assets and cause our interest expense to increase, which could result in reduced earnings or losses and negatively affect our profitability as well as the cash available for distribution to shareholders.
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our operating results will depend in large part on the difference between the income from our assets, net of credit
losses, and financing costs. We anticipate that, in many cases, the income from our assets will respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term
interest rates, may significantly influence our financial results. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interest rates are highly sensitive to many factors,
including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Interest rate fluctuations present a variety of risks, including the risk of a narrowing of the
difference between asset yields and borrowing rates, flattening or inversion of the yield curve and fluctuating prepayment rates. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The relationship between short-term and longer-term interest rates is referred to as the
&#147;yield curve.&#148; In a normal yield curve environment, fixed income assets, including many RMBS, decline in value if interest rates increase. If long-term rates increased significantly, not only will the market value of these assets be
expected to decline, but the duration and weighted-average life of the assets could increase as well because borrowers are less likely to prepay mortgages. Further, an increase in short-term interest rates would increase the rate of interest payable
on any repurchase agreements required to finance these securities more rapidly than the interest earned on our assets. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subject to qualifying and maintaining our qualification as a REIT, we endeavor to hedge our exposure to changes in interest rates, but
there can be no assurances that our hedges will be successful, or that we will be able to enter into or maintain such hedges. As a result, interest rate fluctuations can cause significant losses, reductions in income, and limitations on our cash
available for distribution to shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>An increase in interest rates may cause a decrease in the volume of certain of our target
assets, which could adversely affect our ability to acquire target assets that satisfy our investment objectives and to generate income and pay dividends. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Rising interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing. A reduction in the volume of mortgage loans originated may affect the volume of target assets
available to us, which could adversely affect our ability to acquire assets that satisfy our investment objectives. Rising interest rates may also cause our target assets that were issued prior to an interest rate increase to provide yields that are
below prevailing market interest rates. If rising interest rates cause us to be unable to acquire a sufficient volume of our target assets with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to
generate income and pay dividends may be materially and adversely affected. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The lack of liquidity of our assets may adversely affect our
business, including our ability to value and sell our assets. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may acquire assets or other instruments that are not
liquid, including securities and other instruments that are not publicly traded, and market conditions could significantly and negatively affect the liquidity of other assets. In addition, mortgage-related assets generally experience periods of
illiquidity, including the recent period of delinquencies and defaults with respect to residential and commercial mortgage loans. It may be difficult or impossible to obtain third-party pricing on the assets that we purchase. Illiquid assets
typically experience greater price volatility, as a ready market may not exist for such assets, and such assets can be more difficult to value. In addition, validating third-party pricing for illiquid assets may be more subjective than more liquid
assets. Any illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the
value at which we previously recorded our assets. We may also face other restrictions on our ability to liquidate any assets for which we or our Manager has or could be attributed with material non-public information. If we are unable to sell our
assets at favorable prices or at all, it could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders. Assets that are illiquid are more difficult to finance,
and to the extent that we use leverage to finance assets that become illiquid we may lose that leverage or have it reduced. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As
a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could adversely affect our results of operations and financial condition. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We intend to use leverage in executing our business strategy, which may adversely affect the return on our assets and may reduce cash available for
distribution to our shareholders, as well as increase losses when economic conditions are unfavorable. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to use
leverage to finance our investment operations and to enhance our financial returns. We expect that our primary source of leverage will be short-term repurchase agreement financing for our Agency and non-Agency RMBS assets. Other sources of leverage
may include credit facilities, including term loans and revolving credit facilities. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Through the use of leverage, we may acquire positions with market exposure significantly
greater than the amount of capital committed to the transaction. For example, by entering into repurchase agreements with advance rates, or haircut levels, of 5%, we could theoretically leverage capital allocated to Agency RMBS by a debt-to-equity
ratio of as much as 19 to 1. It is not uncommon for investors in Agency RMBS to obtain leverage equal to ten or more times equity through the use of repurchase agreement financing. We anticipate that we may deploy, on a debt-to-equity basis, up to
ten times leverage on our Agency RMBS assets and up to two times on our non-Agency RMBS assets. However, there is no specific limit on the amount of leverage that we may use. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Leverage will magnify both the gains and the losses of our positions. Leverage will increase our returns as long as we earn a greater return on investments purchased with borrowed funds than our cost of
borrowing such funds. However, if we use leverage to acquire an asset and the value of the asset decreases, the leverage will increase our losses. Even if the asset increases in value, if the asset fails to earn a return that equals or exceeds our
cost of borrowing, the leverage will decrease our returns. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may be required to post large amounts of cash as collateral or
margin to secure our leveraged positions. In the event of a sudden, precipitous drop in value of our financed assets, we might not be able to liquidate assets quickly enough to repay our borrowings, further magnifying losses. Even a small decrease
in the value of a leveraged asset may require us to post additional margin or cash collateral. This may decrease the cash available to us for distributions to shareholders, which could adversely affect the price of our common shares. In addition,
our debt service payments will reduce cash flow available for distribution to shareholders. We may not be able to meet our debt service obligations. To the extent that we cannot meet our debt service obligations, we risk the loss of some or all of
our assets to sale to satisfy our debt obligations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To the extent we might be compelled to liquidate qualifying real estate
assets to repay debts, our compliance with the REIT rules regarding our assets and our sources of income could be negatively affected, which could jeopardize our qualification as a REIT. Losing our REIT qualification would cause us to be subject to
U.S. federal income tax (and any applicable state and local taxes) on all of our income and decrease profitability and cash available for distributions to shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>We may not be able to achieve our optimal leverage or target leverage ratios. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Because our strategy is flexible, dynamic and opportunistic, our overall leverage will vary over time. As a result, we do not have a targeted debt-to-equity ratio, although we currently expect that our
debt-to-equity ratio initially will be within a range of 6:1 to 10:1 with respect to our equity capital allocated to Agency RMBS and up to 2:1 with respect to our equity capital allocated to non-Agency RMBS. We are not required to stay within these
leverage ratios. If we exceed these ratios, the adverse impact on our financial condition and results of operations from the types of risks described in this section would likely be more severe. Additionally, we will use leverage as a strategy to
increase the return to our investors. However, we may not be able to achieve our desired leverage for any of the following reasons: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">we determine that the leverage would expose us to excessive risk; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our lenders do not make funding available to us at acceptable rates or on acceptable terms; or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our lenders require that we provide additional collateral to cover our borrowings. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We may incur increased borrowing costs. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our borrowing costs under repurchase agreements may vary depending upon a number of factors, including, without limitation: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>

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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the movement of interest rates; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the availability of financing in the market, including the financial stability of lenders; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the value and liquidity of our RMBS. </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">30 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Most of our borrowings will be collateralized borrowings in the form of reverse repurchase
agreements, which will be generally adjustable and relate to short-term interest rates such as LIBOR or a short-term Treasury index. If the interest rates on these reverse repurchase agreements increase, our business, financial condition and results
of operations and our ability to pay distributions to our shareholders could be materially adversely affected. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We will depend on
borrowings to purchase the RMBS in which we intend to invest and reach our desired amount of leverage. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will depend on
borrowings to fund acquisitions of RMBS and reach our desired amount of leverage. Accordingly, our ability to achieve our investment and leverage objectives will depend on our ability to borrow money in sufficient amounts and on favorable terms. In
addition, we must be able to renew or replace our maturing borrowings on a continuous basis. The current dislocation and weakness in the broader mortgage markets could adversely affect one or more of our potential lenders and could cause one or more
of our potential lenders to be unwilling or unable to provide us with financing. In recent years, investors and financial institutions that lend in the securities repurchase market have tightened lending standards in response to the difficulties and
changed economic conditions that have materially adversely affected the RMBS market. These market disruptions have been most pronounced in the non-Agency RMBS market, and the impact has also extended to Agency RMBS, which has made the value of these
assets unstable and relatively illiquid compared to prior periods. This could potentially increase our financing costs and reduce our liquidity. If we cannot renew or replace maturing borrowings on favorable terms or at all, we may have to sell our
RMBS under adverse market conditions, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our shareholders. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Adverse market developments could cause our lenders to require us to pledge additional assets as collateral. If our assets were insufficient to meet
these collateral requirements, we might be compelled to liquidate particular assets at inopportune times and at unfavorable prices. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Adverse market developments, including a sharp or prolonged rise in interest rates, a change in prepayment rates or increasing market concern about the value or liquidity of one or more types of Agency
RMBS, might reduce the market value of our portfolio, which might cause our lenders to initiate margin calls. A margin call means that the lender requires us to pledge additional collateral to re-establish the ratio of the value of the collateral to
the amount of the borrowing. The specific collateral value to borrowing ratio that would trigger a margin call is not set in the master repurchase agreements and not determined until we engage in a repurchase transaction under these agreements. Our
RMBS backed by fixed-rate mortgages generally are more susceptible to margin calls as increases in interest rates tend to more negatively affect the market value of fixed-rate securities. If we are unable to satisfy margin calls, our lenders may
foreclose on our collateral. The threat of or occurrence of a margin call could force us to sell, either directly or through a foreclosure, our RMBS under adverse market conditions. Because of the significant leverage we expect to have, we may incur
substantial losses upon the threat or occurrence of a margin call, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our shareholders. Additionally, the
liquidation of collateral may jeopardize our ability to qualify as a REIT, as we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our RMBS, we may be unable to comply with these
requirements, ultimately jeopardizing our ability to qualify as a REIT. Our failure to qualify as a REIT would cause us to be subject to U.S. federal income tax (and any applicable state and local taxes) on all of our income and decrease
profitability and cash available for distribution to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>If we are unable to negotiate favorable terms and conditions on
future reverse repurchase arrangements with one or more of our counterparties, our financial condition and earnings could be negatively impacted. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The terms and conditions of each of our reverse repurchase arrangements are negotiated on a transaction-by-transaction basis, and these borrowings generally are re-established, or rolled, at maturity. Key
terms and conditions of each transaction include interest rates, maturity dates, asset pricing procedures and margin requirements. We cannot assure you that we will be able to negotiate favorable terms and conditions on our reverse repurchase
arrangements. In addition, our counterparties may require less favorable pricing procedures or increased margin requirements during periods of market illiquidity or due to perceived credit quality deterioration of the collateral pledged. </FONT></P>

 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">31 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our use of reverse repurchase arrangements may give our lenders greater rights in the event that either
we or any of our lenders file for bankruptcy, which may make it difficult for us to recover our collateral in the event of a bankruptcy filing. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our borrowings under reverse repurchase arrangements may qualify for special treatment under the bankruptcy code, giving our lenders the ability to avoid the automatic stay provisions of the bankruptcy
code and take possession of and liquidate our collateral under the reverse repurchase arrangements without delay if we file for bankruptcy. Furthermore, the special treatment of repurchase agreements under the bankruptcy code may make it difficult
for us to recover our pledged assets in the event that any of our lenders files for bankruptcy. Thus, the use of reverse repurchase arrangements exposes our pledged assets to risk in the event of a bankruptcy filing by either our lenders or us.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>If our lenders default on their obligations to resell the RMBS back to us at the end of the repurchase transaction term, the value of the
RMBS has declined by the end of the reverse repurchase transaction term or we default on our obligations under the reverse repurchase transaction, we will lose money on these transactions, which, in turn, may materially adversely affect our
business, financial condition and results of operations and our ability to pay distributions to our shareholders. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">When we
engage in a reverse repurchase transaction, we will initially sell securities to the financial institution under a reverse repurchase agreement in exchange for cash and our counterparty will be obligated to resell the securities to us at the end of
the term of the transaction, which is typically from 30 to 180 days, but which may have terms up to 364 days or more. The cash we will receive when we initially sell the securities will be less than the value of those securities, which is referred
to as the haircut. Many financial institutions from whom we may obtain reverse repurchase agreement financing have increased their haircuts in the past and may do so again in the future. If these haircuts are increased we will be required to post
additional cash collateral for our Agency RMBS. The haircut on the IOs and any non-Agency RMBS we may acquire will be significantly higher. If our counterparty defaults on its obligation to resell the securities to us, we would incur a loss on the
transaction equal to the amount of the haircut (assuming there was no change in the value of the securities). We would also lose money on a reverse repurchase transaction if the value of the underlying securities has declined as of the end of the
transaction term, as we would have to repurchase the securities for their initial value but would receive securities worth less than that amount. Any losses we incur on our reverse repurchase transactions could materially adversely affect our
business, financial condition and results of operations and our ability to pay distributions to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we
default on one of our obligations under a reverse repurchase transaction, the counterparty can terminate the transaction and cease entering into any other repurchase transactions with us. In that case, we would likely need to establish a replacement
reverse repurchase facility with another financial institution in order to continue to leverage our portfolio and carry out our investment strategy. There is no assurance we would be able to establish a suitable replacement facility on acceptable
terms or at all. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Hedging against interest rate changes and other risks may materially adversely affect our business, financial condition
and results of operations and our ability to make distributions to our shareholders. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subject to qualifying and
maintaining our qualification as a REIT and exemption from registration under the Investment Company Act, we may pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates. Our hedging activity would vary
in scope based on the level and volatility of interest rates, the types of liabilities and assets held and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us because, among other things:
</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">32 </FONT></P>



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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the duration of the hedge may not match the duration of the related assets or liabilities being hedged; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">to the extent hedging transactions do not satisfy certain provisions of the Code and are not made through a TRS, the amount of income that a REIT may
earn from hedging transactions to offset interest rate losses is limited by U.S. federal tax provisions governing REITs;</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value.
Downward adjustments or &#147;mark-to-market losses,&#148; would reduce our shareholders&#146; equity; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or
assign our side of the hedging transaction; and</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the hedging counterparty owing money in the hedging transaction may default on its obligation to pay. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subject to qualifying and maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company
under the Investment Company Act, although we do not intend to operate our non-Agency RMBS investment strategy on a credit hedged basis in general, we may from time to time opportunistically enter into short positions using credit default swaps to
protect against adverse credit events with respect to our non-Agency RMBS. Even if we do choose to hedge certain credit risks, we generally will not seek to establish a perfect correlation between the hedging instrument and the risk being hedged.
Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, certain of these hedging transactions could result in our experiencing significant losses. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our hedging transactions, which would be intended to limit losses, may actually adversely affect our earnings, which could reduce our
cash available for distribution to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our use of certain hedging techniques may expose us to counterparty risks.
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If an interest rate swap counterparty cannot perform under the terms of the interest rate swap, we may not receive
payments due under that swap, and thus, we may lose any unrealized gain associated with the interest rate swap. The hedged liability could cease to be hedged by the interest rate swap. Additionally, we may also risk the loss of any collateral we
have pledged to secure our obligations under the interest rate swap if the counterparty becomes insolvent or files for bankruptcy. If we are required to sell our derivatives under these circumstances, we may incur losses. Similarly, if an interest
rate cap counterparty fails to perform under the terms of the interest rate cap agreement, in addition to not receiving payments due under that agreement that would off-set our interest expense, we could also incur a loss for all remaining
unamortized premium paid for that agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Hedging instruments and other derivatives may not, in many cases, be traded on regulated
exchanges, or may not be guaranteed or regulated by any U.S. or foreign governmental authorities and involve risks and costs that could result in material losses. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Hedging instruments and other derivatives, including credit default swaps, involve risk because they may not, in many cases, be traded on regulated exchanges and may not be guaranteed or regulated by any
U.S. or foreign governmental authorities. Consequently, for these instruments there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and compliance with applicable statutory and commodity
and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. While Title VII of the Dodd-Frank Act provides for new federal regulation of the swaps market and sweeping changes to its
structure, the provisions of Title VII that will have the most fundamental impact on the swaps market have not been finalized. Any such rulemaking may make our hedging more difficult to obtain or increase costs. Our Manager is not restricted from
dealing with any particular counterparty or from concentrating any or all of its transactions with one counterparty. Furthermore, our Manager has only a limited internal credit function to evaluate the creditworthiness of its counterparties, mainly
relying on its experience with such counterparties and their general reputation as participants in these markets. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in a default under
the hedging </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">33 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
agreement. Default by a party with whom we enter into a hedging transaction may result in losses and may force us to re-initiate similar hedges with other counterparties at the then-prevailing
market levels. Generally we will seek to reserve the right to terminate our hedging transactions upon a counterparty&#146;s insolvency, but absent an actual insolvency, we may not be able to terminate a hedging transaction without the consent of the
hedging counterparty, and we may not be able to assign or otherwise dispose of a hedging transaction to another counterparty without the consent of both the original hedging counterparty and the potential assignee. If we terminate a hedging
transaction, we may not be able to enter into a replacement contract in order to cover our risk. There can be no assurance that a liquid secondary market will exist for hedging instruments purchased or sold, and therefore we may be required to
maintain any hedging position until exercise or expiration, which could materially adversely affect our business, financial condition and results of operations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The U.S. Commodity Futures Trading Commission, or &#147;CFTC,&#148; and certain commodity exchanges have established limits referred to as speculative position limits or position limits on the maximum net
long or net short position which any person or group of persons may hold or control in particular futures and options. Limits on trading in options contracts also have been established by the various options exchanges. It is possible that trading
decisions may have to be modified and that positions held may have to be liquidated in order to avoid exceeding such limits. Such modification or liquidation, if required, could materially adversely affect our business, financial condition and
results of operations and our ability to make distributions to our shareholders. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The enforceability of agreements underlying hedging
transactions may depend on compliance with applicable statutory and commodity and other regulatory requirements. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The
enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory and commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international
requirements. Recently, new regulation has been promulgated by U.S. and foreign regulators attempting to strengthen oversight of derivative contracts. Any actions taken by regulators could constrain our strategy and could increase our costs, either
of which could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders. In particular, the Dodd-Frank Act requires most derivatives to be executed on a
regulated market and cleared through a central counterparty, which may result in increased margin requirements and costs. On December 7, 2012, the CFTC issued a No-Action Letter that provides mortgage REITs relief from such registration, or
No-Action Letter, if they meet certain conditions and submit a claim for such no-action relief by email to the CFTC. We believe we meet the conditions set forth in the No-Action Letter and we intend to file our claim with the CFTC to perfect the use
of the no-action relief from registration. However, if in the future we do not meet the conditions set forth in the No-Action Letter or the relief provided by the No-Action Letter becomes unavailable for any other reason, we may need to seek to
obtain another exemption from registration or our Manager, which is already registered as a &#147;commodity pool operator&#148; with the CFTC, will become subject to additional disclosure, recordkeeping and reporting requirements, which may increase
our expenses. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We may change our investment strategy, investment guidelines and asset allocation without notice or shareholder
consent, which may result in riskier investments. In addition, our declaration of trust provides that our Board of Trustees may authorize us to revoke or otherwise terminate our REIT election, without the approval of our shareholders.
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees has the authority to change our investment strategy or asset allocation at any time without notice
to or consent from our shareholders. To the extent that our investment strategy changes in the future, we may make investments that are different from, and possibly riskier than, the investments described in this prospectus. A change in our
investment strategy may increase our exposure to interest rate and real estate market fluctuations or require us to sell a portion of our existing investments, which could result in gains or losses and therefore increase our earnings volatility.
Furthermore, a change in our asset allocation could result in our allocating assets in a different manner than as described in this prospectus. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In addition, our declaration of trust provides that our Board of Trustees may authorize us to revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines
that it is no longer in our best interests to qualify as a REIT. These changes could adversely affect our financial condition, results of operations, the market value of our common shares, and our ability to make distributions to our shareholders.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We operate in a highly competitive market. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our profitability depends, in large part, on our ability to acquire targeted assets at favorable prices. We compete with a number of entities when acquiring our targeted assets, including other mortgage
REITs, financial companies, public and private funds, commercial and investment banks and residential and commercial finance companies. We may also compete with (i)&nbsp;the U.S. Federal Reserve and the U.S. Treasury to the extent they purchase
assets in our targeted asset classes and (ii)&nbsp;companies that partner with and/or receive financing from the Federal Government. Many of our competitors are substantially larger and have considerably greater access to capital and other resources
than we do. Furthermore, new companies with significant amounts of capital have recently been formed or have raised additional capital, and may continue to be formed and raise additional capital in the future, and these companies may have objectives
that overlap with ours, which may create competition for assets we wish to acquire. Some competitors may have a lower cost of funds and access to funding sources that are not available to us, such as funding from the U.S. government. In addition,
some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of assets to acquire and establish more relationships than us. We also may have different operating constraints
from those of our competitors including, among others, (i)&nbsp;tax-driven constraints such as those arising from our qualification as a REIT, (ii)&nbsp;restraints imposed on us by our attempt to comply with certain exclusions from the definition of
an &#147;investment company&#148; or other exemptions under the Investment Company Act and (iii)&nbsp;restraints and additional costs arising from our status as a public company. Furthermore, competition for assets in our targeted asset classes
</FONT></P>
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may lead to the price of such assets increasing, which may further limit our ability to generate desired returns. We cannot assure you that the competitive pressures we face will not have a
material adverse effect on our business, financial condition and results of operations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our ability to pay dividends will depend on our
operating results, our financial condition and other factors, and we may not be able to pay dividends at a fixed rate or at all under certain circumstances. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to pay dividends and to make distributions to our shareholders in amounts such that we distribute all or substantially all of our taxable income in each year (subject to certain adjustments).
This distribution policy will enable us to avoid being subject to U.S. federal income tax on our taxable income that we distribute to our shareholders. However, our ability to pay dividends will depend on our earnings, our financial condition and
such other factors as our Board of Trustees may deem relevant from time to time. We may not pay an initial distribution until a significant portion of the proceeds of this offering have been invested. We will declare and pay dividends only to the
extent approved by our Board of Trustees. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The recent actions of the U.S. government for the purpose of stabilizing the financial markets
may adversely affect our business, financial condition and results of operations and our ability to pay distributions to our shareholders. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The U.S. government, through the U.S. Federal Reserve, the U.S. Treasury, the SEC, the FHA, the FDIC and other governmental and regulatory bodies have taken or are considering taking various actions to
address the financial crisis. For example, on July&nbsp;21, 2010 President Obama signed into law the Dodd-Frank Act. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to
anticipate the overall financial impact on us and, more generally, the financial services and mortgage industries. For example, the Dodd-Frank Act places restrictions on residential mortgage loan originations and reforms the asset-backed
securitization markets most notably by imposing credit requirements. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish
more relationships than us. Furthermore, competition for investments in our target assets may lead to the price of such assets increasing, which may further limit our ability to generate desired returns. We cannot assure you that the competitive
pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Additionally, we cannot predict whether there will be additional proposed laws or reforms that would affect us, whether or when
such changes may be adopted, how such changes may be interpreted and enforced or how such changes may affect us. However, the costs of complying with any additional laws or regulations could have a material adverse effect on our business, financial
condition and results of operations and our ability to pay distributions to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition to the foregoing,
the U.S. Congress and/or various states and local legislatures may enact additional legislation or regulatory action designed to address the current economic crisis or for other purposes that could have a material adverse effect on our ability to
execute our business strategies. To the extent the market does not respond favorably to these initiatives or they do not function as intended, our business, financial condition and results of operations and our ability to pay distributions to our
shareholders could be materially adversely affected. In addition, because the programs are designed, in part, to provide liquidity to restart the market for certain of our targeted assets, the establishment of these programs may result in increased
competition for attractive opportunities in our targeted assets. It is also possible that our competitors may utilize the programs which would provide them with attractive debt and equity capital funding from the U.S. government. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We are highly dependent on communications and information systems operated by third parties, and systems failures could significantly disrupt our
business. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our business is highly dependent on communications and information systems that allow us to monitor, value,
buy, sell, finance and hedge our investments. These systems are operated by third parties and, as a result, we have limited ability to ensure continued operation. In the event of systems failure or interruption, we will have limited ability to
affect the timing and success of systems restoration. Any failure or interruption of our systems could cause delays or other problems in our securities trading activities, including RMBS trading activities, which could have a material adverse effect
on our business, financial condition and results of operations and our ability to pay distributions to our shareholders. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The residential mortgage loans in which we invest and that underlie the non-Agency RMBS in which we
invest, and the other mortgage-related assets in which we may opportunistically invest, are subject to risk of default, among other risks. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The mortgage-related assets that we may acquire from time to time may be subject to defaults, foreclosure timeline extension, fraud, residential price depreciation and unfavorable modification of loan
principal amount, interest rate and amortization of principal, which could result in losses to us. Residential mortgage loans are secured by single-family residential property and, when not guaranteed by an agency, are subject to risks of
delinquency and foreclosure and risks of loss. The mortgage loans that underlie the non-Agency RMBS in which we invest are not guaranteed by a GSE. The ability of a borrower to repay a loan secured by a residential property typically is dependent
upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of nature, terrorism, social unrest and civil disturbances, may impair borrowers&#146; abilities to repay their loans. In the event of any
default under a mortgage loan held directly by us, we bear a risk of loss of the principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material
adverse effect on our cash flow from operations. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of
bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor in possession to the extent the lien is unenforceable under state law.
Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on a foreclosed mortgage loan. RMBS evidence interests in, or are secured by, pools of residential
mortgage loans. Accordingly, the RMBS in which we will invest may be subject to all of the risks of the respective underlying mortgage loans. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Investments in second lien mortgage loans and subordinated mortgage-backed securities could subject us to increased risk of losses. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may invest in second lien mortgage loans and subordinated non-Agency RMBS. In the event a borrower defaults on a loan and lacks
sufficient assets to satisfy such loan, we may lose all or a significant part of our investment. In the event a borrower becomes subject to bankruptcy proceedings, we will not have any recourse to the assets, if any, of the borrower that are not
pledged to secure our loan, and the unpledged assets of the borrower may not be sufficient to satisfy our loan. If a borrower defaults on our loan or on its senior debt (<I>i.e.,</I>&nbsp;a first-lien loan, in the case of a residential mortgage
loan), or in the event of a borrower bankruptcy, our loan will be satisfied only after all senior debt is paid in full. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In
general, credit losses on mortgage loans included in a securitization will be borne first by holders of the &#147;first loss&#148; subordinated security and then, in turn, by the holders of more senior securities, beginning with the most
subordinated. In the event of default of a mortgage loan we own and, in the case of non-Agency RMBS in which we invest, the exhaustion of any credit support provided by any classes of securities junior to such non-Agency RMBS, we may not recover all
or even a significant part of our investment, which could result in repayment losses. In addition, if the underlying mortgage portfolio has been overvalued by the originator, or if the values subsequently decline and, as a result, less collateral is
available to satisfy interest and principal payments due on the related mortgage-backed securities, the securities in which we invest may suffer significant losses. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The prices of lower credit quality investments are generally more sensitive to adverse actual or perceived economic downturns or individual issuer developments than more highly rated investments. An
economic downturn or a projection of an economic downturn, for example, could cause a decline in the price of lower credit quality investments because the ability of obligors to make principal and interest payments or to refinance may be impaired.
In such event, existing credit support in the securitization structure may be insufficient to protect us against loss. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We may acquire
Alt-A and subprime mortgage loans and RMBS collateralized by Alt-A and subprime mortgage loans, which are subject to increased risks. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We may acquire Alt-A and subprime mortgage loans and RMBS backed by collateral pools of Alt-A and subprime mortgage loans, which are mortgage loans that have been originated using underwriting standards
that are less restrictive than those used in underwriting prime mortgage loans. These lower standards include mortgage loans made to borrowers having imperfect or impaired credit histories, mortgage loans where the amount of the loan at
</FONT></P>
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origination is 80% or more of the value of the mortgage property, mortgage loans made to borrowers with low credit scores, mortgage loans made to borrowers who have other debt that represents a
large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified. Due to economic conditions, including increased interest rates and lower home prices, as well as aggressive lending
practices, Alt-A and subprime mortgage loans have in recent periods experienced increased rates of delinquency, foreclosure, bankruptcy and loss, and they are likely to continue to experience delinquency, foreclosure, bankruptcy and loss rates that
are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. Thus, because of the higher delinquency rates and losses associated with Alt-A and subprime mortgage loans, the
performance of RMBS backed by Alt-A and subprime mortgage loans that we may acquire could be correspondingly adversely affected, which could adversely impact our results of operations, financial condition and business. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We may acquire non-Agency RMBS assets in the &#147;first loss&#148; position, subjecting us to greater risk of losses. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we acquire subordinate classes of non-Agency RMBS, in the event of default and the exhaustion of any classes junior to those we may
acquire and there is any further loss, we will not be able to recover all of our investment in the securities we purchase. The prices of lower credit quality securities are generally less sensitive to interest rate changes than more highly rated
securities, but more sensitive to adverse economic downturns or individual issuer developments. A projection of an economic downturn, for example, could cause a decline in the price of lower credit quality securities because the ability of obligors
of mortgages underlying MBS to make principal and interest payments may be impaired. In such event, existing credit support in the securitization structure may be insufficient to protect us against loss of our principal on these securities.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Residential whole mortgage loans, including subprime residential mortgage loans and non-performing and sub-performing residential mortgage
loans, are subject to increased risks. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may acquire and manage pools of residential whole mortgage loans. Residential
whole mortgage loans, including subprime mortgage loans and non-performing and sub-performing mortgage loans, are subject to increased risks of loss. Unlike Agency RMBS, whole mortgage loans generally are not guaranteed by the U.S. government or any
GSE, though in some cases they may benefit from private mortgage insurance. Additionally, by directly acquiring whole mortgage loans, we do not receive the structural credit enhancements that benefit senior tranches of RMBS. A whole mortgage loan is
directly exposed to losses resulting from default. Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower and the priority and enforceability of the lien will significantly impact the value of
such mortgage. In the event of a foreclosure, we may assume direct ownership of the underlying real estate. The liquidation proceeds upon sale of such real estate may not be sufficient to recover our cost basis in the loan, and any costs or delays
involved in the foreclosure or liquidation process may increase losses. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Whole mortgage loans are also subject to
&#147;special hazard&#148; risk (property damage caused by hazards, such as earthquakes or environmental hazards, not covered by standard property insurance policies), and to bankruptcy risk (reduction in a borrower&#146;s mortgage debt by a
bankruptcy court). In addition, claims may be assessed against us on account of our position as a mortgage holder or property owner, including assignee liability, responsibility for tax payments, environmental hazards and other liabilities. In some
cases, these liabilities may be &#147;recourse liabilities&#148; or may otherwise lead to losses in excess of the purchase price of the related mortgage or property. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>The real estate assets and real estate-related assets (including mortgage loans and RMBS) we intend to or may invest in are subject to the risks associated with real property. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We own and expect to acquire in the future assets that are secured by real estate and we may own real estate directly in the future,
either through direct acquisitions or upon a default of mortgage loans. Real estate assets are subject to various risks, including; </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">continued declines in the value of real estate; </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">37 </FONT></P>



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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September&nbsp;11, 2001;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">adverse changes in national and local economic and market conditions; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations,
fiscal policies and ordinances; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">costs of remediation and liabilities associated with environmental conditions such as indoor mold; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the potential for uninsured or under-insured property losses. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The occurrence of any of the foregoing or similar events may reduce our return from an affected property or asset and, consequently,
materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>To the extent that due diligence is conducted on potential assets, such due diligence may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets,
which could lead to losses. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Before making an investment, our Manager may decide to conduct (either directly or using
third parties) certain due diligence. There can be no assurance that our Manager will conduct any specific level of due diligence, or that, among other things, our Manager&#146;s due diligence processes will uncover all relevant facts or that any
purchase will be successful, which could result in losses on these assets, which, in turn, could adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders. </FONT></P>
<P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Risks Related to our Relationship with our Manager and Ellington </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our Manager has limited experience operating a REIT and we cannot assure you that our Manager&#146;s past experience will be sufficient to successfully manage our business as a REIT. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager has limited experience operating a REIT. The REIT provisions of the Code are complex, and any failure to comply with those
provisions in a timely manner could prevent us from qualifying as a REIT or force us to pay unexpected taxes and penalties. In such event, our net income would be reduced and we could incur a loss. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We are dependent on our Manager and certain key personnel of Ellington that are or will be provided to us through our Manager and may not find a
suitable replacement if our Manager terminates the management agreement or such key personnel are no longer available to us. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We do not have any employees of our own. Our officers are employees of Ellington or one or more of its affiliates. We have no separate facilities and are completely reliant on our Manager, which has
significant discretion as to the implementation of our operating policies and execution of our business strategies and risk management practices. We also depend on our Manager&#146;s access to the professionals and principals of Ellington as well as
information and deal flow generated by Ellington. The employees of Ellington identify, evaluate, negotiate, structure, close and monitor our portfolio. The departure of any of the senior officers of our Manager, or of a significant number of
investment professionals or principals of Ellington, could have a material adverse effect on our ability to achieve our objectives. We can offer no assurance that our Manager will remain our manager or that we will continue to have access to our
Manager&#146;s senior management. We are subject to the risk that our Manager will terminate the management agreement or that we may deem it necessary to terminate the management agreement or prevent certain individuals from performing services for
us and that no suitable replacement will be found to manage us. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The management fees payable to our Manager are payable regardless of the performance of our portfolio,
which may reduce our Manager&#146;s incentive to devote the time and effort to seeking profitable opportunities for our portfolio. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We pay our Manager management fees, which may be substantial, based on our shareholders&#146; equity (as defined in the management agreement) regardless of the performance of our portfolio. The management
fee takes into account the net issuance proceeds of both common and preferred share offerings. Our Manager&#146;s entitlement to non-performance-based compensation might reduce its incentive to devote the time and effort of its professionals to
seeking profitable opportunities for our portfolio, which could result in a lower performance of our portfolio and materially adversely affect our business, financial condition and results of operations. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Board of Trustees has approved very broad investment guidelines for our Manager and will not approve each decision made by our Manager to acquire,
dispose of, or otherwise manage an asset. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager is authorized to follow very broad guidelines in pursuing our
strategy. Our Board of Trustees will periodically review our guidelines and our portfolio and asset-management decisions. However, it generally will not review all of our proposed acquisitions, dispositions and other management decisions. In
addition, in conducting periodic reviews, our Board of Trustees will rely primarily on information provided to them by our Manager. Furthermore, our Manager may arrange for us to use complex strategies or to enter into complex transactions that may
be difficult or impossible to unwind by the time they are reviewed by our Board of Trustees. Our Manager has great latitude within the broad guidelines in determining the types of assets it may decide are proper for us to acquire and other decisions
with respect to the management of those assets subject to our qualifying and maintaining our qualification as a REIT. Poor decisions could have a material adverse effect on our business, financial condition and results of operations and our ability
to make distributions to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We compete with Ellington&#146;s other accounts for access to Ellington. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington has sponsored and/or currently manages accounts with a focus that overlaps with our investment focus, and expects to continue
to do so in the future. Ellington is not restricted in any way from sponsoring or accepting capital from new accounts, even for investing in asset classes or strategies that are similar to, or overlapping with, our asset classes or strategies.
Therefore, we will compete for access to the benefits that our relationship with our Manager and Ellington provides us. For the same reasons, the personnel of Ellington and our Manager may be unable to dedicate a substantial portion of their time
managing our assets. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Because the Agency pass-through certificates, Agency and non-Agency CMOs and certain other asset classes
in which we intend to invest are typically available only in specified quantities and are also targeted assets for certain other Ellington accounts, Ellington often is not able to buy as much of any asset or group of assets as would be required to
satisfy the needs of all of its accounts. In these cases, Ellington&#146;s investment allocation procedures and policies typically allocate such assets to multiple accounts in proportion to their needs and available capital. Ellington may at times
allocate opportunities on a preferential basis above the proportion of available capital to accounts that are in a &#147;start-up&#148; or &#147;ramp-up&#148; phase which could work to our disadvantage, particularly because there are no limitations
surrounding Ellington&#146;s ability to create new accounts. In addition, the policy permits departure from such proportional allocation under certain circumstances, for example, when such allocation would result in an inefficiently small amount of
the security being purchased for an account, which may also serve to preclude our ability to acquire certain assets. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We and other
Ellington accounts may compete for opportunities to acquire assets, which are allocated in accordance with Ellington&#146;s investment allocation policies. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ellington may, from time to time, simultaneously seek to purchase the same or similar assets for us (through our Manager) that it is seeking to purchase for other Ellington accounts, and has no duty to
allocate such opportunities in a manner that preferentially favors us. Ellington will make available to us all opportunities to acquire assets that it determines, in its reasonable and good faith judgment, based on our objectives, policies and
strategies, and other relevant factors, are appropriate for us in accordance with Ellington&#146;s written investment allocation policy, subject to the exception that we might not participate in each such opportunity, but will on an overall basis
equitably participate with Ellington&#146;s other accounts in all such opportunities. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Following the completion of this offering, the Blackstone Funds will continue to have significant
influence over us and may have conflicts of interest with us or you now or in the future. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Following the completion of
this offering, the Blackstone Funds will continue to own a significant portion of our common shares, and two of our trustees who are affiliates of Blackstone will continue to serve as trustees. As a result, Blackstone may have influence over our
ability to enter into any corporate transaction that requires the approval of shareholders regardless of whether shareholders believe that any such transactions are in their best interests. Similarly, Blackstone may have influence over transactions
that we engage in including transactions which require the approval of our trustees.&nbsp;Such items may include decisions related to future capital raises, investment strategy, dividend declarations, financing decisions and decisions regarding our
Manager.&nbsp;Blackstone is also in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Blackstone may also pursue acquisition opportunities
that are complementary to our business, and, as a result, those acquisition opportunities may not be available to us. As long as funds controlled by or associated with Blackstone continue to own a significant amount of our outstanding common shares,
or Blackstone affiliates continue to serve as our trustees, Blackstone may continue to be able to influence our decisions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>There will be
conflicts of interest in our relationships with our Manager and Ellington, which could result in decisions that are not in the best interests of our shareholders. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We are subject to conflicts of interest arising out of our relationship with Ellington and our Manager. Currently, one of Ellington&#146;s employees, who also serves as one of our executive officers,
serves as a trustee and all of our executive officers are or will be employees of Ellington or one or more of its affiliates. As a result, our Manager and our officers may have conflicts between their duties to us and their duties to, and interests
in, Ellington or our Manager. For example, Mr.&nbsp;Penn, our President and Chief Executive Officer and one of our trustees, also serves as the President and Chief Executive Officer of, and as a Member of the Board of Directors of, Ellington
Financial LLC, and Mr.&nbsp;Vranos, our Co-Chief Investment Officer, also serves as the Co-Chief Investment Officer of, and as a Member of the Board of Directors of, Ellington Financial LLC. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may acquire or sell assets in which Ellington or its affiliates have or may have an interest. Similarly, Ellington or its affiliates
may acquire or sell assets in which we have or may have an interest. Although such acquisitions or dispositions may present conflicts of interest, we nonetheless may pursue and consummate such transactions. Additionally, we may engage in
transactions directly with Ellington or its affiliates, including the purchase and sale of all or a portion of a portfolio asset. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Acquisitions made for entities with similar objectives may be different from those made on our behalf. Ellington may have economic interests in or other relationships with others in whose obligations or
securities we may acquire. In particular, such persons may make and/or hold an investment in securities that we acquire that may be pari passu, senior or junior in ranking to our interest in the securities or in which partners, security holders,
officers, directors, agents or employees of such persons serve on boards of directors or otherwise have ongoing relationships. Each of such ownership and other relationships may result in securities laws restrictions on transactions in such
securities and otherwise create conflicts of interest. In such instances, Ellington may, in its sole discretion, make recommendations and decisions regarding such securities for other entities that may be the same as or different from those made
with respect to such securities and may take actions (or omit to take actions) in the context of these other economic interests or relationships the consequences of which may be adverse to our interests. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In deciding whether to issue additional debt or equity securities, we will rely in part on recommendations made by our Manager. While
such decisions are subject to the approval of our Board of Trustees, one of our trustees is also an Ellington employee. Because our Manager earns management fees that are based on the total amount of our equity capital, our Manager may have an
incentive to recommend that we issue additional equity securities. In addition, as described in &#147;Certain Relationships and Related Party Transactions&#151;Management Agreement,&#148; through its non-voting special membership interests in an
affiliate of Ellington, the Blackstone Funds are entitled to receive distributions from such affiliate equal to a portion of the management fees that are paid to our Manager, and therefore our trustees affiliated with Blackstone may have a similar
incentive for us to issue additional equity securities. See below for further discussion of the adverse impact future debt or equity offerings could have on our common shares. Future offerings of debt securities, which would rank senior to our
common shares upon </FONT></P>
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liquidation, and future offerings of equity securities which would dilute the common shares holdings of our existing shareholders and may be senior to our common shares for the purposes of
dividend and liquidating distributions, may adversely affect the market price of our common shares. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The officers of our
Manager and its affiliates will devote as much time to us as our Manager deems appropriate, however, these officers may have conflicts in allocating their time and services among us and Ellington and its affiliates&#146; accounts. During turbulent
conditions in the mortgage industry, distress in the credit markets or other times when we will need focused support and assistance from our Manager and Ellington employees, other entities for which Ellington serves as a manager, or its accounts,
may require greater focus and attention, placing our Manager and Ellington&#146;s resources in high demand. In such situations, we may not receive the necessary support and assistance we require or would otherwise receive if we were internally
managed or if Ellington did not act as a manager for other entities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We, directly or through Ellington, may obtain
confidential information about the companies or securities in which we have invested or may invest. If we do possess confidential information about such companies or securities, there may be restrictions on our ability to dispose of, increase the
amount of, or otherwise take action with respect to the securities of such companies. Our Manager&#146;s and Ellington&#146;s management of other accounts could create a conflict of interest to the extent our Manager or Ellington is aware of
material non-public information concerning potential investment decisions. We have implemented compliance procedures and practices designed to ensure that investment decisions are not made while in possession of material non-public information. We
cannot assure you, however, that these procedures and practices will be effective. In addition, this conflict and these procedures and practices may limit the freedom of our Manager to make potentially profitable investments, which could have an
adverse effect on our operations. These limitations imposed by access to confidential information could therefore materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our
shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The management agreement that we have entered into with our Manager was not negotiated on an arm&#146;s-length basis and may
not be as favorable to us as if it had been negotiated with an unaffiliated third party and may be costly and difficult to terminate. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The management agreement that have entered into with our Manager was negotiated between related parties, and its terms, including fees payable, may not be as favorable to us as if it had been negotiated
with an unaffiliated third party. Various potential and actual conflicts of interest may arise from the activities of Ellington and its affiliates by virtue of the fact that our Manager is controlled by Ellington. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Termination of our management agreement without cause, including termination for poor performance or non-renewal, is subject to several
conditions which may make such a termination difficult and costly. Termination of the management agreement with our Manager may require us to pay our Manager a substantial termination fee, which will increase the effective cost to us of terminating
the management agreement, thereby adversely affecting our ability to terminate our Manager without cause. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the
management agreement, our Manager will not assume any responsibility other than to render the services called for thereunder and will not be responsible for any action of our Board of Trustees in following or declining to follow its advice or
recommendations. Our Manager will maintain a contractual as opposed to a fiduciary relationship with us. Under the terms of the management agreement, our Manager, Ellington, and their affiliates and each of their officers, directors, trustees,
members, shareholders, partners, managers, investment and risk management committee members, employees, agents, successors and assigns, will not liable to us for acts or omissions performed in accordance with and pursuant to the management
agreement, except because of acts constituting bad faith, willful misconduct, gross negligence, fraud or reckless disregard of their duties under the management agreement. In addition, we will indemnify our Manager, Ellington, and their affiliates
and each of their officers, directors, trustees, members, shareholders, partners, managers, investment and risk management committee members, employees, agents, successors and assigns, with respect to all expenses, losses, damages, liabilities,
demands, charges and claims arising from acts of our Manager not constituting bad faith, willful misconduct, gross negligence, fraud or reckless disregard of duties, performed in good faith in accordance with and pursuant to the management
agreement. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Manager&#146;s failure to identify and acquire assets that meet our asset criteria or perform its
responsibilities under the management agreement could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our ability to achieve our objectives depends on our Manager&#146;s ability to identify and acquire assets that meet our asset criteria.
Accomplishing our objectives is largely a function of our Manager&#146;s structuring of our investment process, our access to financing on acceptable terms and general market conditions. Our shareholders will not have input into our investment
decisions. All of these factors increase the uncertainty, and thus the risk, of investing in our common shares. The senior management team of our Manager has substantial responsibilities under the management agreement. In order to implement certain
strategies, our Manager may need to hire, train, supervise and manage new employees successfully. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of
operations, our ability to qualify and maintain our qualification as a REIT and our ability to make distributions to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>If
our Manager ceases to be our Manager pursuant to the management agreement, our lenders and our derivative counterparties may cease doing business with us. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">If our Manager ceases to be our Manager, or if one or more of our Managers&#146; key personnel cease to provide services for us, it could constitute an event of default or early termination event under
many of our financing and hedging agreements, upon which our counterparties would have the right to terminate their agreements with us. If our Manager ceases to be our Manager for any reason, including upon the non-renewal of our management
agreement and we are unable to obtain financing or enter into or maintain derivative transactions, our business, financial condition and results of operations and our ability to make distributions to our shareholders may be materially adversely
affected. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We do not own the Ellington brand or trademark, but may use the brand and trademark as well as our logo pursuant to the terms of
a license granted by Ellington. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington has licensed the &#147;Ellington&#148; brand, trademark and logo to us for so
long as our Manager or another affiliate of Ellington continues to act as our Manager. We do not own the brand, trademark or logo that we will use in our business and may be unable to protect this intellectual property against infringement from
third parties. Ellington retains the right to continue using the &#147;Ellington&#148; brand and trademark. We will further be unable to preclude Ellington from licensing or transferring the ownership of the &#147;Ellington&#148; brand and trademark
to third parties, some of whom may compete against us. Consequently, we will be unable to prevent any damage to goodwill that may occur as a result of the activities of Ellington or others. Furthermore, in the event our Manager or another affiliate
of Ellington ceases to act as our Manager, or in the event Ellington terminates the license we will be required to change our name and trademark. Any of these events could disrupt our recognition in the marketplace, damage any goodwill we may have
generated and otherwise harm our business. Finally, the license is a domestic license in the United States only and does not give us any right to use the &#147;Ellington&#148; brand, trademark and logo overseas even though we expect to use the
brand, trademark and logo overseas. Our use of the &#147;Ellington&#148; brand, trademark and logo overseas will therefore be unlicensed and could expose us to a claim of infringement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>We or Ellington or its affiliates may be subject to regulatory inquiries or proceedings. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">At any time, industry-wide or company-specific regulatory inquiries or proceedings can be initiated and we cannot predict when or if any such regulatory inquiries or proceedings will be initiated that
involve us, Ellington, or its affiliates, including our Manager. For example, in the last several years, Ellington and its affiliates have received, and we expect in the future that they may receive, inquiries and requests for documents and
information from various federal, state and foreign regulators, including the following: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In March 2008, Ellington received a
subpoena from the SEC requesting documents and other information relating primarily to CDOs underwritten during 2007 and 2008 by a particular investment bank and for which Ellington acted as collateral manager. Ellington provided an initial response
to the subpoena in April 2008 and finished its production in May 2009. Ellington has had no communication with the SEC on the matter since that time. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In August 2009, Ellington and one of its affiliates received subpoenas from the SEC seeking documents and information regarding certain structuring, sales and marketing practices in the CDO market. The
subpoenas sought documents and details regarding CDOs in which Ellington or its affiliates participated during 2006 and 2007. Ellington finished its production in response to the subpoenas in November 2009, responded to subsequent requests by the
SEC for clarifications with respect to some of the information that Ellington produced to the SEC and intends to cooperate with any further requests. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We can give no assurances that regulatory inquiries such as those discussed above will not
result in investigations of Ellington or its affiliates or enforcement actions, fines or penalties or the assertion of private litigation claims against Ellington or its affiliates. We believe that the heightened scrutiny of CDO market participants
in particular (including large CDO collateral managers such as Ellington) increases the risk of additional inquiries and requests from regulatory or enforcement agencies. In the event regulatory inquiries such as those discussed above were to result
in investigations, enforcement actions, fines, penalties or the assertion of private litigation claims against Ellington or its affiliates, our Manager&#146;s ability to perform its obligations to us under the management agreement between us and our
Manager, or Ellington&#146;s ability to perform its obligations to our Manager under the services agreement between Ellington and our Manager, could be adversely impacted, which could in turn have a material adverse effect on our business, financial
condition and results of operations and our ability to make distributions to our shareholders. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Risks Related to Our
Organizational Structure </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Maintenance of our exclusion from regulation as an investment company under the Investment Company Act
imposes significant limitations on our operations. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to conduct our operations so that neither we nor any of our
subsidiaries is required to register as an investment company under the Investment Company Act. Both we and our operating partnership will be organized as holding companies and will conduct our business primarily through wholly-owned subsidiaries of
our operating partnership. The securities issued by our operating partnership&#146;s subsidiaries that are excluded from the definition of &#147;investment company&#148; under Section&nbsp;3(c)(7) of the Investment Company Act, together with other
investment securities our operating partnership may own, cannot exceed 40% of the value of all our operating partnership&#146;s assets (excluding U.S. government securities and cash) on an unconsolidated basis. This requirement limits the types of
businesses in which we may engage and the assets we may hold. Certain of our operating partnership&#146;s subsidiaries may rely on the exclusion provided by Section&nbsp;3(c)(5)(C) under the Investment Company Act. Section&nbsp;3(c)(5)(C) of the
Investment Company Act is designed for entities &#147;primarily engaged in the business of purchasing or otherwise acquiring mortgages and other </FONT></P>
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liens on and interests in real estate.&#148; This exclusion requires that at least 55% of the entity&#146;s assets on an unconsolidated basis consist of qualifying real estate assets and at least
80% of the entity&#146;s assets on an unconsolidated basis consist of qualifying real estate assets or real estate-related assets. These requirements limit the assets those subsidiaries can own and the timing of sales and purchases of those assets.
</FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To classify the assets held by our subsidiaries as qualifying real estate assets or real estate-related assets, we rely
on no-action letters and other guidance published by the SEC staff regarding those kinds of assets, as well as upon our analyses (in consultation with outside counsel) of guidance published with respect to other types of assets. There can be no
assurance that the laws and regulations governing the Investment Company Act status of companies similar to ours, or the guidance from the SEC or its staff regarding the treatment of assets as qualifying real estate assets or real estate-related
assets, will not change in a manner that adversely affects our operations. In fact, in August 2011, the SEC published a concept release in which it asked for comments on this exclusion from regulation. To the extent that the SEC or its staff
provides more specific guidance regarding any of the matters bearing upon our exclusion from the definition of investment company under the Investment Company Act, we may be required to adjust our strategy accordingly. Any additional guidance from
the SEC or its staff could further inhibit our ability to pursue the strategies that we have chosen. Furthermore, although we monitor the assets of our subsidiaries regularly, there can be no assurance that our subsidiaries will be able to maintain
their exclusion or exemption from registration. Any of the foregoing could require us to adjust our strategy, which could limit our ability to make certain investments or require us to sell assets in a manner, at a price or at a time that we
otherwise would not have chosen. This could negatively affect the value of our common shares, the sustainability of our business model and our ability to make distributions. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>The ownership limits in our declaration of trust may discourage a takeover or business combination that may have benefited our shareholders. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To assist us in qualifying as a REIT, among other purposes, our declaration of trust restricts the beneficial or constructive ownership
of our shares by any person to no more than 9.8% in value or the number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares. This and other restrictions on ownership and transfer of our shares
contained in our declaration of trust may discourage a change of control of us and may deter individuals or entities from making tender offers for our common shares on terms that might be financially attractive to you or which may cause a change in
our management. In addition to deterring potential transactions that may be favorable to our shareholders, these provisions may also decrease your ability to sell our common shares. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our shareholders&#146; ability to control our operations is severely limited. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees has approval rights with respect to our major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and
distributions. Our Board of Trustees may amend or revise these and other strategies without a vote of our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Certain provisions
of Maryland law could inhibit a change in our control. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Certain provisions of the Maryland General Corporation Law, or the
MGCL, applicable to a Maryland real estate investment trust may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change in our control under circumstances that otherwise could provide the holders of
our common shares with the opportunity to realize a premium over the then prevailing market price of such shares. We are subject to the &#147;business combination&#148; provisions of the MGCL that, subject to limitations, prohibit certain business
combinations between us and an &#147;interested shareholder&#148; (defined generally as any person who beneficially owns 10% or more of our then outstanding voting shares or an affiliate or associate of ours who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting shares) or an affiliate thereof for five years after the most recent date on which the shareholder becomes an interested shareholder and,
thereafter, imposes minimum price or supermajority shareholder voting requirements on these combinations. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of trustees of a real
estate investment trust prior to the time that the interested shareholder becomes an interested shareholder. Pursuant to the statute, our Board of Trustees has by resolution exempted business combinations between us and any other person, provided
that the business combination is first approved by our Board of Trustees, including a majority of our trustees who are not affiliates or associates of such person. This resolution, however, may be altered or repealed in whole or in part at any time.
If this resolution is repealed, or our Board of Trustees does not otherwise approve a business combination, this </FONT></P>
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statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. See &#147;Certain Provisions of Maryland Law and of Our Declaration of
Trust and Bylaws&#151;Business Combinations.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The &#147;control share&#148; provisions of the MGCL provide that holders
of &#147;control shares&#148; of a Maryland real estate investment trust (defined as shares which, when aggregated with all other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting
power in the election of trustees) acquired in a &#147;control share acquisition&#148; (defined as the acquisition of &#147;control shares,&#148; subject to certain exceptions) have no voting rights with respect to the control shares except to the
extent approved by its shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, its officers and its trustees who are also
employees of the Maryland real estate investment trust. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of our shares. There can be no assurance that this provision will not
be amended or eliminated at any time in the future. See &#147;Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws&#151;Control Share Acquisitions.&#148; </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The &#147;unsolicited takeover&#148; provisions of the MGCL permit our Board of Trustees, without shareholder approval and regardless of
what is currently provided in our declaration of trust or bylaws, to implement certain provisions if we have a class of equity securities registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act (which we will have upon
the completion of this offering), and at least three independent trustees. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in our control
under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then current market price. See &#147;Certain Provisions of Maryland Law and of Our Declaration of Trust and
Bylaws&#151;Subtitle 8.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our authorized but unissued common and preferred shares may prevent a change in our control. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust authorizes us to issue additional authorized but unissued common shares and preferred shares. In addition, our
Board of Trustees may, without shareholder approval, approve amendments to our declaration of trust to increase the aggregate number of our authorized shares or the number of shares of any class or series that we have authority to issue and may
classify or reclassify any unissued common shares or preferred shares and may set the preferences, rights and other terms of the classified or reclassified shares. As a result, among other things, our Board may establish a class or series of common
shares or preferred shares that could delay or prevent a transaction or a change in our control that might involve a premium price for our common shares or otherwise be in the best interests of our shareholders. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit your recourse in the
event of actions not in your best interest. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust limits the liability of our present and former
trustees and officers to us and our shareholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our present and former trustees and officers will not have any liability to us or our shareholders for
money damages other than liability resulting from: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">actual receipt of an improper benefit or profit in money, property or services; or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">active and deliberate dishonesty by the trustee or officer that was established by a final judgment and is material to the cause of action.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust authorizes us to indemnify our present and former trustees and officers for
actions taken by them in those and other capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each present and former trustee or officer, to the maximum extent permitted by Maryland law, in the defense of
any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us as a trustee or officer or in certain other capacities. In addition, we may be obligated to pay or reimburse the expenses incurred by
our present and former trustees and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. </FONT></P>
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As a result, we and our shareholders may have more limited rights against our present and former trustees and officers than might otherwise exist absent the current provisions in our declaration
of trust and bylaws or that might exist with other companies, which could limit your recourse in the event of actions not in your best interest. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our declaration of trust contains provisions that make removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust provides that, subject to the rights of holders of any series of preferred shares, a trustee may be removed only
for &#147;cause&#148; (as defined in our declaration of trust), and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of trustees. Vacancies generally may be filled only by a majority
of the remaining trustees in office, even if less than a quorum, for the full term of the class of trustees in which the vacancy occurred. These requirements make it more difficult to change our management by removing and replacing trustees and may
prevent a change in our control that is in the best interests of our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our declaration of trust generally does not permit
ownership in excess of 9.8% of any class or series of our shares of beneficial interest, and attempts to acquire our shares in excess of the share ownership limits will be ineffective unless an exemption is granted by our Board of Trustees.
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust generally prohibits beneficial or constructive ownership by any person of more than 9.8% in
value or by number of shares, whichever is more restrictive, of any class or series of our outstanding shares of beneficial interest and contains certain other limitations on the ownership and transfer of our shares. Our Board of Trustees, in its
sole discretion, may grant an exemption to certain of these prohibitions, subject to certain conditions and receipt by our board of certain representations and undertakings. Our Board of Trustees may from time to time increase this ownership limit
for one or more persons and may increase or decrease such limit for all other persons. Any decrease in the ownership limit generally applicable to all shareholders will not be effective for any person whose percentage ownership of our shares is in
excess of such decreased ownership limit until such time as such person&#146;s percentage ownership of our shares equals or falls below such decreased ownership limit, but any further acquisition of our shares in excess of such decreased ownership
limit will be in violation of the decreased ownership limit. Our Board of Trustees may not increase the ownership limit (whether for one person or all shareholders) if such increase would allow five or fewer individuals to beneficially own more than
49.9% in value of our outstanding shares. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust&#146;s constructive ownership rules are complex and may
cause the outstanding shares owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of the outstanding shares of any class or series by
an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of the outstanding shares of such class or series and thus violate the ownership limit or other restrictions on ownership and transfer of our
shares. Any attempt to own or transfer our common shares or preferred shares (if and when issued) in excess of the ownership limit without the consent of our board of trustees or in a manner that would cause us to be &#147;closely held&#148; under
Section&nbsp;856(h) of the Code (without regard to whether the shares are held during the last half of a taxable year) or otherwise fail to qualify as a REIT will result in the shares being automatically transferred to a trustee for a charitable
trust or, if the transfer to the charitable trust is not automatically effective to prevent a violation of the share ownership limits or the restrictions on ownership and transfer of our shares, any such transfer of our shares will be void <I>ab
initio</I>. Further, any transfer of our shares that would result in our shares being beneficially owned by fewer than 100&nbsp;persons will be void <I>ab initio</I>. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Risks Related to This Offering </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>There is currently no public market for our common
shares, a trading market for our common shares may never develop following this offering and our common share price may be volatile and could decline substantially following this offering. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our common shares are newly issued securities for which there is no established trading market. We expect that our common shares will be
approved for listing on the NYSE, but there can be no assurance that an active trading market for our common shares will develop. Accordingly, no assurance can be given as to the ability of our shareholders to sell their common shares or the price
that our shareholders may obtain for their common shares. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If an active market does not develop or is not maintained, the market price of our common
shares may decline and you may not be able to sell our common shares. Even if an active trading market develops for our common shares subsequent to this offering, the market price of our common shares may be highly volatile and subject to wide
fluctuations. Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market price of our common shares. Some of the factors that could
negatively affect our share price or result in fluctuations in our share price include: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">actual or anticipated variations in our quarterly operating results; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">increases in market interest rates that lead purchasers of our shares to demand a higher yield; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in market valuations of similar companies; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">adverse market reaction to any increased indebtedness we incur in the future; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">additions or departures of key personnel; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">actions by shareholders; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">speculation in the press or investment community; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">general market, economic and political conditions, including the recent economic slowdown and dislocation in the global credit markets;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our operating performance and the performance of other similar companies; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in accounting principles; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">passage of legislation or other regulatory developments that adversely affect us or our industry. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to
accounting standards and disclosure about our executive compensation, that apply to other public companies. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are an
&#147;emerging growth company,&#148; as defined in Section&nbsp;2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not &#147;emerging growth companies,&#148; including, but not limited to, not being required to comply with the auditor attestation requirements of Section&nbsp;404(b) of
the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and of
shareholder approval of any golden parachute payments not previously approved. We have not made a decision whether to take advantage of any or all of these exemptions. If we do take advantage of any of these exemptions, we do not know if some
investors will find our common shares less attractive as a result. The result may be a less active trading market for our common shares and our share price may be more volatile. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We could remain an &#147;emerging growth company&#148; for up to five years or until the earliest of (a)&nbsp;the last day of the first
fiscal year in which our annual gross revenues exceed $1 billion, (b)&nbsp;the date that we become a &#147;large accelerated filer&#148; as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common shares that
is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c)&nbsp;the date on which we have issued more than $1 billion in non-convertible debt securities during the
preceding three-year period. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We qualify as an &#147;emerging growth company&#148; and plan to take advantage of an extended transition
period to comply with new or revised accounting standards applicable to public companies. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We qualify as an emerging
growth company as defined in the JOBS Act. Pursuant to Section 107 of the JOBS Act, as&nbsp;an&nbsp;&#147;emerging growth company,&#148; we&nbsp;are permitted to take advantage of the extended transition period provided in Section&nbsp;7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards, which would allow us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.&nbsp;We have elected to take
advantage of the benefits of this extended transition period. As a result of our election to utilize the extended transition period, our financial statements may not be comparable to those of other public companies that comply with such new or
revised accounting standards. Please refer to &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations&nbsp;&#151; Critical Accounting Policies and Estimates&#148; for further discussion of our election to
utilize the extended transition period for complying with new or revised accounting standards. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Future sales of our common shares or other securities convertible into our common shares could cause the
market value of our common shares to decline and could result in dilution of your shares. </B></FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Sales of substantial
amounts of our common shares could cause the market price of our common shares to decrease significantly. We cannot predict the effect, if any, of future sales of our common shares, or the availability of our common shares for future sales, on the
value of our common shares. Sales of substantial amounts of our common shares, or the perception that such sales could occur, may adversely affect prevailing market values for our common shares. In connection with this offering, we, our current
shareholders, our officers and trustees and our Manager and its executive officers will enter into lock-up agreements that prevent us and each of these persons, subject to exceptions, from offering additional common shares for up to 180 days after
the date of this prospectus, as described in &#147;Underwriting.&#148; In addition, our current shareholders have indicated that they will enter into lock-up agreements with us covering a period of
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; months after the completion of this offering with respect to our common shares they will own as of the closing of this offering. These lock-up provisions, at any time and
without notice, may be released. If the restrictions under the lock-up agreements are waived, our common shares may become available for resale into the market, subject to applicable law, which could reduce the market price for our common shares.
</FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Future offerings of debt securities, which would rank senior to our common shares upon our bankruptcy liquidation, and future
offerings of equity securities which would dilute the common shares holdings of our existing shareholders and may be senior to our common shares for the purposes of dividend and liquidating distributions, may adversely affect the market price of our
common shares. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In the future, we may attempt to increase our capital resources by making offerings of debt securities or
additional offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt securities and preferred shares and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of
our common shares. Our preferred shares, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to pay a dividend or other distribution to the holders of our common
shares. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our
common shares bear the risk of our future offerings reducing the market price of our common shares and diluting their share holdings in our company. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>An increase in market interest rates may have an adverse effect on the market price of our common shares and our ability to pay distributions to our shareholders. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">One of the factors that investors may consider in deciding whether to buy or sell our common shares is our dividend rate as a percentage
of our share price, relative to market interest rates. If market interest rates increase, prospective investors may demand a higher dividend rate on our common shares or seek alternative investments paying higher dividends or interest. As a result,
interest rate fluctuations and capital market conditions can affect the market price of our common shares. For instance, if interest rates rise without an increase in our dividend rate, the market price of our common shares could decrease because
potential investors may require a higher dividend yield on our common shares as market rates on interest-bearing instruments such as bonds rise. In addition, to the extent we have variable rate debt, rising interest rates would result in increased
interest expense on our variable rate debt, thereby adversely affecting our cash flow and our ability to service our indebtedness and pay distributions to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>We may pay distributions from offering proceeds, borrowings or the sale of assets to the extent that distributions exceed earnings or cash flow from our investment activities. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may pay distributions from offering proceeds, borrowings or the sale of assets to the extent that distributions exceed earnings or
cash flow from our investment activities. Such distributions would reduce the amount of cash we have available for investing and other purposes and could be dilutive to our financial results. In addition, funding our distributions from our net
proceeds may constitute a return of capital to our investors, which would have the effect of reducing each shareholder&#146;s basis in its common shares. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>U.S. Federal Income Tax Risks </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Your investment has various U.S. federal income tax risks. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Although the provisions of the Code relevant to your investment are generally described in &#147;Material U.S. Federal Income Tax Considerations,&#148; we strongly urge you to consult your own tax advisor
concerning the effects of federal, state and local income tax law on an investment in our common shares and on your individual tax situation. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our failure to qualify as a REIT would subject us to U.S. federal, state and local income taxes, which could adversely affect the value of our common
shares and would substantially reduce the cash available for distribution to our shareholders. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We believe that,
commencing with our short taxable year ending December&nbsp;31, 2013, we will be organized in conformity with the requirements for qualification as a REIT under the Code and we intend to operate in a manner that will enable us to meet the
requirements for taxation as a REIT commencing with our short taxable year ending December&nbsp;31, 2013. However, we cannot assure you that we will qualify and remain qualified as a REIT. In connection with this offering, we will receive an opinion
from Hunton&nbsp;&amp; Williams LLP that, commencing with our short taxable year ending December&nbsp;31, 2013, we will be organized in conformity with the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws
and our proposed method of operations will enable us to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our short taxable year ending December&nbsp;31, 2013 and subsequent taxable years.
Investors should be aware that Hunton&nbsp;&amp; Williams LLP&#146;s opinion is based upon customary assumptions, is conditioned upon certain </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
representations made by us as to factual matters, including representations regarding the nature of our assets and the conduct of our business, is not binding upon the Internal Revenue Service,
or the &#147;IRS,&#148; or any court and speaks as of the date issued. In addition, Hunton&nbsp;&amp; Williams LLP&#146;s opinion is based on existing U.S. federal income tax law governing qualification as a REIT, which is subject to change either
prospectively or retroactively. Moreover, our qualification and taxation as a REIT depend upon our ability to meet, on a continuing basis, through actual annual operating results, certain qualification tests set forth in the federal income tax laws.
Hunton&nbsp;&amp; Williams LLP will not review our compliance with those tests on a continuing basis. Accordingly, given the complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the potential tax
treatment of the investments we make, and the possibility of future changes in our circumstances, no assurance can be given that our actual results of operations for any particular taxable year will satisfy such requirements. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we fail to qualify as a REIT in any calendar year, and do not qualify for certain statutory relief provisions, we would be required to
pay U.S. federal income tax (and any applicable state and local taxes), including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to our shareholders would not be deductible by us in
computing our taxable income (although such dividends received by certain non-corporate U.S. taxpayers generally would be subject to a preferential rate of taxation). Further, if we fail to qualify as a REIT, we might need to borrow money or sell
assets in order to pay any resulting tax. Our payment of income tax would decrease the amount of our income available for distribution to our shareholders. Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be
required under U.S. federal tax laws to distribute substantially all of our REIT taxable income to our shareholders. Unless our failure to qualify as a REIT was subject to relief under federal tax laws, we could not re-elect to qualify as a REIT
until the fifth calendar year following the year in which we failed to qualify. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Complying with REIT requirements may cause us to forego or
liquidate otherwise attractive investments. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To qualify as a REIT, we must continually satisfy various tests regarding the
sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders and the ownership of our shares of beneficial interest. In order to meet these tests, we may be required to forego investments we
might otherwise make. We may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue investments that would be otherwise advantageous to
us in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our investment performance. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash,
cash items, government securities and qualified REIT real estate assets, including RMBS. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the
outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than government securities, TRS
securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more TRSs. Generally, if we fail to comply with these
requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and becoming subject to U.S.
federal income tax (and any applicable state and local taxes) on all of our income. As a result, we may be required to liquidate from our portfolio otherwise attractive investments or contribute such investments to a TRS. These actions could have
the effect of reducing our income and amounts available for distribution to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Failure to make required distributions would
subject us to tax, which would reduce the cash available for distribution to our shareholders. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To qualify as a REIT, we
must distribute to our shareholders each calendar year at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain. To the extent
that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the
amount, if any, by which our distributions in any calendar year are less than the sum of: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">85% of our REIT ordinary income for that year; </FONT></P></TD></TR></TABLE>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">95% of our REIT capital gain net income for that year; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any undistributed taxable income from prior years. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to distribute our taxable income to our shareholders in a manner intended to satisfy the 90% distribution requirement and to avoid both corporate income tax and the 4% nondeductible excise tax.
However, there is no requirement that TRSs distribute their after tax net income to their parent REIT or their shareholders. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our taxable income may substantially exceed our net income as determined based on GAAP, because, for example, realized capital losses
will be deducted in determining our GAAP net income, but may not be deductible in computing our taxable income. In addition, we may invest in assets that generate taxable income in excess of economic income or in advance of the corresponding cash
flow from the assets. As a result of the foregoing, we may generate less cash flow than taxable income in a particular year. To the extent that we generate such non-cash taxable income in a taxable year, we may incur corporate income tax and the 4%
nondeductible excise tax on that income if we do not distribute such income to shareholders in that year. In that event, we may be required to use cash reserves, incur debt, sell assets, make taxable distributions of our shares or debt securities or
liquidate non-cash assets at rates or at times that we regard as unfavorable to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax in that year. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets,
including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, any TRSs we form will be subject to regular corporate
federal, state and local taxes. Any of these taxes would decrease cash available for distributions to shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The failure of RMBS
subject to a reverse repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to enter into reverse repurchase agreements under which we will nominally sell certain of our RMBS to a counterparty and simultaneously enter into an agreement to repurchase the sold assets. We
believe that, for U.S. federal income tax purposes, these transactions will be treated as secured debt and we will be treated as the owner of the RMBS that are the subject of any such reverse repurchase agreement notwithstanding that such agreements
may transfer record ownership of such assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could successfully assert that we do not own the RMBS during the term of the reverse repurchase agreement, in
which case we could fail to qualify as a REIT. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our ability to engage in TBA transactions could be limited by the requirements necessary to
qualify as a REIT, and we could fail to qualify as a REIT as a result of these investments. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to purchase or sell
TBAs primarily for purposes of managing interest rate risk associated with our liabilities under reverse repurchase agreements. We generally intend to treat such TBA purchases and sales as hedging transactions that hedge indebtedness incurred to
acquire or carry real estate assets, or &#147;qualifying liability hedges&#148; for REIT purposes. We may, from time to time, opportunistically engage in TBA transactions because we find them attractive on their own. The law is unclear regarding
whether income and gains from TBAs that are not qualifying liability hedges are qualifying income for the 75% gross income test and whether TBAs are qualifying assets for the 75% asset test. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To the extent that we engage in TBA transactions that are not qualifying liability hedges for REIT purposes, unless we receive a
favorable private letter ruling from the IRS or we are advised by counsel that income and gains from such TBAs should be treated as qualifying income for purposes of the 75% gross income test, we will limit our income and gains from such TBAs and
any non-qualifying income to no more than 25% of our gross income for each calendar year. Further, unless we receive a favorable private letter ruling from the IRS or we are advised by counsel that TBAs should be treated as qualifying assets for
purposes of the 75% asset test, we will limit our investment in such TBAs and any non-qualifying assets to no more than 25% of our total assets at the end of any calendar quarter and will limit the TBAs held by us that are issued by any one issuer
to no more than 5% of our total assets at the end of any calendar quarter. Accordingly, our ability to purchase and sell Agency RMBS through TBAs and to hold or dispose of TBAs, through roll transactions or otherwise, could be limited. </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Moreover, even if we are advised by counsel that such TBAs should be treated as qualifying
assets or that income and gains from such TBAs should be treated as qualifying income, it is possible that the IRS could successfully take the position that such assets are not qualifying assets and such income is not qualifying income. In that
event, we could be subject to a penalty tax or we could fail to qualify as a REIT if (i)&nbsp;the value of our TBAs, together with our other non-qualifying assets for the 75% asset test, exceeded 25% of our total assets at the end of any calendar
quarter, (ii)&nbsp;the value of our TBAs issued by any one issuer exceeds 5% of our total assets at the end of any calendar quarter, or (iii)&nbsp;our income and gains from our TBAs that are not qualifying liability hedges, together with our
non-qualifying income for the 75% gross income test, exceeded 25% of our gross income for any taxable year. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Complying with REIT
requirements may limit our ability to hedge effectively. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The REIT provisions of the Code substantially limit our ability
to hedge. Our aggregate gross income from non-qualifying hedges, fees, and certain other non-qualifying sources cannot exceed 5% of our annual gross income. As a result, we might have to limit our use of advantageous hedging techniques or implement
those hedges through a TRS. Any hedging income earned by a TRS would be subject to federal, state and local income tax at regular corporate rates. This could increase the cost of our hedging activities or expose us to greater risks associated with
interest rate changes or other changes than we would otherwise want to bear. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our ownership of and relationship with any TRSs that we form
will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly
elect to treat the subsidiary as a TRS. A corporation (other than a REIT) of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% of the
value of a REIT&#146;s total assets may consist of stock or securities of one or more TRSs. A domestic TRS will pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the TRS rules limit the
deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT
that are not conducted on an arm&#146;s-length basis. Any domestic TRS that we may form will pay federal, state and local income tax on its taxable income, and its after-tax net income will be available for distribution to us but is not required to
be distributed to us unless necessary to maintain our REIT qualification. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our ownership limitation may restrict change of control or
business combination opportunities in which our shareholders might receive a premium for their common shares. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In order
for us to qualify as a REIT for each taxable year after 2013, no more than 50% in value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year. &#147;Individuals&#148;
for this purpose include natural persons, private foundations, some employee benefit plans and trusts, and some charitable trusts. In order to help us qualify as a REIT, among other purposes, our declaration of trust generally prohibits any person
from beneficially or constructively owning more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The ownership limitation and other restrictions could have the effect of discouraging a takeover or other transaction in which holders of
our common shares might receive a premium for their common shares over the then-prevailing market price or which holders might believe to be otherwise in their best interests. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The maximum tax rate applicable to &#147;qualified dividend income&#148; payable to U.S. taxpayers taxed at individual rates is 20%. Dividends payable by REITs, however, generally are not eligible for the
reduced rates on qualified dividend income. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in the stocks of REITs to be relatively less
attractive than investments in the stocks of non-REIT corporations that pay dividends treated as qualified dividend income, which could adversely affect the value of the stock of REITs, including our common shares. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">52 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of
our common shares. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative
interpretations of those laws or regulations may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or
administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, U.S.
federal income tax law, regulation or administrative interpretation. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Certain financing activities may subject us to U.S. federal income
tax and could have negative tax consequences for our shareholders. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We currently do not intend to enter into any
transactions that could result in our, or a portion of our assets, being treated as a taxable mortgage pool for U.S. federal income tax purposes. If we enter into such a transaction in the future we will be taxable at the highest corporate income
tax rate on a portion of the income arising from a taxable mortgage pool, referred to as &#147;excess inclusion income,&#148; that is allocable to the percentage of our shares held in record name by disqualified organizations (generally tax-exempt
entities that are exempt from the tax on unrelated business taxable income, such as state pension plans and charitable remainder trusts and government entities). In that case, under our declaration of trust, we could reduce distributions to such
shareholders by the amount of tax paid by us that is attributable to such shareholder&#146;s ownership. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we were to realize
excess inclusion income, IRS guidance indicates that the excess inclusion income would be allocated among our shareholders in proportion to our dividends paid. Excess inclusion income cannot be offset by losses of our shareholders. If the
shareholder is a tax-exempt entity and not a disqualified organization, then this income would be fully taxable as unrelated business taxable income under Section&nbsp;512 of the Code. If the shareholder is a foreign person, it would be subject to
U.S. federal income tax at the maximum tax rate and withholding will be required on this income without reduction or exemption pursuant to any otherwise applicable income tax treaty. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our recognition of &#147;phantom&#148; income may reduce a shareholder&#146;s after-tax return on an investment in our common shares. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may recognize taxable income in excess of our economic income, known as phantom income, in the first years that we hold certain
investments, and experience an offsetting excess of economic income over our taxable income in later years. As a result, shareholders at times may be required to pay U.S. federal income tax on distributions that economically represent a return of
capital rather than a dividend. These distributions would be offset in later years by distributions representing economic income that would be treated as returns of capital for U.S. federal income tax purposes. Taking into account the time value of
money, this acceleration of U.S. federal income tax liabilities may reduce a shareholder&#146;s after-tax return on his or her investment to an amount less than the after-tax return on an investment with an identical before-tax rate of return that
did not generate phantom income. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">53 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Liquidation of our assets may jeopardize our REIT qualification. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To qualify and maintain our qualification as a REIT, we must comply with requirements regarding our assets and our sources of income. If
we are compelled to liquidate our assets to repay obligations to our lenders or for other reasons, we may be unable to comply with these requirements, thereby jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any
resultant gain if we sell assets that are treated as inventory or property held primarily for sale to customers in the ordinary course of business. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the
issuers of assets that we acquire, and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax. </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">When purchasing securities, we may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related
offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, the value of such securities, and also to what extent those securities constitute qualified real estate
assets for purposes of the REIT asset tests and produce income which qualifies under the 75% gross income test. The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant
corporate-level tax. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">54 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_4"></A>SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">This prospectus contains various &#147;forward-looking statements.&#148; Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of
forward-looking terminology such as &#147;believes,&#148; &#147;expects,&#148; &#147;may,&#148; &#147;will,&#148; &#147;would,&#148; &#147;could,&#148; &#147;should,&#148; &#147;seeks,&#148; &#147;approximately,&#148; &#147;intends,&#148;
&#147;plans,&#148; &#147;projects,&#148; &#147;estimates&#148; or &#147;anticipates&#148; or the negative of these words and phrases or similar words or phrases. All forward-looking statements may be impacted by a number of risks and uncertainties
including statements regarding the following subjects: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">use of proceeds of this offering; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our business and strategy; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our projected operating results; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">statements about future distributions; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our ability to deploy effectively and timely the net proceeds of this offering and the proceeds from the private placement of additional shares to our
initial investors; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our ability to obtain financing arrangements; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our expected leverage; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">general volatility of the securities markets in which we invest and the market price of our common shares; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our understanding of our competition and ability to compete effectively; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our expected investments; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">market, industry and economic trends; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our market opportunity; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the regulatory environment in which we operate; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">interest rates; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our hedging activities; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">legal proceedings. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The forward-looking statements in this prospectus 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 could be wrong. Furthermore, these beliefs, assumptions and expectations 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. You should carefully consider these risks before you make an investment decision with
respect to our common shares, along with the following factors that could cause actual results to vary from our forward-looking statements: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the factors referenced in this prospectus, including those set forth under the sections captioned &#147;Risk Factors,&#148; &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations&#148; and &#147;Business;&#148; </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">55 </FONT></P>



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<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our and our Manager&#146;s lack of operating history and our Manager&#146;s lack of experience operating a REIT; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">general volatility of the financial markets, including markets for mortgage securities; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our use of and dependence on leverage; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the impact of the Fannie Mae and Freddie Mac being placed into conservatorship by the FHA and related events, including the lack of certainty as to the
future roles and structures of these entities and changes to legislation and regulations affecting these entities; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">deterioration in quality and ratings of existing or future issuances of the securities we intend to acquire and own; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in our business, strategy and investment guidelines; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in and our perception of changes in our industry; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in regional housing markets, job turnover, consumer debt levels, residential equity valuations, yield curve shape and direction, interest
rates, interest rate spreads and volatility, foreclosure rates, U.S. Federal Reserve target rates, inflationary pressures and recession indicators; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">increases or decreases in prepayment rates on the mortgage loans securing the securities we intend to acquire and own; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in the market value of our assets, including the impact on collateral calls by lenders; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">losses on our non-Agency RMBS investments and other target assets; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">risks associated with our planned hedging activities and the effectiveness of our risk management strategies generally; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the concentration of the risks to which we are exposed; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">availability of suitable opportunities to acquire interest only securities; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">availability of financing and the terms of such financings, including our ability to use our assets as collateral; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our ability to consummate contemplated investment opportunities; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the level of equity that may be required to support our borrowings; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the liquidity of our portfolio or lack thereof; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the degree and nature of our competition; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in business conditions and the economy generally; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">general volatility of the capital markets and the lack of a public market for our common shares; </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">56 </FONT></P>



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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">further deterioration in the credit markets; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the impact of a recession, inflation, deflation and stagflation on the value of the securities we intend to acquire and our ability to finance our
portfolio on a leveraged basis; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">availability of qualified personnel, including the continued availability of an external manager; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the existence of conflict of interest in our relationship with our Manager, Blackstone and certain of our trustees and officers, which could result in
decisions that are not in the best interest of our shareholders; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our ability to qualify and maintain our qualification as a REIT and limitations imposed on our business by our status as a REIT, including limitations
on our ability to hedge and acquire certain types of assets; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our ability to maintain our exclusion from regulation as an investment company under the Investment Company Act and possible consequences of not
qualifying for or losing that exemption; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in GAAP, including interpretations thereof; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">changes in applicable laws and regulations; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">other risks associated with investing in residential mortgage-backed securities, including changes in business conditions and the general economy.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We cannot guarantee future results, levels of activity, performance or achievements. You should not place
undue reliance on forward-looking statements, which apply only as of the date of this prospectus. We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statements set forth in this
prospectus to reflect new information, future events or otherwise, except as required under the U.S. federal securities laws. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">57 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_5"></A>USE OF PROCEEDS </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We estimate that the net proceeds we will receive from this offering will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million (or approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million if the underwriters fully exercise their over-allotment option), after deducting the underwriting discounts and
commissions and estimated organization and offering expenses payable by us. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to deploy the net proceeds of this
offering as follows: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="14%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">approximately &nbsp;&nbsp;&nbsp;&nbsp;% to &nbsp;&nbsp;&nbsp;&nbsp;% in Agency RMBS backed by 30-year fixed rate mortgages;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="14%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">approximately &nbsp;&nbsp;&nbsp;&nbsp;% to &nbsp;&nbsp;&nbsp;&nbsp;% in Agency RMBS backed by 15-year fixed rate mortgages;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="14%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">approximately &nbsp;&nbsp;&nbsp;&nbsp;% to &nbsp;&nbsp;&nbsp;&nbsp;% in Agency RMBS backed by Hybrid/ARM mortgages; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="14%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">approximately &nbsp;&nbsp;&nbsp;&nbsp;% to &nbsp;&nbsp;&nbsp;&nbsp;% in non-Agency RMBS backed by Subprime/Alt-A/Prime mortgages and in our other
target assets </FONT></P></TD></TR></TABLE>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We expect to deploy at least 80% of the net proceeds of this offering in Agency RMBS
backed by 30-year and 15-year fixed rate mortgages. Taking into account our targeted leverage ratios and the targeted allocation of our equity capital described above, we estimate that, during the six month period following the completion of this
offering, our assets will be allocated 0-10% to non-Agency RMBS and 90-100% to Agency RMBS. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our asset acquisition
decisions will be based on market conditions and other factors that our Manager deems relevant at the applicable time. Based on our assessment of the current market environment, we expect to initially maintain the targeted allocation of our equity
capital provided above for a minimum period of approximately six months. However, we cannot assure you that we will not change the targeted allocation described above prior to that time. We reserve the right to change our targeted allocation at any
time and from time to time, depending on prevailing market conditions, including, among other things, the pricing and supply of Agency RMBS, the performance of our portfolio and the availability and terms of financing and our assessment of actual or
potential governmental policy changes or interventions. Capital allocated to a particular class of Agency RMBS may reflect the actual usage of cash, such as in connection with the payment of the purchase price for such assets or in connection with
the posting of collateral with third parties in connection with the financing of such assets, or may represent deemed allocations of capital pursuant to internal liquidity guidelines in connection with the financing or maintenance of such assets. We
expect to borrow against our Agency RMBS securities through reverse repurchase agreements and use the proceeds of the borrowings to acquire additional assets. Over time, we expect to deploy or redeploy our capital in a more diversified portfolio of
our target assets that may include MSRs and other mortgage- and real estate-related assets. We may also use the net proceeds of this offering for general corporate purposes. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Pending these uses, we intend to invest the net proceeds of this offering in readily marketable, interest-bearing, short-term investment grade securities or money market accounts that are consistent with
our intention to qualify as a REIT. Such temporary investments are expected to provide a lower net return than we anticipate achieving from our targeted investments. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">While we intend to use substantially all of the net proceeds of this offering to acquire Agency RMBS as described above, we will have significant flexibility, subject to our investment guidelines, to
acquire assets other than Agency RMBS with which you may not agree or for purposes that are different in range or focus than those described above and elsewhere in this prospectus. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Although we do not intend to use any of the net proceeds from this offering to fund distributions to our shareholders, to the extent we
use these net proceeds to fund distributions, these payments may be treated as a return of capital to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We
also expect that our initial investors will fund the remaining portion of their capital commitments to us, which equal approximately $73.5 million of additional capital in the aggregate, through one or more private placements of our common shares
prior to or concurrently with the completion of this offering. We expect to invest this additional capital in accordance with our investment strategy as described herein, but we have not yet determined how this additional capital will be allocated
among our target assets. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">58 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_6"></A>DILUTION </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our net tangible book value as of September&nbsp;30, 2012, was approximately $31.5 million, or $20 per common share. Net tangible book
value per share represents the amount of our total tangible assets minus our total liabilities, divided by our common shares outstanding. After giving effect to the sale of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; common shares in this
offering at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net
tangible book value on September&nbsp;30, 2012, would have been approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million, or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share. This amount represents an immediate decrease in
net tangible book value of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share to our existing shareholders and an immediate accretion in as adjusted net tangible book value of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share to
new investors who purchase our common shares in this offering at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. The following table shows this immediate per share dilution: </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="76%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="74%"></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Public offering price per share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Net tangible book value per share on September&nbsp;30, 2012, before giving effect to this offering</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Decrease in net tangible book value per share attributable to this offering</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">As adjusted net tangible book value per share on September&nbsp;30, 2012, after giving effect to this offering</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Accretion in as adjusted net tangible book value per share to new investors</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following table summarizes, as of September&nbsp;30, 2012, the differences between the average price
per share paid by our existing shareholders and by new investors purchasing common shares in this offering at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, before deducting underwriting
discounts and commissions and estimated offering expenses payable by us in this offering: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="65%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Shares</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Purchased<SUP
STYLE="vertical-align:baseline; position:relative; bottom:.8ex">(1)</SUP></B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Total&nbsp;Consideration</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Average&nbsp;Price</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Number</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>%</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Amount</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>%</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Per&nbsp;Share</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Shares purchased by existing shareholders</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,575,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">%</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">%</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">20.00</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Shares granted pursuant to our 2012 equity incentive plan</FONT><FONT STYLE="font-family:Times New Roman" SIZE="1"><SUP
STYLE="vertical-align:baseline; position:relative; bottom:.8ex">(2)</SUP></FONT><FONT STYLE="font-family:Times New Roman" SIZE="2"></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">0.0</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">New investors</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">100.0</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">100.0</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Assumes no exercise of the underwriters&#146; over-allotment option to purchase up to an additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; common shares
</FONT></TD></TR></TABLE>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(2)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, no restricted shares or other equity-linked awards had been granted under our 2012 equity incentive plan. </FONT></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If the underwriters fully exercise their over-allotment option to purchase an additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
common shares, the number of common shares held by existing holders will be reduced to &nbsp;&nbsp;&nbsp;&nbsp;% of the aggregate number of common shares outstanding after this offering, and the number of common shares held by new investors will be
increased to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, or &nbsp;&nbsp;&nbsp;&nbsp;% of the aggregate number of common shares outstanding after this offering. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">59 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_7"></A>DISTRIBUTION POLICY </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To qualify as a REIT, we must distribute annually to our shareholders an amount at least equal to 90% of our REIT taxable income,
determined without regard to the deduction for dividends paid and excluding any net capital gain. We currently expect to distribute substantially all of our REIT taxable income to our shareholders. We will be subject to income tax on our taxable
income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income are not distributed by specified dates. See &#147;Material U.S. Federal Income Tax Considerations.&#148; Income as computed for purposes
of the foregoing tax rules will not necessarily correspond to our income as determined for financial reporting purposes. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We
will make distributions only upon the authorization of our Board of Trustees. The amount, timing and frequency of distributions will be authorized by our Board of Trustees based upon a variety of factors, including: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">actual results of operations; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our level of retained cash flows; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the timing of the investment of the net proceeds of this offering; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">restrictions under Maryland law; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any debt service requirements; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our taxable income; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the annual distribution requirements under the REIT provisions of the Code; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">other factors that our Board of Trustees may deem relevant. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our ability to make distributions to our shareholders will depend upon the performance of our investment portfolio, and, in turn, upon our Manager&#146;s management of our business. Distributions will be
made in cash to the extent that cash is available for distribution. We may not be able to generate sufficient net interest income to pay distributions to our shareholders. In addition, our Board of Trustees may change our distribution policy in the
future. We may not pay an initial distribution until a significant portion of the proceeds of this offering have been invested. See &#147;Risk Factors.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may consider various funding sources to cover any
shortfall, including selling certain of our assets, borrowing funds or using a portion of the net proceeds we receive in this offering or future offerings (and thus all or a portion of such distributions may constitute a return of capital for U.S.
federal income tax purposes). We also may elect to pay all or a portion of any distribution in the form of a taxable distribution of our shares or debt securities. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">60 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_8"></A>CAPITALIZATION </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following table sets forth (i)&nbsp;our actual capitalization at September&nbsp;30, 2012 and (ii)&nbsp;our capitalization as adjusted
to reflect the effects of the sale of our common shares in this offering at an assumed offering price of $ per share, after deducting the underwriting discounts and commissions and estimated organization and offering expenses payable by us, and up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional common shares that we may issue and sell to our initial investors in one or more private placements prior to or concurrently with this
offering. You should read this table together with &#147;Use of Proceeds&#148; included elsewhere in this prospectus. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="76%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="69%"></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>As of September&nbsp;30, 2012</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Actual</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>As&nbsp;Adjusted<SUP STYLE="vertical-align:baseline; position:relative; bottom:.8ex">(1)</SUP><SUP
STYLE="vertical-align:baseline; position:relative; bottom:.8ex">,</SUP>&nbsp;<SUP STYLE="vertical-align:baseline; position:relative; bottom:.8ex">(</SUP><SUP STYLE="vertical-align:baseline; position:relative; bottom:.8ex">2)</SUP></B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Shareholders Equity:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Common shares, par value $0.01 per share; 500,000,000 shares authorized and 1,575,000 shares outstanding, actual; 500,000,000
shares authorized and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares outstanding, as adjusted</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">15,750</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Preferred shares, par value $0.01 per share; 100,000,000 shares authorized and no shares outstanding, actual; 100,000,000 shares
authorized and no shares outstanding, as adjusted</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Capital in excess of par value</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,484,250</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total shareholders&#146; equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Assumes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares will be sold in this offering at a public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share for net proceeds of approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million after deducting the underwriting discounts and commissions and estimated offering and
organization expenses of approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million payable by us. See &#147;Use of Proceeds.&#148; </FONT></TD></TR></TABLE>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(2)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Includes up to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional common shares that we may issue and sell to our initial investors in one or more private
placements prior to or concurrently with this offering. Does not include up to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional common shares issuable upon the exercise by the underwriters of their over-allotment option.
</FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">61 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_8a"></A>SELECTED FINANCIAL INFORMATION </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following table sets forth selected historical financial information derived from our audited financial statements as of
September&nbsp;30, 2012 and for the period September&nbsp;25, 2012 (the commencement of our operations) through September&nbsp;30, 2012. The following data should be read in conjunction with &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations&#148; and our financial statements including the notes thereto, included elsewhere in this prospectus. We commenced operations only on September&nbsp;25, 2012, and therefore, the selected financial data
presented below are not capable or indicative of our future financial condition or results of operations. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="65%"></TD>
<TD VALIGN="bottom" WIDTH="25%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>September&nbsp;30,&nbsp;2012</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Balance Sheet Data at Period End:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Real estate related securities, at fair value</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-Agency (Cost - $5,134,124)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Cash and cash equivalents</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">29,465,382</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interest receivable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">937</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total Assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">34,600,443</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Payable for securities purchased</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">3,100,129</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Other liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">8,363</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">3,108,492</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Shareholders&#146; equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,491,951</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>For&nbsp;the&nbsp;period&nbsp;September&nbsp;25,&nbsp;2012<BR>(Commencement of Operations)<BR>Through September 30, 2012</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Statement of Operations Data:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interest income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">389</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Expenses</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Management fee to affiliate</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">7,875</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency and administration fees</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">438</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Custody and other fees</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">125</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">8,438</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Net Loss</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(8,049</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Share Data:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Loss per common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Basic and diluted</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(0.01</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
</TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">62 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_9"></A>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>FINANCIAL CONDITION AND RESULTS OF OPERATIONS </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>The following discussion relates to and should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this prospectus. The discussion is intended
to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Our historical results may not indicate, and should not be relied upon as an indication of, our future performance. Our
forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these
statements. See &#147;Risk Factors&#148; and &#147;Special Note Regarding Forward-Looking Statements&#148; for a discussion of the uncertainties, risks and assumptions associated with these statements. </I></FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Executive Summary </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We
are a Maryland real estate investment trust formed in August 2012 that specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. Our primary objective is to generate attractive current yields and
risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the risks associated with them. We seek to attain this objective by constructing and actively managing a portfolio comprised
primarily of RMBS, with a significant emphasis on Agency RMBS. We also may opportunistically acquire and manage other types of residential mortgage-related and real estate-related asset classes, such as residential whole mortgage loans, MSRs, and
residential real properties. We believe that being able to combine Agency RMBS with non-Agency RMBS and other residential mortgage and real estate-related asset classes enables us to balance a range of mortgage-related risks. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We were formed through an initial strategic venture among affiliates of Ellington, an investment management firm and registered
investment adviser with a 17-year history of investing in a broad spectrum of mortgage-backed securities and related derivatives, with an emphasis on the RMBS market, and the Blackstone Funds. In September 2012, we received combined initial capital
commitments from these investors of $105.0 million, of which approximately $31.5 million was funded on September&nbsp;25, 2012, with affiliates of Ellington retaining a commitment of $3.5 million and the Blackstone Funds retaining a commitment of
$70.0 million. As of September&nbsp;30, 2012, we had deployed these funds in approximately $5.0 million of non-Agency RMBS. We expect that the remaining portion of the aggregate capital commitment of our initial investors will be funded through one
or more additional private placements of common shares prior to or concurrently with the completion of this offering. We are externally managed and advised by our Manager, an affiliate of Ellington. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will elect and intend to qualify to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year
ending December&nbsp;31, 2013. Accordingly, we generally will not be subject to U.S. federal income taxes on our taxable income that we distribute currently to our shareholders as long as we maintain our intended qualification as a REIT. We intend
to conduct our operations so that neither we nor any of our subsidiaries is required to register as an investment company under the Investment Company Act. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, we had no outstanding indebtedness and our only liabilities relate to securities that we had purchased as of that date and accrued management fees and expenses. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Trends and Recent Market Developments </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>GSE Developments </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Agency RMBS will be guaranteed by Fannie Mae
and Freddie Mac. In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship of the FHFA, their federal regulator, due to concerns about Fannie Mae&#146;s and Freddie Mac&#146;s ability to withstand future credit losses
associated with securities held in their investment portfolios and on which they provide guarantees without the direct support of the Federal Government. Under this conservatorship, Fannie Mae and Freddie Mac are required to reduce the amount of
mortgage loans they own or for which they provide guarantees on Agency RMBS. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">63 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, (i)&nbsp;Treasury and FHFA entered into preferred stock purchase agreements
with Fannie Mae and Freddie Mac pursuant to which Treasury ensures that each of Fannie Mae and Freddie Mac maintains a positive net worth through 2012; (ii)&nbsp;Treasury established a secure lending credit facility for Fannie Mae, Freddie Mac, and
the FHFA to serve as a liquidity backup; and (iii)&nbsp;Treasury initiated a program to purchase RMBS issued by Fannie Mae and Freddie Mac. In December 2009, Treasury ended the secured lending credit facility and the RMBS purchase program, but
contemporaneously lifted the cap on assistance to be provided to Fannie Mae and Freddie Mac pursuant to the preferred stock purchase program, thereby effectively providing nearly unlimited support for Fannie Mae and Freddie Mac through 2012. In
August 2012, Treasury announced a set of modifications to its preferred stock agreements with the FHFA, with a goal of expediting the wind down of Fannie Mae and Freddie Mac. The revised agreements provide for a sweep of all profits from Fannie Mae
and Freddie Mac and an accelerated reduction of Fannie Mae and Freddie Mac&#146;s investment portfolios, which will be wound down at an annual rate of 15%. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship, the Secretary of the Treasury noted that the guarantee structure of Fannie Mae and Freddie Mac required examination and
that changes in the structures of the entities were necessary to reduce risk to the financial system. The substantial financial assistance provided by the Federal Government to Fannie Mae and Freddie Mac, especially in the course of their being
placed into conservatorship and thereafter, together with the substantial financial assistance provided by the Federal Government to the mortgage-related operations of other GSEs and government agencies, such as the FHA, the VA, and Ginnie Mae, has
stirred debate among many federal policymakers over the continued role of the Federal Government in providing such financial support for the mortgage-related GSEs in particular, and for the mortgage and housing markets in general. In fact, in
February 2011, the Treasury released a white paper entitled &#147;Reforming America&#146;s Housing Finance Market&#148; in which the Treasury outlined three possible options for reforming the Federal Government&#146;s role in housing finance. Under
each option, the role of the Federal Government in the mortgage market would be reduced. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">While the exact fate and role of
Fannie Mae and Freddie Mac remain uncertain, it is probable that they will continue to shrink in size. The reduction of the role of Fannie Mae and Freddie Mac may create opportunities for us, and we continue to monitor the evolving status of
proposals to reform their role in the mortgage markets. However, we cannot predict whether or when any restructuring of Fannie Mae or Freddie Mac may occur or the impacts, if any, such changes may have on our business, results of operations and
financial condition. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Monetary Policy </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In June 2012, the U.S. Federal Reserve announced a decision to continue through the end of 2012 its Maturity Extension Program, whereby it has been extending the average maturity of its holdings of
securities. The program had been scheduled to expire in June 2012, but as the U.S. Federal Reserve saw signs of continued weakness in the U. S. economy, including continued elevated unemployment and a still-depressed housing market, it determined
there was need for continued economic support. The Maturity Extension Program has led to and may lead to further flattening of the yield curve (<I>i.e.</I>, a narrowing of the spread between short term and long term interest rates), which may narrow
the spread between the yields of our fixed rate MBS assets and our short-term borrowings, which in turn would reduce our net income to the extent not offset by our interest rate hedges. Should any such flattening include a decline in long-term
interest rates, mortgage rates may decline and as a result the prepayment rates on our Agency RMBS may increase, which would reduce the yields on our Agency RMBS. However, to the extent that we hedge our Agency RMBS portfolio with short TBA
positions, we actually may benefit from an overall increase in prepayments if prepayments increase less on the particular Agency RMBS that we hold relative to the more generic pools that underlie our short TBA positions. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">On September&nbsp;13, 2012, the U.S. Federal Reserve announced that it would increase its policy accommodations by purchasing additional
Agency MBS at a pace of $40 billion per month in order to support a stronger recovery of the U.S. economy and to combat inflation. In an effort to keep long-term interest rates at low levels, on December 12, 2012, the U.S. Federal Reserve announced
an expansion of its asset buying program starting in January 2013, at which time it would commence outright purchases of longer-term Treasury securities at a pace of $45 billion per month. This new Treasury securities purchase program replaces
&#147;Operation Twist,&#148; which expired in December 2012. In addition to these purchases, the U.S. Federal Reserve intends to maintain its existing policy of reinvesting principal payments from its holdings of Agency debt and Agency MBS in
additional Agency MBS. Unlike the prior two bond purchase programs implemented by the U.S. Federal Reserve to aid the sluggish economy, no definitive program end date or total target purchase amount was provided. Rather, the U.S. Federal Reserve
plans to closely monitor incoming information on economic and financial developments and adjust its actions accordingly. Specifically, should the outlook for the labor market not improve substantially, the U.S. Federal Reserve will continue its
purchase of Agency MBS and Treasury securities and employ its other policy tools as appropriate until such improvement is </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">64 </FONT></P>



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  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
achieved in a context of price stability. In an unexpected move on December 12, 2012, the U.S. Federal Reserve also announced its determination to tie the end date of exceptionally low interest
rates to specific macroeconomic targets. In doing so, the U.S. Federal Reserve stated its intent to keep the target range for the federal funds rate below 0.25% until either the unemployment rate drops below 6.5% or the projected inflation rate over
the next one to two years increases above 2.5% and longer-term inflation continue to be expected. Upon satisfaction of either of these macroeconomic targets, the U.S. Federal Reserve intends to return to monetary policy goals of maximum employment
and long-term inflation of 2%, which is consistent with the previously announced target end date of mid-2015 for a target federal funds rate below 0.25%. On January 30, 2013, the U.S. Federal Reserve affirmed its intent to maintain the target range
for the federal funds rate at these levels. </FONT></P>  <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>HARP </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In the fourth quarter of 2011, the FHFA, along with Fannie Mae and Freddie Mac, announced several changes to HARP including among others:
(1)&nbsp;the reduction, or elimination in certain cases, of many risk-based fees charged to borrowers when refinancing, (2)&nbsp;the expansion of the loan-to-value ceiling, (3)&nbsp;the removal of certain representations and warranties made by
lenders when refinancing loans already owned or guaranteed by Fannie Mae or Freddie Mac, and (4)&nbsp;confirmation that lenders will no longer be required to attest to an individual borrower&#146;s ability to repay his/her mortgage (this attestation
requirement had been widely considered a major factor in limiting HARP&#146;s success previously). In addition, the term of the program was extended through to the end of 2013. According to the FHFA, Fannie Mae and Freddie Mac refinanced 519,339
loans in the first seven months of 2012 under HARP, which is more than all HARP refinances in 2011. The increase in HARP refinancing activity is attributable to record-low mortgage rates and the program enhancements discussed above. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Distressed Asset Stabilization Program </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In June 2012, the FHA announced the launch of the Distressed Asset Stabilization Program, an expansion of an FHA pilot program that allows private investors to purchase pools of mortgage loans headed for
foreclosure. Investors purchasing loans through this program are generally prohibited from foreclosing for a minimum of six months while other affordable solutions are sought such as loan modifications or short sales. Under the program, more
mortgages will become available for sale and thereby potentially reduce the number subject to foreclosure. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Potential
Use of Eminent Domain </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A few municipalities, most notably in California, have recently announced that they are
exploring using the power of eminent domain to seize certain mortgages as a way to aid homeowners with &#147;underwater&#148; mortgages (i.e., who owe more than the properties&#146; values). Under this controversial concept, which it has been
asserted would only be applied to mortgages held in private label securitization trusts (and in particular not those not backed by Fannie Mae or Freddie Mac, or held directly by banks), the municipality would first seize qualifying mortgages using
eminent domain power, then offer homeowners new loans (usually pursuant to the FHA Refinance Program) from new lenders, with reduced principal balances that were at or even below the current property values. By law, the securitization trusts would
have to receive &#147;fair market value&#148; as compensation for the seizure. Advocates of the idea believe that this strategy would help individual homeowners and local economies and, by reducing foreclosure volumes, accelerate the return of the
housing market and the mortgage finance market to normalcy. While advocates believe that the use of eminent domain is both legally permissible and practical in this context, opponents have raised numerous objections. Opponents believe that such a
transfer of mortgages from one set of private owners to others exceeds both the legal and appropriate bounds of eminent domain, and are convinced that the contemplated procedures will not result in fair compensation to the private label
securitization trusts for the seizures. Opponents also believe that such uses of eminent domain would further depress mortgage credit, and therefore ultimately depress housing values, by creating a whole new set of concerns for prospective lenders.
It is too early to tell whether or to what extent any municipalities will actually use an eminent domain strategy to seize and restructure underwater mortgages, and whether such a strategy is likely to withstand the inevitable legal challenges it
would face. As a result, we believe that it would be premature at this time to assess the impact such actions would have on our results of operations. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Critical Accounting Policies </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Certain of our critical accounting policies
require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
We&nbsp;believe that all of the decisions and assessments upon which our consolidated financial statements are based were reasonable&nbsp;at the time made based upon information available to us
at that time. We rely on our Manager and Ellington&#146;s experience and analysis of historical and current market data in order to arrive at what we believe to be reasonable estimates. See Note 2 to the consolidated financial statements included in
this prospectus for a complete discussion of our significant accounting policies. We have identified our most critical accounting policies to be the following: </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I><U>Valuation</U>:</I> We apply Accounting Standards Codification (&#147;ASC&#148;) ASC 820-10, Fair Value Measurement and Disclosures (&#147;ASC 820-10&#148;), to our holdings of financial instruments.
ASC 820-10 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Financial
instruments include securities and derivatives. A financial instrument&#146;s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The inputs or methodology used for
valuing securities are not necessarily an indication of the risk associated with investing in these securities. The following is a description of the valuation methodologies used for our financial instruments: </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 1&#151;valuation methodologies include the observation of quoted prices (unadjusted) for identical assets or liabilities in active
markets, often received from widely recognized data providers. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 2&#151;valuation methodologies include the observation
of (i) quoted prices for similar assets or liabilities in active markets, (ii) inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves) in active markets and (iii) quoted prices
for identical or similar assets or liabilities in markets that are not active. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 3&#151;valuation methodologies include
(i) the use of proprietary models that require the use of a significant amount of judgment and the application of various assumptions including, but not limited to, prepayment assumptions and default rate assumptions, (ii) the assessment of
observable or reported recent trading activity, and (iii) the solicitation of valuations from third-parties (typically, broker-dealers). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our Manager utilizes such information to assign a good faith valuation (the estimated price that would be received to sell an asset or paid to transfer a liability in an orderly transaction at the
valuation date) to such financial instruments. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager seeks to obtain at least one third-party indicative valuation for
each instrument, and often obtains multiple indicative valuations when available. Third-party valuation providers often utilize proprietary models that are highly subjective and also require the use of a significant amount of judgment and the
application of various assumptions including, but not limited to, prepayment assumptions and default rate assumptions. Our Manager has been able to obtain third-party valuations on the vast majority of our assets and expects to continue to solicit
third-party valuations on substantially all of our assets in the future to the extent practical. Third-party valuations are not binding on the Manager; rather, our Manager uses its judgment, based on its own models, recent trading activity in the
same or similar instruments, and the indicative valuations received from third parties to determine and assign fair values to our Level 3 assets. We believe that third-party valuations play an important role in ensuring that our Manager&#146;s
valuation determinations are fair and reasonable. Our Manager&#146;s valuation process is overseen by our Manager&#146;s valuation committee. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the
values that would have been used had a ready market for the financial instruments existed, and the differences could be material to the consolidated financial statements. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I><U>Accounting for Real Estate Related Securities</U></I>: Investments in real estate related securities are generally recorded on trade date. These investments generally meet the requirements to be
classified as available for sale under ASC 320-10-25, &#147;Debt and Equity Securities,&#148; which requires the securities to be carried at fair value on our consolidated balance sheet with changes in fair value charged to other comprehensive
income, a component of shareholders&#146; equity. We have chosen to make a fair value election pursuant to ASC 825 for our real estate related securities portfolio. Electing the fair value option allows us to record changes in fair value in our
consolidated statement of operations, which, in our view, more appropriately reflects the results of our operations for a particular reporting period as all securities activities will be recorded in a similar manner. As such, the real estate related
securities are recorded at fair market value on our consolidated balance sheet and the period change in fair market value is recorded in current period earnings on our consolidated statement of operations as a component of unrealized gain/loss on
real estate related securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Realized gains or losses on sales of securities and derivatives, inclusive of securities
classified as a component of linked transactions are included in the net other income line item on the Consolidated Statement of Operations, and are recorded at the time of disposition. The cost of positions sold is calculated based on identified
cost. Principal write-offs are generally treated as realized losses. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I><U>Interest Income</U></I>: We accrete market
discounts and amortize market premiums on debt securities using the effective yield method. Accretion of market discount and amortization of market premiums requires the use of a significant amount of judgment and the application of several
assumptions including, but not limited to, prepayment assumptions and default rate assumptions, which are evaluated quarterly. Our accrual of interest, discount and premium for U.S. federal and other tax purposes is likely to differ from the
financial accounting treatment of these items as described above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I><U>Manager Compensation</U></I>: The management
agreement provides for the payment to the Manager of a management fee. The management fee is accrued and expensed during the period for which it is calculated and earned. For a more detailed discussion on the fees payable under the management
agreement, see Note 5 to the consolidated financial statements included in this prospectus. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I><U>Income Taxes</U></I>: Prior to the effective date of our election to be treated as a
REIT for U.S. federal income tax purposes, as a Maryland real estate investment trust with more than one owner, we will be treated as a partnership for U.S. federal income tax purposes. In general, partnerships are not subject to entity-level tax on
their income, but the income of a partnership is taxable to its owners on a flow-through basis. Interest, dividend and other income that we realize from non-U.S. sources and capital gains that we realize on the sale of securities of non-U.S. issuers
may be subject to entity-level tax, such as withholding and other taxes levied by the jurisdiction in which the income is sourced. Although we will elect and intend to qualify to be taxed as a REIT commencing with our short taxable year ending
December 31, 2013, we have not elected and do not intend to elect REIT status under the Code for the period presented in the consolidated financial statements. We follow the authoritative guidance on accounting for and disclosure of uncertainty on
tax positions, which requires management to determine whether a tax position of the company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals of the litigation
process, based on the technical merits of the position. For uncertain tax positions, the tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.
We did not have any unrecognized tax benefits at September 30, 2012. We do not expect any change in unrecognized tax benefits within the next year. In the normal course of business, we may be subject to examination by federal, state, local and
foreign jurisdictions, where applicable, for the open tax year 2012. We may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators
successfully challenge any such positions; we might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements. Also, management&#146;s conclusions regarding the authoritative guidance may be
subject to review and adjustment at a later date based on changing tax laws, regulations and interpretations thereof. There were no amounts accrued for penalties or interest as of or during the periods presented in these consolidated financial
statements. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>&#147;Emerging Growth Company&#148; Status</I><I>:</I> On April 5, 2012, the JOBS Act was signed into law. The
JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. Because we qualify as an &#147;emerging growth company,&#148; we may, under Section 7(a)(2)(B) of the Securities Act, delay
adoption of new or revised accounting standards applicable to public companies until such standards would otherwise apply to private companies. We may take advantage of&nbsp;this extended transition period until the first to occur of the date that
we (i) are no longer an &#147;emerging growth company&#148; or (ii)&nbsp;affirmatively and irrevocably opt out of this extended transition period. We have elected to take advantage of the benefits of this extended transition period. As a result, our
financial statements may not be comparable to those of other public companies that comply with such new or revised accounting standards. Until the date that we are no longer an &#147;emerging growth company&#148; or affirmatively and irrevocably opt
out of the exemption provided by Securities Act Section 7(a)(2)(B), upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will
disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Recent Accounting Pronouncements </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Refer to the notes to our consolidated
financial statements for a description of relevant recent accounting pronouncements. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Financial Condition </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, all of our invested capital was invested in non-Agency RMBS. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Results of Operations for the Period September&nbsp;25, 2012 (Commencement of Operations) through September&nbsp;30, 2012 </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We received our initial capital funding of approximately $31.5 million on September&nbsp;25, 2012 and promptly deployed the capital into
approximately $5 million of non-Agency RMBS. The results of operations discussed herein reflect only the five days of operations after our initial funding. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Interest Income </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our primary source of income is the interest earned on our
investment portfolio. Our portfolio as of September&nbsp;30, 2012 consisted solely of floating rate non-Agency RMBS and we earned $389 in interest income on these securities for the period September&nbsp;25, 2012, our commencement of operations,
through September&nbsp;30, 2012. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Expenses </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our expenses were $8,438 and consisted solely of management fees, agency and administration fees, and custody and other fees for the period September&nbsp;25, 2012, our commencement of operations, through
September&nbsp;30, 2012. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Liquidity and Capital Resources </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Liquidity refers to our ability to meet our cash needs, including repaying our borrowings, funding and maintaining RMBS and other assets,
making distributions and other general business needs. We expect our short-term (one year or less) and long-term liquidity requirements to include acquisition costs for assets we acquire, payment of our management fee, compliance with margin
requirements under our repurchase agreements, reverse repurchase agreements, TBA and derivative contracts, repayment of reverse repurchase agreement borrowings to the extent we are unable or unwilling to extend our reverse repurchase agreements, and
payment of our general operating expenses. We expect our capital resources will primarily include cash on hand, cash flow from our investments (including monthly principal and interest payments received on our RMBS and proceeds from the sale of
securities), borrowings under reverse repurchase agreements and proceeds from equity offerings. We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We expect to borrow funds in the form of reverse repurchase agreements. The terms of these borrowings under our master repurchase
agreements generally conform to the terms in the standard master repurchase agreement as published by SIFMA as to repayment and margin requirements. In addition, each lender typically requires that we include supplemental terms and conditions to the
standard master repurchase agreement. Typical supplemental terms and conditions include the addition of or changes to provisions relating to margin calls, net asset value requirements, cross default provisions, certain key person events, changes in
corporate structure and requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction. These provisions may differ for each of our lenders. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September 30, 2012, we had no amounts outstanding under our repurchase agreement. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We held cash and cash equivalents of approximately $26.5 million as of September&nbsp;30, 2012. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may declare dividends based on, among other things, our earnings, our financial condition, our working capital needs and new
opportunities. The declaration of dividends to our shareholders and the amount of such dividends are at the discretion of our Board of Trustees. No dividends were paid during the period from September&nbsp;25, 2012, our commencement of operations,
through September&nbsp;30, 2012. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Based on our current portfolio, amount of free cash on hand, debt-to-equity ratio and
current and anticipated availability of credit, we believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are not required by our investment guidelines to maintain any specific debt-to-equity ratio, and we believe that the appropriate
leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Contractual Obligations and Commitments </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We are a party to a management agreement with our Manager. Pursuant to that agreement, our Manager is entitled to receive a management fee, reimbursement of certain expenses and, in certain circumstances,
a termination fee. Such fees and expenses do not have fixed and determinable payments. For a description of the management agreement provisions, see &#147;Our Manager and the Management&#151;Management Agreement.&#148; </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We enter into reverse repurchase agreements with third-party broker-dealers whereby we sell securities to such broker-dealers at
agreed-upon purchase prices at the initiation of the reverse repurchase agreements and agree to repurchase such securities at predetermined repurchase prices and termination dates, thus providing the broker-dealers with an implied interest rate on
the funds initially transferred to us by the broker-dealers. When we enter into a reverse repurchase agreement, the lender establishes and maintains an account containing cash and securities having a value not less than the repurchase price,
including accrued interest, of the reverse repurchase agreement. We enter into repurchase agreements with third-party broker-dealers whereby we purchase securities under agreements to resell at an agreed-upon price and date. In general, we most
often will enter into repurchase agreement transactions in order to effectively borrow securities that we can then deliver to counterparties to whom we have made short sales of the same securities. The implied interest rates on the repurchase
agreements and reverse repurchase agreements we enter into are based upon market rates at the time of initiation. Repurchase agreements and reverse repurchase agreements that are conducted with the same counterparty may be reported on a net basis if
they meet the requirements of ASC 210-20, <I>Balance Sheet, Offsetting</I>. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, we had entered into one master repurchase agreement, or
&#147;MRA,&#148; but had no outstanding repurchase agreements under this MRA. We currently have master repurchase agreements in place with six counterparties, and we are in active discussions with &nbsp;&nbsp;&nbsp;&nbsp; additional reverse
repurchase agreement counterparties. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Off-Balance Sheet Arrangements </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed
any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged
in such relationships. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Inflation </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">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 so than does inflation. Changes in
interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Quantitative and Qualitative Disclosures About Market Risk </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The primary components of our market risk are related to credit risk, prepayment risk and interest rate risk. We seek to actively manage these and other risks and to acquire and hold assets that we
believe justify bearing those risks, and to maintain capital levels consistent with those risks. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Interest Rate Risk
</I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and
international economic and political considerations and other factors beyond our control. We are subject to interest rate risk in connection with most of our assets and liabilities. For some securities in our portfolio, the coupon interest rates on,
and therefore also the values of, such securities are highly sensitive to interest rate movements, such as inverse floating rate RMBS, which benefit from falling interest rates, or certain deep discount floating rate RMBS, which benefit from rising
interest rates. Subject to qualifying and maintaining our qualification as a REIT and our exemption from registration under the Investment Company Act, we intend to opportunistically hedge our interest rate risk by entering into interest rate swaps,
TBAs, U.S. Treasury securities, Eurodollar futures, and other instruments. In general, such hedging instruments are used to offset the large majority of the interest rate risk we estimate to arise from our reverse repurchase agreement indebtedness
associated with our Agency RMBS positions. Hedging instruments may also be used to offset a portion of the interest rate risk arising from our reverse repurchase agreement liabilities associated with certain non-Agency RMBS positions. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">69 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following sensitivity analysis table shows the estimated impact on the fair value of our
portfolio segregated by certain identified categories as of September&nbsp;30, 2012, assuming a static portfolio and immediate and parallel shifts in interest rates from current levels as indicated below. </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="65%"></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(In Thousands)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Estimated&nbsp;Change&nbsp;in&nbsp;
Fair</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Value for a Decrease in</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Interest Rates by</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Estimated&nbsp;Change&nbsp;in&nbsp;
Fair</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Value for an Increase in</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Interest Rates by</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:83pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Category of Instruments</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>50 Basis</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Points</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>100 Basis</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Points</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>50 Basis</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Points</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>100 Basis</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Points</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-Agency RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">107</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">230</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(90</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(162</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">107</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">230</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(90</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(162</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our analysis of interest rate risk is derived from Ellington&#146;s proprietary models as well as third
party information and analytics. Many assumptions have been made in connection with the calculations set forth in the table above and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would
affect the outcomes. For example, for each hypothetical immediate shift in interest rates, assumptions have been made as to the response of mortgage prepayment rates, the shape of the yield curve, and market volatilities of interest rates; each of
the foregoing factors can significantly and adversely affect the fair value of our interest rate-sensitive instruments. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The
above analysis utilizes assumptions and estimates based on management&#146;s judgment and experience, and relies on financial models, which are inherently imperfect; in fact, different models can produce different results for the same securities.
While the table above reflects the estimated impacts of immediate parallel interest rate increases and decreases on specific categories of instruments in our portfolio, we actively trade many of the instruments in our portfolio and we intend to
diversify our portfolio to reflect a portfolio comprised primarily of RMBS, with a significant emphasis on Agency RMBS, and therefore our current or future portfolios may have risks that differ significantly from those of our September&nbsp;30, 2012
portfolio estimated above. Moreover, the impact of changing interest rates on fair value can change significantly when interest rates change by a greater amount than the hypothetical shifts assumed above. Furthermore, our portfolio is subject to
many risks other than interest rate risks, and these additional risks may or may not be correlated with changes in interest rates. For all of the foregoing reasons and others, the table above is for illustrative purposes only and actual changes in
interest rates would likely cause changes in the actual fair value of our portfolio that would differ from those presented above, and such differences might be significant and adverse. See &#147;Special Note Regarding Forward-Looking
Statements.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Prepayment Risk </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Prepayment risk is the risk of change, whether an increase or a decrease, in the rate at which principal is returned in respect of mortgage loans underlying RMBS, including both through voluntary
prepayments and through liquidations due to defaults and foreclosures. This rate of prepayment is affected by a variety of factors, including the prevailing level of interest rates as well as economic, demographic, tax, social, legal and other
factors. Changes in prepayment rates will have varying effects on the different types of securities in our portfolio. We attempt to take these effects into account in making asset management decisions with respect to our assets. Additionally,
increases in prepayment rates may cause us to experience losses on our IOs and IIOs, as those securities are extremely sensitive to prepayment rates. Prepayment rates, besides being subject to interest rates and borrower behavior, are also
substantially affected by government policy and regulation. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Credit Risk </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are subject to credit risk in connection with our assets, especially our non-Agency RMBS. Credit losses on real estate loans underlying
our non-Agency RMBS can occur for many reasons, including, but not limited to, poor origination practices, fraud, faulty appraisals, documentation errors, poor underwriting, legal errors, poor servicing practices, weak economic conditions, decline
in the value of homes, special hazards, earthquakes and other </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">70 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
natural events, over-leveraging of the borrower on the property, reduction in market rents and occupancies and poor property management services in the case of rented homes, changes in legal
protections for lenders, reduction in personal income, job loss and personal events such as divorce or health problems. Property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to,
national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors), local real estate conditions (such as an oversupply of housing), changes or continued weakness in specific industry segments,
construction quality, age and design, demographic factors and retroactive changes to building or similar codes. For mortgage-related instruments, the two primary components of credit risk are default risk and severity risk. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Default Risk </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Default risk is the risk that borrowers will fail to make principal and interest payments on their mortgage loans. Subject to qualifying and maintaining our qualification as a REIT and our exemption from
registration under the Investment Company Act, we may selectively attempt to mitigate our default risk by, among other things, opportunistically entering into credit default swaps on individual RMBS or RMBS indices, whereby we would receive payments
upon the occurrence of a credit event on the underlying reference asset or assets. We also rely on third-party mortgage servicers to mitigate our default risk, but such third-party mortgage servicers may have little or no economic incentive to
mitigate loan default rates. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Severity Risk </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Severity risk is the risk of loss upon a borrower default on a mortgage loan underlying our RMBS. Severity risk includes the risk of loss
of value of the property underlying the mortgage loan as well as the risk of loss associated with taking over the property, including foreclosure costs. We rely on third-party mortgage servicers to mitigate our severity risk, but such third-party
mortgage servicers may have little or no economic incentive to mitigate loan loss severities. Such mitigation efforts may include loan modification programs and prompt foreclosure and property liquidation following a default. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">71 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_10"></A>BUSINESS </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Company </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington
Residential Mortgage REIT is a Maryland real estate investment trust formed in August 2012 that specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. Our primary objective is to generate attractive
current yields and risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the risks associated with them. We seek to attain this objective by constructing and actively managing a
portfolio comprised primarily of RMBS, with a significant emphasis on Agency RMBS. We also may opportunistically acquire and manage other types of residential mortgage-related and real estate-related asset classes, such as residential whole mortgage
loans, MSRs, and residential real properties. We believe that being able to combine Agency RMBS with non-Agency RMBS and other residential mortgage and real estate-related asset classes enables us to balance a range of mortgage-related risks.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We were formed through an initial strategic venture among affiliates of Ellington, an investment management firm and
registered investment adviser with a 17-year history of investing in a broad spectrum of MBS and related derivatives, with an emphasis on the RMBS market, and the Blackstone Funds. In September 2012, we received combined initial capital commitments
from these initial investors of $105.0 million, of which approximately $31.5 million was funded on September&nbsp;25, 2012, with affiliates of Ellington retaining a commitment of $3.5 million and the Blackstone Funds retaining a commitment of $70.0
million. As of September&nbsp;30, 2012, we had deployed these funds in approximately $5.0 million of non-Agency RMBS. We expect that the remaining portion of the aggregate capital commitment of our initial investors will be funded through one or
more additional private placements of common shares prior to or concurrently with the completion of this offering. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The
members of our management team are Michael Vranos, founder and Chief Executive Officer of Ellington, who serves as our Co-Chief Investment Officer; Laurence Penn, Vice Chairman of Ellington, who serves as our President and Chief Executive Officer;
Mark Tecotzky, a Managing Director of Ellington, who serves as our Co-Chief Investment Officer; Paul Asaro, Chief Financial Officer of Ellington, who serves as our interim Chief Financial Officer and Treasurer; and Daniel Margolis, General Counsel
of Ellington, who serves as our Secretary. Each of these individuals is an officer of our Manager. We currently do not have any employees. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We will elect and intend to qualify to be taxed as a REIT for U.S. federal income tax purposes and to maintain our exclusion from regulation under the Investment Company Act. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Manager and Ellington </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are externally managed and advised by our Manager, an affiliate of Ellington, pursuant to a management agreement. Our Manager was
formed solely to serve as our manager and does not have any other clients. In addition, our Manager does not have any employees of its own and instead relies on the employees of Ellington to perform its obligations to us. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager is responsible for administering our business activities and day-to-day operations and, pursuant to a services agreement
between our Manager and Ellington, relies on the resources of Ellington to support our operations. See &#147;Certain Relationships and Related Party Transactions&#151;Services Agreement&#148; for a description of the terms of the services agreement
between our Manager and Ellington. Ellington has established portfolio management resources for each of our targeted asset classes and an established infrastructure supporting those resources. Through our relationship with our Manager, we benefit
from Ellington&#146;s highly analytical investment processes, broad-based deal flow, extensive relationships in the financial community, financial and capital structuring skills, investment surveillance capabilities and operational expertise.
Ellington&#146;s analytic approach to the investment process involves collection of substantial amounts of data regarding historical performance of RMBS collateral and RMBS market transactions and other mortgage- and real estate-related assets.
Ellington analyzes this data to identify possible trends and develops financial models used to support the investment and risk management process. In addition, throughout Ellington&#146;s 17-year history of investing in RMBS and related derivatives,
it has developed strong relationships with a wide range of dealers and other market participants that provide Ellington access to a broad range of trading opportunities and market information. In addition, our Manager provides us with
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">72 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
access to a wide variety of asset acquisition and disposition opportunities and information that assist us in making asset management decisions across our targeted asset classes, which we believe
provides us with a significant competitive advantage. We also benefit from Ellington&#146;s finance, accounting, operational, legal, compliance and administrative functions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, Ellington employed over 110 employees and had assets under management of over $4.7 billion, comprised of our company and various other investment vehicles, including
Ellington Financial LLC, a specialty finance company listed on the NYSE (NYSE:EFC). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager has an investment and risk
management committee that advises and consults with our senior management team with respect to, among other things, our investment policies, portfolio holdings, financing and hedging strategies and investment guidelines. The members of the
investment and risk management committee include, among others, the following officers of our Manager: Messrs. Vranos, Penn and Tecotzky. These officers of our Manager also serve as our Co-Chief Investment Officer, President and Chief Executive
Officer and Co-Chief Investment Officer, respectively. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Initial Investors </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In September 2012, we received combined initial capital commitments from affiliates of Ellington and the Blackstone Funds of $105.0
million, of which approximately $31.5 million was funded on September&nbsp;25, 2012, with affiliates of Ellington retaining a commitment of $3.5 million and the Blackstone Funds retaining a commitment of $70.0 million. We expect that these initial
investors will fund their remaining capital commitment through one or more private placements prior to or concurrently with this offering. The Blackstone Funds are managed by an affiliate of Blackstone, a leading investment and advisory firm.
Blackstone seeks to create positive economic impact and long-term value for its investors, the companies it invests in, the companies it advises and the broader global economy. Blackstone does this through the commitment of its extraordinary people
and flexible capital. Blackstone&#146;s alternative asset management businesses, which collectively had total assets under management of $166&nbsp;billion as of December&nbsp;31, 2011, include the management of private equity funds, real estate
funds, hedge fund solutions, and credit businesses. Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Market Opportunity </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Trends in RMBS </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to acquire and actively manage a portfolio of Agency and non-Agency RMBS, with a significant emphasis on Agency RMBS. We believe that those two markets offer attractive opportunities.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Agency RMBS</I>. Even though we remain in a low interest rate environment, mortgage principal prepayment rates are much
lower than historical precedent would predict. Additionally, there is significant dispersion in prepayment rates across different pools of mortgage loans, caused in large part by differences in underlying pool attributes (such as loan
characteristics) and servicer behavior. As a result, and based on our prepayment projections, we expect to target pools that we believe (1)&nbsp;will generate attractive yields, (2)&nbsp;will have less prepayment sensitivity to government policy
shocks, and/or (3)&nbsp;will create opportunities for trading gains once the market recognizes their fundamental value, which for newer pools may come only after several months, when actual prepayment experience can be observed. We believe that our
Manager&#146;s research team, its proprietary prepayment models, and its extensive databases remain essential tools in Ellington&#146;s implementation of this strategy. In addition, as a result of the persistent impact on the mortgage market of the
recent credit crisis, as evidenced by more stringent underwriting standards, declining home values and negative equity in homes, there has generally been a muted borrower response to the current historically low mortgage rates, thereby enhancing the
value of Agency RMBS. We believe that our current Agency RMBS strategy will benefit from the current market environment characterized by a substantial continuous supply of Agency RMBS securities, favorable yield spreads, relatively low financing and
hedging costs, and ample availability of leverage. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Non-Agency RMBS</I>. We believe that the long-term fundamental prospects for non-Agency
RMBS are attractive. Our view is based on an overall better outlook for home prices in non-judicial foreclosure states, low absolute prices on certain riskier vintage securities, favorable default and delinquency trends and improving economic
conditions. We also believe that the non-Agency RMBS markets exhibit positive long-term technical trends. Although ratings-based capital requirements reduced the demand by banks for non-Agency RMBS over the past few years, the U.S. Federal
Reserve&#146;s recently released Simplified Supervisory Formula Approach is expected to reduce the anticipated required capital charge substantially for such securities. This recently released proposal will not take full effect for some time, but
the implied effective increased bank buying power for the sector is significant. In addition, there is robust demand for non-Agency RMBS from a variety of sources, including insurance companies, money managers, distressed funds, and other REITs.
Meanwhile, the Maiden Lane non-Agency RMBS auctions have been completed and there is significantly less distressed supply in the RMBS market. We expect this supply-demand relationship, coupled with the continuing decline in the total outstanding
amount of non-Agency RMBS, and the ability to modestly leverage non-Agency assets, will provide continued support for non-Agency RMBS. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Evolving Housing Market and Mortgage Landscape </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">While the housing
market continues to stabilize and improve in many regions, the mortgage market continues to evolve quickly, and we believe that there are likely to be significant opportunities to capitalize on changes in the mortgage market overall and on the
dispersion in performance among different securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We believe that the federal government&#146;s evolving role in the
housing market will continue to create opportunities for private capital. While the exact fate and role of Fannie Mae and Freddie Mac remain uncertain, each has been mandated to reduce its MBS portfolio by at least 15%&nbsp;per year and together,
the two had collectively reduced their MBS portfolios by over $289.0 billion in the two years ending December&nbsp;31, 2011, in the process adding a meaningful amount of supply to the market. Fannie Mae and Freddie Mac, together with the FHA and VA,
continue to dominate the mortgage origination markets, purchasing or guaranteeing&#151;and thereby assuming most of the credit risk on&#151;the vast majority of mortgages originated in recent years. As long as these governmental entities are willing
and able to assume this credit risk at levels that effectively price private capital out of the market, we expect this concentration to continue. However, there are continued efforts to wind down these governmental entities and if and when these
governmental entities&#146; roles as the primary sources of mortgage credit and primary bearers of mortgage risk is ultimately reduced, we expect that mortgage risk on new originations will become attractively priced again, and that there will be
significant opportunities for private capital to assume mortgage credit risk to a much larger extent. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The third round of
quantitative easing announced in September 2012 involves the U.S. Federal Reserve&#146;s purchases of Agency RMBS at a pace of $40 billion per month; however, this buying program generally targets the cheapest-to-deliver pass-throughs with coupons
at the prevailing mortgage rates, leaving behind pools with collateral characteristics believed to mitigate or reduce prepayment risk, which may offer greater relative value. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">There are many additional governmental policy actions proposed to stimulate and support home price recovery, to increase the availability
of mortgage credit, and to encourage the re-entry of private capital into the U.S. mortgage market that may benefit non-Agency RMBS and our business. Against this favorable policy back-drop, these opportunities would come available at a time when
the financing environment remains very attractive as the U.S. Federal Reserve continues to keep interest rates at nearly zero, resulting in a relatively steep yield curve. We believe the subdued economic recovery should cause these conditions to
persist for the near term. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Other Opportunities </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The current market landscape is also generating new opportunities in other mortgage-related strategies such as those involving whole
mortgage loans, MSRs and single-family housing. These strategies require substantial infrastructure to model and manage and, therefore, pose a serious barrier to entry for inexperienced investment managers. We believe that our Manager&#146;s
proprietary research, models and analytics, trading and structuring expertise, risk management and asset-sourcing capabilities will allow us to be flexible in identifying these opportunities and capitalizing on them to complement our core Agency and
non-Agency RMBS strategies. To the extent we acquire MSRs, it may be necessary to hold such assets through a TRS. As a result, a portion of the income from such assets may be subject to U.S. corporate income tax. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">74 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Strategy </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to capitalize on the current market opportunity by utilizing an opportunistic strategy that we believe will enable us to generate attractive current yields and risk-adjusted total returns for
our shareholders. In particular, our strategy will consist of: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">utilizing an investment model that focuses on security selection and allocates capital to assets that balance a range of mortgage-related risks;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">constructing and actively managing a hybrid investment portfolio comprised primarily of Agency RMBS and, to a lesser extent, non-Agency RMBS, designed
to: </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">take advantage of opportunities in the Agency RMBS market by acquiring Agency RMBS on a leveraged basis; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">take advantage of opportunities in the non-Agency residential mortgage market by purchasing investment grade and non-investment grade non-Agency RMBS,
including senior and subordinated securities; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">opportunistically acquiring and managing other mortgage- and real estate-related assets, such as MSRs, residential whole mortgage loans and residential
real properties that we would hold for appreciation and/or current income; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">opportunistically mitigating our interest rate and prepayment risk and, to a lesser extent, credit risk, by using a variety of hedging instruments.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our strategy is adaptable to changing market environments, subject to compliance with the income and other
tests that will allow us to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes and to maintain our exclusion from regulation as an investment company under the Investment Company Act. As a result, although we
intend to focus on the acquisition and management of Agency RMBS and non-Agency RMBS, and to a lesser extent, residential whole mortgage loans, MSRs and residential real properties, our acquisition and management decisions will depend on prevailing
market conditions and our targeted asset classes may vary over time in response to market conditions. To the extent that we acquire MSRs, it may be necessary to hold such assets through a TRS. As a result, a portion of the income from such assets
may be subject to U.S. corporate income tax. Our Manager is authorized to follow very broad investment guidelines and, as a result, we cannot predict our portfolio composition. We may change our strategy and policies without a vote of our
shareholders. Moreover, although our independent trustees will periodically review our investment guidelines and our portfolio, they generally will not review our proposed asset acquisitions or asset management decisions. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington&#146;s investment philosophy revolves around the pursuit of value across various types of MBS and related assets. Ellington
seeks investments across a wide range of MBS sectors without any restriction as to ratings, structure or position in the capital structure. Over time and through market cycles, opportunities will present themselves in varying sectors and in varying
forms. By rotating between and allocating among various sectors of the RMBS markets and adjusting the extent to which it hedges interest rate, prepayment and credit risks, Ellington believes that it will be able to capitalize on the disparities
between these RMBS sectors as well as on overall trends in the marketplace, and therefore provide better and more consistent returns. Disparities between RMBS sectors vary from time to time and are driven by a combination of factors. For example, as
various RMBS sectors fall in and out of favor, the relative yields that the market demands for those sectors may vary. In addition, Ellington&#146;s performance projections for certain sectors may differ from those of other market participants and
such </FONT></P>
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disparities will naturally cause us, from time to time, to gravitate towards certain sectors and away from others. Disparities between RMBS sectors may also be driven by differences in collateral
performance, in servicer behavior and in the structure of particular investments (for example, in the timing of cash flow or the level of credit enhancement), and our Manager may believe that other market participants are overestimating or
underestimating the value of these differences. Furthermore, we believe that risk management, including opportunistic portfolio hedging and prudent financing and liquidity management, is essential for consistent generation of attractive current
yields and risk-adjusted total returns. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington&#146;s continued emphasis on and development of proprietary RMBS, interest
rate, prepayment and credit models, as well as other proprietary research and analytics, underscores the importance it places on a disciplined and analytical approach to fixed income investing, especially in RMBS. Our Manager uses Ellington&#146;s
proprietary models to identify attractive assets, value these assets, monitor and forecast the performance of these assets, and (subject to qualifying and maintaining our qualification as a REIT) opportunistically hedge our interest rate risk,
mitigate our prepayment risk and hedge our credit risk. We leverage these skills and resources for purposes of attaining our objectives </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We believe that our Manager is uniquely qualified to implement our strategy. Our strategy is consistent with Ellington&#146;s investment approach, which is based on its distinctive strengths in sourcing,
analyzing, trading and hedging complex MBS. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Competitive Strengths </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We believe the following competitive strengths uniquely position us to implement our business strategy: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Leading and Experienced Management Team</I>. We believe that the extensive experience of our officers and the officers and employees of Ellington
and our Manager provides us with access to investment opportunities and management expertise across our targeted asset classes. Certain of our officers were founding principals of Ellington and each of these officers has over 25 years of experience
in the mortgage securities business with both buy side and sell side experience. Included among the members of our management team are the former heads of RMBS origination and trading, whole loan MBS origination and trading and fixed income research
and quantitative systems at Kidder Peabody. One of the founding principals of Ellington and also our President and Chief Executive Officer, Mr.&nbsp;Penn, worked for ten years at Lehman Brothers, where, prior to joining Ellington in 1995 shortly
after its inception, he co-headed Lehman Brothers&#146; trading desk for CMOs. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Access to an Established Asset Manager with an Extensive Infrastructure</I>. We expect to benefit substantially from our relationship with our
Manager and Ellington by having access to Ellington&#146;s investment ideas, proprietary research, models and analytics, trading and structuring expertise, risk management and asset-sourcing capabilities. We believe this relationship will provide us
with unique insights into attractive opportunities and access to market information that enhances our ability to make decisions regarding our combined Agency RMBS and non-Agency RMBS portfolio, which we believe is a significant competitive
advantage. We believe that Ellington possesses the essential elements necessary to successfully acquire and manage RMBS, with a significant emphasis on Agency RMBS and the other mortgage- and real estate-related assets we may acquire on an
opportunistic basis: portfolio management experience across multiple market cycles, disciplined asset selection, trading and hedging expertise, broad asset sourcing capabilities and sophisticated risk management systems and analytical tools.
Furthermore, we believe that Ellington&#146;s extensive experience in buying, selling, analyzing and structuring fixed income securities, coupled with its broad access to market information and trading flows, provides us with a steady flow of
opportunities to acquire assets with favorable trade executions. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Expertise in Prepayment, Interest Rate and Credit Modeling and Investing</I>. We expect to benefit from Ellington&#146;s proprietary analytical
models and investment infrastructure, which were developed utilizing more than 17 years of experience by Ellington, a leading participant in the markets we intend to target. Ellington&#146;s investment process emphasizes the quantitative assessment
of interest rate risk, </FONT></P></TD></TR></TABLE>
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prepayment risk and, where applicable, credit risk, both on a portfolio basis and a security-by-security basis. This process relies on the sophisticated quantitative tools and methodologies that
are the foundation of Ellington&#146;s investment technique and asset surveillance. Analyzing RMBS interest and prepayment risk, as well as credit risk in the case of non-Agency RMBS, necessitates the development and continuous refinement of
sophisticated computer models. We believe that Ellington has differentiated itself with its long experience in investing and leveraging large pools of capital in complex mortgage and derivative instruments, through various economic and business
cycles. We believe that access to Ellington&#146;s proprietary models and modeling capabilities provides us with a substantial competitive advantage over most other market participants. </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Disciplined Security Selection Process</I>. We intend to use a disciplined approach to security selection as a fundamental component of our asset
acquisition strategy. Ellington maintains an extensive loan-level database that allows it to perform in-depth analysis. Ellington&#146;s proprietary analytics allow it to analyze securities individually based upon, among other things, available
borrower credit information and property attributes. In order to generate attractive current yields and risk-adjusted returns on our investments, we intend to construct a portfolio with a focus on managing the various associated risks, such as
duration and cash flow risk, including by selecting securities that have favorable prepayment characteristics and through the liability hedging strategy we will employ. In addition, we intend to actively and opportunistically manage the portfolio as
market conditions permit. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Strong Risk Management and Risk Mitigation Focus</I>. Risk management is one of Ellington&#146;s core competencies and we implement techniques that
are intended to mitigate the risks inherent in our business. In addition, our disciplined security selection process and our concentrated focus on managing our duration risk are also important components of what we believe to be our competitive
advantages in our primary RMBS asset classes. Ellington has several employees dedicated to compliance and risk management, including its chief compliance officer. See &#147;&#151;Risk Management&#151;Liquidity Management.&#148;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Strong Sponsorship and Alignment of Interests Between Our Shareholders and Our Manager</I>. We were founded with investment and organizational
assistance from affiliates of Blackstone and Ellington. Blackstone is a leading investment and advisory firm. In September 2012, we received combined initial capital commitments from affiliates of Ellington and the Blackstone Funds of $105.0
million, of which approximately $31.5 million was funded on September&nbsp;25, 2012, with affiliates of Ellington retaining a commitment of $3.5 million and the Blackstone Funds retaining a commitment of $70.0 million. We expect that these initial
investors will fund their remaining capital commitments through one or more private placements prior to or concurrently with this offering. These investments will result in affiliates of our Manager and the Blackstone Funds owning approximately
&nbsp;&nbsp;&nbsp;&nbsp;% and &nbsp;&nbsp;&nbsp;&nbsp;%, respectively, of our outstanding common shares upon completion of this offering. In addition, two individuals affiliated with Blackstone serve on our Board of Trustees and one individual
affiliated with Ellington serves on our Board of Trustees. Furthermore, these investors have agreed not to sell or otherwise transfer any of our common shares for a period of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
months after the completion of this offering. We believe that the ownership of our common shares by affiliates of our sponsors, including affiliates of our Manager, will further align our Manager&#146;s interests with our shareholders&#146;
interests. </FONT></P></TD></TR></TABLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Targeted Asset Classes </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our targeted asset classes currently include: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="51%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="47%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:38pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Asset Class</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Principal Assets</B></FONT></P></TD></TR>


<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency RMBS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Agency RMBS collateralized by either fixed rate
mortgage loans, adjustable rate mortgage loans or hybrid mortgage loans, or derivatives thereof, including:</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<P STYLE="margin-top:0px;margin-bottom:0px; margin-left:6.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;whole pool mortgage pass-through certificates;</FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<P STYLE="margin-top:0px;margin-bottom:0px; margin-left:6.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Agency CMOs, including IOs, POs, IIOs, and inverse floaters;
and</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<P STYLE="margin-top:0px;margin-bottom:1px; margin-left:6.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TBAs.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-Agency RMBS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RMBS backed by prime jumbo, Alt-A, manufactured housing and subprime
mortgages;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RMBS backed by fixed rate mortgages, ARMs, Option-ARMs and Hybrid ARMs;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RMBS backed by first lien and second lien mortgages;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment grade and non-investment grade securities;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Senior and subordinated securities; and</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-Agency CMOs, including IOs, POs, IIOs and inverse floaters.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Other</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Residential whole mortgage loans;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MSRs;</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Residential real properties; and</FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:1px; margin-left:4.00em; text-indent:-1.50em"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
mortgage- and real estate-related assets, including asset backed securities and certain hedging transactions.</FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following briefly discusses the principal types of assets we purchase. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Agency RMBS </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Initially, the Agency RMBS we intend to acquire may include mortgage pass-through certificates, CMOs, and TBAs. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>Residential Mortgage Pass-Through Certificates</I>. Residential mortgage pass-through certificates represent interests in &#147;pools&#148; of mortgage loans secured by residential real property where
payments of both interest and </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">78 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
principal, plus pre-paid principal, on the underlying residential mortgage loans are made monthly to holders of the certificates, in effect &#147;passing through&#148; monthly payments made by
the individual borrowers on the mortgage loans that underlie the securities, net of fees paid to the issuer/guarantor and servicers of the securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>Collateralized Mortgage Obligations</I>. CMOs are structured instruments representing interests in specified mortgage loan collateral. CMO securitizations consist of multiple classes, or tranches, of
securities, with each tranche having specified characteristics, based on the rules described in the securitization documents governing the division of the monthly principal and interest distributions, including prepayments, from the underlying
mortgage collateral among the various tranches. IOs are CMOs that only receive interest payments while principal-only securities, or &#147;POs,&#148; receive only principal payments. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>TBAs.</I> In addition to investing in specific pools of Agency RMBS, subject to our satisfying the requirements for qualification as a
REIT, we intend to utilize forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are TBAs. Pursuant to these TBA transactions, we agree to purchase or sell, 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. TBAs are liquid and have quoted market prices and represent the
most actively traded class of RMBS. We intend to use TBAs primarily for hedging purposes. TBA trading is based on the assumption that mortgage pools that are eligible to be delivered at TBA settlement are fungible and thus the specific mortgage
pools to be delivered do not need to be explicitly identified at the time a trade is initiated. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to purchase or sell
TBAs primarily for purposes of managing interest rate risk associated with our liabilities under reverse repurchase agreements. We generally intend to treat such TBA purchases and sales as hedging transactions that hedge indebtedness incurred to
acquire or carry real estate assets, or &#147;qualifying liability hedges&#148; for REIT purposes. Alternatively, we may, from time to time, opportunistically engage in TBA transactions because we find them attractive on their own, from a relative
value perspective or otherwise. Our ability to engage in such TBA transactions may be limited by the gross income and asset tests applicable to REITs. See &#147;Material U.S. Federal Income Tax Considerations&#151;Gross Income Tests&#148; and
&#147;&#151;Asset Tests&#148; and &#147;Risk Factors&#151;U.S. Federal Income Tax Risks&#151;Our ability to engage in TBA transactions could be limited by the requirements necessary to qualify as a REIT, and we could fail to qualify as a REIT as a
result of these investments.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We expect that the majority of our Agency securities purchases will be newly issued
securities (meaning that we will purchase these securities within approximately six months from their initial date of issuance) and the remaining purchases will be more seasoned Agency securities. The precise allocation of our Agency purchases will
vary depending on market conditions and other factors that our Manager deems relevant at the applicable time. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Non-Agency RMBS </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We acquire non-Agency RMBS backed by prime jumbo, Alt-A, subprime, manufactured housing and second lien mortgage loans. The residential mortgage loans securing our non-Agency RMBS will be either
fixed-rate mortgages, ARMs, option-ARMs, Neg-Am ARMs or hybrid ARMs. Our non-Agency RMBS holdings can include investment-grade and non-investment grade classes, including the BB-rated, B-rated and non-rated classes. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-Agency RMBS are debt obligations issued by private originators of or investors in residential mortgage loans. Non-Agency RMBS
generally are issued as CMOs and are backed by pools of whole mortgage loans or by mortgage pass-through certificates. Non-Agency RMBS generally are securitized in senior/subordinated structures, or in excess spread/over-collateralization
structures. In senior/subordinated structures, the subordinated tranches generally absorb all losses on the underlying mortgage loans before any losses are borne by the senior tranches. In excess spread/over-collateralization structures, losses are
first absorbed by any existing over-collateralization, then borne by subordinated tranches and excess spread, which represents the difference between the interest payments received on the mortgage loans backing the RMBS and the interest due on the
RMBS debt tranches, and finally by senior tranches and any remaining excess spread. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The characteristics of RMBS differ from
those of traditional fixed-income securities. The major differences include the monthly payment of interest and principal on the RMBS and the possibility that principal may be prepaid on the RMBS at any time due to prepayments on the underlying
mortgage loans. These differences can result in significantly greater price and yield volatility than is the case with traditional fixed-income securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We expect that the majority of our non-Agency purchases will be more seasoned non-Agency securities. The precise allocation of our non-Agency purchases will vary depending on market conditions and other
factors that our Manager deems relevant at the applicable time, including, for instance, an increase in the availability of new issue non-Agency RMBS. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Other Assets </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We also may from time to time opportunistically
acquire other mortgage- and real estate-related assets that may include, among others, residential whole mortgage loans, MSRs and residential real properties. Subject to market conditions, we may invest in and manage residential real estate assets
that are positioned to benefit from what we expect will be a rebound in the residential housing market . As part of this strategy, we may selectively acquire individual houses or small portfolios of houses that can be held for appreciation and/or
current income. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">79 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Portfolio </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our portfolio consisted of the following investments as of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2012: </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="70%"></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Current<BR>Principal</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Fair&nbsp;Value</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Average<BR>Price</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Cost</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Average&nbsp;Cost</B></FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Agency RMBS</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency 30 Year Fixed RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency 15 Year Fixed RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency Hybrid/ARM RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Non-Agency RMBS</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subprime</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Alt-A</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Prime RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Other Target Asset Classes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE>    <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our three-month average constant prepayment rate, or CPR, experienced by Agency RMBS owned
by us as of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2012, on an annualized basis, was &nbsp;&nbsp;&nbsp;&nbsp;%. Our three-month average constant prepayment rate, or
CPR, experienced by non-Agency RMBS owned by us as of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2012, on an annualized basis, was &nbsp;&nbsp;&nbsp;&nbsp;%. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our three month weighted average geographic concentration of the loans backing our non-Agency RMBS as of
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2012 was as follows: &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (&nbsp;&nbsp;&nbsp;&nbsp;%),
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (&nbsp;&nbsp;&nbsp;&nbsp;%), &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (&nbsp;&nbsp;&nbsp;&nbsp;%),
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (&nbsp;&nbsp;&nbsp;&nbsp;%) and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (&nbsp;&nbsp;&nbsp;&nbsp;%). </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Investment Process </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our
investment process benefits from the resources and professionals of our Manager and Ellington. The process is managed by an investment and risk management committee, which includes, among others, the following officers of our Manager: Messrs.
Vranos, Penn and Tecotzky. These officers of our Manager also serve as our Co-Chief Investment Officer, President and Chief Executive Officer, and Co-Chief Investment Officer, respectively. The investment and risk management committee operates under
investment guidelines and meet periodically to develop a set of preferences for the composition of our portfolio. The primary focus of the investment and risk management committee is to review and approve our investment policies and our portfolio
composition and related compliance with our guidelines. Under the management agreement between us and our Manager, our Manager has the authority to enter into transactions consistent with our investment guidelines, subject to the oversight of our
Board of Trustees. Any transactions deviating in a material way from these guidelines must be approved by our Board of Trustees. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ellington employs a thorough investment process, which includes, as appropriate, a range of factors from higher level macro considerations to detailed loan-level analysis based on its extensive database
of borrower behavior. Ellington will also maintain an ongoing analysis of relative value within our Agency RMBS portfolio and non-Agency RMBS portfolio and across various sectors of the RMBS market. Ellington&#146;s infrastructure, built and refined
over the last 17 years, will benefit us and our Manager as we invest the proceeds of this offering and strategically manage our portfolio going forward. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ellington has a focused investment team for each of our targeted asset classes. Each team evaluates acquisition opportunities consistent with our investment guidelines. Our asset acquisition process
includes sourcing and screening of asset acquisition opportunities, credit analysis, due diligence, structuring, financing and hedging, each as appropriate, to seek attractive current yields and total returns commensurate with our risk tolerance. We
also screen and monitor potential asset acquisitions to determine their impact on maintaining our exclusion from regulation as an investment company under the Investment Company Act and our qualification as a REIT. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">80 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Valuation of Assets </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our Manager&#146;s valuation process will be subject to the oversight of our Manager&#146;s investment and risk management committee as well as the oversight of the independent members of our Board of
Trustees. See &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations &#151;Critical Accounting Policies&#151;Valuation of Financial Instruments.&#148; </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Risk Management </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Risk
management is a cornerstone of Ellington&#146;s portfolio management process. Ellington&#146;s risk management infrastructure system includes &#147;ELLiN,&#148; a proprietary portfolio management system that Ellington uses for all of its accounts,
which provides real-time and batch reporting to all departments at Ellington, including trading, research, risk management, finance, operations, accounting and compliance. We will benefit from Ellington&#146;s comprehensive risk management
infrastructure and ongoing assessment of both portfolio and operational risks. In addition, we will utilize derivatives and other hedging instruments to opportunistically manage our interest rate risk. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Interest Rate Hedging </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to opportunistically manage our interest rate risk by using various hedging strategies to mitigate such risks, subject to qualifying and maintaining our qualification as a REIT and maintaining
our exclusion from regulation as an investment company under the Investment Company Act. The interest rate hedging instruments that we use and may use in the future include, without limitation: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">interest rate swaps (floating-to-fixed, fixed-to-floating, or more complex swaps such as floating-to-inverse floating, callable or non-callable);
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">CMOs; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">TBAs; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">U.S. treasury securities; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">swaptions, caps, floors and other derivatives on interest rates; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">futures and forward contracts; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">options on any of the foregoing. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Subject to qualifying and maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we may utilize certain derivative
financial instruments and other hedging instruments to mitigate interest rate risk. Specifically, we may seek to manage our exposure to interest rate risk in part by entering into short positions in interest rate swaps to offset the potential
adverse effects that changes in interest rates will have on our borrowing costs. We may be exposed to mismatches between the interest we earn on our investments and our borrowing costs, caused by fluctuations in short-term interest rates. An
interest rate swap is an agreement to exchange interest rate cash flows, calculated on a notional principal amount, at specified payment dates during the life of the agreement. Typically, one party pays a fixed interest rate and receives a floating
interest rate and the other party pays a floating interest rate and receives a fixed interest rate. Each party&#146;s payment obligation is computed using a different interest rate. In an interest rate swap, the notional principal is never
exchanged. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition to investing in specific pass-through securities, we may utilize TBAs. Pursuant to these TBA
transactions, we will agree to purchase or sell, 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. We will primarily engage in TBA transactions for purposes of </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">81 </FONT></P>



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managing interest rate risk associated with our liabilities under reverse repurchase agreements. Alternatively, we may, from time to time, opportunistically, engage in TBA transactions because we
find them attractive on their own, from a relative value perspective or otherwise. Our ability to engage in TBA transactions may be limited by our intention to qualify and remain qualified as a REIT. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Credit Risk Hedging </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Subject to qualifying and maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, although we do not intend to
operate our non-Agency RMBS investment strategy on a credit hedged basis in general, we may from time to time opportunistically enter into short positions using credit default swaps to protect against adverse credit events with respect to our
non-Agency RMBS. We may use credit default swaps to hedge non-Agency RMBS credit risk by buying protection on a single non-Agency RMBS or by buying protection on a basket or index of non-Agency RMBS assets. We may also enter into credit default
swaps on various MBS indices. We also enter into derivative contracts for hedging purposes referencing the unsecured corporate credit, or the equity of, certain corporations. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Liquidity Management </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As part of the risk management and liquidity
management functions that our Manager will perform for us, our Manager will compute a &#147;cash buffer,&#148; which, at any given point in time, will represent the amount of our free cash in excess of what our Manager estimates would conservatively
be required, especially in times of market dislocation, to support our particular assets and liabilities at such time. Thus, rather than focusing solely on our leverage, our Manager will typically seek to maintain a positive cash buffer. However,
our Manager is not required to maintain a positive cash buffer and may choose not to maintain a positive cash buffer at certain times, for example if it believes there are compelling market opportunities to pursue. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Financing Strategies and Use of Leverage </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the particular characteristics of our portfolio, availability of
financing and market conditions. Our borrowings will primarily consist of reverse repurchase agreements collateralized by our Agency RMBS and non-Agency RMBS. We currently have master repurchase agreements in place with reverse repurchase agreement
counterparties, and we are in active discussions with additional reverse repurchase agreement counterparties. In a reverse repurchase agreement, we will sell an asset to a counterparty at a discounted value, or the loan amount, and simultaneously
agree to repurchase the same asset from such counterparty at a price equal to the loan amount plus an interest factor. Despite being legally structured as sales and subsequent repurchases, reverse repurchase agreements are generally accounted for as
debt secured by the underlying assets. During the term of a reverse repurchase agreement, we will generally receive the income and other payments distributed with respect to the underlying assets, and pay interest to the counterparty. While the
proceeds of our reverse repurchase agreement financings are often used to purchase additional assets subject to the same repurchase agreement, our financing arrangements are not expected to restrict our ability to use proceeds from these
arrangements to support our other liquidity needs. Our reverse repurchase agreement arrangements will typically be documented under the standard form master repurchase agreement of the Securities Industry and Financial Markets Association, with the
ability for both parties to request margin. Given daily market volatility, we and our repurchase agreement counterparties will be required to post additional margin collateral to each other from time to time as part of the normal course of our
business. Our reverse repurchase agreement financing counterparties will generally have the right to determine the value of the underlying collateral for purposes of determining the amount of margin, subject to the terms and conditions of our
agreement with the counterparty, including in certain cases our right to dispute the counterparty&#146;s valuation determination. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We may utilize other types of borrowings in the future, including term facilities or other more complex financing structures. Additionally, we may take advantage of available borrowings, if any, under new
programs established by the U.S. government to finance our assets. We also may raise capital by issuing unsecured debt, preferred or common shares or trust preferred securities. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">82 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our use of leverage, especially in order to increase the amount of assets supported by our
capital base, may have the effect of increasing losses when these assets underperform. Our investment policies require no minimum or maximum leverage and our Manager&#146;s investment and risk management committee will have the discretion, without
the need for further approval by our Board of Trustees, to change both our overall leverage and the leverage used for individual asset classes. Because our strategy is flexible, dynamic and opportunistic, our overall leverage will vary over time. As
a result, we do not have a targeted debt-to-equity ratio, although we currently expect that our debt-to-equity ratio initially will be within a range of 6:1 to 10:1 for our Agency RMBS and 0:1 to 2:1 for our non-Agency RMBS. To the extent we employ
leverage with respect to other mortgage and real-estate related investments we may make from time to time, we do not expect the debt-to-equity ratio on those investments to exceed 1:1. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Conflicts of Interest; Equitable Allocation of Opportunities </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington
manages various other clients that have strategies that are similar to, or overlap with, our strategy, including Ellington Financial LLC, a specialty finance company listed on the NYSE. As of September&nbsp;30, 2012, Ellington had over $4.7 billion
of total assets under management, excluding our assets, and the vast majority of these clients are permitted to and do invest in our target assets. These clients have agreed to pay Ellington a base management fee based upon net asset value for
assets under management or committed capital. In addition, while our Manager is not entitled to receive an incentive fee under the terms of the management agreement, certain of these clients have agreed to pay Ellington incentive fees that are based
upon achievement of certain profit thresholds. For example, pursuant to the terms of the management agreement between Ellington and Ellington Financial LLC, Ellington is entitled to receive a quarterly base management fee in an amount equal to 1.50%
per annum of Ellington Financial LLC&#146;s shareholders&#146; equity (calculated in accordance with GAAP) as of the end of each fiscal quarter (before deductions for base management fees and incentive fees payable with respect to such fiscal
quarter), subject to certain adjustments. In addition to the base management fees, Ellington Financial LLC pays Ellington an incentive fee payable in an amount equal to 25% of the dollar amount by which adjusted net income (as defined in the
Ellington Financial LLC management agreement) exceeds an annual rate of return equal to the greater of (A) 9% and (B) 3% plus the ten-year Treasury rate. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ellington will make available to our Manager all opportunities to acquire assets that it determines, in its reasonable and good faith judgment, based on our objectives, policies and strategies, and other
relevant factors, to be appropriate for us in accordance with Ellington&#146;s written investment allocation policy, subject to the exception that we might not participate in each such opportunity, but will on an overall basis equitably participate
with Ellington&#146;s other accounts in all such opportunities. Ellington&#146;s investment and risk management committee and its compliance committee (headed by its chief compliance officer) are responsible for monitoring the administration of, and
facilitating compliance with, Ellington&#146;s investment allocation policy. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Because the Agency pass-through certificates,
Agency and non-Agency CMOs and certain other asset classes in which we intend to invest are typically available only in specified quantities and are also targeted assets for certain other Ellington accounts, Ellington often is not able to buy as
much of these assets as required to satisfy the needs of all its accounts. In these cases, Ellington&#146;s investment allocation policy typically allocates such assets to multiple accounts in proportion to their needs and available capital.
Ellington may at times allocate opportunities on a preferential basis above the proportion of available capital to accounts that are in a &#147;start-up&#148; or &#147;ramp-up&#148; phase. In addition, the policy permits departure from such
proportional allocation under certain other circumstances, for example when such allocation would result in an inefficiently small amount of the security being purchased for an account. In that case, the policy allows for a protocol of allocating
assets so that, on an overall basis, each account is treated equitably. A departure from this policy would be permitted to allow us to maintain our exclusion from regulation as an investment company under the Investment Company Act, or to maintain
compliance with other applicable regulations, guidelines or restrictions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Other policies of Ellington that our Manager
applies to the management of our company include controls for: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Cross Transactions</I>. Cross transactions are defined as transactions between us or one of our subsidiaries, on the one hand, and an account (other
than us or one of our subsidiaries) managed by Ellington or our Manager, on the other hand. It is Ellington&#146;s policy to engage in a cross transaction only when the transaction is in the best interests of, and is consistent with the objectives
and policies of, both accounts involved in the transaction. Pursuant to the terms of the management agreement, our Manager may enter into cross transactions where it acts on our behalf and where Ellington or our Manager acts on behalf of the other
party to the transaction; provided, however, that our Manager will not enter into any cross transactions on our behalf unless the cross transaction involves a &#147;level one&#148; asset for GAAP accounting purposes which is being crossed at market
prices, or the cross transaction has received approval of a majority of our independent trustees. Although we believe such restrictions on our Manager&#146;s ability to engage in cross transactions on our behalf mitigate many risks, cross
transactions, even at market prices, may potentially create a conflict of interest between our Manager&#146;s and our officers&#146; duties to and interests in us and their duties to and interests in the other party. Subject to our Board of Trustees
authorizing such action and upon written notice to our Manager, we may at any time revoke our consent to our Manager&#146;s executing cross transactions. Additionally, unless approved in advance by a majority of our independent trustees or pursuant
to and in accordance with a policy that has been approved by a majority of our independent trustees, all cross transactions must be effected at the then-prevailing market prices. Pursuant to our Manager&#146;s current policies and procedures, assets
for which there are no readily observable market prices may be purchased or sold in cross transactions (i)&nbsp;at prices based upon third party bids received through auction, (ii)&nbsp;at the average of the highest bid and lowest offer quoted by
third party dealers, or (iii)&nbsp;according to another pricing methodology approved by our Manager&#146;s chief compliance officer. </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">83 </FONT></P>



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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Principal Transactions</I>. Principal transactions are defined as transactions between Ellington or our Manager (or any related party of Ellington
or our Manager, which includes employees of Ellington and our Manager and their families), on the one hand, and us or one of our subsidiaries, on the other hand. Certain cross transactions may also be considered principal transactions whenever our
Manager or Ellington (or any related party of Ellington or our Manager, which includes employees of Ellington and our Manager and their families) have a substantial ownership interest in one of the transacting parties. Our Manager is only authorized
to execute principal transactions with the prior approval of a majority of our independent trustees and in accordance with applicable law. Such prior approval includes approval of the pricing methodology to be used, including with respect to assets
for which there are no readily observable market prices. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Investment in Other Ellington Accounts</I>. Pursuant to our management agreement, if we invest in any other investment fund or other investment for
which Ellington or one of its affiliates receives management, origination or structuring fees, the management fee payable by us to our Manager will be reduced by an amount equal to the applicable portion (as described in the management agreement) of
any such management, origination or structuring fees. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Split Price Executions</I>. Pursuant to our management agreement, our Manager is authorized to combine purchase or sale orders on our behalf
together with orders for other accounts managed by Ellington, our Manager or their affiliates and allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent basis, among such accounts.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager is authorized to follow very broad investment guidelines. Our Board of Trustees will
periodically review our investment guidelines and our portfolio. However, our Board of Trustees generally will not review our proposed asset acquisitions, dispositions or other management decisions. In addition, in conducting periodic reviews, our
Board of Trustees will rely primarily on information provided to them by our Manager. Furthermore, our Manager may arrange for us to use complex strategies or to enter into complex transactions that may be difficult or impossible to unwind by the
time they are reviewed by our Board of Trustees. Our Manager has great latitude within our broad investment guidelines to determine the types of assets it may decide are proper for purchase by us. The management agreement with our Manager does not
restrict the ability of its officers and employees from engaging in other business ventures of any nature, whether or not such ventures are competitive with our business. We may acquire assets from entities affiliated with our Manager, even where
the assets were originated by such entities. Affiliates of our Manager may also provide services to entities in which we have invested. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our executive officers and the officers and employees of our Manager are also officers and employees of Ellington, and, with the exception of those officers that are dedicated to us, we compete with other
Ellington accounts for access to these individuals. We have not adopted a policy that expressly prohibits our trustees, officers, security holders or affiliates from having a direct or indirect pecuniary interest in any asset to be acquired or
disposed of by us or any of our subsidiaries or in any transaction to which we or any of our subsidiaries is a party or has an interest, nor do we have a policy that expressly prohibits any such persons from engaging for their own account in
business activities of the types conducted by us. However, our code of business conduct and ethics contains a conflicts of interest policy that prohibits our trustees, officers and employees, as well as employees of our Manager who provide services
to us, from engaging in any transaction that involves an actual or apparent conflict of interest with us, absent approval by the Board of Trustees or except as expressly set forth above or as provided in the management agreement between us and our
Manager. In addition, nothing in the management agreement binds or restricts our Manager or any of its affiliates, officers or employees from buying, selling or trading any securities or commodities for their own accounts or for the accounts of
others for whom our Manager or any of its affiliates, officers or employees may be acting. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Policies with Respect to Certain Other
Activities </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If our Board of Trustees determines that additional funding is required, we may raise such funds through
additional offerings of equity or debt securities, the retention of cash flow and other funds from debt financing, including reverse repurchase agreements, or a combination of these methods. In the event that our Board of Trustees
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">84 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
determines to raise additional equity capital, it has the power, without shareholder approval, to cause us to issue additional common shares or preferred shares in any manner and on such terms
and for such consideration as it deems appropriate, at any time. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may in the future, offer equity or debt securities in
exchange for assets and invest in the securities of other issuers for the purpose of exercising control over such entities. We engage in the purchase and sale of assets, and we may in the future make loans to third parties. We have not in the past
and will not in the future underwrite the securities of other issuers. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees may change any of these policies
without prior notice to you or a vote of our shareholders. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Competition </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In acquiring our assets, we compete with mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage
bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. Many of our competitors are significantly larger than us, have greater access to capital
and other resources and may have other advantages over us. Our competitors may include other investment vehicles managed by Ellington or its affiliates, including Ellington Financial LLC (NYSE: EFC). In addition to existing companies, other
companies may be organized for similar purposes, including companies focused on purchasing mortgage assets. A proliferation of such companies may increase the competition for equity capital and thereby adversely affect the market price of our common
shares. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of assets and establish more relationships than us. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Additionally, we may also compete with&nbsp;the U.S. Federal Reserve and the Treasury to the extent they purchase assets meeting our
objectives pursuant to various purchase programs. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In the face of this competition, we have access to our Manager&#146;s and
Ellington&#146;s professionals and their industry expertise, which may provide us with a competitive advantage and help us assess risks and determine appropriate pricing for certain potential assets. In addition, we believe that these relationships
enable us to compete more effectively for attractive asset acquisition opportunities. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Operating and Regulatory Structure </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Tax Requirements </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will elect and intend to qualify to be taxed as
a REIT commencing with our short taxable year ending December&nbsp;31, 2013. Provided that we qualify and maintain our qualification as a REIT, we generally will not be subject to U.S. federal income tax on our REIT taxable income that is currently
distributed to our shareholders. REITs are subject to a number of organizational and operational requirements, including a requirement that they currently distribute at least 90% of their annual REIT taxable income excluding net capital gains. We
cannot assure you that we will be able to comply with such requirements in the future. Failure to qualify as a REIT in any taxable year would cause us to be subject to U.S. federal income tax on our taxable income at regular corporate rates (and any
applicable state and local taxes). Even if we qualify for taxation as a REIT, we may be subject to certain federal, state, local and non-U.S. taxes on our income. For example, if we form a TRS, the income generated by that subsidiary will be subject
to U.S. federal, state and local income tax. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Investment Company Act Exclusion </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to conduct our operations so that neither we nor any of our subsidiaries is required to register as an investment company under
the Investment Company Act. Both we and our operating partnership are organized as holding companies and conduct our businesses primarily through wholly-owned subsidiaries of our operating partnership. We intend to conduct our operations so that
neither we nor our operating partnership come within the definition of an investment company by ensuring that less than 40% of the value of our total assets on an unconsolidated basis consist of &#147;investment securities&#148; as defined by the
Investment Company Act, or the 40% Test. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">85 </FONT></P>



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  <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our operating partnership&#146;s direct and indirect subsidiaries, through which we will
operate our business, will rely upon certain exclusions from the definition of investment company under the Investment Company Act including, in the case of our operating partnership&#146;s wholly-owned subsidiary, EARN Mortgage LLC,
Section&nbsp;3(c)(5)(C) of the Investment Company Act. Section&nbsp;3(c)(5)(C), as interpreted by the staff of the SEC, requires an entity to invest at least 55% of its assets in &#147;mortgages and other liens on and interests in real estate,&#148;
which we refer to as &#147;qualifying real estate interests,&#148; and at least 80% of its assets in qualifying real estate interests plus &#147;real estate-related assets.&#148; In satisfying the 55% requirement, the entity may treat securities
issued with respect to an underlying pool of mortgage loans in which it holds all of the certificates issued by the pool as qualifying real estate interests. We will treat the whole-pool pass-through securities in which we intend to invest as
qualifying real estate interests for purposes of the 55% requirement. The CMOs we may acquire will not be treated as qualifying real estate interests for purposes of the 55% requirement. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We also have formed, and may in the future form, certain other wholly-owned or majority-owned subsidiaries that will invest in CMOs, and,
subject to our investment guidelines, other real estate-related assets. These subsidiaries will rely upon the exclusion from the definition of investment company under the Investment Company Act pursuant to Section&nbsp;3(c)(1) or 3(c)(7) of the
Investment Company Act. The securities issued by any wholly-owned or majority-owned subsidiary that we may form in the future and that are excluded from the definition of &#147;investment company&#148; based on Section&nbsp;3(c)(1) or 3(c)(7) of the
Investment Company Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our total assets on an unconsolidated basis. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will monitor our compliance with the 40% Test and the holdings of our subsidiaries to ensure that each of our subsidiaries is in
compliance with an applicable exemption or exclusion from registration as an investment company under the Investment Company Act. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">On August&nbsp;31, 2011, the Securities and Exchange Commission published a concept release entitled &#147;Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments&#148;
(Investment Company Act Rel. No.&nbsp;29778). This release notes that the SEC is reviewing the 3(c)(5)(C) exclusion relied upon by companies similar to us that invest in mortgage loans and mortgage-backed securities. There can be no assurance that
the laws and regulations governing the Investment Company Act status of companies similar to ours, or the guidance from the SEC or its staff regarding the treatment of assets as qualifying real estate assets or real estate-related assets, will not
change in a manner that adversely affects our operations as a result of this review. To the extent that the SEC or its staff provides more specific guidance regarding any of the matters bearing upon our exclusion from the need to register under the
Investment Company Act, we may be required to adjust our strategy accordingly. Any additional guidance from the SEC staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies that we have
chosen. Furthermore, although we intend to monitor the assets of EARN Mortgage LLC regularly, there can be no assurance that EARN Mortgage LLC will be able to maintain this exclusion from registration. In that case, our investment in EARN Mortgage
LLC would be classified as an investment security, and we might not be able to maintain our overall exclusion from registering as an investment company under the Investment Company Act. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The loss of our exemption from regulation pursuant to the Investment Company Act could require us to restructure our operations, sell
certain of our assets or abstain from the purchase of certain assets, which could have an adverse effect on our financial condition and results of operations. See &#147;&#151;Risk Factors&#151;Maintenance of our exclusion from registration under the
Investment Company Act imposes significant limitations on our operations.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Investment Advisers Act of 1940
</I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington is a registered investment adviser under the Advisers Act and is subject to the regulatory oversight of the
Investment Management Division of the SEC. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">86 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Staffing </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We currently do not have any employees. All of our executive officers will be employees of Ellington or one or more of its affiliates. In addition, our dedicated or partially dedicated Chief Financial
Officer, Controller and/or in-house legal counsel, if our Manager elects to provide such officers to us, will be employees of Ellington or one or more of its affiliates. See &#147;Management&#151;Management Agreement.&#148; </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Legal Proceedings </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Neither we nor our Manager is currently subject to any legal proceedings that we or our Manager considers to be material. Nevertheless, at
any time, industry-wide or company-specific regulatory inquiries or proceedings can be initiated and we cannot predict when or if any such regulatory inquiries or proceedings will be initiated that involve us, Ellington, or its affiliates, including
our Manager. For example, in the last several years, Ellington and its affiliates have received, and we expect in the future that they may receive, inquiries and requests for documents and information from various federal, state and foreign
regulators, including the following: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In March 2008, Ellington received a subpoena from the SEC requesting documents and other
information relating primarily to CDOs underwritten during 2007 and 2008 by a particular investment bank and for which Ellington acted as collateral manager. Ellington provided an initial response to the subpoena in April 2008 and finished its
production in May 2009. Ellington has had no communication with the SEC on the matter since that time. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In August 2009,
Ellington and one of its affiliates received subpoenas from the SEC seeking documents and information regarding certain structuring, sales and marketing practices in the CDO market. The subpoenas sought documents and details regarding CDOs in which
Ellington or its affiliates participated during 2006 and 2007. Ellington finished its production in response to the subpoenas in November 2009, responded to subsequent requests by the SEC for clarifications with respect to some of the information
that Ellington produced to the SEC and intends to cooperate with any further requests. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We can give no assurances that
regulatory inquiries such as those discussed above will not result in investigations of Ellington or its affiliates or enforcement actions, fines or penalties or the assertion of private litigation claims against Ellington or its affiliates. We
believe the intense scrutiny of CDO market participants in particular (including large CDO collateral managers such as Ellington) increases the risk of additional inquiries and requests from regulatory or enforcement agencies. In the event
regulatory inquiries such as those discussed above were to result in investigations, enforcement actions, fines, penalties or the assertion of private litigation claims against Ellington or its affiliates, our Manager&#146;s ability to perform its
obligations to us under the management agreement between us and our Manager, or Ellington&#146;s ability to perform its obligations to our Manager under the services agreement between Ellington and our Manager, could be adversely impacted, which
could in turn have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our Corporate Information </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our principal executive offices are located at
53 Forest Avenue, Old Greenwich, CT 06870. Our telephone number is (203)&nbsp;698-1200. Our internet address is <I>www.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.com</I>.
Our internet web site, and the information contained therein or connected thereto, does not constitute part of this prospectus. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">87 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_11"></A>MANAGEMENT </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Trustees and Executive Officers </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees currently consists of three trustees. We expect to expand the size of our Board of Trustees prior to or upon completion of this offering by adding
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; new trustees. Upon completion of this offering, we believe that a majority of our trustees will be independent in accordance with the requirements of the NYSE. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following sets forth certain information as of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2013, with
respect to our current trustees and executive officers: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="27%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="68%"></TD></TR>
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<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:20pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Name</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Age</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Title</B></FONT></P></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Trustees</I></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Laurence E. Penn</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">50</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">President and Chief Executive Officer; Trustee</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">David S. Blitzer</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">43</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Trustee</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Menes O. Chee</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">35</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Trustee</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Officers</I></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Michael Vranos</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Co-Chief Investment Officer</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mark Tecotzky</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">50</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Co-Chief Investment Officer</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Paul Asaro</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">61</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interim Chief Financial Officer and Treasurer</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Daniel Margolis</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">39</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Secretary</FONT></P></TD></TR>
</TABLE>  <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">For biographical information relating to our executive officers, including Mr.&nbsp;Penn who also serves as one of our trustees, see &#147;Our Manager and the Management Agreement&#151;Our Manager&#146;s
and Ellington&#146;s Employees.&#148; Information on each our independent trustees is set forth below. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>David S.
Blitzer</B> is a Senior Managing Director&nbsp;&amp; Head of Tactical Opportunities for Blackstone. Since joining Blackstone in 1991, Mr.&nbsp;Blitzer has been involved in the execution of Blackstone&#146;s investments in Spirit Group, SULO, Allied
Waste, Aspen Insurance Holdings, Houghton Mifflin, Universal Orlando, Centerplate, Cadillac Fairview, Edward J. DeBartolo Corporation, Southern Cross, NHP, Orangina, and United Biscuits. Mr.&nbsp;Blitzer graduated <I>magna cum laude</I> from the
Wharton School of the University of Pennsylvania. Mr.&nbsp;Blitzer serves as a Director of United Biscuits and Jack Wolfskin. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Menes O. Chee </B>is a Managing Director in the Tactical Opportunities Group at Blackstone. Mr.&nbsp;Chee joined Blackstone in 2009,
as a Managing Director of GSO Capital Partners, and transferred to Tactical Opportunities in 2012. Before joining Blackstone, from 2005 until 2009, Mr.&nbsp;Chee was a Principal with TPG-Axon Capital, a global multi-strategy hedge fund manager.
Prior to that, from 2003 until 2005, Mr.&nbsp;Chee was a private equity investment professional with Texas Pacific Group. Previous to Texas Pacific Group, from 1999 until 2003, Mr.&nbsp;Chee worked at Credit Suisse First Boston in the Merchant
Banking Group and at Donaldson Lufkin&nbsp;&amp; Jenrette in the Leveraged Finance Group. Mr.&nbsp;Chee graduated magna cum laude from the University of Pennsylvania with a B.S. in Economics from the Wharton School and a B.A. from the College, where
he was elected to Phi Beta Kappa. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Qualifications and Skills of our Board of Trustees </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees believes its members collectively have or will have the experience, qualifications, attributes and skills to
effectively oversee the management of our company, including a high degree of personal and professional integrity, an ability to exercise sound business judgment on a broad range of issues, sufficient experience and background to have an
appreciation of the issues facing our company, a willingness to devote the </FONT></P>
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necessary time to board duties, a commitment to representing the best interests of the company and its shareholders and a dedication to enhancing shareholder value. Set forth below is a brief
description of the particular experience and skills of each trustee that led our Board of Trustees to conclude that such individual is qualified to serve as a trustee of our company in light of our business and structure. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Laurence E. Penn</I></B>&#151;Our Board of Trustees believes that Mr.&nbsp;Penn&#146;s operational experience as President and
Chief Executive Officer of our company and as President and Chief Executive Officer of Ellington Financial LLC (NYSE: EFC), together with his experience in risk management and trading expertise and, in particular, his extensive experience in the
mortgage securities business, give him the qualifications and skills to serve as a trustee. Additional information regarding Mr.&nbsp;Penn&#146;s experience is set forth under &#147;Our Manager and the Management Agreement&#151;Our Manager&#146;s
and Ellington&#146;s Employees.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>David S. Blitzer&#151;</I></B>Our Board of Trustees believes that
Mr.&nbsp;Blitzer&#146;s operational experience as Senior Managing Director&nbsp;&amp; Head of Tactical Opportunities for Blackstone gives him the qualifications and skills to serve as a trustee. Additional information regarding
Mr.&nbsp;Blitzer&#146;s experience is set forth above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Menes Chee</I></B>&#151;Our Board of Trustees believes that
Mr.&nbsp;Chee&#146;s operational experience as a Managing Director in the Tactical Opportunities Group at Blackstone and GSO Capital Partners, together with his experience as a Principal with TPG&#151;Axon give him the qualifications and skills to
serve as a trustee. Additional information regarding Mr.&nbsp;Chee&#146;s experience is set forth above. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Corporate Governance &#150; Board
of Trustees and Committees </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our business will be managed under the oversight and direction of our Board of Trustees, which
will establish investment guidelines for our Manager to follow in its day-to-day management of our business. Upon the completion of this offering, we expect a majority of the members of our Board of Trustees will be &#147;independent,&#148; as
defined by the rules of the NYSE. Future nominees, other than those nominees designated by the Blackstone Funds or Ellington pursuant to a shareholders agreement, will be recommended by our nominating and corporate governance committee for
nomination by our Board of Trustees. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The trustees will be informed about our business at meetings of our Board of Trustees
and its committees and through supplemental reports and communications. We expect our independent trustees will meet regularly in executive sessions without the presence of our corporate officers. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Prior to the completion of this offering, our Board of Trustees will form an audit committee, a compensation committee and a nominating
and corporate governance committee and adopt charters for each of these committees. Each of these committees will be composed exclusively of independent trustees, as defined by the listing standards of the NYSE. Moreover, our compensation committee
will be composed exclusively of individuals intended to be, to the extent required by Rule 16b-3 of the Exchange Act, non-employee trustees and will, at such times as we are subject to Section&nbsp;162(m) of the Code, qualify as outside directors
for purposes of Section&nbsp;162(m) of the Code. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Audit Committee </I></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees will establish an audit committee. Our audit committee will consist
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, each of whom
will be an independent trustee and &#147;financially literate&#148; under the rules of the NYSE. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; will chair our audit committee and will serve as our audit committee financial
expert, as that term is defined by the SEC. Our audit committee will assist the Board in overseeing (i)&nbsp;our accounting and financial reporting processes; (ii)&nbsp;the integrity and audits of our consolidated financial statements;
(iii)&nbsp;our compliance with legal and regulatory requirements; (iv)&nbsp;the qualifications and independence of our independent auditors; (v)&nbsp;the performance of our independent auditors; and (vi)&nbsp;the performance of the Company&#146;s
internal audit function. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Compensation Committee </I></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees will establish a compensation committee. Our compensation committee will consist
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, each of whom
will be an independent trustee. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; will chair our </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">89 </FONT></P>



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compensation committee. The compensation committee&#146;s principal functions will be to (i)&nbsp;evaluate the performance of our officers, (ii)&nbsp;evaluate the performance of our Manager,
(iii)&nbsp;review the compensation and fees payable to our Manager under our management agreement, (iv)&nbsp;review and approve the amount of any wages, salaries and benefits paid or reimbursed with respect to any dedicated or partially dedicated
Chief Financial Officer, Controller, in-house legal counsel and/or investor relations professional, if our Manager elects to provide any of them to us and (v)&nbsp;administer the issuance of common shares and other equity-based awards issued to our
officers, our Manager or the employees of our Manager who provide services to us. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Nominating and Corporate Governance
Committee </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees will establish a nominating and corporate governance committee. Our nominating and
corporate governance committee will consist of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, and
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, each of whom will be an independent trustee. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; will chair our nominating and corporate governance
committee. The nominating and corporate governance committee will be responsible for seeking, considering and recommending to the Board qualified candidates for election as trustees and recommending a slate of nominees for election as trustees at
the annual meeting. It also will periodically prepare and submit to the Board for adoption the committee&#146;s selection criteria for trustee nominees. It will review and make recommendations on matters involving general operation of the Board and
our corporate governance, and will recommend annually to the Board nominees for each committee of the Board. In addition, the committee will facilitate the annual assessment of the Board of Trustee&#146;s performance as a whole and of the individual
trustees. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Compensation Committee Interlocks and Insider Participation </I></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We do not anticipate that any members of our compensation committee will serve as members of our Board of Trustees or compensation
committee of any other entity that has one or more executive officers serving as a member of our Board of Trustees. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Code of Business
Conduct and Ethics </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees will establish a code of business conduct and ethics that will apply to our
officers, trustees and any employees. Among other matters, our code of business conduct and ethics will be designed to deter wrongdoing and to promote the following: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">full, fair, accurate, timely and understandable disclosure in our reports filed with the SEC, if any, and other public communications;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">compliance with applicable governmental laws, rules and regulations; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">prompt internal reporting of violations of the code to appropriate persons identified in the code; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">accountability for adherence to the code of business conduct and ethics. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Any waiver of the code of business conduct and ethics for our executive officers, trustees or any employees may be made only by our
nominating and corporate governance committee, and will be promptly disclosed as required by law or stock exchange regulations. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Limitations on Liabilities and Indemnification of Trustees and Officers </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">For information concerning limitations of liability and indemnification applicable to our trustees, executive officers and, in certain circumstances, employees, see &#147;Certain Provisions of Maryland
Law and of Our Declaration of Trust and Bylaws,&#148; and &#147;Certain Relationships and Related Party Transactions&#151;Indemnification.&#148; </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">90 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Compensation of Trustees </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Any member of our Board of Trustees who is also an employee of our Manager or Ellington or their respective affiliates will not receive additional compensation for serving on our Board of Trustees. Each
independent trustee is expected to receive an annual cash retainer of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and a fee of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for each Board and committee meeting attended
($&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;if the meeting is attended telephonically). The chairman of each of our Board of Trustees, the audit committee, the compensation committee and the nominating and corporate governance committee
is expected to receive an additional annual cash retainer of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, respectively. We will reimburse our trustees for their travel expenses incurred in connection with their attendance at full board and committee meetings. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Executive Compensation </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will not pay any annual cash compensation to our executive officers. The management agreement permits our Manager to provide us with a
dedicated or partially dedicated Chief Financial Officer, Controller, internal legal counsel and/or investor relations professional. If our Manager elects to provide us with a dedicated or partially dedicated Chief Financial Officer, Controller,
internal legal counsel and/or investor relations professional, our Manager will be entitled to be reimbursed for the costs of the wages, salaries and benefits incurred by our Manager with respect to such personnel, provided that if our Manager
elects to provide a partially dedicated Chief Financial Officer, Controller, internal legal counsel and/or investor relations professional rather than a fully dedicated Chief Financial Officer, Controller, internal legal counsel and/or investor
relations professional, we will be required to reimburse only a pro rata portion of the costs of the wages, salaries and benefits incurred by our Manager with respect to such personnel based on the percentage of their working time and efforts spent
on matters related to our company. The amount of any wages, salaries and benefits paid or reimbursed with respect to a dedicated or partially dedicated Chief Financial Officer, Controller, internal legal counsel and/or investor relations
professional will also be subject to the approval of the compensation committee of our Board of Trustees. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">91 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_12"></A>OUR MANAGER AND THE MANAGEMENT AGREEMENT </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Overview </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are
externally managed and advised by our Manager, an affiliate of Ellington, pursuant to a management agreement. Our Manager was formed solely to serve as our manager and does not have any other clients. In addition, our Manager does not have any
employees of its own and instead relies on the employees of Ellington to perform its obligations to us. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager is
responsible for administering our business activities and day-to-day operations and, pursuant to a services agreement between our Manager and Ellington, relies on the resources of Ellington to support our operations. See &#147;Certain Relationships
and Related Party Transactions&#151;Services Agreement&#148; for a description of the terms of the services agreement between our Manager and Ellington. Ellington has established portfolio management resources for each of our targeted asset classes
and an established infrastructure supporting those resources. Through our relationship with our Manager, we benefit from Ellington&#146;s highly analytical investment processes, broad-based deal flow, extensive relationships in the financial
community, financial and capital structuring skills, investment surveillance capabilities and operational expertise. Ellington&#146;s analytic approach to the investment process involves collection of substantial amounts of data regarding historical
performance of RMBS collateral and RMBS market transactions and other mortgage- and real estate-related assets. Ellington analyzes this data to identify possible trends and develops financial models used to support the investment and risk management
process. In addition, throughout Ellington&#146;s 17-year history of investing in RMBS and related derivatives, it has developed strong relationships with a wide range of dealers and other market participants that provide Ellington access to a broad
range of trading opportunities and market information. In addition, our Manager provides us with access to a wide variety of asset acquisition and disposition opportunities and information that assist us in making asset management decisions across
our targeted asset classes, which we believe provides us with a significant competitive advantage. We also benefit from Ellington&#146;s finance, accounting, operational, legal, compliance and administrative functions. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, Ellington employed over 110 employees and had assets under management of over $ 4.7 billion, comprised of
our company and various other investment vehicles, including Ellington Financial LLC, a specialty finance company listed on the NYSE (NYSE:EFC). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our Manager has an investment and risk management committee that advises and consults with our senior management team with respect to, among other things, our investment policies, portfolio holdings,
financing and hedging strategies and investment guidelines. The members of the investment and risk management committee include, among others, the following officers of our Manager: Messrs. Vranos, Penn and Tecotzky. These officers of our Manager
also serve as our Co-Chief Investment Officer, President and Chief Executive Officer, and Co-Chief Investment Officer, respectively. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Although our core investment strategy focuses on the acquisition and management of Agency RMBS and non-Agency RMBS, Ellington&#146;s expertise in related investment disciplines will provide our Manager
not only with valuable investment insights into the selection of our Agency and non-Agency RMBS but also with the capacity to invest opportunistically in other mortgage-related assets, subject to our investment guidelines and as market conditions
permit. As a result of Ellington&#146;s extensive portfolio management experience, we believe we will be able to contribute to returns through opportunistic, active management of our investment portfolio. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Our Manager&#146;s and Ellington&#146;s Employees </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Through 17 years of operational experience as an investment advisor, Ellington has built significant portfolio management and infrastructure resources to support its numerous funds and large asset base.
Therefore, we believe that Ellington&#146;s portfolio management resources and infrastructure are scalable to service our activities. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">92 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">One of the strengths of the Ellington portfolio management team is the strength of its
senior management team. Summary biographies of certain of these individuals are as follows: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:91pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Name/Position&nbsp;at&nbsp;Ellington</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Age</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Background Summary</B></FONT></P></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Michael Vranos</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Founder&nbsp;&amp; Chief Executive Officer</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Vranos is the founder and Chief Executive Officer of Ellington. Mr. Vranos is also the Chief Executive Officer and President of our Manager and serves on our Manager&#146;s
investment and risk management committee. Mr. Vranos has been our Co-Chief Investment Officer since October 2012. Mr. Vranos also serves as Co-Chief Investment Officer and as a member of the Board of Directors for Ellington Financial LLC. Mr. Vranos
founded Ellington in December of 1994 to capitalize on distressed conditions in the MBS derivatives market. Until December 1994, Mr. Vranos was a Senior Managing Director at Kidder Peabody in charge of RMBS trading. Mr. Vranos graduated magna cum
laude, Phi Beta Kappa with a B.A. in Mathematics from Harvard University.</FONT></TD></TR>
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<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Laurence Penn</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Vice
Chairman</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">50</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Penn is a Vice Chairman of Ellington, where he helps oversee many functions of the firm, including trading, risk management, and new business. Mr. Penn is also the Executive
Vice President of our Manager and serves on our Manager&#146;s investment and risk management committee. Mr. Penn has been our President and Chief Executive Officer since October 2012 and has served as a member of our Board of Trustees since our
inception. Mr. Penn also serves as Chief Executive Officer and President and as a member of the Board of Directors for Ellington Financial LLC. In Ellington&#146;s earlier years, Mr. Penn was the senior portfolio manager primarily responsible for
investments in Agency RMBS. Prior to joining Ellington in 1995 shortly after its inception, Mr. Penn was at Lehman Brothers where he was a Managing Director and co-head of CMO origination and trading. Mr. Penn specialized in the trading and
risk-management of CMO derivatives. Prior to trading CMOs and CMO derivatives, Mr. Penn was in charge of Lehman Brothers&#146; structured transaction modeling group from 1987 to 1990, where he was responsible for the structuring, modeling and
computer system design for MBS and ABS. Mr. Penn began his career at Lehman Brothers in 1984, after receiving a Master of Advanced Study in Mathematics from Cambridge University, where he studied as both a National Science Foundation and Winston
Churchill Fellow. Mr. Penn graduated summa cum laude, Phi Beta Kappa with a B.A. in Mathematics from Harvard University.</FONT></TD></TR>
<TR>
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<TD HEIGHT="8" COLSPAN="2"></TD>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Richard Brounstein</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Vice Chairman</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">52</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Brounstein is a Vice Chairman and the Director of Investor Relations at Ellington. Prior to joining Ellington in 2000, Mr. Brounstein was the Managing Director responsible for
the Fixed Income Securities division at Soci&eacute;t&eacute; G&eacute;n&eacute;rale Securities Corporation, later renamed S.G. Cowen Securities Corporation. In this capacity, Mr. Brounstein was responsible for supervising all aspects of risk
management, market making, proprietary trading, distribution and finance related activities. In addition to his direct responsibilities for the Fixed Income Division, Mr. Brounstein was a member of the Risk Management committee at
Soci&eacute;t&eacute; G&eacute;n&eacute;rale Securities Corporation. Prior to joining Soci&eacute;t&eacute; G&eacute;n&eacute;rale Securities Corporation, Mr. Brounstein was the Managing Director responsible for the Mortgage-Backed Securities
Division at the Union Bank of Switzerland. Later he was given responsibilities for the supervision of distribution/placement of all Fixed Income Securities. Prior to joining the Union Bank of Switzerland, Mr. Brounstein worked with Mr.
Vranos</FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">93 </FONT></P>



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<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:91pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Name/Position&nbsp;at&nbsp;Ellington</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Age</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Background Summary</B></FONT></P></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">and other Ellington employees at Kidder Peabody. Mr. Brounstein received a M.A. from Columbia University and a B.A. from Fairleigh Dickinson University.</FONT></TD></TR>
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<TD HEIGHT="8" COLSPAN="4"></TD>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>John Geanakoplos</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Managing Director</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">57</FONT></TD>
<TD NOWRAP VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Professor Geanakoplos is a Managing Director at Ellington, where he is the head of Research and Development and is responsible for the design of computer models to evaluate and
hedge the firm&#146;s portfolio. Professor Geanakoplos is largely responsible for the theoretical framework of Ellington&#146;s proprietary prepayment model and interest rate model. From 1992 until joining Ellington in 1995, Professor Geanakoplos
was a Managing Director of Kidder Peabody, where he was head of the Fixed Income Research Department. In this capacity, he led the design of the firm&#146;s proprietary MBS analytical systems. He became a full Professor at Yale University in 1986,
at the age of 30, and is currently the James Tobin Professor of Economics and Director of the Cowles Foundation for Research in Economics. He was elected a fellow of the Econometric Society in 1990 and of the American Academy of Arts and Sciences in
1999. He was awarded the Samuelson Prize in 1999, and was awarded the first Bodossaki Prize in economics in 1995. In 1990 and again in 2000, he directed the economics program at the Santa Fe Institute, where he remains an external professor.
Professor Geanakoplos graduated summa cum laude, Phi Beta Kappa with a B.A. in Mathematics from Yale University and received a M.A. in Mathematics and a Ph.D. in economics from Harvard University.</FONT></TD></TR>
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<TD HEIGHT="8" COLSPAN="4"></TD>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Peter Green</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Managing
Director</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">33</FONT></TD>
<TD NOWRAP VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Green is a Managing Director at Ellington where he heads the Risk Management department, which helps monitor, measure, and manage liquidity, market, credit, operational, and
other risks. Mr. Green also serves on our Manager&#146;s investment and risk management committee. At Ellington, Mr. Green oversees the development of the firm&#146;s many risk management tools adapted to the particular needs of Ellington&#146;s
investment strategies. Over his career at Ellington, Mr. Green has performed a wide variety of roles at the firm, including assisting in the development of Ellington&#146;s interest rate and RMBS credit models, formulating hedging strategies,
supporting new business initiatives, and helping design many of the computer systems that support the firm&#146;s specific portfolio management and operational needs. Mr. Green holds a Ph.D. in Pure Mathematics from Harvard University and a B.Sc.
from McGill University.</FONT></TD></TR>
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<TD HEIGHT="8" COLSPAN="4"></TD>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Daniel Margolis</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>General Counsel</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">39</FONT></TD>
<TD NOWRAP VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Margolis is Ellington&#146;s General Counsel. Mr. Margolis has been our Secretary since our inception. He also serves as Secretary for Ellington Financial LLC. As General
Counsel for Ellington, he is responsible for advising Ellington on all legal, regulatory, compliance, documentation and litigation matters. Prior to joining Ellington, Mr. Margolis was a Partner at Pillsbury, Winthrop, Shaw, Pittman LLP and before
that was a Junior Partner at Wilmer, Cutler, Pickering, Hale and Dorr LLP. In both positions, Mr. Margolis represented corporations and individuals, including financial services organizations, in criminal and regulatory investigations and in complex
civil litigation. From 2000 to 2004, he served as an Assistant United States Attorney in the United States Attorney&#146;s Office for the Southern District of New York where he prosecuted
a</FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">94 </FONT></P>



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<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:91pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Name/Position at Ellington</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Age</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Background Summary</B></FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">variety of white collar crimes including securities fraud, investment fraud, tax fraud and money laundering. In 2004, he received the John Marshall Award, the Department of
Justice&#146;s highest award for excellence in legal performance. He has a J.D. from New York University School of Law, where he graduated cum laude, and a B.A. from Binghamton University where he graduated magna cum laude with highest honors in
Political Science and was a member of Phi Beta Kappa.</FONT></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Vassilios&nbsp;Nikos&nbsp;Nicopoulos</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>Managing Director</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Nicopoulos is a Managing Director at Ellington and is responsible for the mathematical modeling and computer implementation of Ellington&#146;s interest rate and hedging models,
and their use in valuing, hedging and managing the risk of MBS. Mr. Nicopoulos joined Ellington from Oxford University in England, where he was an Assistant Professor in Theoretical Condensed Matter Physics. His work focused on the complex behavior
of interacting electronic systems. He has had extensive experience in the simulation and analysis of complex stochastic systems on workstations and supercomputers and has built an international reputation for research relevant to real-world physics
problems. Mr. Nicopoulos graduated magna cum laude, Phi Beta Kappa with a B.A. in Physics from Harvard University, and also holds M.A. and Ph.D. degrees in Theoretical Physics from Princeton University. Prior to his position at Oxford, he was a
researcher and consultant at Los Alamos National Laboratory.</FONT></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>David Rice</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Chief
Compliance Officer</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">43</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Rice is Ellington&#146;s Chief Compliance Officer and chairs the firm&#146;s Compliance Committee. He is responsible for implementation of Ellington&#146;s compliance program.
Prior to joining Ellington, he served as Associate General Counsel, Compliance at GSC Group. From 2002-2007 he served in the Division of Enforcement at the Securities and Exchange Commission in Washington, D.C., where he worked on investigations
involving hedge funds, broker-dealers, investment companies, and public and private companies. He has a J.D. from Yale Law School, a Ph.D. in English from the University of California, Irvine, and graduated Phi Beta Kappa, summa cum laude, with a
B.A. in English and Philosophy from the University of Southern California.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Mark Tecotzky</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Managing Director</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">50</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Tecotzky is a Managing Director of Ellington, and head manager for all MBS/ABS credit, reporting directly to Mr. Vranos. Mr. Tecotzky also serves as the Co-Chief Investment
Officer of Ellington Financial LLC and our Manager and serves on our Manager&#146;s investment and risk management committee. Mr. Tecotzky has been our Co-Chief Investment Officer since October 2012. Prior to joining Ellington in July 2006, Mr.
Tecotzky was the senior trader in the mortgage department at Credit Suisse. He developed and launched several of its securitization vehicles, including hybrid ARMs and second liens, and subsequently ran its hybrid ARM business, including conduit
pricing, servicing sales, monthly securitization, trading of Agency/non-Agency hybrids of all ratings categories and managing and hedging the residual portfolio. Prior to joining Credit Suisse, Mr. Tecotzky worked with Mr. Vranos and many of the
other Ellington principals at Kidder Peabody, where he traded Agency and</FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">95 </FONT></P>



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<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:91pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Name/Position at Ellington</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Age</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Background Summary</B></FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"></TD>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">non-Agency pass-throughs and structured CMOs as a Managing Director. Mr. Tecotzky holds a B.S. from Yale University, and received a National Science Foundation fellowship to study
at MIT.</FONT></TD></TR>
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<TD HEIGHT="8" COLSPAN="2"></TD>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Nikolay Stoytchev</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Managing Director</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">38</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Stoytchev is a Managing Director and Senior Portfolio Manager specializing in the trading and risk management of both Agency and non-Agency IOs, POs, IIOs and specified pools.
Mr. Stoytchev started his career at Ellington by developing, together with Professor Geanakoplos, many of the firm&#146;s proprietary models, most notably Ellington&#146;s proprietary mortgage prepayment models. Mr. Stoytchev graduated summa cum
laude from Yale University with a Bachelor of Arts in Applied Mathematics and Economics, &#147;With Distinction&#148; in both majors. His senior thesis, Value of Mortgage-Backed Securities, was written under the guidance of Professor
Geanakoplos.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Robert Kinderman</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Managing Director</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">36</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Kinderman is a Managing Director at Ellington where he is responsible for trading credit-sensitive securities, including CMBS, ABS, and subordinated RMBS. Mr. Kinderman also
serves on our Manager&#146;s investment and risk management committee. He started full-time with Ellington in 1998, developing credit models as well as pieces of Ellington&#146;s proprietary portfolio management systems, and is currently the head
trader for all credit-sensitive mortgage-backed and asset-backed investments at Ellington. He also helps direct the development of research, modeling and systems for credit-sensitive products. Mr. Kinderman earned a B.A. from Yale with distinction
in Economics and in Mathematics.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Paul Asaro</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Chief
Financial Officer</I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">61</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Asaro is the Chief Financial Officer of Ellington, and as such is responsible for all accounting and financial reporting. Mr. Asaro is also the interim Chief Financial Officer
of our Manager and has been our interim Chief Financial Officer and Treasurer since our inception. Mr. Asaro has been with Ellington since 1997, initially as Chief Financial Officer of Ellington&#146;s real estate finance affiliate Titan Management,
and most recently as Ellington&#146;s Controller. Prior to joining Ellington, Mr. Asaro served as Controller for Auda Advisor Associates L.L.C., an international investment advisory firm for high net worth European investors, and from 1988 through
1996 he served as Controller for Henry Kaufman and Company, Inc., an institutional investment advisory firm focused on fixed income and derivative securities. Before joining Henry Kaufman and Company, Inc., Mr. Asaro worked for nine years in the oil
and gas industry, holding various senior finance positions with Weeks Petroleum Limited and R&amp;B Petroleum, Inc. Mr. Asaro started his career as an auditor with Arthur Andersen &amp; Co., where he engaged in various audit assignments from 1974
through 1978. Mr. Asaro received his MBA in Finance from the University of Connecticut and his B.S. in Accounting from Manhattan College. He became a Certified Public Accountant in 1977 and is a member of the American Institute of Certified Public
Accountants, or CPAs, and the Connecticut Society of CPAs.</FONT></TD></TR>
</TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">96 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>The Management Agreement </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In September 2012, we and each of our current subsidiaries entered into a management agreement with our Manager pursuant to which our Manager is required to manage our business affairs in conformity with
policies and investment guidelines that are approved and monitored by our Board of Trustees. Our Manager will be subject to the direction and oversight of our Board of Trustees. Our Manager will be responsible for, among other things: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the identification, selection, purchase and sale of our portfolio investments; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our financing and risk management activities; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">providing us with investment advisory services; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">providing us with a management team and appropriate personnel. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, our Manager is responsible for our day-to-day operations and will perform (or cause to be performed) such services and
activities relating to our assets and operations as may be necessary or appropriate, including the following: </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(i) serving as our consultant with respect to the periodic review of our investment guidelines and other policies and
criteria for our other borrowings and operations; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ii) investigating, analyzing and selecting possible
investment opportunities and originating, acquiring, structuring, financing, retaining, selling, negotiating for prepayment, restructuring or disposing of investments consistent with the investment guidelines; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(iii) with respect to any prospective investment by us and any sale, exchange or other disposition of any investment by
us, including the accumulation of assets for securitization and conducting negotiations on our behalf with sellers and purchasers and their respective agents, representatives and investment bankers, and owners of privately and publicly held real
estate companies; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(iv) engaging and supervising, on our behalf and at our sole cost and expense, third party
service providers that are not affiliated with Ellington who provide legal, accounting, due diligence, transfer agent, registrar, leasing services, master servicing, special servicing, banking, investment banking, mortgage brokerage, real estate
brokerage, securities brokerage and other financial services and such other services as may be required relating to our investments or potential investments and to our other business and operations; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(v) coordinating and supervising, on our behalf and at our sole cost and expense, other third party service providers to
us; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(vi) serving as our consultant with respect to arranging for any issuance of mortgage-backed securities
from pools of mortgage loans or mortgage backed securities owned by us; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(vii) coordinating and managing
operations of any joint venture or co investment interests held by us and conducting all matters with any joint venture or co-investment partners; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(viii) providing executive and administrative personnel, office space and office services required in rendering services to us; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ix) administering our day-to-day operations and performing and supervising the performance of such other administrative
functions necessary to our management as may be agreed upon by our Manager and our Board of Trustees, including, without limitation, the collection of revenues and the payment of our debts and obligations and maintenance of appropriate computer
services to perform such administrative functions; </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">97 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(x) in connection with any on-going obligations under the Sarbanes Oxley
Act of 2002, the Exchange Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable law, engaging and supervising, on our behalf and at our sole cost and expense, third party consultants and other service providers to
assist us in complying with the requirements of the Sarbanes Oxley Act of 2002, the Exchange Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable law; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xi) communicating on our behalf with the holders of any of our equity or debt securities as required to satisfy the
reporting and other requirements of any governmental bodies or agencies or trading markets and to maintain effective relations with such holders; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(xii) counseling our Board of Trustees in connection with policy decisions to be made by our Board of Trustees; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(xiii) counseling us, and when appropriate, evaluating and making recommendations to our Board of Trustees regarding hedging, financing and securitization strategies and engaging in hedging, financing,
borrowing and securitization activities on our behalf, consistent with our investment guidelines; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xiv)
counseling us with respect to the qualification and maintenance of our status as a REIT at such time as our Board of Trustees determines to cause us to elect to be treated as a REIT for U.S. federal income tax purposes and thereafter monitoring our
compliance with the various REIT qualification tests and other rules set out in the Code and the Treasury Regulations; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(xv) counseling us with respect to the maintenance of our exclusion from status as an investment company under the Investment Company Act and monitoring compliance with the requirements for maintaining
such exclusion and using commercially reasonable efforts to cause us to maintain such exclusion from status as an investment company under the Investment Company Act; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xvi) assisting us in developing criteria for asset purchase commitments that are specifically tailored to our investment
objectives and making available to us its knowledge and experience with respect to mortgage loans, real estate, real estate related securities, other real estate-related assets, asset-backed securities, non real estate-related assets and real estate
operating companies; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xvii) furnishing reports to our Board of Trustees regarding the activities and services
performed for us or any of our subsidiaries by our Manager; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xviii) monitoring the operating performance of
our investments and providing such periodic reports with respect thereto to our Board of Trustees as they shall reasonably determine from time to time to be necessary or appropriate; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xix) investing or reinvesting any money or securities on our behalf (including investing in short-term investments
pending investment in other investments, payment of fees, costs and expenses, or distributions to our shareholders), and advising us with respect to our capital structure and capital raising; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xx) causing us to retain, at our sole cost and expense, qualified independent accountants and legal counsel, as
applicable, to assist in developing appropriate accounting procedures, compliance procedures and testing systems with respect to financial reporting obligations and, from and after such time as our Board of Trustees determines to cause us to elect
to be treated as a REIT for U.S. federal income tax purposes, compliance with the provisions of the Code and the Treasury Regulations applicable to REITs, and to conduct quarterly compliance reviews with respect thereto; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxi) causing us and each of our subsidiaries to qualify to do business in all applicable jurisdictions and to obtain and
maintain all appropriate licenses; </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">98 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxii) assisting us with respect to our compliance with all applicable
regulatory requirements in respect of our business activities, including preparing or causing to be prepared all financial statements required under applicable regulations and contractual undertakings and all reports and documents, if any, required
under the Exchange Act, the Securities Act or by any national securities exchange; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxiii) taking all
necessary actions to enable us to make required tax filings and reports and compliance with the provisions of the Code, and Treasury Regulations applicable to us, including, without limitation, from and after such time as the Board of Trustees
determines to cause us to elect to be treated as a REIT for U.S. federal income tax purposes, the provisions applicable to our qualification as a REIT for U.S. federal income tax purposes; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxiv) handling and resolving all claims, disputes or controversies (including all litigation, arbitration, settlement or
other proceedings or negotiations) in which we may be involved or to which we may be subject arising out of our day-to-day operations (other than with our Manager or its affiliates), subject to such limitations, parameters or directions as may be
imposed from time to time by our Board of Trustees; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxv) using commercially reasonable efforts to cause
expenses incurred by or on behalf of our company to be commercially reasonable or commercially customary and within any budgeted parameters or expense guidelines set by our Board of Trustees from time to time; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxvi) advising on, and obtaining on our behalf, appropriate credit facilities or other financings for our investments
consistent with our investment guidelines; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxvii) advising us with respect to and structuring long-term
financing vehicles for our portfolio of assets, and offering and selling securities publicly or privately in connection with any such structured financing; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(xxviii) performing such other services as may be required from time to time for management and other activities relating to our assets as our Board of Trustees shall reasonably request; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxix) using commercially reasonable efforts to cause us to comply with all applicable laws; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxx) negotiating and entering into and executing, on our behalf, or causing us to execute repurchase agreements,
interest rate agreements, swap agreements, brokerage agreements, resecuritizations, securitization warehouse facilities and other agreements and instruments required for us to conduct our business; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxxi) serving as our consultant with respect to decisions regarding any of our financings, hedging activities or
borrowings; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxxii) providing us with portfolio management; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxxiii) arranging marketing materials, advertising, industry group activities (such as conference participations and
industry organization memberships) and other promotional efforts designed to promote our business; and </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(xxxiv) maintaining our website. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the management agreement, our Manager does not assume any responsibility other than to render the services called for thereunder in good faith and is not responsible for any action of our
Board of Trustees in following or declining to follow our Manager&#146;s advice or recommendations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager, Ellington,
and their affiliates and each of their officers, directors, trustees, members, shareholders, partners, managers, investment and risk management committee members, employees, agents, successors and assigns, each of which we sometimes refer to as a
&#147;Manager Indemnified Party,&#148; will not be liable to </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">99 </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
us for any acts or omissions arising out of or in connection with our company or the performance of our Manager&#146;s duties and obligations to us under the management agreement, except by
reason of acts or omissions found by a court of competent jurisdiction to be due to the bad faith, gross negligence, willful misconduct, fraud or reckless disregard of duties by any Manager Indemnified Party. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under the management agreement, we are required to indemnify, defend and hold harmless each Manager Indemnified Party from and against
any and all costs, losses, claims, damages, liabilities, expenses (including reasonable legal and other professional fees and disbursements), judgments, fines and settlements suffered or sustained by any of them by reason of (i)&nbsp;any acts,
omissions or alleged acts or omissions arising out of or in connection with our company or performed by a Manager Indemnified Party in good faith and in accordance with or pursuant to our Manager&#146;s duties and obligations under the management
agreement, and (ii)&nbsp;any and all claims, demands, actions, suits or proceedings (civil, criminal, administrative or investigative), actual or threatened, in which any such person may be involved, as a party or otherwise, arising out of or in
connection with such acts or omissions performed in good faith and in accordance with the management agreement, except to the extent such costs are determined to be due to such Manager Indemnified Party&#146;s bad faith, gross negligence, willful
misconduct or fraud. Pursuant to the management agreement, none of the Manager Indemnified Parties will be liable, however, for (i)&nbsp;trade errors that may result from ordinary negligence that are otherwise taken in good faith and in accordance
with or pursuant to the management agreement, such as errors in the investment-decision process or in the trade process, or (ii)&nbsp;acts or omissions of any Manager Indemnified Party made or taken in accordance with written advice provided to the
Manager Indemnified Parties by specialized, reputable, professional consultants selected, engaged or retained by our Manager, Ellington or their affiliates with commercially reasonable care, including without limitation counsel, accountants,
investment bankers, financial advisers, and appraisers, that are otherwise take in good faith and in accordance with or pursuant to the management agreement; provided that such advice relates to matters which are not customarily the expertise of an
investment manager providing services substantially similar to those to be provided pursuant to the management agreement, or that such advice relates to matters about which such an investment manager would customarily seek such advice in the
ordinary course of business other than, in the case of clauses (i)&nbsp;and (ii), if such costs result from the Manager Indemnified Party&#146;s bad faith, gross negligence, willful misconduct or fraud or material breach or violation or reckless
disregard of our Manager&#146;s duties and obligations under the management agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager has agreed in the
management agreement to indemnify our company and our subsidiaries and each of their respective trustees, officers, employees and managers, each of which we sometimes refer to as a &#147;Company Indemnified Party,&#148; with respect to all costs,
losses, claims, damages, liabilities, expenses (including reasonable legal and other professional fees and disbursements), judgments, fines and settlements suffered or sustained by reason of (i)&nbsp;acts or omissions or alleged acts or omissions of
our Manager constituting bad faith, willful misconduct or gross negligence of our Manager, Ellington or their respective officers or employees or the reckless disregard of our Manager&#146;s duties under the management agreement or (ii)&nbsp;claims
by Ellington&#146;s or our Manager&#146;s employees relating to the terms and conditions of their employment with Ellington or our Manager. Our Manager intends to obtain errors and omissions and other insurance, which is customarily carried by
property and investment managers. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the terms of the management agreement, our Manager is required through
Ellington and its affiliates to provide a management team (including, without limitation, a Chief Executive Officer and President, a Chief Financial Officer (or comparable professional), a Chief Investment Officer or Co-Chief Investment Officers, a
Controller (or comparable professional) and a Secretary) along with appropriate support personnel, to deliver the management services to us, with the members of such management team, other than those that may be dedicated to us, devoting such
portion of their time to the management of us as is reasonably necessary and appropriate for the proper performance of all of our Manager&#146;s duties, commensurate with the level of our activity from time to time. The management agreement permits
our Manager to provide us with a dedicated or partially dedicated Chief Financial Officer, Controller, internal legal counsel and/or investor relations professional. If our Manager elects to provide us with a dedicated or partially dedicated Chief
Financial Officer (or comparable professional), Controller (or comparable professional), internal legal counsel and/or investor relations professional, our Manager will be entitled to be reimbursed for the costs of the wages, salaries and benefits
incurred by our Manager with respect to such personnel, provided that if our Manager elects to provide a partially dedicated Chief Financial Officer, Controller, internal legal counsel and/or investor relations professional rather than a fully
dedicated Chief Financial Officer, Controller, internal legal counsel and/or investor relations professional, we will be required to reimburse </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">100
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
only a pro rata portion of the costs of the wages, salaries and benefits incurred by our Manager with respect to such personnel based on the percentage of their working time and efforts spent on
matters related to our company. The amount of any wages, salaries and benefits paid or reimbursed with respect to a dedicated or partially dedicated Chief Financial Officer, Controller, internal legal counsel and/or investor relations professional
will also be subject to the approval of the Compensation Committee of our Board of Trustees. We have the benefit of our Manager&#146;s reasonable judgment and effort in rendering services and, in furtherance of the foregoing, our Manager shall not
undertake activities which, in its reasonable judgment, will materially adversely affect the performance of its obligations under the management agreement. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>Term and Termination </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The initial term of the management agreement will
expire in September 2017 and will be automatically renewed for a one-year term on such date and on each anniversary of such date thereafter unless terminated as described below. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Either we or our Manager may elect not to renew the management agreement upon expiration of its initial term or any renewal term by
providing written notice of non-renewal at least 180 days, but not more than 270 days, before expiration. In the event we elect not to renew the term, we will be required to pay our Manager a termination fee equal to five percent (5%)&nbsp;of our
shareholders&#146; equity as of the end of the month preceding the date on which the term of the management agreement expires. No termination fee will be due to the Manager if the Manager determines not to renew the management agreement. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We have the right to terminate the management agreement for cause, as defined in the management agreement, at any time during the term
upon 30 days&#146; prior written notice, without payment of any termination fee. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Following the completion of this offering,
our Board of Trustees will review our Manager&#146;s performance annually and, as a result of such review, upon the affirmative vote of at least two-thirds of the members of our Board of Trustees or of the holders of a majority of our outstanding
common shares, we may terminate the management agreement based upon a determination by our independent trustees that our Manager&#146;s performance has been unsatisfactory and materially detrimental to us or a determination by our independent
trustees that the management fees payable to our Manager are not fair, subject to the right of our Manager to prevent such a termination by agreeing to a reduction of the management fees payable to our Manager. Upon any termination of the management
agreement based on unsatisfactory performance or unfair management fees, we are required to pay our Manager the termination fee described above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our Manager may terminate the management agreement, without payment of the termination fee, in the event we become regulated as an investment company under the Investment Company Act. Our Manager may also
terminate the management agreement upon 60 days&#146; written notice if we default in the performance of any material term of the management agreement and the default continues for a period of 30 days after written notice to us, whereupon we would
be required to pay our Manager the termination fee described above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager may generally only assign the management
agreement with the written approval of a majority of our independent trustees. However, our Manager may assign to one or more of its affiliates the performance of any of its responsibilities under the management agreement without the approval of our
independent trustees so long as our Manager remains liable for any such affiliate&#146;s performance and such assignment does not require our approval under the Investment Advisers Act. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>License to use the Name &#147;Ellington&#148; </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the management agreement, our Manager has granted us a non-exclusive, royalty-free license to use the name &#147;Ellington.&#148; We have a right to use the &#147;Ellington&#148; name for so
long as our Manager or any successor to its business remains our Manager. In the event the management agreement is terminated, we would be required to change our name to eliminate the use of the word &#147;Ellington.&#148; </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">101
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Management Fees and Reimbursement of Expenses </I></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We do not maintain an office or employ personnel. Instead we rely on the facilities and resources of our Manager to conduct our
operations. Expense reimbursements to our Manager are made within 60 days following delivery of the expense statement by our Manager. Our Manager is not entitled to receive any incentive fee under the management agreement. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Management Fees </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Under the management agreement, we will pay our Manager a management fee quarterly in arrears in an amount equal to 1.50%&nbsp;per annum of our shareholders&#146; equity, with shareholders&#146; equity
being calculated, as of the end of any fiscal quarter, as (a)&nbsp;the sum of (1)&nbsp;the net proceeds from any issuances of common shares or other equity securities of our company or our operating partnership (without double counting) since
inception, plus (2)&nbsp;our and our operating partnership&#146;s (without double counting) retained earnings or accumulated deficit calculated in accordance with GAAP at the end of the most recently completed fiscal quarter (without taking into
account any non-cash equity compensation expense incurred in current or prior periods), less (b)&nbsp;any amount that we or our operating partnership has paid to repurchase our common shares, limited partnership interest in our operating partnership
or other equity securities since inception. Shareholders&#146; equity excludes (1)&nbsp;any unrealized gains, losses or other non-cash items that have impacted shareholders&#146; equity as reported in our financial statements prepared in accordance
with GAAP, regardless of whether such items are included in net income, and (2)&nbsp;one-time events pursuant to changes in GAAP, and certain non-cash items not otherwise described above in each case, after discussions between our Manager and our
independent trustees and approval by a majority of our independent trustees. Our shareholders&#146; equity, for purposes of calculating the management fee, could be greater or less than the amount of shareholders&#146; equity shown on our financial
statements. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager will calculate the management fee within 45 days following the last day of each quarter and such
calculation will be delivered to us. We will be obligated to pay the management fee within 15 business days after receipt of the calculation from our Manager. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In the event that our Manager, Ellington or any of their affiliates receives any management fees, origination fees or structuring fees from any investment fund, issuer of debt or other investment in which
we have invested or participated, then the quarterly management fee payable by us to our Manager will be reduced by, or our Manager will otherwise rebate to us, an amount equal to the portion of such fee payable to our Manager, Ellington or their
affiliates that is allocable to our investment or participating interest in such investment fund, other investment or debt securities during the same period. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our Manager will earn a larger management fee as a result of future offerings of our securities to the extent our shareholders&#146; equity or the equity of our operating partnership increases (without
double counting). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Blackstone Funds hold special non-voting membership interests in the Ellington affiliate that owns our
Manager, which entitle the holders thereof to receive distributions equal to a percentage of the management fees we pay to our Manager. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>Reimbursement of Expenses </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We pay all of our direct operating expenses,
except those specifically required to be borne by our Manager under the management agreement. Our Manager is responsible for all costs incident to the performance of its duties under the management agreement, including compensation of our
Manager&#146;s employees and other related expenses. The expenses required to be paid by us include, but are not limited to: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">issuance and transaction costs incident to the acquisition, disposition and financing of our assets; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">legal, regulatory, compliance, tax, accounting, consulting, auditing and administrative fees and expenses and fees and expenses for other similar
services rendered by third-party service providers; </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">102
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the compensation and expenses of our trustees and the cost of liability insurance to indemnify our trustees and officers; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the costs associated with the establishment and maintenance of any credit facilities and our other indebtedness (including commitment fees, accounting
fees, legal fees, closing costs, etc.); </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">expenses associated with our other securities offerings, including this offering; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">expenses relating to the payment of distributions; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">expenses connected with communications to holders of our securities in maintaining relations with such holders and in complying with the continuous
reporting and other requirements of the Exchange Act, the SEC and other governmental bodies; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">transfer agent, registrar and exchange listing fees; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the costs of printing and mailing proxies, reports and other materials to our shareholders; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">costs associated with any research, data, data services, computer software or hardware, electronic equipment, or purchased information technology
services from third-party vendors; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">reasonable costs and out-of-pocket expenses incurred on our behalf by directors, trustees, officers, employees or other agents of our Manager for
travel in connection with services provided under the management agreement; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">costs of the wages, salaries and benefits associated with a dedicated Chief Financial Officer, Controller, internal legal counsel and investor
relations professional if our Manager elects to provide us with these dedicated personnel, subject to approval of the reimbursed amounts by the Compensation Committee of our Board of Trustees; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a pro rata portion of the costs of the wages, salaries and benefits associated with a partially dedicated Chief Financial Officer, Controller, internal
legal counsel and/or investor relations professional based on the portion of their working time and efforts spent on our matters and subject to approval of the reimbursed amounts by the Compensation Committee of our Board of Trustees;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the allocable share of any costs and expenses incurred by our Manager or its affiliates with respect to market information systems and publications,
research publications and materials; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">settlement, clearing, trade confirmation and reconciliation, and custodial fees and expenses; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all taxes and license fees; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all insurance costs incurred with respect to insurance policies obtained in connection with the operation of our business including, but not limited
to, insurance covering activities of our Manager and its employees relating to the performance of our Manager&#146;s duties and obligations under the management agreement; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">costs and expenses incurred in contracting third parties for the servicing and special servicing of our assets; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all other actual out-of-pocket costs and expenses relating to our business and investment operations, including, without limitation, the costs and
expenses of acquiring, owning, protecting, maintaining, developing and disposing of investments, including appraisal, reporting, audit and legal fees; </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">103
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<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any judgment or settlement of pending or threatened proceedings (whether civil, criminal or otherwise) against us or any of our subsidiaries, or
against any of our or our subsidiaries&#146; trustees, directors or officers in his or her capacity as such for which we or any subsidiary are required to indemnify such trustee, director or officer by any court or governmental agency, or settlement
of pending or threatened proceedings; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the costs of maintaining compliance with all federal, state and local rules and regulations, including securities regulations, or any other regulatory
agency, all taxes and license fees and all insurance costs incurred on our behalf relating to our activities; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">expenses relating to any office or office facilities, including disaster backup recovery sites and facilities, maintained expressly for us and separate
from offices of our Manager and reasonably required for our operations; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the costs of the wages, salaries and benefits incurred by our Manager with respect to our dedicated officers; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">costs associated with our marketing materials, advertising, industry group activities (such as conference participations and industry organization
memberships) and other promotional efforts designed to promote our business; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">costs of maintaining our website; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all other costs and expenses approved by our Board of Trustees. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, other than as expressly described above, we are not required to pay any portion of rent, telephone, utilities, office
furniture, equipment, machinery and other office, internal and overhead expenses of our Manager and its affiliates. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Services Agreement
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Manager is party to a services agreement with Ellington, pursuant to which Ellington provides to our Manager the
personnel, services and resources as needed by our Manager to enable our Manager to carry out its obligations and responsibilities under the management agreement. We are a named third-party beneficiary to the services agreement and, as a result,
have, as a non-exclusive remedy, a direct right of action against Ellington in the event of any breach by our Manager of any of its duties, obligations or agreements under the management agreement that arise out of or result from any breach by
Ellington of its obligations under the services agreement. The services agreement will terminate upon the termination of the management agreement. Pursuant to the services agreement, our Manager makes certain payments to Ellington in connection with
the services provided. Our Manager and Ellington are under common ownership and control. As a result, all management fee compensation earned by our Manager and all service agreement fees earned by Ellington accrue to the common benefit of the owners
of our Manager and Ellington, namely EMG Holdings, L.P. and VC Investments L.L.C., other than in respect of the special non-voting membership interests that the Blackstone Funds hold in the Ellington affiliate that owns our Manager, which entitle
the holders thereof to receive distributions equal to a percentage of the management fees earned by our Manager. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">104
</FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_13"></A>CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Transactions Effected by Ellington and its Affiliates in Respect of Our Portfolio </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may from time to time enter into certain &#147;related party transactions&#148; with Ellington and its affiliates including, subject to
certain conditions and limitations, cross transactions, principal transactions and the purchase of securities in other Ellington accounts. See &#147;Business&#151;Conflicts of Interest; Equitable Allocation of Opportunities&#148; for a description
of these types of transactions. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Management Agreement </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We are party to a management agreement with our Manager, pursuant to which our Manager provides for the day-to-day management of our operations. The management agreement requires our Manager to manage our
business affairs in conformity with the policies and the investment guidelines that are approved and monitored by our Board of Trustees. All of our officers also serve as officers, employees and/or directors of Ellington, our Manager or one of their
other affiliates. As a result, the management agreement between us and our Manager was negotiated between related parties, and the terms, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated third
party. See &#147;Our Manager and the Management Agreement,&#148; &#147;Business&#151;Conflicts of Interest; Equitable Allocation of Opportunities&#148; and &#147;Risk Factors&#151;Risks Related to our Relationship with our Manager and
Ellington.&#148; In addition, the Blackstone Shareholder holds a non-voting special membership interests in an affiliate of Ellington, which entitles it to receive a portion of the management fees that are paid to our Manager. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Services Agreement </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our
Manager is party to a services agreement with Ellington, pursuant to which Ellington provides to our Manager the personnel, services and resources as needed by our Manager to enable our Manager to carry out its obligations and responsibilities under
the management agreement. We are a named third-party beneficiary to the services agreement and, as a result, have, as a non-exclusive remedy, a direct right of action against Ellington in the event of any breach by our Manager of any of its duties,
obligations or agreements under the management agreement that arise out of or result from any breach by Ellington of its obligations under the services agreement. The services agreement will terminate upon the termination of the management
agreement. Pursuant to the services agreement, our Manager makes certain payments to Ellington in connection with the services provided. Our Manager and Ellington are under common ownership and control. As a result, all management fee compensation
earned by our Manager and all service agreement fees earned by Ellington accrue to the common benefit of the owners of our Manager and Ellington, namely EMG Holdings, L.P. and VC Investments L.L.C., other than in respect of the special non-voting
membership interests that the Blackstone Funds hold in the Ellington affiliate that owns our Manager, which entitle the holders thereof to receive distributions equal to a percentage of the management fees earned by our Manager. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Indemnification Agreements </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to enter into indemnification agreements with each of our current and future trustees and executive officers which will require us to indemnify such persons to the fullest extent permitted by
the MGCL and to pay such persons&#146; expenses, including attorneys&#146; fees, in defending any civil, criminal or other proceedings related to their service on our behalf in advance of final disposition of such proceeding. See &#147;Certain
Provisions of Maryland Law and Our Charter and Bylaws&#151;Limitations on Liabilities and Indemnification of Directors and Officers.&#148; </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Shareholders Agreement </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We and the Blackstone Funds and affiliates of Ellington comprising our initial investors expect to enter into a shareholders agreement
upon completion of this offering that will set forth certain corporate governance provisions, including contractual rights on the part of the Blackstone Funds to designate
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;nominees for election to our Board of Trustees and on the part of Ellington to designate &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;nominees for
election to our Board of Trustees, in </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">105
</FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
each case subject to such holders maintaining beneficial ownership of at least &nbsp;&nbsp;&nbsp;&nbsp;% of the common shares that they beneficially own upon completion of this offering and
certain other conditions. The shareholders agreement will also include certain exclusivity provisions with respect to the manager of the Blackstone Funds and Ellington and other terms. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Registration Rights Agreement </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are a party to a registration rights
agreement with an affiliate of Ellington and the Blackstone Funds pursuant to which we have granted such Ellington affiliate and the Blackstone Funds and each of their permitted transferees and other holders of our &#147;registrable common
shares&#148; (as such term is defined in the registration rights agreement) who become a party to the registration rights agreement with certain demand and/or piggy-back registration and shelf takedown rights<I>. </I>In no event shall any holder of
our registrable common shares have any of the registration, offering or sale rights set forth in the registration rights agreement prior to the expiration of the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;month period
following the closing of this offering. For more information regarding the registration rights agreement, see &#147;Description of Our Shares of Beneficial Interest&#151;Registration Rights Agreement.&#148; </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Related Party Transaction Policies </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We expect that, in connection with the closing of this offering, our Board of Trustees will adopt a written policy regarding the approval of any &#147;related person transaction,&#148; which is any
transaction or series of transactions in which we or any of our subsidiaries is or are to be a participant, where the amount involved exceeds $120,000, and a &#147;related person&#148; (as defined under SEC rules) has a direct or indirect material
interest. Under the policy, a related person would need to promptly disclose to our Secretary any related person transaction and all material facts about the transaction. Our Secretary would then assess and promptly communicate that information to
the audit committee of our Board of Trustees. Based on its consideration of all of the relevant facts and circumstances, our audit committee will decide whether or not to approve such transaction. If we were to become aware of an existing related
person transaction that has not been pre-approved under this policy, the transaction would be referred to this committee, which would evaluate all options available, including ratification, revision or termination of such transaction. Our policy
will require any trustee who may be interested in a related person transaction to recuse himself or herself from any consideration of such related person transaction. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">106
</FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_14"></A>PRINCIPAL SHAREHOLDERS </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Immediately prior to the completion of this offering, there will be
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;common shares outstanding. We issued 1,575,000 common shares to our initial investors in a private placement in connection with our initial capitalization and we expect to
issue&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional common shares to the same investors in one or more private placements prior to or concurrently with the completion of this offering. Prior to completion of this
offering, we will have no other common shares outstanding. The following table sets forth information regarding the beneficial ownership of our common shares immediately before and immediately after this offering. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To our knowledge, each person named in the table has sole voting and investment power with respect to all of the securities shown as
beneficially owned by such person, except as otherwise set forth in the notes to the table. The number of securities shown represents the number of securities the person &#147;beneficially owns,&#148; as determined by the rules of the SEC. The SEC
has defined &#147;beneficial&#148; ownership of a security to mean the possession, directly or indirectly, of voting power and/or investment power. A security holder is also deemed to be, as of any date, the beneficial owner of all securities that
such security holder has the right to acquire within 60 days after that date through (i)&nbsp;the exercise of any option, warrant or right, (ii)&nbsp;the conversion of a security, (iii)&nbsp;the power to revoke a trust, discretionary account or
similar arrangement, or (iv)&nbsp;the automatic termination of a trust, discretionary account or similar arrangement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The
percentages reflect beneficial ownership immediately after the completion of this offering as determined in accordance with Rule 13d-3 under the Exchange Act and assumes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;common
shares are outstanding following the completion of this offering. The percentages assume no exercise by the underwriter of its over-allotment option to purchase up to an additional
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; common shares within 30 days after the date of this prospectus. The address for all beneficial owners in the table below is Ellington Residential Mortgage REIT, 53 Forest
Avenue, Old Greenwich, CT 06870 other than Messrs. Blitzer and Chee and Blackstone Tactical Opportunities EARN Holdings L.L.C., each of whose address is c/o The Blackstone Group LP, 345 Park Avenue, New York, NY 10154. </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="74%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="11" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Common Shares Outstanding</B></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Immediately Prior to<BR>this Offering</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Immediately After this<BR>Offering</B></FONT></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:89pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Name of Beneficial Owner</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Number&nbsp;of<BR>Shares<BR>Beneficially<BR>Owned</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Percent<BR>of&nbsp;all&nbsp;Shares</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Number&nbsp;of<BR>Shares<BR>Beneficially<BR>Owned</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Percent<BR>of&nbsp;all&nbsp;Shares</B></FONT></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Michael Vranos</FONT><FONT STYLE="font-family:Times New Roman" SIZE="1"><SUP
STYLE="vertical-align:baseline; position:relative; bottom:.8ex">(1)</SUP></FONT><FONT STYLE="font-family:Times New Roman" SIZE="2"></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">75,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5.0</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Laurence E. Penn</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mark Tecotzky</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Paul Asaro</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
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<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Daniel Margolis</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">David S. Blitzer</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Menes O. Chee</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
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<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Blackstone Tactical Opportunities EARN Holdings L.L.C.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">95.0</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
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<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">VC Investments L.L.C. </FONT><FONT STYLE="font-family:Times New Roman" SIZE="1"><SUP
STYLE="vertical-align:baseline; position:relative; bottom:.8ex">(1)</SUP></FONT><FONT STYLE="font-family:Times New Roman" SIZE="2"></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">75,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5.0</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">All trustees, trustee nominees and executive officers as a group</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,575,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">100</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE> <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Represents common shares held directly by EMG Holdings, L.P. (&#147;EMGH&#148;). EMGH, VC Investments L.L.C. (&#147;VC&#148;) and Michael W. Vranos each has shared
voting and dispositive power over these shares. VC is the general partner of EMGH. Mr.&nbsp;Vranos is the managing member of, and holds a controlling interest in VC. </FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">107
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_15"></A>DESCRIPTION OF OUR SHARES OF BENEFICIAL INTEREST
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Although the following summary describes the material terms of our shares of beneficial interest, it is not a complete
description of the Maryland REIT Law, or the &#147;MRL&#148;, the MGCL provisions applicable to a Maryland real estate investment trust or our declaration of trust and bylaws as they will be in effect upon the completion of this offering, copies of
which are filed as exhibits to the registration statement of which this prospectus is a part. See &#147;Where You Can Find More Information.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>General </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust provides that we may issue up to
500,000,000 common shares, $0.01 par value per share, and 100,000,000 preferred shares of beneficial interest, $0.01 par value per share, or preferred shares. As of September&nbsp;30, 2012, we had 1,575,000 common shares issued and outstanding, all
of which were issued in September 2012 pursuant to a private placement to our current shareholders consisting of affiliates of Ellington and the Blackstone Funds. Our declaration of trust authorizes our Board of Trustees to approve amendments to our
declaration of trust to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that we have authority to issue without shareholder approval. Upon completion of this offering and the private
placement of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional common shares to our initial investors in one or more private placements prior to or concurrently with the completion of this offering,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;common shares will be issued and outstanding on a fully diluted basis, or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;common shares if the
underwriters exercise in full their over-allotment option, and no preferred shares will be issued and outstanding. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under
Maryland law, shareholders are not personally liable for the obligations of a Maryland real estate investment trust solely as a result of their status as shareholders. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Common Shares </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">All of the common shares offered in this offering will, upon
issuance, be duly authorized, fully paid and non-assessable. Subject to the preferential rights, if any, of holders of any other class or series of shares of beneficial interest and to the provisions of our declaration of trust regarding the
restrictions on ownership and transfer of shares of beneficial interest, holders of our common shares are entitled to receive distributions on such shares of beneficial interest out of assets legally available therefore if, as and when authorized by
our Board of Trustees and declared by us, and the holders of our common shares are entitled to share ratably in our assets legally available for distribution to our shareholders in the event of our liquidation, dissolution or winding up after
payment of or adequate provision for all of our known debts and liabilities, except that, to the extent we incur any tax under the Code as the result of any &#147;excess inclusion income&#148; of ours being allocated to a &#147;disqualified
organization&#148; that holds our shares in record name, we will reduce distributions to such shareholder in an amount equal to such tax paid by us that is attributable to such shareholder&#146;s ownership in accordance with applicable Treasury
regulations. We do not currently intend to make investments or engage in activities that generate &#147;excess inclusion income,&#148; but our declaration of trust does not prevent &#147;disqualified organizations&#148; from owning our common
shares. See &#147;Material U.S. Federal Income Tax Considerations&#151;Taxation of Our Company&#148; and &#147;&#151;Requirements for Qualification&#151;Taxable Mortgage Pools and Excess Inclusion Income&#148; for a discussion of &#147;disqualified
organizations&#148; and &#147;excess inclusion income.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The common shares offered in this offering will be issued by us
and will not represent any interest in or obligation of our Manager, Ellington or any of their affiliates. Further, the shares will not be a deposit or other obligation of any bank, will not be an insurance policy of any insurance company and will
not be insured or guaranteed by the Federal Deposit Insurance Company, any other governmental agency or any insurance company. The common shares will not benefit from any insurance guaranty association coverage or any similar protection. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subject to the provisions of our declaration of trust regarding the restrictions on ownership and transfer of common shares of beneficial
interest and except as may otherwise be specified in the terms of any class or series of common shares, each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders, including the election of
trustees, and, except as provided with respect to any other class or series of shares of beneficial interest, the holders of such common shares will possess the exclusive voting power. There is no cumulative voting in the election of our trustees,
which means that the shareholders entitled to cast a majority of the votes entitled to be cast in the election of trustees can elect all of the trustees then standing for election, and the remaining shareholders will not be able to elect any
trustees. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">108
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Holders of common shares generally have no preference, conversion, exchange, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for any of our securities. Subject to the restrictions on ownership and transfer of shares contained in our declaration of trust and the terms of any other class or series of
common shares, all of our common shares will have equal dividend, liquidation and other rights. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Power to Reclassify Our Unissued Shares of
Beneficial Interest </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust authorizes our Board of Trustees to classify and reclassify any unissued
common or preferred shares into other classes or series of shares of beneficial interest. Prior to the issuance of shares of each class or series, our Board of Trustees is required by Maryland law and by our declaration of trust to set, subject to
the provisions of our declaration of trust regarding the restrictions on ownership and transfer of shares of beneficial interest, the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms or conditions of redemption for each class or series. Therefore, our Board of Trustees could authorize the issuance of common shares or preferred shares that have priority over our common shares as to voting
rights, dividends or upon liquidation or with terms and conditions that could have the effect of delaying, deferring or preventing a change in control or other transaction that might involve a premium price for our common shares or otherwise be in
the best interests of our shareholders. No preferred shares are presently outstanding, and we have no present plans to issue any preferred shares. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Power to Increase or Decrease Authorized Shares of Beneficial Interest and Issue Additional Common Shares and Preferred Shares </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We believe that the power of our Board of Trustees to amend our declaration of trust to increase or decrease the number of authorized
shares of beneficial interest, to authorize us to issue additional authorized but unissued common shares or preferred shares and to classify or reclassify unissued common shares or preferred shares and thereafter to authorize us to issue such
classified or reclassified shares of beneficial interest will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs that might arise. The additional classes or series, as well as
the common shares, will be available for issuance without further action by our shareholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or
traded. Although our Board of Trustees does not intend to do so, it could authorize us to issue a class or series that could, depending upon the terms of the particular class or series, delay, defer or prevent a change in control or other
transaction that might involve a premium price for our common shares or otherwise be in the best interests of our shareholders. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Restrictions on Ownership and Transfer </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In order to qualify as a REIT under the Code for each taxable year beginning after December&nbsp;31, 2013, our shares must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable year. Also, for our taxable years beginning after December&nbsp;31, 2013, no more than 50% of the value of our outstanding shares may be owned, directly or constructively,
by five or fewer individuals (as defined in the Code to include certain entities) during the second half of any calendar year. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Because our Board of Trustees believes it is at present essential for us to qualify as a REIT, among other purposes, our declaration of
trust provides that, subject to certain exceptions, upon completion of this offering, no person may beneficially or constructively own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8% in value or in number of
shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares, which we refer to as the ownership limit. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust also prohibits any person from (i)&nbsp;beneficially or constructively owning or transferring our shares following the completion of this offering if such ownership or transfer
would result in our being &#147;closely held&#148; under Section&nbsp;856(h) of the Code (without regard to whether the ownership interest is held during the last half of the taxable year) or otherwise cause us to fail to qualify as a REIT,
effective upon the completion of this offering, and (ii)&nbsp;transferring our shares after the date on which we first have 100 shareholders if such transfer would result in our capital shares being beneficially owned by fewer than 100 persons.
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">109
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees, in its sole discretion, prospectively or retroactively, may exempt a
person from the ownership limit or the other restrictions on ownership and transfer of our shares described in the paragraph above and may establish or increase an excepted holder limit for such person. The person seeking an exemption must provide
to our Board of Trustees any such representations, covenants and undertakings as our Board of Trustees may deem appropriate in order to conclude that granting the exemption and/or establishing or increasing an excepted holder limit, as the case may
be, will not cause us to fail to qualify as a REIT. Our Board of Trustees may also require a ruling from the IRS or an opinion of counsel in order to determine or ensure our status as a REIT. The foregoing restrictions on transfer and ownership will
not apply if our Board of Trustees determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT, or that compliance with the restrictions on transfer and ownership is no longer required for us to
qualify as a REIT. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of our
shares of beneficial interest that will or may violate the ownership limit any of the other foregoing restrictions on ownership and transfer of our shares of beneficial interest, or who is the intended transferee of shares of our beneficial interest
which are transferred to the trust (as described below), must give written notice immediately to us or, in the case of a proposed or attempted transaction, to give at least 15 days prior written notice, must provide us with such other information as
we may request in order to determine the effect of such transfer on our status as a REIT. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Any attempted transfer of our
shares that, if effective, would result in a violation of any of the foregoing restrictions on ownership and transfer of our shares, will cause the number of shares causing the violation (rounded up to the nearest whole share) to be automatically
transferred to one or more charitable trusts for the exclusive benefit of one or more charitable beneficiaries and the proposed transferee will not acquire any rights in such shares, except that any transfer that results in the violation of the
restriction relating to our shares being beneficially owned by fewer than 100 persons will be void <I>ab initio</I>. The automatic transfer will be deemed to be effective as of the close of business on the business day (as defined in our declaration
of trust) prior to the date of the transfer. If, for any reason, the transfer to the trust would not be effective to prevent the violation of the foregoing restrictions, our declaration of trust provides that the purported transfer in violation of
the restrictions will be void <I>ab initio</I>. Our shares held in the trust will be deemed to be issued and outstanding. The proposed transferee will not benefit economically from ownership of any shares held in the trust, will have no rights to
dividends and no rights to vote or other rights attributable to the shares held in the trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The trustee of the trust will
have all voting rights and rights to dividends or other distributions with respect to shares held in the trust. These rights will be exercised for the exclusive benefit of the charitable beneficiary. Any dividend or other distribution paid prior to
our discovery that shares have been transferred to the trust will be paid by the recipient to the trustee upon demand. Any dividend or other distribution authorized but unpaid will be paid when due to the trustee. Any dividend or distribution paid
to the trustee will be held in trust for the charitable beneficiary. Subject to Maryland law, the trustee will have the authority (i)&nbsp;to rescind as void any vote cast by the proposed transferee prior to our discovery that the shares have been
transferred to the trust and (ii)&nbsp;to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action, then the trustee will not
have the authority to rescind and recast the vote. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Within 20 days of receiving notice from us that shares have been
transferred to the trust, the trustee must sell the shares to a person designated by the trustee, whose ownership of the shares will not violate the above ownership and transfer limitations. Upon such sale, the interest of the charitable beneficiary
in the shares sold will terminate and the trustee must distribute the net proceeds of the sale to the proposed transferee and to the charitable beneficiary as follows: The proposed transferee will receive the lesser of (i)&nbsp;the price paid by the
proposed transferee for the </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">110
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
shares or, if the event that resulted in the transfer to the trust did not involve a purchase of the shares at market price, the market price (as defined in our declaration of trust) of the
shares on the day of the event causing the shares to be held in the trust and (ii)&nbsp;the price received by the trustee from the sale or other disposition of the shares (net of any commissions and other expenses). Any net sale proceeds in excess
of the amount payable to the proposed transferee will be paid immediately to the charitable beneficiary. The trustee may reduce the amount payable to the proposed transferee by the amount of dividends and other distributions paid to the purported
transferee and owed by the proposed transferee to the trustee. If, prior to our discovery that shares have been transferred to the trust, the shares are sold by the proposed transferee, then (i)&nbsp;the shares will be deemed to have been sold on
behalf of the trust and (ii)&nbsp;to the extent that the proposed transferee received an amount for the shares that exceeds the amount the proposed transferee was entitled to receive, the excess must be paid to the trustee upon demand. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, shares held in the trust will be deemed to have been offered for sale to us, or our designee, at a price per share equal to
the lesser of (i)&nbsp;the price per share in the transaction that resulted in the transfer to the trust (or, if the event that resulted in the transfer to the trust did not involve a purchase of the shares at market price, the market price of the
shares on the day of the event causing the shares to be held in the trust) and (ii)&nbsp;the market price on the date we accept, or our designee accepts, the offer, which we may reduce by the amount of dividends and other distributions paid to the
proposed transferee and owed by the proposed transferee to the trustee. We will have the right to accept the offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate
and the trustee must distribute the net proceeds of the sale to the proposed transferee and any dividends or other distributions held by the trustee must be paid to the charitable beneficiary. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If shares are certificated, all such certificates will bear a legend referring to the restrictions described above (or a declaration that
we will furnish a full statement about certain restrictions on transferability to a shareholder on request and without charge). </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Every owner of more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder) of all classes
or series of our shares, including common shares, within 30 days after the end of each taxable year, must give written notice to us stating the name and address of such owner, the number of shares of each class and series of shares of beneficial
interest which the owner beneficially owns and a description of the manner in which the shares are held. Each such owner must also provide to us such additional information as we may request in order to determine the effect, if any, of such
beneficial ownership on our status as a REIT and to ensure compliance with the ownership limit. In addition, each owner of our shares must, upon demand, provide to us such information as we may request, in good faith, in order to determine our
status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance and to ensure compliance with the ownership limit. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">These ownership limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for our
securities or might otherwise be in the best interests of our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">These restrictions on ownership and transfer of
our shares will not apply if our Board of Trustees determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT or that compliance is no longer required in order for us to qualify as a REIT.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Stock Exchange Listing </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to apply to list our common shares on the NYSE under the symbol &#147;EARN.&#148; </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Transfer Agent and Registrar </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We expect the transfer agent and registrar for our common shares to be American Stock Transfer&nbsp;&amp; Trust Co. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Registration Rights </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In connection with our September 2012 private
placement, we entered into a registration rights agreement with an affiliate of Ellington, which together with its &#147;permitted transferees&#148; (as such term is defined in the registration rights agreement) we sometime refer to as the
&#147;Ellington Holders,&#148; and the Blackstone Funds, which together with their permitted transferees we sometime refer to as the &#147;Blackstone Holders.&#148; Under the registration rights agreement, subject to certain limitations and
customary cut-back rights, we have agreed to provide the Blackstone Holders and other holders of our &#147;registrable common shares&#148; (as such term is defined in the registration rights agreement) who become a party to the registration rights
agreement with certain demand and/or piggy-back registration and shelf takedown rights<I>; provided, however,</I> that in no event shall any Blackstone Holder or other holder of our registrable common shares have any of the registration, offering or
sale rights set forth in the </FONT></P>
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registration rights agreement prior to the expiration of the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;month period following the closing of this offering. Pursuant
to the registration rights agreement, subject to certain limitations, the Blackstone Holders may at any time and from time to time demand and we will facilitate (i)&nbsp;up to two registered offerings of registrable common shares held by the
Blackstone Holders on a registration statement other than a Form S-3 registration statement, but only if the aggregate market value of the registrable common shares held by the Blackstone Holders and included in any such registration statement
equals at least $50 million, and (ii)&nbsp;at such time when the Company is eligible to utilize a registration statement on Form S-3, a shelf registration of registrable common shares held by the Blackstone Holders. We also have agreed, upon the
written request of the Blackstone Holders, but not more than once in any twelve month period, to file and seek effectiveness of a post-effective amendment to an existing shelf registration statement in order to register additional registrable common
shares. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, upon demand of the Blackstone Holders in accordance with the registration rights agreement, we will
facilitate an unlimited number of offerings of registrable common shares off of an effective shelf registration statement, or &#147;shelf takedown&#148;; provided, however, that the Blackstone Holders may not demand a shelf takedown for an
underwritten offering unless the registrable common shares to be sold by the Blackstone Holders in such a shelf takedown have an aggregate market value of at least $35 million; and provided further, that (i)&nbsp;in no event shall the Blackstone
Holders be permitted to request more than two shelf takedowns that are underwritten offerings during any twelve month period and (ii)&nbsp;no more than one shelf takedown during any twelve month period shall be an underwritten offering other than a
&#147;block trade&#148; offering. Subject to certain limitations, holders of registrable common shares, other than the Blackstone Holders, that are, or become a party to, the registration rights agreement will be entitled to various piggy-back
rights with respect to the registration, offering or sales rights provided to the Blackstone Holders under the registration rights agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the registration rights agreement, we may postpone the filing or initial effectiveness of, or suspend use of, a demanded registration statement or suspend the use or effectiveness of any shelf
registration statement for a reasonable &#147;blackout period&#148; not in excess of 90 days if our Board of Trustees determines that such registration or offering could materially interfere with a bona fide business or financing transaction of our
company or is reasonably likely to require premature disclosure of information, the premature disclosure of which is reasonably likely to adversely affect us. The blackout period will end upon the earlier to occur of, (i)&nbsp;in the case of a bona
fide business or financing transaction, a date not later than 90 days from the date such deferral commenced, and (ii)&nbsp;in the case of disclosure of non-public information, the earlier to occur of (x)&nbsp;the second business day following the
filing of our next succeeding Form 10-K or Form 10-Q, or (y)&nbsp;the date upon which such information is otherwise disclosed. We will not be permitted to exercise a demand suspension more than once during any twelve month period. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subject to certain exceptions, we are obligated to pay substantially all of the expenses relating to the registration or registered
offerings of registrable common shares under the registration rights agreement, other than underwriters&#146;, brokers&#146; and dealers&#146; discounts, or selling commissions and stock transfer taxes applicable to shares sold for the account of a
holder, which will be borne instead by such holder. We have agreed to indemnify each selling shareholder for certain violations of federal or state securities laws in connection with any of the foregoing registration rights. In turn, each selling
shareholder will agree to indemnify us for federal or state securities law violations that occur in reliance upon written information it provides to us for use in a registration statement and for failure to comply with applicable law in effecting
the sale or other disposition of the securities covered by the registration statement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The foregoing summary of certain
provisions of the registration rights agreement does not purport to be complete and is qualified in its entirety by reference to, and qualified in its entirety by, all of the provisions of the registration rights agreement filed with the SEC as an
exhibit to the registration statement of which this prospectus is a part. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_16"></A>SHARES ELIGIBLE FOR FUTURE SALE </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon the completion of this offering and the private placement of
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional common shares to our initial investors in connection with their funding of the remaining portion of their capital commitment to us, we will have an aggregate of
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; common shares outstanding ( &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; common shares if the underwriters exercise in full their over-allotment
option), including the 1,575,000 common shares issued in connection with our private placement in September 2012. No assurance can be given as to (i)&nbsp;the likelihood that an active market for our common shares will develop, (ii)&nbsp;the
liquidity of any such market, (iii)&nbsp;the ability of our shareholders to sell their shares or (iv)&nbsp;the prices that our shareholders may obtain for any of their shares. No prediction can be made as to the effect, if any, that future sales of
our common shares or the availability of our common shares for future sale, including the 1,575,000 common shares issued in connection with our September 2012 private placement or the additional
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; common shares we expect to issue to our initial investors in connection with their funding of the remaining portion of their capital commitment to us, will have on the market
price prevailing from time to time. Sales of substantial amounts of our common shares, or the perception that such sales could occur, may affect adversely prevailing market prices of our common shares. See &#147;Risk Factors&#151;Risks Related to
This Offering.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Rule 144 </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">As defined in Rule 144, an &#147;affiliate&#148; of an issuer is a person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the
issuer. The common shares held by our affiliates, which in this case includes our officers and trustees, certain affiliates of Ellington and the Blackstone Funds, are restricted securities as that term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered under the securities laws or if they qualify for an exemption from registration under Rule 144, as described below. Pursuant to the registration rights agreement entered
into in connection with our September 2012 private placement, the Ellington Holders and the Blackstone Holders and other holders of our registrable common shares who become a party to the registration rights agreement were granted certain
registration rights. See &#147;Description of our Shares of Beneficial Interest&#151;Registration Rights,&#148; for a description of these registration rights. In addition, the Ellington Holders and the Blackstone Holders have agreed to enter into
certain lock-up arrangements as described below. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In general, under Rule 144, a person (or persons whose shares are
aggregated) who is not an affiliate of ours and has not been one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the restricted securities proposed to be sold for at least one year, including
the holding period of any prior owner other than an affiliate, is entitled to sell his or her securities without registration and without complying with the manner of sale, current public information, volume limitation or notice provisions of Rule
144. In addition, under Rule 144, once we have been subject to the reporting requirements of the Exchange Act for at least 90 days, a person (or persons whose securities are aggregated) who is not an affiliate of ours and has not been one of our
affiliates at any time during the three months preceding a sale, may sell his or her securities without registration after only a six-month holding period, subject only to the continued availability of current public information about us. Any sales
by affiliates under Rule 144, even after the applicable holding periods described above, are subject to requirements and or limitations with respect to volume, manner of sale, notice and the availability of current public information about us.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Lock-up Agreements </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We, our executive officers and trustees, our Manager and its executive officers, and our current shareholders, including the Ellington Holders and the Blackstone Holders, have entered into lock-up
agreements with the underwriters. Under these agreements, we and each of these persons may not, without the prior written approval of the representatives, subject to certain exceptions, offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any of our common shares or any securities convertible into or exercisable or exchangeable for our common shares, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of ownership of the common shares, whether any such aforementioned transaction is to be settled by delivery of the common shares or such other securities, in cash or otherwise, or
publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement. These restrictions will be in effect for a period of 180 days after the date of this
prospectus (subject to extension under certain circumstances). At any time and without public notice, the representatives may in their sole discretion release some or all of the securities from these lock-up agreements. In addition, we expect the
Ellington Holders and the Blackstone Holders to enter into lock-up agreements prohibiting the sale, transfer or other disposition of our common shares, or any securities convertible into or exercisable or exchangeable for our common shares, without
prior written consent of the other party for a period of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; months following the completion of this offering. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_17"></A>CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>DECLARATION OF TRUST AND BYLAWS </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Although the following summary describes certain provisions of Maryland law and of our declaration of trust and bylaws as they will be in effect upon the completion of this offering, it is not a complete
description of Maryland law and our declaration of trust and bylaws, copies of which are available from us upon request. See &#147;Where You Can Find More Information.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Number of Trustees; Vacancies </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust and bylaws provide
that the number of our trustees may be established by our Board of Trustees but may not be less than three nor more than the maximum number permitted under Maryland law. Our declaration of trust and bylaws also provide that, except as may be
provided by our Board of Trustees in setting the terms of any class or series of shares, any and all vacancies on our Board of Trustees may be filled only by the affirmative vote of a majority of the remaining trustees in office, even if the
remaining trustees do not constitute a quorum, and any individual elected to fill such vacancy will serve for the remainder of the full term of the class in which the vacancy occurred and until a successor is duly elected and qualifies. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Each of our trustees will be elected by our shareholders to serve for a one-year term and until his or her successor is duly elected and
qualifies. A plurality of all votes cast on the matter at a meeting of shareholders at which a quorum is present is sufficient to elect a trustee. The presence in person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at a meeting constitutes a quorum. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Removal of Trustees </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust provides that, subject to the rights of holders of any series of preferred shares, a trustee may be removed only
for &#147;cause,&#148; and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of trustees. For this purpose, &#147;cause&#148; means, with respect to any particular trustee, conviction
of a felony or a final judgment of a court of competent jurisdiction holding that such trustee caused demonstrable, material harm to us through bad faith or active and deliberate dishonesty. These provisions, when coupled with the exclusive power of
our Board of Trustees to fill vacancies on our Board of Trustees, generally precludes shareholders from removing incumbent trustees except for &#147;cause&#148; and with a substantial affirmative vote and filling the vacancies created by such
removal with their own nominees. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Business Combinations </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Under certain provisions of the MGCL applicable to Maryland real estate investment trusts, certain &#147;business combinations,&#148; including a merger, consolidation, share exchange or, in certain
circumstances, an asset transfer or issuance or reclassification of equity securities, between a Maryland real estate investment trust and an &#147;interested shareholder&#148; or, generally, any person who beneficially owns 10% or more of the
voting power of the trust&#146;s outstanding voting shares or an affiliate or associate of the trust who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then
outstanding voting shares of beneficial interest of the trust, or an affiliate of such an interested shareholder, are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder.
Thereafter, any such business combination must be recommended by the board of trustees of such real estate investment trust and approved by the affirmative vote of at least (a)&nbsp;80% of the votes entitled to be cast by holders of outstanding
voting shares of beneficial interest of the trust and (b)&nbsp;two-thirds of the votes entitled to be cast by holders of voting shares of beneficial interest of the trust other than shares held by the interested shareholder with whom (or with whose
affiliate) the business combination is to be effected or held by an affiliate or associate of the interested shareholder, unless, among other conditions, the trust&#146;s shareholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its shares. Under the MGCL, a person is not an &#147;interested shareholder&#148; if the board of trustees approved in advance the
transaction by which the person otherwise would have become an interested shareholder. A real estate investment trust&#146;s board of trustees may provide that its approval is subject to compliance with any terms and conditions determined by it.
</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">These provisions of the MGCL do not apply, however, to business combinations that are
approved or exempted by a board of trustees prior to the time that the interested shareholder becomes an interested shareholder. Pursuant to the statute, our Board of Trustees has by resolution exempted business combinations between us and any other
person from these provisions of the MGCL, provided that the business combination is first approved by our Board of Trustees, including a majority of trustees who are not affiliates or associates of such person, and, consequently, the five year
prohibition and the supermajority vote requirements will not apply to such business combinations. As a result, any person may be able to enter into business combinations with us that may not be in the best interests of our shareholders without
compliance by us with the supermajority vote requirements and other provisions of the statute. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or our Board of Trustees does not
otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Control Share Acquisitions </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The MGCL provides that holders of &#147;control
shares&#148; of a Maryland real estate investment trust acquired in a &#147;control share acquisition&#148; have no voting rights with respect to the control shares except to the extent approved by the affirmative vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of beneficial interest in a real estate investment trust in respect of which any of the following persons is entitled to exercise or direct the exercise of the voting power of such shares in the
election of trustees: (1)&nbsp;a person who makes or proposes to make a control share acquisition, (2)&nbsp;an officer of the trust or (3)&nbsp;an employee of the trust who is also a trustee of the trust. &#147;Control shares&#148; are voting shares
which, if aggregated with all other such shares owned by the acquirer, or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to
exercise voting power in electing trustees within one of the following ranges of voting power: (A)&nbsp;one-tenth or more but less than one-third, (B)&nbsp;one-third or more but less than a majority or (C)&nbsp;a majority or more of all voting
power. Control shares do not include shares that the acquirer is then entitled to vote as a result of having previously obtained shareholder approval. A &#147;control share acquisition&#148; means the acquisition of issued and outstanding control
shares, subject to certain exceptions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and making an &#147;acquiring person statement&#148; as described in the MGCL), may compel a Maryland real estate investment trust to call a special meeting of shareholders
to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the real estate investment trust may itself present the question at any shareholders&#146; meeting. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If voting rights are not approved at the meeting or if the acquirer does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the trust may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of shareholders at which the voting rights of such shares are considered and not approved. If voting rights for control
shares are approved at a shareholders&#146; meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The control share acquisition statute does not apply to (a)&nbsp;shares acquired in a merger, consolidation or share exchange if the
trust is a party to the transaction or (b)&nbsp;acquisitions approved or exempted by the declaration of trust or bylaws of the trust. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our bylaws contain a provision exempting from the control share acquisition statute any and
all acquisitions by any person of our shares. There is no assurance that such provision will not be amended or eliminated at any time in the future. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Subtitle 8 </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subtitle 8 of Title 3 of the MGCL permits a Maryland real
estate investment trust with a class of equity securities registered under the Exchange Act and at least three independent trustees to elect to be subject, by provision in its declaration of trust or bylaws or a resolution of its Board of Trustees
and notwithstanding any contrary provision in the declaration of trust or bylaws, to any or all of five provisions: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a classified board; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a two-thirds vote requirement for removing a trustee; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a requirement that the number of trustees be fixed only by vote of the trustees; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a requirement that a vacancy on the board be filled only by the remaining trustees and for the remainder of the full term of the class of trustees in
which the vacancy occurred; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a majority requirement for the calling of a special meeting of shareholders. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust and bylaws are silent with respect to Subtitle 8 of Title 3 of the MGCL. However, through provisions in our
declaration of trust and bylaws unrelated to Subtitle 8, we already (1)&nbsp;require the affirmative vote of the holders of not less than two-thirds of all of the votes entitled to be cast on the matter for the removal of any trustee from the board,
which removal will be allowed only for cause, (2)&nbsp;vest in the board the exclusive power to fix the number of trusteeships, (3)&nbsp;require that a vacancy on the board be filled only by a majority of the remaining trustees and (4)&nbsp;that
special meetings of shareholders may be called only by (i)&nbsp;the Chairman of the Board of Trustees, (ii)&nbsp;our Chief Executive Officer or (iii)&nbsp;one-third of the total number of authorized trustees. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Meetings of Shareholders </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to our declaration of trust and bylaws, a meeting of our shareholders for the purpose of the election of trustees and the
transaction of any business will be held annually on a date and at the time and place set by our Board of Trustees. In addition, our chairman, chief executive officer and one-third of the total number of authorized trustees of our Board of Trustees
may call a special meeting of our shareholders. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Mergers; Extraordinary Transactions </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under the MRL, a Maryland real estate investment trust generally cannot merge with another entity unless advised by its board of trustees
and approved by the affirmative vote of shareholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter)
is set forth in the trust&#146;s declaration of trust. Our declaration of trust provides that these mergers must be deemed advisable by a majority of our entire Board of Trustees and approved by the affirmative vote of shareholders entitled to cast
a majority of all the votes entitled to be cast on the matter. Our declaration of trust also provides that we may sell or transfer all or substantially all of our assets if deemed advisable by a majority of our entire Board of Trustees and approved
by the affirmative vote of shareholders entitled to cast a majority of all the votes entitled to be cast on the matter. However, many of our operating assets will be held by our subsidiaries, and these subsidiaries may be able to sell all or
substantially all of their assets or merge with another entity without the approval of our shareholders. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">116
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Amendment to Our Declaration of Trust and Bylaws </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under the MRL, a Maryland real estate investment trust generally cannot amend its declaration of trust unless advised by its board of
trustees and approved by the affirmative vote of shareholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a different percentage (but not less than a majority of all of the votes entitled to be cast on
the matter) is set forth in the trust&#146;s declaration of trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Except for amendments to the provisions of our declaration
of trust related to the removal of trustees and the vote required to amend the provision regarding amendments to the removal provision itself (each of which require the affirmative vote of shareholders entitled to cast not less than two-thirds of
all the votes entitled to be cast on the matter) and certain amendments described in our declaration of trust that require only approval by our Board of Trustees, our declaration of trust may be amended only if advised by our Board of Trustees and
approved by the affirmative vote of shareholders entitled to cast a majority of all the votes entitled to be cast on the matter. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our Board of Trustees has the exclusive power to adopt, alter or repeal any provision of our bylaws and to make new bylaws. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Our Termination </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust provides for us to have a
perpetual existence. Our termination must be approved by a majority of our entire Board of Trustees and the affirmative vote of shareholders entitled to cast a majority of all the votes entitled to be cast on the matter. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Advance Notice of Trustee Nominations and New Business </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our bylaws provide that, with respect to an annual meeting of shareholders, nominations of individuals for election to our Board of Trustees at an annual meeting and the proposal of business to be
considered by shareholders may be made only (1)&nbsp;pursuant to our notice of the meeting, (2)&nbsp;by or at the direction of our Board of Trustees or (3)&nbsp;by a shareholder of record both at the time of giving notice and at the time of the
annual meeting who is entitled to vote at the meeting in the election of such individual or on such other business and has complied with the advance notice provisions set forth in our bylaws. Our bylaws currently require the shareholder generally to
provide notice to the secretary containing the information required by our bylaws not less than 120 days nor more than 150 days prior to the first anniversary of the date of our proxy statement for the solicitation of proxies for election of
trustees at the preceding year&#146;s annual meeting, or with respect to our first annual meeting as a public company, not more than 150 days before the date of such meeting and not less than the later of 120 days before the date of such meeting or
10 days after the date on which we first publicly announce the date of such meeting. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">With respect to special meetings of
shareholders, only the business specified in our notice of meeting may be brought before the meeting. Nominations of individuals for election to our Board of Trustees at a special meeting may be made only (1)&nbsp;by or at the direction of our Board
of Trustees or (2)&nbsp;provided that the special meeting has been called in accordance with our bylaws for the purpose of electing trustees, by a shareholder of record at the time of giving notice and at the time of the meeting and who is entitled
to vote at the meeting in the election of each individual so nominated and has complied with the advance notice provisions set forth in our bylaws. Such shareholder may nominate one or more individuals, as the case may be, for election as a trustee
if the shareholder&#146;s notice containing the information required by our bylaws is delivered to the secretary not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., eastern time, on the later of (1)&nbsp;the
90th day prior to such special meeting or (2)&nbsp;the tenth day following the day on which public announcement is first made of the date of the special meeting and the proposed nominees of our Board of Trustees to be elected at the meeting.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust provides that submission of any action by us to our shareholders for approval must first be approved
by our Board of Trustees. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Anti-takeover Effect of Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If the applicable exemption in our bylaws is repealed and the applicable resolution of our Board of Trustees is repealed,
the control share acquisition provisions and the business combination provisions of the MGCL, respectively, as well as the provisions in our declaration of trust and bylaws, as applicable, on removal of trustees and the filling of trustee vacancies
and the restrictions on ownership and transfer of shares of beneficial interest, together with the advance notice and shareholder-requested special meeting provisions of our bylaws, alone or in combination, could serve to delay, deter or prevent a
transaction or a change in our control that might involve a premium price for holders of our common shares or otherwise be in their best interests. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">117
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Indemnification and Limitation of Trustees&#146; and Officers&#146; Liability </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Maryland law permits a Maryland real estate investment trust to include in its declaration of trust a provision eliminating the liability
of its trustees and officers to the trust and its shareholders for money damages except for liability resulting from: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">actual receipt of an improper benefit in money, property or services, or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">active or deliberate dishonesty that is established by a final judgment and is material to the cause of action. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust contains a provision which eliminates the liability of our trustees and officers to the maximum extent permitted
by Maryland law. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust also authorizes us, and our bylaws require us, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse his or her reasonable expenses in advance of final disposition of such a proceeding (i)&nbsp;any present or former trustee or officer or (ii)&nbsp;any individual who, while serving as our trustee or
officer and at our request, serves or has served another real estate investment trust, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise as a trustee, director, officer, partner,
managing member, manager, employee or agent from and against any threatened, pending or completed action, suit or proceeding. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Maryland law permits a Maryland real estate investment trust to indemnify and advance expenses to its trustees, officers, employees and
agents to the same extent as permitted for directors and officers of Maryland corporations. Maryland law permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that:
</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the director or officer actually received an improper personal benefit in money, property or services; or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under Maryland law, a Maryland corporation may not indemnify a director or officer with respect to a
proceeding brought by or on behalf of the corporation in which the director or officer was adjudged liable to the corporation or a proceeding charging improper personal benefit to the director or officer in which the director or officer was adjudged
liable on the basis that personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet
the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by or on behalf of the corporation, or for a judgment of liability on
the basis that personal benefit was improperly received, is limited to expenses. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, the MGCL permits a Maryland
corporation to advance reasonable expenses to a director or officer upon the corporation&#146;s receipt of: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for
indemnification by the corporation; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a written undertaking by the director or officer or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately
determined that he or she did not meet the standard of conduct. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon completion of this offering, we expect
to enter into indemnification agreements with each of our trustees and executive officers that provide for indemnification to the maximum extent permitted by Maryland law and advancement by us of expenses and costs relating to certain claims, suits
or proceedings arising from their service to us. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Approval of Certain </B><B>Matters </B><B>by the Board </B><B>of </B><B>Trustees</B>
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The action of a majority of the members of our Board of Trustees present at a meeting at which a quorum is initially present
is generally sufficient to approve any matter. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>REIT Qualification </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust provides that our Board of Trustees may revoke or otherwise terminate our REIT election, without approval of our
shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">118
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_18"></A>OPERATING PARTNERSHIP AND THE PARTNERSHIP AGREEMENT
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following summary of the terms of the agreement of limited partnership of our operating partnership does not purport
to be complete and is subject to and qualified in its entirety by reference to the Amended and Restated Agreement of Limited Partnership of Ellington Residential Mortgage LP. See &#147;Where You Can Find More Information.&#148; </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Management </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our
operating partnership is organized as a Delaware limited partnership. A wholly owned subsidiary of our company is the sole general partner of our operating partnership. We conduct substantially all of our operations and make substantially all of our
investments through the operating partnership and its subsidiaries. Pursuant to the partnership agreement through the general partner, we have full, exclusive and complete responsibility and discretion in the management and control of the operating
partnership, including the ability to cause the operating partnership to enter into certain major transactions including investments, acquisitions, dispositions and financings (including the sale of limited partnership interests to us or to third
party investors), to make distributions to partners, and to cause changes in the operating partnership&#146;s business and investment activities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The partnership agreement requires that the operating partnership be operated in a manner that enables us to satisfy the requirements for being classified as a REIT, to avoid any federal income or excise
tax liability imposed by the Code (other than any federal income tax liability associated with our retained capital gains) and to ensure that the partnership will not be classified as a &#147;publicly traded partnership&#148; taxable as a
corporation under Section&nbsp;7704 of the Code. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Transferability of Interests </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may not voluntarily withdraw from the operating partnership or transfer or assign our interest in the operating partnership or engage
in any merger, consolidation or other combination, or sale of all or substantially all of our assets in a transaction which results in a change of control of our company unless we receive the approval of the holders of our common shares in
accordance with the terms of our declaration of trust and bylaws. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We also may (i)&nbsp;transfer all or any portion of our
general partnership interest to (A)&nbsp;a wholly owned subsidiary or (B)&nbsp;a parent company or a majority-owned subsidiary of a parent company, and following such transfer may withdraw as the general partner and (ii)&nbsp;engage in a transaction
required by law or by the rules of any national securities exchange on which shares of our common stock are listed. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">No
limited partner may transfer its limited partner interests in our operating partnership: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(i) if our Board of
Trustees determines that the transfer would either (x)&nbsp;jeopardize our ability to elect to be treated as a REIT or (y)&nbsp;cause our operating partnership to be treated as a publicly traded partnership within the meaning of Section&nbsp;7704 of
the Code; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ii) except as contemplated pursuant to the registration rights agreement, if the transfer would
require the registration of such partnership interest to be transferred pursuant to any applicable foreign, federal, provincial or state securities laws; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(iii) if the transfer would subject us, our operating partnership, any of our or operating partnership&#146;s securityholders or any of their respective affiliates to regulation under the Investment
Company Act of 1940, as amended, or the fiduciary responsibility provisions of Title I of the Employee Retirement Income Security Act of 1974, as amended (&#147;ERISA&#148;), or would subject us, our operating partnership, any of our or our
operating partnership&#146;s securityholders or any of their respective affiliates to regulation under the Investment Advisers Act of 1940, as amended; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(iv) if the transfer would result in a violation of any applicable law; </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">119
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(v) if the transfer would require us or any of our direct or indirect
subsidiaries to obtain any licensing or regulatory consent other than any such license or regulatory consent that is immaterial or ministerial in nature or that is a condition to the transfer; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(vi) if the transfer would reasonably be expected to have an adverse regulatory impact (other than an immaterial impact)
on us or any of our direct or indirect subsidiaries; or </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(vii) if the transfer is made to any person or entity
who lacks the legal right, power or capacity to own the partnership interests or common shares issuable upon any redemption of the partnership interests. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Capital Contribution </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will contribute, directly, substantially all of
the net proceeds of this offering to our operating partnership in exchange for OP units and as result will continue to own substantially all of the limited partnership interests in our operating partnership. The partnership agreement provides that
if the operating partnership requires additional funds at any time in excess of funds available to the operating partnership from borrowing or capital contributions, we may borrow such funds from a financial institution or other lender and lend such
funds to the operating partnership on the same terms and conditions as are applicable to our borrowing of such funds. Under the partnership agreement, we are obligated to contribute substantially all of the net proceeds of any future offering of
shares as additional capital to the operating partnership. If we contribute additional capital to the operating partnership, we will receive additional partnership units and our percentage interest will be increased on a proportionate basis based
upon the amount of such additional capital contributions and the value of the operating partnership at the time of such contributions. Conversely, the percentage interests of the other limited partners will be decreased on a proportionate basis in
the event of additional capital contributions by us. In addition, if we contribute additional capital to the operating partnership, we will revalue the assets of the operating partnership to its fair market value (as determined by us) and the
capital accounts of the partners will be adjusted to reflect the manner in which the unrealized gain or loss inherent in such assets (that has not been reflected in the capital accounts previously) would be allocated among the partners under the
terms of the partnership agreement if there were a taxable disposition of such assets for their fair market value (as determined by us) on the date of the revaluation. The operating partnership may issue preferred partnership interests, in
connection with acquisitions of assets or otherwise, which could have priority over OP units with respect to distributions from the operating partnership, including the OP units we own as the general partner. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Redemption Rights </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the partnership agreement, beginning one year after the issuance of any OP units, limited partners (other than us) have
redemption rights, which enable them to cause the operating partnership to redeem their OP units in exchange for cash or, at our option, our common shares on a one-for-one basis. The cash redemption amount per unit is based on the market price of
our common shares at the time of redemption. The number of our common shares issuable upon redemption of limited partnership interests held by limited partners may be adjusted upon the occurrence of certain events such as share dividends, share
subdivisions or combinations. Notwithstanding the foregoing, a limited partner will not be entitled to exercise its redemption rights if the delivery of common shares to the redeeming limited partner would: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">result in any person owning, directly or indirectly, common shares in excess of the share ownership limit in our declaration of trust;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">result in our common shares being owned by fewer than 100 persons (determined without reference to any rules of attribution);
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">result in our being &#147;closely held&#148; within the meaning of Section&nbsp;856(h) of the Code; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">cause us to fail to qualify as a REIT under the Code; or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">cause the acquisition of common shares by such redeeming limited partner to be &#147;integrated&#148; with any other distribution of common shares for
purposes of complying with the registration provisions of the Securities Act. </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">120
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may, in our sole and absolute discretion, waive any of these restrictions. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Partnership Expenses </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In
addition to the administrative and operating costs and expenses incurred by the operating partnership, the operating partnership generally will pay all of our administrative costs and expenses, including: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all expenses relating to our continuity of existence and our subsidiaries&#146; operations; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all expenses relating to offerings and registration of securities; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all expenses associated with the preparation and filing of any of our periodic or other reports and communications under federal, state or local laws
or regulations; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all expenses associated with our compliance with laws, rules and regulations promulgated by any regulatory body; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">all of our other operating or administrative costs incurred in the ordinary course of business on behalf of the operating partnership.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">These expenses, however, do not include any of our administrative and operating costs and expenses incurred
that are attributable to assets that are owned by us directly rather than by the operating partnership or its subsidiaries. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Fiduciary
Responsibilities </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our trustees have duties under applicable Maryland law to manage us in a manner consistent with our best
interests. At the same time, we, through our wholly owned subsidiary, the general partner of our operating partnership, will have fiduciary duties to manage our operating partnership in a manner beneficial to our operating partnership and its
partners. Our duties, through our wholly owned subsidiary, as general partner to our operating partnership and its limited partners, therefore, may come into conflict with the duties of our trustees to us. We will be under no obligation to give
priority to the separate interests of the limited partners of our operating partnership or our company in deciding whether to cause the operating partnership to take or decline to take any actions. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The limited partners of our operating partnership expressly acknowledge that, as the general partner of our operating partnership, our
wholly owned subsidiary is acting for the benefit of the operating partnership, the limited partners and our company collectively. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Distributions </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The
partnership agreement provides that the operating partnership will distribute cash from operations (including net sale or refinancing proceeds, but excluding net proceeds from the sale of the operating partnership&#146;s assets in connection with
the liquidation of the operating partnership) at such time and in such amounts as determined by us in our sole discretion, to us and the limited partners in accordance with their respective percentage interests in the operating partnership.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon liquidation of the operating partnership, after payment of, or adequate provision for, debts and obligations of the
partnership, including any partner loans, any remaining assets of the partnership will be distributed to us and the limited partners with positive capital accounts in accordance with their respective positive capital account balances. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">121
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>LTIP Units </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In general, LTIP units are a class of partnership units in our operating partnership and will receive the same quarterly per unit distributions as the other outstanding OP units in our operating
partnership. Initially, each LTIP unit will have a capital account balance of zero and, therefore, will not have full parity with OP units with respect to liquidating distributions. However, the operating partnership agreement provides that
&#147;book gain,&#148; or economic appreciation, in our assets realized by our operating partnership as a result of the actual sale of all or substantially all of our operating partnership&#146;s assets or the revaluation of our operating
partnership&#146;s assets as provided by applicable U.S. Department of Treasury regulations, or Treasury Regulations, will be allocated first to the LTIP unit holders until the capital account per LTIP unit is equal to the average capital account
per-unit of our OP units in our operating partnership. The partnership agreement provides that our operating partnership&#146;s assets will be revalued upon the occurrence of certain events, specifically additional capital contributions by us or
other partners, the redemption of a partnership interest, a liquidation (as defined in the Treasury Regulations) of our operating partnership or the issuance of a partnership interest (including LTIP units) to a new or existing partner as
consideration for the provision of services to, or for the benefit of, our operating partnership. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon equalization of the
capital accounts of the LTIP unit holders with the average per-unit capital account of our OP units, the LTIP units will achieve full parity with the OP units for all purposes, including with respect to liquidating distributions. If such parity is
reached, vested LTIP units may be converted into an equal number of OP units at any time, and thereafter enjoy all the rights of OP units. If a sale or revaluation of assets occurs at a time when our operating partnership&#146;s assets have
appreciated sufficiently since the last revaluation, the LTIP units would achieve full parity with the OP units upon such sale or revaluation. In the absence of sufficient appreciation in the value of our operating partnership&#146;s assets at the
time of a sale or revaluation, full parity would not be reached. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Consequently, an LTIP unit may never become convertible
because the value of our operating partnership&#146;s assets has not appreciated sufficiently between revaluation dates to equalize capital accounts. Until and unless parity is reached, the value for a given number of vested LTIP units will be less
than the value of an equal number of our common shares. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Allocations </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Profits and losses of the partnership (including depreciation and amortization deductions) for each fiscal year generally will be
allocated to us and the other limited partners in accordance with the respective percentage interests in the partnership. Notwithstanding the foregoing, our operating partnership will allocate gain on the sale of all or substantially all of its
assets first to holders of LTIP units, and will, upon the occurrence of certain specified events, revalue its assets with any net increase in valuation allocated first to the LTIP units, in each case to equalize the capital accounts of such holders
with the average capital account per unit of the general partner&#146;s OP units. All of the foregoing allocations are subject to compliance with the provisions of Sections 704(b) and 704(c) of the Code and Treasury Regulations promulgated
thereunder. To the extent Treasury Regulations promulgated pursuant to Section&nbsp;704(c) of the Code permit, we, as the general partner, shall have the authority to elect the method to be used by the operating partnership for allocating items with
respect to contributed property acquired in connection with this offering for which fair market value differs from the adjusted tax basis at the time of contribution, and such election shall be binding on all partners. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Term </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The operating
partnership will continue indefinitely, or until sooner dissolved upon: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the dissolution or our company, together with the consent of the general partner and of the limited partners holding more than 50% of the percentage
interests of the limited partners; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the passage of 90 days after the sale or other disposition of all or substantially all of the assets of the partnership; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the redemption of all partnership units (other than those held by us, if any); or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">an election by us in our capacity as the general partner. </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">122
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Registration Rights </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Subject to the terms of any other agreement between the general partner of our Operating Partnership and a limited partner with respect to OP units held by such limited partner, a holder of our OP units
will only be entitled to the registration rights set forth in that certain registration rights agreement, dated as of September&nbsp;25, 2012, by and among our company, as affiliate of Ellington and the Blackstone Funds, as the same may be amended
from time to time. See &#147;Description of Shares of Beneficial Interest&#151;Registration Rights Agreement&#148; for a description of the registration rights agreement. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Tax Matters </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our partnership agreement provides that our wholly owned
subsidiary, as the sole general partner of the operating partnership, is the tax matters partner of the operating partnership and, as such, has authority to handle tax audits and to make tax elections under the Code on behalf of the operating
partnership. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">123
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_19"></A>MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">This section summarizes the material U.S. federal income tax considerations that you, as a shareholder, may consider relevant.
Hunton&nbsp;&amp; Williams LLP has acted as our counsel, has reviewed this summary, and is of the opinion that the discussion contained herein is accurate in all material respects. Because this section is a summary, it does not address all aspects
of taxation that may be relevant to particular shareholders in light of their personal investment or tax circumstances, or to certain types of shareholders that are subject to special treatment under the U.S. federal income tax laws, such as:
</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">insurance companies; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">tax-exempt organizations (except to the extent discussed in &#147;&#150; Taxation of Tax-Exempt U.S. Holders&#148; below);
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">financial institutions or broker-dealers; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">non-U.S. individuals and non-U.S. corporations (except to the extent discussed in &#147;&#150;Taxation of Non-U.S. Holders&#148; below);
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">U.S. expatriates; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">persons who mark-to-market our common shares; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">subchapter S corporations; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">U.S. shareholders (as defined below) whose functional currency is not the U.S. dollar; </FONT></P></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">regulated investment companies and REITs, and their investors; </FONT></P></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">trusts and estates (except to the extent discussed herein); </FONT></P></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">persons who receive our common shares through the exercise of employee stock options or otherwise as compensation; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">persons holding our common shares as part of a &#147;straddle,&#148; &#147;hedge,&#148; &#147;conversion transaction,&#148; &#147;synthetic
security&#148; or other integrated investment; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">persons subject to the alternative minimum tax provisions of the Code; </FONT></P></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">persons holding our common shares through a partnership or similar pass-through entity; and </FONT></P></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">persons holding a 10% or more (by vote or value) beneficial interest in our shares. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">This summary assumes that shareholders hold our common shares as capital assets for U.S. federal income tax purposes, which generally
means as property held for investment. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The statements in this section are not intended to be, and should not be construed as,
tax advice. The statements in this section are based on the Code, current, temporary and proposed Treasury regulations, the legislative history of the Code, current administrative interpretations and practices of the IRS, and court decisions. The
reference to IRS interpretations and practices includes the IRS practices and policies endorsed in private letter rulings, which are not binding on the IRS except with respect to the taxpayer that receives the ruling. In each case, these sources are
relied upon as they exist on the date of this discussion. Future legislation, Treasury regulations, administrative interpretations and court decisions could change current law or adversely affect existing interpretations of current law on which the
information in this section is based. Any such change could apply </FONT></P>
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retroactively. We have not received any rulings from the IRS concerning our qualification as a REIT. Accordingly, even if there is no change in the applicable law, no assurance can be provided
that the statements made in the following discussion, which do not bind the IRS or the courts, will not be challenged by the IRS or will be sustained by a court if so challenged. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>WE URGE YOU TO CONSULT YOUR OWN TAX ADVISER REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND SALE OF OUR
COMMON SHARES AND OF OUR ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISER REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND REGARDING
POTENTIAL CHANGES IN APPLICABLE TAX LAWS. </B></FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Taxation of Our Company </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will elect and intend to qualify to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our short taxable
year ending on December&nbsp;31, 2013. We believe that, commencing with our short taxable year ending December&nbsp;31, 2013, we will be organized and will operate in such a manner as to qualify for taxation as a REIT under the federal income tax
laws, and we intend to continue to operate in such a manner, but no assurances can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. This section discusses the laws governing the federal income tax treatment
of a REIT and its shareholders. These laws are highly technical and complex. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In connection with this offering,
Hunton&nbsp;&amp; Williams LLP will render an opinion that, commencing with our short taxable year ending on December&nbsp;31, 2013, we will be organized in conformity with the requirements for qualification and taxation as a REIT under the U.S.
federal income tax laws, and our proposed method of operation will enable us to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our short taxable year ending December&nbsp;31, 2013 and
subsequent taxable years. Investors should be aware that Hunton&nbsp;&amp; Williams LLP&#146;s opinion is based upon customary assumptions, is conditioned upon certain representations made by us as to factual matters, including representations
regarding the nature of our assets and the conduct of our business, is not binding upon the IRS or any court and speaks as of the date issued. In addition, Hunton&nbsp;&amp; Williams LLP&#146;s opinion is based on existing federal income tax law
governing qualification as a REIT, which is subject to change either prospectively or retroactively. Moreover, our qualification and taxation as a REIT depend upon our ability to meet on a continuing basis, through actual annual operating results,
certain qualification tests set forth in the federal income tax laws. Those qualification tests involve the percentage of income that we earn from specified sources, the percentage of our assets that fall within specified categories, the diversity
of our share ownership, and the percentage of our earnings that we distribute. Hunton&nbsp;&amp; Williams LLP will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be given that our actual results of
operations for any particular taxable year will satisfy such requirements. Hunton&nbsp;&amp; Williams LLP&#146;s opinion does not foreclose the possibility that we may have to use one or more of the REIT relief provisions discussed below, which
could require us to pay an excise or penalty tax (which could be material) in order for us to maintain our REIT qualification. For a discussion of the tax consequences of our failure to qualify as a REIT, see &#147;&#151;Failure to Qualify.&#148;
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we qualify as a REIT, we generally will not be subject to federal income tax on our REIT taxable income that we currently
distribute to our shareholders, but taxable income generated by any domestic taxable REIT subsidiaries, or TRSs, will be subject to regular corporate income tax. However, we will be subject to federal tax in the following circumstances: </FONT></P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will pay federal income tax on our taxable income, including net capital gain, that we do not distribute to shareholders during, or within a
specified time period after, the calendar year in which the income is earned. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may be subject to the &#147;alternative minimum tax&#148; on any items of tax preference, including any deductions of net operating losses, that we
do not distribute or allocate to shareholders. </FONT></P></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will pay income tax at the highest corporate rate on: </FONT></P></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">net income from the sale or other disposition of property acquired through foreclosure, or foreclosure property, that we hold primarily for sale to
customers in the ordinary course of business, and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">other non-qualifying income from foreclosure property. </FONT></P></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will pay a 100% tax on net income earned from sales or other dispositions of property, other than foreclosure property, that we hold primarily for
sale to customers in the ordinary course of business. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we fail to satisfy the 75% gross income test or the 95% gross income test, as described below under &#147;&#151;Gross Income Tests,&#148; but
nonetheless continue to qualify as a REIT because we meet other requirements, we will be subject to a 100% tax on: </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, multiplied, in either case, by
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a fraction intended to reflect our profitability. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we fail to satisfy the asset tests (other than a de minimis failure of the 5% asset test, the 10% vote test or the 10% value test, as described
below under &#147;&#151;Asset Tests&#148;), as long as the failure was due to reasonable cause and not to willful neglect, we dispose of the assets or otherwise comply with such asset tests within six months after the last day of the quarter in
which we identify such failure and we file a schedule with the IRS describing the assets that caused such failure, we will pay a tax equal to the greater of $50,000 or the product of the highest U.S. federal corporate tax rate (currently, 35%) and
the net income from the non-qualifying assets during the period in which we failed to satisfy such asset tests. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, and the failure was due
to reasonable cause and not to willful neglect, we will be required to pay a penalty of $50,000 for each such failure. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet recordkeeping requirements intended to
monitor our compliance with rules relating to the composition of a REIT&#146;s shareholders, as described below in &#147;&#151;Requirements for Qualification.&#148; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we fail to distribute during a calendar year at least the sum of: (i)&nbsp;85% of our REIT ordinary income for the year, (ii)&nbsp;95% of our REIT
capital gain net income for the year and (iii)&nbsp;any undistributed taxable income from earlier periods, we will pay a 4% nondeductible excise tax on the excess of the required distribution over the amount we actually distributed, plus any
retained amounts on which income tax has been paid at the corporate level. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may elect to retain and pay income tax on our net long-term capital gain. In that case, a U.S. shareholder would be taxed on its proportionate share
of our undistributed long-term capital gain (to the extent that we make a timely designation of such gain to the shareholder) and would receive a credit or refund for its proportionate share of the tax we paid. </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will be subject to a 100% excise tax on transactions between us and a TRS that are not conducted on an arm&#146;s-length basis.
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">The earnings of any TRS that we form will be subject to U.S. federal corporate income tax. </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate-level tax, in a merger or other transaction
in which we acquire a basis in the asset that is determined by reference either to the C corporation&#146;s basis in the asset or to another asset, we will pay tax at the highest regular corporate rate applicable if we recognize gain on the sale or
disposition of the asset during the 10-year period after we acquire the asset. The amount of gain on which we will pay tax is the lesser of: </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="21%"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the amount of gain that we recognize at the time of the sale or disposition, and </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">126
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the amount of gain that we would have recognized if we had sold the asset at the time we acquired it, assuming that the C corporation will not elect,
in lieu of this treatment, to be subject to an immediate tax when the asset is acquired. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we were to own a residual interest in a real estate mortgage investment conduit, or REMIC, we would be taxable at the highest corporate rate on the
portion of any excess inclusion income that we derive from the REMIC residual interests equal to the percentage of our shares that is held in record name by &#147;disqualified organizations.&#148;&nbsp;Although the law is unclear, IRS guidance
indicates that similar rules may apply to a REIT that owns an equity interest in a taxable mortgage pool.&nbsp;To the extent that we own a REMIC residual interest or a taxable mortgage pool through a TRS, we will not be subject to this tax. A
&#147;disqualified organization&#148; includes (i)&nbsp;the United States; (ii)&nbsp;any state or political subdivision of the United States; (iii)&nbsp;any foreign government; (iv)&nbsp;any international organization; (v)&nbsp;any agency or
instrumentality of any of the foregoing; (vi)&nbsp;any other tax-exempt organization (other than a farmer&#146;s cooperative described in section 521 of the Code) that is exempt from income taxation and is not subject to taxation under the unrelated
business taxable income provisions of the Code; and (vii)&nbsp;any rural electrical or telephone cooperative. We do not currently intend to hold REMIC residual interests or engage in financing activities that may result in treatment of us or a
portion of our assets as a taxable mortgage pool. For a discussion of &#147;excess inclusion income,&#148; see &#147;&#150;&#150;Requirements for Qualification&#151;Taxable Mortgage Pools and Excess Inclusion Income.&#148;
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, notwithstanding our qualification as a REIT, we may also have to pay certain state and local
income taxes, because not all states and localities treat REITs in the same manner that they are treated for federal income tax purposes. Moreover, as further described below, any domestic TRS in which we own an interest will be subject to federal,
state and local corporate income tax on its taxable income. In addition, we may be subject to a variety of taxes other than U.S. federal income tax, including state and local franchise, property and other taxes and foreign taxes. We could also be
subject to tax in situations and on transactions not presently contemplated. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Requirements for Qualification </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A REIT is a corporation, trust, or association that meets each of the following requirements: </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">1. It is managed by one or more trustees or directors. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">2. Its beneficial ownership is evidenced by transferable shares or by transferable certificates of beneficial interest. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">3. It would be taxable as a domestic corporation, but for the REIT provisions of the federal income tax laws. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">4. It is neither a financial institution nor an insurance company subject to special provisions of the federal income tax laws. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">5. At least 100 persons are beneficial owners (determined without reference to any rules of attribution) of its shares or ownership certificates. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">6. Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer
individuals, which the federal income tax laws define to include certain entities, during the last half of any taxable year. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">7. It elects to be taxed as a REIT, or has made such election for a previous taxable year,
and satisfies all relevant filing and other administrative requirements that must be met to elect and maintain REIT qualification. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">8. It meets certain other qualification tests, described below, regarding the nature of its income and assets and the distribution of its income. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">9. It uses the calendar year as its taxable year. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">10. It has no earnings and profits from any non-REIT taxable year at the close of any taxable year. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We must meet requirements 1 through 4 and 9 during our entire taxable year and must meet requirement 5 during at least 335 days of a taxable year of twelve months, or during a proportionate part of a
taxable year of less than twelve months. Requirements 5 and 6 apply to us beginning with our 2014 taxable year. If we comply with all the requirements for ascertaining the ownership of our outstanding shares in a taxable year and have no reason to
know that we violated requirement 6, we will be deemed to have satisfied requirement 6 for that taxable year. For purposes of determining share ownership under requirement 6, an &#147;individual&#148; generally includes a supplemental unemployment
compensation benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes. An &#147;individual&#148; generally does not include a trust that is a qualified employee pension or profit
sharing trust under the federal income tax laws, however, and beneficiaries of such a trust will be treated as holding our shares in proportion to their actuarial interests in the trust for purposes of requirement 6. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We believe that we will issue shares with sufficient diversity of ownership to satisfy requirements 5 and 6. In addition, our declaration
of trust restricts the ownership and transfer of our shares so that we should continue to satisfy these requirements. These restrictions, however, may not ensure that we will, in all cases, be able to satisfy these share ownership requirements. If
we fail to satisfy these share ownership requirements, our qualification as a REIT may terminate. The provisions of our declaration of trust restricting the ownership and transfer of the shares are described in &#147;Description of Our Shares of
Beneficial Interest&#151;Restrictions on Ownership and Transfer.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">To monitor compliance with the share ownership
requirements, we generally will be required to maintain records regarding the actual ownership of our shares. To do so, we must demand written statements each year from the record holders of significant percentages of our shares pursuant to which
the record holders must disclose the actual owners of the shares (i.e., the persons required to include our dividends in their gross income). We must maintain a list of those persons failing or refusing to comply with this demand as part of our
records. We could be subject to monetary penalties if we fail to comply with these record-keeping requirements. If you fail or refuse to comply with the demands, you will be required by U.S. Treasury regulations to submit a statement with your tax
return disclosing your actual ownership of our shares and other information. In addition, we must satisfy all relevant filing and other administrative requirements that must be met to elect and maintain REIT status. We intend to comply with these
requirements. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Qualified REIT Subsidiaries </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A corporation that is a &#147;qualified REIT subsidiary&#148; is not treated as a corporation separate from its parent REIT. All assets,
liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary are treated as assets, liabilities, and items of income, deduction, and credit of the REIT. A qualified REIT subsidiary is a corporation, other than a TRS, all of
the shares of which is owned, directly or through one or more qualified REIT subsidiaries or disregarded entities, by the REIT. Thus, in applying the requirements described herein, any qualified REIT subsidiary that we own will be ignored, and all
assets, liabilities, and items of income, deduction, and credit of such subsidiary will be treated as our assets, liabilities, and items of income, deduction, and credit. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Other Disregarded Entities and Partnerships </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">An unincorporated
domestic entity, such as a limited liability company, that has a single owner generally is not treated as an entity separate from its parent for federal income tax purposes. An unincorporated domestic entity with two or more owners generally is
treated as a partnership for federal income tax purposes. In the case of a REIT that is a partner in a partnership that has other partners, the REIT is treated as owning its proportionate share of the
</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
assets of the partnership and as earning its allocable share of the gross income of the partnership for purposes of the applicable REIT qualification tests. For purposes of the 10% value test
(see &#147;&#151;Asset Tests&#148;), our proportionate share is based on our proportionate interest in the equity interests and certain debt securities issued by the partnership. For all of the other asset and income tests, our proportionate share
is based on our proportionate interest in the capital interests in the partnership. Our proportionate share of the assets, liabilities, and items of income of any partnership, joint venture, or limited liability company that is treated as a
partnership for federal income tax purposes in which we acquire an interest, directly or indirectly, will be treated as our assets and gross income for purposes of applying the various REIT qualification requirements. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In the event that a disregarded subsidiary of ours ceases to be wholly-owned&#151;for example, if any equity interest in the subsidiary
is acquired by a person other than us or another disregarded subsidiary of ours&#151;the subsidiary&#146;s separate existence would no longer be disregarded for federal income tax purposes. Instead, the subsidiary would have multiple owners and
would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income requirements applicable to REITs, including the
requirement that REITs generally may not own, directly or indirectly, more than 10% of the total value or total voting power of the outstanding securities of another corporation. See &#147;&#151;Asset Tests&#148; and &#147;&#151;Gross Income
Tests.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Taxable REIT Subsidiaries </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">A REIT is permitted to own up to 100% of the stock of one or more TRSs. A TRS is a fully taxable corporation that may earn income that would not be qualifying income if earned directly by the parent REIT.
The subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation with respect to which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding securities will automatically be
treated as a TRS. However, an entity will not qualify as a TRS if it directly or indirectly operates or manages a lodging or health care facility or, generally, provides to another person, under a franchise, license or otherwise, rights to any brand
name under which any lodging facility or health care facility is operated. We generally may not own more than 10%, as measured by voting power or value, of the securities of a corporation that is not a qualified REIT subsidiary or a REIT unless we
and such corporation elect to treat such corporation as a TRS. Overall, no more than 25% of the value of a REIT&#146;s assets may consist of stock or securities of one or more TRSs. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The separate existence of a TRS or other taxable corporation, unlike a disregarded subsidiary as discussed above, is not ignored for
federal income tax purposes. Accordingly, a domestic TRS would generally be subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries in the aggregate and our ability to make distributions
to our shareholders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A REIT is not treated as holding the assets of a TRS or other taxable subsidiary corporation or as
receiving any income that the subsidiary earns. Rather, the stock issued by the subsidiary is an asset in the hands of the REIT, and the REIT generally recognizes as income the dividends, if any, that it receives from the subsidiary. This treatment
can affect the gross income and asset test calculations that apply to the REIT, as described below. Because a parent REIT does not include the assets and income of such subsidiary corporations in determining the parent REIT&#146;s compliance with
the REIT requirements, such entities may be used by the parent REIT to undertake indirectly activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries or render commercially unfeasible (for
example, activities that give rise to certain categories of income such as non-qualifying hedging income or inventory sales). </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Certain restrictions imposed on TRSs are intended to ensure that such entities will be subject to appropriate levels of federal income
taxation. First, a TRS may not deduct interest payments made in any year to an affiliated REIT to the extent that such payments exceed, generally, 50% of the TRS&#146;s adjusted taxable income for that year (although the TRS may carry forward to,
and deduct in, a succeeding year the disallowed interest amount if the 50% test is satisfied in that year). In addition, if amounts are paid to a REIT or deducted by a TRS due to transactions between a REIT, its tenants and/or a TRS, that exceed the
amount that would be paid to or deducted by a party in an arm&#146;s-length transaction, the REIT generally will be subject to an excise tax equal to 100% of such excess. We intend that all of our transactions with any TRS that we form will be
conducted on an arm&#146;s-length basis, but there can be no assurance that we will be successful in this regard. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may form or invest in domestic or foreign TRSs in the future. To the extent that our TRSs
pay any taxes, they will have less cash available for distribution to us. If dividends are paid by domestic TRSs to us, then the dividends we designate and pay to our shareholders who are taxed at individual rates, up to the amount of dividends that
we receive from such entities, generally will be eligible to be taxed at the reduced 20% maximum federal rate applicable to qualified dividend income. See &#147;&#151;Taxation of U.S. Holders&#151;Taxation of Taxable U.S. Holders on Distributions on
Shares.&#148; </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Taxable Mortgage Pools and Excess Inclusion Income </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">An entity, or a portion of an entity, may be classified as a taxable mortgage pool under the Code if: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">substantially all of its assets consist of debt obligations or interests in debt obligations; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">more than 50% of those debt obligations are real estate mortgage loans or interests in real estate mortgage loans as of specified testing dates;
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the entity has issued debt obligations that have two or more maturities; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the payments required to be made by the entity on its debt obligations &#147;bear a relationship&#148; to the payments to be received by the entity on
the debt obligations that it holds as assets. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under applicable Treasury regulations, if less than 80% of
the assets of an entity (or a portion of an entity) consist of debt obligations, these debt obligations are not considered to comprise &#147;substantially all&#148; of its assets, and therefore the entity would not be treated as a taxable mortgage
pool. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A taxable mortgage pool generally is treated as a corporation for federal income tax purposes; it cannot be included in
any consolidated federal corporate income tax return. However, if a REIT is a taxable mortgage pool, or if a REIT owns a qualified REIT subsidiary that is a taxable mortgage pool, then a portion of the REIT&#146;s income will be treated as
&#147;excess inclusion income&#148; and a portion of the dividends the REIT pays to its shareholders will be considered to be excess inclusion income. Similarly, a portion of the income from a REMIC residual interest may be treated as excess
inclusion income. A shareholder&#146;s share of excess inclusion income (i)&nbsp;would not be allowed to be offset by any losses otherwise available to the shareholder, (ii)&nbsp;would be subject to tax as unrelated business taxable income, or UBTI,
in the hands of most types of shareholders that are otherwise generally exempt from U.S. federal income tax, and (iii)&nbsp;would result in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction under any
otherwise applicable income tax treaty, to the extent allocable to most types of foreign shareholders. IRS guidance indicates that a REIT&#146;s excess inclusion income will be allocated among its shareholders in proportion to its dividends paid.
However, the manner in which excess inclusion income would be allocated to dividends attributable to a tax year that are not paid until a subsequent tax year or to dividends attributable to a portion of a tax year when no excess inclusion
income-generating assets were held or how such income is to be reported to shareholders is not clear under current law. Although the law is unclear, the IRS has taken the position that a REIT is taxable at the highest corporate tax rate on the
portion of any excess inclusion income that it derives from an equity interest in a taxable mortgage pool equal to the percentage of its shares that is held in record name by &#147;disqualified organizations&#148; (as defined above under
&#147;&#151;Taxation of Our Company&#148;). Similar rules apply if we own a residual interest in a REMIC. If as a result of ownership by &#147;disqualified organizations,&#148; we are subject to tax on any excess inclusion income, under our
declaration of trust, we will reduce distributions to such shareholders by the amount of tax paid by us that is attributable to such shareholder&#146;s ownership. Treasury regulations provide that such a reduction in distributions does not give rise
to a preferential dividend that could adversely affect our compliance with the distribution requirement. See &#147;&#151;Distribution Requirements.&#148; To the extent that shares owned by &#147;disqualified organizations&#148; is held by a broker
or other nominee, the broker/dealer or other nominees would be liable for a tax at the highest corporate tax rate on the portion of our excess inclusion income allocable to the shares held by the broker/dealer or other nominee on behalf of the
&#147;disqualified organizations.&#148; A regulated investment company or other pass-through entity owning our shares will be subject to tax at the highest corporate tax rate on any excess inclusion income allocated to its record name owners that
are &#147;disqualified organizations.&#148; We do not currently intend to hold REMIC residual interests (other than through a TRS) or engage in financing activities that may result in treatment of us or a portion of our assets as a taxable mortgage
pool. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Gross Income Tests </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We must satisfy two gross income tests annually to qualify and maintain our qualification as a REIT. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">First, at least 75% of our gross income for each taxable year must consist of defined types of income that we derive, directly or indirectly, from investments relating to real property or mortgage loans
on real property or qualified temporary investment income. Qualifying income for purposes of the 75% gross income test generally includes: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">rents from real property; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">interest on debt secured by a mortgage on real property or on interests in real property; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">dividends or other distributions on, and gain from the sale of, shares in other REITs; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">gain from the sale of real estate assets; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">income and gain derived from foreclosure property (as described below); </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">income derived from a REMIC in proportion to the real estate assets held by the REMIC, unless at least 95% of the REMIC&#146;s assets are real estate
assets, in which case all of the income derived from the REMIC; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">income derived from the temporary investment of new capital that is attributable to the issuance of our shares or a public offering of our debt with a
maturity date of at least five years and that we receive during the one-year period beginning on the date on which we received such new capital. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Second, in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test (except for income derived from the
temporary investment of new capital), other types of interest and dividends, gain from the sale or disposition of stock or securities or any combination of these. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Certain income items do not qualify for either gross income test. Other types of income are excluded from both the numerator and the denominator in one or both of the gross income tests. For example,
gross income from the sale of property that we hold primarily for sale to customers in the ordinary course of business, income and gain from &#147;hedging transactions,&#148; as defined in &#147;&#151;Hedging Transactions,&#148; and gross income
attributable to cancellation of indebtedness, or &#147;COD,&#148; income will be excluded from both the numerator and the denominator for purposes of both the 75% and 95% gross income tests. In addition, certain foreign currency gains will be
excluded from gross income for purposes of one or both of the gross income tests. See &#147;&#151;Foreign Currency Gain.&#148; For purposes of the 75% and 95% gross income tests, we are treated as receiving our proportionate share of our operating
partnership&#146;s gross income. We will monitor the amount of our non-qualifying income and will seek to manage our investment portfolio to comply at all time with the gross income tests. The following paragraphs discuss the specific application of
the gross income tests to us. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Dividends </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Our share of any dividends received from any corporation (including dividends from any TRS we may form, but excluding any REIT) in which
we own an equity interest will qualify for purposes of the 95% gross income test but not for purposes of the 75% gross income test. Our share of any dividends received from any other REIT in which we own an equity interest, if any, will be
qualifying income for purposes of both gross income tests. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Interest </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The term &#147;interest,&#148; as defined for purposes of both gross income tests, generally excludes any amount that is based in whole or
in part on the income or profits of any person. However, interest generally includes the following: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">an amount that is based on a fixed percentage or percentages of receipts or sales; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">an amount that is based on the income or profits of a debtor, as long as the debtor derives substantially all of its income from the real property
securing the debt from leasing substantially all of its interest in the property, and only to the extent that the amounts received by the debtor would be qualifying &#147;rents from real property&#148; if received directly by a REIT.
</FONT></P></TD></TR></TABLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If a loan contains a provision that entitles a REIT to a percentage of the borrower&#146;s
gain upon the sale of the real property securing the loan or a percentage of the appreciation in the property&#146;s value as of a specific date, income attributable to that loan provision will be treated as gain from the sale of the property
securing the loan, which generally is qualifying income for purposes of both gross income tests, provided that the property is not inventory or dealer property in the hands of the borrower or the REIT. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interest on debt secured by a mortgage on real property or on interests in real property, including, for this purpose, market discount,
original issue discount, discount points, prepayment penalties, loan assumption fees, and late payment charges that are not compensation for services, generally is qualifying income for purposes of the 75% gross income test. However, if the loan is
secured by real property and other property and the highest principal amount of a loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of (i)&nbsp;the date the REIT agreed to originate or
acquire the loan or (ii)&nbsp;as discussed below, in the event of a &#147;significant modification,&#148; the date we modified the loan, a portion of the interest income from such loan will not be qualifying income for purposes of the 75% gross
income test, but will be qualifying income for purposes of the 95% gross income test. The portion of the interest income that will not be qualifying income for purposes of the 75% gross income test will be equal to the portion of the principal
amount of the loan that is not secured by real property&#151;that is, the amount by which the loan balance exceeds the applicable value of the real estate that secures the loan. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to invest primarily in Agency RMBS and non-Agency RMBS that are pass-through certificates and CMOs (including IOs, IIOs and
POs), and we may invest directly in residential mortgage loans. Other than income from derivative instruments, as described below, we expect that all of the income of our Agency RMBS, non-Agency RMBS and residential mortgage loans will be qualifying
income for purposes of the 95% gross income test. In the case of RMBS treated as interests in a grantor trust for federal income tax purposes, we would be treated as owning an undivided beneficial ownership interest in the mortgage loans held by the
grantor trust. The interest on such mortgage loans, and any residential mortgage loans that we own directly, would be qualifying income for purposes of the 75% gross income test to the extent that the obligation is adequately secured by real
property, as discussed above. In the case of RMBS treated as regular interests in a REMIC for federal income tax purposes, income derived from REMIC interests will generally be treated as qualifying income for purposes of the 75% gross income test.
If less than 95% of the assets of the REMIC are real estate assets, however, then only a proportionate part of our interest in the REMIC and income derived from the interest will qualify for purposes of the 75% gross income test. In addition, some
REMIC securitizations include imbedded interest rate swap or cap contracts or other derivative instruments that potentially could produce non-qualifying income for the holders of the related REMIC securities. We expect that any interest income from
an RMBS that is not treated as an interest in a grantor trust or an interest in a REMIC will not be qualifying income for purposes of the 75% gross income test. We expect that a sufficient portion of our income from our Agency RMBS, non-Agency RMBS
and residential mortgage loans will be qualifying income so that we will satisfy both the 75% and 95% gross income tests. However, there can be no assurance that we will satisfy both the 75% and 95% gross income tests. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We generally intend to engage in TBA transactions that are treated as &#147;hedging transactions&#148; as defined in &#147;&#151;Hedging
Transactions.&#148; With respect to contracts for forward settling transactions such as TBAs that are not hedging transactions, the law is unclear with respect to the qualification of gains from dispositions of contracts for forward settling
transactions as gains from the sale of real property (including interests in real property and interests in mortgages on real property) or other qualifying income for purposes of the 75% gross income test. Until we receive a favorable private letter
ruling from the IRS or we receive an opinion of counsel to the effect that income and gain from the disposition of such contracts for forward settling transactions should be treated as qualifying income for purposes of the 75% gross income test, we
will limit our gains from dispositions of such contracts for </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
forward settling transactions (other than hedging transactions) and any non-qualifying income to no more than 25% of our gross income for each calendar year. Accordingly, our ability to dispose
of such contracts for forward settling transactions, through dollar roll transactions or otherwise, could be limited. Moreover, even if we are advised by counsel that income and gains from dispositions of such contracts for forward settling
transactions should be treated as qualifying income, it is possible that the IRS could successfully take the position that such income is not qualifying income. In the event that such income were determined not to be qualifying for the 75% gross
income test, we could be subject to a penalty tax or we could fail to qualify as a REIT if such income and any other non-qualifying income exceeds 25% of our gross income. See &#147;&#151;Failure to Qualify.&#148; </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Although we have no current intention to acquire distressed mortgage loans, we may acquire distressed mortgage loans in the
future.&nbsp;Revenue Procedure 2011-16 provides that that the IRS will treat distressed mortgage loans acquired by a REIT that are secured by real property and other property as producing, in part, non-qualifying income for the 75% gross income
test.&nbsp;Specifically, Revenue Procedure 2011-16 indicates that interest income on such a distressed mortgage loan will be treated as qualifying income based on the ratio of: (i)&nbsp;the fair market value of the real property securing the debt
determined as of the date the REIT committed to acquire the loan; and (ii)&nbsp;the face amount of the loan (and not the purchase price or current value of the loan).&nbsp;The face amount of a distressed mortgage loan will typically exceed the fair
market value of the real property securing the mortgage loan on the date the REIT commits to acquire the loan.&nbsp;To the extent we invest in distressed mortgage loans, we intend to do so in a manner consistent with maintaining our qualification as
a REIT. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may modify the term of any residential mortgage loans we acquire. Under the Code, if the terms of a loan are
modified in a manner constituting a &#147;significant modification,&#148; such modification triggers a deemed exchange of the original loan for the modified loan. IRS Revenue Procedure 2011-16 provides a safe harbor pursuant to which we will not be
required to redetermine the fair market value of the real property securing a loan for purposes of the gross income and asset tests in connection with a loan modification that is (i)&nbsp;occasioned by a borrower default or (ii)&nbsp;made at a time
when we reasonably believe that the modification to the loan will substantially reduce a significant risk of default on the original loan.&nbsp;To the extent we significantly modify loans in a manner that does not qualify for that safe harbor, we
will be required to redetermine the value of the real property securing the loan at the time it was significantly modified, which could result in a portion of the interest income on the loan being treated as non-qualifying income for purposes of the
75% gross income test and a portion of the value of the loan being treated as a non-qualifying asset for the 75% asset test. In determining the value of the real property securing such a loan, we generally will not obtain third-party appraisals but
rather will rely on internal valuations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may invest opportunistically in other types of mortgage and real estate-related
assets. To the extent we invest in such assets, we must do so in a manner that will enable us to satisfy the 75% and 95% gross income tests described above.</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Hedging Transactions </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">From time to time, we will enter into hedging
transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts and TBAs. Except to the
extent provided by Treasury Regulations, income and gain from &#147;hedging transactions&#148; will be excluded from gross income for purposes of both the 75% and 95% gross income tests. A &#147;hedging transaction&#148; includes any transaction
entered into in the normal course of our trade or business primarily to manage the risk of interest rate changes, price changes, or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be
incurred, to acquire or carry real estate assets (&#147;liability hedge&#148;). A &#147;hedging transaction&#148; also includes any transaction entered into primarily to manage risk of currency fluctuations with respect to any item of income or gain
that is qualifying income for purposes of the 75% or 95% gross income test (or any property which generates such income or gain). We are required to clearly identify any such hedging transaction before the close of the day on which it was acquired,
originated, or entered into and satisfy other identification requirements. To the extent that we hedge for other purposes, or to the extent that a portion of the hedged assets are not treated as &#147;real estate assets&#148; (as described below
under &#147;&#151;Asset Tests&#148;) or we enter into derivative transactions that are not liability hedges or we fail to satisfy the identification requirements with respect to a hedging transaction, the income from those transactions will likely
be treated as non-qualifying income for purposes of both gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT, but we cannot assure you that we will be able to do so. We
may conduct some or all of our </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">133
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
hedging activities (including hedging activities relating to currency risk) through a TRS or other corporate entity, the income from which may be subject to federal income tax, rather than by
participating in the arrangements directly or through pass-through subsidiaries. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Fee Income </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may earn income from fees in certain circumstances. Fee income generally will be qualifying income for purposes of both the 75% and 95%
gross income tests if it is received in consideration for entering into an agreement to make a loan secured by real property and the fees are not determined by income and profits. Other fees, including certain amounts received in connection with
mortgage servicing rights, generally are not qualifying income for purposes of either gross income test. Any fees earned by a TRS, like other income earned by a TRS, will not be included in the REIT&#146;s gross income for purposes of the gross
income tests. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Foreign Currency Gain </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests. &#147;Real estate foreign exchange gain&#148; will be excluded from gross income
for purposes of the 75% and 95% gross income tests. Real estate foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 75% gross income test, foreign
currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations secured by mortgages on real property or on interest in real property and certain foreign currency gain attributable to certain
&#147;qualified business units&#148; of a REIT. &#147;Passive foreign exchange gain&#148; will be excluded from gross income for purposes of the 95% gross income test. Passive foreign exchange gain generally includes real estate foreign exchange
gain as described above, and also includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 95% gross income test and foreign currency gain attributable to the acquisition or ownership of
(or becoming or being the obligor under) obligations. These exclusions for real estate foreign exchange gain and passive foreign exchange gain do not apply to foreign currency gain derived from dealing, or engaging in substantial and regular
trading, in securities. Such gain is treated as non-qualifying income for purposes of both the 75% and 95% gross income tests. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Rents from Real Property </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We may acquire real property or an interest therein in the future. To the extent that we acquire real property or an interest therein, rents we receive will qualify as &#147;rents from real property&#148;
in satisfying the gross income requirements for a REIT described above only if the following conditions are met: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>First</I>, the amount of rent must not be based in whole or in part on the income or profits of any person. An amount received or accrued generally
will not be excluded, however, from rents from real property solely by reason of being based on fixed percentages of receipts or sales. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Second</I>, rents we receive from a &#147;related party tenant&#148; will not qualify as rents from real property in satisfying the gross income
tests unless the tenant is a TRS, at least 90% of the property is leased to unrelated tenants, the rent paid by the TRS is substantially comparable to the rent paid by the unrelated tenants for comparable space and the rent is not attributable to an
increase in rent due to a modification of a lease with a &#147;controlled TRS&#148; (i.e., a TRS in which we own directly or indirectly more than 50% of the voting power or value of the stock). A tenant is a related party tenant if the REIT, or an
actual or constructive owner of 10% or more of the REIT, actually or constructively owns 10% or more of the tenant. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Third</I>, if rent attributable to personal property, leased in connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Fourth</I>, we generally must not operate or manage our real property or furnish or render services to our tenants, other than through an
&#147;independent contractor&#148; who is adequately compensated and from whom we do not derive revenue. We may, however, provide services directly to tenants if the services are &#147;usually or customarily rendered&#148; in connection with the
rental of space for occupancy only and are not considered to be provided for the tenants&#146; convenience. In addition, we may provide a minimal amount of &#147;non-customary&#148; services to the tenants of a property, other than through an
independent contractor, as long as our income from the services does not exceed 1% of our income from the related property. Furthermore, we may own up to 100% of the stock of a TRS, which may provide customary and non-customary services to tenants
without tainting our rental income from the related properties. </FONT></P></TD></TR></TABLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Prohibited Transactions </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A REIT will incur a 100% tax on the net income (including foreign currency gain) derived from any sale or other disposition of property,
other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. Any such income will be excluded from the application of the 75% and 95% gross income tests. Whether a REIT holds an
asset &#147;primarily for sale to customers in the ordinary course of a trade or business&#148; depends on the facts and circumstances in effect from time to time, including those related to a particular asset. We believe that none of our assets
will be held primarily for sale to customers and that a sale of any of our assets will not be in the ordinary course of our business. No assurance, however, can be given that the IRS will not successfully assert a contrary position, in which case we
would be subject to the prohibited transaction tax on the sale of those assets. To the extent we intend to dispose of an asset that may be treated as held &#147;primarily for sale to customers in the ordinary course of a trade or business,&#148; we
may contribute the asset to a TRS prior to the disposition. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Foreclosure Property </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will be subject to tax at the maximum corporate rate on any income (including foreign currency gain) from foreclosure property, other
than income that otherwise would be qualifying income for purposes of the 75% gross income test, less expenses directly connected with the production of that income. Gross income from foreclosure property will qualify, however, under the 75% and 95%
gross income tests. Foreclosure property is any real property, including interests in real property, and any personal property incident to such real property: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">that is acquired by a REIT as the result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership
or possession by agreement or process of law, after there was a default or default was imminent on a lease of such property or on indebtedness that such property secured; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">for which the related loan or lease was acquired by the REIT at a time when the default was not imminent or anticipated; and
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">for which the REIT makes a proper election to treat the property as foreclosure property. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A REIT will not be considered, however, to have foreclosed on a property where the REIT takes control of the property as a
mortgagee-in-possession and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure property at the end of the third taxable year following the taxable year in which the REIT
acquired the property, or longer if an extension is granted by the Secretary of the U.S. Treasury. This grace period terminates and foreclosure property ceases to be foreclosure property on the first day: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross
income test (disregarding income from foreclosure property), or any amount is received or accrued, directly or indirectly, pursuant to a lease entered into on or after such day that will give rise to income that does not qualify for purposes of the
75% gross income test (disregarding income from foreclosure property); </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">135
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<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">on which any construction takes place on the property, other than completion of a building or any other improvement, where more than 10% of the
construction was completed before default became imminent; or </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business that is conducted by
the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Failure to Satisfy Gross Income Tests </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we fail to satisfy one or
both of the gross income tests for any taxable year, we nevertheless may qualify as a REIT for that year if we are entitled to qualify for relief under certain provisions of the federal income tax laws. Those relief provisions generally will be
available if: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our failure to meet those tests is due to reasonable cause and not to willful neglect; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">following such failure for any taxable year, a schedule of the sources of our income is filed with the IRS in accordance with regulations prescribed by
the Secretary of the U.S. Treasury. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We cannot with certainty predict whether any failure to meet these
tests will qualify for the relief provisions. If these relief provisions are inapplicable to a particular set of circumstances involving us, we will not qualify as a REIT. As discussed above in &#147;&#151;Taxation of Our Company,&#148; even if the
relief provisions apply, we would incur a 100% tax on the gross income attributable to the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, multiplied, in either case, by a fraction intended to reflect
our profitability. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Asset Tests </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">To qualify as a REIT, we also must satisfy the following asset tests at the end of each quarter of each taxable year. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>First</I>, at least 75% of the value of our total assets must consist of: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">cash or cash items, including certain receivables and investments in money market funds; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">government securities; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">interests in real property, including leaseholds and options to acquire real property and leaseholds; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">interests in mortgage loans secured by real property; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">stock in other REITs; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or
public offerings of debt with at least a five-year term; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">regular or residual interests in a REMIC. However, if less than 95% of the assets of a REMIC consist of assets that are qualifying real estate-related
assets under the federal income tax laws, determined as if we held such assets, we will be treated as holding directly our proportionate share of the assets of such REMIC. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Second</I>, of our investments not included in the 75% asset class, the value of our interest in any one issuer&#146;s securities
(other than any TRS we may own) may not exceed 5% of the value of our total assets (the &#147;5% asset test&#148;). </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">136
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Third</I>, of our investments not included in the 75% asset class, we may not own more
than 10% of the total voting power or 10% of the total value of any one issuer&#146;s outstanding securities (the &#147;10% vote test&#148; and the &#147;10% value test,&#148; respectively). </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Fourth</I>, no more than 25% of the value of our total assets may consist of the securities of one or more TRSs. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Fifth</I>, no more than 25% of the value of our total assets may consist of the securities of TRSs and other non-TRS taxable
subsidiaries and other assets that are not qualifying assets for purposes of the 75% asset test (the &#147;25% securities test&#148;). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">For purposes of these asset tests, we are treated as holding our proportionate share of our operating partnership&#146;s assets. For purposes of the 5% asset test, the 10% vote test and the 10% value
test, the term &#147;securities&#148; does not include stock in another REIT, equity or debt securities of a qualified REIT subsidiary or TRS, mortgage loans or mortgage-backed securities that constitute real estate assets, or equity interests in a
partnership. For purposes of the 10% value test, the term &#147;securities&#148; does not include: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#147;straight debt&#148; securities, which is defined as a written unconditional promise to pay on demand or on a specified date a sum certain in
money if (i)&nbsp;the debt is not convertible, directly or indirectly, into stock, and (ii)&nbsp;the interest rate and interest payment dates are not contingent on profits, the borrower&#146;s discretion, or similar factors. &#147;Straight
debt&#148; securities do not include any securities issued by a partnership or a corporation in which we or any &#147;controlled TRS&#148; hold non-&#148;straight&#148; debt securities that have an aggregate value of more than 1% of the
issuer&#146;s outstanding securities. However, &#147;straight debt&#148; securities include debt subject to the following contingencies: </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="21%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a contingency relating to the time of payment of interest or principal, as long as either (i)&nbsp;there is no change to the effective yield of the
debt obligation, other than a change to the annual yield that does not exceed the greater of 0.25% or 5% of the annual yield, or (ii)&nbsp;neither the aggregate issue price nor the aggregate face amount of the issuer&#146;s debt obligations held by
us exceeds $1 million and no more than twelve months of unaccrued interest on the debt obligations can be required to be prepaid; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="21%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a contingency relating to the time or amount of payment upon a default or prepayment of a debt obligation, as long as the contingency is consistent
with customary commercial practice; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any loan to an individual or an estate; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any &#147;section 467 rental agreement,&#148; other than an agreement with a related party tenant; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any obligation to pay &#147;rents from real property&#148;; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">certain securities issued by governmental entities that are not dependent in whole or in part on the profits of (or payments made by) a
non-governmental entity; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any security (including debt securities) issued by another REIT; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any debt instrument of an entity treated as a partnership for federal income tax purposes in which we are a partner to the extent of our proportionate
interest in the equity and certain debt securities issued by that partnership; or </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any debt instrument of an entity treated as a partnership for federal income tax purposes not described in the preceding bullet points if at least 75%
of the partnership&#146;s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test described above in &#147;&#151;Gross Income Tests.&#148; </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">137
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">For purposes of the 10% value test, our proportionate share of the assets of a partnership is our
proportionate interest in any securities issued by the partnership, without regard to the securities described in the last two bullet points above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We intend to invest primarily in Agency RMBS and non-Agency RMBS that are pass-through certificates or CMOs (including IOs, IIOs and POs), and we may invest directly in residential mortgage loans. In the
case of RMBS treated as interests in a grantor trust for federal income tax purposes, we will be treated as owning an undivided beneficial ownership interest in the mortgage loans held by the grantor trust. Such mortgage loans, and any residential
mortgage loans that we own directly, will generally qualify as real estate assets for purposes of the 75% asset test to the extent that they are secured by real property. Revenue Procedure 2011-16 provides a safe harbor under which the IRS has
stated that it will not challenge a REIT&#146;s treatment of a loan as being, in part, a qualifying real estate asset in an amount equal to the lesser of (1)&nbsp;the fair market value of the real property securing the loan determined as of the date
the REIT committed to acquire the loan or (2)&nbsp;the fair market value of the loan on the date of the relevant quarterly REIT asset testing date. In the case of RMBS treated as regular interests in a REMIC for federal income tax purposes, such
interests will generally qualify as real estate assets for purposes of the 75% asset test. If less than 95% of the assets of a REMIC are real estate assets, however, then only a proportionate part of our interest in the REMIC qualifies for purposes
of the REIT asset test. To the extent any of our investments in Agency RMBS are not treated as real estate assets, we expect such Agency RMBS will be treated as government securities because they are issued or guaranteed as to principal or interest
by the United States or by a person controlled or supervised by and acting as an instrumentality of the government of the United States pursuant to authority granted by the Congress of the United States. Our investments in non-Agency RMBS that are
not interests in a grantor trust or REMIC or government securities will not be treated as qualifying assets for purposes of the 75% asset test and will be subject to the 5% asset test, the 10% value test, the 10% vote test and the 25% securities
test described above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may also invest directly in residential mortgage loans, including, in the future, distressed loans.
As discussed above under &#147;&#151;Gross Income Tests,&#148; under the applicable Treasury regulations, if a loan is secured by real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds
the fair market value of the real property securing the loan as of (i)&nbsp;the date we agreed to acquire or originate the loan or (ii)&nbsp;in the event of a significant modification, the date we modified the loan, then a portion of the interest
income from such a loan will not be qualifying income for purposes of the 75% gross income test but will be qualifying income for purposes of the 95% gross income test.&nbsp;Although the law is not entirely clear, a portion of the loan will also
likely be a non-qualifying asset for purposes of the 75% asset test.&nbsp;Revenue Procedure 2011-16 provides a safe harbor under which the IRS has stated that it will not challenge a REIT&#146;s treatment of a loan as being, in part, a qualifying
real estate asset in an amount equal to the lesser of (i)&nbsp;the fair market value of the real property securing the loan determined as of the date the REIT committed to acquire the loan or (ii)&nbsp;the fair market value of the loan on the date
of the relevant quarterly REIT asset testing date.&nbsp;Under the safe harbor, when the current value of a distressed mortgage loan exceeds the fair market value of the real property that secures the loan, determined as of the date we committed to
acquire or originate the loan, the excess will be treated as a non-qualifying asset.&nbsp;Accordingly, an increasing portion of a distressed mortgage loan will be treated as a non-qualifying asset as the value of the distressed mortgage loan
increases.&nbsp;To the extent we invest in residential mortgage loans (including distressed loans), we intend to do so in a manner consistent with qualifying and maintaining our qualification as a REIT. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We have entered, and may in the future enter, into reverse repurchase agreements under which we nominally sold certain of our assets to a
counterparty and simultaneously entered into an agreement to repurchase the sold assets in exchange for a purchase price that reflects a financing charge. Based on positions the IRS has taken in analogous situations, we believe that these
transactions would by treated as secured debt and that we would be treated for REIT asset and income test purposes as the owner of the assets that would be the subject of such agreements notwithstanding that such agreements may transfer record
ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that we did not own our assets subject to sale and repurchase agreements during the term of such agreements, in which
case we could fail to qualify as a REIT. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">138
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may purchase Agency RMBS through forward settling transactions, including TBAs. The law
is unclear with respect to the qualification of contracts for forward settling transactions as real estate assets or Government securities for purposes of the 75% asset test. Until we receive a favorable private letter ruling from the IRS or we
receive an opinion from counsel to the effect that contracts for forward settling transactions should be treated as qualifying assets for purposes of the 75% asset test, we will limit our investment in contracts for forward settling transactions and
any non-qualifying assets to no more than 25% of our total assets at the end of any calendar quarter and will limit our investments in contracts for forward settling transactions with a single counterparty to no more than 5% of our total assets at
the end of any calendar quarter. Accordingly, our ability to purchase Agency RMBS through contracts for forward settling transactions could be limited. Moreover, even if we are advised by counsel that contracts for forward settling transactions
should be treated as qualifying assets, it is possible that the IRS could successfully take the position that such assets are not qualifying assets. In the event that such assets were determined not to be qualifying for the 75% asset test, we could
be subject to a penalty tax or we could fail to qualify as a REIT if the value of our contracts for forward settling transactions and any non-qualifying assets exceeds 25% of our total assets at the end of any calendar quarter or if the value of our
investments in contracts for forward settling transactions with a single counterparty exceeds 5% of our total assets at the end of any calendar quarter. See &#147;&#151;Failure to Qualify.&#148; </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Derivative instruments, other than possibly TBAs as discussed in the prior paragraph, generally are not qualifying assets for purposes of
the 75% asset test. Thus, interest rate swaps, futures contracts, and other similar instruments that are used in &#147;hedging transactions&#148; as defined in &#147;&#151;Hedging Transactions,&#148; are non-qualifying assets for purposes of the 75%
asset test. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As discussed above, we may invest opportunistically in other types of mortgage-related assets. To the extent we
invest in such assets, we intend to do so in a manner that will enable us to satisfy each of the asset tests described above. However, we cannot assure you that we will be able to satisfy the asset tests described above. We will monitor the status
of our assets for purposes of the various asset tests and seek to manage our portfolio to comply at all times with such tests. No assurance, however, can be given that we will continue to be successful in this effort. In this regard, to determine
our compliance with these requirements, we will have to value our investment in our assets to ensure compliance with the asset tests. Although we seek to be prudent in making these estimates, no assurances can be given that the IRS might not
disagree with these determinations and assert that a different value is applicable, in which case we might not satisfy the 75% asset test and the other asset tests and, thus, would fail to qualify as a REIT. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we fail to satisfy the asset tests at the end of a calendar quarter, we will not lose our REIT qualification so long as: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">we satisfied the asset tests at the end of the preceding calendar quarter; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not
wholly or partly caused by the acquisition of one or more non-qualifying assets. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we did not satisfy the
condition described in the second item, above, we still could avoid disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we violate the 5% asset test, the 10% vote test or the 10% value test described above at the end of any calendar quarter, we will not
lose our REIT qualification if (i)&nbsp;the failure is de minimis (up to the lesser of 1% of the total value of our assets or $10 million) and (ii)&nbsp;we dispose of assets or otherwise comply with the asset tests within six&nbsp;months after the
last day of the quarter in which we identified such failure. In the event of a more than de&nbsp;minimis failure of any of the asset tests, as long as the failure was due to reasonable cause and not to willful neglect, we will not lose our REIT
qualification if we (i)&nbsp;dispose of assets or otherwise comply with the asset tests within six months after the last day of the quarter in which we identified such failure, (ii)&nbsp;file a schedule with the IRS describing the assets that caused
such failure in accordance with regulations promulgated by the Secretary of the U.S. Treasury and (iii)&nbsp;pay a tax equal to the greater of $50,000 or the product of the highest U.S. federal corporate tax rate (currently, 35%) and the net income
from the non-qualifying assets during the period in which we failed to </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
satisfy the asset tests. If the IRS were to determine that we failed the 5% asset test or 75% asset test because contracts for forward settling transactions are not qualifying assets, it is
possible that the IRS would not consider our position taken with respect to such assets, and accordingly our failure to satisfy the 5% asset test or 75% asset test, to be due to reasonable cause and not due to willful neglect. If the IRS were to
successfully assert these positions, we would fail to qualify as a REIT. See &#147;&#151;Failure to Qualify.&#148; Accordingly, it is not possible to state whether we would be entitled to the benefit of these relief provisions with regard to this
issue or in any other circumstances. If these relief provisions are inapplicable to a particular set of circumstances involving us, we will fail to qualify as a REIT. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We believe that the Agency RMBS, non-Agency RMBS, and other assets that we may hold will satisfy the foregoing asset test requirements. We will monitor the status of our assets and our future acquisition
of assets to ensure that we comply with those requirements, but we cannot assure you that we will be successful in this effort. No independent appraisals will be obtained to support our estimates of and conclusions as to the value of our assets and
securities, or in many cases, the real estate collateral for the mortgage loans that support our Agency RMBS and non-Agency RMBS. Moreover, the values of some assets may not be susceptible to a precise determination. As a result, no assurance can be
given that the IRS will not contend that our ownership of securities and other assets violates one or more of the asset tests applicable to REITs. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Distribution Requirements </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Each taxable year, we must distribute dividends,
other than capital gain dividends and deemed distributions of retained capital gain, to our shareholders in an aggregate amount at least equal to: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the sum of </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="21%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">90% of our &#147;REIT taxable income,&#148; computed without regard to the dividends paid deduction and our net capital gain, and
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="21%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">90% of our after-tax net income, if any, from foreclosure property, minus </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the sum of certain items of non-cash income. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">We must make such distributions in the taxable year to which they relate, or in the following taxable year if either (i)&nbsp;we declare the distribution before we timely file our federal income tax
return for the year and pay the distribution on or before the first regular dividend payment date after such declaration or (ii)&nbsp;we declare the distribution in October, November or December of the taxable year, payable to shareholders of record
on a specified day in any such month, and we actually pay the dividend before the end of January of the following year. The distributions under clause (i)&nbsp;are taxable to the shareholders in the year in which paid, and the distributions in
clause (ii)&nbsp;are treated as paid on December&nbsp;31 of the prior taxable year. In both instances, these distributions relate to our prior taxable year for purposes of the 90% distribution requirement. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a
REIT-level tax deduction, the distributions must not be &#147;preferential dividends.&#148; A dividend is not a preferential dividend if the distribution is (i)&nbsp;pro-rata among all outstanding shares within a particular class and (ii)&nbsp;in
accordance with the preferences among different classes of shares as set forth in our organizational documents. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will pay
federal income tax on taxable income, including net capital gain, that we do not distribute to shareholders. Furthermore, if we fail to distribute during a calendar year, or by the end of January following the calendar year in the case of
distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">85% of our REIT ordinary income for such year, </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">95% of our REIT capital gain income for such year, and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any undistributed taxable income from prior periods, </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">140
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">we will incur a 4% nondeductible excise tax on the excess of such required distribution over the amounts we
actually distribute. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may elect to retain and pay income tax on the net long term capital gain we recognize in a taxable
year. See &#147;&#151;Taxation of U.S. Holders&#151;Taxation of Taxable U.S. Holders on Distributions on Shares.&#148; If we so elect, we will be treated as having distributed any such retained amount for purposes of the REIT distribution
requirements and the 4% nondeductible excise tax described above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to make timely distributions in the future
sufficient to satisfy the annual distribution requirements and to avoid corporate income tax and the 4% nondeductible excise tax. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">It is possible that, from time to time, we may experience timing differences between the actual receipt of cash, including distributions from our subsidiaries, and actual payment of deductible expenses
and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. Possible examples of those timing differences include the following: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Because we may deduct capital losses only to the extent of our capital gains, we may have taxable income that exceeds our economic income.
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We will recognize taxable income in advance of the related cash flow with respect to our investments that are deemed to have original issue discount.
We generally must accrue original issue discount based on a constant yield method that takes into account projected prepayments but that defers taking into account credit losses until they are actually incurred. </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may acquire investments that are treated as having &#147;market discount&#148; for federal income tax purposes, because the investments are debt
instruments that we acquire for an amount less than their principal amount. We do not intend to elect to recognize market discount currently. Under the market discount rules, we may be required to treat portions of gains on sale of market discount
bonds as ordinary income and may be required to include some amounts of principal payments received on market discount bonds as ordinary income. The recognition of market discount upon receipt of principal payments results in an acceleration of the
recognition of taxable income to periods prior to the receipt of the related economic income. Further, to the extent that such an investment does not fully amortize according to its terms, we may never receive the economic income attributable to
previously recognized market discount. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Although several types of non-cash income are excluded in
determining the annual distribution requirement, we will incur corporate income tax and the 4% nondeductible excise tax with respect to those non-cash income items if we do not distribute those items on a current basis. As a result of the foregoing,
we may have less cash than is necessary to distribute all of our taxable income and thereby avoid corporate income tax and the excise tax imposed on certain undistributed income. In such a situation, we may need to borrow funds, sell assets or make
taxable distributions of our shares or debt securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may satisfy the 90% distribution test with taxable distributions
of our shares or debt securities. The IRS has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in shares as dividends that would satisfy the REIT annual distribution requirement and
qualify for the dividends paid deduction for federal income tax purposes. Those rulings may be relied upon only by taxpayers whom they were issued, but we could request a similar ruling from the IRS. In addition, the IRS previously issued a revenue
procedure authorizing publicly traded REITs to make elective cash/shares dividends, but that revenue procedure does not apply to our 2013 and future taxable years. Accordingly, it is unclear whether and to what extent we will be able to make taxable
dividends payable in cash and shares. We have no current intention to make a taxable dividend payable in cash and our shares. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying
&#147;deficiency dividends&#148; to our shareholders in a later year. We may include such deficiency dividends </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">141
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
in our deduction for dividends paid for the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required to pay interest and may
be required to pay a penalty to the IRS based upon the amount of any deduction we take for deficiency dividends. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Recordkeeping
Requirements </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We must maintain certain records in order to qualify as a REIT. In addition, to avoid a monetary penalty, we
must request on an annual basis information from our shareholders designed to disclose the actual ownership of our outstanding shares. We intend to comply with these requirements. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Failure to Qualify </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If we fail to satisfy one or more requirements for REIT
qualification, other than the gross income tests and the asset tests, we could avoid disqualification if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000 for each such failure. In addition, there are
relief provisions for a failure of the gross income tests and asset tests, as described in &#147;&#151;Gross Income Tests&#148; and &#147;&#151;Asset Tests.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">If we fail to qualify as a REIT in any taxable year, and no relief provision applies, we would be subject to federal income tax and any applicable alternative minimum tax on our taxable income at regular
corporate rates. In calculating our taxable income in a year in which we fail to qualify as a REIT, we would not be able to deduct amounts paid out to shareholders. In fact, we would not be required to distribute any amounts to shareholders in that
year. In such event, to the extent of our current or accumulated earnings and profits, all distributions to shareholders would be taxable as ordinary income. Subject to certain limitations of the federal income tax laws, corporate shareholders might
be eligible for the dividends received deduction and shareholders taxed at individual rates might be eligible for the reduced federal income tax rate of 20% on such dividends. Unless we qualified for relief under specific statutory provisions, we
also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. We cannot predict whether in all circumstances we would qualify for such statutory relief. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Taxation of the Operating Partnership </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our operating partnership currently is a disregarded entity because we own 100% of the interests in it, directly or through other disregarded entities. If we admit other limited partners, our operating
partnership will be treated as a partnership for tax purposes, as described below. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under the Code, a partnership generally is
not subject to federal income tax, but is required to file a partnership tax information return each year. In general, the character of each partner&#146;s share of each item of income, gain, loss, deduction, credit, and tax preference is determined
at the partnership level. Each partner is then allocated a distributive share of such items in accordance with the partnership agreement and is required to take such items into account in determining such partner&#146;s income. Each partner includes
such amount in income for any taxable year of the partnership ending within or with the taxable year of the partner, without regard to whether the partner has received or will receive any cash distributions from the partnership. Cash distributions,
if any, from a partnership to a partner generally are not taxable unless and to the extent they exceed the partner&#146;s basis in its partnership interest immediately before the distribution. Any amounts in excess of such tax basis will generally
be treated as a sale or exchange of such partner&#146;s interest in the partnership. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If and when our operating partnership
becomes taxable as a partnership, rather than a disregarded entity, we generally will be treated for federal income tax purposes as contributing our assets to the operating partnership at such time. If our assets are appreciated at such time, we
could recognize a smaller share of tax depreciation, and a larger share of tax gain on sale, from such properties subsequent to that deemed contribution, as compared to our percentage interest in the operating partnership. This deemed contribution
also could trigger tax gain in some circumstances, but we expect to structure the admission of outside partners in a manner that should avoid any such gain. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">142
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As noted above, for purposes of the REIT income and asset tests, we are treated as receiving
or holding our proportionate share of our operating partnership&#146;s income and assets, respectively. We control, and intend to continue to control, our operating partnership and intend to operate it consistently with the requirements for our
qualification as a REIT. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may issue equity compensation to employees in the form of interests in our operating partnership
that provide for capital gain treatment to the employees but do not generate a corresponding deduction for our operating partnership. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The discussion above assumes that our operating partnership will be treated as a &#147;partnership&#148; for federal income tax purposes once it is no longer treated as a disregarded entity. Generally, a
domestic unincorporated entity with two or more partners is treated as a partnership for federal income tax purposes unless it affirmatively elects to be treated as a corporation. However, certain &#147;publicly traded partnerships&#148; are treated
as corporations for federal income tax purposes. Once our operating partnership is no longer a disregarded entity for federal income tax purposes, we intend to comply with one or more exceptions to treatment of our operating partnership as a
corporation under the publicly traded partnership rules. Failure to qualify for such an exception would prevent us from qualifying as a REIT. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Taxation of U.S. Holders </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The term &#147;U.S. holder&#148; means a beneficial owner of our common shares that, for federal income tax purposes, is: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a citizen or resident of the United States; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a corporation (including an entity treated as a corporation for federal income tax purposes) created or organized under the laws of the United States,
any of its States or the District of Columbia; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">an estate whose income is subject to federal income taxation regardless of its source; or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">any trust if (i)&nbsp;a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust or (ii)&nbsp;it has a valid election in place to be treated as a U.S. person. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">If a partnership, entity or arrangement treated as a partnership for federal income tax purposes holds our common shares, the federal income tax treatment of a partner in the partnership will generally
depend on the status of the partner and the activities of the partnership and certain determinations made at the partner level. If you are a partner in a partnership holding our common shares, you should consult your tax advisor regarding the
consequences of the purchase, ownership and disposition of our common shares by the partnership. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Taxation of Taxable
U.S. Holders on Distributions on Shares </I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As long as we qualify as a REIT, a taxable U.S. holder must generally take
into account as ordinary income distributions made out of our current or accumulated earnings and profits that we do not designate as capital gain dividends or retained long-term capital gain. A U.S. holder will not qualify for the dividends
received deduction generally available to corporations. In addition, dividends paid to a U.S. holder generally will not qualify for the 20% tax rate for &#147;qualified dividend income.&#148; </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The maximum tax rate for qualified dividend income received by taxpayers taxed at individual rates is 20%. Qualified dividend income
generally includes dividends paid to U.S. holders taxed at individual rates by domestic C corporations and certain qualified foreign corporations. Because we are not generally subject to federal income tax on the portion of our REIT taxable income
distributed to our shareholders (see &#147;&#151;Taxation of Our Company&#148; above), our dividends generally will not be eligible for the 20% rate on qualified dividend income. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As a result, our ordinary REIT dividends will be taxed at the higher tax rate applicable to ordinary income. Currently, the highest
marginal individual income tax rate on ordinary income is 39.6%. However, the 20% tax rate for qualified dividend income will apply to our ordinary REIT dividends (i) attributable to dividends received by us from certain non-REIT corporations (e.g.,
dividends from any domestic TRSs), (ii) to the extent attributable to income upon which we have paid corporate income tax (e.g., to the extent that we distribute less than 100% of our taxable income) and (iii) attributable to income in the prior
taxable year from the sales of &#147;built-in gain&#148; property acquired by us from C corporations in carryover basis transactions (less the amount of corporate tax on such income). In general, to qualify for the reduced tax rate on qualified
dividend income, a U.S. holder must hold our shares for more than 60 days during the 121-day period beginning on the date that is 60 days before the date on which our common shares become ex-dividend. Individuals, trusts and estates whose income
exceeds certain thresholds are also subject to a 3.8% Medicare tax on dividends received from us. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">143
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A U.S. holder generally will take into account distributions that we properly designate as
capital gain dividends as long-term capital gain, to the extent that they do not exceed our actual net capital gain for the taxable year, without regard to the period for which the U.S. holder has held our common shares. A corporate U.S. holder may,
however, be required to treat up to 20% of certain capital gain dividends as ordinary income. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may elect to retain and pay
income tax on the net long-term capital gain that we recognize in a taxable year. In that case, to the extent we designate such amount on a timely notice to such shareholder, a U.S. holder would be taxed on its proportionate share of our
undistributed long-term capital gain. The U.S. holder would receive a credit or refund for its proportionate share of the tax we paid. The U.S. holder would increase the basis in its common shares by the amount of its proportionate share of our
undistributed long-term capital gain, minus its share of the tax we paid. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A U.S. holder will not incur tax on a distribution
in excess of our current and accumulated earnings and profits if the distribution does not exceed the adjusted basis of the U.S. holder&#146;s common shares. Instead, the distribution will reduce the adjusted basis of such common shares. A U.S.
holder will recognize a distribution in excess of both our current and accumulated earnings and profits and the U.S. holder&#146;s adjusted basis in his or her common shares as long-term capital gain, or short-term capital gain if the common shares
have been held for one year or less, assuming the common shares are a capital asset in the hands of the U.S. holder. In addition, if we declare a distribution in October, November or December of any year that is payable to a U.S. holder of record on
a specified date in any such month, such distribution shall be treated as both paid by us and received by the U.S. holder on December&nbsp;31 of such year, provided that we actually pay the distribution during January of the following calendar year,
as described in &#147;&#151;Distribution Requirements.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Shareholders may not include in their individual income tax
returns any of our net operating losses or capital losses. Instead, these losses are generally carried over by us for potential offset against our future income. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Taxable distributions from us and gain from the disposition of our common shares will not be treated as passive activity income and, therefore, a U.S. holder generally will not be able to apply any
&#147;passive activity losses,&#148; such as losses from certain types of limited partnerships in which such U.S. holder is a limited partner, against such income. In addition, taxable distributions from us and gain from the disposition of our
common shares generally will be treated as investment income for purposes of the investment interest limitations. We will notify shareholders after the close of our taxable year as to the portions of the distributions attributable to that year that
constitute ordinary income, return of capital and capital gain. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We may recognize taxable income in excess of our economic
income, known as phantom income, in the first years that we hold certain investments, and experience an offsetting excess of economic income over our taxable income in later years. As a result, U.S. holders at times may be required to pay federal
income tax on distributions </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
that economically represent a return of capital rather than a dividend. These distributions would be offset in later years by distributions representing economic income that would be treated as
returns of capital for federal income tax purposes. Taking into account the time value of money, this acceleration of federal income tax liabilities may reduce a U.S. holder&#146;s after-tax return on his or her investment to an amount less than the
after-tax return on an investment with an identical before-tax rate of return that did not generate phantom income. For example, if an investor with a 30% tax rate purchases a taxable bond with an annual interest rate of 10% on its face value, the
investor&#146;s before-tax return on the investment would be 10% and the investor&#146;s after-tax return would be 7%. However, if the same investor purchased our common shares at a time when the before-tax rate of return was 10%, the
investor&#146;s after-tax rate of return on such common shares might be somewhat less than 7% as a result of our phantom income. In general, as the ratio of our phantom income to our total income increases, the after-tax rate of return received by a
taxable U.S. holder will decrease. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If excess inclusion income from a taxable mortgage pool or REMIC residual interest is
allocated to any U.S. holder that income will be taxable in the hands of the U.S. holder and would not be offset by any net operating losses of the U.S. holder that would otherwise be available. See &#147;&#150;&#150;Requirements for
Qualification&#150;&#150;Taxable Mortgage Pools and Excess Inclusion Income.&#148; As required by IRS guidance, we would notify our shareholders if a portion of a dividend paid by us is attributable to excess inclusion income. We intend to avoid
generating excess inclusion income for our shareholders. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Taxation of Taxable U.S. Holders on the Disposition of Shares
</I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In general, a U.S. holder who is not a dealer in securities must treat any gain or loss realized upon a taxable
disposition of our common shares as long-term capital gain or loss if the U.S. holder has held such common shares for more than one year and otherwise as short-term capital gain or loss. In general, a U.S. holder will realize gain or loss in an
amount equal to the difference between the sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. holder&#146;s adjusted tax basis. A holder&#146;s adjusted tax basis generally will equal the
U.S. holder&#146;s acquisition cost, increased by the excess of net capital gains deemed distributed to the U.S. holder (discussed above) less tax deemed paid by such U.S. holder on such gains and reduced by any returns of capital. However, a U.S.
holder must treat any loss upon a sale or exchange of common shares held by such holder for six months or less as a long-term capital loss to the extent of capital gain dividends and any other actual or deemed distributions from us that such U.S.
holder treats as long term capital gain. All or a portion of any loss that a U.S. holder realizes upon a taxable disposition of our common shares may be disallowed if the U.S. holder purchases our common shares (or substantially similar common
shares) within 30 days before or after the disposition. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Capital Gains and Losses </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated as
long-term capital gain or loss. The maximum tax rate on long-term capital gain applicable to U.S. holders taxed at individual rates is 20% for sales and exchanges of assets held for more than one year. The maximum tax rate on long-term capital gain
from the sale or exchange of &#147;section 1250 property,&#148; or depreciable real property, is 25%, which applies to the lesser of the total amount of the gains or the accumulated depreciation on the Section&nbsp;1250 property. Individuals, trusts
and estates whose income exceeds certain thresholds are also subject to a 3.8% Medicare tax on gain from the sale of our common shares. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">With respect to distributions that we designate as capital gain dividends and any retained capital gain that we are deemed to distribute, we will designate whether such a distribution is taxable to U.S.
holders taxed at individual rates at a 20% or 25% rate. The highest marginal individual income tax rate currently is 39.6%. Thus, the tax rate differential between capital gain and ordinary income for those taxpayers may be significant. In addition,
the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses, including capital losses recognized upon the disposition of our shares. A non-corporate taxpayer may deduct capital losses not offset
by capital gains against its ordinary income only up to a maximum annual amount of $3,000. A non-corporate taxpayer may carry forward unused capital losses indefinitely. A corporate taxpayer must pay tax on its net capital gain at ordinary corporate
rates. A corporate taxpayer may deduct capital losses only to the extent of capital gains, with unused losses being carried back three years and forward five years. </FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Information Reporting Requirements and Withholding </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We or the applicable withholding agent will report to U.S. holders and to the IRS the amount and the tax character of distributions we pay
during each calendar year, and the amount of tax we withhold, if any. Under the backup withholding rules, a U.S. holder may be subject to backup withholding at a rate of 28% with respect to distributions unless such holder: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable
requirements of the backup withholding rules. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A U.S. holder who does not provide the applicable withholding
agent with its correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the U.S. holder&#146;s income tax liability. Backup withholding is not an
additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the U.S. holder&#146;s U.S. federal income tax liability if certain required information is timely furnished to the IRS. U.S. holders are
urged to consult their own tax advisors regarding application of backup withholding to them and the availability of, and procedure for obtaining an exemption from, backup withholding. In addition, the applicable withholding agent may be required to
withhold a portion of distributions to any U.S. holders who fail to certify their U.S. status. For payments made after December&nbsp;31, 2013, a U.S.&nbsp;withholding tax at a 30% rate will be imposed on dividends received by U.S.&nbsp;holders who
own our common shares through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S.&nbsp;accounts or ownership are not satisfied. In addition, if those disclosure requirements are not satisfied, a U.S.
withholding tax at a 30% rate will be imposed, for payments made after December&nbsp;31, 2016, on proceeds from the sale of our common shares by U.S. holders who own our common shares through foreign accounts or foreign intermediaries. We will not
pay any additional amounts in respect of amounts withheld. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>Taxation of Tax-Exempt U.S. Holders </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are
exempt from federal income taxation. They are subject, however, to taxation on their UBTI. While many investments in real estate generate UBTI, the IRS has issued a ruling that dividend distributions from a REIT to an exempt employee pension trust
do not constitute UBTI so long as the exempt employee pension trust does not otherwise use the shares of the REIT in an unrelated trade or business of the pension trust. Based on that ruling, amounts that we distribute to tax-exempt shareholders
generally should not constitute UBTI so long as our common shares are not otherwise used in an unrelated trade or business. However, if a tax-exempt shareholder were to finance its investment in our common shares with debt, a portion of the income
that it receives from us would constitute UBTI pursuant to the &#147;debt-financed property&#148; rules. In addition, our dividends that are attributable to excess inclusion income will constitute UBTI in the hands of most tax-exempt
shareholders.&nbsp;See &#147;&#151;Requirements for Qualification&#151;Taxable Mortgage Pools and Excess Inclusion Income.&#148;&nbsp;However, we intend to avoid generating excess inclusion income for our shareholders. Moreover, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans that are exempt from taxation under special provisions of the federal income tax laws are subject to different UBTI rules,
which generally will require them to characterize distributions that they receive from us as UBTI. Finally, in certain circumstances, a qualified employee pension or profit sharing trust that owns more than 10% of our shares must treat a percentage
of the dividends that it receives from us as UBTI. Such percentage is equal to the gross income we derive from an unrelated trade or business, determined as if we were a pension trust, divided by our total gross income for the year in which we pay
the dividends. That rule applies to a pension trust holding more than 10% of our shares only if: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the percentage of our dividends that the tax-exempt trust must treat as UBTI is at least 5%; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our shares be owned by five or fewer individuals that
allows the beneficiaries of the pension trust to be treated as holding our shares in proportion to their actuarial interests in the pension trust; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">either: </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="21%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">one pension trust owns more than 25% of the value of our shares; or </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="21%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">A group of pension trusts individually holding more than 10% of the value of our shares collectively owns more than 50% of the value of our shares.
</FONT></P></TD></TR></TABLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Tax-exempt U.S. holders are urged to consult their tax advisors regarding the U.S. federal,
state, local, and foreign tax consequences of owning our common shares. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Taxation of Non-U.S. Holders </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The term &#147;non-U.S. holder&#148; means a beneficial owner of our common shares that is not a U.S. holder or a partnership (or an
entity or arrangement treated as a partnership for federal income tax purposes). The rules governing federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships and other foreign holders are complex. This
section is only a summary of such rules. <B>We urge non-U.S. holders to consult their tax advisors to determine the impact of federal, state and local income tax laws on ownership of our common shares, including any reporting requirements. </B>
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">For most non-U.S. holders, investment in a REIT that invests principally in mortgage loans and mortgage-backed securities is
not the most tax-efficient way to invest in such assets. That is because receiving distributions of income derived from such assets in the form of REIT dividends subjects most non-U.S. holders to withholding taxes that direct investment in those
asset classes, and the direct receipt of interest and principal payments with respect to them, would not. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A non-U.S. holder
that receives a distribution from us that is not attributable to gain from our sale or exchange of &#147;United States real property interests,&#148; as defined below, and that we do not designate as a capital gain dividend or retained capital gain
will recognize ordinary income to the extent that we pay the distribution out of our current or accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply unless an applicable tax
treaty reduces or eliminates the tax. Our dividends that are attributable to excess inclusion income will be subject to the 30% withholding tax, without reduction for any otherwise applicable income tax treaty.&nbsp;See &#147;&#151;Requirements for
Qualification&#151;Taxable Mortgage Pools and Excess Inclusion Income.&#148;&nbsp;We intend to avoid generating excess inclusion income for our shareholders. If a distribution is treated as effectively connected with the non-U.S. holder&#146;s
conduct of a U.S. trade or business, the distribution will not incur the 30% withholding tax, but the non-U.S. holder generally will be subject to federal income tax on the distribution at graduated rates, in the same manner as U.S. holders are
taxed on distributions and also may be subject to the 30% branch profits tax in the case of a corporate non-U.S. holder. In general, non-U.S. holders will not be considered to be engaged in a U.S. trade or business solely as a result of their
ownership of our common shares. It is expected that the applicable withholding agent will withhold U.S. income tax at the rate of 30% on the gross amount of any distribution that we do not designate as a capital gain distribution or retained capital
gain and is paid to a non-U.S. holder unless either: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a lower treaty rate applies and the non-U.S. holder files with the applicable withholding agent an IRS Form W-8BEN evidencing eligibility for that
reduced rate, or </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the non-U.S. holder files with the applicable withholding agent an IRS Form W-8ECI claiming that the distribution is effectively connected income.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Capital gain dividends received or deemed received by a non-U.S. holder from us that are not attributable
to gain from our sale or exchange of &#147;United States real property interests,&#148; as defined below, are generally not subject to U.S. federal income or withholding tax, unless either (1)&nbsp;the non-U.S. holder&#146;s investment in our common
shares is effectively connected with a U.S. trade or business conducted by such non-U.S. holder (in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain) or (2)&nbsp;the non-U.S. holder is a
nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a &#147;tax home&#148; in the U.S. (in which case the non-U.S. holder will be subject to a 30% tax on the individual&#146;s net capital
gain for the year). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
non-U.S. holder will not incur tax on a distribution on the common shares in excess of our current and accumulated earnings and profits if the excess portion of the distribution does not exceed the adjusted tax basis of its common shares. Instead,
the excess portion of the distribution will reduce such non-U.S. holder&#146;s adjusted tax basis of its common shares. A non-U.S. holder will be subject to tax on a distribution that exceeds both our current and accumulated earnings and profits and
the adjusted basis of its common shares, if the non-U.S. holder otherwise would be subject to tax on gain from the sale or disposition of its common shares, as described below. Because we generally cannot determine at the time we make a distribution
whether the distribution will exceed our current and accumulated earnings and profits, it is expected that the applicable withholding agent normally will withhold tax on the entire amount of any distribution at the same rate applicable to
withholding on a dividend. However, a non-U.S. holder may obtain a refund of amounts that the applicable withholding agent withheld if we later determine that a distribution in fact exceeded our current and accumulated earnings and profits.
</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">For payments made after December&nbsp;31, 2013, a U.S.&nbsp;withholding tax at a 30% rate
will be imposed on dividends paid to certain non-U.S.&nbsp;holders if certain disclosure requirements related to U.S.&nbsp;accounts or ownership are not satisfied. In addition, if those disclosure requirements are not satisfied, a U.S. withholding
tax at a 30% rate will be imposed, for payments made after December&nbsp;31, 2016, on proceeds from the sale of our common shares received by certain non-U.S. holders. If payment of withholding taxes is required, non-U.S. holders that are otherwise
eligible for an exemption from, or reduction of, U.S.&nbsp;withholding taxes with respect to such dividends and proceeds will be required to seek a refund from the IRS to obtain the benefit of such exemption or reduction. We will not pay any
additional amounts in respect of any amounts withheld. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">For any year in which we qualify as a REIT, a non-U.S. holder may
incur tax on distributions that are attributable to gain from our sale or exchange of &#147;United States real property interests&#148; under special provisions of the federal income tax laws known as &#147;FIRPTA.&#148; The term &#147;United States
real property interests&#148; includes interests in real property and shares in corporations at least 50% of whose assets consist of interests in real property. The term &#147;United States real property interests&#148; generally does not include
residential mortgage loans or mortgage-backed securities such as Agency RMBS or non-Agency RMBS. As a result, we do not anticipate that we will generate material amounts of gain that would be subject to FIRPTA. Under the FIRPTA rules, a non-U.S.
holder is taxed on distributions attributable to gain from sales of United States real property interests as if the gain were effectively connected with a U.S. business of the non-U.S. holder. A non-U.S. holder thus would be taxed on such a
distribution at the normal capital gain rates applicable to U.S. holders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual. A non-U.S. corporate holder not entitled to
treaty relief or exemption also may be subject to the 30% branch profits tax on such a distribution. Unless a non-U.S. holder qualifies for the exception described in the next paragraph, the applicable withholding agent must withhold 35% of any such
distribution that we could designate as a capital gain dividend. A non-U.S. holder may receive a credit against such holder&#146;s tax liability for the amount withheld. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Capital gain distributions on our common shares that are attributable to our sale of real property will be treated as ordinary dividends, rather than as gain from the sale of a United States real property
interest, as long as (i)&nbsp;our common shares are &#147;regularly traded&#148; on an established securities market in the United States and (ii)&nbsp;the non-U.S. holder does not own more than 5% of our common shares during the one-year period
preceding the distribution date. As a result, non-U.S. holders generally would be subject to withholding tax on such capital gain distributions in the same manner as they are subject to withholding tax on ordinary dividends. We anticipate that our
common shares will be treated as being regularly traded on an established securities market in the United States following this offering. If our common shares are not regularly traded on an established securities market in the United States or the
non-U.S. holder owned more than 5% of our common shares at any time during the one-year period prior to the distribution, capital gain distributions that are attributable to our sale of real property would be subject to tax under FIRPTA. Moreover,
if a non-U.S. holder disposes of our common shares during the 30-day period preceding a dividend payment, and such non-U.S. holder (or a person related to such non-U.S. holder) acquires or enters into a contract or option to acquire our common
shares within 61 days of the 1st day of the 30 day period described above, and any portion of such dividend payment would, but for the disposition, be treated as a United States real property interest capital gain to such non-U.S. holder, then such
non-U.S. holder will be treated as having United States real property interest capital gain in an amount that, but for the disposition, would have been treated as United States real property interest capital gain. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A non-U.S. holder generally will not incur tax under FIRPTA with respect to gain realized upon a disposition of our common shares as
long as we are not a United States real property holding corporation during a specified testing period. If at least 50% of a REIT&#146;s assets are United States real property interests, then the REIT will be a United States real property holding
corporation. We do not anticipate that we will be a United States real property holding corporation based on our investment strategy. In the unlikely event that at least 50% of the assets we hold were determined to be United States real property
interests, gains from the sale of our common shares by a non-U.S. holder could be subject to a FIRPTA tax. However, even if that event were to occur, a non-U.S. holder generally would not incur tax under FIRPTA on gain from the sale of our common
shares if we were a &#147;domestically controlled qualified investment entity.&#148; A domestically controlled qualified investment entity includes a REIT in which, at all times during a specified testing period, less than 50% in value of its shares
are held directly or indirectly by non-U.S. persons. We believe that upon the effective date of our REIT election we will be a domestically controlled qualified investment entity, and that a sale of our common shares would not be subject to taxation
under FIRPTA. No assurance can be given, however, that upon the closing of this offering we will remain a domestically controlled qualified investment entity. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">148
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">If our common shares are regularly traded on an established securities market in the United
States, an additional exception to the tax under FIRPTA on gain from share sales will be available, even if we do not qualify as a domestically controlled qualified investment entity at the time the non-U.S. holder sells our common shares. Under
that exception, the gain from such a sale by such a non-U.S. holder will not be subject to tax under FIRPTA if: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">our common shares are considered regularly traded under applicable U.S. Treasury regulations on an established securities market, such as the New York
Stock Exchange; and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the non-U.S. holder owned, actually or constructively, 5% or less of the applicable class of our shares at all times during a specified testing period.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As noted above, we anticipate that our common shares will be treated as being regularly traded on an
established securities market following this offering. If the gain on the sale of our common shares were taxed under FIRPTA, a non-U.S. holder would be taxed on that gain in the same manner as U.S. holders, subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien individuals. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Backup withholding will generally not
apply to payments of dividends made by us or our paying agents, in their capacities as such, to a non-U.S. holder provided that the non-U.S. holder furnishes to the applicable withholding agent the required certification as to its non-U.S. status,
such as providing a valid IRS Form W-8BEN or W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if the applicable withholding agent has actual knowledge, or reason to know, that the holder is a
U.S. person that is not an exempt recipient. Payments of the net proceeds from a disposition or a redemption effected outside the United States by a non-U.S. holder made by or through a foreign office of a broker generally will not be subject to
information reporting or backup withholding. However, information reporting (but not backup withholding) generally will apply to such a payment if the broker has certain connections with the U.S. unless the broker has documentary evidence in its
records that the beneficial owner is a non-U.S. holder and specified conditions are met or an exemption is otherwise established. Payment of the net proceeds from a disposition by a non-U.S. holder of common shares made by or through the U.S. office
of a broker is generally subject to information reporting and backup withholding unless the non-U.S. holder certifies under penalties of perjury that it is not a U.S. person and satisfies certain other requirements, or otherwise establishes an
exemption from information reporting and backup withholding. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules may be refunded or credited against the non-U.S. holder&#146;s U.S. federal income tax liability if certain required information is timely furnished to the IRS. Non-U.S. holders are urged to consult their
own tax advisors regarding application of backup withholding to them and the availability of, and procedure for obtaining an exemption from, backup withholding. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Legislative or Other Actions Affecting REITs </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The present federal income
tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time. The REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the
U.S. Treasury Department, which may result in statutory changes as well as revisions to regulations and interpretations. Additionally, several of the tax considerations described herein are currently under review and are subject to change.
Prospective shareholders are urged to consult with their own tax advisors regarding the effect of potential changes to the federal tax laws on an investment in our common shares. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">149
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>State, Local and Foreign Taxes </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We and/or our subsidiaries and common shareholders may be subject to taxation by various states, localities or foreign jurisdictions,
including those in which we, our subsidiaries, or our common shareholders transact business, own property or reside. We or our subsidiaries may own properties located in numerous jurisdictions and may be required to file tax returns in some or all
of those jurisdictions. The state, local and foreign tax treatment of us and our common shareholders may differ from the federal income tax treatment of us and our common shareholders described above. Consequently, common shareholders should consult
their tax advisors regarding the application and effect of state, local and foreign income and other tax laws upon an investment in our common shares. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">150
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_20"></A>UNDERWRITING </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and UBS Securities LLC are acting as
joint bookrunners of this offering and Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. are acting as representatives of the underwriters named below. Under the terms and subject to the conditions contained in an underwriting
agreement dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2013, we have agreed to sell to the underwriters named below the following respective numbers of common shares:
</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="87%"></TD>
<TD VALIGN="bottom" WIDTH="13%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:39pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1">Underwriter</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Number&nbsp;of<BR>Shares</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Credit Suisse Securities (USA) LLC</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Deutsche Bank Securities Inc.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Citigroup Global Markets Inc.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">UBS Securities LLC</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The underwriting agreement provides that the underwriters are obligated to purchase all the common shares
in the offering if any are purchased, other than those shares covered by the over-allotment option described below. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We have
granted to the underwriters a 30-day option to purchase on a pro rata basis up to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional common shares from us at the initial public offering price less the underwriting
discounts and commissions. The option may be exercised only to cover any over-allotments of common shares. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The underwriters
propose to offer the common shares initially at the public offering price on the cover page of this prospectus. The underwriters may allow a discount of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share on sales to
other broker/dealers. After the initial public offering the representatives may change the public offering price and discount to broker/dealers. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The following table summarizes the compensation we will pay: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="84%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="64%"></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Total</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Per&nbsp;Share</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Without<BR>Over-allotment</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>With<BR>Over-allotment</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Underwriting Discounts and Commissions paid by us</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We estimate that our out of pocket expenses for this offering will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The underwriters have informed us that they do not expect sales to
accounts over which the underwriters have discretionary authority to exceed 5% of the common shares being offered. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We
have agreed that we will not, subject to certain exceptions, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any of our common
shares or securities convertible into or exchangeable or exercisable for any of our common shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of the representatives,
for a period of 180 days after the date of this prospectus. However, in the event that either (1)&nbsp;during the last 17 days of the &#147;lock-up&#148; period, we release earnings results or material news or a material event relating to us occurs
or (2)&nbsp;prior to the expiration of the &#147;lock-up&#148; period, we announce that we will release earnings results during the 16-day period beginning on the last day of the &#147;lock-up&#148; period, then in either case the expiration of the
&#147;lock-up&#148; will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless the representatives waive, in writing,
such an extension; provided, further, however, that the foregoing proviso shall not be applicable so long as we are an Emerging Growth Company. </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our trustees and executive officers, our Manager and its executive officers, and our existing shareholders have agreed that they will not, subject to certain exceptions, offer, sell, contract to sell,
pledge, or otherwise dispose of, directly or indirectly, any common shares or securities convertible into or exchangeable or exercisable for any of our common shares, enter into a transaction that would have the same effect, or enter into any swap,
hedge, or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common shares, whether any of these transactions is to be settled by delivery of
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">151
</FONT></P>


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  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
our common shares or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge, or disposition, or to enter into any transaction, swap, hedge or
other arrangement, without, in each case, the prior written consent of the representatives for a period of 180 days after the date of this prospectus. However, in the event that either (1)&nbsp;during the last 17 days of the &#147;lock-up&#148;
period, we release earnings results or material news or a material event relating to us occurs or (2)&nbsp;prior to the expiration of the &#147;lock-up&#148; period, we announce that we will release earnings results during the 16-day period
beginning on the last day of the &#147;lock-up&#148; period, then in either case the expiration of the &#147;lock-up&#148; will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the
occurrence of the material news or event, as applicable, unless the representatives waive, in writing, such an extension; provided, further, however, that the foregoing proviso shall not be applicable so long as we are an Emerging Growth Company.
</FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments
that the underwriters may be required to make in that respect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We intend to apply to have our common shares listed on the New
York Stock Exchange under the symbol &#147;EARN.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">There are no past or current material relationships between the
underwriters or their affiliates and us. We are a party to master repurchase agreements, ISDA trading agreements and master securities forward transaction agreements with certain of the underwriters or their affiliates pursuant to which these
underwriters or their affiliates may receive customary fees and expenses. Certain of the underwriters or their affiliates are currently counterparties in trading activities with us, and in the future may be lenders under one or more reverse
repurchase agreements or may be lenders to, or counterparties in securities, derivatives and other trading activities with us. In addition, certain underwriters or their affiliates have provided or are providing commercial banking activities to
affiliates of us, none of which we believe are material to us. The underwriters and their affiliates may in the future engage in investment banking, lending and other commercial dealings in the ordinary course of business with us. They would receive
customary fees and commissions for these services. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Prior to the offering, there has been no market for our common shares. The
initial public offering price was determined by negotiation between us and the underwriters and does not necessarily reflect the market price of the common shares following the offering. The principal factors that were considered in determining the
initial public offering price included: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the information presented in this prospectus and otherwise available to the underwriters; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the history of and the prospects for the industry in which we compete; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the ability of our management; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the prospects for our future earnings; </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the present state of our development and our current financial condition; </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and </FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the general condition of the securities markets at the time of the offering. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We offer no assurances that the initial public offering price corresponds to the price at which the common shares will trade in the
public market subsequent to the offering or that an active trading market for the shares will develop and continue after the offering. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates
a syndicate short position. The short position may </FONT></P></TD></TR></TABLE>
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be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters are not greater than the number of shares that
they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either
exercising their over-allotment option and/or purchasing shares in the open market. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Syndicate covering transactions involve purchases of the common shares in the open market after the distribution has been completed in order to cover
syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they
may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked
short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common shares originally sold by the syndicate
members are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market
price of our common shares or preventing or retarding a decline in the market price of the common shares. As a result the price of our common shares may be higher than the price that might otherwise exist in the open market. These transactions may
be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">A prospectus in
electronic format may be made available on the web sites maintained by one or more of the underwriters participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters on the same basis as other
allocations. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>European Economic Area </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a &#147;Relevant Member State&#148;), with effect from and including the date on which
the Prospectus Directive is implemented in that Relevant Member State (the &#147;Relevant Implementation Date&#148;), no offer of shares may be made to the public in that Relevant Member State other than: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">to any legal entity which is a qualified investor as defined in the Prospectus Directive; </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(b)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than
qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the underwriters; or </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(c)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">in any other circumstances falling within Article 3(2) of the Prospectus Directive, </FONT></TD></TR></TABLE>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">provided that no such offer of shares shall require the Company or the underwriters to publish a prospectus pursuant to Article 3 of the
Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Each person in a Relevant
Member State who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that (A)&nbsp;it is a &#147;qualified investor&#148; within the meaning of the law in that Relevant Member State
implementing Article 2(1)(e) of the Prospectus Directive, and (B)&nbsp;in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, the shares acquired by it in the offering
have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than &#147;qualified investors&#148; as defined in the Prospectus Directive, or in circumstances in
which the prior consent of the underwriters has been given to the offer or resale. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary
will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in
circumstances </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">153
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior
consent of the underwriters has been obtained to each such proposed offer or resale. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">This prospectus has been prepared on the
basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an
offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the underwriters to publish a prospectus
pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the
Company or the underwriters to publish a prospectus for such offer. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">For the purpose of the above provisions, the expression
&#147;an offer to the public&#148; in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression &#147;Prospectus Directive&#148;
means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression &#147;2010 PD Amending
Directive&#148; means Directive 2010/73/EU. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>United Kingdom </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are &#147;qualified
investors&#148; (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended
(the &#147;Order&#148;) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as &#147;relevant
persons&#148;). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will
be engaged in with, relevant persons. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">154
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_21"></A>LEGAL MATTERS </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Certain legal matters will be passed upon for us by Hunton&nbsp;&amp; Williams LLP. In addition, the description of U.S. federal income
tax consequences contained in the section of the prospectus entitled &#147;Material U.S. Federal Income Tax Considerations&#148; is based on the opinion of Hunton&nbsp;&amp; Williams LLP. Certain legal matters relating to this offering will be
passed upon for the underwriters by Fried, Frank, Harris, Shriver&nbsp;&amp; Jacobson LLP. Certain matters relating to Maryland law will be passed upon for us by Venable LLP, Baltimore, Maryland. </FONT></P>
<P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_22"></A>EXPERTS </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The financial statements as of September 30, 2012 and for the period September 25, 2012 (commencement of operations) to&nbsp;September&nbsp;30, 2012, and included in this Registration Statement have been
included in reliance of the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. </FONT></P>
<P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc428125_23"></A>WHERE YOU CAN FIND MORE INFORMATION </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We have filed with the SEC a registration statement on Form S-11, including exhibits and schedules filed with the registration statement
of which this prospectus is a part, under the Securities Act with respect to the shares of common shares to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement and exhibits and
schedules to the registration statement. For further information with respect to us and the common shares to be sold in this offering, reference is made to the registration statement, including the exhibits and schedules to the registration
statement. Copies of the registration statement, including the exhibits and schedules to the registration statement, may be examined without charge at the public reference room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549.
Information about the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0300. Copies of all or a portion of the registration statement may be obtained from the public reference room of the SEC upon payment of
prescribed fees. Our SEC filings, including our registration statement, are also available to you, free of charge, on the SEC&#146;s website at www.sec.gov. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and will file periodic reports, proxy statements and will make available to our
shareholders annual reports containing audited financial information for each year and quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">155
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><A NAME="toc"></A><A NAME="toc428125_24"></A>INDEX TO FINANCIAL STATEMENTS </B></FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD></TD>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Page</FONT></TD>
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<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#fin428125_1">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-2</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
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<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">FINANCIAL STATEMENTS:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
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<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#fin428125_3">Consolidated Balance Sheet</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-3</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#fin428125_4">Consolidated Statement of Operations</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-4</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#fin428125_5">Consolidated Statement of Shareholders&#146; Equity</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-5</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#fin428125_6">Consolidated Statement of Cash Flows</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-6</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A HREF="#fin428125_7">Notes to Consolidated Financial Statements</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-7</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
</TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-1
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A NAME="fin428125_1"></A>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">To the Members of the Board of Trustees and Shareholders of </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ellington Residential Mortgage REIT </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">In our opinion, the accompanying consolidated balance sheet
and related consolidated statements of operations, of changes in shareholders&#146; equity and cash flows present fairly, in all material respects, the financial position of Ellington Residential Mortgage REIT at September 30, 2012, and the results
of its operations, the changes in its shareholders&#146; equity and its cash flows for period September 25, 2012 (commencement of operations) to September 30, 2012, in conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion. </FONT></P> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">/s/ PricewaterhouseCoopers LLP </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">New York, NY </FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">October</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">18, 2012 except for Note 10 to the Consolidated Financial Statements, as to which the date is February 13, 2013 </FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-2
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A NAME="fin428125_3"></A>ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">CONSOLIDATED BALANCE SHEET </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">At September&nbsp;30, 2012 </FONT></P> <P STYLE="line-height:1px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000">&nbsp;</P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="right"><FONT
STYLE="font-family:Times New Roman" SIZE="1"><I>Expressed in U.S. Dollars </I></FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="89%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>ASSETS</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Cash and cash equivalents</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">29,465,382</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Real estate related securities, at fair value Non-Agency (Cost - $5,134,124)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interest receivable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">937</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Total Assets</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">34,600,443</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>LIABILITIES</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Payable for securities purchased</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">3,100,129</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Management fee payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">7,875</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Accrued expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">488</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Total Liabilities</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">3,108,492</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>SHAREHOLDERS&#146; EQUITY</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Common shares, par value $0.01 per share; 500,000,000 shares authorized; 1,575,000 shares issued and outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">15,750</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Additional paid-in-capital</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,484,250</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Accumulated deficit</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(8,049</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Total Shareholders&#146; Equity</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,491,951</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Total Liabilities and Shareholders&#146; Equity</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">34,600,443</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>PER SHARE INFORMATION:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Shareholders&#146; equity per share (1,575,000 shares)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">19.99</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">See Notes to Consolidated Financial Statements </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-3
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A NAME="fin428125_4"></A>ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">CONSOLIDATED STATEMENT OF OPERATIONS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">For the period September 25, 2012 (Commencement of Operations) through September 30, 2012 </FONT></P> <P STYLE="line-height:1px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000">&nbsp;</P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="1"><I>Expressed in U.S. Dollars </I></FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="93%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>INTEREST INCOME</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interest income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">389</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Total interest income</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">389</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>EXPENSES</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Management fee</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">7,875</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agency and administration fees</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">438</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Custody and other fees</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">125</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Total expenses</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">8,438</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>NET LOSS</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(8,049</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>LOSS PER COMMON SHARE</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Basic and Diluted</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(0.01</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">See Notes to Consolidated Financial Statements </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-4
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A NAME="fin428125_5"></A>ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">CONSOLIDATED STATEMENT OF SHAREHOLDERS&#146; EQUITY </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">For the period September&nbsp;25, 2012 (Commencement of Operations) through September&nbsp;30, 2012 </FONT></P>
<P STYLE="line-height:1px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000">&nbsp;</P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="1"><I>Expressed in U.S. Dollars
</I></FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="36%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Common Shares</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Preferred Shares</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Additional</FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1">Paid-in-Capital</FONT>
</TD>
<TD VALIGN="bottom" ROWSPAN="2"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Receivable</FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1">From&nbsp;
Shareholders</FONT></TD>
<TD VALIGN="bottom" ROWSPAN="2"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Accumulated</FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1">Deficit</FONT></TD>
<TD VALIGN="bottom" ROWSPAN="2"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Total</FONT></TD>
<TD VALIGN="bottom" ROWSPAN="2"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Shares</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Amount</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Shares</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1">Amount</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>BALANCE, September&nbsp;24, 2012</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">100</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">999</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Issuance of common shares</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,575,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">15,750</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,484,250</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Repurchase of common shares at issue price</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(100</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(999</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(8,049</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(8,049</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>BALANCE, September&nbsp;30, 2012</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,575,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">15,750</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,484,250</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(8,049</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,491,951</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-5
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A NAME="fin428125_6"></A>ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">CONSOLIDATED STATEMENT OF CASHFLOWS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">For the period September&nbsp;25, 2012 (Commencement of Operations) through September&nbsp;30, 2012 </FONT></P>
<P STYLE="line-height:1px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000">&nbsp;</P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="1"><I>Expressed in U.S. Dollars
</I></FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="89%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Cash flows provided by (used in) operating activities:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(8,049</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Reconciliation of the net loss to net cash used in operating activities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Increase in operating assets:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Increase in interest receivable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(937</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Increase in operating liabilities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Increase in management fee payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">7,875</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Increase in accrued expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">488</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Net cash used in operating activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(623</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Cash flows used in investing activities:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Settled purchases of real estate related securities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(2,033,995</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Cash used in investing activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(2,033,995</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Cash flows provided by financing activities:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Proceeds from issuance of common shares</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Cash provided by financing activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">31,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>NET INCREASE IN CASH AND CASH EQUIVALENTS</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">29,465,382</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>CASH AND CASH EQUIVALENTS, END OF PERIOD</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">29,465,382</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Supplemental disclosure of non-cash activity:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Issuance and repurchase of common shares</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Purchases of real estate related securities not settled</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">3,100,129</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">See Notes to Consolidated Financial Statements </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-6
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><A NAME="fin428125_7"></A>ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September&nbsp;30, 2012 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>1. Organization and Investment Objective </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington Residential Mortgage REIT (&#147;EARN&#148;) was formed as a Maryland real estate investment trust on August&nbsp;2, 2012, and commenced
operations on September&nbsp;25, 2012. EARN conducts its business through its subsidiaries, EARN OP GP LLC (the &#147;General Partner&#148;), a wholly-owned subsidiary, and Ellington Residential Mortgage LP (the &#147;Operating Partnership&#148;)
which were formed as Delaware limited liability companies on July&nbsp;31, 2012 and commenced operations on September&nbsp;25, 2012. As of September&nbsp;30, 2012, EARN owns 100% of the Operating Partnership through its sole ownership of the General
Partner and its direct limited partner interest. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Operating Partnership conducts its business of acquiring, investing in and managing
residential mortgage and real estate related assets through its wholly owned subsidiaries, EARN Securities LLC, EARN TRS LLC, EARN Mortgage LLC, and EARN CMO LLC, a wholly owned subsidiary of EARN Mortgage LLC, which were formed as Delaware limited
liability companies on July&nbsp;31, 2012 and commenced operations on September&nbsp;25, 2012. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">EARN, the General Partner, the Operating
Partnership and their direct and indirect wholly-owned and consolidated subsidiaries are hereafter defined as the &#147;Company&#148;. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The
Company acquires and manages Agency and non-Agency, both investment grade and non-investment grade, residential mortgage-backed securities (&#147;RMBS&#148;), including Agency pools and Agency and non-Agency collateralized mortgage obligations
(&#147;CMOs&#148;). Collectively, all of these asset types are referred to as real estate related securities. The Company may also acquire and manage mortgage servicing rights, residential whole mortgage loans, residential real property and other
mortgage and real estate related assets. The Company may also invest in other instruments including but not limited to Agency pass-through TBAs, interest rate swaps, U.S. treasuries, Eurodollar futures and cash equivalents. The Company&#146;s
targeted investments may range from unrated (first loss) securities to AAA senior securities and, as of September&nbsp;30, 2012, substantially all investments have some credit risk component. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ellington Residential Mortgage Management, LLC (&#147;ERMM&#148; or the &#147;Manager&#148;) serves as the Manager to the Company pursuant to the terms of the Amended and Restated Management Agreement
dated September&nbsp;24, 2012 (the &#147;Management Agreement&#148;). ERMM is an affiliate of Ellington Management Group, L.L.C. (&#147;EMG&#148;), an investment management firm and registered investment advisor. In accordance with the terms of the
Management Agreement and Services Agreement the Manager implements the investment strategy and manages the business and operations on a day-to-day basis for the Company and performs certain services, subject to oversight by the Board of Trustees.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">On July&nbsp;31, 2012, in connection with the formation of EARN, an affiliate of the Company entered into a subscription agreement with EARN
to purchase 100 common shares for $1,000 as the sole shareholder of EARN. On September&nbsp;25, 2012, EARN sold 1,575,000 common shares for total proceeds of $31,500,000, of which $30 million was contributed by the Blackstone Tactical Opportunities
Funds (the &#147;Blackstone Funds&#148;) and $1.5 million by an affiliate of EMG (&#147;Ellington&#148;). In conjunction with the private placement of common shares, EARN repurchased the 100 common shares at their issue price and the shares were
cancelled and then reinstated as available for issuance. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Based on agreements in place as of September&nbsp;30, 2012, organizational costs for
the Company are borne by the shareholders of record at September&nbsp;25, 2012, and not subject to reimbursement by the Company. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company
has not elected and does not intend to elect to be taxed as a real estate investment trust (&#147;REIT&#148;) under the Internal Revenue Code (the &#147;Code&#148;) for the period September&nbsp;25, 2012 (Commencement of Operations) through
September&nbsp;30, 2012. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-7
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>2. Significant Accounting Policies </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>(A) <U>Basis of Presentation</U>: </I>The Company&#146;s consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of
America. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates and those differences could be material. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(B) <U>Valuation</U></I>: The Company applies Accounting Standards Codification (&#147;ASC&#148;) ASC 820-10, Fair Value Measurement and Disclosures
(&#147;ASC&nbsp;820-10&#148;), to its holdings of financial instruments. ASC 820-10 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement date. The three levels are defined as follows: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 1&#151;inputs to the valuation methodology are observable and reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets, </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 2&#151;inputs to the valuation methodology other than quoted prices included in Level 1 are observable for the asset or liability, either
directly or indirectly, and </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 3&#151;inputs to the valuation methodology are unobservable and significant to the fair value measurement. </FONT></P></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">A financial instrument&#146;s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>(C) <U>Accounting for Real Estate Related Securities</U>: </I>Investments in real estate related securities are generally recorded on trade date. These investments generally meet the requirements to be
classified as available for sale under ASC 320-10-25, &#147;Debt and Equity Securities,&#148; which requires the securities to be carried at fair value on the Consolidated Balance Sheet with changes in fair value charged to other comprehensive
income, a component of Shareholders&#146; Equity. The Company has chosen to make a fair value election pursuant to ASC 825 for its real estate related securities portfolio. Electing the fair value option allows the Company to record changes in fair
value in the Consolidated Statement of Operations, which, in management&#146;s view, more appropriately reflects the results of our operations for a particular reporting period as all securities activities will be recorded in a similar manner. As
such, the real estate related securities are recorded at fair market value on the Consolidated Balance Sheet and the period change in fair market value is recorded in current period earnings on the Consolidated Statement of Operations as a component
of unrealized gain/loss on real estate related securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Realized gains or losses on sales of securities and derivatives are included in
realized gains/losses on the Consolidated Statement of Operations, and are recorded at the time of disposition. The cost of positions sold is calculated based on identified cost. Principal write-offs are generally treated as realized losses.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(D) <U>Interest Income</U>: </I>The Company accretes market discounts and amortizes market premiums on debt securities using the effective
yield method. Accretion of market discount and amortization of market premiums requires the use of a significant amount of judgment and the application of several assumptions including, but not limited to, prepayment assumptions and default rate
assumptions, which are evaluated quarterly. The Company&#146;s accrual of interest, discount and premium for U.S. federal and other tax purposes is likely to differ from the financial accounting treatment of these items as described above.
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-8
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(E) <U>Expense Recognition</U>: </I>Expenses are charged when incurred. Expenses include, but are not
limited to, operating expenses related to the Company that are incurred by the Company, or incurred by the Manager, but eligible for reimbursement by the Company. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>(F) <U>Cash and Cash Equivalents</U>: </I>Cash and cash equivalents include cash and short term investments with maturities of three months or less at the date of acquisition. Cash equivalents are
recorded at cost plus accrued interest, which approximates fair value. Cash accounts are maintained with financial institutions. These balances generally exceed insured limits. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>(G) <U>Deposits with Dealers Held as Collateral/Due to Brokers</U>: </I>Deposits with dealers held as collateral is restricted cash for clearing and executing trades. Deposits with dealers held as
collateral, due to brokers and other financial assets and liabilities may be offset and the net amount may be reported in the Consolidated Balance Sheet when there is a legally enforceable right to set off the recognized amounts and there is an
intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Deposits with dealers held as collateral and Due to brokers are carried at cost, which approximates fair value. As of September&nbsp;30, 2012, the
Company does not have any deposits with dealers held as collateral or amounts due to brokers.<I> </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(H) <U>Financial Derivatives</U>:
</I>The Company may enter into various types of financial derivatives subject to certain restrictions, including restrictions associated with qualifying as a REIT when the company elects REIT tax status, and investment guidelines. As of
September&nbsp;30, 2012, the Company does not have any financial derivatives. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I><U>Swaps</U>: </I>The Company may enter into interest rate
swaps. Interest rate swaps are contractual agreements whereby one party pays a floating rate of interest on a notional principal amount and receives a fixed rate on the same notional principal, or vice versa, for a fixed period of time. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Manager does not intend to operate its non-Agency RMBS investment strategy on a credit hedged basis; however, the Company may opportunistically enter
into short positions using credit default swaps to protect against adverse credit events with respect to the Company&#146;s non-Agency RMBS. The Company may use credit default swaps to hedge non-Agency RMBS credit risk by buying protection on a
single non-Agency RMBS or by buying protection on a basket or index of non-Agency RMBS assets. The Company may also enter into credit default swaps on various MBS indices and derivative contracts for hedging purposes referencing the unsecured
corporate credit, or the equity of, certain corporations. However, this strategy is subject to qualifying and maintaining EARN&#146;s qualification as a REIT and maintaining EARN&#146;s exclusion from regulation as an investment company under the
Investment Company Act. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upfront payments paid/received by the Company on open swap contracts are initially recorded as an asset or liability
and are recorded as a realized gain or loss on the termination date. During the term of swap contracts, changes in value are recognized as unrealized gains or losses in earnings. Periodic payments or receipts required by swap agreements are recorded
as unrealized gains or losses when accrued and realized gains or losses when received or paid. Amounts receivable/payable from credit events are recorded in Due from/to swap counterparties. The Company may be required to deliver or receive cash or
securities as collateral upon entering into swap transactions. When a contract is terminated, the Company will realize a gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Company&#146;s basis
in the contract, if any. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company&#146;s swap contracts are generally governed by ISDA trading agreements, which are separately negotiated
agreements with dealer counterparties. Changes in the relative value of the swap transactions may require the Company or the counterparty to post or receive additional collateral. Typically, a collateral payment or receipt is triggered based on the
net change in the value of all contracts governed by a particular ISDA trading agreement. Cash collateral received from or paid to counterparties is included in Due to brokers and Deposits with dealers held as collateral, respectively. As of
September&nbsp;30, 2012, the Company does not have any swap contracts. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-9
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I><U>Futures Contracts</U>: </I>A futures contract is an agreement between two parties to buy and sell
a financial instrument for a set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either cash or securities. During the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by marking to market to reflect the market value of the contract. Variation margin payments are made or received periodically, depending upon whether unrealized losses or gains are incurred. When the
contract is closed, the Company records a realized gain or loss equal to the difference between the proceeds of the closing transaction and the Company&#146;s basis in the contract. As of September&nbsp;30, 2012, the Company does not have any
futures contracts. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I><U>Options</U></I>: The Company may purchase put, call, straddle or other similar options such as swaptions. When the
Company purchases an option, an amount equal to the premium paid is recorded as an asset and is subsequently marked-to-market. Premiums paid for purchasing options that expire unexercised are recognized on the expiration date as realized losses. If
an option is exercised, the premium paid is subtracted from the proceeds of the sale or added to the cost of the purchase to determine whether the Company has realized a gain or loss on the related investment transaction. When the Company enters
into a closing transaction, the Company will realize a gain or loss depending upon whether the amount from the closing transaction is greater or less than the premium paid. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The Company may write put, call, straddle or other similar options such as swaptions. When the Company writes an option, an amount equal to the premium received is recorded as a liability and is
subsequently marked-to-market. Premiums received for writing options that expire unexercised are recognized on the expiration date as realized gains. If an option is exercised, the premium received is subtracted from the cost of the purchase or
added to the proceeds of the sale to determine whether the account has realized a gain or loss on the related investment transaction. When the Company enters into a closing transaction, the Company will realize a gain or loss depending upon whether
the amount from the closing transaction is greater or less than the premium received. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company may be required to deliver or receive cash
or securities as collateral upon entering into certain option transactions. Movements in the value of the option transactions may require the Company or the counterparty to post additional collateral. As of September&nbsp;30, 2012, the Company does
not have any options or swaptions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I><U>MBS Forwards</U></I>: The Company may enter into transactions involving purchases of mortgage backed
securities that are partially financed by the seller through reverse repurchase agreements. The Company follows the provisions of ASC 860-20, Sales of Financial Assets, which requires an initial transfer of a financial asset (i.e., the purchase of a
mortgage backed security by the Company) and repurchase financing of the mortgage backed security with the same counterparty are considered part of the same arrangement, or a &#147;linked transaction.&#148; The two components of a linked transaction
(mortgage backed security purchase and repurchase financing) are not reported separately but are netted and reported as a single derivative instrument, specifically as a net forward contract (&#147;MBS Forwards&#148;). During the period the MBS
Forward contract is open, changes in the value of the two components of the MBS Forward are recognized as unrealized gains or losses on derivatives. Periodic payments or receipts required by the two components of the MBS Forward are recorded as
unrealized gains or losses when accrued and realized gains or losses when received or paid. When the contract is closed, the Company recognizes a realized gain or loss on derivatives equal to the difference between the proceeds of the closing
transaction and the Company&#146;s cost basis in the contract. As of September&nbsp;30, 2012, the Company does not have any MBS Forwards. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(I) <U>Securities Lending</U>: </I>The Company may lend its portfolio securities to institutions in exchange for cash as collateral. The Company may
bear the risk of a delay in recovery of, or even loss of rights in, the securities if the counterparty fails financially. The Company receives compensation for loaning its securities in the form of interest on the loan. As of September&nbsp;30, 2012
there were no securities lending contracts outstanding. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-10
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(J) <U>Reverse Repurchase Agreements and Repurchase Agreements</U>: </I>The Company may enter into
reverse repurchase agreements with third-party broker-dealers whereby it sells securities under agreements to repurchase at an agreed upon price and date. Interest on the value of repurchase and reverse repurchase agreements issued and outstanding
is based upon market rates at the time of issuance. The Company accounts for reverse repurchase agreements as collateralized borrowings. When the Company enters into a reverse repurchase agreement, the lender establishes and maintains an account
containing cash transferred and securities having a value not less than the repurchase price, including accrued interest, of the reverse repurchase agreement. The Company enters into repurchase agreement transactions with third-party broker-dealers
whereby it purchases securities under agreements to resell at an agreed upon price and date. Repurchase and reverse repurchase agreements that are conducted with the same counterparty are reported on a net basis if they meet the requirements under
the authoritative guidance. Reverse repurchase agreements and repurchase agreements are carried at their contractual amounts, which approximate fair value. As of September&nbsp;30, 2012, the Company does not have any reverse repurchase agreements or
repurchase agreements. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(K) <U>When-Issued/Delayed Delivery Securities</U>: </I>The Company may purchase or sell securities on a
when-issued or delayed delivery basis. Securities purchased or sold on a when-issued basis are traded for delivery beyond the normal settlement date at a stated price or yield, and no income accrues to the purchaser prior to settlement. Purchasing
or selling securities on a when-issued or delayed delivery basis involves the risk that the market price or yield at the time of delivery may be lower or higher than the agreed upon price or yield, in which case a realized or unrealized loss may be
incurred. As of September&nbsp;30, 2012, the Company does not have any when-issued or delayed delivery securities. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company may transact
in the forward settling To Be Announced MBS (&#147;TBA&#148;) market. A TBA position is a forward contract for the purchase (&#147;long position&#148;) or sale (&#147;short position&#148;) of agency MBS at a predetermined price, face amount, issuer,
coupon and stated maturity on an agreed-upon future date. The specific agency MBS delivered into the contract upon the settlement date, published each month by the Securities Industry and Financial Markets Association, are not known at the time of
the transaction. The difference between the contract price and the fair value of the TBA position is reported in gain (loss) on derivatives, net in the Consolidated Statement of Operations. Upon settlement of the TBA contract, the realized gain or
loss on the TBA contract is equal to the difference between the fair value of the underlying agency MBS physically received/delivered and the contract price, or if cash settled, is equal to the net cash amount paid or received. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company estimates the fair value of TBA positions based on similar methods used to value real estate related securities. As of September&nbsp;30,
2012, the Company does not have any TBA positions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(L) <U>U.S. Treasury securities</U>: </I>The Company may purchase or sell short U.S.
Treasury securities and U.S. Treasury futures contracts to help mitigate the potential impact of changes in interest rates on the performance of its portfolio. The Company may borrow securities under repurchase agreements to cover short sales of
U.S. Treasury securities. The Company accounts for these as securities borrowing transactions and recognizes an obligation to return the borrowed securities at fair value on the balance sheet based on the value of the underlying borrowed securities
as of the reporting date. As of September&nbsp;30, 2012, the Company does not have any U.S. Treasury securities.<I> </I></FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-11
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(M) <U>Offering Costs/Placement Fees</U>: </I>Following a successful offering, offering costs and
placement fees are charged against shareholders&#146; equity. If an offering is abandoned, the related costs and fees will be charged against income. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>(N) <U>Manager Compensation</U>: </I>The management agreement provides for the payment to the Manager of a management fee. The management fee is accrued and expensed during the period for which it is
calculated and earned. For a more detailed discussion on the fees payable under the management agreement, see Note 5. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(O) <U>Share Based
Compensation</U>: </I>The Company will apply the provisions of ASC 718, &#147;Compensation&#151;Shares Compensation&#148; with regard to its planned equity incentive plans. ASC 718 covers a wide range of share-based compensation arrangements
including shares options, restricted shares plans, performance-based awards, shares appreciation rights and employee shares purchase plans. ASC 718 requires that compensation cost relating to shares-based payment transactions be recognized in
financial statements. The cost is measured based on the fair value of the equity or liability instruments issued. As of September&nbsp;30, 2012, the Company has not established a share based compensation plan. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(P) <U>Dividends</U>: </I>Dividends payable are recorded on the declaration date. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>(Q) <U>Shares Repurchased</U>: </I>Common shares that are repurchased by the Company subsequent to issuance decrease the total number of shares issued and outstanding. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(R) <U>Earnings Per Share (&#147;EPS&#148;)</U>:</I> In accordance with the provisions of ASC 260, &#147;Earnings per Share,&#148; the Company
calculates basic income per share by dividing net income (loss) for the period by weighted-average shares of the Company&#146;s common shares outstanding for that period. Diluted income per share takes into account the effect of dilutive
instruments, such as shares options, warrants and unvested restricted shares, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(S) <U>Income Taxes</U>: </I>The Company, as a business trust with more than one owner, is considered a partnership for U.S. federal
income tax purposes. In general, partnerships are not subject to entity-level tax on their income, but the income of a partnership is taxable to its owners on a flow-through basis. Interest, dividend and other income realized by the Company from
non-U.S. sources and capital gains realized on the sale of securities of non-U.S. issuers may be subject to withholding and other taxes levied by the jurisdiction in which the income is sourced. The Company has not elected and does not intend to
elect REIT status under the Code for the period September&nbsp;25, 2012 (Commencement of Operations) through September&nbsp;30, 2012. The Company follows the authoritative guidance on accounting for and disclosure of uncertainty on tax positions,
which requires management to determine whether a tax position of the company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals of the litigation process, based on
the technical merits of the position. For uncertain tax positions, the tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company did
not have any unrecognized tax benefits at September&nbsp;30, 2012. The Company does not expect any change in unrecognized tax benefits within the next year. In the normal course of business, the Company may be subject to examination by federal,
state, local and foreign jurisdictions, where applicable, for the open tax year 2012. The Company may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant
tax regulators successfully challenge any such positions; the Company might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements. Also, management&#146;s conclusions regarding the
authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws, regulations and interpretations thereof. There were no amounts accrued for penalties or interest as of or during the periods presented in
these consolidated financial statements. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>(T) <U>Recent Accounting Pronouncements</U>: </I>In December 2011, the FASB issued ASU
No.&nbsp;2011-11, <I>Disclosures about Offsetting Assets and Liabilities </I>(&#147;ASU 2011-11&#148;). This amends ASU 210-20, <I>Balance Sheet Offsetting</I>, to require new disclosures about balance sheet offsetting for derivative and financial
instruments which are offset on the </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-12
</FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Balance Sheet. The update requires disclosure of gross asset and liability amounts for financial
instruments shown net on the Balance Sheet. ASU 2011-11 is effective for interim and annual periods beginning on or after January&nbsp;1, 2013 and is to be applied retrospectively. The Company does not expect the adoption of ASU 2011-11 to have a
material impact on its consolidated financial statements. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I></I></B><B>3</B><B><I>. Valuation </I></B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following is a description of the valuation methodologies used for the Company&#146;s financial instruments: </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 1 valuation methodologies include the observation of quoted prices (unadjusted) for identical assets or liabilities in active markets. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 2 valuation methodologies include the observation of (i)&nbsp;quoted prices for similar assets or liabilities in active markets, (ii)&nbsp;inputs
other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves) in active markets and (iii)&nbsp;quoted prices for identical or similar assets or liabilities in markets that are not active.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Level 3 valuation methodologies are based on third party valuation inputs received and the assessments of its portfolio managers to determine
and assign fair value to the Company&#146;s Level 2 and Level 3 assets and liabilities. Because of the inherent uncertainty of valuation, estimated values may differ significantly from the values that would have been used had a ready market for the
financial instruments existed, and the differences could be material to the financial statements </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following table presents the
Company&#146;s financial instruments measured at fair value on a recurring basis as of September&nbsp;30, 2012: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="66%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="14" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Fair Value at September&nbsp;30, 2012</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Level&nbsp;1</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Level&nbsp;2</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Level 3</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Total</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Assets:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-Agency RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total Assets Carried at Fair Value</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company did not have any transfers of assets or liabilities between Levels 1, 2 and 3 of the fair value hierarchy for
the period September&nbsp;25, 2012 (Commencement of Operations) through September&nbsp;30, 2012. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-13
</FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following tables present additional information about the Company&#146;s investments which are
measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="85%"></TD>
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<TD></TD>
<TD></TD></TR>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Non-Agency<BR>RMBS</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Beginning balance</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Transfers (1):</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Transfers into level 3</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Transfers out of level 3</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Purchases</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Proceeds from sales</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total net gains/ (losses)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Included in net income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ending Balance</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Change in unrealized gain/(loss) for level 3 assets still held as of September&nbsp;30, 2012</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Transfers are assumed to occur at the beginning of the period. </FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The following table presents a summary of quantitative information, which management is aware of, about the significant unobservable inputs used in the fair value measurement of investments for which the
Company has utilized Level 3 inputs to determine fair value: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="bottom" COLSPAN="2" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Asset Class</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Fair Value at<BR>September&nbsp;30,&nbsp;2012</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Valuation<BR>Technique</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Unobservable</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Input</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Range</B></FONT><br><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Weighted Average)</B></FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Yield</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">7.97%&nbsp;-&nbsp;15.16%&nbsp;(9.47%)</FONT></TD></TR>
<TR>
<TD NOWRAP VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="top" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-Agency&nbsp;RMBS</FONT></TD>
<TD NOWRAP VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="middle"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="middle" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="middle"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="middle"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="middle" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">Market&nbsp;Inputs</FONT></TD>
<TD NOWRAP VALIGN="middle"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Projected&nbsp;Collateral&nbsp;Prepayments</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">12.15%&nbsp;-&nbsp;18.68%&nbsp;(16.17%)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5-10&nbsp;year&nbsp;WAL</FONT></TD>
<TD NOWRAP VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Projected Collateral Losses</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">31.91%&nbsp;-&nbsp;40.09%&nbsp;(36.8%)</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Projected&nbsp;Collateral&nbsp;Severities</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">57.51%&nbsp;-&nbsp;80.59%&nbsp;(61.56%)</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Significant changes in any of those inputs in isolation would result in a significantly different fair value measurement.
Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for loss severity and a directionally opposite change in the assumption used for prepayment rates.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>4. Real Estate Related Securities </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The following table presents the current principal balance, premium or discount, amortized cost, gross unrealized gain, gross unrealized loss, and fair market value of the Company&#146;s real estate
related securities portfolio at September&nbsp;30, 2012. The non-Agency RMBS portfolio is not issued or guaranteed by Fannie Mae, Freddie Mac or any agency of the U.S. Government and are therefore subject to credit risk. </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Premium</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Gross&nbsp;Unrealized&nbsp;(1)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Weighted&nbsp;Average</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Current Face</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Discount)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Amortized&nbsp;Cost</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Gains</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Losses</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Fair Value</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Coupon</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Yield</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Non-Agency RMBS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">14,842,147</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(9,708,023</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.65</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">9.47</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">We have chosen to make a fair value election pursuant to ASC 825 for our real estate related securities portfolio. Unrealized gains and losses are recognized in current
period earnings in the unrealized gain (loss) on real estate related securities line item. </FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-14
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following table details weighted average life: </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="84%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="61%"></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="10" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Non-Agency</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:90pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Weighted Average Life (1)</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Fair Value</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Amortized<BR>Cost</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Weighted&nbsp;Average<BR>Coupon</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">5 - 10 years</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.65</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">5,134,124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.65</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">%&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Actual maturities of mortgage-backed securities are generally shorter than stated contractual maturities. Maturities are affected by the contractual lives of the
underlying mortgages, periodic payments of principal and prepayments of principal. </FONT></TD></TR></TABLE> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>5. Management Fees </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Manager receives an annual management fee in an amount equal to 1.50%&nbsp;per annum of shareholders&#146; equity (as defined in the management
agreement) as of the end of each fiscal quarter (before deductions for management fee with respect to such fiscal period). The management fee is payable quarterly in arrears. For the period September&nbsp;25, 2012 (Commencement of Operations) to
September&nbsp;30, 2012, the total management fee incurred by EARN was $7,875, which remains payable at September&nbsp;30, 2012. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Shareholders&#146; equity is defined in the management agreement, as of the end of any fiscal quarter, as (a)&nbsp;the sum of (1)&nbsp;the net proceeds
from any issuances of common shares or other equity securities of EARN or the Operating Partnership (without double counting) since inception, plus (2)&nbsp;EARN&#146;s and the Operating Partnership&#146;s (without double counting) retained earnings
or accumulated deficit calculated in accordance with GAAP at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less (b)&nbsp;any amount
that the Company or the Operating Partnership has paid to repurchase common shares, limited partnership interests in the Operating Partnership or other equity securities since inception. Shareholders&#146; equity excludes (1)&nbsp;any unrealized
gains, losses or other non-cash items that have impacted shareholders&#146; equity as reported in the financial statements prepared in accordance with GAAP, regardless of whether such items are included in net income, and (2)&nbsp;one-time events
pursuant to changes in GAAP, and certain non-cash items not otherwise described above, in each case, after discussions between the Manager and EARN&#146;s independent trustees and approval by a majority of EARN&#146;s independent trustees.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>6. Earnings per Share </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Basic
EPS is calculated by dividing net income (loss) for the period by the weighted- average of the Company&#146;s common shares outstanding for that period. Diluted EPS takes into account the effect of dilutive instruments, such as shares options,
warrants and unvested restricted shares, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, the Company did not have any dilutive instruments outstanding. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-15
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The following table presents a reconciliation of the earnings and shares used in calculating basic and
diluted EPS for the period September&nbsp;25, 2012 (Commencement of Operations) through September&nbsp;30, 2012: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="84%"></TD>
<TD VALIGN="bottom" WIDTH="11%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Period Ended</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>September&nbsp;30,</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>2012</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Numerator:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Net income to common shares for basic and diluted earnings per share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(8,049</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Denominator:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Basic weighted average shares outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,575,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Manager and trustee restricted stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Diluted weighted average shares outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">1,575,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Basic Earnings Per Share:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(0.01</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Diluted Earnings Per Share:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">(0.01</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">)&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>7. Related Party Transactions </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Management Agreement </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">EARN has entered into a management agreement with the Manager, which
provides for an initial term through September&nbsp;27, 2017, and will be renewed automatically each year for an additional one-year period, subject to certain termination rights. The Company is externally managed and advised by the Manager.
Pursuant to the terms of the management agreement, effective September&nbsp;24, 2012, the Manager provides the Company with its management team, including its officers, along with appropriate support personnel. The Company does not have any
employees. Our Manager is responsible for the day-to-day duties and obligations arising under our management agreement. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Services Agreement
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Manager and EMG are parties to a services agreement, pursuant to which EMG is required to provide to the Manager personnel, services
and resources as needed to enable the Manager to carry out its obligations and responsibilities under the management agreement. The Company is a named third-party beneficiary to the services agreement and, as a result, has as a non-exclusive remedy,
a direct right of action against EMG in the event of any breach by the Manager of any of its duties, obligations or agreements under the management agreement that arise out of or result from any breach by EMG of its obligations under the services
agreement. The services agreement will terminate upon the termination of the management agreement. Pursuant to the services agreement, the Manager makes certain payments to EMG in connection with the services provided. The Manager and EMG are under
common ownership and control. As a result, all management fee compensation earned by the Manager and all service agreement fees earned by EMG accrue to the common benefit of the owners of the Manager and EMG, other than, in respect of certain
special non-voting membership interests held by certain shareholders. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Expense reimbursement </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company is required to reimburse the Manager for operating expenses related to the Company that are incurred by the Manager, including expenses
relating to legal, accounting, due diligence, other services and all other costs and expenses as approved by the Board of Trustees. The Company&#146;s reimbursement obligation is not subject to any dollar limitation. Expenses will be reimbursed in
cash within 60 days following delivery of the expense statement by the Manager; provided, however, that such reimbursement may be offset by the Manager against amounts due to the Company from the Manager. The Company will not reimburse the Manager
for the salaries and other compensation of its personnel except that the Company will be responsible for expenses incurred by the Manager in employing certain EARN personnel as further described below. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Following an initial public offering, the Company will reimburse the Manager for the allocable share of the compensation, including, without limitation,
wages, salaries and employee benefits paid or reimbursed, as approved by the Compensation Committee of the Board of Trustees, to certain dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company&#146;s
affairs based upon the percentage of time devoted by such personnel to the Company&#146;s affairs. In their capacities as personnel of the Manager or its affiliates, they will devote such portion of their time to the Company&#146;s affairs as is
necessary to enable the Company to operate its business. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-16
</FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ELLINGTON RESIDENTIAL MORTGAGE REIT </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">September 30, 2012 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Termination fee </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The termination fee, payable for (1)&nbsp;EARN&#146;s termination or non-renewal of the management agreement without cause or (2)&nbsp;the Manager&#146;s termination of the management agreement upon a
default by EARN in the performance of any material term of the management agreement, will be equal to five percent (5%)&nbsp;of Shareholders&#146; Equity, as defined in the management agreement, see note 5 above, as of the month-end preceding
termination. As of September&nbsp;30, 2012, no event of termination of the management agreement has occurred. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Registration Rights
Agreement </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">EARN is a party to a registration rights agreement with Ellington and the Blackstone Funds pursuant to which the Company has
granted Ellington and the Blackstone Funds and each of their permitted transferees and other holders of the Company&#146;s &#147;registrable common shares&#148; (as such term is defined in the registration rights agreement) who become a party to the
registration rights agreement with certain demand and/or piggy-back registration and shelf takedown rights<I>. </I>In no event shall any holder of EARN&#146;s registrable common shares have any of the registration, offering or sale rights set forth
in the registration rights agreement prior to the one year anniversary of the closing of the initial public offering. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><I>8. Capital
</I></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company has authorized 500,000,000 common shares, $0.01 par value per share, and 100,000,000 preferred shares, $0.01 par value per
share. The Board of Trustees may authorize the issuance of additional shares of any class. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">As of September&nbsp;30, 2012, there were
1,575,000 common shares outstanding; no preferred shares have been issued. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition to the initial subscription, the Company has aggregate
capital commitments from its shareholders of $73,500,000. The aggregate additional committed capital remains available to be drawn, for purposes of satisfying investments, management fees and expenses over the commitment period. The commitment
period began on September&nbsp;24, 2012 and will end on the earlier of (a)&nbsp;the date the total capital commitment has been fully drawn or (b)&nbsp;the date that is two business days following an initial public offering. The commitment period may
be extended if mutually agreed by the shareholders, Ellington and the Blackstone Funds. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Distribution Policy </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Once the Company elects to be taxed as a REIT, the timing and frequency of distributions will be determined by the Board of Trustees based upon a variety
of factors deemed relevant by the Company&#146;s trustees, including restrictions under applicable law, capital requirements of the Company and the REIT requirements of the Code. Distributions to shareholders generally will be taxable to
shareholders as ordinary income, although a portion of such distributions may be designated as long-term capital gain or qualified dividend income or may constitute a return of capital. The Company will furnish annually to each shareholder a
statement setting forth distributions paid during the preceding year and their U.S. federal income tax treatment. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>9. Commitments and
Contingencies </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of
business. Management is not aware of any significant contingencies at September&nbsp;30, 2012. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company, the Manager and the Shareholders
have entered into a commitment to enter into a shareholders agreement that will set forth certain governance provisions including contractual rights for the Shareholders to designate nominees for election to our Board of Trustees, certain
exclusivity arrangements for the benefit of the Company and other terms. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>10. Subsequent Events </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Based on the agreements in place as of September 30, 2012, organizational costs for the Company were to be borne by certain related parties and not
subject to reimbursement by the Company. In December 2012, the Company agreed to bear all organizational costs relating to the Company&#146;s formation. These organizational costs will be recorded in the consolidated statement of operations of the
Company in the period when the Company agreed to bear these expenses. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">F-17
</FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>PART II </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>INFORMATION NOT REQUIRED IN PROSPECTUS </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;31.</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Other Expenses of Issuance and Distribution. </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The following table shows the fees and expenses, other than underwriting discounts and commissions, to be paid by us in connection with the sale and distribution of the securities being registered hereby.
All amounts except the SEC registration fee are estimated. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="87%"></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">SEC registration fee</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">FINRA filing fee</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">NYSE listing fee</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">*&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Legal fees and expenses (including Blue Sky fees)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">*&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Accounting fees and expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">*&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Printing and engraving expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">*&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Transfer agent fees and expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">*&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Miscellaneous</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">*&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:1px solid #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD VALIGN="bottom"> <P STYLE="border-top:3px double #000000">&nbsp;</P></TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">*</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">To be furnished by amendment. </FONT></TD></TR></TABLE> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;32.</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Sales to Special Parties. </B></FONT></TD></TR></TABLE>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">None. </FONT></P> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;33.</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Recent Sales of Unregistered Securities. </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">On September&nbsp;25, 2012, we completed a private placement of 1,575,000 common shares to our initial investors for a price of $20.00 per share. Such issuance was exempt from the registration
requirements of the Securities Act pursuant to Section&nbsp;4(2) thereof. </FONT></P> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;34.</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Indemnification and Limitation of Liability of Trustees and Officers. </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Maryland law permits a Maryland real estate investment trust to include in its declaration of trust a provision eliminating the liability of its trustees and officers to the trust and its shareholders for
money damages except for liability resulting from (a)&nbsp;actual receipt of an improper benefit or profit in money, property or services or (b)&nbsp;active or deliberate dishonesty that is established by a final judgment and is material to the
cause of action. Our declaration of trust contains a provision which limits the liability of our trustees and officers to the maximum extent permitted by Maryland law. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our declaration of trust permits us and our bylaws obligate us, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of
a proceeding to (a)&nbsp;any present or former trustee or officer or (b)&nbsp;any individual who, while a trustee or officer and at our request, serves or has served another real estate investment trust, corporation, partnership, limited liability
company, joint venture, trust, employee benefit plan or other enterprise as a director, trustee, officer, managing member, manager, partner, employee or agent and who is made or is threatened to be made a party to the proceeding by reason of his or
her service in any such capacity, from and against any claim or liability to which that individual may become subject or which that individual may incur by reason of his or her service in any such capacity and to pay or reimburse his or her
reasonable expenses in advance of final disposition of a proceeding. Our declaration of trust and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of our company in any of the capacities described above
and to any employee or agent of our company or a predecessor of our company. Maryland law requires us to indemnify a trustee or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made a party
by reason of his service in that capacity. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">II-1
</FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Maryland REIT Law permits a Maryland real estate investment trust to indemnify and
advance expenses to its trustees, officers, employees and agents to the same extent as permitted for directors and officers of Maryland corporations. The Maryland General Corporation Law permits a Maryland corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be a party by reason of their service in those or
other capacities unless it is established that (a)&nbsp;the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i)&nbsp;was committed in bad faith or (ii)&nbsp;was a result of active and
deliberate dishonesty, (b)&nbsp;the director or officer actually received an improper personal benefit in money, property or services or (c)&nbsp;in the case of any criminal proceeding, the director or officer has reasonable cause to believe that
the act or omission was unlawful. However, a Maryland corporation may not indemnify for an adverse judgment in a suit by or on behalf of if the corporation or if the director or officer was adjudged to be liable for an improper personal benefit,
unless in either case a court orders indemnification and then only for expenses. In accordance with the Maryland General Corporation Law, as a condition to advancing expenses, we must obtain (a)&nbsp;a written affirmation by the trustee or officer
of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification and (b)&nbsp;a written statement by or on his or her behalf to repay the amount paid or reimbursed by us if it shall ultimately be
determined that the standard of conduct was not met. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We also expect to enter into indemnification agreements with our
trustees and our executive officers providing for procedures for indemnification by us to the fullest extent permitted by law and advancement by us of expenses and costs relating to certain claims, suits or proceedings arising from their service to
us. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We expect to obtain an insurance policy under which our trustees and executive officers will be insured, subject to the
limits of the policy, against certain losses arising from claims made against such trustees and officers by reason of any acts or omissions covered under such policy in their respective capacities as trustees or officers, including certain
liabilities under the Securities Act of 1933. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Insofar as the foregoing provisions permit indemnification of trustees,
officers or persons controlling us for liability arising under the Securities Act, we have been informed that in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
</FONT></P> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;35.</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Treatment of Proceeds from Stock Being Registered </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">None of the proceeds will be credited to an account other than the appropriate capital share account. </FONT></P> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;36.</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Financial Statements and Exhibits </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I></I>(a) <I>Financial Statements</I>. See page F-1 for an index to the financial statements included in the registration statement.<I> </I></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I>(b) <I>Exhibits</I>. The list of exhibits following the signature page of this registration statement is incorporated by reference
herein. following is a complete list of exhibits filed as part of the registration statement, which are incorporated herein:<I> </I></FONT></P> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;37.</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Undertakings </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(a) The
undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery
to each purchaser. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to
trustees, officers or controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. If a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">II-2
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(c) The undersigned
registrant hereby further undertakes that: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared
effective. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(2)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. </FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">II-3
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>SIGNATURES </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-11 and has duly caused this the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greenwich, State of Connecticut, on
February &nbsp;&nbsp;&nbsp;&nbsp;, 2013. </FONT></P>  <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE">


<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="92%"></TD></TR>


<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>ELLINGTON RESIDENTIAL MORTGAGE REIT</B></FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">Laurence Penn</FONT></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">Chief Executive Officer and President</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement
has been signed below by the following persons in the capacities and on the date indicated. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Each person whose signature
appears below hereby constitutes and appoints Laurence Penn and Daniel Margolis, and each of them, as his attorney-in-fact and agent, with full power of substitution and resubstitution for him in any and all capacities, to sign any or all amendments
or post-effective amendments to this Registration Statement, or any Registration Statement for the same offering that is to be effective upon filing pursuant to Rule&nbsp;462(b) under the Securities Act of 1933, as amended, and to file the same,
with exhibits thereto and other documents in connection therewith or in connection with the registration of the common shares under the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that such attorney-in-fact and agent or his
substitutes may do or cause to be done by virtue hereof. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE">


<TR>
<TD WIDTH="2%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="31%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="31%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="33%"></TD></TR>


<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Chief Executive Officer and</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">February &nbsp;&nbsp;&nbsp;&nbsp;, 2013</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Laurence Penn</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">President; Trustee</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2">(<I>Principal Executive Officer</I>)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Interim Chief Financial Officer and</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">February &nbsp;&nbsp;&nbsp;&nbsp;, 2013</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Paul A. Asaro</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Treasurer</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2">(<I>Principal
Financial and</I> <I>Accounting Officer</I>)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Trustee</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">February &nbsp;&nbsp;&nbsp;&nbsp;, 2013</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">David S. Blitzer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Trustee</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">February &nbsp;&nbsp;&nbsp;&nbsp;, 2013</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Menes O. Chee</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD></TR>
</TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">II-4
</FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>EXHIBIT INDEX </B></FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD WIDTH="92%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:28pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Exhibit<BR>Number</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:39pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Description</B></FONT></P></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;1.1*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Form of Underwriting Agreement.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;3.1*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Articles of Amendment and Restatement of Ellington Residential Mortgage REIT.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;3.2*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Form of Bylaws of Ellington Residential Mortgage REIT.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;4.1*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Specimen Common Share Certificate of Ellington Residential Mortgage REIT.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;5.1*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Opinion of Venable LLP (including consent of such firm).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;&nbsp;8.1*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Opinion of Hunton &amp; Williams LLP (including consent of such firm).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">10.1*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Amended and Restated Management Agreement between Ellington Residential Mortgage REIT and Ellington Residential Mortgage Management LLC.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">10.2*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Services Agreement between Ellington Residential Mortgage Management LLC and Ellington Management Group, L.L.C.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">10.3*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Form of Indemnification Agreement.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">10.4*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Registration Rights Agreement, dated as of September 25, 2012, by and among Ellington Residential Mortgage REIT, EMG Holdings, L.P. and Blackstone Tactical Opportunities EARN
Holdings, L.L.C.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">10.5*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Form of Shareholders Agreement by and among Ellington Residential Mortgage REIT, EMG Holdings, L.P. and Blackstone Tactical Opportunities EARN Holdings, L.L.C.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">21.1*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Subsidiaries of Ellington Residential Mortgage REIT.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">23.1*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Consent of Venable LLP (included in Exhibit 5.1).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">23.2*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Consent of Hunton &amp; Williams LLP (including in Exhibit 8.1).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">23.3*</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Consent of PricewaterhouseCoopers LLP.</FONT></TD></TR>
</TABLE> <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">*</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">To be filed by amendment. </FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">II-5
</FONT></P>

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`
end
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>COVER
<SEQUENCE>4
<FILENAME>filename4.htm
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<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>HUNTON&nbsp;&amp;&nbsp;WILLIAMS&nbsp;LLP</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>RIVERFRONT&nbsp;PLAZA,&nbsp;EAST&nbsp;TOWER 951&nbsp;EAST&nbsp;BYRD&nbsp;STREET</B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>RICHMOND,&nbsp;VIRGINIA 23219-4074</B></FONT></P></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>TEL</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>804 &#149; 788 &#149; 8200</B></FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>FAX</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>804 &#149; 788 &#149; 8218</B></FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>FILE&nbsp;NO:</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>68139.4001</B></FONT></TD></TR>
</TABLE>  <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">February&nbsp;14, 2013 </FONT></P>  <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><U>VIA EDGAR </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr.&nbsp;Duc Dang </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">100 F Street,
N.E. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Washington, D.C. 20549 </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">RE:</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington Residential Mortgage REIT </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Amendment No.&nbsp;1 to </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Confidential Draft Registration Statement on Form S-11
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Submitted January&nbsp;4, 2013 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">CIK No.&nbsp;0001560672 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Dear Mr.&nbsp;Dang: </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">As counsel to Ellington Residential Mortgage REIT, a Maryland real estate investment trust (including its subsidiaries, the &#147;Company&#148;), we are
transmitting for confidential review pursuant to the Jumpstart Our Business Startups Act (the &#147;JOBS Act&#148;) and the Securities Act of 1933, as amended (the &#147;Securities Act&#148;), Pre-Effective Amendment No.&nbsp;2 (&#147;Amendment
No.&nbsp;2&#148;) to the Company&#146;s Confidential Draft Registration Statement on Form S-11 (CIK No.&nbsp;0001560672) (the &#147;Registration Statement&#148;) and the Company&#146;s responses to the comments of the Staff of the Division of
Corporation Finance (the &#147;Staff&#148;) of the Securities and Exchange Commission (the &#147;SEC&#148; or the &#147;Commission&#148;) contained in your letter dated January&nbsp;25, 2013. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">For convenience of reference, each Staff comment contained in your January&nbsp;25, 2013 comment letter is reprinted below in italics, numbered to correspond with the paragraph numbers assigned in your
letter, and is followed by the corresponding response of the Company. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">We have provided to each of you, Jorge Bonilla, Jessica Barberich,
Rochelle Plesset and Folake Ayoola, a courtesy copy of this letter and two courtesy copies of Amendment No.&nbsp;2 filed by the Company on the date hereof, one copy of which has been marked to reflect changes made to the Registration Statement filed
with the Commission on January&nbsp;4, 2013. The changes reflected in Amendment No.&nbsp;2 have been made in response to the Staff&#146;s comments and for the purpose of updating and revising certain information in the Registration Statement. All
page&nbsp;references in </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">ATLANTA&nbsp;&nbsp;AUSTIN&nbsp;&nbsp;BANGKOK&nbsp;&nbsp;BEIJING&nbsp;&nbsp;BRUSSELS&nbsp;&nbsp;CHARLOTTE&nbsp;&nbsp;DALLAS&nbsp;&nbsp;
HOUSTON&nbsp;&nbsp;LONDON&nbsp;&nbsp;LOS ANGELES </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">McLEAN&nbsp;&nbsp;MIAMI&nbsp;&nbsp;NEW
YORK&nbsp;&nbsp;NORFOLK&nbsp;&nbsp;RALEIGH&nbsp;&nbsp;RICHMOND&nbsp;&nbsp;SAN FRANCISCO&nbsp;&nbsp;TOKYO&nbsp;&nbsp;WASHINGTON </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">www.hunton.com </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Duc Dang </FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">February 14, 2013 </FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"> Page
 2
 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
responses are to pages of the blacklined version of Amendment No.&nbsp;2. Capitalized terms used and not otherwise defined in this response letter that are defined in Amendment No.&nbsp;2 shall
have the meanings set forth in Amendment No.&nbsp;2. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>General </U></FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>If you intend to respond to these comments with an amended draft registration statement, please submit it and any associated correspondence in accordance with the
guidance we provide in the Division&#146;s October&nbsp;11, 2012 announcement on the SEC website at http://www.sec.gov/divisions/corpfin/cfannouncements/drsfilingprocedures101512.htm.</I> </FONT></TD></TR></TABLE>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The Company has transmitted this correspondence and Amendment No.&nbsp;2 in accordance with the guidance provided
in the Division&#146;s October&nbsp;11, 2012 announcement. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note your response to comment 6 of our comment letter dated November&nbsp;19, 2012. Please tell us your expectations regarding the private placements. If the
private placements occur before effectiveness of this registration statement, please revise the dilution section of the prospectus and Part II of the registration statement, as applicable.</I> </FONT></TD></TR></TABLE>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The Company respectfully advises the Staff that the Company has not yet determined the exact timing of the private
placements, although the Company expects that the private placements will occur before effectiveness of the registration statement, and, in connection therewith, intends to revise the dilution section of the prospectus and Part II of the
registration statement, as applicable. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note your disclosure of the possible use of swaps. Please revise the appropriate section to discuss the risk associated with the CFTC&#146;s position regarding
the use of swaps or advise. Please refer to CFTC Letter No.&nbsp;12-44 located at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-44.pdf.</I> </FONT></TD></TR></TABLE>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The Company has added a risk factor to page 34 to address the Staff&#146;s comment. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Our Manager and Ellington, page 1 </U></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">4.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note your response to comment 7. Please revise the appropriate section to discuss how the economic downturn specifically affected the portfolio
of assets Ellington</I> </FONT></P></TD></TR></TABLE>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Duc Dang </FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">February 14, 2013 </FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"> Page
 3
 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
<I>managed. For instance, did any managed accounts, funds, or programs experience specific hardships that resulted in adverse experiences for investors?</I> </FONT></TD></TR></TABLE>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The Company has revised the disclosure on page 2 of Amendment No.&nbsp;2 in response to the Staff&#146;s comment.
</FONT></P>  <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Our Exclusion From Regulation Under the Investment Company Act, page 16 </U></FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">5.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note your response to comment 14. We have referred your response to the Division of Investment Management for further review. Please engage directly with the
staff of the Division of Investment Management referenced below regarding your exemption from registration under the Investment Company Act of 1940.</I> </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The Company notes the Staff&#146;s response with respect to comment 14 and has engaged directly with the staff of the Division of Investment Management. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Use of Proceeds, page 58 </U></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">6.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note your response to comment 17. Taking into account your use of leverage, please disclose the expected percentage of your portfolio that will be comprised of
Agency securities and non-Agency assets. We may have further comments.</I> </FONT></TD></TR></TABLE>  <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The
Company has revised the disclosure on page 58 in response to the Staff&#146;s comment. </FONT></P>  <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Critical Accounting Policies, page 65
</U></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">7.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note your response to comment 18 and the revised disclosure. Please further expand your disclosure to discuss the following related to the third-party valuations
you obtain:</I> </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>&#149;</I></FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I><I>The number of quotes or prices you generally obtain per instrument, and if you obtain multiple quotes or prices, how you determine the
ultimate value you use in your financial statements; </I></FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>&#149;</I></FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I><I>Whether, and if so, how and why, you adjust quotes or prices you obtain from brokers and pricing services; </I></FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>&#149;</I></FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I><I>Whether the broker quotes are binding or non-binding; and </I></FONT></P></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>&#149;</I></FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I><I>The procedures you perform to validate the prices you obtain. </I></FONT></P></TD></TR></TABLE>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Duc Dang </FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">February 14, 2013 </FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"> Page
 4
 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The Company has revised the disclosure on page 66 of Amendment No.&nbsp;2 to address the Staff&#146;s comment.
</FONT></P>  <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Our Portfolio, page 80 </U></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">8.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>To the extent that non-Agency assets make up a material portion of your portfolio, please provide a breakdown of the vintages and different types of instruments that
make up your non-Agency assets in future filings.</I> </FONT></TD></TR></TABLE>  <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The Company intends in future
filings to provide diagrams that illustrate the seniority and vintage of our non-Agency RMBS as of a specific time period. An illustrative example of such diagrams is set forth below. </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center">


<IMG SRC="g428125respltr2.jpg" ALT="LOGO">
 </P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Asset Surveillance, page 80 </U></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">9.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note your response to comment 25 that you will disclose &#147;material changes or developments&#148; in credit risks associated with your non-Agency assets.
Please tell us if management will evaluate external credit ratings associated with non-Agency assets and develop internal ratings for such assets going forward. If so, please tell us if you will disclose the external and/or internal ratings in
future Exchange Act reports.</I> </FONT></TD></TR></TABLE>  <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B><U>RESPONSE:</U></B> The Company advises the Staff that it has removed
the disclosure on page 80 regarding Asset Surveillance. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr. Duc Dang </FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">February 14, 2013 </FONT></P>  <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"> Page
 5
 </FONT></P> <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">If you have any
questions or comments regarding the foregoing, or have additional questions or comments, please contact the undersigned at 404-888-4077. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>  <DIV ALIGN="right">
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Very truly yours,</FONT></TD></TR>
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<TD HEIGHT="16"></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Christopher C. Green</FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">cc:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Laurence Penn</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ellington Residential Mortgage REIT</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Daniel M. LeBey</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Hunton &amp; Williams LLP</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Enclosure </FONT></P>
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