The U.S. residential mortgage market has experienced considerable growth over the past five years, with total residential mortgage loans outstanding growing from approximately $6.8 trillion in 2002 to approximately $11.5 trillion as of June 30, 2007, according to data from the Federal Reserve.

Additionally, the total U.S. residential mortgage debt securitized into RMBS has grown from approximately $3.7 trillion in 2002 to approximately $5.9 trillion in 2006. The Agency RMBS market accounted for approximately $4.1 trillion of the total U.S. RMBS market as of March 31, 2007. At June 30, 2007, approximately $204.3 billion of the available MBS were held by REITs.

The U.S. ABS market (including CDOs) has grown from approximately $1.5 trillion in 2002 to approximately $2.1 trillion in 2006, according to data from the Securities Industry and Financial Markets Association. At December 31, 2006, the U.S. CDO market accounted for approximately 14.1% of the U.S. ABS market, representing approximately $299 billion in CDOs outstanding.

Additionally, global CDO market issuance has grown to approximately $313.5 billion for the first six months of 2007, representing a 34.5% increase over $233.1 billion issued during the first six months of 2006, according to the Securities Industry and Financial Markets Association.

- Agency RMBS. The Company’s investments in this asset class principally consist of whole-pool, pass-through certificates, the principal and interest of which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae which are backed by ARMs and hybrid ARMs. ARMs have interest rates that reset monthly based on the twelve-month moving average of the one-year constant maturity U.S. Treasury rate. Hybrid ARMs have interest rates that are fixed for an initial period (typically three, five, seven or 10 years) and thereafter reset at regular intervals in a manner similar to adjustable-rate mortgage-backed securities and loans.

- Subordinated Tranches of ABS. The Company invests in subordinated tranches, which include non-investment grade and unrated tranches, of ABS in the secondary market and selected primary issuances, including CDOs. While the Company may invest in various types of CDOs in the future, currently all of its investments in this asset class are in subordinated tranches of CLOs, which are CDOs collateralized by debt obligations of corporations, partnerships and other entities.

The Company also may invest in CDOs collateralized by other securities, including mortgage backed securities, corporate debt securities (both investment grade and non-investment grade) or consumer debt instruments (such as home equity loans, credit card debt or automobile loans).

In the future the Company may also invest in other asset classes including:

- CMBS. CMBS are securities collateralized by, or evidencing ownership interests in, either a single commercial mortgage loan or a pool of commercial mortgage loans.

- Agency Debentures. An agency debenture represents unsecured debt of Fannie Mae or Freddie Mac, as the case may be.

- Corporate Leveraged Loans and Corporate Debt Securities. Corporate leveraged loans and corporate debt securities may be issued by the same obligor of a corporate leveraged loan in the Company’s portfolio.

- Non-Agency RMBS and REMICs. The type of residential mortgage loans securing non-Agency RMBS and REMICs include jumbo, Alt-A, residential B/C and high loan-to-value loans.

- Residential whole loan mortgages that includes prime, subprime, and Alt-A mortgage loans, both fixed rate, ARMs and hybrid ARMs.

Interest income increased by $67.0 million to $80.0 million for the six months ended June 30, 2007 compared to $13.0 million for the period from February 10, 2006 (commencement of operations) to June 30, 2006.

Interest expense, which consists of interest expense relating to repurchase agreements, increased by $59.2 million to $68.8 million for the six months ended June 30, 2007 compared to $9.6 million for the period from February 10, 2006 (commencement of operations) to June 30, 2006.

For the six months ended June 30, 2007, non-investment expenses increased by $1.8 million to $3.3 million as compared to $1.5 million for the period from February 10, 2006 (commencement of operations) to June 30, 2006.

Net loss from investments increased by $0.2 million to a loss of $1.8 million for the six months ended June 30, 2007 compared to a loss of $1.6 million for the period from February 10, 2006 (commencement of operations) to June 30, 2006.