1175483--3/16/2006--NEWCASTLE_INVESTMENT

related topics

{investment, property, distribution}

{loan, real, estate}

{provision, law, control}

{tax, income, asset}

{debt, indebtedness, cash}

{competitive, industry, competition}

{loss, insurance, financial}

We are dependent on our manager and may not find a suitable replacement if our manager terminates the management agreement. There are conflicts of interest in our relationship with our manager. Our directors have approved very broad investment guidelines for our manager and do not approve each investment decision made by our manager. We may change our investment strategy without stockholder consent which may result in riskier investments than our current investments. We are subject to significant competition and we may not compete successfully. Our determination of how much leverage to apply to our investments may adversely affect our return on our investments and may reduce cash available for distribution. The loans we invest in and the loans underlying the securities and total rate of return swaps we invest in are subject to delinquency, foreclosure and loss, which could result in losses to us. Although we seek to match fund our investments to limit refinance risk and lock in net spreads, we do not employ this strategy with respect to certain of our investments, which increases the risks related to refinancing these investments. We may not be able to finance our investments on a long term basis on attractive terms, including by means of securitization, which may require us to seek more costly financing for our investments or to liquidate assets. Both during the ramp up phase of a potential CBO financing and following the closing of a CBO financing when we have locked in the liability costs for a CBO, the rate at which we are able to acquire eligible investments and changes in market conditions may adversely affect our anticipated returns. Our returns will be adversely affected when proceeds of investments we have sold or which have been prepaid must be reinvested at lower yields than those of the investments sold or prepaid. Our investments may be subject to impairment charges. investments in senior unsecured REIT securities are subject to specific risks relating to the particular REIT issuer and to the general risks of investing in subordinated real estate securities, which may result in losses to us. The real estate related loans and other direct and indirect interests in pools of real estate properties or other loans that we invest in may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us. Insurance on real estate in which we have interests (including the real estate serving as collateral for our real estate securities and loans) may not cover all losses. Environmental compliance costs and liabilities with respect to our real estate in which we have interests may adversely affect our results of operations. Many or our investments are illiquid and this lack of liquidity could significantly impede our ability to vary our portfolio in response to changes in economic and other conditions or to realize the value at which such investments are carried if we are required to dispose of them. Interest rate fluctuations and shifts in the yield curve may cause losses. Our investments in real estate securities and loans are subject to changes in credit spreads which could adversely affect our ability to realize gains on the sale of such investments. Our hedging transactions may limit our gains or result in losses. Prepayment rates can increase, adversely affecting yields on certain investments, including our residential mortgage loans. Our failure to qualify as a REIT would result in higher taxes and reduced cash available for stockholders. REIT distribution requirements could adversely affect our liquidity. Dividends payable by REITs do not qualify for reduced tax rates. Maintenance of our Investment Company Act exemption imposes limits on our operations. ERISA may restrict investments by plans in our common stock. The stock ownership limits imposed by the Internal Revenue Code for REITs and our charter may inhibit market activity in our stock and may restrict our business combination opportunities. Maryland takeover statutes may prevent a change of our control. This could depress our stock price. Our authorized, but unissued common and preferred stock may prevent a change in our control. Our stockholder rights plan could inhibit a change in our control. Our staggered board and other provisions of our charter and bylaws may prevent a change in our control.

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1175483--3/16/2006--NEWCASTLE_INVESTMENT_CORP