1313918--3/17/2006--Deerfield_Triarc_Capital

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Risks Related to Our Business We have a limited operating history and limited experience as a REIT and we may not be able to successfully operate our business or generate sufficient revenue to make or sustain dividends to stockholders. We are dependent on Deerfield Capital and may not find a suitable replacement if Deerfield Capital terminates the management agreement. Deerfield Capital has limited prior experience managing a REIT and we cannot assure you that Deerfield Capital s past experience will be sufficient to successfully manage our business as a REIT. We are dependent upon Deerfield Capital s key personnel for our success. Our base management fee is payable regardless of our performance. Our incentive fee may induce Deerfield Capital to make certain investments, including speculative investments. Deerfield Capital manages our portfolio pursuant to very broad investment guidelines and our board does not approve each investment decision made by Deerfield Capital, which may result in our making riskier investments. We may change our investment strategy and asset allocation without stockholder consent, which may result in riskier investments. There are conflicts of interest in our relationship with Deerfield Capital, which could result in decisions that are not in the best interests of our stockholders. We may compete with future investment vehicles for access to Deerfield Capital. Our investment portfolio is heavily concentrated in adjustable-rate MBS and we cannot assure you that we will be successful in achieving a more diversified portfolio. We leverage our investments and incur other indebtedness, which may adversely affect our return on our investments and may reduce cash available for distribution. Our failure to manage future growth effectively may have a material adverse effect on our financial condition and results of operations. We operate in a highly competitive market for investment opportunities. Failure to procure adequate capital and funding would adversely affect our results and may, in turn, negatively affect the market price of shares of our common stock and our ability to distribute dividends. If we issue senior securities we will be subject to additional restrictive covenants and limitations on our operating flexibility, which could adversely affect our ability to make distributions. We may not be able to successfully complete securitization transactions. The use of CDO financings with over-collateralization requirements may have a negative impact on our cash flow. An increase in our borrowing costs relative to the interest we receive on our assets may adversely affect our profitability, and thus our cash available for distribution to our stockholders. We may not be able to renew the total return swaps that we enter into, which could adversely impact our leveraging strategy. Hedging against interest rate exposure may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. Declines in the market values of our investments may adversely affect periodic reported results and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders. If we fail to achieve adequate operating cash flow, our ability to make distributions will be adversely affected. Loss of 1940 Act exclusion would adversely affect us and negatively affect the market price of shares of our common stock and the ability to distribute dividends. Rapid changes in the values of our MBS and other real estate related investments may make it more difficult for us to maintain our qualification as a REIT or exemption from the 1940 Act. We are highly dependent on information systems and third parties, and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends. Terrorist attacks and other acts of violence or war may affect the market for our common stock, the industry in which we conduct our operations and our profitability. Risks Related to Our Investments We may not realize gains or income from our investments. Our real estate investments are subject to risks particular to real property. The mortgage loans, mortgage loans underlying MBS, and ABS we invest in are subject to delinquency, foreclosure and loss, which could result in losses to us. We may not be able to identify satisfactory alternative investments to successfully balance the interest rate or mark-to-market risk inherent in our RMBS investments. Our investments in subordinated MBS could subject us to increased risk of losses. Our assets may include high yield and subordinated corporate securities that have greater risks of loss than secured senior loans and if those losses are realized, it could adversely affect our earnings, which could adversely affect our cash available for distribution to our stockholders. We may invest in the equity securities of CDOs, such as the Market Square CDO and the Pinetree CDO, and such investments involve various significant risks, including that CDO equity receives distributions from the CDO only if the CDO generates enough income to first pay the holders of its debt securities and its expenses. We may enter into warehouse agreements in connection with our planned investment in the equity securities of CDOs and if the investment in the CDO is not consummated, the warehoused collateral will be sold and we must bear any loss resulting from the purchase price of the collateral exceeding the sale price. We will lose money on our repurchase transactions if the counterparty to the transaction defaults on its obligation to resell the underlying security back to us at the end of the transaction term, or if the value of the underlying security has declined as of the end of that term or if we default on our obligations under the repurchase agreement. Investments in mezzanine loans involve greater risks of loss than senior loans secured by income producing properties. Increases in interest rates could negatively affect the value of our investments, which could result in reduced earnings or losses and negatively affect the cash available for distribution to our stockholders. We remain subject to losses on our mortgage portfolio despite our strategy of investing in highly-rated MBS. Some of our portfolio investments are recorded at values based on estimates of fair value made by management and, as a result, there is uncertainty as to the value of these investments. The lack of liquidity in our investments may adversely affect our business. Negative covenants contained in our repurchase agreements increase the possibility that we will be unable to maintain adequate capital and funding and may reduce cash available for distribution. We may not be able to acquire eligible securities for a CDO issuance, or may not be able to issue CDO securities on attractive terms, which may require us to seek more costly financing for our investments or to liquidate assets. A prolonged economic slowdown, a recession or declining real estate values could impair our investments and harm our operating results. We may be exposed to environmental liabilities with respect to properties to which we take title. Our hedging transactions may not completely insulate us from interest rate risk. Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities and involve risks and costs. Prepayment rates could negatively affect the value of our MBS, which could result in reduced earnings or losses and negatively affect the cash available for distribution to our stockholders. We may enter into derivative contracts that could expose us to unexpected economic losses in the future. Our due diligence may not reveal all of an entity s liabilities and may not reveal other weaknesses in its business. Complying with REIT requirements may cause us to forgo otherwise attractive opportunities. Certain financing activities may subject us to U.S. federal income tax. Failure to qualify as a REIT would subject us to federal income tax, which would reduce the cash available for distribution to our stockholders. Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders. Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations. Ownership limitation may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares. Our ownership of and relationship with our TRSs is 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. If our CDO issuers that are TRSs are subject to federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to distribute to us and that we would have available to pay their creditors. We may lose our REIT status if the IRS successfully challenges our characterization of our income from our CDO issuers that are TRSs. Complying with REIT requirements may limit our ability to hedge effectively. The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans that would be treated as sales for federal income tax purposes. We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock. If we make distributions in excess of our current and accumulated earnings and profits, those distributions will be treated as a return of capital, which will reduce the adjusted basis of your stock, and to the extent such distributions exceed your adjusted basis, you may recognize a capital gain.

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1313918--3/17/2006--Deerfield_Triarc_Capital_Corp