Our objective is to provide consistent returns to our investors through a combination of dividends and capital appreciation.
We invest in residential mortgage backed securities either issued or guaranteed as to principal and interest by a government agency or a government-sponsored entity, or Agency RMBS, collateralized by either adjustable-rate mortgage loans, or ARMs, with interest rates that reset monthly, hybrid ARMs that typically have a coupon rate that is fixed for an initial period (typically three, five seven or ten years) and thereafter resets at regular intervals, or fixed rate mortgage loans.
Our investment strategy is designed to:
- build an investment portfolio consisting of Agency RMBS that seeks to generate attractive risk-adjusted investment income;
- manage financing, interest and prepayment rate risks;
- capitalize on discrepancies in the relative valuations in the RMBS market;
- manage cash flow so as to provide for regular quarterly distributions to stockholders;
- limit credit risk;
- minimize the impact that changing interest rates have on our net investment income;
- cause us to maintain our qualification as a real estate investment trust, or;
- cause us to remain exempt from the registration requirements of the Investment Company Act of 1940, or the Investment Company Act.
Our income is generated primarily from the net spread, or difference, between the interest income we earn on our investment portfolio and the cost of our borrowings and hedging activities. We believe that the best approach to generating a positive net spread is to manage our liabilities to mirror, as often as possible, the interest rate risks of our investments. To seek to achieve this result, we employ short-term financing in combination with hedging techniques.
The following guidelines relate to the investments of CYS Investments, Inc. (the "Company").
Investments of the Company shall only include (i) residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a government agency or a government-sponsored entity, and that are collateralized by single-family residential mortgage loans ("Agency RMBS"), (ii) collateralized mortgage obligations issued by a government agency or government-sponsored entity that are collateralized by Agency RMBS, (iii) US Treasuries, and/or (iv) debt securities issued by a government agency or a government-sponsored entity that is not backed by collateral but, in the case of government agencies, is backed by the full faith and credit of the U.S. government, and, in the case of government-sponsored entities, is backed by the integrity and creditworthiness of the issuer ("US Agency Debentures").
Notwithstanding the above:
- The Company shall be able to maintain its current investment assets that do not fall within the parameters of the above guidelines. The Company may seek, but is not required, to complete the orderly liquidation of any such investment assets at the prices and on the terms that are in the best interests of the Company's stockholders;
- No investment shall be made that would cause the Company to fail to qualify as a real estate investment trust for federal income tax purposes; and
- No investment shall be made that would cause us to be regulated as an investment company under the Investment Company Act of 1940, as amended.
These investment guidelines may be amended, modified or supplemented by a majority of the Board of Directors of the Company without the approval of stockholders.