Investment Strategy

Investment Guidelines

Investment Strategy

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:

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.

Amended and Restated Investment Guidelines

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:

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.

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