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 <p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><a name="scotch"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">As filed with the Securities and Exchange Commission on August&nbsp;18, 2005</font></b></a></p> <div style="border:none;border-bottom:double windowtext 6.0pt;padding:0pt 0pt 0pt 0pt;"> <p style="border:none;font-weight:bold;margin:0pt 0pt 12.0pt;padding:0pt;page-break-after:avoid;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Registration No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></b></p> </div>

<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;">UNITED STATES<br>
SECURITIES AND EXCHANGE COMMISSION</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Washington, D.C. 20549</font></b></p>

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<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="5" style="font-size:18.0pt;">FORM&nbsp;S-8</font></p>

<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="3" face="Times New Roman" style="font-size:12.0pt;">REGISTRATION STATEMENT
UNDER THE</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="3" face="Times New Roman" style="font-size:12.0pt;">SECURITIES ACT OF 1933</font></b></p>

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</font></div>

<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="5" style="font-size:18.0pt;">Fieldstone
Investment Corporation</font></p>

<p style="margin:0pt 0pt 12.0pt;page-break-after:avoid;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Exact Name of Registrant
as Specified in Its Charter)</font></p>

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<table border="0" cellspacing="0" cellpadding="0" style="border-collapse:collapse;">
 <tr>
  <td width="333" valign="top" style="padding:0pt .7pt 0pt 0pt;width:249.6pt;">
  <p align="center" style="font-size:10.0pt;margin:0pt 0pt .0001pt;text-align:center;"><b><font style="font-weight:bold;">Maryland</font></b></p>
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(State or other
  jurisdiction<br>
  of incorporation or organization)</font></p>
  </td>
  <td width="275" valign="top" style="padding:0pt .7pt 0pt 0pt;width:206.1pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">74-2874689</font></b></p>
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(I.R.S. Employer
  Identification No.)</font></p>
  </td>
 </tr>
</table>

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<p style="line-height:1.0pt;margin:0pt 0pt 12.0pt;"><font size="1" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><!-- SET mrlNoTableShading -->11000 Broken Land Parkway<br>
Suite&nbsp;600<br>
Columbia, Maryland 21044</p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Address, Including Zip
Code, of<br>
Principal Executive Offices)</font></p>

<p style="line-height:9.0pt;margin:0pt 0pt .0001pt;text-align:center;"></p>

<div style="line-height:9.0pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

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<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="3" style="font-size:12.0pt;">FIELDSTONE INVESTMENT CORPORATION EQUITY
INCENTIVE PLAN</font></p>

<p style="line-height:9.0pt;margin:0pt 0pt .0001pt;text-align:center;"></p>

<div style="line-height:9.0pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="1" width="160" noshade color="black" align="center" style="width:120.0pt;">

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<p style="font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;">(Full Title of the Plan) </p>

<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Michael J. Sonnenfeld<br>
President and Chief Executive Officer<br>
Fieldstone Investment Corporation<br>
11000 Broken Land Parkway</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Columbia, Maryland 21044</font></b></p>

<p style="margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Name and Address of Agent for Service)</font></p>

<p style="font-weight:bold;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">(410)&nbsp;772-7200</font></b></p>

<p style="font-size:10.0pt;margin:0pt 0pt 2.0pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(</font></b>Telephone
Number, Including Area Code, of Agent for Service)</p>

<p style="line-height:9.0pt;margin:0pt 0pt .0001pt;text-align:center;"></p>

<div style="line-height:9.0pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="1" width="160" noshade color="black" align="center" style="width:120.0pt;">

</font></div>

<p align="left" style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:left;"><font size="1" style="font-size:1.0pt;">&nbsp;</font></p>

<table border="1" cellspacing="0" cellpadding="0" style="border:none;border-collapse:collapse;">
 <tr>
  <td width="7" valign="top" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:5.25pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="173" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:130.0pt;">
  <p align="center" style="font-size:10.0pt;margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" style="font-size:8.0pt;font-weight:bold;">Title of securities to be<br>
  registered</font></b></p>
  </td>
  <td width="87" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:65.0pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amount
  to be<br>
  registered(1)</font></b></p>
  </td>
  <td width="113" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Proposed
  maximum<br>
  offering price<br>
  per share(2)</font></b></p>
  </td>
  <td width="120" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:90.0pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Proposed
  maximum<br>
  aggregate<br>
  offering price(2)</font></b></p>
  </td>
  <td width="147" colspan="2" valign="bottom" style="border-bottom:solid windowtext 1.0pt;border-left:none;border-right:none;border-top:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:110.0pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amount
  of <br>
  registration &nbsp;fee(2)</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="7" valign="top" style="border:none;border-bottom:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:5.25pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="173" valign="top" style="border:none;border-bottom:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:130.0pt;">
  <p style="margin:0pt 0pt .0001pt 9.5pt;text-indent:-9.5pt;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">Common Stock, par value<br>
  $.01 per share</font></p>
  </td>
  <td width="87" valign="top" style="border:none;border-bottom:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:65.0pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">836,000(2a)<br>
  1,854,616(2b)</font></p>
  </td>
  <td width="113" valign="top" style="border:none;border-bottom:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">$14.86(2a)<br>
  $12.93 (2b)</font></p>
  </td>
  <td width="120" valign="top" style="border:none;border-bottom:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:90.0pt;">
  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">$12,422,960(2a)<br>
  $23,980,185(2b)</font></p>
  </td>
  <td width="67" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:50.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">&nbsp;Total:</font></p>
  </td>
  <td width="80" valign="top" style="border:none;border-bottom:double windowtext 1.5pt;padding:0pt .7pt 0pt 0pt;width:60.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">$1,462.18(2a)<br>
  &nbsp;&nbsp;<u>2,822.47(2b)</u><br>
  $4,284.65</font></p>
  </td>
 </tr>
</table>

<p style="line-height:1.0pt;margin:0pt 0pt .0001pt;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">&nbsp;</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">(1)</font><font size="1" face="Times New Roman" style="font-size:9.0pt;">&#160;&#160;&#160; </font><font size="1" style="font-size:9.0pt;">This
registration statement covers, in addition to the number of shares of
Fieldstone Investment Corporation&#146;s common stock stated above, an indeterminate
amount of additional shares of common stock that may be offered or issued by
reason of stock splits, stock dividends or similar transactions, in accordance
with Rule&nbsp;416(c)&nbsp;under the Securities Act of 1933, as amended (the &#147;Securities
Act&#148;).</font></p>

<p style="margin:0pt 0pt .0001pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:9.0pt;">(2)</font><font size="1" face="Times New Roman" style="font-size:9.0pt;">&#160;&#160;&#160; </font><font size="1" style="font-size:9.0pt;">Estimated solely for the purpose of determining the
registration fee in accordance with Rule&nbsp;457(c)&nbsp;and (h)&nbsp;of the
Securities Act based upon (a)&nbsp;the weighted average option exercise price
of $14.86 per share for the 836,000 shares of common stock issuable upon the
exercise of currently outstanding options under the Fieldstone Investment
Corporation Equity Incentive Plan (the &#147;Plan&#148;) and (b)&nbsp;the average of the
high and low prices for the common stock as reported on The Nasdaq Stock Market
on August&nbsp;17, 2005, which was $12.93, with respect to the 1,854,616 shares
of common stock available for grant, or previously issued, under the Plan.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">EXPLANATORY NOTE</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Fieldstone Investment Corporation (the &#147;Registrant&#148;)
has prepared this Registration Statement in accordance with the requirements of
Form&nbsp;S-8 under the Securities Act to register shares of its common
stock issued or available for issuance under the Fieldstone Investment
Corporation Equity Incentive Plan (the &#147;Plan&#148;).</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This Registration Statement contains a reoffer
prospectus prepared in accordance with Instruction C of the General
Instructions to Form&nbsp;S-8 and Part&nbsp;I to Form&nbsp;S-3. This
reoffer prospectus may be utilized by certain participants under the Plan to
cover reoffers and resales of the shares of common stock received as grants
under, or as a result of the exercise of stock options granted under, the Plan.
This Registration Statement also contains the information required pursuant to Part&nbsp;II
of Form&nbsp;S-8.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The document(s)&nbsp;containing the information
specified in Part&nbsp;I of Form&nbsp;S-8 (plan information and
registrant information) will be sent or given to plan participants as specified
by Rule&nbsp;428(b)(1)&nbsp;under the Securities Act of 1933, as amended (the &#147;Securities
Act&#148;). In accordance with Rule&nbsp;428 under the Securities Act and the &#147;Note&#148;
to Part&nbsp;I of Form&nbsp;S-8, these documents are not being filed with
the Securities and Exchange Commission (the &#147;SEC&#148;) either as part of this
Registration Statement or as prospectuses or prospectus supplements pursuant to
Rule&nbsp;424 under the Securities Act. These documents and the documents
incorporated by reference in this Registration Statement pursuant to Item 3 of Part&nbsp;II
of this Form&nbsp;S-8, taken together, constitute a prospectus that meets
the requirements of Section&nbsp;10(a)&nbsp;of the Securities Act.</font></p>


 <div> <p style="margin:24.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p> </div> <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
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<p style="font-size:10.0pt;font-weight:bold;margin:0pt 0pt 18.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="ReofferProspectus_220944"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">REOFFER </font></b>PROSPECTUS</p>

<p style="font-weight:bold;margin:0pt 0pt 18.0pt;page-break-after:avoid;text-align:center;"><a name="a2340116Shares_220956"></a><b><font size="4" face="Times New Roman" style="font-size:14.0pt;">2,340,116 Shares</font></b></p>

<p align="center" style="margin:0pt 0pt 12.0pt;text-align:center;"><font size="2" face="Times New Roman"><img width="163" height="80" src="g150831bei001.gif" alt="GRAPHIC"></font></p>

<p style="font-weight:bold;margin:0pt 0pt 12.0pt;page-break-after:avoid;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;">Fieldstone Investment Corporation</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt 18.0pt;page-break-after:avoid;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;">Common Stock</font></b></p>

<p style="line-height:9.0pt;margin:0pt 0pt 18.0pt;text-align:center;"></p>

<div style="line-height:9.0pt;margin:0pt 0pt 18.0pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="1" width="160" noshade color="black" align="center" style="width:120.0pt;">

</font></div>

<p style="font-size:10.0pt;margin:0pt 0pt 18.0pt;text-indent:20.0pt;">This prospectus relates to the reoffer and
resale, from time to time, of up to 2,340,116 shares of our common stock by or
for the account of certain of our officers, directors and employees, whom we
also refer to in this prospectus as the selling stockholders, in order to
permit such persons to sell or otherwise dispose of shares of our common stock
that they have received, or may receive, under the Fieldstone Investment
Corporation Equity Incentive Plan, or Plan.</p>

<p style="margin:0pt 0pt 18.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">T</font>he selling stockholders may sell all
or a portion of these shares from time to time in market transactions through
any stock exchange or market on which our common stock is then listed, in
negotiated transactions or otherwise, and at prices and on terms that will be
determined by the then prevailing market price or at negotiated prices.</font></p>

<p style="margin:0pt 0pt 24.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our common stock currently trades on the
Nasdaq National Market under the symbol &#147;FICC.&#148; The last reported sale price of
our common stock on August&nbsp;17, 2005 was $12.95 per share.</font></p>

<p style="line-height:9.0pt;margin:0pt 0pt 18.0pt;text-align:center;"></p>

<div style="line-height:9.0pt;margin:0pt 0pt 18.0pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="1" width="160" noshade color="black" align="center" style="width:120.0pt;">

</font></div>

<p style="font-weight:bold;margin:0pt 0pt 18.0pt;text-indent:20.15pt;"><font size="3" style="font-size:12.0pt;">Investing in our common stock involves a high degree of risk. Please
carefully consider the &#147;Risk Factors&#148; beginning on page&nbsp;2 of this
prospectus.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 18.0pt;text-indent:20.15pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.</font></b></p>

<p style="line-height:9.0pt;margin:0pt 0pt 18.0pt;text-align:center;"></p>

<div style="line-height:9.0pt;margin:0pt 0pt 18.0pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="1" width="160" noshade color="black" align="center" style="width:120.0pt;">

</font></div>

<p style="font-size:10.0pt;font-weight:bold;margin:0pt 0pt 12.0pt;page-break-after:avoid;text-align:center;">The date of this prospectus is August&nbsp;18,
2005.</p>

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<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">You may
rely only on information contained in this prospectus or to which we have
referred you. We have not authorized anyone to provide you with information
that is different. This prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any shares of our common stock in any
jurisdiction in which an offer or solicitation is not authorized or in which
the person making the offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make an offer or solicitation. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in our
affairs since the date of this prospectus.</font></i></p>

<p style="font-weight:bold;margin:0pt 0pt 12.0pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">TABLE OF CONTENTS</font></b></p>

<table border="0" cellspacing="0" cellpadding="0" style="border-collapse:collapse;">
 <tr>
  <td width="561" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:420.85pt;">
  <p style="font-size:8.0pt;font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;text-align:center;"></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
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  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Page</font></b></p>
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  <p style="margin:0pt 0pt .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;"><a href="a05-15083_1s8.htm#Summary_081340">Summary</a></font></p>
  </td>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">27</font></p>
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  <p style="margin:0pt 0pt .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;"><a href="a05-15083_1s8.htm#IncorporationOfDocumentsByReferen_054929" title="Click to goto ">Incorporation of Documents by Reference</a></font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">28</font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">28</font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">29</font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">33</font></p>
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  of Capital Stock</a></font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">35</font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">38</font></p>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">63</font></p>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">63</font></p>
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  </td>
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  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">64</font></p>
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  <p style="margin:0pt 0pt .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;"><a href="a05-15083_1s8.htm#WhereYouCanFindMoreInformationAbo_235454">Where You Can
  Find More Information About Fieldstone</a></font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
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  <p align="center" style="margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">64</font></p>
  </td>
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</table>

<p style="font-size:1.0pt;line-height:1.0pt;margin:0pt 0pt 12.0pt;">&nbsp;</p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">ABOUT THIS PROSPECTUS</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission, or SEC, to enable selling stockholders,
from time-to-time, to sell the securities described in this prospectus in one
or more offerings.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The information in this prospectus speaks as of the date of this
prospectus and may not reflect changes in our affairs. This prospectus may also
be accompanied by a prospectus supplement that may include additional risk
factors or other special considerations, and may also add, update or change
information in this prospectus. If there is any inconsistency between the
information in this prospectus and any prospectus supplement, you should rely
on the information in that prospectus supplement. You should read both this
prospectus and any prospectus supplement together with the documents
incorporated herein by reference and the additional information described under
the heading &#147;Where You Can Find More
Information About Fieldstone Investment Corporation.&#148;</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In this prospectus, unless the context indicates otherwise, references
to &#147;our company,&#148; &#147;we,&#148; &#147;our&#148; and &#147;us&#148; refer to the activities of, and the
assets and liabilities of, the business and operations of Fieldstone Investment
Corporation (Fieldstone Investment) and its subsidiaries. References to &#147;Fieldstone
Mortgage&#148; refer to the activities of our principal operating subsidiary,
Fieldstone Mortgage Company.</font></p>

</div><br><hr size="3" width="100%" noshade color="#010101" align="center">

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<div>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="Summary_081340"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">SUMMARY</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our Company</font></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">We own and manage</font> a portfolio of
non-conforming residential mortgage loans originated primarily by our operating
subsidiary, Fieldstone Mortgage Company, and we have elected to be taxed as a
real estate investment trust, or REIT, for federal income tax purposes. </font>We intend to
distribute to our stockholders all or substantially all of our REIT taxable
income each year in order to comply with the distribution requirements of the
Internal Revenue Code and to avoid federal income tax, and we intend to retain
our net gains on sales of loans to build our capital base. In order to meet
some of the requirements to qualify as a REIT, we conduct all of our loan
origination, processing, underwriting, sales and servicing functions through
Fieldstone Mortgage, which we have elected to treat as a taxable REIT
subsidiary. Founded in 1995, Fieldstone Mortgage is a nationwide
residential mortgage banking company that originates, sells and services
non-conforming and conforming residential mortgage loans through over 4,700
independent mortgage brokers serviced by 15 regional wholesale operations
centers and a network of retail branch offices located throughout the country.</p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our Principal Office</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our principal offices are located at 11000
Broken Land Parkway, Columbia, Maryland 21044. Our telephone number is
(410)&nbsp;772-7200. Our website is <i><font style="font-style:italic;">www.FieldstoneInvestment.com</font></i>.
Fieldstone Mortgage&#146;s website is <i><font style="font-style:italic;">www.fmcc.com</font></i>
or <i><font style="font-style:italic;">www.FieldstoneMortgage.com</font></i>.
The information on our websites does not constitute a part of this prospectus.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Restrictions on Ownership of Our Common
Stock</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Due to limitations on the concentration of
ownership of REIT shares imposed by the Internal Revenue Code, our charter
documents generally prohibit any stockholder from actually or constructively
owning more than 9.8% of the outstanding shares of our common stock. Our board
may, in its sole discretion, waive the ownership limit with respect to a
particular stockholder if our board is presented with satisfactory evidence
that the ownership will not then or in the future jeopardize our REIT status.
Our charter also prohibits certain cooperatives, governmental entities and
tax-exempt organizations that are exempt from the unrelated business income tax
from owning our shares because a tax could be imposed on us if our shares are
held by these entities.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our Corporate History</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We were formed on August&nbsp;20, 2003 as a Maryland corporation and a
wholly owned subsidiary of Fieldstone Holdings Corp., a Delaware corporation.
In 1998, Fieldstone Holdings acquired Fieldstone Mortgage Company, a Maryland
corporation formed in 1995 that has been originating and selling residential
mortgage loans since 1996. On November&nbsp;14, 2003, we completed a private
offering of 47.15&nbsp;million shares of our common stock pursuant to Rule&nbsp;144A,
Regulation&nbsp;S and Regulation&nbsp;D under the Securities Act of 1933, as
amended (referred to herein as the 144A Offering), which yielded net proceeds
of approximately $658.1&nbsp;million. In connection with the private offering,
we merged with Fieldstone Holdings. As the surviving entity, we succeeded to
all of the assets and liabilities of Fieldstone Holdings, and Fieldstone
Mortgage became our wholly owned principal operating subsidiary.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pursuant to the merger, the shareholders of
Fieldstone Holdings received 565.38168 shares of our common stock for each
share of common stock of Fieldstone Holdings. Immediately following the closing
of the 144A Offering, we redeemed the shares of common stock held by a group of
former shareholders of Fieldstone Holdings for approximately
$188.1&nbsp;million of the net proceeds of the 144A Offering.</font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font face="Times New Roman">1</font></p> <br><hr size="3" width="100%" noshade color="#010101" align="center">

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<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="RiskFactors_223348"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">RISK FACTORS</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">An investment in our common
stock involves a high degree of risk. You should carefully consider the
following risk factors, together with the other information contained in this prospectus,
before purchasing our common stock. Any of the following factors could harm our
business, financial condition and results of operations and could result in a
partial or complete loss of your investment.</font></i></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Risks Related to Our Business</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:0pt;"><a name="WeHaveInvestedTheSubstantialMajor_223752"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have invested the
substantial majority of our shareholders&#146; equity in a portfolio of
non-conforming mortgage loans held for investment financed by pledging the
loans to secure mortgage-backed securities. We have a limited operating history
with building and managing an investment portfolio, which limits your ability
to evaluate a key component of our business strategy and our growth prospects
and increases your investment risk.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In August&nbsp;2003, we began implementing
our portfolio strategy of retaining a substantial portion of the non-conforming
loans we originate, financed by issuing mortgage-backed securities secured by
these loans. From August&nbsp;1, 2003 through December&nbsp;31, 2003, we
retained 50% of the non-conforming loans we originated during that period. For
the year ended December&nbsp;31, 2004, we retained 66% of the non-conforming
loans we originated during that period. The percentage of non-conforming loans
retained, and the rate at which we will invest all of the proceeds of the 144A
Offering by retaining non-conforming loans, will vary based primarily upon the
availability of loans that meet our investment criteria, which criteria are
subject to change due to market conditions or other factors. After we have
invested all of the proceeds, the percentage of loans we retain will vary based
primarily upon the rate of prepayments of principal on the loans we hold in our
portfolio and the availability of loans which meet our investment criteria,
unless we change our targeted leverage or raise additional equity. Our ability
to complete securitizations in the future will depend upon a number of factors,
including the experience and ability of our management team, conditions in the
securities markets generally, conditions in the mortgage-backed securities
market specifically, the performance of our portfolio of securitized loans and
our ability to obtain credit enhancement. In addition, poor performance of any
pool of loans that we securitize could increase the expense of any of our
subsequent securitizations. If we are unable to securitize efficiently the
loans in our portfolio, then our revenues for the duration of our investment in
those loans could decline, which would lower our earnings for the time the
loans remain in our portfolio. We cannot assure you that we will be able to
complete loan securitizations in the future on favorable terms, or at all.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:0pt;"><a name="WeDoNotHaveComprehensiveHistorica_223810"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">We do not have
comprehensive historical loan performance data on our loans sold on which to
base future loan performance estimates on our loans held for investment. If we
do not receive the payments from the loans that we anticipate, our revenues may
be insufficient to cover our costs to originate, the interest expense and the
losses on these loans, as well as the repayment of principal on the warehouse
or securitization debt used to finance these loans.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Through June&nbsp;2003, we sold all of the
loans that we originated on a whole-loan, servicing-released basis. As a
result, we are unable to track the delinquency, loss and prepayment history of
these loans. Consequently, we do not have representative historical
delinquency, bankruptcy, foreclosure, default or prepayment experience that may
be referred to for purposes of estimating future delinquency, loss and
prepayment rates for our originated loans. In view of our lack of historical
loan performance data, it is extremely difficult to validate our loss or
prepayment assumptions used to calculate assumed net interest income in current
and future securitizations of our non-conforming loans. If we do not receive
the payments from the loans that we have anticipated, our revenues may be
insufficient to cover our costs to originate, the interest expense and losses
on these loans, as well as the repayment of principal on the warehouse and
securitization debt used to finance these loans. The greater the difference
between our assumptions and actual performance proves to be, the greater the
effect will be on our earnings, the </font></p>


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<p style="margin:0pt 0pt 12.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">interest rates and
over-collateralization levels of our mortgage-backed securities and the timing
and receipt of our future revenues, the value of the residual interests held on
our statement of condition and our cash flow.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:0pt;"><a name="DependenceUponFinancingFacilities_223822"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dependence upon
financing facilities and securitizations and our ability to maintain our status
as a REIT may create liquidity risks.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pending sale or securitization of a pool of mortgage loans, we will
finance mortgage loans that we originate through borrowings under our warehouse
lines and repurchase facilities. It is possible that our warehouse lenders
could experience changes in their ability to advance funds to us, independent
of our performance or the performance of our loans. In addition, if the
regulatory capital requirements imposed on our lenders change, our lenders may
be required to increase significantly the cost of the lines of credit that they
provide to us. Our repurchase facilities are dependent on our counterparties&#146;
ability to re-sell loans originated by us to third parties. If there is a
disruption of the repurchase market generally, or if one of our counterparties
is itself unable to access the repurchase market, our access to this source of
liquidity could be adversely affected.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We finance substantially all of our loans through three warehouse lines,
two repurchase facilities and one conduit commercial paper facility. Each of
these facilities is cancelable by the lender for cause at any time. As of July&nbsp;31,&#160; 2005, the maximum available outstanding
balance under these six facilities was $2.5&nbsp;billion. The initial term of
each facility is generally 364&nbsp;days or less, and the facilities mature at
various times during the year. We cannot provide any assurances that we will be
able to extend these existing facilities on favorable terms, or at all. If we
are not able to renew any of these credit facilities or arrange for new
financing on terms acceptable to us, or if we default on our covenants or are
otherwise unable to access funds under any of these facilities, we may not be
able to originate new loans or continue to fund our operations.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cash could be required to meet margin calls
under the terms of our borrowings in the event that there is a decline in the
market value of the loans that collateralize our debt, the terms of short-term
debt becomes less attractive, or for other reasons. If we are required to meet
significant margin calls, we may not be able to originate new loans or continue
to fund our operations.</font></p>

<p style="font-style:italic;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Liquidity risks associated with credit enhancements provided in
connection with our securitizations.</font></i></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In connection with our securitizations, we provide credit enhancement
for a portion of the mortgage-backed securities that we issue called &#147;senior
securities.&#148; The credit enhancement for the senior securities comes primarily
from either designating another portion of the securities we issue as &#147;subordinate
securities&#148; (on which the credit risk from the loans is concentrated),
purchasing financial guaranty insurance policies for the loans, or both. The
market for subordinate securities could become temporarily illiquid or trade at
steep discounts, thereby reducing the cash flow we receive over time from the
loans securing our mortgage-backed securities. If we purchase financial
guaranty insurance policies and the expense of these insurance policies
increases, our net income will be reduced as the cost of borrowing increases.
While we have used these senior and subordinated credit enhancement features in
connection with our previous securitizations, we cannot assure you that these
features will be available at costs that would allow us to achieve our desired
level of net income from future securitizations.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Some of the mortgage-backed securities that we have issued and intend to
issue in the future to finance our portfolio of loans require, or will require,
in the early years after issuance of the mortgage-backed securities that we &#147;lock
out&#148; cash flows and receive less than our pro-rata share of cash flows from
principal payments. In addition, if the performance of the loans pledged to
collateralize the mortgage-backed securities is worse than the thresholds set
forth in the securitization documents, then the net </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">interest income we would otherwise receive
will be held as over-collateralization reserves to provide additional credit
enhancements for the outstanding senior securities.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If prepayments on the loans securitizing any
of our mortgage-backed securities slow or our credit quality deteriorates, cash
flow that we might otherwise receive in connection with the mortgage-backed
securities might be delayed significantly.</font></p>

<p style="font-style:italic;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Liquidity risks associated with our REIT status.</font></i></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If our minimum distribution required to
maintain our REIT status exceeds our cash available for distribution, because
our income for tax purposes exceeded our cash flow from operations, we could be
forced to borrow funds, sell assets or raise capital on unfavorable terms in order
to maintain our REIT status. Additionally, negative cash flow could threaten
our continued ability to satisfy the income and assets tests necessary to
maintain our status as a REIT or our solvency. See &#147;&#151;<i><font style="font-style:italic;">Risks Associated with our Organization and Structure</font></i>.&#148;</font></p>

<p style="font-style:italic;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Liquidity risks associated with the change in our business strategy.</font></i></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In August&nbsp;2003, we began to retain a
portion of our non-conforming loans to build a portfolio of non-conforming
mortgages and issue mortgage-backed securities, rather than selling these loans
for a gain shortly after origination. As indicated above, some of the
mortgage-backed securities that we have issued and expect to issue in the
future may, for an initial period, require that any excess cash flow from the
mortgages (after payments required to be made to the senior securities and to
the sub-servicer) be retained in an issuing trust to build
over-collateralization to support the senior securities we have sold.
Accordingly, we may receive little or no cash as the owner of the loans during
that initial period. For some period of time our portfolio of securitized loans
may not generate sufficient net interest income to cover our operating
expenses, and in this event we will use cash and unborrowed collateral, as we
continue to originate new loans for our portfolio. This amount is comprised of
the proceeds remaining from the 144A Offering and retained earnings. If we have
fully invested all of our cash and unborrowed collateral prior to our portfolio
generating sufficient cash for us to fund our operations, if it ever does, then
we will need to either restructure the mortgage-backed securities supporting
our portfolio, sell additional shares of capital stock or debt securities to
generate additional working capital or, if we are unable to sell additional
securities on reasonable terms or at all, we will need to either reduce our
origination business or sell a higher portion of our loans. If we sell our
loans rather than put them into our investment portfolio, then we will reduce
the rate at which we increase our portfolio and we will owe taxes relative to
any gains we achieve by selling our loans. In the event that our liquidity
needs exceed our available capital, we may need to sell assets at an
inopportune time, which will result in a reduction in our earnings.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:0pt;"><a name="TheFailureToPrevailInOurLitigatio_223849"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">The failure to
prevail in our litigation with our former shareholders could have a negative
effect on our liquidity.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On November&nbsp;10, 2003, we entered into a
redemption agreement with the holders of 94.83% of our common stock prior to
the closing of the 144A Offering. Under the terms of the redemption agreement,
the redemption price of the shares was to be $13.95 per share (the offering
price of the shares in the 144A Offering ($15.00 per share), net of the initial
purchaser&#146;s discount ($1.05)), subject to the following adjustments: the
redemption price would be increased or reduced by the amount by which our net
worth on the day immediately prior to the closing of the 144A Offering (November&nbsp;13,
2003), calculated in accordance with generally accepting accounting principles,
was greater than or less than $50&nbsp;million and increased or reduced by 3.0%
of the amount by which the principal balance of our inventory of non-conforming
loans as of the close of business on the day immediately prior to the closing
of the 144A Offering (November&nbsp;13, 2003) was greater than or less than
$1.0&nbsp;billion. These adjustments were estimated prior to the closing of the
144A Offering, but the adjustments were subject to a post-closing audit to be </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">performed by KPMG LLP. We
estimated these adjustments prior to the closing of the 144A Offering, and
based on these estimates, we redeemed the shares for $186,286,482, subject to
the post-closing audit. KPMG conducted its post-closing audit of our November&nbsp;13,
2003 balance sheet and submitted its audit report on January&nbsp;12, 2004.
Based on this audit report, we remitted an additional $1,820,443 as part of the
redemption price, for a total redemption price of $188,106,925, or $13.22 per
redeemed share.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On May&nbsp;24, 2004, our former
shareholders prior to the closing of the 144A Offering filed a lawsuit against
us alleging that the shareholders are entitled to an additional post-closing
redemption price payment of between $15.8&nbsp;million and $19.8&nbsp;million.
These shareholders&#146; shares were redeemed following the closing of the 144A
Offering, for approximately $188.1&nbsp;million. On June&nbsp;14, 2004, we
filed our answer generally denying all of the allegations in the complaint. The
redemption agreement between the redeemed shareholders and us required us to
adjust the redemption price we paid to the redeemed shareholders based on our November&nbsp;13,
2003 balance sheet, as audited by KPMG LLP. On January&nbsp;12, 2004, KPMG
issued an independent auditors&#146; report of our November&nbsp;13, 2003 balance
sheet. Based on this audit and the terms of the redemption agreement, we paid
an additional $1.8&nbsp;million to the redeemed shareholders on February&nbsp;18,
2004. The lawsuit alleges that our November&nbsp;13, 2003 balance sheet should
have included a deferred tax asset that, if included, would have increased our
net worth on November&nbsp;13, 2003. The lawsuit also alleges that the redeemed
shareholders are entitled to an increase in the redemption price if our November&nbsp;13,
2003 balance sheet is revised to include the deferred tax asset. On April&nbsp;20,
2004, following notification by the redeemed shareholders of their dispute
concerning our November&nbsp;13, 2003 balance sheet, KPMG advised that their January&nbsp;12,
2004 independent auditors&#146; report of our November&nbsp;13, 2003 balance sheet should
no longer be relied upon. On September&nbsp;9, 2004, in its response to a
request for disclosure from the plaintiffs, KPMG stated, among other things,
that it had determined that the deferred tax asset, which is reflected in our December&nbsp;31,
2003 audited financial statements, should have been reflected in our November&nbsp;13,
2003 balance sheet. If we ultimately are unsuccessful, we could be required to
pay to the redeemed shareholders in excess of $19&nbsp;million, plus any
potential interest or third-party costs associated with the litigation, which
at such time could have an adverse effect on our liquidity. The
$19.0&nbsp;million payment will be an increase in the redemption price of their
shares and will be recorded as a reduction of our paid in capital in the period
in which the dispute is resolved and will not be reflected in our statement of
operations. Any interest and other third-party costs, if payable as part of a
settlement, will be recorded to earnings in the period in which the dispute is
resolved.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:0pt;"><a name="OurAbilityToGenerateNetInterestIn_223726"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our ability to
generate net interest income from our securitized loans is dependent upon the
success of our portfolio-based model of securitizations, which is subject to
several risks.</font></b></p>

<p style="font-style:italic;margin:0pt 0pt 6.0pt 20.0pt;page-break-after:avoid;text-indent:0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">The success of our portfolio-based model of
securitizations is subject to the effects of fluctuations in interest rates and
loan defaults.</font></i></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We expect to generate a substantial portion of our earnings and cash
flow from the non-conforming loans we originate and securitize, primarily
through net interest income. A substantial portion of the net interest income
generated by our securitized loans is based upon the difference between the
weighted average interest earned on the mortgage loans held in our portfolio
and the interest payable to holders of the mortgage-backed securities. The interest
expense on the mortgage-backed securities is typically adjusted monthly
relative to market interest rates. Because the interest expense associated with
the mortgage-backed securities typically adjusts faster than the interest
income from the mortgage loans, our net interest income can be volatile in
response to changes in interest rates. Also, the net interest income we receive
from securitizations will likely decrease and our cash flow will be reduced if
there are defaults on a significant number of our securitized loans or if a
large number of our securitized loans prepay prior to their scheduled
maturities. The effects will be magnified if the defaults or prepayments occur
with respect to securitized loans with interest rates that are high relative to
the rest of our securitized loans. Generally, loans with higher relative
interest rates represent loans to higher-risk borrowers and these loans
generally </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">have a higher default rate than loans to
lower-risk borrowers. As a result, our cash flow could be significantly
reduced, limiting our ability to make distributions to you.</font></p>

<p style="font-style:italic;margin:0pt 0pt 6.0pt 20.0pt;page-break-after:avoid;text-indent:0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">We are subject to the risk of margin calls
while our loans held for investment are financed with short term borrowings,
and we are obligated to repay the full amount of our debt under our short term
borrowings regardless of the value of the mortgage loans collateralizing the
debt.</font></i></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our portfolio-based model is based on our
expectation that the interest income we receive from the loans in the portfolio
will exceed the interest expense of the debt we incur for financing those
loans. However, we are required to repay our portfolio debt regardless of the
loans&#146; performance, which means that our portfolio income is at risk for the
expense of repaying our debt as well as for the performance of the loans. This
is true both for the short-term debt we incur to finance loans held for
investment prior to securitization and for the securitization debt that we
incur as long term financing of our loans held for investment. We are subject
to two risks while our loans held for investment are financed with short term
borrowings that we are not subject to relative to our securitization debt:
first, we may be required to make additional payments to our lenders (known as &#147;margin
calls&#148;) relative to our short term financing if the lenders determine that the
market value of the mortgage loans they hold as collateral has declined, which
could happen at any time as a result of increases in market interest rates; and
second, we are obligated to repay the full amount of our debt under our short
term borrowings regardless of the value of the mortgage loans collateralizing
the debt. Our securitization debt is long-term structured debt on which we
never have margin calls and are at risk only for the amount we have invested in
the loans, which exceeds the securitization debt.</font></p>

<p style="font-style:italic;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Over-collateralization may reduce or eliminate our net interest income.</font></i></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As a relatively new issuer of mortgage-backed securities, we may be
required to provide higher than average levels of credit enhancement and
over-collateralization on our initial securitizations, which may delay our
receipt of net interest income from our securitizations. Even after we have
established ourselves as an issuer of mortgage-backed securities, if any of our
loan pools fail to perform, our credit enhancement expenses likely will
increase.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The nature and level of credit enhancement required to achieve specified
ratings for a securitization transaction are established in negotiations and
discussions among the issuer, underwriter and rating agencies and are based, in
significant measure, on the loan characteristics of the securitized pool. To
date, we have securitized seven separate pools of residential mortgage loans.
Our securitizations have been structured to achieve AAA ratings for the most
senior classes of issued securities. To achieve those ratings, our
securitization transactions have included credit enhancement in the form of
structural subordination, over-collateralization and the allocation of excess
cash flow to cover pool losses. We have retained the most subordinated interest
in each securitized pool. Our securitization transactions generally require an
initial over-collateralization percentage of approximately 2.50% for the first
36&nbsp;months of the transaction to support BBB ratings for the most junior
classes of securities issued. Thereafter, the required over-collateralization
percentage may be reduced in accordance with a prescribed formula, subject to
the satisfaction of certain pool performance criteria. Specifically, any
reduction in the over-collateralization percentage is conditioned on
satisfaction of certain pool loss and delinquency levels, sometimes referred to
as triggers. The loss triggers for our outstanding securitizations require that
the over-collateralization percentage not be reduced if pool losses exceed
certain percentages, which increase over the life of the pool.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The delinquency triggers for our outstanding transactions require that
all principal receipts on the mortgage loans be allocated to senior classes of
securities if the percentage of pool mortgage loans that are 60&nbsp;days or
more delinquent represents more than approximately 40% of the credit
enhancement available to such senior classes.</font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As the holder of the most subordinated interest in our securitized
pools, we are entitled to distributions from the securitization trusts only to
the extent that amounts received in respect of the securitized mortgage loans
are not allocated to the payment of any related outstanding class of
securities. Therefore, as a result of the required credit enhancement
provisions and, particularly, the effects of loss and delinquency triggers,
credit losses or delinquencies on the mortgage loans in a securitized pool
could result in a reduction or elimination of amounts available for
distribution to us from the related securitized pool.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Over the next two to five years, as
performance data on our securitized loans becomes available to the rating
agencies, we expect that our credit enhancement levels will be refined for
future securitizations. Whether or not our enhancement levels are lowered will
depend upon whether our performance meets or exceeds the rating agencies&#146;
expectations.</font></p>

<p style="font-style:italic;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may not succeed in developing a portfolio-based model of
securitizations.</font></i></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We expect to rely upon our ability to securitize our non-conforming
loans to generate cash proceeds for repayment of our warehouse lines and
repurchase facilities and to originate additional conforming and non-conforming
mortgage loans. We cannot assure you, however, that we will be successful in
securitizing a substantial portion of the non-conforming loans that we
accumulate. In the event that it is not possible or economical for us to
complete the securitization of a substantial portion of our non-conforming
loans, we may continue to hold these loans and bear the risks of interest rate
changes and loan defaults and delinquencies, and we may exceed our capacity
under our warehouse lines and repurchase facilities and be unable or limited in
our ability to originate future mortgage loans. If we determine that we should
sell all or part of our non-conforming loans initially funded in our investment
portfolio rather than securitizing them, there could be a significant reduction
in our net income and stockholder distributions because of the potential
application of a 100% tax on gains of such sales pursuant to the rules&nbsp;governing
REITs.</font></p>

<p style="margin:0pt 0pt 14.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The senior
securities that we issue in connection with our securitizations have various
ratings and are priced at a spread over an identified benchmark rate, such as
the yield on United States Treasury bonds, interest rate swaps, or the London
Inter-Bank Offered Rate (LIBOR). If the spread that investors demand over the
benchmark rate widens and the rates we charge on our non-conforming loans are
not commensurately increased, we may experience a decrease in the net interest
income from any additional securitizations and therefore experience a reduction
in the economic value of the pool of loans in our portfolio.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Fluctuating
or rising interest rates may reduce our earnings or limit or eliminate our
ability to borrow under our warehouse lines and repurchase facilities and to
originate mortgages.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Changes in interest rates could affect our ability to originate loans,
affect the value of the conforming and non-conforming loans we have originated
prior to the time of the change in interest rates, inhibit our ability to
securitize our non-conforming loans, or diminish the value of our retained
interests in loan pools. Because the interest payable on the mortgage-backed
securities issued in a securitization generally will adjust monthly and be
based on shorter term floating interest rates, and the interest income we
receive from our securitized loans generally will either be fixed, adjust less
frequently than monthly or be subject to caps on the rates the borrowers pay,
the net interest income generated by the securitized mortgages likely will
decrease in a period of rising interest rates. In addition, when interest rates
rise, the variable interest rates that we pay to finance our operations may
rise above the interest we collect on our loans.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Fluctuations in interest rates may also
affect our profitability in other ways, including the following:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>lower
interest rates may cause prepayments to increase, reducing our net interest
income over time from our securitized loans;</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>higher
interest rates may reduce overall demand for mortgage loans, particularly
conforming loans, and accordingly reduce our origination of new loans;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>increases in
short- or long-term interest rates may reduce the value of loans on our
consolidated statement of condition; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>decreases in
short-term interest rates will result in a non-cash charge being recognized for
income reporting to reflect the mark to market of the interest rate derivatives
hedging the variable rate debt financing our held for investment portfolio.</p>

<p style="margin:0pt 0pt 14.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, the amount available to us
under our warehouse lines and repurchase facilities depends in large part on
the lender&#146;s valuation of the mortgage loans that secure the facilities. Each
credit facility provides the lender the right, under certain circumstances, to
re-evaluate the loan collateral that secures our outstanding borrowings at any
time. In the event the lender determines that the value of the loan collateral
has decreased, it has the right to initiate a margin call. A margin call would
require us to provide the lender with additional collateral or to repay a
portion of the outstanding borrowings at a time when we may not have a
sufficient inventory of loans or cash to satisfy the margin call. Accordingly,
any failure by us to meet a margin call could cause us to default on our credit
facilities and limit or eliminate our ability to borrow and to originate
mortgages.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
internal controls and disclosure controls and procedures may not be adequate to
ensure that we are able to report accurately our financial results.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Effective internal controls are necessary for us to provide reliable
financial reports. In order to establish effective internal control over
financial reporting, we must evaluate and document the design of and test the
effectiveness of our internal controls over financial reporting. During this
process, we, or our independent auditors, may identify deficiencies in our
system of internal control over financial reporting that may require
remediation.</font></p>

<p style="margin:0pt 0pt 14.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In conjunction with the audit of our
financial statements as of December&nbsp;31, 2004, our independent auditors,
KPMG LLP, reported several significant deficiencies to our Audit Committee. A
significant deficiency is a control deficiency, or combination of control
deficiencies, that adversely affects a company&#146;s ability to initiate,
authorize, record, process, or report external financial data reliably and in
accordance with GAAP, such that there is more than a remote likelihood that a
misstatement of annual or interim financial statements that is more than
inconsequential will not be prevented or detected. KPMG reported several
significant deficiencies in our information technology area related to access
controls that leave us vulnerable to unauthorized or inappropriate access to
relevant financial reporting applications or data, and change management
controls. KPMG also reported a significant deficiency in the process for
determining the application of accounting principles to individual
transactions. This significant deficiency primarily was in connection with our
recent restatement of our audited financial statements for the year ended December&nbsp;31,
2003 to eliminate the use of cash flow hedge accounting for our interest rate
swap transactions because we determined that our hedge documentation was not
sufficient to qualify for cash flow hedge accounting in accordance with the
requirements of Statement of Financial Accounting Standards No.&nbsp;133
(Statement 133) <i><font style="font-style:italic;">&#147;Accounting for Derivative
Instruments and Hedging Activities.&#148;</font></i> Management has discussed these
deficiencies with our independent auditors, and is in the process of developing
and implementing remediation plans. Any failure to remediate a significant
deficiency or to implement required new or improved controls could lead to
material errors in our financial statements, cause us to fail to meet our
reporting obligations, and expose us to civil and criminal actions. Any of
these results could cause investors to lose confidence in our reported
financial information, which could have a material adverse effect on the
trading price of our common stock.</font></p>


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<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">If
we do not manage our growth effectively, our management, administrative,
operational and infrastructure may be harmed.</font></b></p>

<p style="margin:0pt 0pt 14.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In recent years, we have experienced rapid
growth that has placed, and will continue to place, pressures on our
management, administrative, operational and financial infrastructure. We also intend
to increase our business in the future by permanently servicing and continuing
to securitize non-conforming loans, which will require capital and systems
development and human resources beyond those that we currently have. To develop
the capacity to permanently service loans, we may acquire a third party with
servicing capacity or a servicing component of a third party or, alternatively,
develop servicing capacity internally. If we are unable to or choose not to
acquire this servicing capacity from a third party, we will require significant
time to develop the capacity internally. We have not determined how we will
develop the servicing capacity and as a result, we cannot determine if and when
we will have the capacity to service our non-conforming loans on a permanent
basis. In addition, we cannot assure you that we will be able to satisfy our
capital needs, expand our systems effectively, allocate our human resources
optimally, identify and hire additional qualified employees, satisfactorily
perform our servicing obligations or incorporate effectively the components of
any businesses that we may acquire to achieve this growth. If we are unable to
manage growth effectively, we may become less efficient in originating, selling
and securitizing loans, which could result in a decrease in our profit on loans
sold and our net interest income from retained loans.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
hedging strategies may not be successful in mitigating our risks associated
with changes in interest rates.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We use various derivative financial instruments to provide a level of
protection against interest rate risks, but no hedging strategy can protect us
completely. When interest rates change, we expect the gain or loss on
derivatives to be offset by a related but inverse change in the value of loans
held for sale. We cannot assure you, however, that our use of derivatives will
fully offset the risks related to changes in interest rates. There have been
periods, and it is likely that there will be periods in the future, during
which we will recognize losses on our derivative financial instruments under
required accounting rules&nbsp;that will not be fully offset by gains we
recognize on loans held for sale or loans held for investment. The derivative
financial instruments that we select may not have the effect of reducing our
price risk on our loans, including our interest rate risk. In addition, the
nature and timing of hedging transactions may influence the effectiveness of
these strategies. Poorly designed strategies, improperly executed transactions or
unanticipated market fluctuations could actually increase our risk and losses.
In addition, hedging strategies involve transaction and other costs. We cannot
assure you that our hedging strategy and the derivatives that we use will
adequately offset the risk of interest rate volatility or that our hedging
transactions will not result in losses.</font></p>

<p style="margin:0pt 0pt 14.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Furthermore, we cannot assure you that the
period in which the income or expense from the hedging transaction is
recognized in our earnings will coincide with the period or periods in which
the income or expense from the item we are economically hedging will be
recognized in our earnings because we are marking to market our interest rate
derivatives hedging our variable rate debt through earnings each period. These
derivatives are structured to limit the volatility of our current period
interest expense due to changes in interest rates over a period of generally
two years. The fair market value of the derivatives will incorporate the market&#146;s
expected level of interest rates in these future periods. Accordingly, the mark
to market of the derivatives through the income statement will bring the market&#146;s
expectation about changes in interest rates in the future into current period
earnings. It is possible that there will be periods during which we will
recognize non-cash losses on derivative transactions that may result in us
reporting a net loss for the period. As a result, without cash flow hedge
accounting, our reported earnings will be subject to greater volatility.</font></p>


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<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
portfolio consists primarily of adjustable rate mortgage (ARM) loans, many of
which are &#147;interest only&#148; for up to the first five years, which exposes us to a
higher risk of default.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our portfolio consists almost entirely of adjustable rate mortgage (ARM)
loans, the payments on which are adjustable from time to time as interest rates
change, generally after an initial period during which the loans&#146; interest
rates are fixed and do not change. After the initial fixed rate period, the
borrowers&#146; payments on our ARM loans adjust once every six months to a
pre-determined margin over a measure of market interest rates, generally the
London InterBank Offered Rate (LIBOR) for one-month deposits. As of June&nbsp;30,
2005, 60.7% of our ARM loans held for investment also have an &#147;interest only&#148;
feature for up to the first five years of the loan, so that the borrowers do
not begin to re-pay the principal balance of the loans until after a certain
period of time. After such time, the borrowers&#146; payments increase to amortize
the entire principal balance owed over the remaining life of the loan.</font></p>

<p style="margin:0pt 0pt 14.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These features will likely result in the
borrowers&#146; payments increasing in the future. Since these features will
increase the debt service requirements of our borrowers, it may increase our
risk of default in our investment portfolio for loans that remain in our
portfolio for at least two years (relative to the ARM feature) or for five
years (relative to the interest only feature).</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
warehouse lines, repurchase facilities and conduit commercial paper facility
contain covenants that restrict our operations and any default under these
credit facilities would inhibit our ability to grow our business and increase
revenues.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our existing warehouse lines, repurchase facilities and conduit commercial
paper facility contain extensive restrictions and covenants and require us to
maintain or satisfy specified financial ratios and tests, including among other
things, minimum levels of consolidated tangible net worth, liquidity and
profitability, maximum ratio of indebtedness to consolidated adjusted tangible
net worth and maintenance of asset quality and portfolio performance tests.
Failure to meet or satisfy any of these covenants, financial ratios or
financial tests could result in an event of default under these agreements.
These agreements are secured by substantially all of our assets and also
contain cross-default provisions, so that an event of default under any
agreement will trigger an event of default under other agreements, giving the
lenders the right to declare all amounts outstanding under their particular
credit agreement to be immediately due and payable, enforce their rights by
foreclosing on collateral pledged under these agreements and restrict our
ability to make additional borrowings under these agreements.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our warehouse lines and repurchase
facilities also restrict our ability to, among other things:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>incur
additional debt;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>acquire all
or substantially all of the assets or ownership interests of another entity;
and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>engage in mergers
or consolidations.</p>

<p style="margin:0pt 0pt 14.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These restrictions may interfere with our
ability to obtain financing or to engage in other business activities, which
may inhibit our ability to grow our business and increase revenues.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">If
the prepayment rates for our mortgage loans are higher than expected, our net
interest income may be reduced.</font></b></p>

<p style="margin:0pt 0pt 14.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The rate and timing of unscheduled payments
and collections of principal on our loans is impossible to predict accurately
and will be affected by a variety of factors, including, without limitation,
the level of prevailing interest rates, refinancing incentives that are a
function of home value changes, restrictions on voluntary prepayments contained
in the loans, the availability of lender credit and other economic,
demographic, geographic, tax and legal factors. In general, however, if
prevailing interest rates fall significantly below the interest rate on a loan,
the borrower is more likely to prepay the then higher rate loan than if
prevailing rates remain at or above the interest rate on the loan. Unscheduled
principal </font></p>


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<p style="margin:0pt 0pt 14.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">prepayments are
permitted under all of our loans. Our results of operations could be reduced to
the extent that we are unable to reinvest the funds we receive from unscheduled
principal prepayments at an equivalent or higher rate, if at all. In addition,
a large amount of prepayments, especially prepayments on loans with interest
rates that are high relative to the rest of the loan portfolio, will likely
decrease the net interest income we receive from the portfolio. Also, elevated
prepayment levels will cause the amortization of deferred origination costs to
increase and reduce net interest income.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
non-conforming loans are underwritten to non-conforming underwriting standards,
which may result in losses or shortfalls on our mortgage-backed securities.</font></b></p>

<p style="margin:0pt 0pt 14.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We underwrite all of our non-conforming
loans in accordance with our non-conforming credit underwriting standards. A
non-conforming mortgage loan is a mortgage loan which is ineligible for
purchase by Fannie Mae or Freddie Mac due to either loan size, credit
characteristics of the borrower or documentation standards in connection with
the underwriting of the borrower&#146;s income. The credit characteristics that
cause a loan to be ineligible include those where there is a relatively higher
level of debt service carried by the borrower, higher LTV, and loans by
borrowers who may have a record of credit write-offs, outstanding judgments,
prior bankruptcies and other credit items that do not satisfy the Fannie Mae or
Freddie Mac underwriting guidelines. Documentation standards that are not
eligible may include borrowers who provide limited or no documentation of their
income in connection with the underwriting of the related mortgage loan.
Accordingly, mortgage loans underwritten under our non-conforming credit
underwriting standards are likely to experience rates of delinquency,
foreclosure and loss that are higher, and may be substantially higher, than
mortgage loans originated in accordance with Fannie Mae or Freddie Mac underwriting
guidelines. We cannot provide assurance that our underwriting criteria or
collection methods will afford adequate protection against the higher risks
associated with loans made to non-conforming borrowers. If we are unable to
mitigate these risks, our net interest income from our securitizations may be
reduced.</font></p>

<p style="margin:0pt 0pt 4.0pt;page-break-after:avoid;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We may be required to
repurchase mortgage loans that we have sold, or replace loans that have been
securitized, which could significantly reduce our cash flow and limit our
ability to make distributions to our stockholders.</font></b></p>

<p style="margin:0pt 0pt 4.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">When we sell or
securitize a loan we make certain representations, warranties and covenants
regarding certain characteristics of the loans, the borrowers and the
underlying properties, including that:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>we deliver
all required documentation within the applicable time period for delivery;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>we will
repurchase the loan in the event of an early payment default (generally defined
as a default of the first payment after sale or default of two of the first
four payments after sale); and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 4.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the borrower&#146;s
credit documents submitted for loan underwriting were not falsified, contained
no untrue statement of material fact and did not omit to state a material fact.</p>

<p style="margin:0pt 0pt 4.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If we are found to have breached any of our
representations or warranties, we may be required to repurchase those loans or,
in the case of securitized loans, replace them with substitute loans or cash.
If this occurs, we may have to bear any associated losses directly. In
addition, in the case of loans that we sold, we may be required to indemnify
the purchasers of the loans for losses or expenses incurred as a result of a
breach of a representation or warranty. Repurchased loans typically require a
significant allocation of working capital to carry on our books, and our
ability to borrow against these loans is limited. Any significant repurchases
or indemnification payments we make could significantly reduce our cash flow
and limit our ability to make distributions to you.</font></p>

<p style="margin:0pt 0pt 4.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In May&nbsp;2004, the conforming division of
Fieldstone Mortgage, d/b/a Broad Street Mortgage Co., received notification
from HUD&#146;s Regional Office of the Inspector General for Audit, in Fort Worth,
Texas (the HUD IG), that an audit would be conducted to review loan origination
procedures and the </font></p>


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<p style="margin:0pt 0pt 4.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">quality control plan
for FHA loans originated by one of the division&#146;s San Antonio branches. The HUD
IG audit was triggered by the relatively high delinquency rate of loans
originated by this San Antonio branch, even though the delinquency rate on FHA
loans originated by all of Fieldstone Mortgage&#146;s other branches is not above
the national average. On August&nbsp;31, 2004, we closed this San Antonio
branch and terminated the staff through a reduction in force.</font></p>

<p style="margin:0pt 0pt 4.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On May&nbsp;26, 2005, HUD
IG issued its audit report of this now closed San Antonio branch. The audit
report alleges underwriting deficiencies with respect to 24 FHA-insured loans. Specifically,
the audit report asserts that the branch did not follow HUD requirements with
respect to the approval of loans where the borrowers received gift funds from
non-profit organizations that were used as borrower downpayments. Downpayment
assistance programs involving gift funds from non-profit organizations are
expressly permitted under HUD&#146;s FHA regulations. The audit report also asserts
that the price of the property was increased by the amount of assistance
provided to the borrower. Each of the 24 loans cited in the audit report had an
independent appraisal performed on the property supporting the purchase price
paid by the borrower. The audit report does not cite any deficiencies in any of
the specific appraisals performed on the 24 properties. The audit report
recommends that HUD require that Fieldstone Mortgage provide indemnification
for any losses suffered by HUD in connection with the 24 loans identified in
the audit report. The audit report has been sent to HUD&#146;s Office of Housing for
resolution of the audit recommendations.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We intend to continue to
vigorously defend the actions of the San Antonio branch with respect to the use
of downpayment assistance programs and to continue to seek reversal of the HUD
IG&#146;s findings with respect to the 24 loans at issue. We remain in good standing
with HUD.</font></p>

<p style="margin:0pt 0pt 2.0pt;page-break-after:avoid;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">The success of our
portfolio management and securitization business will depend upon our ability to
service effectively the loans held in our portfolio and in our securitizations.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Once we securitize non-conforming loans, our
strategy is to retain the servicing of those loans, including, but not limited
to, all collection, advancing and loan level reporting obligations, maintenance
of custodial and escrow accounts, and maintenance of insurance and enforcement
of foreclosure proceedings. Historically, we have only serviced loans for the
initial interim period between when we fund the loans and when we sell the
loans and transfer the servicing at the direction of the purchaser. We have no
experience servicing a large portfolio of loans for an extended period of time.
We must either implement a servicing function or continue to contract with a
third party to service the loans for us to fully implement our strategy. We
cannot assure you that we will be able to service the loans according to
industry standards either now or in the future. Any failure to service the
loans properly will harm our operating results. Because we have not built or
acquired the servicing capabilities that we need, we presently contract with
Wells Fargo Bank, N.A., an experienced master servicer of non-conforming
mortgage loans, to serve as master servicer, and Chase Home Finance LLC, an
experienced servicer of non-conforming loans, to &#147;sub-service&#148; our loans for
us. The aggregate fees paid to our master servicer and sub-servicer, generally
between 21 and 25 basis points of the outstanding principal balance, are a
component of our general and administrative expenses. Furthermore, our net
interest income depends upon the effectiveness of the third party sub-servicer.</font></p>

<p style="margin:0pt 0pt 2.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">A prolonged economic
slowdown, a lengthy or severe recession or declining real estate values may
result in a reduction of mortgage origination activity, which could limit our
ability to grow our loan portfolio and thus our net income.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">An economic slowdown or a recession may have
an adverse impact on our operations and our financial condition, particularly
if accompanied by declining real estate values. Declining real estate values
likely will reduce our level of new originations because borrowers use
increases in the value of their homes to support new loans and higher levels of
borrowings. Declining real estate values also negatively affect loan-to-value
ratios of our existing loans and increase the likelihood that borrowers may
default on existing </font></p>


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<p style="margin:0pt 0pt 12.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">loans. Any sustained
period of delinquencies, foreclosures or losses could adversely affect our net
interest income from loans in our portfolio, as well as our ability to
originate, sell and securitize loans.</font></p>

<p style="margin:0pt 0pt 2.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">The residential mortgage
origination business is a cyclical industry, and we expect that a rise in
interest rates may result in a decreased volume of loan originations in the
foreseeable future resulting in increased competition for the remaining loans.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The residential mortgage origination
business historically has been a cyclical industry, enjoying periods of strong
growth and profitability followed by periods of shrinking volumes and
industry-wide losses. The residential mortgage industry has experienced rapid
growth over the past three years due largely to declining interest rates. The
Mortgage Bankers Association of America has predicted that residential mortgage
originations will decrease in 2005 relative to the 2004 levels due to rising
interest rates. During periods of rising interest rates, refinancing
originations decrease, as higher interest rates provide reduced economic
incentives for borrowers to refinance their existing mortgages. We expect this
to result in a decreased volume of originations in the foreseeable future,
especially for conforming loans. Due to stable and decreasing interest rates
over recent years, our historical performance will not be indicative of results
in a rising interest rate environment. If interest rates rise, the number of
loan originations may decrease generally, resulting in increased competition
for the remaining loans. In addition, our recent and rapid growth may distort
some of our ratios and financial statistics and may make period-to-period
comparisons difficult. In light of this growth, our historical performance and
operating and origination data may be of little relevance in predicting our
future performance.</font></p>

<p style="margin:0pt 0pt 2.0pt;page-break-after:avoid;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our business may be
significantly affected by the economies of California, Illinois and Colorado,
where we conduct a significant amount of our business.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Although we are licensed or exempt from
licensing requirements to originate loans in 48 states and the District of
Columbia, and we regularly originate loans in most of these states, as of June&nbsp;30,
2005, approximately 43.4% of the loans we originated were loans secured by
properties located in California, 6.9% were loans secured by properties located
in Illinois, and 5.22% were loans secured by properties located in Florida. An
overall decline in the economy or the residential real estate market, or the
occurrence of a natural disaster, such as an earthquake, in California,
Illinois or Florida could adversely affect the value of the mortgaged
properties in those states and increase the risk of delinquency, foreclosure,
bankruptcy or loss on mortgage loans in our portfolio. This would negatively
affect our ability to originate, sell and securitize mortgage loans, which
could result in a decrease in our profit on loans sold and our net interest
income from retained loans.</font></p>

<p style="margin:0pt 0pt 2.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We face intense competition
that could adversely affect our market share and our revenues.</font></b></p>

<p style="margin:0pt 0pt 4.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We face intense competition from finance and
mortgage banking companies, other mortgage REITs, Internet-based lending
companies where entry barriers are relatively low and, to a growing extent,
from traditional bank and thrift lenders that have entered the mortgage
industry. As we seek to expand our business, we will face a significant number
of additional competitors that may be well established in the markets we seek
to penetrate. Some of our competitors are much larger than we are, have better
name recognition than we do and have far greater financial and other resources than
we do.</font></p>

<p style="margin:0pt 0pt 4.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition to mortgage banking companies,
other mortgage REITs, Internet-based lending companies, traditional banks and
thrift lenders, the government-sponsored entities (Fannie Mae and Freddie Mac),
are also expanding their participation in the mortgage industry. These
government-sponsored entities have a size and cost-of-funds advantage that
allows them to purchase loans with lower rates or fees than we are able to
offer. While these entities are not legally authorized to originate mortgage loans,
they do have the authority to buy loans. A material expansion of their
involvement in the market to purchase non-conforming loans could change the
dynamics of the industry by virtue of their sheer size, pricing power and the
inherent advantages of a government charter. In addition, if as a result of
their </font></p>


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<p style="margin:0pt 0pt 4.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">purchasing
practices, Fannie Mae or Freddie Mac experiences significantly
higher-than-expected losses, the experience could adversely affect the overall
investor perception of the non-conforming mortgage industry.</font></p>

<p style="margin:0pt 0pt 3.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The intense competition in the
non-conforming mortgage industry has also led to rapid technological
developments, evolving industry standards and frequent releases of new products
and enhancements. As mortgage products are offered more widely through
alternative distribution channels, such as the Internet, we may be required to
make significant changes to our current retail and wholesale origination
structure and information systems to compete effectively. An inability to
continue enhancing our current systems and Internet capabilities, or to adapt
to other technological changes in the industry, could significantly harm our
business, financial condition and results of operations.</font></p>

<p style="margin:0pt 0pt 3.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Competition in the mortgage industry can
take many forms, affecting interest rates and costs of a loan, stringency of
underwriting standards, convenience in obtaining a loan, customer service, loan
amounts and loan terms and marketing and distribution channels. The need to
maintain mortgage loan volume in a competitive environment may create price
competition, which could cause us to lower the interest rates that we charge
borrowers, and could lower the value of our loans held for sale or in our
portfolio, or credit competition, which could cause us to adopt less stringent
underwriting standards. The combination of price competition and credit
competition could result in greater loan risk without compensating pricing. If
we do not address either or both of these competitive pressures in response to
our competitors, we could lose market share, reduce the volume of our loan
originations and sales and significantly harm our business, financial condition
and results of operations.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The cyclical decline in the mortgage industry&#146;s overall level of
originations following 2004 may lead to increased competition for the remaining
loans.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">An
interruption in or breach of our information systems could impair our ability
to originate loans on a timely basis and may result in lost business.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We rely heavily upon communications and information systems to conduct
our business. Any failure or interruption or breach in security of our
information systems or the third-party information systems that we rely on
could cause delays in underwriting, fewer loan applications to be received and
processed and reduced efficiency in loan servicing. We currently contract with
a third party, LION,&nbsp;Inc., to provide a software database application to
track and provide market valuations for our conforming originations and related
derivatives. This contract is renewable annually. We also contract with a third
party, Ceridian Corporation, to provide payroll services, including employee
pay disbursement, payroll tax deposits and all related federal and state
payroll tax reporting requirements. This contract is renewable annually. We
cannot assure you that no failures or interruptions will occur or, if they do
occur, that we or the third parties on which we rely will adequately address
them. The occurrence of any failures or interruptions could significantly harm
our business, financial condition and results of operations.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our independent auditors have reported to our Audit Committee that for
2004 we had significant deficiencies in the information technology area related
to systems access and change management controls. If we are unable to remediate
these significant deficiencies, it could materially harm our ability to
implement effective internal control over financial reporting.</font></p>


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<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">If
we are unable to maintain and expand our network of independent brokers, our
loan origination business will decrease.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A significant portion of the mortgage loans
that we originate comes from independent brokers. As of June&nbsp;30, 2005,
approximately 4,700 brokers were involved in the origination of approximately
86.6% of our mortgage loans. Our brokers are not contractually obligated to do
business with us. Further, our competitors also have relationships with our
brokers and actively compete with us in our efforts to obtain loans from our
brokers and to expand broker networks. Accordingly, we cannot assure you that
we will be successful in maintaining our existing broker relationships or
expanding our broker networks. If we are not successful, it could negatively
affect the volume and pricing of our loans.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Loss
of our key management or the inability to attract and retain key employees may
impair our ability to operate successfully.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our future success depends to a significant extent on the continued
services of our senior management and the senior management of Fieldstone
Mortgage, particularly, Michael J. Sonnenfeld, our President and Chief
Executive Officer, Walter P. Buczynski, Executive Vice President&#151;Secondary
Marketing, James T. Hagan,&nbsp;Jr., Executive Vice President&#151;Non-Conforming
Wholesale Division (Fieldstone Mortgage), John C. Kendall, Senior Vice
President&#151;Investment Portfolio, John C. Camp, IV, Senior Vice
President&#151;Information Systems and Facilities and Gary K. Uchino, Senior Vice
President and our Chief Credit Officer. We do not maintain &#147;key person&#148; life
insurance for any of our personnel. The loss of the services of any of our
senior managers, or other key employees, could harm our business and our
prospects. Further, loss of a key member of our senior management team could be
negatively perceived in the capital markets, which could have a negative impact
on the market price of our common stock.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, we depend on our production
managers, account executives and loan officers to attract borrowers by, among
other things, developing relationships with other financial institutions,
mortgage companies and mortgage brokers, real estate agents and real estate
brokers and others. These relationships lead to repeat and referral business.
The market for skilled production managers, account executives and loan
officers is highly competitive. Competition for qualified production managers,
account executives and loan officers may lead to increased hiring and retention
costs. If we are unable to attract or retain a sufficient number of skilled
production managers, account executives and loan officers at manageable costs,
it could harm our business, financial condition and results of operations.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We
may be subject to losses due to fraudulent and negligent acts on the part of
loan applicants, mortgage brokers, other vendors and our employees.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">When we originate mortgage loans, we rely upon information supplied by
third parties, including the information contained in the loan application made
by the applicant, property appraisal, title information and employment and
income documentation. If a third party misrepresents any of this information
and we do not discover the misrepresentation prior to funding the loan, the
value of the loan may be significantly lower than anticipated. As a practical
matter, we generally bear the risk of loss associated with the
misrepresentation whether it is made by the loan applicant, the mortgage
broker, another third party or one of our employees. A loan that is subject to
a material misrepresentation is typically unsaleable or subject to repurchase
if it is sold prior to detection of the misrepresentation. Although we may have
rights against persons who, or entities that, made, or knew about, the
misrepresentation, those persons and entities may be difficult to locate, and
it is often difficult to collect from them any monetary losses that we have
suffered.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, for approximately 40% of the non-conforming loans that we
originate, we receive little or no documentation of the borrowers&#146; income.
Instead, we base our credit decisions on the borrowers&#146; credit </font></p>


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<p style="margin:0pt 0pt 12.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">score and credit
history, the collateral value of the property securing the loan and the effect
of the loan on the borrowers&#146; debt service. There is a higher risk of default
on loans where there is little or no documentation of the borrower&#146;s income.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">The
success and growth of our business will depend upon our ability to adapt to and
implement technological changes.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our mortgage loan origination business is
dependent upon our ability to interface effectively with our brokers, borrowers
and other third parties and to effectively and efficiently process loan
applications. The origination process is becoming more dependent upon advanced
technology to process applications over the Internet, interface with brokers,
borrowers and other third parties through electronic means and underwrite loan
applications. Over the next six to nine months, we plan to continue developing
and implementing new software technology for use in our loan origination
system. The estimated cost of implementing this new system is approximately
$6.1&nbsp;million. Implementing this new technology and maintaining the
effectiveness and efficiency of the technology currently used in our operations
may require significant capital expenditures. We will have to fully develop our
technological capabilities to remain competitive.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
operations are subject to a body of complex laws and regulations at the
federal, state and local levels, thereby potentially increasing our exposure to
the risks of non-compliance.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Because we originate loans nationwide, we must comply with the laws, rules&nbsp;and
regulations, as well as judicial and administrative decisions, of all relevant
jurisdictions, as well as an extensive body of federal laws, rules&nbsp;and
regulations. The volume of new or modified laws, rules&nbsp;and regulations has
increased in recent years, and, in addition, individual municipalities have
begun to enact laws, rules&nbsp;and regulations that restrict loan origination
activities, and in some cases loan servicing activities. The laws, rules&nbsp;and
regulations of each of these jurisdictions are different, complex and, in some
cases, in direct conflict with each other. As our operations continue to grow,
it may be more difficult to understand and deal with all of these laws, rules&nbsp;and
regulations, thereby potentially increasing our exposure to the risks of
non-compliance.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Local jurisdictions in California and Ohio have enacted laws restricting
loan origination activities. In Cleveland Heights, Ohio, where we lend,
additional disclosures are required. In Cleveland, Ohio, where we do not
currently lend, restrictions have been placed on loan flipping, negative
amortization, balloon loans as well as caps on points, fees and APRs for first
and second liens. We originate all conforming and non-conforming loans through
Fieldstone Mortgage, which is licensed to originate residential mortgages in
all states in which it conducts business and in which a license is required.
Fieldstone Mortgage is licensed or exempt from licensing requirements to
originate residential mortgages in the District of Columbia and all of the
states except for Alabama and New York. With respect to our portfolio of
non-conforming loans held for investment, Fieldstone Mortgage closes the loans in
its own name using funds advanced by Fieldstone Investment, with a simultaneous
assignment of the loans to Fieldstone Investment. Fieldstone Mortgage services
the loans for a fee until transferred to the sub-servicer. Fieldstone
Investment is licensed or exempt from licensing requirements to fund
residential mortgage loans or acquire closed residential mortgage loans in all
states in which it conducts business and in which a license is required.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our failure to comply with these laws, rules&nbsp;and
regulations can lead to:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>civil and
criminal liability, including potential monetary penalties;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>loss of state
licenses or other approved status required for continued lending and servicing
operations;</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>legal
defenses causing delay or otherwise adversely affecting the servicer&#146;s ability
to enforce loans, or giving the borrower the right to rescind or cancel the
loan transaction;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>demands for
indemnification or loan repurchases from purchasers of our loans;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>class action
lawsuits; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>administrative
enforcement actions.</p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Some states in which we operate may impose
regulatory requirements for financial disclosure on our officers and directors
and parties holding 10%, and in some cases 5%, of our outstanding shares of
stock. If any officer, director or person holding 10%, and in applicable cases
5%, or more of our outstanding shares of stock fails to meet or refuses to
comply with a state&#146;s applicable regulatory requirements for mortgage lending,
we could lose our authority to conduct business in that state. If we lost our
authority to conduct business in a state for this or any other reason, and we
were unable to increase our mortgage originations in other states, our
residential mortgage originations will decrease, reducing our profits on loans
sold and our net interest income from retained loans.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">New
legislation may restrict our ability to make loans, negatively affecting our
revenues.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In recent years, federal and many state and local laws, rules&nbsp;and
regulations have been adopted, or are under consideration, that are intended to
eliminate certain lending practices, often referred to as &#147;predatory&#148; lending
practices that are considered to be abusive. Many of these laws, rules&nbsp;and
regulations restrict commonly accepted lending activities and impose additional
costly and burdensome compliance requirements. These laws, rules&nbsp;and
regulations impose restrictions on loans on which various points and fees or
the annual percentage rate, or APR, meets or exceeds specified thresholds. Some
of these restrictions expose a lender to risks of litigation and regulatory
sanction no matter how carefully a loan is underwritten or originated. In
addition, an increasing number of these laws, rules&nbsp;and regulations seek
to impose liability for violations on purchasers of loans, regardless of
whether a purchaser knew of, or participated in, the violation. Accordingly,
the companies that buy our loans or provide financing for our loan originations
may not want, and are not contractually required, to buy or finance any loans
subject to these types of laws, rules&nbsp;and regulations.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The continued enactment of these laws, rules&nbsp;and regulations may
prevent us from making some loans and may cause us to reduce the APR or the
points and fees on loans that we do make. In addition, the difficulty of
managing the compliance risks presented by these laws, rules&nbsp;and
regulations may decrease the availability of warehouse financing and the
overall demand for non-conforming loans. These laws, rules&nbsp;and regulations
have increased our cost of doing business, as we have been required to develop
systems and procedures to ensure that we do not violate any aspect of these new
requirements.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, many of these state laws, rules&nbsp;and regulations are
not applicable to the mortgage operations of national banks, or other financial
institutions chartered by the federal government, thereby giving the mortgage
operations of these institutions a competitive advantage over us.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The federal Home Ownership and Equity Protection Act (HOEPA) identifies
a category of mortgage loans as &#147;high cost&#148; and subjects such loans to
restrictions not applicable to other mortgage loans. Loans subject to HOEPA
consist of loans on which certain points and fees or the annual percentage rate
(APR) exceed specified levels. Liability for violations of applicable law with
regard to loans subject to HOEPA would extend not only to us, but to the
purchasers of our loans as well. Our policy is to not make loans that are
subject to HOEPA. We anticipate that we will continue to avoid making loans
subject to HOEPA, and any lowering of the thresholds beyond which loans become
subject to HOEPA may prevent us from making certain loans and may cause us to
reduce the APR or the points and fees on loans that we do make. If we
inadvertently make a loan subject to HOEPA or if we decide to relax our
restrictions on loans subject to HOEPA, we will be subject to greater risks for
non-compliance with HOEPA and other applicable laws, </font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font face="Times New Roman">17</font></p> <br><hr size="3" width="100%" noshade color="#010101" align="center">

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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">including demands for indemnification or
loan repurchases from our lenders and loan purchasers, class action lawsuits
and administrative enforcement actions.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our policy is to avoid originating loans that are designated as &#147;high
cost&#148; by the federal HOEPA law and the various state and local laws, rules&nbsp;and
regulations. Although these laws, rules&nbsp;and regulations do not prohibit us
from making a &#147;high cost&#148; loan that is covered by these laws, if we do, we are
subject to certain additional requirements that, although different from state
to state, generally include restrictions on prepayment fees, balloon payments
and negative amortization, prohibitions against interest rate increases as a
result of default, a decreased ability to accept a loan with a less favorable
risk grade or accepting a loan at a higher cost, caps on finance points and
fees, and prohibitions against refinancing and &#147;flipping&#148; of loans (a practice
involving repeatedly refinancing loans so that the borrower&#146;s equity is
depleted by the lender&#146;s fees and making loans without a reasonable expectation
that the borrowers will be able to repay the loans).</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Laws, rules&nbsp;and regulations have been
adopted, or are under consideration, at the state and local levels that are
similar to HOEPA in that they impose certain restrictions on loans on which
certain points and fees or the APR exceeds specified thresholds. The following
table sets forth the APR and points and fees thresholds imposed by states that
have enacted these laws at the present time.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="AprAndPointsAndFeesThresholds_225636"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">APR and Points and Fees Thresholds </font></b></p>

<table border="0" cellspacing="0" cellpadding="0" style="border-collapse:collapse;font-family:Times New Roman;">
 <tr>
  <td width="47" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Interest<br>
  Rate </font></b></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="167" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">APR-First Liens</font></b></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="167" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">APR-Subordinate Liens</font></b></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="180" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Points&nbsp;&amp; Fees</font></b></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="47" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p align="right" style="margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3%</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="180" valign="top" style="padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">IL(1)</font></p>
  </td>
 </tr>
 <tr>
  <td width="47" valign="top" style="padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p align="right" style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&lt;4.5%</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="180" valign="top" style="padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">NJ(2)</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="47" valign="top" style="padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p align="right" style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&lt;5%</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="180" valign="top" style="padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">AR(3), CT(8), DC, GA(4),
  IL, IN(2), MA, NC(4), NM(4), PA(4), SC(4)</font></p>
  </td>
 </tr>
 <tr>
  <td width="47" valign="top" style="padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p align="right" style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&lt;6%</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">DC, IL</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="180" valign="top" style="padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">AR(5), CA, CO,
  IN(10)&nbsp;NJ(11)(12), WI</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="47" valign="top" style="padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p align="right" style="font-size:10.0pt;margin:6.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#163;</font>7%</p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">MD, NM</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">DC</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="180" valign="top" style="padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">MD</font></p>
  </td>
 </tr>
 <tr>
  <td width="47" valign="top" style="padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p align="right" style="font-size:10.0pt;margin:6.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#163;</font>8%</p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">AR, CA, CO, CT, Fl GA,
  IN, KY, ME, MA NC, NJ, OH, OK, PA, SC, TX, UT, WI</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">CA, IL</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="180" valign="top" style="padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">AR(6), CT(9), FL, GA(7),
  KY, ME, NC(7), NM(7), OH, OK, PA, SC (7), TX, UT</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="47" valign="top" style="padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p align="right" style="font-size:10.0pt;margin:6.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#163;</font>9%</p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">MD, MA, NM</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="180" valign="top" style="padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
 </tr>
 <tr>
  <td width="47" valign="top" style="padding:0pt .7pt 0pt 0pt;width:35.4pt;">
  <p align="right" style="font-size:10.0pt;margin:6.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#163;</font>10%</p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="167" valign="top" style="padding:0pt .7pt 0pt 0pt;width:125.05pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">AR, CO, CT, FL, GA IN,
  KY, ME, NC, NJ, OH, OK, PA, SC, TX, UT, WI</font></p>
  </td>
  <td width="16" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="180" valign="top" style="padding:0pt .7pt 0pt 0pt;width:135.2pt;">
  <p style="margin:6.0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#151;</font></p>
  </td>
 </tr>
</table>

<p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"></p>

<div style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="1" width="160" noshade color="black" align="left" style="width:120.0pt;">

</font></div>

<p style="font-family:Times New Roman;font-size:1.0pt;line-height:1.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to
loans with an APR <font face="Symbol">&#179;</font> 8%.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to
loans <font face="Symbol">&#179;</font> $40,000.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to
loans <font face="Symbol">&#179;</font> $75,000.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(4)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to loans
<font face="Symbol">&#179;</font> $20,000.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(5)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to
loans $20,001 to $74,999.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(6)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to
loans <font face="Symbol">&#163;</font> $20,000.</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(7)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to
loans &lt; $20,000, lesser of 8% or $1,000.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(8)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to 1<sup>st</sup>
lien fees greater of 5% or $2,000.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(9)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Applies to 2<sup>nd</sup>
lien fees.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(10)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160; </font>Applies to
loans &lt; $40,000.</p>

<p style="margin:0pt 0pt 3.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(11) Applies to loans &lt; $20,000, lesser
of 6% or $1,000.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(12) Applies to loans </font><font face="Symbol">&#179;</font> $20,000 to $39,999.</p>

<p style="margin:0pt 0pt 18.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may decide to make a loan that is covered
by one of these laws, rules or regulations only if, in our judgment, the loan
is made in accordance with our strict legal compliance standards and without
undue risk relative to litigation or to the enforcement of the loan according
to its terms. If we decide to relax our self-imposed restrictions on
originating loans subject to these laws, rules&nbsp;and regulations, we will be
subject to greater risks for actual or perceived non-compliance with the laws, rules&nbsp;and
regulations, including demands for indemnification or loan repurchases from the
parties to whom we broker or sell loans, class action lawsuits, increased
defenses to foreclosure of individual loans in default, individual claims for
significant monetary damages, and administrative enforcement actions. Any of
the foregoing could significantly harm our business, financial condition and
results of operations.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We
are exposed to environmental liabilities with respect to properties to which we
take title, which may harm our liquidity and results of operations.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In the course of our business we may
foreclose and take title to residential properties and, if we take title, we
could be subject to environmental liabilities with respect to these properties.
From January&nbsp;1, 2000 through June&nbsp;30, 2005, we foreclosed on 0.03% of
the loans we funded during that period. In those circumstances, we may be
liable to a governmental entity or third parties for property damage, personal
injury, investigation or clean-up costs incurred by these parties in connection
with environmental contamination, or we may be required to investigate or clean
up hazardous or toxic substances or chemical releases at a property. The costs
associated with investigation or remediation activities could be substantial
and may harm our liquidity and results of operations.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Risks Related to this Offering</font></b></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We
have not established a minimum distribution payment level. If cash we generate
from our operations is insufficient to make our REIT distributions, we may need
to borrow funds on a short-term basis to make distributions to stockholders.
Our payment of required REIT distributions could reduce our stockholders&#146;
equity. We cannot assure you of our ability to make distributions to our
stockholders in the future.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">To qualify as a REIT, we must distribute to our stockholders at least
90% of our net taxable income with respect to each year, determined without regard
to the dividends paid deduction permitted to REITs and by excluding our net
capital gain. In addition, we are subject to a tax on any undistributed portion
of our income at regular corporate rates and also may be subject to a 4% excise
tax on this undistributed income if we do not meet certain minimum distribution
requirements in a calendar year. We intend to make quarterly distributions to
our stockholders in order to distribute all or substantially all of our REIT
taxable income with respect to each year, beginning in 2004. Doing this, and
meeting other criteria, should enable us to qualify for the tax benefits
accorded to a REIT under the Internal Revenue Code. We have not established a
minimum distribution payment level, and our ability to make distributions might
be harmed by the risk factors described in this prospectus. All distributions
will be made at the discretion of our board of directors and will depend on our
earnings, our financial condition, maintenance of our REIT status and such
other factors as our board of directors may deem relevant from time to time. We
could be required to borrow funds on a short-term basis to meet the
distribution requirements that are necessary to </font></p>


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<p style="margin:0pt 0pt 12.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">achieve the tax
benefits associated with qualifying as a REIT, even if conditions are not
favorable for borrowing and we cannot assure you that we will have the ability
to make distributions to our stockholders in the future. In addition, due to
differences between the computation of our income for federal income tax purposes
and the computation of our income under generally accepted accounting
principles, or GAAP, we may be required under the applicable tax rules&nbsp;to
pay distributions that are based on our REIT taxable income but that exceed our
GAAP income, which would have the effect of reducing our stockholders&#146; equity.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Restrictions
on ownership of a controlling percentage of our capital stock might limit your
opportunity to receive a premium on our stock.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For the purpose of preserving our REIT
qualification and for other reasons, our charter prohibits direct or
constructive ownership by any person of more than 9.8% (in value or number of
shares, whichever is more restrictive) of the outstanding shares of our common
stock or any class or series of our outstanding preferred stock or other stock.
The constructive ownership rules&nbsp;in our charter are complex and may cause
the outstanding stock owned by a group of related individuals or entities to be
deemed to be constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% of a class of outstanding stock by an individual
or entity could cause that individual or entity to own constructively in excess
of 9.8% of the class of outstanding stock, and subject the individual or entity
to the ownership limit in our charter. Any attempt to own or transfer shares of
our common stock or preferred stock in excess of the ownership limit without
the consent of our board of directors shall be void and may result in the
shares being transferred by operation of law to a charitable trust. These
ownership restrictions might inhibit market activity and opportunities for our
stockholders to receive a premium for their shares if any person were to
attempt to assemble a block of shares of our stock, which although in violation
of these ownership restrictions, might be in the best interests of our
stockholders.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Future
offerings of debt or preferred equity securities that are senior to our common
stock and other equity securities upon liquidation, or other equity securities
may dilute our existing stockholders, may be senior to our common stock for the
purposes of distributions and may harm the value of our common stock.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In the future, we may attempt to increase
our capital resources by making additional offerings of debt or equity
securities, including commercial paper, medium-term notes, senior or
subordinated notes and classes of preferred stock or common stock. Upon the
liquidation of our company, holders of our debt securities and shares of
preferred stock and lenders with respect to other debt will receive a
distribution from our available assets prior to the holders of our common
stock. Additional equity offerings by us may dilute the holdings of our
existing stockholders or reduce the value of our common stock, or both. Our
preferred stock, if issued, would have a preference on distributions that could
limit our ability to make distributions to the holders of our common stock.
Because our decision to issue securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot predict or
estimate the amount, timing or nature of our future offerings. Our stockholders
bear the risk of our future offerings reducing the market price of our common
stock and diluting their stock holdings in us.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">A
regular trading market for our common stock might not develop, which would harm
the liquidity and value of our common stock.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our common stock trades on the NASDAQ
National Market under the symbol &#147;FICC.&#148; However, we cannot assure you that
regular trading of our common stock will develop on NASDAQ or elsewhere or, if
developed, that any market will be sustained. Accordingly, we cannot assure you
of:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the
likelihood that a regular market for our common stock will develop;</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the liquidity
of any market for our common stock;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the ability
of our stockholders to sell their shares of our common stock; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 18.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the prices
that our stockholders may obtain for their shares of our common stock.</p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">The
market price and trading volume of our common stock may be volatile, which
could result in rapid and substantial losses for our stockholders.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Even if an active trading market develops
for our common stock, the market price of our common stock may be highly
volatile and subject to wide fluctuations. In addition, the trading volume in
our common stock may fluctuate and cause significant price variations to occur.
If the market price of our common stock declines significantly, you may be
unable to resell your shares at or above your purchase price. We cannot assure
you that the market price of our common stock will not fluctuate or decline
significantly in the future. Some of the factors that could negatively affect
our stock price or result in fluctuations in the price or trading volume of our
common stock include:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>actual or
anticipated variations in our quarterly operating results or distributions;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>changes in
our cash flows, funds from operations or earnings estimates or publication of
research reports about us or our industry, although there can be no assurance
that any research reports about us will be published;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>increases in
market interest rates that lead purchasers of our shares of common stock to
demand a higher yield;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>changes in
market valuations of similar companies;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>adverse
market reaction to any indebtedness we incur in the future;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>additions or
departures of key management personnel;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>actions by
institutional stockholders;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>speculation
in the press or investment community; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 12.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>general
market and economic conditions.</p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Broad
market fluctuations could harm the market price of our common stock.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The stock market has experienced extreme
price and volume fluctuations that has affected the market price of many
companies in industries similar or related to ours and that have been unrelated
to these companies&#146; operating performance. These broad market fluctuations
could reduce the market price of our common stock. Furthermore, our operating
results and prospects may be below the expectations of public market analysts
and investors or may be lower than those of companies with comparable market
capitalizations, which could harm the market price of our common stock.</font></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Shares
of our common stock eligible for future sale may harm our stock price.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We cannot predict the effect, if any, of
future sales of shares of our common stock, or the availability of shares for
future sales, on the market price of our common stock. Sales of substantial
amounts of our shares of common stock, or the perception that large sales could
occur, may harm prevailing market prices for our common stock. As of August&nbsp;17,
2005, there were:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>48,835,876
outstanding shares of our common stock;</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>outstanding
options to purchase 836,000 shares of our common stock at a weighted average
exercise price of $14.86 per share; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 18.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>an additional
1,294,560 shares of our common stock available for future awards under our
equity incentive plan.</p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Changes
in yields may harm the market price of our stock.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our earnings are derived primarily from the
expected positive net interest income we expect to receive from the yield on
our portfolio of mortgage loans less the cost of our borrowings and other
expenses and loan losses. This net interest income will not necessarily be
larger in high interest rate environments than in low interest rate
environments and also may be negative. In addition, during periods of high
interest rates, our net income, and therefore the amount of any distributions
on our common stock, might be less attractive compared to alternative
investments of equal or lower risk. Each of these factors could harm the market
price of our common stock.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="RisksRelatedToOurOrganizationAndS_102019"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Risks Related to our Organization and
Structure</font></b></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
organizational documents contain provisions that may inhibit potential
acquisition bids that our stockholders may consider favorable, and the market
price of our common stock may be lower as a result.</font></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">Our organiz</font>a</font>tional
documents contain provisions that may have an anti-takeover effect and inhibit
a change in our board of directors. These provisions include the following:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">There are ownership limits and restrictions on transferability in our
charter</font></i>.&nbsp;&nbsp; In order to qualify as a REIT, not more than 50% of the value of
our outstanding shares (after taking into account options to acquire shares)
may be owned, directly or constructively, by 5 or fewer individuals and our
shares must be beneficially owned by 100 or more persons during at least
335&nbsp;days of a taxable year of 12&nbsp;months or during a proportionate
part of a shorter taxable year. To assist us in satisfying these tests, subject
to some exceptions, our charter generally prohibits any stockholder from actually
or constructively owning more than 9.8% of our outstanding shares of common
stock. This restriction may:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 60.0pt;text-indent:-20.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#160;&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>discourage a
tender offer or other transactions or a change in the composition of our board
of directors or control that might involve a premium price for our shares or
otherwise be in the best interests of our stockholders; or</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 60.0pt;text-indent:-20.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>compel a
shareholder who had acquired more than 9.8% of our shares to dispose of the
additional shares and, as a result, to forfeit the benefits of owning the
additional shares. Any acquisition of our common stock in violation of these
ownership restrictions will be void <i><font style="font-style:italic;">ab&nbsp;initio</font></i>
or will result in automatic transfers of our common stock to a charitable
trust, which will be responsible for selling the common stock to permitted
transferees and distributing at least a portion of the proceeds to the prohibited
transferees.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">Our
charter permits our board of directors to issue preferred stock with terms that
may discourage a third party from acquiring us</font></i>.&nbsp;&nbsp; Our
charter permits our board of directors to issue up to 10,000,000 shares of
preferred stock, having preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications or terms or
conditions of redemption as determined by our board. Our board could authorize
the issuance of preferred stock with terms and conditions that could have the
effect of discouraging a takeover or other transaction in which holders of some
or a majority of our shares might receive a premium for their shares over the
then-prevailing market price.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">Our charter and bylaws contain other possible anti-takeover provisions</font></i>.&nbsp;&nbsp; Our
charter and bylaws contain other provisions that may have the effect of
delaying, deferring or preventing a change in control or the removal of
existing directors and, as a result, could prevent our stockholders from being
paid a premium for their common stock over the then-prevailing market price.
These provisions include advance notice requirements for stockholder proposals.</p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, Maryland law provides
protection for Maryland corporations against unsolicited takeovers by limiting,
among other things, the duties of the directors in unsolicited takeover
situations. The duties of directors of Maryland corporations do not require
them to:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>accept,
recommend or respond to any proposal by a person seeking to acquire control of
the corporation;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>authorize the
corporation to redeem any rights under, or modify or render inapplicable, any
stockholder rights plan;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>make a
determination under the Maryland Business Combination Act or the Maryland
Control Share Acquisition Act; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>act or fail
to act solely because of the effect that the act or failure to act might have
on an acquisition or potential acquisition of control of the corporation or the
amount or type of consideration that may be offered or paid to the stockholders
in an acquisition.</p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Moreover, under Maryland law, the act of the
directors of a Maryland corporation relating to or affecting an acquisition or
potential acquisition of control is not subject to any higher duty or greater
scrutiny than is applied to any other act of a director. Maryland law also
contains a statutory presumption that an act of a director of a Maryland
corporation satisfies the applicable standards of conduct for directors under
Maryland law.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;"><a name="OurRightsAndTheRightsOfOurStockho_073720"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our rights and the
rights of our stockholders to take action against our directors and officers
are limited.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Maryland law provides that a director or
officer has no liability in that capacity if he or she performs his or her
duties in good faith and in a manner that he or she reasonably believes is in the
best interests of the corporation and its stockholders and in a manner that an
ordinarily prudent person in a like position would use under similar
circumstances. Our charter, in the case of directors and officers, requires us
to indemnify our directors and officers for actions taken by them in those
capacities to the full extent permitted by Maryland law. As a result, we and
our stockholders may have more limited rights against our directors and
officers than might otherwise exist under common law.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Tax Risks</font></b></p>

<p style="margin:0pt 0pt 6.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We
may be unable to comply with the requirements applicable to REITs, or
compliance with these requirements could adversely affect our financial
condition.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Commencing with our short taxable year ended
December&nbsp;31, 2003, which began on November&nbsp;13, 2003, we believe that
we qualify as a REIT under the Internal Revenue Code. The determination that we
qualify as a REIT requires an analysis of various factual matters and
circumstances, some of which may not be totally within our control. For
example, to qualify as a REIT, at least 75% of our annual gross income must
come from real estate sources, including mortgages on real property, and 95% of
our annual gross income must come from real estate sources and other sources
that are itemized in the REIT tax laws, mainly interest and dividends. We are
subject to various limitations on our ownership of investments, including a
limitation that the fair market value of our investment in our taxable REIT
subsidiary, Fieldstone Mortgage, together with any other investments in taxable
REIT subsidiaries that we may hold in the future, cannot exceed more than 20%
of our total assets at the close of any quarter (subject to a 30-day &#147;cure&#148;
period following the close of each quarter). Fieldstone Mortgage conducts
substantial loan origination and servicing activities and will accumulate some
or all of the income from those activities. As of June&nbsp;30, 2005, the
estimated fair market value of our investment in Fieldstone Mortgage was 4.25%
of our total assets. In addition to this limitation, at least 75% of our assets
at the close of any quarter (subject to the 30-day &#147;cure&#148; period) must be
qualified real estate assets, government securities and cash and cash items.
Certain other quarterly asset ownership requirements also apply. Although we
have attempted to be prudent in valuing our investment in Fieldstone Mortgage
and our other assets and believe that we currently satisfy all of the asset
ownership requirements, we cannot provide assurance that the Internal Revenue
Service (IRS) will agree with these determinations. The need to comply with the
income and asset ownership requirements applicable to REITs may cause us to
acquire other assets that are qualified real estate assets for purposes of
these requirements (for example, interests in other mortgage loan portfolios)
but that are not part of our overall business strategy and might not otherwise
be the best investment alternative for us.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;"><a name="ThereWouldBeAdverseConsequencesTo_073817"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">There would be
adverse consequences to us and our stockholders if we failed to qualify as a
REIT.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The requirements for qualification as a REIT are highly technical and
complex and even a technical or inadvertent mistake could jeopardize our REIT
status. Moreover, legislation, new regulations, administrative interpretations
or court decisions may adversely affect, possibly retroactively, our ability to
qualify as a REIT or the federal income tax consequences of such qualification.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If we fail to qualify or remain qualified as
a REIT in any taxable year and the relief provisions set forth in the Internal
Revenue Code do not apply, among other things:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>we will have
to pay federal, state and local tax, including any applicable alternative
minimum tax, on our taxable income at regular corporate rates because our
distributions will not be deductible by us;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>we will not
be required to make any distributions to our stockholders;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>our
securitizations may be subject to an entity level tax, and the cash flows from
these securitizations may be diverted to accelerate the repayment of the
underlying bonds;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>any
distributions we make to our stockholders will be taxable to them as dividends
to the extent of our current and accumulated earnings and profits, although,
subject to limitations of the Internal Revenue Code, corporate distributees may
be eligible for the dividends received deduction with respect to these
distributions, and individual distributees may be eligible for the capital
gains tax rate of 15% or less on such dividends; and</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>we generally
will be disqualified from electing treatment as a REIT for the four taxable
years following the year in which our REIT status is lost, unless we are
entitled to relief under statutory provisions.</p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition to the consequences listed
above, the tax liability resulting from our failure to qualify as a REIT:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>would
substantially reduce our earnings and our cash available to pay distributions
(and, consequently, your yield on your investment in our common stock);</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>might cause
us to borrow funds, liquidate some of our investments or take other steps that
could negatively affect our operating results; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>could affect
the trading price of our common stock.</p>

<p style="margin:0pt 0pt 18.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In October&nbsp;2004, new legislation,
referred to as the &#147;American Jobs Creation Act of 2004,&#148; was enacted into law.
This new legislation contained several provisions applicable to REITs,
including provisions that could provide relief in the event we violate a
provision of the Code that would result in our failure to qualify as a REIT. If
these relief provisions, which generally became applicable to us beginning January&nbsp;1,
2005, are inapplicable to a particular set of circumstances which otherwise
would disqualify us as a REIT, we would fail to qualify as a REIT. Even if
these relief provisions apply, we would be subject to a penalty tax of at least
$50,000 for each disqualifying event in most cases.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;"><a name="DespiteOurReitStatusWeRemainSubje_073906"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Despite our REIT
status, we remain subject to various taxes, including substantial contingent
tax liabilities.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Similar provisions of the Internal Revenue Code apply to REITs and to S
corporations that acquire any assets from a non-REIT C corporation in a
carry-over basis transaction. These provisions permit the REIT or S
corporation, as applicable, to avoid the recognition of gain and the imposition
of corporate level tax with respect to a built-in gain asset acquired in a
carry-over basis transaction from a non-REIT C corporation unless and until the
REIT or S corporation disposes of that built-in gain asset during the ten-year
period following its acquisition. At the time of the disposal, the REIT or S
corporation would recognize and be subject to tax at the highest regular
corporate rate on the &#147;built-in gain.&#148; Built-in gain is the amount by which an
asset&#146;s fair market value exceeds its adjusted tax basis at the time the REIT
or S corporation acquires the asset.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On January&nbsp;1, 2003, the effective date of the S election made by
our predecessor, Fieldstone Holdings, a material amount of &#147;franchise value&#148;
existed in the business in excess of its book value, which could give rise to a
tax liability pursuant to the built-in gain rules&nbsp;described above on a
sale of the business prior to December&nbsp;31, 2012. We inherited the
potential tax liability relating to any built-in gain of Fieldstone Holdings as
a result of our merger with Fieldstone Holdings on November&nbsp;14, 2003.
Accordingly, if we sell our business or substantially all of our assets during
the ten-year period ending December&nbsp;31, 2012, we will be subject to
regular corporate tax on some amount of gain. The total amount of gain on which
we can be taxed is limited to the excess of the aggregate fair market value of
our assets on January&nbsp;1, 2003, the effective time of Fieldstone Holdings&#146;
S election, over the adjusted tax bases of those assets at that time. As this
tax would be significant, we intend to manage our affairs in a manner that
takes into account the potential incurrence of this tax, which may result in
our seeking to avoid any taxable disposition of our business or substantially
all of our assets prior to January&nbsp;1, 2013, even if such a transaction
might otherwise be in our best interests if this tax were not to apply. None of
the loan sales made by Fieldstone Holdings since January&nbsp;1, 2003 triggered
any built-in gains tax because these loans were held for sale, and Fieldstone
Holdings was required to use &#147;mark-to-market&#148; accounting for its tax
accounting. Consequently, no gain was attributable to those loans for tax
purposes at the time of the S election.</font></p>


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<p style="margin:0pt 0pt 18.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, notwithstanding our status as a
REIT, we remain subject to federal, state and local taxes on our income and
property. We may be subject to some state and local income taxes because not
all states and localities treat REITs in the same manner that they are treated
for federal income tax purposes.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;"><a name="WeMayNotQualifyAsAReitIfWeFailedT_073912"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may not qualify
as a REIT if we failed to distribute by the close of 2003 any undistributed
earnings and profits that were attributable to a non-REIT C corporation taxable
year.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">To qualify as a REIT, at the end of any taxable year, we cannot have any
undistributed or retained earnings and profits that are attributable to a
non-REIT C corporation taxable year (non-REIT C corporation earnings and
profits, or E&amp;P). For certain years prior to January&nbsp;1, 2003, our
predecessor, Fieldstone Holdings, and its wholly owned subsidiary, Fieldstone
Mortgage, were taxable as C corporations for federal income tax purposes.
Effective January&nbsp;1, 2003, Fieldstone Holdings elected to be treated as an
S corporation, and Fieldstone Mortgage became a &#147;qualified subchapter S
subsidiary&#148; of Fieldstone Holdings that was disregarded as separate from
Fieldstone Holdings. As of the effective date of Fieldstone Holdings&#146; S
election, Fieldstone Holdings had non-REIT C corporation E&amp;P. We
commissioned a national accounting firm to verify our calculation of this
E&amp;P. Prior to the merger with Fieldstone Investment, Fieldstone Holdings
made distributions of non-REIT C corporation E&amp;P in 2003 to its
shareholders in an amount greater than the amount of non-REIT C corporation
E&amp;P as determined by our verified calculations. We succeeded to any non-REIT
C corporation E&amp;P of Fieldstone Holdings remaining after those dividends
were paid and had until December&nbsp;31, 2003, the close of our first taxable
year as a REIT, to distribute any remaining non-REIT C corporation E&amp;P. We
believe that, as of the close of 2003, we had no undistributed non-REIT C
corporation E&amp;P based on our calculations and the review of those
calculations by a national accounting firm.</font></p>

<p style="margin:0pt 0pt 18.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">There can be no assurance, however, that the
IRS will not examine our tax returns from our years as a C corporation and
propose adjustments to increase our taxable income from those years. If the IRS
determines that we failed to distribute all of our non-REIT C corporation
E&amp;P by the close of 2003, although the law on this issue is not entirely
clear, we may avoid being disqualified as a REIT for each taxable year during
which we had non-REIT C corporation E&amp;P, provided that we satisfy the &#147;deficiency
dividend&#148; procedures described in &#147;Material Federal Income Tax
Considerations&#151;Annual Distribution Requirements Applicable to REITs.&#148; Our REIT
shareholders would be subject to tax on the dividends at the applicable
ordinary income tax rates even though these dividends would be, as a practical
matter, a return of a portion of the capital invested in us. For individuals,
these distributions would be eligible for the lower capital gains rates. Due to
the inherently factual nature of the determination of our earnings and profits,
and given the inability of counsel to opine on this issue, there is a risk that
the IRS could succeed in challenging our determination that we do not have any
undistributed non-REIT C corporation E&amp;P, in which event we either could
fail to qualify as a REIT or could be required to satisfy the &#147;deficiency
dividend&#148; procedures referenced above.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;"><a name="TheTaxImposedOnReitsForprohibited_073939"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">The tax imposed on
REITs for &#147;prohibited transactions&#148; limits our ability to engage in
transactions, including certain methods of securitizing our loans, that would
be treated as sales for federal income tax purposes.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A REIT&#146;s net income from prohibited transactions
is subject to a 100% tax. In general, prohibited transactions are sales or
other dispositions of property held for sale, other than foreclosure property,
but including any mortgage loans held in inventory primarily for sale to
customers in the ordinary course of business. We might be subject to this tax
if we were to sell a loan or securitize the loans in a manner that was treated
as a sale of inventory for federal income tax purposes. Therefore, in order to
avoid the prohibited transactions tax, we may choose not to engage in certain
sales of loans and may limit the structures used for our securitization
transactions even though these sales or structures might otherwise be </font></p>


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<p style="margin:0pt 0pt 12.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">beneficial for us.
In addition, this prohibition may limit our ability to restructure our
portfolio of mortgage loans from time to time even if we believe it would be in
our best interest to do so. However, loan sales by Fieldstone Mortgage are not
subject to this prohibited transaction tax because Fieldstone Mortgage has
elected to be treated as a taxable REIT subsidiary, although the net income
recognized by Fieldstone Mortgage from any sales is subject to tax at regular
corporate rates.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="SpecialNoteRegardingForwardlookin_224838"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Some of the statements in this prospectus constitute &#147;forward-looking
statements&#148; within the meaning of the Private Securities Litigation Report Act
of 1995. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. In some
cases, you can identify forward-looking statements by terms such as &#147;anticipate,&#148;
&#147;believe,&#148; &#147;could,&#148; &#147;estimate,&#148; &#147;expect,&#148; &#147;intend,&#148; &#147;may,&#148; &#147;plan,&#148; &#147;potential,&#148;
&#147;should, &#147;will&#148; and &#147;would&#148; or the negative of these terms or other comparable
terminology.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The forward-looking statements are based on
our beliefs, assumptions and expectations of our future performance, taking
into account all information currently available to us. These beliefs,
assumptions and expectations can change as a result of many possible events or
factors, not all of which are known to us or are within our control. If a
change occurs, our business, financial condition and results of operations may
vary materially from those expressed in our forward-looking statements. You
should carefully consider these risks before you make an investment decision
with respect to our common stock, along with the following factors that could
cause actual results to vary from our forward-looking statements:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the factors
referenced in the accompanying prospectus, including those set forth under the
section captioned &#147;Risk Factors;&#148;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>general
volatility of the capital markets and the market price of our common stock;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>changes in
our business strategy;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>availability,
terms and deployment of capital;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>availability
of qualified personnel;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>changes in
our industry, interest rates or the general economy;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>increased
rates of default under or prepayment of our mortgage loans; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the degree
and nature of our competition.</p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For further discussion of these and other
factors that could impact our future results, performance, achievements or
transactions, see the documents we file from time to time with the SEC.</font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font face="Times New Roman">27</font></p>
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<div>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="IncorporationOfDocumentsByReferen_054929"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">INCORPORATION OF DOCUMENTS BY REFERENCE</font></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following documents previously filed by us with
the SEC are incorporated by reference into this prospectus:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Our
Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31,
2004, which includes audited financial statements for us for the fiscal year
ended December&nbsp;31, 2004.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Our
Quarterly Report on Form&nbsp;10-Q for the quarter ended March&nbsp;31, 2005.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Our
Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2005.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Our
Current Reports on Form&nbsp;8-K, as filed with the SEC on April&nbsp;6, 2005, April&nbsp;22,
2005, May&nbsp;4, 2005, May&nbsp;16, 2005, June 27, 2005 and August 2, 2005.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Our Definitive Proxy
Statement, as filed with the SEC on April 1, 2005 for our 2005 Annual Meeting
of Stockholders.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>The
description of our common stock contained in the registration statement on Form&nbsp;8-A
filed on September&nbsp;14, 2004.</p>

<p style="margin:0pt 0pt 12.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Any report or other
document subsequently filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d)&nbsp;of
the Exchange Act, prior to the filing of a post-effective amendment that
indicates that all securities offered have been sold or which de-registers all
securities then remaining unsold shall be deemed to be incorporated by
reference into this prospectus and to be part hereof from the date of filing of
such report or other document. Any statement in a report or document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for the purposes of this prospectus to the extent
that a statement contained herein or in any other subsequently filed report or
document which also is or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus. We are not, however, incorporating by reference any
documents, or portions of documents, that are not deemed &#147;filed&#148; with the SEC,
including any information furnished pursuant to Items 2.02 or 7.01 of Form&nbsp;8-K.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:auto;text-align:center;"><a name="UseOfProceeds_043953"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">USE OF PROCEEDS</font></b></p>

<p style="margin:0pt 0pt 12.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We will not receive any proceeds from the
sale of the shares of our common stock by the selling stockholders from time to
time pursuant to this prospectus. The proceeds from the offering are solely for
the account of the selling stockholders. The selling stockholders will pay any
underwriting discounts, commissions and expenses for brokerage, or any other
expenses they incur in disposing of the shares. We will bear all other costs,
fees and expenses incurred in effecting the registration of the shares covered
by this prospectus.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:auto;text-align:center;"><a name="SellingStockholders_044017"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">SELLING STOCKHOLDERS</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This prospectus covers the reoffer and resale of common stock acquired,
or that will be acquired, by the selling stockholders as a result of the
receipt of such shares under, or as a result of the exercise of stock options
granted under, the Plan, and who may be deemed &#147;affiliates&#148; of the company or
who have previously received &#147;restricted securities&#148; (as defined under Rule&nbsp;144
of the Securities Act) under the Plan. An &#147;affiliate&#148; is defined under Rule&nbsp;405
of the Securities Act as &#147;a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with&#148; the company. Of the 2,340,116 shares of common stock offered for resale
under this prospectus, 560,056 shares are restricted securities.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">When we refer to the &#147;selling stockholders&#148; in this
prospectus, we mean those persons specifically identified in the table below,
as well as the permitted transferees, pledges, donees, assignees, successors
and others who later come to hold any of the selling stockholders&#146; interests
other than through a public sale. </font>The table below has been prepared based on
information provided to us by the selling stockholders on or before August&nbsp;17,
2005 and sets forth the name of each selling stockholder, the number of shares
of our common stock that each selling stockholder may offer pursuant to this
prospectus, from time to time, and any material relationship the selling
stockholder has had with us since August&nbsp;17, 2002.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Because the selling stockholders may offer all, some or none of the
shares of the common stock pursuant to this prospectus, and because there
currently are no agreements, arrangements or understandings with respect to the
sale of any of these shares, no definitive estimate can be given as to the
amount of shares that will be held by the selling stockholders after completion
of this offer. The following table has been prepared assuming that the selling
stockholders sell all of the shares of our common stock beneficially owned by
them that have been registered by us pursuant to this prospectus and do not
acquire any additional shares of stock during the offering. We cannot advise
you as to whether the selling stockholders will in fact sell any or all of
their shares of our common stock registered by us pursuant to this prospectus.
In addition, the selling stockholders may have sold, transferred or otherwise
disposed of, or may sell, transfer or otherwise dispose of, at any time and
from time to time, the shares of our common stock in transactions exempt from
the registration requirements of the Securities Act after the date on which
they provided the information set forth in the table below.</font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font face="Times New Roman">29</font></p> <br><hr size="3" width="100%" noshade color="#010101" align="center">

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<p style="margin:0pt 0pt 12.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Information
concerning the selling stockholders may change from time to time, and executive
officers, directors and others who are considered to be affiliates of the
company who acquire common stock under the Plan may be added to the list of
selling stockholders, with such shares of common stock included hereunder. Any
changed information will be set forth in prospectus supplements or
post-effective amendments, as may be appropriate.</font></p>

<table border="0" cellspacing="0" cellpadding="0" style="border-collapse:collapse;font-family:Times New Roman;">
 <tr>
  <td width="75" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:56.2pt;">
  <p align="left" style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:left;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="6" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:4.75pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="32" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:24.05pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="200" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="117" colspan="3" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:88.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Beneficial Ownership<br>
  Prior to Resale<br>
  Offering</font></b></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:2.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:47.5pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Shares Offered<br>
  Pursuant to<br>
  This Prospectus<br>
  (Maximum</font></b></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt 0pt .7pt 0pt 0pt;width:2.65pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="92" colspan="3" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:69.2pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Beneficial Ownership<br>
  After Resale<br>
  Offering(3)</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="75" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:56.2pt;">
  <p align="left" style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:left;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Selling Stockholders(1)</font></b></p>
  </td>
  <td width="6" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:4.75pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="32" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:24.05pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="200" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Present Position or Office Held with Us or<br>
  Our Predecessor or Affiliates</font></b></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="56" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Shares</font></b></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="55" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Percentage<br>
  of Class(4)</font></b></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="63" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Number That<br>
  May Be Sold)(2)</font></b></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="34" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Shares</font></b></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="52" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p style="font-weight:bold;line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Percentage<br>
  of Class(4)</font></b></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Abts, James D.(5)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice President&#151;Non-Conforming
  Retail Division++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,579</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,579</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Auen, Greg(6)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,472</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">3,972</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">6,500</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Bernstein, Allan B.(7)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Regional Vice
  President&#151;Conforming East Retail Region++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">7,500</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">7,500</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Buczynski, Walter P.(8)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Executive Vice
  President&#151;Secondary</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">108,255</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">88,255</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">20,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Byers, James W.(9)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Regional Vice
  President&#151;Southeast Wholesale Division++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">15,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,500</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">2,500</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Camarena, John M.(10)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Southwest Non-Conforming Region++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">58,906</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">28,240</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">30,666</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Camp, John C.(11)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Information Systems and Facilities</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">80,800</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">62,800</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">18,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Eckert, Thomas D.(12)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Chairman of the Board of
  Directors</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">137,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">50,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">87,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Engelman, David S.(13)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Director</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">37,663</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">25,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,663</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">George, Brendan A.(14)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Conforming Division Production++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">18,500</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,500</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">6,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Goldberg, Harvey(15)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Regional Vice
  President&#151;Northeast Region++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">9,210</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">9,210</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Hagan, James T.(16)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Executive Vice
  President&#151;Non-Conforming Wholesale Division++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">78,100</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">44,800</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">33,300</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Harkness, Cynthia L.(17)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;General Counsel and Secretary</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">23,640</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">23,640</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Henry, Tamara J.(18)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Regional Vice
  President&#151;Concord Wholesale Region++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Jacobs, John J.(19)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Conforming Division++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">18,500</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,500</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">6,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Kendall, John C.(2)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Investment Portfolio</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">27,800</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">27,800</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Krebs, Mark C.(21)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice President&#151;Treasurer</font><font size="1" style="font-size:7.0pt;">+</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">24,890</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">23,640</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">1,250</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Martin, Celia V.(22)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Director</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">58,500</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">25,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">33,500</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">McDermott, Teresa A.(23)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Controller</font><font size="1" style="font-size:7.0pt;">+</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,130</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,130</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Michael, Jonathan E.(24)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Director</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">42,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">25,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">17,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">O&#146;Bannon, Mary M.(25)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Conforming Division Operations++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">14,200</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">4,200</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Partlow, Robert G.(26)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Chief Financial Officer</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">41,700</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,500</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">29,200</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Poidomani, Peter G.(27)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Regional Vice
  President&#151;Central Region++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Rapp, Teresa A.(28)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Non-Conforming Wholesale Division Operations++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">34,240</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">18,240</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">16,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Resta, George A.(29)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Regional Vice
  President&#151;Conforming East Retail Region++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">7,500</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">7,500</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Rytz, Hans J.(30)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Regional Vice President&#151;LA
  Wholesale Region++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Schoenholz, David A.(31)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Director</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">29,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">25,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">4,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Slack, Diane L.(32)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">1,250</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">1,250</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Sonnenfeld, Michael J.(33)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Director, President and
  Chief Executive Officer</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">1,187,900</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">2.43%</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">351,600</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">836,300</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">1.71%</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Springer, Jeffrey R.(34)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Director</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">37,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">25,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">12,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr bgcolor="#CCEEFF">
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Stush, Edmund J.(35)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Regional Vice
  President&#151;West Wholesale Region++</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">10,000</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">&#151;</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
 <tr>
  <td width="113" colspan="3" valign="top" style="padding:0pt .7pt 0pt 0pt;width:85.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 7.5pt;page-break-after:avoid;text-indent:-7.5pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Uchino, Gary K.(36)</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="200" valign="top" style="padding:0pt .7pt 0pt 0pt;width:150.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">Senior Vice
  President&#151;Chief Credit Officer</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.0pt;">
  <p style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="56" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.9pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">111,800</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="55" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:41.0pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
  <td width="3" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.0pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="63" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:47.5pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">62,800</font></p>
  </td>
  <td width="4" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:2.65pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="34" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:25.35pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">49,000</font></p>
  </td>
  <td width="7" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:5.1pt;">
  <p align="right" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:right;"><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52" valign="bottom" style="padding:0pt .7pt 0pt 0pt;width:38.75pt;">
  <p align="center" style="line-height:7.0pt;margin:4.0pt 0pt .0001pt;page-break-after:avoid;text-align:center;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">*</font></p>
  </td>
 </tr>
</table>

<p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"></p>

<div style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="1" face="Times New Roman" style="font-size:7.0pt;">

<hr size="1" width="160" noshade color="black" align="left" style="width:120.0pt;">

</font></div>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" style="font-size:7.0pt;">+</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Indicates that the position is a non-executive officer position with
Fieldstone Investment.</font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font face="Times New Roman">30</font></p> <br><hr size="3" width="100%" noshade color="#010101" align="center">

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<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">++</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Indicates that the position is held with Fieldstone Mortgage Company
only.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">*</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Less than one percent (1%).</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(1)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">To the best of our knowledge, each Selling Stockholder has sole voting
and investment power with respect to shares shown after such person&#146;s name in
the above table.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(2)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">This registration statement shall also cover any additional shares of
common stock that become issuable in connection with the shares registered for
sale in this prospectus because of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt of
consideration, which results in an increase in the number of the registrant&#146;s
outstanding shares of common stock.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(3)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Because the selling stockholders are not obligated to sell all or any
portion of the shares of our common stock shown as offered by them, we cannot
estimate the actual number of shares (or actual percentage of the class) of our
common stock that will be held by any selling stockholder upon completion of
this resale offering.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(4)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Calculated based on Rule&nbsp;13d-3(d)(i)&nbsp;of the Exchange Act
using 48,835,876&#160; shares of common stock
outstanding as of August&nbsp;15, 2005 . In calculating this amount for each
holder, we treated as outstanding the number of shares of common stock issuable
upon conversion of any options to purchase common stock held by the selling
stockholder; however, we did not assume exercise of any other holder&#146;s options.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(5)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 9,339 shares of restricted stock issued under our Plan and up
to 3,240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December&nbsp;31, 2006.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(6)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Mr.&nbsp;Auen is a former employee of Fieldstone Mortgage. Includes
3,972 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(7)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 7,500 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(8)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 35,455 shares of restricted stock issued under our Plan, up to
4,800 shares covered by a performance award granted under our Plan to be issued
if the maximum performance goals to which such award relates are met for the
performance period ending December&nbsp;31, 2006 and 48,000 shares underlying
options granted under our Plan. Mr.&nbsp;Buczynski </font><font size="1" style="font-size:7.5pt;letter-spacing:-.1pt;">has been an officer since joining
us in 2001 and a director of Fieldstone Mortgage since October&nbsp;2004. </font><font size="1" style="font-size:7.5pt;">In the second and third quarter of 2003, we advanced a total of $60,000
to Mr.&nbsp;Buczynski against future earnings during his employment with us.
This advance was repaid in full, without interest, on December&nbsp;30, 2003.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(9)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan and
2,500 shares acquired as a result of the exercise of options granted under our
Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(10)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 25,000 shares of restricted stock issued under our Plan and up
to 3,240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December&nbsp;31, 2006.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(11)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 20,000 shares of restricted stock issued under our Plan, up to
4.800 shares covered by a performance award granted under our Plan to be issued
if the maximum performance goals to which such award relates are met for the
performance period ending December&nbsp;31, 2006 and 38,000 shares underlying
options granted under our Plan. Mr.&nbsp;Camp has been an officer since joining
us in June&nbsp;1999</font><font size="1" style="font-size:7.5pt;letter-spacing:-.1pt;">.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(12)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 20,000 shares of restricted stock issued under our Plan and
30,000 shares underlying options granted under our Plan. Mr.&nbsp;Eckert has
been a director since November&nbsp;2003.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(13)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan and
15,000 shares underlying options granted under our Plan. Mr.&nbsp;Engelman has
been a director since November&nbsp;2003.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(14)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 12,500 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(15)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 9,210 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(16)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 40,000 shares of restricted stock issued under our Plan and up
to 4.800 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December&nbsp;31, 2006&#160; Mr.&nbsp;Hagen has been a director of
Fieldstone Mortgage since October&nbsp;2004(17) &#160;&#160;&#160;&#160;&#160; Includes 5,000 shares of restricted stock issued under our
Plan, up to 3.240 shares covered by a performance award granted under our Plan
to be issued if the maximum performance goals to which such award relates are
met for the performance period ending December&nbsp;31, 2006 and 15,400 shares
underlying options granted under our Plan. Ms.&nbsp;Harkness has been an
officer since joining us in March&nbsp;2004.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(18)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(19)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 12,500 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(20)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 5,000 shares of restricted stock issued under our Plan, up to
4.800 shares covered by a performance award granted under our Plan to be issued
if the maximum performance goals to which such award relates are met for the
performance period ending December&nbsp;31, 2006 and 18,000 shares underlying
options granted under our Plan. Mr.&nbsp;Kendall has been an officer since
joining us in April&nbsp;2004.</font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font face="Times New Roman">31</font></p> <br><hr size="3" width="100%" noshade color="#010101" align="center">

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<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(21)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 5,000 shares of restricted stock issued under our Plan and up
to 3.240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December&nbsp;31, 2006.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(22)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan and
15,000 shares underlying options granted under our Plan. Ms.&nbsp;Martin has
been a director since November&nbsp;2003.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(23)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 8,890 shares of restricted stock issued under our Plan and up
to 3.240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December&nbsp;31, 2006.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(24)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan and
15,000 shares underlying options granted under our Plan. Mr.&nbsp;Michael has
been a director since November&nbsp;2003.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(25)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(26)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 5,000 shares of vested restricted stock issued under our Plan
and 7,500 shares underlying vested options granted under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(27)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(28)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 15,000 shares of restricted stock issued under our Plan and up
to 3.240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December&nbsp;31, 2006.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(29)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 7,500 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(30)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(31)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan and 15,000
shares underlying options granted under our Plan. Mr.&nbsp;Schoenholz has been
a director since August&nbsp;2004.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(32)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 1,250 shares of restricted stock issued under our Plan. Ms.&nbsp;Slack
is a former employee of Fieldstone Mortgage.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(33)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 100,000 shares of restricted stock issued under our Plan, up to
21,600 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December&nbsp;31, 2006, 215,600 shares underlying
options granted under our Plan, and 14,400 shares acquired as a result of the
exercise of options granted under our Plan. Mr.&nbsp;Sonnenfeld is our founder.
He has been the President of Fieldstone Mortgage since its inception in 1995
and has been our President, Chief Executive Officer and a director since August&nbsp;2003.
At December&nbsp;31, 2002, we had a $12.0&nbsp;million revolving line of credit
with PRB Financial Services,&nbsp;Inc., a Texas corporation, which subsequently
assigned all of its interest in the revolving line of credit to PRB Financial
Services, a Texas general partnership and shareholder of our predecessor,
Fieldstone Holdings. The loan was guaranteed by all of the shareholders of
Fieldstone Holdings, including Mr.&nbsp;Sonnenfeld. The loan was subordinated
to our warehouse lines and repurchase facilities. This revolving line was
increased to $32.8 million on September&nbsp;15, 2003. We repaid the loan in
full on November&nbsp;14, 2003, and subsequently terminated this line of
credit. As of December&nbsp;31, 2002, the balance outstanding was $12.0
million. The interest rate on this facility was the prime rate and it was to
have matured on October&nbsp;30, 2008. For the years ended December&nbsp;31,
2003 and 2002, we recognized interest expense on this debt of $0.5 million and
$0.6 million, respectively. In October&nbsp;2000, Mr.&nbsp;Sonnenfeld, borrowed
$765,301 from PRB Financial Services to purchase shares of common stock of our
predecessor, Fieldstone Holdings, in a recapitalization transaction. The
purchased shares were pledged to secure the loan. This loan accrued interest at
the prime rate. This loan was repaid in full, together with $133,000 in accrued
interest, on November&nbsp;14, 2003.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(34)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan and
15,000 shares underlying options granted under our Plan. Mr.&nbsp;Springer has
been a director since November&nbsp;2003.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(35)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 10,000 shares of restricted stock issued under our Plan.</font></p>

<p style="font-family:Times New Roman;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="1" face="Times New Roman" style="font-size:7.5pt;">(36)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="1" style="font-size:7.5pt;">Includes 20,000 shares of restricted stock issued under our Plan, up to
4,800 shares covered by a performance award granted under our Plan to be issued
if the maximum performance goals to which such award relates are met for the
performance period ending December&nbsp;31, 2006 and 38,000 shares underlying
options granted under our Plan. Mr.&nbsp;Uchino has been an officer with us
since December&nbsp;1995.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="PlanOfDistribution_230744"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">PLAN OF DISTRIBUTION</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We are registering the shares of our common stock covered by this
prospectus to permit the selling stockholders to conduct public secondary
trades of these securities from time to time after the date of this prospectus.
We have been advised by the selling stockholders that the selling stockholders
or permitted pledgees, donees or transferees of, or other successors in
interest to, the selling stockholders may sell all or a portion of the shares
of our common stock beneficially owned by them and offered hereby from time to
time either directly, or through underwriters, broker-dealers or agents, who
may act solely as agents or who may acquire the shares of our common stock as
principals or as both, and who may receive compensation in the form of
discounts, commissions or concessions from the selling stockholders or from the
purchasers of our common stock for whom they may act as agent (which
compensation as to a particular broker-dealer may be less than or in excess of
customary commissions).</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Unless otherwise permitted by law, if shares of our common stock are to
be sold pursuant to this prospectus by permitted pledgees, donees or
transferees of, or other successors in interest to, the selling stockholders,
then we must file&nbsp;a prospectus supplement or an amendment to the
registration statement of which this prospectus is a part under applicable
provisions of the Securities Act amending the list of selling stockholders to
include such pledgee, donee, transferee or other successors in interest as
selling stockholders under this prospectus.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Except as may be described in any prospectus supplement accompanying
this prospectus, the selling stockholders may offer their shares of our common
stock pursuant to this prospectus from time to time at fixed prices, which may
be changed, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale, or at negotiated prices. The prices will be
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters or dealers.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The sales described in the preceding
paragraphs may be effected in transactions:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>on any
national securities exchange or quotation service on which the shares of our
common stock are listed or quoted at the time of sale;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>in the
over-the-counter market;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>in
transactions (which may include underwritten transactions) otherwise than on
such exchanges or services or in the over-the-counter market;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>through the
writing of options whether the options are listed on an option exchange or
otherwise; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>through the
settlement of short sales;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>or any
combination of the foregoing.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These transactions may include block transactions or crosses. Crosses
are transactions in which the same broker acts as an agent on both sides of the
trade.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In connection with sales of our common stock, selling stockholders may
enter into hedging transactions with broker-dealers. These broker-dealers may
in turn engage in short sales of our common stock in the course of hedging
their positions. The selling stockholders may also sell the shares of our
common stock short and deliver shares of our common stock to close out short
positions, or loan or pledge shares of our common stock to broker-dealers that
in turn may sell the shares.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The selling stockholders or their successors in interest may also enter
into option or other transactions with broker-dealers that require the delivery
by such broker-dealers of our common stock which may be resold thereafter
pursuant to this prospectus if our common stock is delivered by the selling
stockholders. However, if the common stock is to be delivered by the selling
stockholders&#146; successors in interest, we must file&nbsp;a prospectus supplement
or an amendment to this registration statement under applicable provisions </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">of the Securities Act amending the list of
selling stockholders to include the successors in interest as selling
stockholders under this prospectus.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Selling stockholders might not sell any, or all, of our common stock
offered by them pursuant to this prospectus. In addition, we cannot assure you
that a selling stockholder will not transfer the shares of our common stock by
other means not described in this prospectus.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">To the extent required, upon being notified by a selling stockholder
that any arrangement has been entered into with any agent, underwriter or
broker-dealer for the sale of the shares of common stock through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
of any agent, underwriter or broker-dealer(s), the name(s)&nbsp;of the selling
stockholder(s)&nbsp;and of the participating agent, underwriter or
broker-dealer(s), specific common stock to be sold, the respective purchase
prices and public offering prices, any applicable commissions or discounts, and
other facts material to the transaction will be set forth in a supplement to
this prospectus or a post-effective amendment to the registration statement of
which this prospectus is a part, as appropriate.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, any securities registered and offered pursuant to this
prospectus which qualify for sale pursuant to Rule&nbsp;144 or Rule&nbsp;144A
of the Securities Act may be sold under Rule&nbsp;144 or Rule&nbsp;144A rather
than pursuant to this prospectus.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In order to comply with the securities laws of some states, our common
stock may be sold in such states only through registered or licensed brokers or
dealers.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The selling stockholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules&nbsp;include,
without limitation, Regulation&nbsp;M, which may limit the timing of purchases
and sales of any common stock by the selling stockholders and any such other
person. In addition, Regulation&nbsp;M of the Exchange Act may restrict the
ability of any person engaged in the distribution of our common stock to engage
in market-making activities with respect to the particular shares of our common
stock being registered and offered hereby for a period of up to five business
days prior to the commencement of the distribution. This may affect the marketability
of our common stock and the ability of any person or entity to engage in
market-making activities with respect to our common stock.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The selling stockholders and any brokers,
dealers, agents or underwriters that participate with the selling stockholders
in the distribution of our common stock pursuant to this prospectus may be
deemed to be &#147;underwriters&#148; within the meaning of the Securities Act. In this
case, any commissions received by these broker-dealers, agents or underwriters
and any profit on the resale of our common stock purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act. In
addition, any profits realized by the selling stockholders may be deemed to be
underwriting commissions. Neither we nor any selling stockholder can presently
estimate the amount of such compensation. If a selling stockholder is deemed to
be an underwriter, the selling stockholder may be subject to certain statutory
liabilities including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule&nbsp;10b-5 under the Exchange Act. Selling
stockholders who are deemed underwriters within the meaning of the Securities
Act will be subject to the prospectus delivery requirements of the Securities
Act.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="DescriptionOfCapitalStock_230800"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">DESCRIPTION OF CAPITAL STOCK</font></b></p>

<p style="margin:0pt 0pt 12.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">The following summary description of our capital
stock does not purport to be complete and is subject to and qualified in its
entirety by reference to our charter and our bylaws, copies of which are filed
as exhibits to the registration statement of which this prospectus is a part.
See &#147;Where You Can Find More Information About Fieldstone Investment
Corporation&#148; on page&nbsp;64.</font></i></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="General_230818"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">General</font></b></p>

<p style="margin:0pt 0pt 12.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our charter provides that we may issue up to
90,000,000 shares of common stock and 10,000,000 shares of preferred stock,
both having par value $0.01 per share. As of August&nbsp;17, 2005, 48,835,876
shares of common stock were issued and outstanding and no shares of preferred
stock were issued and outstanding. Maryland law provides that none of our
stockholders is personally liable for any of our obligations solely as a result
of that stockholder&#146;s status as a stockholder.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="VotingRightsOfCommonStock_230820"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Voting Rights of Common Stock</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Subject to the provisions of our charter regarding restrictions on the
transfer and ownership of shares of common stock, each outstanding share of
common stock will entitle the holder to one vote on all matters submitted to a
vote of stockholders, including the election of directors, and, except as
provided with respect to any other class or series of shares of our stock, the
holders of our common stock will possess the exclusive voting power. There will
be no cumulative voting in the election of directors, which means that the
holders of a majority of the outstanding shares of common stock, voting as a
single class, can elect all of the directors then standing for election.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under Maryland law, a Maryland corporation
generally cannot dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative vote
of stockholders holding at least two-thirds of the shares entitled to vote on
the matter, unless a lesser percentage (but not less than a majority of all the
votes entitled to be cast on the matter) is set forth in the corporation&#146;s
charter. Our charter provides for approval by a majority of all the votes
entitled to be cast on the matter for the matters described in this paragraph.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="DividendsLiquidationAndOtherRight_230823"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dividends,
Liquidation and Other Rights</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Holders of our shares of common stock are entitled to receive dividends
when authorized by our board of directors out of assets legally available for
the payment of dividends. They also are entitled to share ratably in our assets
legally available for distribution to our stockholders in the event of our
liquidation, dissolution or winding up, after payment of or adequate provision
for all of our known debts and liabilities. These rights are subject to the
preferential rights of any other class or series of our stock and to the
provisions of our charter regarding restrictions on transfer of our stock.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Holders of our shares of common stock have no preference, conversion,
exchange, sinking fund or redemption rights and will have no preemptive rights
to subscribe for any of our securities. Subject to the restrictions on transfer
of capital stock contained in our charter and to the ability of the board of
directors to create shares of common stock with differing voting rights, all
shares of our common stock have equal dividend, liquidation and other rights.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our charter authorizes our board of
directors to reclassify any unissued shares of our common stock into other
classes or series of classes of our stock (including preferred stock), to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="PreferredStock_230826"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Preferred Stock</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our charter authorizes our board of
directors to reclassify any unissued shares of common stock into preferred
stock, to classify any unissued shares of preferred stock and to reclassify any
previously classified but unissued shares of any series of preferred stock
previously authorized by our board of directors. Prior to issuance of shares of
each class or series of preferred stock, our board will be required by Maryland
law and our charter to fix the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or series. Our board could authorize the issuance of shares of preferred
stock with terms and conditions that could have the effect of delaying,
deferring or preventing a transaction or a change of control that might involve
a premium price for holders of our common stock or otherwise be in their best
interest. As of August&nbsp;4, 2005, no shares of preferred stock are outstanding
and we have no present plans to issue any preferred stock.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="PowerToIssueAdditionalSharesOfCom_230827"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Power to Issue
Additional Shares of Common Stock and Preferred Stock</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We believe that the power of our board of
directors to issue additional authorized but unissued shares of our common
stock or preferred stock and to classify or reclassify unissued shares of our
common stock or preferred stock and thereafter to cause us to issue such
classified or reclassified shares of stock will provide us with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs that might arise. The additional classes or series, as well
as our common stock, will be available for issuance without further action by
our stockholders, unless stockholder action is required by applicable law or
the rules&nbsp;of any stock exchange or automated quotation system on which our
securities may be listed or traded. Although our board of directors has no
intention at the present time of doing so, it could authorize us to issue a
class or series that could, depending upon the terms of such class or series,
delay, defer or prevent a transaction or a change in control that might involve
a premium price for holders of our common stock or otherwise be in their best
interest.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="RestrictionsOnOwnershipAndTransfe_230829"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Restrictions on Ownership
and Transfer</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As a REIT, under the Internal Revenue Code, our shares of capital stock
must be beneficially owned by 100 or more persons during at least 335&nbsp;days
of a taxable year of 12&nbsp;months or during a proportionate part of a shorter
taxable year starting in 2004, our first full year after electing REIT status.
Also, no more than 50% of the value of our outstanding shares of capital stock
(after taking into account options to acquire shares of stock) may be owned,
directly or constructively, by 5 or fewer individuals (as defined in the
Internal Revenue Code to include certain entities) as of December&nbsp;31,
2004, the end of our first full year after electing REIT status. In addition,
although the law on the matter is unclear, a tax might be imposed if we hold a
taxable mortgage pool and will be imposed on us if we hold a residual interest
in a REMIC, and if certain types of entities hold our shares.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Because our board of directors believes that it is essential for us to
qualify as a REIT, our charter, subject to certain exceptions, contains
restrictions on the number of shares of our capital stock that a person may own
and will prohibit certain entities from owning our shares. Our charter provides
that no person may own, or be deemed to own by virtue of the attribution
provisions of the Internal Revenue Code, more than 9.8% in value or in number
of shares, whichever is more restrictive, of any class or series of our
outstanding shares of capital stock. In addition, our charter prohibits the
following entities from owning our shares: the United States; any state or
political subdivision of the United States; any foreign government; any
international organization; any agency or instrumentality of any of the
foregoing; any other tax-exempt organization, other than a farmer&#146;s cooperative
described in Section&nbsp;521 of the Internal Revenue Code, that is exempt from
both income taxation and from taxation under the unrelated business taxable
income provisions of the Internal Revenue Code; and any rural electrical or telephone
cooperative.</font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our charter also prohibits any person from (i)&nbsp;beneficially owning
shares of our capital stock that would result in us being &#147;closely held&#148; under Section&nbsp;856(h)&nbsp;of
the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT
and (ii)&nbsp;transferring shares of our capital stock if such transfer would
result in our capital stock being owned by fewer than 100 persons. Any person
who acquires or attempts or intends to acquire beneficial ownership of shares
of our capital stock that will or may violate any of the foregoing restrictions
on transferability and ownership will be required to give notice immediately to
us and provide us with such other information as we may request in order to
determine the effect of such transfer on our status as a REIT. The foregoing
restrictions on transferability and ownership will not apply if our board of
directors determines that it is no longer in our best interests to attempt to
qualify, or to continue to qualify, as a REIT.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under the terms of our charter, our board of directors may grant an
exception to the 9.8% ownership limit to, and establish a higher ownership
limit for, a shareholder that is not an individual if such shareholder provides
information and makes representations to the board that are satisfactory to the
board, in its reasonable discretion, to establish that such person&#146;s ownership
in excess of the 9.8% limit would not jeopardize our qualification as a REIT.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">All certificates representing shares of our capital stock bear a legend
referring to the restrictions described above.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Every owner of more than 5% (or such lower percentage as required by the
Internal Revenue Code or the regulations promulgated thereunder) of all classes
or series of our stock, including shares of common stock, within 30&nbsp;days
after the end of each taxable year, is required to give written notice to us
stating the name and address of the owner, the number of shares of each class
and series of shares of our stock that the owner beneficially owns and a description
of the manner in which the shares are held. Each owner shall provide to us such
additional information as we may request in order to determine the effect, if
any, of such owner&#146;s beneficial ownership on Fieldstone Investment&#146;s status as
a REIT and to ensure compliance with the ownership limitations. In addition,
each stockholder shall upon demand be required to provide to us such
information as we may request, in good faith, in order to determine our status
as a REIT and to comply with the requirements of any taxing authority or
governmental authority or to determine such compliance.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">These ownership limitations could delay,
defer or prevent a transaction or a change in control that might involve a
premium price for the common stock or might otherwise be in the best interest
of our stockholders.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="TransferAgentAndRegistrar_230834"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Transfer Agent and Registrar</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The transfer agent and registrar for our shares of common stock is
American Stock Transfer&nbsp;&amp; Trust Company.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="MaterialFederalIncomeTaxConsidera_231449"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">MATERIAL FEDERAL INCOME TAX CONSIDERATIONS</font></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following discussion describes the
material federal income tax consequences relating to our taxation as a REIT,
and the ownership and disposition of our common stock. Because this is a
summary that is intended to address only federal income tax considerations
relating to the ownership and disposition of our common stock, it may not
contain all the information that may be important to you. As you review this
discussion, you should keep in mind that:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the tax considerations
to you may vary depending on your particular tax situation;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>special rules&nbsp;that
are not discussed below may apply to you if, for example, you are: <br>&#160;tax-exempt organization;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>broker-dealer;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>non-U.S.
person;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>a trust,
estate, regulated investment company, REIT, financial institution, insurance
company or S corporation;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>subject to
the alternative minimum tax provisions of Internal Revenue Code;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>holding the
stock as part of a hedge, straddle, conversion or other risk-reduction or
constructive sale transaction;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>holding the
stock through a partnership or similar pass-through entity;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>a person with
a &#147;functional currency&#148; other than the U.S. dollar;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>beneficially
or constructively holding 10% or more (by vote or value) of the beneficial interest
in us;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>a U.S.
expatriate; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>otherwise
subject to special tax treatment under the Internal Revenue Code;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>this summary
does not address state, local or non-U.S. tax considerations;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>this summary
deals only with investors that hold the stock as a &#147;capital asset,&#148; within the
meaning of Section&nbsp;1221 of the Internal Revenue Code; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>this
discussion is not intended to be, and should not be construed as, tax advice.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">You are urged both to review the following discussion and to consult
with your own tax advisor to determine the effect of ownership and disposition
of our stock on your individual tax situation, including any state, local or
non-U.S. tax consequences.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The information in this section is based on
the Internal Revenue Code, current, temporary and proposed regulations, the
legislative history of the Internal Revenue Code, current administrative
interpretations and practices of the Internal Revenue Service (IRS), and court
decisions. The reference to IRS interpretations and practices includes IRS
practices and policies as endorsed in private letter rulings, which are not
binding on the IRS except with respect to the taxpayer that receives the
ruling. In each case, these sources are relied upon as they exist on the date
of this registration statement. Future legislation, regulations, administrative
interpretations and court decisions could change current law or adversely
affect existing interpretations of current law. Any change could apply
retroactively. We have not received, and do not currently intend to seek, any
rulings from the IRS concerning our qualification as a REIT. Accordingly, even
if there is no change in the applicable law, no assurance can be provided that
the statements made in </font></p>


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<p style="margin:0pt 0pt 12.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">the following
discussion, which do not bind the IRS or the courts, will not be challenged by
the IRS or will be sustained by a court if so challenged.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;"><a name="EachProspectiveInvestorIsAdvisedT_071829"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Each prospective
investor is advised to consult with his or her own tax advisor to determine the
impact of his or her personal tax situation on the anticipated tax consequences
of the ownership and sale of our common stock. This includes the federal,
state, local, foreign and other tax consequences of the ownership and sale of
our common stock and the potential changes in applicable tax laws.</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="OurQualificationAndTaxationAsARei_071846"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our Qualification
and Taxation as a REIT</font></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">General.&nbsp;&nbsp; </font></i>For certain
years prior to 2003, our predecessor, Fieldstone Holdings, was a Delaware
corporation that was subject to tax as a non-REIT C corporation. Fieldstone
Holdings owned 100% of Fieldstone Mortgage, which was formed in 1995 and was
also subject to tax as a C corporation for certain of its taxable years until
2003. Fieldstone Holdings elected to be treated as an S corporation for federal
income tax purposes, effective January&nbsp;1, 2003. As a result of Fieldstone
Holdings&#146; S election, on January&nbsp;1, 2003, Fieldstone Mortgage became a &#147;qualified
subchapter S subsidiary&#148; of Fieldstone Holdings and was disregarded as an
entity separate from Fieldstone Holdings for federal income tax purposes from
that date. Effective November&nbsp;13, 2003, Fieldstone Holdings revoked its S
corporation status. The termination of its S election caused its tax year
(short S corporation year) to terminate and a new tax year (short C corporation
year) to commence on November&nbsp;13, 2003, the termination date. The short C
corporation year that commenced on November&nbsp;13, 2003 ended on December&nbsp;31,
2003. On November&nbsp;14, 2003, Fieldstone Holdings merged with and into us,
and we were the surviving entity.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have elected to be taxed as a REIT under Sections 856 through 859 of
the Internal Revenue Code, effective on November&nbsp;13, 2003, the first day
of the short C corporation year. A REIT generally is not subject to federal
income tax on the income that it distributes to shareholders if it meets the
applicable REIT distribution requirements and other requirements for
qualification as a REIT. Commencing with the short C corporation year, we
believe that we have been organized and have operated in such a manner as to
qualify for taxation as a REIT, and we intend to continue to be organized and
to operate in such a manner.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Qualification and taxation as a REIT depend upon our ability to meet on
a continuing basis, through actual annual (or in some cases quarterly)
operating results, various requirements under the Internal Revenue Code, with
regard to, among other things, the sources of our gross income, the composition
and values of our assets, our distribution levels, and the diversity of
ownership of our stock. Our ability to satisfy the asset and gross income tests
applicable to a REIT depends, among other things, on the fair market values of
our assets and the fair market value of the real estate that is collateral for
our mortgage loans. Such values may not be susceptible to a precise
determination. While we intend to operate so that we will qualify as a REIT,
given the highly complex nature of the rules&nbsp;governing REITs, the ongoing
importance of factual determinations, and the possibility of future changes in
our circumstances, no assurance can be given by us that we will so qualify for
any particular year. For a discussion of the tax consequences of the failure to
qualify as a REIT, see &#147;&#151;Failure to Qualify.&#148;</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The sections of the Internal Revenue Code and the corresponding
regulations that govern the federal income tax treatment of a REIT and its
stockholders are highly technical and complex. The following discussion is
qualified in its entirety by the applicable Internal Revenue Code provisions, rules&nbsp;and
regulations promulgated thereunder, and administrative interpretations thereof.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In any year in which we qualify for taxation as a REIT, we generally
will not be subject to federal corporate income taxes on that portion of our
REIT taxable income that we distribute currently to stockholders. However, our
stockholders will generally be taxed on dividends that they receive at ordinary
income rates unless such dividends are designated by us as capital gain
dividends or qualified dividend income. This differs from non-REIT C
corporations, which generally are subject to federal corporate </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">income taxes but whose stockholders who are
taxed as individuals are generally taxed on dividends they receive at capital
gains rates, which are lower for individuals than ordinary income rates, and
whose stockholders who are taxed at regular corporate rates receive the benefit
of a dividends received deduction that substantially reduces the effective rate
that they pay on such dividends. Overall, income earned by a REIT and
distributed to its stockholders will be subject to less federal income taxation
than if such income were earned by a non-REIT C corporation, subjected to
corporate income tax, and then distributed to stockholders and subjected to tax
either at capital gain rates or the effective rate paid by a corporate
recipient entitled to the benefit of the dividends received deduction.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">While we are generally not subject to
corporate income taxes on income that we distribute currently to stockholders,
we will be subject to federal income tax as follows.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>We will be
taxed at regular corporate rates on any &#147;REIT taxable income.&#148; REIT taxable
income is the taxable income of the REIT subject to specified adjustments,
including a deduction for dividends paid.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Under some
circumstances, we (or our stockholders) may be subject to the &#147;alternative
minimum tax&#148; due to our undistributed items of tax preference and alternative
minimum tax adjustments.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>If we have
net income from the sale or other disposition of &#147;foreclosure property&#148; that is
held primarily for sale to customers in the ordinary course of business, or
other non-qualifying income from foreclosure property, we will be subject to
tax at the highest corporate rate on this income.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Our net
income from &#147;prohibited transactions&#148; will be subject to a 100% tax. In
general, prohibited transactions are sales or other dispositions of property,
other than foreclosure property, but including mortgage loans, held primarily
for sale to customers in the ordinary course of business.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>If we fail to
satisfy either the 75% gross income test or the 95% gross income test discussed
below, but nonetheless maintain our qualification as a REIT because other
requirements are met, we will be subject to a tax equal to the gross income
attributable to the greater of either (i)&nbsp;the amount by which 75% of our
gross income exceeds the amount qualifying under the 75% test for the taxable
year or (ii)&nbsp;the amount by which 95% of our gross income exceeds the
amount of our income qualifying under the 95% test for the taxable year,
multiplied in either case by a fraction intended to reflect our profitability.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>We will be
subject to a 4% excise tax on the excess of the required distribution over the
sum of the amounts actually distributed and amounts retained for which federal
income tax was paid, if we fail to distribute during each calendar year at
least the excess of the sum of:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>85% of our
REIT ordinary income for the year;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>95% of our
REIT capital gain net income for the year; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any
undistributed taxable income from prior taxable years over excess distributions
made with respect to prior years.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>We may elect
to retain and pay income tax on our net long-term capital gain. In that case, a
U.S. stockholder would include its proportionate share of our undistributed
long-term capital gain (to the extent we make a timely designation of such gain
to the stockholder) in its income, would be deemed to have paid the tax that we
paid on such gain and would be allowed a credit for its proportionate share of
the tax deemed to have been paid and an adjustment would be made to increase
the basis of the U.S. stockholder in our stock.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>If we fail to
satisfy the &#147;10% value test&#148; discussed below under &#147;&#151;Asset Tests Applicable to
REITs&#148; because we own assets the total value of which exceeds a statutory de
minimis standard but </p>


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<p style="margin:0pt 0pt 6.0pt 30.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">nonetheless maintain our qualification as a
REIT because other requirements are met, we will be subject to a tax equal to
the greater of $50,000 or the amount determined by multiplying the net income
generated by such nonqualifying assets by the highest rate of tax applicable to
corporations.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>If we fail to
satisfy a requirement under the Code the failure of which would result in the
loss of our REIT status, other than a failure of one or both of the gross
income tests or the &#147;10% value test&#148; as described above, but nonetheless
maintain our qualification as a REIT because the requirements of certain relief
provisions are satisfied, we will be subject to a penalty of $50,000 for each
such failure due to reasonable cause and not willful neglect.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>We will be
subject to a 100% penalty tax on amounts received by us (or on certain expenses
deducted by a taxable REIT subsidiary of ours) if certain arrangements between
us and a taxable REIT subsidiary of ours, as further described below, are not
comparable to similar arrangements among unrelated parties.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>With respect
to an interest in a taxable mortgage pool or a real estate mortgage investment
conduit, or REMIC, the ownership of which is attributed to us or to a REIT in
which we own an interest, although the law on the matter is unclear as to the
ownership of an interest in a taxable mortgage pool, we might be taxable at the
highest corporate rate on the amount of any excess inclusion income for the
taxable year allocable to the percentage of our stock that is held by &#147;disqualified
organizations.&#148; For a discussion of &#147;excess inclusion income,&#148; see &#147;&#151;Taxable
Mortgage Pools and REMICs.&#148; A &#147;disqualified organization&#148; includes:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the United
States;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any state or
political subdivision of the United States;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any foreign
government; any international organization;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any agency or
instrumentality of any of the foregoing;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any other
tax-exempt organization, other than a farmer&#146;s cooperative described in
section&nbsp;521 of the Internal Revenue Code, that is exempt both from income
taxation and from taxation under the unrelated business taxable income
provisions of the Internal Revenue Code; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any rural
electrical or telephone cooperative.</p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For this reason, our charter prohibits
disqualified organizations from owning our shares.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>If we acquire
any assets from a non-REIT C corporation in a carry-over basis transaction
(including as a result of our conversion to a REIT from an S corporation that
was taxable as a non-REIT C corporation in previous years), we could be liable
for specified tax liabilities inherited from that non-REIT C corporation with
respect to that corporation&#146;s &#147;built-in gain&#148; in its assets. Built-in gain is
the amount by which an asset&#146;s fair market value exceeds its adjusted tax basis
at the time we acquire the asset. Applicable Treasury regulations, however,
allow us to avoid the recognition of gain and the imposition of corporate level
tax with respect to a built-in gain asset acquired in a carry-over basis
transaction from a non-REIT C corporation unless and until we dispose of that
built-in gain asset during the 10-year period following its acquisition,
at which time we would recognize, and would be subject to tax at the highest
regular corporate rate on, the built-in gain.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;">The provisions of the Internal Revenue Code applicable to S corporations
apply a rule&nbsp;similar to the one described in the last bullet point above
to tax built-in gain attributable to a non-REIT C corporation if the C
corporati</font>on makes an S election and recognizes any of the built-in gain
during the 10-year period following the effective</font> date of the
S election. On the effective date of the S election of Fieldstone </p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Holdings, our predecessor, which was January&nbsp;1,
2003, Fieldstone Holdings had a material amount of &#147;franchise value&#148; in its
business in excess of its book value, which could give rise to a tax liability
attributable to the built-in gain rules&nbsp;described above. As a consequence
of the merger and our REIT election, we inherited the potential tax liability
relating to any built-in gain of Fieldstone Holdings. Accordingly, if we sell
our business or substantially all of our assets during the 10-year period
ending December&nbsp;31, 2012, we will be subject to regular corporate tax on
some amount of gain. The total amount of gain on which we can be taxed is
limited to the excess of the aggregate fair market value of Fieldstone Holdings&#146;
assets at the time of the S election over the adjusted tax bases of those
assets at that time. As this tax would be significant, we intend to manage our
affairs in a manner that takes into account the potential incurrence of this
tax. This may result in our seeking to avoid any taxable disposition of our
business or substantially all of our assets prior to January&nbsp;1, 2013, even
if such transaction might otherwise be in our best interests if this tax were
not to apply. None of the loan sales made by Fieldstone Holdings since January&nbsp;1,
2003 triggered any built-in gains tax because those loans were held for sale
and, therefore, Fieldstone Holdings was required to use &#147;mark-to-market&#148;
accounting with respect to those loans for its tax accounting. Consequently,
there was no gain attributable to those loans for tax purposes at the time of
Fieldstone Holdings&#146; S election.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, notwithstanding our status as a REIT, we may also have to
pay certain state and local income taxes, because not all states and localities
treat REITs in the same manner that they are treated for federal income tax
purposes. Moreover, as further described below, any taxable REIT subsidiary in
which we own an interest, including Fieldstone Mortgage, will be subject to
federal corporate income tax on its net income.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Requirements for
Qualification as a REIT.&nbsp;&nbsp; </font></i>The Internal Revenue Code defines a REIT as
a corporation, trust or association:</p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1)&#160;&#160; that is managed by one or
more trustees or directors;</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)&#160;&#160; the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest;</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)&#160;&#160; that would be taxable as a
domestic corporation, but for Sections 856 through 859 of the Internal Revenue
Code;</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(4)&#160;&#160; that is neither a financial
institution nor an insurance company subject to certain provisions of the
Internal Revenue Code;</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(5)&#160;&#160; the beneficial ownership of
which is held by 100 or more persons;</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(6)&#160;&#160; of which not more than 50% in
value of the outstanding shares are owned, directly or indirectly, by five or
fewer individuals (as defined in the Internal Revenue Code to include certain
entities) after applying certain attribution rules;</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(7)&#160;&#160; that makes an election to be
a REIT for the current taxable year or has made such an election for a previous
taxable year, which has not been terminated or revoked; and</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(8)&#160;&#160; that meets other tests,
described below, regarding the nature of its income and assets.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Conditions (1)&nbsp;through (4), inclusive, must be met during the
entire taxable year. Condition (5)&nbsp;must be met during at least
335&nbsp;days of a taxable year of 12&nbsp;months, or during a proportionate
part of a taxable year of less than 12&nbsp;months other than the first taxable
year for which an election to become a REIT is made. Condition (6)&nbsp;must be
met during the last half of each taxable year other than the first taxable year
for which an election to become a REIT is made. For purposes of determining the
ownership of shares under condition (6), a supplemental unemployment
compensation benefits plan, a private foundation or a portion of a trust
permanently set aside or used exclusively for charitable purposes generally is
considered </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">an individual. However, a trust that is a
qualified trust under Section&nbsp;401(a)&nbsp;of the Internal Revenue Code
generally is not considered an individual, and beneficiaries of a qualified
trust are treated as holding shares of a REIT in proportion to their actuarial
interests in the trust for purposes of condition (6). We believe that we will
issue sufficient shares of stock with sufficient diversity of ownership to
allow us to satisfy conditions (5)&nbsp;and (6)&nbsp;above. In addition, our
charter contains restrictions regarding the transfer of our stock that are
intended to assist us in continuing to satisfy the share ownership requirements
described in (5)&nbsp;and (6)&nbsp;above. These restrictions, however, may not
ensure that we will be able to satisfy these share ownership requirements. If
we fail to satisfy these share ownership requirements and cannot avail
ourselves of any statutory relief provisions, we will fail to qualify as a
REIT.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If we comply with regulatory rules&nbsp;pursuant to which we are
required to send annual letters to holders of our stock requesting information
regarding the actual ownership of our stock, and we do not know, or exercising
reasonable diligence would not have known, whether we failed to meet
requirement (6)&nbsp;above, we will be treated as having met the requirement.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, we must satisfy all relevant filing and other
administrative requirements established by the IRS that must be met to elect
and maintain REIT status, use a calendar year for federal income tax purposes,
and comply with the record keeping requirements of the Internal Revenue Code
and regulations promulgated thereunder.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Distribution of &#147;Earnings and Profits&#148; Attributable to
Non-REIT C corporation Taxable Years.&nbsp;&nbsp; </font></i>To qualify as
a REIT, we cannot have at the end of any taxable year any undistributed
earnings and profits that are attributable to a non-REIT C corporation taxable
year (non-REIT C corporation E&amp;P). As of the effective date of Fieldstone
Holdings&#146; S election, Fieldstone Holdings had non-REIT C corporation E&amp;P.
We succeeded to any non-REIT C corporation E&amp;P of Fieldstone Holdings and
had until the close of our first taxable year as a REIT, December&nbsp;31,
2003, to distribute any such remaining non-REIT C corporation E&amp;P. Prior to
the effective date of our REIT election, November&nbsp;13, 2003, during
Fieldstone Holdings&#146; short S corporation year, Fieldstone Holdings made regular
tax distributions to its S corporation shareholders. Ordinarily, distributions
paid by an S corporation are treated by a shareholder, first, as a nontaxable
return of capital to the extent of the shareholder&#146;s share of the S corporation&#146;s
&#147;accumulated adjustments account,&#148; and, second, as a dividend to the extent of
the S corporation&#146;s accumulated non-REIT C corporation E&amp;P. Fieldstone
Holdings obtained the consent of each of its S corporation shareholders to whom
a distribution was made during the short S corporation year to elect to have
its 2003 distributions treated first as dividends to the extent of Fieldstone
Holdings&#146; non-REIT C corporation E&amp;P.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Fieldstone Holdings commissioned a national accounting firm to prepare
an estimate of its non-REIT C corporation E&amp;P at December&nbsp;31, 2002.
This estimate formed the basis of our determination of the amount of dividends
that were paid to Fieldstone Holdings&#146; shareholders prior to the closing of the
144A Offering to purge the non-REIT C corporation E&amp;P for Fieldstone
Holdings. Accordingly, we believe that as of the close of 2003, we no longer
had any non-REIT C corporation E&amp;P.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">There can be no assurance, however, that the IRS will not examine
Fieldstone Holdings&#146; tax returns from its years as a C corporation and propose
adjustments to increase Fieldstone Holdings&#146; taxable income from those years.
If the IRS determines that we failed to distribute all of our non-REIT C
corporation E&amp;P by the close of 2003, although the law on this issue is not
entirely clear, we may avoid being disqualified as a REIT for each taxable year
during which we had non-REIT C corporation E&amp;P, provided that we satisfy
certain &#147;deficiency dividend&#148; procedures described below in &#147;&#151;Annual
Distribution Requirements Applicable to REITs.&#148;</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Qualified REIT Subsidiaries.&nbsp;&nbsp; </font></i>If a REIT
owns a corporate subsidiary that is a &#147;qualified REIT subsidiary,&#148; the separate
existence of that subsidiary is disregarded for federal income tax purposes.
Generally, a qualified REIT subsidiary is a corporation, other than a taxable
REIT subsidiary, all of the capital stock of which is owned by the REIT. All
assets, liabilities and items of income, deduction and </p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">credit of the qualified REIT subsidiary will
be treated as assets, liabilities and items of income, deduction and credit of
the REIT itself. A qualified REIT subsidiary of ours is not subject to federal
corporate income taxation, although it may be subject to state and local
taxation in some states.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Taxable REIT Subsidiaries.&nbsp;&nbsp; </font></i>A &#147;taxable
REIT subsidiary&#148; is an entity that is taxable as a corporation in which we
directly or indirectly own stock and that elects with us to be treated as a
taxable REIT subsidiary under Section&nbsp;856(l)&nbsp;of the Internal Revenue
Code. In addition, if one of our taxable REIT subsidiaries owns, directly or
indirectly, securities representing 35% or more of the vote or value of a
subsidiary corporation, that subsidiary will also be treated as a taxable REIT
subsidiary of ours. However, an entity will not qualify as a taxable REIT
subsidiary if it directly or indirectly operates or manages a lodging or health
care facility or, generally, provides to another person, under a franchise,
license or otherwise, rights to any brand name under which any lodging facility
or health care facility is operated. Currently, we have one subsidiary,
Fieldstone Mortgage, which we have elected to treat as a taxable REIT
subsidiary of ours. As a taxable REIT subsidiary, Fieldstone Mortgage is
subject to federal income tax, and state and local income tax where applicable,
as a regular C corporation on its net income. To the extent that Fieldstone
Mortgage is required to pay taxes, we will have less cash available for
distribution to shareholders. If dividends are paid by Fieldstone Mortgage to
us, then dividends from us to our shareholders who are taxed at individual
rates, up to the amount of dividends we receive from Fieldstone Mortgage, will
generally be eligible to be subject to tax at reduced capital gains rates,
rather than taxed at ordinary income rates. See &#147;Taxation of U.S. Holders of
Our Common Stock&#151;Qualified Dividend Income.&#148; Currently, we anticipate that
Fieldstone Mortgage will retain any income it generates, net of any tax
liability it incurs on that income.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Income earned by a taxable REIT subsidiary is not attributable to the
REIT. As a result, income that might not be qualifying income for purposes of
the income tests applicable to REITS, such as fees from the origination and/or
servicing of loans for third parties, could be earned by a taxable REIT
subsidiary without affecting our status as a REIT. We sell all of our
conforming loans and the portion of our non-conforming loans that we do not
hold in portfolio, and perform other servicing and origination functions, through
Fieldstone Mortgage.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Several provisions of the Internal Revenue Code regarding the
arrangements between a REIT and its taxable REIT subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary is limited in its
ability to deduct interest payments made to its REIT owner, although we
currently do not anticipate that this limitation will apply to interest
payments made by Fieldstone Mortgage to us. In addition, we would be obligated to
pay a 100% penalty tax on some payments that we receive from, or on certain
expenses deducted by, Fieldstone Mortgage if the IRS were to assert
successfully that the economic arrangements between us and Fieldstone Mortgage
are not comparable to similar arrangements among unrelated parties.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Taxable Mortgage Pools and
REMICs.&nbsp;&nbsp; </font></i>An entity, or a portion of an entity, that does not
elect to be treated as a REMIC may be classified as a taxable mortgage pool
under the Internal Revenue Code if:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>substantially
all of its assets consist of debt obligations or interests in debt obligations;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>more than 50%
of those debt obligations are real estate mortgages or interests in real estate
mortgages as of specified testing dates;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the entity
has issued debt obligations (liabilities) that have two or more maturities; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the payments
required to be made by the entity on its debt obligations &#147;bear a relationship&#148;
to the payments to be received by the entity on the debt obligations that it
holds as assets.</p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under the Treasury regulations, if less than 80% of the assets of an
entity (or a portion of an entity) consists of debt obligations, these debt
obligations are considered not to comprise &#147;substantially all&#148; of its assets,
and therefore the entity would not be treated as a taxable mortgage pool.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">An entity or portion of an entity will be
treated as a REMIC for purposes of the Internal Revenue Code if:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>it satisfies
requirements relating to the types of interests in the entity;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>substantially
all of its assets are comprised of qualified mortgages and certain other
permitted instruments at all times, except during an initial and final period;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>it adopts
arrangements to ensure that disqualified organizations will not hold residual
interests and that information needed to calculate the tax on transfers of
residual interests to such organizations will be made available by the entity;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>it has a
taxable year that is the calendar year, and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the election
to be treated as a REMIC applies for the taxable year and all prior taxable
years.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Where an entity, or a portion of an entity, is classified as a taxable
mortgage pool, it is generally treated as a taxable corporation for federal
income tax purposes. In the case of a REIT, a portion of a REIT, or a REIT
subsidiary that is disregarded as a separate entity from the REIT that is a
taxable mortgage pool, however, special rules&nbsp;apply. The portion of a REIT&#146;s
assets, held directly or through a REIT subsidiary that is disregarded as a
separate entity from the REIT, that qualifies as a taxable mortgage pool is
treated as a qualified REIT subsidiary that is not subject to corporate income
tax, and the taxable mortgage pool classification does not directly affect the
tax status of the REIT. Rather, the consequences of the taxable mortgage pool
classification would generally, except as described below, be limited to the
REIT&#146;s shareholders. The Treasury Department has yet to issue regulations
governing the tax treatment of the shareholders of a REIT that owns an interest
in a taxable mortgage pool.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A portion of our income from a REMIC or taxable mortgage pool
arrangement, which might be non-cash accrued income, or &#147;phantom&#148; taxable
income, could be treated as &#147;excess inclusion income.&#148; Excess inclusion income
is an amount, with respect to any calendar quarter, equal to the excess, if
any, of (i)&nbsp;income allocable to the holder of a residual interest in a
REMIC or taxable mortgage pool interest during such calendar quarter over (ii)&nbsp;the
sum of an amount for each day in the calendar quarter equal to the product of (a)&nbsp;the
adjusted issue price of the interest at the beginning of the quarter multiplied
by (b)&nbsp;120&nbsp;percent of the long-term federal rate (determined on the
basis of compounding at the close of each calendar quarter and properly
adjusted for the length of such quarter). This non-cash or &#147;phantom&#148; income
would nonetheless be subject to the distribution requirements that apply to us
and could therefore adversely affect our liquidity. See &#147;&#151;Annual Distribution
Requirements Applicable to REITs.&#148;</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our excess inclusion income would be allocated among our shareholders. A
shareholder&#146;s share of excess inclusion income (i)&nbsp;would not be allowed to
be offset by any net operating losses otherwise available to the shareholder, (ii)&nbsp;would
be subject to tax as unrelated business taxable income in the hands of most
types of shareholders that are otherwise generally exempt from federal income
tax, and (iii)&nbsp;would result in the application of U.S. federal income tax
withholding at the maximum rate (30%), without reduction for any otherwise
applicable income tax treaty, to the extent allocable to most types of foreign
shareholders. See &#147;Taxation of Non-U.S. Holders of Our Common
Stock&#151;Distributions.&#148; Although the law on this matter is unclear with regard to
taxable mortgage pool interests, to the extent excess inclusion income is
allocated to a tax-exempt stockholder of ours that is not subject to unrelated
business income tax (such as a government entity), we would be taxable on this
income at the highest applicable corporate tax rate (currently 35%). While our
charter prohibits our stock from being held by entities that might subject us
to this tax, this prohibition may not ensure that this tax will not be imposed
by us. The manner in which </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">excess inclusion income would be allocated
among shares of different classes of our stock or how such income is to be
reported to stockholders is not clear under current law. Tax-exempt investors,
foreign investors and taxpayers with net operating losses should carefully
consider the tax consequences described above and are urged to consult their
tax advisors in connection with their decision to invest in our common stock.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In connection with the securitization that closed on October&nbsp;7,
2003, we elected to treat the securitization trust as a REMIC. At the closing
of the securitization, we sold the REMIC residual interest to a third party.
Therefore we do not expect that any of our retained interest in the REMIC
securities will give rise to &#147;excess inclusion income.&#148; With regard to each of
the securitizations that closed in 2004, we have received an opinion of counsel
from McKee Nelson LLP that, although the securitization trust will be
classified as a taxable mortgage pool during the time any notes secured by the
assets in the trust are outstanding, the trust will not be subject to federal
income tax during such time as long as we qualify as a REIT.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If a subsidiary partnership of ours, not
wholly-owned by us directly or through one or more disregarded entities, were a
taxable mortgage pool, the foregoing rules&nbsp;would not apply. Rather, the
partnership that is a taxable mortgage pool would be treated as a corporation
for federal income tax purposes, and would potentially be subject to corporate
income tax. In addition, this characterization would alter our REIT income and
asset test calculations and could adversely affect our compliance with those
requirements. We currently do not believe that we have, and currently do not
intend to form, any subsidiary partnerships that are or will become taxable
mortgage pools, and we intend to monitor the structure of any taxable mortgage
pools in which we have an interest to ensure that they will not adversely
affect our status as a REIT.</font></p>

<p style="font-style:italic;font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Income Tests</font></i></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">To qualify as a REIT, we must satisfy two
gross income requirements, each of which is applied on an annual basis. First,
at least 75% of our gross income, excluding gross income from prohibited
transactions, for each taxable year generally must be derived directly or
indirectly from:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>rents from
real property;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>interest on
debt secured by mortgages on real property or on interests in real property;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>dividends or
other distributions on, and gain from the sale of, stock in other REITs;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>gain from the
sale of real property or mortgage loans;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>amounts, such
as commitment fees, received in consideration for entering into an agreement to
make a loan secured by real property, unless such amounts are determined by
reference to income and profits;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>income
derived from a REMIC in proportion to the real estate assets held by the REMIC,
unless at least 95% of the REMIC&#146;s assets are real estate assets, in which case
all of the income derived from the REMIC; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>interest or
dividend income from investments in stock or debt instruments attributable to
the temporary investment of new capital during the one-year period following
our receipt of new capital that we raise through equity offerings or public
offerings of debt obligations with at least a five-year term.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Second, at least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived from sources
that qualify for purposes of the 75% test, and from </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(i)&nbsp;dividends, (ii)&nbsp;interest, and (iii)&nbsp;gain
from the sale or disposition of stock or securities. If less than 95% of the
assets of a REMIC in which we hold an interest are real estate assets, we will
be treated as receiving directly our proportionate share of the REMIC&#146;s income
for purposes of the gross income tests.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for that year if we
are entitled to relief under the Code. These relief provisions generally will
be available if our failure to meet the tests was due to reasonable cause and
not due to willful neglect, and following identification of the failure, we
file with the Internal Revenue Service a schedule describing each item of our
gross income.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because non-qualifying income that we
intentionally incur exceeds the limits on non-qualifying income, the Internal
Revenue Service could conclude that the failure to satisfy the tests was not
due to reasonable cause. If we fail to satisfy the 75% or 95% gross income test
and these relief provisions do not apply, we will fail to qualify as a REIT.
Even if these relief provisions applied, we would be subject to a penalty tax
based on the amount of our non-qualifying income.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our income for purposes of these tests includes our allocable share of
all income earned by any entities in which we own an interest that are
partnerships or disregarded entities for income tax purposes (including
qualified REIT subsidiaries), and the subsidiaries of these partnerships or
disregarded entities that are partnerships or disregarded entities for income
tax purposes.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The income tests described above are based on our gross income. For
federal income tax purposes, we will be treated as earning interest income on
all of our loans that have been securitized and with respect to which we have
not made a REMIC election, including, without limitation, the loans that were
securitized in 2004. Although we will have a partially offsetting interest
expense with respect to the interest owed on the securities issued pursuant to
these securitizations, this interest expense will not reduce the gross income
that we are considered to recognize for purposes of the gross income tests. We
elected to treat the securitization trust as a REMIC election with regard to
the securitization that closed on October&nbsp;7, 2003. If less than 95% of the
REMIC&#146;s assets are real estate assets, we will be treated as earning directly
our proportionate share of the REMIC&#146;s income (although we expect that
substantially all of the income will generally be treated as qualifying
interest for purposes of both gross income tests). If at least 95% of the REMIC&#146;s
assets are real estate assets, we will include in gross income 100% of the
income earned on our REMIC interests, which will be treated as qualifying
interest for purposes of both gross income tests.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Gross income from servicing and loan origination fees is not qualifying
income for purposes of either gross income test. In addition, gross income from
our sale of property that we hold primarily for sale to customers in the
ordinary course of business is excluded from both the numerator and the
denominator in both income tests. We will monitor the amount of our
non-qualifying income and we will manage our portfolio to comply at all times
with the gross income tests. The following paragraphs discuss some of the
specific applications of the gross income tests to us.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Dividends.&nbsp;&nbsp; </font></i>Our share of
any dividends received from Fieldstone Mortgage or from any other corporations
in which we may own an interest will qualify for purposes of the 95% gross
income test but not for purposes of the 75% gross income test. We expect to
limit any dividends from Fieldstone Mortgage to stay within the limit on
nonqualifying income under the 75% gross income test.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Interest.&nbsp;&nbsp; </font></i>The term &#147;interest,&#148;
as defined for purposes of both gross income tests, generally excludes any
amount that is based in whole or in part on the income or profits of any
person. We do not expect that any of our mortgage loans will be based in whole
or in part on the income or profits of any person.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Interest on debt secured by mortgages on real property or on interests
in real property, including, for this purpose, prepayment fees, loan assumption
fees and late payment charges that are not compensation </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">for services, generally is qualifying income
for purposes of the 75% gross income test. However, if the highest principal
amount of a loan outstanding during a taxable year exceeds the fair market
value of the real property securing the loan as of the date we agreed to
originate or acquire the loan, a portion of the interest income from such loan
will not be qualifying income for purposes of the 75% gross income test but
will be qualifying income for purposes of the 95% gross income test. The
portion of the interest income that will not be qualifying income for purposes
of the 75% gross income test will be equal to the portion of the principal
amount of the loan that is not secured by real property&#151;that is, the amount by
which the loan exceeds the value of the real estate that is security for the
loan.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The interest, original issue discount, and market discount income that
we receive from our mortgage loans generally is qualifying income for purposes
of both gross income tests. However, as discussed above, if the fair market
value of the property of the real estate securing any of our loans is less than
the principal amount of the loan, a portion of the income from that loan will
be qualifying income for purposes of the 95% gross income test but not the 75%
gross income test. We expect that all or substantially all of our interest from
our mortgage loans will be qualifying income for purposes of the 75% and 95%
gross income tests.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Fee Income.&nbsp;&nbsp; </font></i>We may
receive various fees in connection with the mortgage loans. The fees will be
qualifying income for purposes of both the 75% and 95% income tests if they are
received in consideration for entering into an agreement to make a loan secured
by real property, and the fees are not determined by income and profits.
Therefore, commitment fees will generally be qualifying income for purposes of
the income tests. Other fees, such as fees received for servicing loans for
third parties and origination fees, are not qualifying income for purposes of
either income test. Currently, it is our intention that our taxable REIT
subsidiary, Fieldstone Mortgage, conduct all of our conforming loan origination
and sales, as well as other servicing and origination functions. In this case,
the income earned by Fieldstone Mortgage from these services is not included
for purposes of our income tests.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Hedging Transactions.&nbsp;&nbsp; </font></i>From time to
time, we enter into hedging transactions with respect to one or more of our
assets or liabilities. Our hedging activities may include entering into
interest rate swaps, caps, and floors, options to purchase these items, futures
and forward contracts and other financial instruments. To the extent that we
enter into a transaction in the normal course of our business primarily to
manage the risk of interest rate changes, price changes or currency
fluctuations with respect to indebtedness incurred or to be incurred by us to
acquire or carry real estate assets, including mortgage loans, any income or gain
from the hedging transaction will be disregarded for purposes of the 95% income
test, provided that we clearly and timely identify such hedging transaction in
the manner required under the Internal Revenue Code and the regulations
promulgated thereunder. For our taxable years beginning prior to January&nbsp;1,
2005, to the extent that we entered into an interest rate swap or cap contract,
option, futures contract, forward rate agreement, or any similar financial
instrument to hedge our indebtedness incurred or to be incurred to acquire or
carry &#147;real estate assets,&#148; any periodic income or gain from the disposition of
that contract attributable to the carrying or acquisition of the real estate
assets was generally qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. To the extent that we hedged with
nonqualifying types of financial instruments prior to January&nbsp;1, 2005, we
hedge against other types of risks or a portion of our mortgage loans is not
secured by &#147;real estate assets&#148; (as described below under &#147;&#151;Asset Tests&#148;), the
income from those transactions is not likely to be treated as qualifying income
for purposes of the gross income tests. We intend to structure any hedging
transactions in a manner that does not jeopardize our status as a REIT.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Rents from Real Property.&nbsp;&nbsp; </font></i>We currently
do not own any real property other than a small amount of real property
acquired through the foreclosure of mortgage loans. To the extent that we
acquire real property or an interest therein in the future, rents we receive
will qualify as &#147;rents from real property&#148; in satisfying the gross income
requirements for a REIT described above only if several conditions are met.
These conditions relate to the identity of the tenant, the computation of the
rent payable, and the nature of </p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">the property leased. First, the amount of
rent must not be based in whole or in part on the income or profits of any
person. However, amounts received or accrued generally will not be excluded
from rents from real property solely by reason of being based on fixed percentages
of receipts or sales. Second, rents we receive from a &#147;related party tenant&#148;
will not qualify as rents from real property in satisfying the gross income
tests unless the tenant is a taxable REIT subsidiary, at least 90% of the
property is leased to unrelated tenants and the rent paid by the taxable REIT
subsidiary is substantially comparable to the rent paid by the unrelated
tenants for comparable space. A tenant is a related party tenant if the REIT,
or an actual or constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of the tenant. Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to the personal property will not qualify as rents from real
property. Finally, for rents to qualify as &#147;rents from real property&#148; for
purposes of the gross income tests, we are only allowed to provide services
that are both &#147;usually or customarily rendered&#148; in connection with the rental
of real property and not otherwise considered &#147;rendered to the occupant.&#148;</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Prohibited Transactions Tax.&nbsp;&nbsp; </font></i>A REIT will
incur a 100% tax on the net income derived from any sale or other disposition
of property, other than foreclosure property, that the REIT holds primarily for
sale to customers in the ordinary course of a trade or business. We believe
that none of our portfolio assets are held for sale to customers and that a
sale of any of our portfolio assets would not be in the ordinary course of our
business. Whether a REIT holds an asset primarily for sale to customers in the
ordinary course of a trade or business depends, however, on the facts and
circumstances in effect from time to time, including those related to a
particular asset. Nevertheless, we will attempt to comply with the terms of
safe-harbor provisions in the federal income tax laws prescribing when an asset
sale will not be characterized as a prohibited transaction. We cannot assure
you, however, that we can comply with the safe-harbor provisions or that we
will avoid owning property that may be characterized as property that we hold
primarily for sale to customers in the ordinary course of a trade or business.
Sales of loans by our taxable REIT subsidiary, Fieldstone Mortgage, are not
subject to this 100% tax but Fieldstone Mortgage is subject to regular
corporate taxes on its net income.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">It is our current intention that any securitizations that we undertake
with regard to our non-conforming loans will not be treated as sales for tax
purposes. On the other hand, if we were to transfer a mortgage loan to a REMIC,
this transfer would be treated as a sale for tax purposes and the sale may be
subject to the prohibited transactions tax. As a result, REMICs are not a
viable option for us to securitize our non-conforming mortgage loans. The
securitization that we closed on October&nbsp;7, 2003 will be treated as a sale
for federal income tax purposes because we elected to treat the securitization
trust as a REMIC. Because this securitization closed before the effective date
of our REIT election, such sale will not be subject to the prohibited
transactions tax applicable to REITs. Since the effective date of our REIT
election, our taxable REIT subsidiary, Fieldstone Mortgage, continues to sell
the conforming loans that it originates on a whole loan sale basis and any
other loans the sale of which we believe would be subject to the prohibited
transactions tax.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Foreclosure Property.&nbsp;&nbsp; </font></i>Foreclosure
property is any real property, including interests in real property, and any
personal property incident to such real property:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>that is
acquired by a REIT as the result of the REIT having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default or default
was imminent on a lease of such property or on indebtedness that such property
secured;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>for which the
related loan was acquired by the REIT at a time when the default was not
imminent or anticipated; and</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>for which the
REIT makes a proper election to treat the property as foreclosure property.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">However, a REIT will not be considered to have foreclosed on a property
where the REIT takes control of the property as a mortgagee-in-possession and
cannot receive any profit or sustain any loss except as a creditor of the
mortgagor.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Property generally ceases to be foreclosure
property at the end of the third taxable year following the taxable year in
which the REIT acquired the property, or longer if an extension is granted by
the Secretary of the Treasury. This grace period terminates and foreclosure
property ceases to be foreclosure property on the first day:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>on which a
lease is entered into for the property that, by its terms, will give rise to
income that does not qualify for purposes of the 75% gross income test, or any
amount is received or accrued, directly or indirectly, pursuant to a lease
entered into on or after such day that will give rise to income that does not qualify
for purposes of the 75% gross income test;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>on which any
construction takes place on the property, other than completion of a building
or any other improvement, where more than 10% of the construction was completed
before default became imminent; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>which is more
than 90&nbsp;days after the day on which the REIT acquired the property and the
property is used in a trade or business that is conducted by the REIT, other
than through an independent contractor from whom the REIT itself does not
derive or receive any income.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We will be subject to tax at the maximum corporate rate on any income
from foreclosure property, other than income that otherwise would be qualifying
income for purposes of the 75% gross income test, less expenses directly
connected with the production of that income. However, income from foreclosure
property, including gain from the sale of foreclosure property held for sale in
the ordinary course of a trade or business, will qualify for purposes of the
75% and 95% gross income tests.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may have the option to foreclose on
mortgage loans when a borrower is in default. The foregoing rules&nbsp;would
affect the implications of a decision by us to foreclose on a particular
mortgage loan and may affect whether we will choose to foreclose with regard to
a particular mortgage loan.</font></p>

<p style="font-style:italic;font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Asset Tests</font></i></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">At the close of each quarter of our taxable
year, we must satisfy six tests relating to the nature of our assets.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>At least 75%
of the value of our total assets must be represented by the following:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>interests in
real property, including leaseholds and options to acquire real property and
leaseholds;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>interests in
mortgages on real property;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>stock in
other REITs;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>cash and cash
items;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>government
securities;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>investments
in stock or debt instruments attributable to the temporary investment of new
capital during the one-year period following our receipt of new capital that we
raise through equity offerings or public offerings of debt obligations with at
least a five-year term; and</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>regular or
residual interests in a REMIC. However, if less than 95% of the assets of a
REMIC consists of assets that are qualifying real estate-related assets under
the federal income tax laws, determined as if we held such assets directly, we
will be treated as holding directly our proportionate share of the assets of
such REMIC.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Not more than
25% of our total assets may be represented by securities, other than those in
the 75% asset class.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Except for
securities of taxable REIT subsidiaries and the securities in the 75% asset
class described in the first bullet point above, the value of any one issuer&#146;s
securities owned by us may not exceed 5% of the value of our total assets.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Except for
securities of taxable REIT subsidiaries, the securities in the 75% asset class
described in the first bullet point above and certain types of indebtedness
that are not treated as securities for purposes of this test, as discussed
below, we may not own more than 10% of any one issuer.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>Not more than
20% of the value of our total assets may be represented by the securities of
one or more taxable REIT subsidiaries.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our assets for purposes of these tests include our allocable share of
all assets held by any entities in which we own an interest that are
partnerships or disregarded entities (including qualified REIT subsidiaries)
for income tax purposes, and the subsidiaries of these partnerships or
disregarded entities that are partnerships or disregarded entities for income
tax purposes.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The asset tests described above are based on our total assets. With
regard to our securitizations for federal income tax purposes, we will be
treated as owning both the loans we hold directly and the loans that we have
securitized and with respect to which we have not made a REMIC election,
including, without limitation, the loans that we have securitized in 2004.
Although we will have a partially offsetting obligation with respect to the
securities issued pursuant to the securitizations, these offsetting obligations
will not reduce the total assets we are considered to own for purposes of the
asset tests. Because we elected to treat as a REMIC the securitization trust
used for the securitization that we closed on October&nbsp;7, 2003, we are no
longer treated as owning the mortgage loans that we transferred in the
securitization; instead we are treated as owning interests in a REMIC, with the
consequences described above and under &#147;&#151;Taxable Mortgage Pools and REMICs&#148; and
&#147;&#151;Income Tests.&#148;</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Securities, for purposes of the asset tests, may include debt we hold
from other issuers. However, the Code specifically provides that the following
types of debt will not be taken into account as securities for purposes of the
10% value test: (i)&nbsp;securities that meet the &#147;straight debt&#148; safe harbor,
as discussed in the next paragraph; (ii)&nbsp;loans to individuals or estates; (iii)&nbsp;obligations
to pay rents from real property; (iv)&nbsp;rental agreements described in Section&nbsp;467
of the Code (other than such agreements with related party tenants); (v)&nbsp;securities
issued by other REITs; (vi)&nbsp;debt issued by partnerships that derive at
least 75% of their gross income from sources that constitute qualifying income
for purposes of the 75% gross income test; (vii)&nbsp;any debt not otherwise
described in this paragraph that is issued by a partnership, but only to the
extent of our interest as a partner in the partnership; (viii)&nbsp;certain
securities issued by a state, the District of Columbia, a foreign government,
or a political subdivision of any of the foregoing, or the Commonwealth of
Puerto Rico; and (ix)&nbsp;any other arrangement described in future Treasury
regulations.</font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Debt will meet the &#147;straight debt&#148; safe harbor if (i)&nbsp;neither we,
nor any of our taxable REIT subsidiaries, own any securities not described in
the preceding paragraph that have an aggregate value greater than one percent
of the issuer&#146;s outstanding securities, as calculated under the Internal
Revenue Code, (ii)&nbsp;the debt is a written unconditional promise to pay on
demand or on a specified date a sum certain in money, (iii)&nbsp;the debt is
not convertible, directly or indirectly, into stock, and (iv)&nbsp;the interest
rate and the interest payment dates of the debt are not contingent on the
profits, the borrower&#146;s discretion or similar factors. However, contingencies
regarding time of payment and interest are permissible for purposes of
qualifying as a straight debt security if either (i)&nbsp;such contingency does
not have the effect of changing the effective yield of maturity, as determined
under the Code, other than a change in the annual yield to maturity that does
not exceed the greater of (x)&nbsp;5% of the annual yield to maturity or (y)&nbsp;0.25%,
or (ii)&nbsp;neither the aggregate issue price nor the aggregate face amount of
the issuer&#146;s debt instruments held by the REIT exceeds $1,000,000 and not more
than 12&nbsp;months of unaccrued interest can be required to be prepaid
thereunder. In addition, debt will not be disqualified from being treated as &#147;straight
debt&#148; solely because the time or amount of payment is subject to a contingency
upon a default or the exercise of a prepayment right by the issuer of the debt,
provided that such contingency is consistent with customary commercial
practice.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We believe that all or substantially all of the mortgage loans that we
are considered to own for purposes of these rules&nbsp;are qualifying assets
for purposes of the 75% asset test. For purposes of these rules, however, if
the outstanding principal balance of a mortgage loan exceeds the fair market
value of the real property securing the loan, a portion of such loan likely
will not be a qualifying real estate asset under the federal income tax laws. Although
the law on the matter is not entirely clear, it appears that the non-qualifying
portion of that mortgage loan will be equal to the portion of the loan amount
that exceeds the value of the associated real property that is security for
that loan. To the extent that we own debt securities issued by C corporations
that are not secured by mortgages on real property, those debt securities will
not be qualifying assets for purposes of the 75% asset test. We will monitor
the status of our assets for purposes of the various asset tests and will seek
to manage our portfolio to comply at all times with such tests. There can be no
assurances, however, that we will be successful in this effort. In this regard,
to determine our compliance with these requirement, we will need to estimate
the value of the real estate securing our mortgage loans at various times. In
addition, we will have to value our investment in Fieldstone Mortgage and our
other assets to ensure compliance with the 20% asset test applicable to our
investment in one or more taxable REIT subsidiaries. Although we will seek to
be prudent in making these estimates, there can be no assurances that the IRS
might not disagree with these determinations and assert that a lower value is
applicable, in which case we might not satisfy the 75% and 20% asset tests and
would fail to qualify as a REIT.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">After initially meeting the asset tests after the close of any quarter,
we will not lose our status as a REIT if we fail to satisfy the asset tests at
the end of a later quarter solely by reason of changes in the relative values
of our assets. If the failure to satisfy the asset tests results from an
increase in the value of our assets after the acquisition of securities or
other property during a quarter, the failure can be cured by a disposition of
sufficient non-qualifying assets within 30&nbsp;days after the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and to take any available action within
30&nbsp;days after the close of any quarter as may be required to cure any
noncompliance with the asset tests. We cannot ensure that these steps always
will be successful. If we fail to cure the noncompliance with the asset tests
within this 30-day period, we could fail to qualify as a REIT, except as
described below.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For our taxable years beginning after December&nbsp;31, 2004, the
failure to satisfy the asset tests can be remedied even after the 30-day
cure period. If the total value of the assets that caused a failure of the 5%
limitation, the 10% voting securities limitation or the 10% value limitation
does not exceed either 1% of our assets at the end of the relevant quarter or
$10,000,000, we can cure such a failure by disposing of </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">sufficient assets to cure such a violation
within six months following the last day of the quarter in which we first
identify the failure of the asset test. For a violation of any of the asset
tests attributable to the ownership of assets, the total value of which exceeds
the amount described in the preceding sentence, we can avoid disqualification
as a REIT if the violation is due to reasonable cause and we dispose of an
amount of assets sufficient to cure such violation within the six-month period
described in the preceding sentence, pay a tax equal to the greater of $50,000
or the highest corporate tax rate multiplied by the net income generated by the
non-qualifying assets during the period of time that the assets were held as
non-qualifying assets, and file&nbsp;a schedule with the Internal Revenue
Service that describes the assets.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We currently believe that the loans,
securities and other assets that we hold satisfy the foregoing asset test
requirements. However, no independent appraisals will be obtained to support
our conclusions as to the value of our assets and securities, or in many cases,
the real estate collateral for the mortgage loans that we hold. Moreover,
values of some assets may not be susceptible to a precise determination. As a
result, there can be no assurance that the IRS will not contend that our
interest in securities and other assets will not cause a violation of the asset
tests applicable to REITs.</font></p>

<p style="font-style:italic;font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Annual Distribution Requirements Applicable to REITs</font></i></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">To qualify as a REIT, we generally must
distribute dividends (other than capital gain dividends) to our shareholders in
an amount at least equal to:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the sum of (i)&nbsp;90%
of our REIT taxable income, computed without regard to the dividends paid
deduction and our net capital gain and (ii)&nbsp;90% of our net income after tax,
if any, from foreclosure property; <i><font style="font-style:italic;">minus</font></i></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the excess of
the sum of specified items of non-cash income (including original issue
discount on our mortgage loans) over 5% of our REIT taxable income, computed
without regard to the dividends paid deduction and our net capital gain.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Distributions generally must be made during the taxable year to which
they relate. Distributions may be made in the following year in two
circumstances. First, if we declare a dividend in October, November, or December&nbsp;of
any year with a record date in one of these months and pay the dividend on or
before January&nbsp;31 of the following year, we will be treated as having paid
the dividend on December&nbsp;31 of the year in which the dividend was
declared. Second, distributions may be made in the following year if the
dividends are declared before we timely file our tax return for the year and if
made before the first regular dividend payment made after such declaration. To
the extent that we do not distribute all of our net capital gain or distribute
at least 90%, but less than 100% of our REIT taxable income, as adjusted, we
will be subject to tax on the undistributed amount at regular corporate tax
rates.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Furthermore, we will incur a 4% nondeductible excise tax on the excess
of the required distribution over the sum of the amounts actually distributed
and amounts retained for which federal income tax was paid if we fail to
distribute during a calendar year (or, in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January&nbsp;following such calendar year) at least the
excess of the sum of (i)&nbsp;85% of our REIT ordinary income for such year, (ii)&nbsp;95%
of our REIT capital gain net income for such year and (iii)&nbsp;any undistributed
taxable income from prior periods, over excess distributions from prior years.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may elect to retain rather than distribute all or a portion of our
net capital gains and pay the tax on the gains. In that case, we may elect to
have our stockholders include their proportionate share of the undistributed
net capital gains in income as long-term capital gains and receive a credit for
their share of the tax paid by us. For purposes of the 4% excise tax described
above, any retained amounts for which we elect this treatment would be treated
as having been distributed.</font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We intend to make timely distributions sufficient to satisfy the
distribution requirements. It is possible that, from time to time, we may not
have sufficient cash to meet the distribution requirements due to timing
differences between (i)&nbsp;the actual receipt of cash, including the receipt
of distributions from subsidiaries, and (ii)&nbsp;the inclusion of items of
income by us for federal income tax purposes. Other potential sources of
non-cash taxable income include loans and securities that are financed through
securitization structures, which require some or all of the available interest
income from these assets to be used to repay principal on these borrowings;
distressed loans on which we may be required to accrue interest or discount
income even though the borrower is unable to make current or past due debt
service payments; and, to a limited extent, loans or mortgage backed securities
held by us as assets that are issued at a discount and require the accrual of
taxable income in advance of the receipt of the related cash flow. In the event
that such timing differences occur, and in other circumstances, it might be
necessary in order to satisfy the distribution requirements to arrange for
short-term, or possibly long-term, borrowings, or to pay the dividends in the
form of taxable in-kind distributions of property (including, for example, our
own debt securities).</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under some circumstances, we may be able to
rectify a failure to meet the distribution requirement for a year by paying
deficiency dividends to shareholders in a later year, which may be included in
our deduction for dividends paid for the earlier year. Thus, we may be able to
avoid being taxed on amounts distributed as deficiency dividends. However, we
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.</font></p>

<p style="font-style:italic;font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Record Keeping Requirements</font></i></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We are required to comply with applicable
record keeping requirements. Failure to comply could result in monetary fines.
For example, we must request on an annual basis information from our
shareholders designed to disclose the actual ownership of our outstanding
common stock.</font></p>

<p style="font-style:italic;font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Failure to Qualify</font></i></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For our taxable years beginning after December&nbsp;31,
2004, if we do not comply with one or more of the conditions required for
qualification as a REIT (other than the asset tests and the income tests that
have the specific savings clauses discussed above in &#147;&#151;Asset Tests&#148; and &#147;&#151;Income
Tests&#148;), we can avoid disqualification of our REIT status by paying a penalty
of $50,000 for each such failure, provided that our noncompliance was due to
reasonable cause and not willful neglect. If we fail to qualify for taxation as
a REIT in any taxable year and the relief provisions do not apply, we will be
subject to tax, including any applicable alternative minimum tax, on our
taxable income at regular corporate rates. This would significantly reduce both
our cash available for distribution to our stockholders and our earnings and
could affect the trading price of our common stock. If we fail to qualify as a
REIT, we will not be required to make any distributions to stockholders and any
distributions that are made will not be deductible by us. Moreover, all
distributions to stockholders would be taxable as dividends to the extent of
our current and accumulated E&amp;P, whether or not attributable to capital
gains of ours. Subject to certain limitations of the Internal Revenue Code,
corporate distributees may be eligible for the dividends received deduction
with respect to those distributions, and individual distributees may be
eligible for the reduced income tax rate of 15% or less on such dividends.
Unless we are entitled to relief under specific statutory provisions, we also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. We cannot state whether
in all circumstances we would be entitled to this statutory relief.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="TaxationOfU_s_HoldersOfOurCommonS_000157"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Taxation of U.S.
Holders of Our Common Stock</font></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">U.S. Holder. </font></i>&nbsp;&nbsp;As
used in the remainder of this discussion, the term &#147;U.S. holder&#148; means a
beneficial owner of our common stock that is for United States federal income
tax purposes:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>a citizen or
resident alien individual, as defined in Section&nbsp;7701(b)&nbsp;of the Internal
Revenue Code, of the United States;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>a
corporation, partnership, limited liability company or other entity treated as
a corporation or partnership for federal income tax purposes, created or
organized in or under the laws of the United States or any state or the
District of Columbia, unless, in the case of a partnership, Treasury
regulations provide otherwise;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>an estate the
income of which is subject to United States federal income taxation regardless
of its source; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>in general, a
trust subject to the primary supervision of a United States court and the
control of one or more United States persons or a trust that was in existence
on August&nbsp;20, 1996 and has made a valid election to be treated as a U.S.
person.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In the case of an entity treated as a partnership for United States
federal income tax purposes that holds our common stock, the treatment of its
partners generally will depend upon the status of the partner and the
activities of the partnership. Persons that have an indirect interest in our common
stock through entities treated as partnerships for federal income tax purposes
should consult their tax advisors.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A &#147;non-U.S. holder&#148; is a holder of our common stock who is not a &#147;U.S.
holder.&#148;</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Distributions Generally. </font></i>&nbsp;&nbsp;As
long as we qualify as a REIT, distributions made to taxable U.S. holders of our
common stock out of current or accumulated earnings and profits that are not
designated as capital gain dividends or &#147;qualified dividend income&#148; will be
taken into account by them as ordinary income taxable at ordinary income tax
rates and will not qualify for the maximum 15% capital gains rate that
generally applies to distributions by non-REIT C corporations to stockholders
who are taxed as individuals. In determining the extent to which a distribution
constitutes a dividend for tax purposes, our earnings and profits will be
allocated first to distributions with respect to our preferred stock, if any,
and then to our common stock. Corporate stockholders will not be eligible for
the dividends received deduction with respect to these distributions.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Distributions in excess of both current and accumulated earnings and
profits will not be taxable to a U.S. holder to the extent that the
distributions do not exceed the adjusted basis of the holder&#146;s stock. Rather,
such distributions will reduce the adjusted basis of the stock. To the extent
that distributions exceed the adjusted basis of a U.S. holder&#146;s stock, the
distributions will be taxable as capital gains, assuming the stock is held as a
capital asset in the hands of the U.S. holder.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Distributions will generally be taxable, if at all, in the year of the
distribution. However, if we declare a dividend in October, November, or December&nbsp;of
any year with a record date in one of these months and pay the dividend on or
before January&nbsp;31 of the following year, we will be treated as having paid
the dividend, and the shareholder will be treated as having received the
dividend, on December&nbsp;31 of the year in which the dividend was declared.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Capital Gain Dividends. </font></i>&nbsp;&nbsp;We
may elect to designate distributions of our net capital gain as &#147;capital gain
dividends.&#148; Capital gain dividends are taxed to U.S. holders of our stock as
gain from the sale or exchange of a capital asset held for more than one year.
This tax treatment applies regardless of the period during which the
stockholders have held their stock. If we designate any portion of a dividend
as a capital gain dividend, the amount that will be taxable to the shareholder
as capital gain will be indicated to U.S. </p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">holders on IRS Form&nbsp;1099-DIV.
Corporate stockholders, however, may be required to treat up to 20% of capital
gain dividends as ordinary income.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Instead of paying capital gain dividends, we may elect to require
stockholders to include our undistributed net capital gains in their income. If
we make such an election, U.S. holders (i)&nbsp;will include in their income as
long-term capital gains their proportionate share of such undistributed capital
gains and (ii)&nbsp;will be deemed to have paid their proportionate share of
the tax paid by us on such undistributed capital gains and thereby receive a
credit or refund for such amount. A U.S. holder of our stock will increase the
basis in its stock by the difference between the amount of capital gain
included in its income and the amount of tax it is deemed to have paid. Our
earnings and profits will be adjusted appropriately.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We must classify portions of our designated
capital gain dividend into the following categories:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>a 15% gain
distribution, which would be taxable to non-corporate U.S. holders of our stock
at a maximum rate of 15%; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>an
unrecaptured Section&nbsp;1250 gain distribution, which would be taxable to
non-corporate U.S. holders of our stock at a maximum rate of 25%.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We must determine the maximum amounts that we may designate as 15% and
25% capital gain dividends by performing the computation required by the
Internal Revenue Code as if the REIT were an individual whose ordinary income
were subject to a marginal tax rate of at least 28%. Designations made by the
REIT only will be effective to the extent that they comply with Revenue Ruling
89-81, which requires that distributions made to different classes of
stock be composed proportionately of dividends of a particular type.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Recipients of capital gain dividends that are taxed at corporate income
tax rates will be taxed at the normal corporate income tax rates on those
dividends.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Qualified Dividend Income. </font></i>&nbsp;&nbsp;Distributions
that are treated as dividends may be taxed at capital gains rates, rather than
ordinary income rates, if they are distributed to a non-corporate taxpayer, are
properly designated by us as qualified dividend income and certain other
requirements are satisfied. Dividends are eligible to be designated by us as
qualified dividend income up to an amount equal to the sum of the qualified
dividend income received by us during the year of the distribution from other C
corporations (including Fieldstone Mortgage), our &#147;undistributed&#148; REIT taxable
income from the immediately preceding year, and any income attributable to the
sale of a built-in gain asset from the immediately preceding year (reduced by
any federal income taxes that we paid with respect to such REIT taxable income
and built-in gain).</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dividends that we receive will be treated as qualified dividend income
to us if certain criteria are met. For example, the dividends must be received
from a domestic corporation (other than a REIT or a regulated investment
company) or a qualifying foreign corporation. A foreign corporation generally
will be a qualifying foreign corporation if it is incorporated in a possession
of the United States, the corporation is eligible for benefits of an income tax
treaty with the United States which the Secretary of Treasury determines is
satisfactory, or the stock on which the dividend is paid is readily tradable on
an established securities market in the United States. However, if a foreign
corporation is either a foreign personal holding company, a foreign investment
company or a passive foreign investment company, then it will not be treated as
a qualifying foreign corporation and the dividends we receive from such an
entity would not constitute qualified dividend income.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Furthermore, certain exceptions and special rules&nbsp;apply in order to
determine whether dividends may be treated as qualified dividend income to us.
These rules&nbsp;include certain holding requirements that we would have to
satisfy with respect to the stock on which the dividend is paid, and special rules&nbsp;with
regard to dividends received from regulated investment companies and other
REITs.</font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, even if we designate certain dividends as qualified
dividend income to our shareholders, the stockholder will have to meet certain
other requirements for the dividend to qualify for taxation at capital gains
rates. For example, the stockholder will only be eligible to treat the dividend
as qualifying dividend income if the stockholder is taxed at individual rates
and meets certain holding requirements. In general, in order to treat a
particular dividend as qualified dividend income, a stockholder will be
required to hold our stock for at least 61&nbsp;days during the 121-day
period beginning on the date that is 60&nbsp;days before the date on which the
stock becomes ex-dividend. A longer holding period may apply to preferred
dividends that are attributable to a period or periods aggregating in excess of
366&nbsp;days.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Other Tax Considerations. </font></i>&nbsp;&nbsp;Distributions
made by us and gain arising from the sale or exchange by a U.S. holder of our
stock will not be treated as passive activity income, and as a result, U.S.
holders of our stock generally will not be able to apply any &#147;passive losses&#148;
against this income or gain. In addition, taxable distributions from us
generally will be treated as investment income for purposes of the investment
interest limitations. A non-corporate U.S. holder of our stock may elect to
treat capital gain dividends, capital gains from the disposition of stock and
income designated as qualified dividend income as investment income for
purposes of the investment interest limitation, in which case the applicable
gains will be taxed at ordinary income tax rates. U.S. holders of our stock may
not include in their individual income tax returns any of our net operating
losses or capital losses. Our operating or capital losses would be carried over
by us for potential offset against future income, subject to applicable
limitations.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If &#147;excess inclusion income&#148; from a taxable mortgage pool or a REMIC is
allocated to any U.S. holder, which will generally occur to the extent we have
excess inclusion income that exceeds our undistributed REIT taxable income in a
particular year, this income will be taxable in the hands of the U.S. holder
and would not be offset by any net operating losses of the U.S. holder that
would otherwise be available. See &#147;Our Taxation as a REIT&#151;Taxable Mortgage
Pools and REMICs.&#148;</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Sales of Our Common Stock.
</font></i>&nbsp;&nbsp;Upon any taxable sale or other disposition of our common
stock, a U.S. holder of our common stock will recognize gain or loss for
federal income tax purposes on the disposition of our common stock in an amount
equal to the difference between:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the amount of
cash and the fair market value of any property received on such disposition;
and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the U.S.
holder&#146;s adjusted basis in such common stock for tax purposes.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Gain or loss will be capital gain or loss if the common stock has been
held by the U.S. holder as a capital asset. The applicable tax rate will depend
on the holder&#146;s holding period in the asset (generally, if an asset has been
held for more than one year it will produce long-term capital gain) and the
holder&#146;s tax bracket. A U.S. holder who is an individual or an estate or trust
and who has long-term capital gain or loss will be subject to a maximum capital
gain rate of 15%. The IRS has the authority to prescribe, but has not yet
prescribed, regulations that would apply a capital gain tax rate of 25% (which
is generally higher than the long-term capital gain tax rates for non-corporate
holders) to a portion of capital gain realized by a non-corporate holder on the
sale of REIT common stock that would correspond to the REIT&#146;s &#147;unrecaptured Section&nbsp;1250
gain.&#148; Holders are advised to consult with their own tax advisors with respect
to their capital gain tax liability. A corporate U.S. holder will be subject to
tax at a maximum rate of 35% on capital gain from the sale of our stock.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In general, any loss upon a sale or exchange
of our common stock by a U.S. holder who has held such stock for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss, but only to the extent of distributions from us
received by such U.S. holder that are required to be treated by such U.S.
holder as long-term capital gains.</font></p>


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<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><a name="U_s_TaxationOfNonu_s_HoldersOfOur_000410"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">U.S. Taxation of
Non-U.S. Holders of Our Common Stock</font></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Distributions. </font></i>&nbsp;&nbsp;Distributions
by us to a non-U.S. holder of our common stock that are neither attributable to
gain from sales or exchanges by us of &#147;U.S. real property interests&#148; nor
designated by us as capital gains dividends will be treated as dividends of
ordinary income to the extent that they are made out of our current or
accumulated earnings and profits. These distributions ordinarily will be
subject to U.S. federal income tax on a gross basis at a rate of 30%, or a
lower rate as permitted under an applicable income tax treaty, unless the
dividends are treated as effectively connected with the conduct by the non-U.S.
holder of a U.S. trade or business. Under some treaties, however, lower rates
generally applicable to dividends do not apply to dividends from REITs.
Further, reduced treaty rates are not available to the extent that the income
allocated to the foreign shareholder is excess inclusion income. Excess
inclusion income will generally be allocated to our shareholders to the extent
we have &#147;excess inclusion income&#148; that exceeds our undistributed REIT taxable
income in a particular year. See &#147;Our Qualification and Taxation as a
REIT&#151;Taxable Mortgage Pools and REMICs.&#148; Dividends that are effectively
connected with a trade or business will be subject to tax on a net basis, that
is, after allowance for deductions, at graduated rates, in the same manner as
U.S. holders are taxed with respect to these dividends, and are generally not
subject to withholding. Applicable certification and disclosure requirements must
be satisfied to be exempt from withholding under the effectively connected
income exception. Any dividends received by a corporate non-U.S. holder that is
engaged in a U.S. trade or business also may be subject to an additional branch
profits tax at a 30% rate, or lower applicable treaty rate. We expect to
withhold U.S. income tax at the rate of 30% on any dividend distributions, not
designated as (or deemed to be) capital gain dividends, made to a non-U.S.
holder unless:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>a lower
treaty rate applies and the non-U.S. holder files an IRS Form&nbsp;W-8BEN
with us evidencing eligibility for that reduced rate is filed with us; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the non-U.S.
holder files an IRS Form&nbsp;W-8ECI with us claiming that the
distribution is income effectively connected with the non-U.S. holder&#146;s trade
or business.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Distributions in excess of our current or accumulated earnings and
profits that do not exceed the adjusted basis of the non-U.S. holder in its
common stock will reduce the non-U.S. holder&#146;s adjusted basis in its common
stock and will not be subject to U.S. federal income tax. Distributions in
excess of current and accumulated earnings and profits that do exceed the
adjusted basis of the non-U.S. holder in its common stock will be treated as
gain from the sale of its stock, the tax treatment of which is described below.
See &#147;U.S. Taxation of Non-U.S. Holders of Our Common Stock&#151;Sales of Our Common
Stock.&#148;</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may be required to withhold at least 10% of any distribution in
excess of our current and accumulated earnings and profits, even if a lower
treaty rate applies or the non-U.S. holder is not liable for tax on the receipt
of that distribution. However, a non-U.S. holder may seek a refund of these
amounts from the IRS if the non-U.S. holder&#146;s U.S. tax liability with respect
to the distribution is less than the amount withheld.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Distributions to a non-U.S. holder that are
designated by us at the time of the distribution as capital gain dividends,
other than those arising from the disposition of a U.S. real property interest,
generally should not be subject to U.S. federal income taxation unless:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the
investment in the common stock is effectively connected with the non-U.S.
holder&#146;s trade or business, in which case the non-U.S. holder will be subject
to the same treatment as U.S. holders with respect to any gain, except that a
holder that is a foreign corporation also may be subject to the 30% branch
profits tax, as discussed above; or</p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the non-U.S.
holder is a nonresident alien individual who is present in the U.S. for
183&nbsp;days or more during the taxable year and has a &#147;tax home&#148; in the U.S.,
in which case the nonresident alien individual will be subject to a 30% tax on
the individual&#146;s capital gains.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Except as described in the next sentence, distributions to a non-U.S.
holder that are attributable to gain from sales or exchanges by us of U.S. real
property interests, whether or not designated as a capital gain dividend, will
be subject to U.S. federal income tax in the manner described in the first
three paragraphs above under &#147;&#151;Distributions.&#148;</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This treatment will not apply, however, to any such distribution
received with respect to a class of stock that is not regularly traded on an
established securities market located in the United States or is paid to a
non-U.S. holder who owns, at any time during the tax year in which the
distribution is received, more than 5% of the class of stock with regard to
which the distribution is paid. Under the Foreign Investment in Real Property
Tax Act, which is referred to as &#147;FIRPTA,&#148; a non-U.S. holder receiving a
distribution described in the previous sentence will be treated as recognizing
gain that is income effectively connected with a U.S. trade or business.
Non-U.S. holders will be taxed on this gain at the same rates applicable to
U.S. holders, subject to a special alternative minimum tax in the case of
nonresident alien individuals. Also, this gain may be subject to a 30% (or
lower applicable treaty rate) branch profits tax in the hands of a non-U.S.
holder that is a corporation. We will be required to withhold and remit to the
Internal Revenue Service 35% (or 15% to the extent provided for in Treasury
regulations) of any such distribution to non-U.S. holders that is either
designated as a capital gain dividend, or, if greater, 35% (or 15% to the
extent provided for in Treasury regulations) of a distribution that could have
been designated as a capital gain dividend. Distributions can be designated as
capital gains to the extent of our net capital gain for the taxable year of the
distribution. The amount withheld is creditable against the non-U.S. holder&#146;s
U.S. federal income tax liability.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Although the law is not clear on the matter, it appears that amounts we
designate as undistributed capital gains in respect of the stock held by U.S.
holders generally should be treated with respect to non-U.S. holders in the
same manner as actual distributions by us of capital gain dividends. Under that
approach, the non-U.S. holders would be able to offset as a credit against any
United States federal income tax liability resulting therefrom their
proportionate share of the tax paid by us on the undistributed capital gains,
and to receive from the IRS a refund to the extent that their proportionate
share of this tax paid by us were to exceed their actual United States federal
income tax liability.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Sales of Our Common Stock.&nbsp;&nbsp; </font></i>Gain
recognized by a non-U.S. holder upon the sale or exchange of our stock
generally would not be subject to United States taxation unless:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the
investment in our common stock is effectively connected with the non-U.S.
holder&#146;s U.S. trade or business, in which case the non-U.S. holder will be
subject to the same treatment as domestic holders with respect to any gain;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the non-U.S.
holder is a nonresident alien individual who is present in the United States
for 183&nbsp;days or more during the taxable year and has a tax home in the
United States, in which case the nonresident alien individual will be subject
to a 30% tax on the individual&#146;s net capital gains for the taxable year; or</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>our common
stock constitute a U.S. real property interest within the meaning of FIRPTA, as
described below.</p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our common stock will not constitute a United States real property
interest if we either are not a U.S. real property holding corporation or we
are a domestically-controlled REIT. Whether we are a U.S. real property holding
corporation will depend upon whether the fair market value of U.S. real
property interests owned by us equals or exceeds 50% of the fair market value
of these interests, any interests in real estate outside of the United States,
and our other trade and business assets. Because our assets will consist
primarily of single-family residential mortgage loans, we do not expect that
our assets will cause us to be considered a U.S. real property holding
corporation. We will be a domestically-controlled REIT if, at all times during
a specified testing period, less than 50% in value of our stock is held
directly or indirectly by non-U.S. holders. We believe that, currently, we are
a domestically-controlled REIT and, therefore, that the sale of our common
stock would not be subject to taxation under FIRPTA. Because our stock will
become publicly traded, however, we cannot guarantee that we will remain a
domestically-controlled REIT.</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Even if we were a U.S. real property holding
corporation and did not qualify as a domestically-controlled REIT at the time a
non-U.S. holder sells our stock, the gain from such a sale by such a non-U.S.
holder will not be subject to FIRPTA tax if:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the class or
series of stock sold is considered regularly traded under applicable Treasury
regulations on an established securities market; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the selling
non-U.S. holder owned, actually or constructively, 5% or less in value of the
outstanding class or series of stock being sold during the shorter of the
period during which the non-U.S. holder held such class or series of stock or
the five-year period ending on the date of the sale or exchange.</p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If gain on the sale or exchange of our
common stock were subject to taxation under FIRPTA, a non-U.S. holder would be
subject to regular U.S. income tax with respect to any gain in the same manner
as a taxable U.S. holder, subject to any applicable alternative minimum tax and
special alternative minimum tax in the case of nonresident alien individuals.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Taxation of Tax-Exempt Holders</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Provided that a tax-exempt holder has not held its common stock as &#147;debt
financed property&#148; within the meaning of the Internal Revenue Code and our
shares of stock are not being used in an unrelated trade or business, the
dividend and interest income from us generally will not be unrelated business
taxable income, referred to as UBTI, to a tax-exempt holder. Similarly, income
from the sale of our common stock will not constitute UBTI unless the
tax-exempt holder has held its common stock as debt financed property within
the meaning of the Internal Revenue Code or has used the common stock in a
trade or business. To the extent, however, that we, or a part of us, or a
disregarded subsidiary of ours, is a taxable mortgage pool, or we hold residual
interests in a REMIC, a portion of the dividends paid to a tax-exempt
stockholder that is allocable to excess inclusion income may be subject to tax
as UBTI. Excess inclusion income will generally be allocated to our
stockholders to the extent we have excess inclusion income that exceeds our
undistributed REIT taxable income in a particular year. See &#147;Our Qualification
and Taxation as a REIT&#151;Taxable Mortgage Pools and REMICs.&#148;</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Further, for a tax-exempt holder that is a social club, voluntary
employee benefit association, supplemental unemployment benefit trust, or
qualified group legal services plan exempt from federal income taxation under
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, or a single parent title-holding corporation exempt under Section&nbsp;501(c)(2)&nbsp;the
income of which is payable to any of the aforementioned tax-exempt
organizations, income from an investment in our common stock will constitute
UBTI unless the organization properly sets aside or reserves such amounts for
purposes specified in the Internal Revenue Code. These tax-exempt holders
should consult their own tax advisors concerning these &#147;set aside&#148; and reserve
requirements.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Notwithstanding the above, however, a portion of the dividends paid by a
&#147;pension held REIT&#148; are treated as UBTI as to any trust which is described in Section&nbsp;401(a)&nbsp;of
the Internal Revenue Code, is tax-</font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">exempt under Section&nbsp;501(a)&nbsp;of the
Internal Revenue Code, and holds more than 10%, by value, of the interests in
the REIT. Tax-exempt pension funds that are described in Section&nbsp;401(a)&nbsp;of
the Internal Revenue Code are referred to below as &#147;pension trusts.&#148;</font></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A REIT is a &#147;pension held REIT&#148; if it meets
the following two tests:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>it would not
have qualified as a REIT but for Section&nbsp;856(h)(3)&nbsp;of the Internal
Revenue Code, which provides that stock owned by pension trusts will be
treated, for purposes of determining whether the REIT is closely held, as owned
by the beneficiaries of the trust rather than by the trust itself; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>either (i)&nbsp;at
least one pension trust holds more than 25% of the value of the interests in
the REIT, or (ii)&nbsp;a group of pension trusts each individually holding more
than 10% of the value of the REIT&#146;s stock, collectively owns more than 50% of
the value of the REIT&#146;s stock.</p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The percentage of any REIT dividend from a &#147;pension
held REIT&#148; that is treated as UBTI is equal to the ratio of the UBTI earned by
the REIT, treating the REIT as if it were a pension trust and therefore subject
to tax on UBTI, to the total gross income of the REIT. An exception applies
where the percentage is less than 5% for any year, in which case none of the
dividends would be treated as UBTI. The provisions requiring pension trusts to
treat a portion of REIT distributions as UBTI will not apply if the REIT is not
a &#147;pension held REIT&#148; (for example, if the REIT is able to satisfy the &#147;not
closely held requirement&#148; without relying on the &#147;look through&#148; exception with
respect to pension trusts). Based on the current estimated ownership of our
common stock and the limitations on transfer and ownership of common stock in
our charter, we do not expect to be classified as a &#147;pension held REIT.&#148;</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Backup Withholding Tax and Information
Reporting</font></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">U.S. Holders of Common Stock.</font></i>&nbsp;In
general, information-reporting requirements will apply to payments of dividends
and interest on and payments of the proceeds of the sale of our common stock
held by U.S. holders, unless an exception applies.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The payor is required to withhold tax on such payments, currently at the
rate of 28%, if (i)&nbsp;the payee fails to furnish a taxpayer identification
number, or TIN, to the payor or to establish an exemption from backup
withholding, or (ii)&nbsp;the IRS notifies the payor that the TIN furnished by
the payee is incorrect.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In addition, a payor of the dividends or interest on our common stock is
required to withhold tax at a rate of 28% if (i)&nbsp;there has been a notified
payee under-reporting with respect to interest, dividends or original issue
discount described in Section&nbsp;3406(c)&nbsp;of the Internal Revenue Code,
or (ii)&nbsp;there has been a failure of the payee to certify under the penalty
of perjury that the payee is not subject to backup withholding under the
Internal Revenue Code.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A U.S. shareholder that does not provide us with a correct taxpayer
identification number may also be subject to penalties imposed by the IRS.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Some U.S. holders of our common stock, including corporations, may be
exempt from backup withholding. Any amounts withheld under the backup
withholding rules&nbsp;from a payment to a shareholder will be allowed as a
credit against the shareholder&#146;s United States federal income tax and may
entitle the shareholder to a refund, provided that the required information is
furnished to the IRS.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The payor will be required to furnish annually to the IRS and to holders
of our common stock information relating to the amount of dividends and
interest paid on our common stock, and that information reporting may also
apply to payments of proceeds from the sale of our common stock. Some holders,
including corporations, financial institutions and certain tax-exempt
organizations, are generally not subject to information reporting.</font></p>


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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Non-U.S. Holders of Our Common Stock. </font></i>&nbsp;Generally,
information reporting will apply to payments of interest and dividends on our
common stock, and backup withholding described above for a U.S. holder will
apply, unless the payee certifies that it is not a U.S. person or otherwise
establishes an exemption.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The payment of the proceeds from the disposition of our common stock to
or through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and backup withholding as described above for U.S.
holders unless the non-U.S. holder satisfies the requirements necessary to be
an exempt non-U.S. holder or otherwise qualifies for an exemption. The proceeds
of a disposition by a non-U.S. holder of our common stock to or through a
foreign office of a broker generally will not be subject to information
reporting or backup withholding. However, if the broker is a U.S. person, a
controlled foreign corporation for U.S. tax purposes, a foreign person 50% or
more of whose gross income from all sources for specified periods is from
activities that are effectively connected with a U.S. trade or business, a
foreign partnership if partners who hold more than 50% of the interest in the partnership
are U.S. persons, or a foreign partnership that is engaged in the conduct of a
trade or business in the U.S., then information reporting generally will apply
as though the payment was made through a U.S. office of a U.S. or foreign
broker.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Applicable Treasury regulations provide
presumptions regarding the status of a holder of our common stock when payments
to such holder cannot be reliably associated with appropriate documentation
provided to the payer. Because the application of these Treasury regulations
varies depending on the stockholder&#146;s particular circumstances, you are advised
to consult your tax advisor regarding the information reporting requirements
applicable to you.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Sunset of Reduced Tax Rate Provisions</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Several of the tax considerations described
herein are subject to a sunset provision. The sunset provisions generally
provide that for taxable years beginning after December&nbsp;31, 2008, certain
provisions that are currently in the Internal Revenue Code will revert back to
a prior version of those provisions. These provisions include provisions
related to the reduced maximum income tax rate for capital gains of 15% (rather
than 20%) for taxpayers taxed at individual rates, qualified dividend income,
including the application of the 15% capital gains rate to qualified dividend
income, and certain other tax rate provisions described herein. The impact of
this reversion is not discussed herein. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of sunset provisions
on an investment in our common stock.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Tax Aspects of Our Investments in
Partnerships, Limited Liability Companies and Business Trusts</font></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">General.&nbsp;&nbsp; </font></i>The ownership
by us of an interest in one or more partnerships, limited liability companies
or business trusts may involve special tax considerations. These tax
considerations include the following:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the
allocations of income and expense items of the subsidiary partnerships, limited
liability companies or business trusts, which could affect the computation of
our taxable income;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the status of
each subsidiary partnership, limited liability company or business trust as a
partnership or entity disregarded as separate from its owner (as opposed to an
association taxable as a corporation) for income tax purposes; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>the taking of
actions by any of the subsidiary partnerships, limited liability companies or
business trusts that could adversely affect our qualification as a REIT.</p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We believe that any subsidiary partnership, limited liability company or
business trust in which we own or acquire an interest will be treated for
income tax purposes as a partnership or entity disregarded as separate from its
owner (and not as an association taxable as a corporation). If any subsidiary
partnership, limited liability company or business trust were to be treated as
a corporation, and we owned less than 100% of the interests in such entity, it
would be subject to an entity level tax on its income. In such a situation, the
character of our assets and items of gross income would change, which could
preclude us </font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">from satisfying the asset tests and possibly
the income tests, and in turn prevent us from qualifying as a REIT.</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Ownership of Partnership Interests and Interests in a
Disregarded Entity by a REIT.&nbsp;&nbsp; </font></i>If we own 100% of the interests in a limited
liability company or a business trust, and the entity is not treated as a
corporation for tax purposes, then we will be treated as owning the assets, and
having earned the income, of such entity directly.</p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If we are a partner in an entity treated as
a partnership for income tax purposes, we will be deemed to own our
proportionate share of the assets of the partnership and will be deemed to earn
our proportionate share of the partnership&#146;s income. In addition, the assets
and gross income of such a partnership retain the same character in our hands
for purposes of the gross income and asset tests applicable to REITs. Thus, our
proportionate share of the assets and items of income of these partnerships is
treated as our assets and items of income for purposes of applying the asset
and income tests. It is our current intention to have direct control of any
entity in which we own an interest that is treated as a partnership for income
tax purposes and to operate the partnership in a manner that is consistent with
the requirements for qualification as a REIT.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">State and Local Taxes</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We and our stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which we or they transact
business or reside. Our state and local tax treatment and that of our
stockholders may not conform to the federal income tax treatment discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
our common stock.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A portion of our income is earned through
Fieldstone Mortgage. Fieldstone Mortgage is subject to federal and state income
tax at normal applicable corporate rates. In addition, Fieldstone Mortgage may
be limited in its ability to deduct some payments made to us. To the extent
that we and Fieldstone Mortgage are required to pay federal, state and local
taxes, we will have less cash available for distribution to our stockholders.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Tax Shelter Reporting</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If a stockholder recognizes a loss with
respect to our stock of at least (i)&nbsp;for a stockholder that is an
individual, S corporation, trust or a partnership with at least one
noncorporate unitholder, $2&nbsp;million or more in a single taxable year or
$4&nbsp;million or more in a combination of taxable years, or (ii)&nbsp;for a
shareholder that is either a corporation or a partnership with only corporate
unitholders, $10&nbsp;million or more in a single taxable year or
$20&nbsp;million or more in a combination of taxable years, such stockholder
may be required to file&nbsp;a disclosure statement with the IRS on Form&nbsp;8886.
Direct stockholders of portfolio securities are in many cases exempt from this
reporting requirement, but stockholders of a REIT currently are not excepted. The
fact that a loss is reportable under these regulations does not affect the
legal determination of whether the taxpayer&#146;s treatment of the loss is proper.
Stockholders should consult their tax advisors to determine the applicability
of these regulations in light of their individual circumstances.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="LegalMatters_235452"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">LEGAL MATTERS</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The validity of the common stock has been
passed upon for us by Hogan&nbsp;&amp; Hartson L.L.P.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="Experts_235452"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">EXPERTS</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The consolidated financial statements of
Fieldstone Investment Corporation and Subsidiaries as of December&nbsp;31, 2004
and 2003, and the related consolidated statements of operations, shareholders&#146;
equity and cash flows for each of the years in the three-year period ended December&nbsp;31,
2004, including Schedule&nbsp;IV-mortgage loans on real estate as of December&nbsp;31,
2004, have been incorporated by reference </font></p>


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<p style="margin:0pt 0pt 12.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">herein and in the
registration statement of which this prospectus is a part in reliance upon the
reports of KPMG LLP, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="IndemnificationOfDirectorsAndOffi_235453"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">INDEMNIFICATION OF DIRECTORS AND OFFICERS</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Maryland General Corporation Law (MGCL) permits a
Maryland corporation to include in its charter a provision limiting the
liability of its directors and officers to the corporation and its stockholders
for money damages except for liability resulting from (a)&nbsp;actual receipt
of an improper benefit or profit in money, property or services, or (b)&nbsp;active
and deliberate dishonesty established by a final judgment as being material to
the cause of action.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our charter contains a provision that eliminates the
above-described liability to the maximum extent permitted by the MGCL. Our
charter and bylaws obligate us, to the maximum extent permitted by Maryland law,
to indemnify any person who is or was a party to, or is threatened to be made a
party to, any threatened or pending proceeding by reason of the fact that such
person is or was a director or officer of the Registrant, or while a director
or officer of the Registrant is or was serving, at our request, as a director,
officer, agent, partner or trustee of another corporation, partnership, joint
venture, limited liability company, trust, real estate investment trust,
employee benefit plan or other enterprise. To the maximum extent permitted by
Maryland law, the indemnification provided for in our charter and bylaws shall
include expenses (including attorney&#146;s fees), judgments, fines and amounts paid
in settlement, and any such expenses may be paid or reimbursed by us in advance
of the final disposition of any such proceeding.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The MGCL requires a corporation (unless its charter
provides otherwise, which our charter does not) to indemnify a director or
officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a)&nbsp;the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (1)&nbsp;was committed in bad faith or (2)&nbsp;was
the result of active and deliberate dishonesty; (b)&nbsp;the director or
officer actually received an improper personal benefit in money, property or
services; or (c)&nbsp;in the case of any criminal proceeding, the director or
officer had reasonable cause to believe that the act or omission was unlawful.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation&#146;s receipt of (a)&nbsp;a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation, and (b)&nbsp;a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="WhereYouCanFindMoreInformationAbo_235454"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">WHERE YOU CAN FIND MORE INFORMATION ABOUT<br>
FIELDSTONE INVESTMENT CORPORATION</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We are subject to the informational
requirements of the Exchange Act, and file reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form&nbsp;S-8 under the Securities Act, including exhibits
and schedules, for the shares of our common stock to be offered by the selling
stockholders, from time to time, pursuant to the registration statement of
which this prospectus is a part. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information, we refer you to the </font></p>


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<p style="margin:0pt 0pt 12.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">registration
statement, including the exhibits and schedules filed with the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document referred to in this prospectus are not necessarily
complete and, where that contract is an exhibit to the registration statement,
we refer you to the full text of the contract or other document filed as an
exhibit to the registration statement. Copies of the registration statement,
including the exhibits and schedules to the registration statement, may be
examined without charge at the public reference room of the SEC, 100 F. Street,
N.W., Room&nbsp;1580, Washington, DC 20549. Information about the operation of
the public reference room may be obtained by calling the SEC at (202) 551-8090.
Copies of all or a portion of the registration statement can be obtained from
the public reference room of the SEC upon payment of prescribed fees. Our SEC
filings, including our registration statement, are also available to you free
of charge on the SEC&#146;s website at <i><font style="font-style:italic;">www.sec.gov</font></i>
and on our website at <i><font style="font-style:italic;">www.FieldstoneInvestment.com</font></i>.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Website Access to our Periodic SEC Reports</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our corporate website is <i><font style="font-style:italic;">www.FieldstoneInvestment.com</font></i>.
Our periodic SEC reports (on Forms 10-K and 10-Q) and current
reports (on Form&nbsp;8-K), as well as the beneficial ownership reports
filed by our directors, officers and 10% shareholders (on Forms 3, 4 and 5),
are available free of charge through our website as soon as reasonably
practicable after they are filed electronically with the SEC. We may from time
to time provide important disclosures to investors by posting them in the
investor relations section of our website, as allowed by SEC rules. The
information on our website is not a part of this prospectus.</font></p>


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<div>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="Partii_000715"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">PART&nbsp;II</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="InformationRequiredInTheRegistrat_000716"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">INFORMATION REQUIRED IN THE REGISTRATION STATEMENT</font></b></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 47.0pt;page-break-after:avoid;text-indent:-47.0pt;"><a name="Item3_IncorporationOfDocumentsByR_001028"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Item 3.&nbsp;&nbsp; Incorporation of Documents by Reference.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following
documents previously filed by the Registrant with the SEC are incorporated by
reference into this Registration Statement:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>The
Registrant&#146;s Prospectus dated April&nbsp;4, 2005 (File No.&nbsp;333-114802), as
filed with the SEC pursuant to Rule&nbsp;424(b)&nbsp;of the Securities Exchange
Act of 1934, as amended (the &#147;Exchange Act&#148;), which includes audited financial
statements for the Registrant for the fiscal year ended December&nbsp;31, 2004.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>The
Registrant&#146;s Quarterly Reports on Form&nbsp;10-Q for the quarters ended March&nbsp;31,
2005 and June&nbsp;30, 2005.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>The
Registrant&#146;s Current Reports on Form&nbsp;8-K, as filed with the SEC on April&nbsp;6,
2005, April&nbsp;22, 2005, May&nbsp;4, 2005, May&nbsp;16, 2005, June&nbsp;27,
2005 and August 2, 2005.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>The
Registrant&#146;s Definitive Proxy Statement, as filed with the SEC on April 1, 2005
for our 2005 Annual Meeting of Stockholders.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Symbol" style="font-size:11.0pt;">&#183;</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160; </font>The
description of the Registrant&#146;s Common Stock contained in the registration
statement on Form&nbsp;8-A filed on September&nbsp;14, 2004.</p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Any report or other
document subsequently filed by the Registrant pursuant to Sections 13(a),
13(c), 14 and 15(d)&nbsp;of the Exchange Act, prior to the filing of a
post-effective amendment that indicates that all securities offered have been
sold or which de-registers all securities then remaining unsold shall be deemed
to be incorporated by reference into this Registration Statement and to be part
hereof from the date of filing of such report or other document. Any statement
in a report or document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for the purposes of this
Registration Statement to the extent that a statement contained herein or in
any other subsequently filed report or document which also is or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Registration Statement. The
Registrant is not however, incorporating by reference any documents, or
portions of documents, that are not deemed &#147;filed&#148; with the SEC, including any
information furnished pursuant to Items 2.02 or 7.01 of Form&nbsp;8-K.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 47.0pt;page-break-after:avoid;text-indent:-47.0pt;"><a name="Item4_DescriptionOfSecurities__001040"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Item 4.&nbsp;&nbsp; Description of Securities.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Not applicable.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 47.0pt;page-break-after:avoid;text-indent:-47.0pt;"><a name="Item5_InterestsOfNamedExpertsAndC_001044"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Item 5.&nbsp;&nbsp; Interests of Named Experts and Counsel.</font></b></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Not applicable.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 47.0pt;page-break-after:avoid;text-indent:-47.0pt;"><a name="Item6_IndemnificationOfDirectorsA_001048"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Item 6.&nbsp;&nbsp; Indemnification of Directors and
Officers.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Maryland General Corporation Law (&#147;MGCL&#148;) permits
a Maryland corporation to include in its charter a provision limiting the
liability of its directors and officers to the corporation and its stockholders
for money damages except for liability resulting from (a)&nbsp;actual receipt
of an improper benefit or profit in money, property or services, or (b)&nbsp;active
and deliberate dishonesty established by a final judgment as being material to
the cause of action.</font></p>


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<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Registrant&#146;s charter contains a provision that
eliminates the above-described liability to the maximum extent permitted by the
MGCL. The Registrant&#146;s charter and bylaws obligate it, to the maximum extent
permitted by Maryland law, to indemnify any person who is or was a party to, or
is threatened to be made a party to, any threatened or pending proceeding by
reason of the fact that such person is or was a director or officer of the
Registrant, or while a director or officer of the Registrant is or was serving,
at the Registrant&#146;s request, as a director, officer, agent, partner or trustee
of another corporation, partnership, joint venture, limited liability company,
trust, real estate investment trust, employee benefit plan or other enterprise.
To the maximum extent permitted by Maryland law, the indemnification provided
for in the Registrant&#146;s charter and bylaws shall include expenses (including
attorney&#146;s fees), judgments, fines and amounts paid in settlement, and any such
expenses may be paid or reimbursed by the Registrant in advance of the final
disposition of any such proceeding. The MGCL requires a corporation (unless its
charter provides otherwise, which the Registrant&#146;s charter does not) to
indemnify a director or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. The MGCL permits a corporation to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it is
established that (a)&nbsp;the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (1)&nbsp;was committed
in bad faith or (2)&nbsp;was the result of active and deliberate dishonesty; (b)&nbsp;the
director or officer actually received an improper personal benefit in money,
property or services; or (c)&nbsp;in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission
was unlawful.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation&#146;s receipt of (a)&nbsp;a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation, and (b)&nbsp;a
written undertaking by or on his behalf to repay the amount paid or reimbursed
by the corporation if it shall ultimately be determined that the standard of
conduct was not met.</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 47.0pt;page-break-after:avoid;text-indent:-47.0pt;"><a name="Item7_ExemptionFromRegistrationCl_001055"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Item 7.&nbsp;&nbsp; Exemption from Registration Claimed.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">With respect to the 560,056 shares of common stock
constituting &#147;restricted securities&#148; under Rule&nbsp;144 of the Securities Act
to be reoffered or resold pursuant to this registration statement, 495,016 of
these shares were issued pursuant to the Plan to our directors, officers and
employees in accordance with Rule&nbsp;701 under the Securities Act. Of these
shares, 448,671 shares were granted directly as restricted stock awards to our
directors, officers and employees on November&nbsp;13, 2003, 19,445 shares were
granted directly as restricted stock awards to our officers on February&nbsp;25,
2004, 10,000 shares were granted directly as a restricted stock award to one of
our directors upon his appointment to our board of directors in August&nbsp;2004,
and 16,900 shares were issued upon exercise of options previously awarded under
the Plan to our officers and employees.</font></p>

<p style="margin:0pt 0pt 12.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The remaining 65,040
shares constituting &#147;restricted securities&#148; under Rule&nbsp;144 of the
Securities Act represent the maximum number of shares that may be awarded to
recipients upon the achievement of performance targets set forth in performance
share awards granted by the Registrant to certain of its executive and senior
officers on June&nbsp;22, 2005 in reliance on the exemption from registration
under the Securities Act provided in Section&nbsp;4(2)&nbsp;of the Securities
Act.</font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">II-</font><font face="Times New Roman">2</font></p> <br><hr size="3" width="100%" noshade color="#010101" align="center">

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<p style="font-weight:bold;margin:0pt 0pt 6.0pt 47.0pt;page-break-after:avoid;text-indent:-47.0pt;"><a name="Item8_Exhibits__001102"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Item 8.&nbsp;&nbsp; Exhibits.</font></b></p>

<table border="1" cellspacing="0" cellpadding="0" style="border:none;border-collapse:collapse;font-family:Times New Roman;">
 <tr>
  <td width="53" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:40.0pt;">
  <p style="font-size:8.0pt;font-weight:bold;line-height:8.0pt;margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:center;">Exhibit<br>
  Number</p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="535" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:401.2pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Description</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="53" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:40.0pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="535" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:401.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Articles of Amendment and Restatement of the
  Registrant(1)</font></p>
  </td>
 </tr>
 <tr>
  <td width="53" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:40.0pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.2</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="535" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:401.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bylaws of the Registrant(2)</font></p>
  </td>
 </tr>
 <tr>
  <td width="53" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:40.0pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="535" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:401.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Fieldstone Investment Corporation Equity Incentive
  Plan(3)</font></p>
  </td>
 </tr>
 <tr>
  <td width="53" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:40.0pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="535" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:401.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Opinion of Hogan&nbsp;&amp; Hartson L.L.P. (filed
  herewith)</font></p>
  </td>
 </tr>
 <tr>
  <td width="53" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:40.0pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">23.1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="535" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:401.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Consent of Hogan&nbsp;&amp; Hartson L.L.P. (included
  in Exhibit&nbsp;5.1)</font></p>
  </td>
 </tr>
 <tr>
  <td width="53" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:40.0pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">23.2</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="535" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:401.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Consent of KPMG LLP (filed herewith)</font></p>
  </td>
 </tr>
 <tr>
  <td width="53" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:40.0pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">24.1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="535" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:401.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Power of Attorney (included on the signature
  page&nbsp;hereof)</font></p>
  </td>
 </tr>
</table>

<p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"></p>

<div style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="1" width="160" noshade color="black" align="left" style="width:120.0pt;">

</font></div>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 20.0pt;page-break-after:avoid;text-indent:-20.0pt;">(1)<font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Incorporated
by reference to Exhibit&nbsp;3.1 to the Registrant&#146;s Registration Statement on Form&nbsp;S-11
filed with the SEC on April&nbsp;23, 2004 (SEC File No.&nbsp;333-114802).</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 20.0pt;page-break-after:avoid;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Incorporated by
reference to Exhibit&nbsp;3.2 to the Registrant&#146;s Registration Statement on Form&nbsp;S-11
filed with the SEC on April&nbsp;23, 2004 (SEC File No.&nbsp;333-114802).</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 12.0pt 20.0pt;page-break-after:avoid;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Incorporated by
reference to Exhibit&nbsp;10.1 to Amendment No.&nbsp;9 to the Registrant&#146;s
Registration Statement on Form&nbsp;S-11 filed with the SEC on January&nbsp;31,
2005 (SEC File No.&nbsp;333-114802).</p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt 47.0pt;page-break-after:avoid;text-indent:-47.0pt;"><a name="Item9_Undertakings__001110"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Item 9.&nbsp;&nbsp; Undertakings.</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; The
undersigned registrant hereby undertakes:</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1)&#160;&#160; To file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 80.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(i)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>To include any
prospectus required by Section&nbsp;10(a)(3)&nbsp;of the Securities Act;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 80.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(ii)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>To reflect in the
prospectus any facts or events arising after the effective date of this
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 80.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(iii)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160; </font>To include any material
information with respect to the plan of distribution not previously disclosed
in this Registration Statement or any material change to such information in
this Registration Statement;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0pt 0pt 6.0pt 20.0pt;page-break-after:avoid;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">provided,
however,&#160;&#160;&#160;&#160; </font></i>that
paragraphs (a)(1)(i)&nbsp;and (a)(1)(ii)&nbsp;do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section&nbsp;13 or 15(d)&nbsp;of the Exchange Act that
are incorporated by reference in this Registration Statement.</p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)&#160;&#160; That, for
the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial<i><font style="font-style:italic;">
bona fide</font></i> offering thereof.</font></p>

<p style="margin:0pt 0pt 6.0pt 20.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)&#160;&#160; To remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant&#146;s annual
report pursuant to Section&nbsp;13(a)&nbsp;or 15(d)&nbsp;of </font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">II-</font><font face="Times New Roman">3</font></p> <br><hr size="3" width="100%" noshade color="#010101" align="center">

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<p style="margin:0pt 0pt 6.0pt;text-indent:0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">the Exchange Act (and,
where applicable, each filing of an employee benefit plan&#146;s annual report
pursuant to Section&nbsp;15(d)&nbsp;of the Exchange Act) that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial<i><font style="font-style:italic;"> bona fide</font></i> offering thereof.</font></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(h)&#160;&#160; Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, executive officers and controlling persons of the
registrant pursuant to the provisions described in Item&nbsp;6 above, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.</font></p>


 <p style="font-size:10.0pt;margin:24.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">II-</font><font face="Times New Roman">4</font></p>
</div><br><hr size="3" width="100%" noshade color="#010101" align="center">

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<div style="font-family:Times New Roman;">


<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="Signatures_002000"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">SIGNATURES</font></b></p>

<p style="margin:0pt 0pt 4.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant,
Fieldstone Investment Corporation, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form&nbsp;S-8 and
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Howard, State of
Maryland, on this 18th day of August, 2005.</font></p>

<table border="0" cellspacing="0" cellpadding="0" style="border-collapse:collapse;">
 <tr>
  <td width="300" valign="top" style="padding:0pt .7pt 0pt 0pt;width:225.0pt;">
  <p style="font-size:10.0pt;line-height:11.0pt;margin:0pt 0pt .0001pt;"></p>
  </td>
  <td width="307" colspan="2" valign="top" style="padding:0pt .7pt 0pt 0pt;width:230.4pt;">
  <p style="line-height:11.0pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">FIELDSTONE
  INVESTMENT CORPORATION<br>
  (registrant)</font></p>
  </td>
 </tr>
 <tr>
  <td width="300" valign="top" style="padding:0pt .7pt 0pt 0pt;width:225.0pt;">
  <p style="line-height:11.0pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="20" valign="top" style="padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="line-height:11.0pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">By:</font></p>
  </td>
  <td width="287" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:215.4pt;">
  <p style="line-height:11.0pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ MICHAEL J.
  SONNENFELD</font></p>
  </td>
 </tr>
 <tr>
  <td width="300" valign="top" style="padding:0pt .7pt 0pt 0pt;width:225.0pt;">
  <p style="line-height:11.0pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="20" valign="top" style="padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="line-height:11.0pt;margin:0pt 0pt .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:1.0pt;font-style:italic;">&nbsp;</font></i></p>
  </td>
  <td width="287" valign="top" style="padding:0pt .7pt 0pt 0pt;width:215.4pt;">
  <p style="line-height:11.0pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Michael
  J. Sonnenfeld<i><font style="font-style:italic;"><br>
  President and Chief Executive Officer</font></i></font></p>
  </td>
 </tr>
</table>

<p style="line-height:8.0pt;margin:0pt 0pt 4.0pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">&nbsp;</font></p>

<p style="font-weight:bold;margin:0pt 0pt 6.0pt;page-break-after:avoid;text-align:center;"><a name="PowerOfAttorney_002000"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">POWER OF ATTORNEY</font></b></p>

<p style="margin:0pt 0pt 6.0pt;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Each person whose signature appears below constitutes
and appoints Michael J. Sonnenfeld, as his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments, exhibits thereto and
other documents in connection therewith) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, granting unto said attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.</font></p>

<p style="margin:0pt 0pt 12.0pt;page-break-after:avoid;text-indent:20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.</font></p>

<table border="1" cellspacing="0" cellpadding="0" style="border:none;border-collapse:collapse;">
 <tr>
  <td width="202" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p style="font-size:8.0pt;font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;text-align:center;">Signature</p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="275" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Title</font></b></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="99" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Date</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ MICHAEL J. SONNENFELD</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">President and Chief Executive Officer, Director</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">August&nbsp;18, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Michael J. Sonnenfeld</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">(Principal
  Executive Officer)</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ ROBERT G. PARTLOW</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Chief Financial Officer</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">August&nbsp;18, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Robert G. Partlow</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">(Principal
  Financial and Accounting Officer)</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ THOMAS D. ECKERT</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Chairman of the Board</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">August&nbsp;18, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Thomas D. Eckert</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ DAVID S. ENGELMAN</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Director</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">August&nbsp;18, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">David S. Engelman</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ CELIA V. MARTIN</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Director</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">August&nbsp;18, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Celia V. Martin</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ JONATHAN E. MICHAEL</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Director</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">August&nbsp;18, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Jonathan E. Michael</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ DAVID A. SCHOENHOLZ</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Director</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">August&nbsp;18, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">David A. Schoenholz</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">/s/ JEFFREY R. SPRINGER</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Director</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:6.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">August&nbsp;18, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="202" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:151.85pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:9.5pt;">Jeffrey R. Springer</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="275" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:206.45pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="16" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:12.0pt;">
  <p style="line-height:10.5pt;margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="99" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:74.1pt;">
  <p align="center" style="line-height:10.5pt;margin:0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
</table>

<p style="line-height:1.0pt;margin:0pt 0pt 12.0pt;"><font size="1" face="Times New Roman">&nbsp;</font></p>

<p style="line-height:10.5pt;margin:0pt 0pt 2.0pt;"><font size="1" face="Times New Roman">&nbsp;</font></p>


 <div> <p style="margin:24.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p> </div> <p style="font-size:10.0pt;margin:12.0pt 0pt .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">II-</font><font face="Times New Roman">5</font></p>
</div><br><hr size="3" width="100%" noshade color="#010101" align="center">

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<br clear="all" style="page-break-before:always;">

<div style="font-family:Times New Roman;">

<p style="font-weight:bold;margin:0pt 0pt 12.0pt;page-break-after:avoid;text-align:center;"><a name="ExhibitIndex_001744"></a><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">EXHIBIT INDEX</font></b></p>

<table border="1" cellspacing="0" cellpadding="0" style="border:none;border-collapse:collapse;">
 <tr>
  <td width="73" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:55.0pt;">
  <p style="font-size:8.0pt;font-weight:bold;line-height:8.0pt;margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:center;">Exhibit<br>
  Number</p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></b></p>
  </td>
  <td width="515" valign="bottom" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="font-weight:bold;line-height:8.0pt;margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;">Description</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.</font></p>
  </td>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="515" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Articles of Amendment and Restatement of the
  Registrant(1)</font></p>
  </td>
 </tr>
 <tr>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.</font></p>
  </td>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="515" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bylaws of the Registrant(2)</font></p>
  </td>
 </tr>
 <tr>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.</font></p>
  </td>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="515" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Fieldstone Investment Corporation Equity Incentive
  Plan(3)</font></p>
  </td>
 </tr>
 <tr>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.</font></p>
  </td>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="515" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Opinion of Hogan&nbsp;&amp; Hartson L.L.P. (filed
  herewith)</font></p>
  </td>
 </tr>
 <tr>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">23.</font></p>
  </td>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="515" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Consent of Hogan&nbsp;&amp; Hartson L.L.P. (included
  in Exhibit&nbsp;5.1)</font></p>
  </td>
 </tr>
 <tr>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">23.</font></p>
  </td>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="515" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Consent of KPMG LLP (filed herewith)</font></p>
  </td>
 </tr>
 <tr>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p align="right" style="margin:0pt 0pt 3.0pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">24.</font></p>
  </td>
  <td width="37" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:27.5pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="515" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Power of Attorney (included on the signature
  page&nbsp;hereof)</font></p>
  </td>
 </tr>
 <tr>
  <td width="73" colspan="2" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:55.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="20" valign="bottom" style="border:none;padding:0pt .7pt 0pt 0pt;width:15.0pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="515" valign="top" style="border:none;padding:0pt .7pt 0pt 0pt;width:386.2pt;">
  <p style="margin:0pt 0pt 3.0pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
 </tr>
</table>

<p style="margin:0pt 0pt .0001pt;page-break-after:avoid;"></p>

<div style="margin:0pt 0pt .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="1" width="160" noshade color="black" align="left" style="width:120.0pt;">

</font></div>

<p style="font-size:10.0pt;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;">(1)<font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Incorporated by
reference to Exhibit&nbsp;3.1 to the Registrant&#146;s Registration Statement on Form&nbsp;S-11
filed with the SEC on April&nbsp;23, 2004 (SEC File No.&nbsp;333-114802).</p>

<p style="font-size:10.0pt;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(2)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Incorporated by
reference to Exhibit&nbsp;3.2 to the Registrant&#146;s Registration Statement on Form&nbsp;S-11
filed with the SEC on April&nbsp;23, 2004(SEC File No.&nbsp;333-114802).</p>

<p style="font-size:10.0pt;margin:0pt 0pt 6.0pt 20.0pt;text-indent:-20.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)</font><font size="1" face="Times New Roman" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Incorporated by
reference to Exhibit&nbsp;10.1 to Amendment No.&nbsp;9 to the Registrant&#146;s
Registration Statement on Form&nbsp;S-11 filed with the SEC on January&nbsp;31,
2005 (SEC File No.&nbsp;333-114802).</p>

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</html>
[{"type": "S-8", "sequence": "1", "filename": "a05-15083_1s8.htm", "description": "S-8", "secsgml_size_bytes": 651055}]
{"company-data": {"conformed-name": "FIELDSTONE INVESTMENT CORP", "cik": "0001271831", "assigned-sic": "6798", "irs-number": "000000000"}, "filing-values": {"form-type": "S-8", "act": "33", "file-number": "333-127678", "film-number": "051036604"}, "business-address": {"street1": "11000 BROKN LAND PARKWAY", "street2": "SUITE 600", "city": "COLUMBIA", "state": "MD", "zip": "21044", "phone": "410-772-7200"}, "mail-address": {"street1": "11000 BROKEN LAND PARKWAY", "street2": "SUITE 600", "city": "COLUMBIA", "state": "MD", "zip": "21044"}}
As filed with the Securities and Exchange Commission on August 18, 2005
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
Fieldstone
Investment Corporation
(Exact Name of Registrant
as Specified in Its Charter)
Maryland
(State or other
  jurisdiction
of incorporation or organization)
74-2874689
(I.R.S. Employer
  Identification No.)
11000 Broken Land Parkway
Suite 600
Columbia, Maryland 21044
(Address, Including Zip
Code, of
Principal Executive Offices)
FIELDSTONE INVESTMENT CORPORATION EQUITY
INCENTIVE PLAN
(Full Title of the Plan)
Michael J. Sonnenfeld
President and Chief Executive Officer
Fieldstone Investment Corporation
11000 Broken Land Parkway
Columbia, Maryland 21044
(Name and Address of Agent for Service)
(410) 772-7200
(
Telephone
Number, Including Area Code, of Agent for Service)
Title of securities to be
registered
Amount
  to be
registered(1)
Proposed
  maximum
offering price
per share(2)
Proposed
  maximum
aggregate
offering price(2)
Amount
  of
registration  fee(2)
Common Stock, par value
$.01 per share
836,000(2a)
1,854,616(2b)
$14.86(2a)
$12.93 (2b)
$12,422,960(2a)
$23,980,185(2b)
Total:
$1,462.18(2a)
2,822.47(2b)
$4,284.65
(1)
This
registration statement covers, in addition to the number of shares of
Fieldstone Investment Corporation's common stock stated above, an indeterminate
amount of additional shares of common stock that may be offered or issued by
reason of stock splits, stock dividends or similar transactions, in accordance
with Rule 416(c) under the Securities Act of 1933, as amended (the "Securities
Act").
(2)
Estimated solely for the purpose of determining the
registration fee in accordance with Rule 457(c) and (h) of the
Securities Act based upon (a) the weighted average option exercise price
of $14.86 per share for the 836,000 shares of common stock issuable upon the
exercise of currently outstanding options under the Fieldstone Investment
Corporation Equity Incentive Plan (the "Plan") and (b) the average of the
high and low prices for the common stock as reported on The Nasdaq Stock Market
on August 17, 2005, which was $12.93, with respect to the 1,854,616 shares
of common stock available for grant, or previously issued, under the Plan.
EXPLANATORY NOTE
Fieldstone Investment Corporation (the "Registrant")
has prepared this Registration Statement in accordance with the requirements of
Form S-8 under the Securities Act to register shares of its common
stock issued or available for issuance under the Fieldstone Investment
Corporation Equity Incentive Plan (the "Plan").
This Registration Statement contains a reoffer
prospectus prepared in accordance with Instruction C of the General
Instructions to Form S-8 and Part I to Form S-3. This
reoffer prospectus may be utilized by certain participants under the Plan to
cover reoffers and resales of the shares of common stock received as grants
under, or as a result of the exercise of stock options granted under, the Plan.
This Registration Statement also contains the information required pursuant to Part II
of Form S-8.
The document(s) containing the information
specified in Part I of Form S-8 (plan information and
registrant information) will be sent or given to plan participants as specified
by Rule 428(b)(1) under the Securities Act of 1933, as amended (the "Securities
Act"). In accordance with Rule 428 under the Securities Act and the "Note"
to Part I of Form S-8, these documents are not being filed with
the Securities and Exchange Commission (the "SEC") either as part of this
Registration Statement or as prospectuses or prospectus supplements pursuant to
Rule 424 under the Securities Act. These documents and the documents
incorporated by reference in this Registration Statement pursuant to Item 3 of Part II
of this Form S-8, taken together, constitute a prospectus that meets
the requirements of Section 10(a) of the Securities Act.
REOFFER
PROSPECTUS
2,340,116 Shares
Fieldstone Investment Corporation
Common Stock
This prospectus relates to the reoffer and
resale, from time to time, of up to 2,340,116 shares of our common stock by or
for the account of certain of our officers, directors and employees, whom we
also refer to in this prospectus as the selling stockholders, in order to
permit such persons to sell or otherwise dispose of shares of our common stock
that they have received, or may receive, under the Fieldstone Investment
Corporation Equity Incentive Plan, or Plan.
T
he selling stockholders may sell all
or a portion of these shares from time to time in market transactions through
any stock exchange or market on which our common stock is then listed, in
negotiated transactions or otherwise, and at prices and on terms that will be
determined by the then prevailing market price or at negotiated prices.
Our common stock currently trades on the
Nasdaq National Market under the symbol "FICC." The last reported sale price of
our common stock on August 17, 2005 was $12.95 per share.
Investing in our common stock involves a high degree of risk. Please
carefully consider the "Risk Factors" beginning on page 2 of this
prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is August 18,
2005.
You may
rely only on information contained in this prospectus or to which we have
referred you. We have not authorized anyone to provide you with information
that is different. This prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any shares of our common stock in any
jurisdiction in which an offer or solicitation is not authorized or in which
the person making the offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make an offer or solicitation. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in our
affairs since the date of this prospectus.
TABLE OF CONTENTS
Page
Summary
1
Risk Factors
2
Special Note Regarding Forward-Looking Statements
27
Incorporation of Documents by Reference
28
Use of Proceeds
28
Selling Stockholders
29
Plan of Distribution
33
Description
  of Capital Stock
35
Material Federal Income Tax Considerations
38
Legal Matters
63
Experts
63
Indemnification of Directors and Officers
64
Where You Can
  Find More Information About Fieldstone
64
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission, or SEC, to enable selling stockholders,
from time-to-time, to sell the securities described in this prospectus in one
or more offerings.
The information in this prospectus speaks as of the date of this
prospectus and may not reflect changes in our affairs. This prospectus may also
be accompanied by a prospectus supplement that may include additional risk
factors or other special considerations, and may also add, update or change
information in this prospectus. If there is any inconsistency between the
information in this prospectus and any prospectus supplement, you should rely
on the information in that prospectus supplement. You should read both this
prospectus and any prospectus supplement together with the documents
incorporated herein by reference and the additional information described under
the heading "Where You Can Find More
Information About Fieldstone Investment Corporation."
In this prospectus, unless the context indicates otherwise, references
to "our company," "we," "our" and "us" refer to the activities of, and the
assets and liabilities of, the business and operations of Fieldstone Investment
Corporation (Fieldstone Investment) and its subsidiaries. References to "Fieldstone
Mortgage" refer to the activities of our principal operating subsidiary,
Fieldstone Mortgage Company.
SUMMARY
Our Company
We own and manage
a portfolio of
non-conforming residential mortgage loans originated primarily by our operating
subsidiary, Fieldstone Mortgage Company, and we have elected to be taxed as a
real estate investment trust, or REIT, for federal income tax purposes.
We intend to
distribute to our stockholders all or substantially all of our REIT taxable
income each year in order to comply with the distribution requirements of the
Internal Revenue Code and to avoid federal income tax, and we intend to retain
our net gains on sales of loans to build our capital base. In order to meet
some of the requirements to qualify as a REIT, we conduct all of our loan
origination, processing, underwriting, sales and servicing functions through
Fieldstone Mortgage, which we have elected to treat as a taxable REIT
subsidiary. Founded in 1995, Fieldstone Mortgage is a nationwide
residential mortgage banking company that originates, sells and services
non-conforming and conforming residential mortgage loans through over 4,700
independent mortgage brokers serviced by 15 regional wholesale operations
centers and a network of retail branch offices located throughout the country.
Our Principal Office
Our principal offices are located at 11000
Broken Land Parkway, Columbia, Maryland 21044. Our telephone number is
(410) 772-7200. Our website is
www.FieldstoneInvestment.com
.
Fieldstone Mortgage's website is
www.fmcc.com
or
www.FieldstoneMortgage.com
.
The information on our websites does not constitute a part of this prospectus.
Restrictions on Ownership of Our Common
Stock
Due to limitations on the concentration of
ownership of REIT shares imposed by the Internal Revenue Code, our charter
documents generally prohibit any stockholder from actually or constructively
owning more than 9.8% of the outstanding shares of our common stock. Our board
may, in its sole discretion, waive the ownership limit with respect to a
particular stockholder if our board is presented with satisfactory evidence
that the ownership will not then or in the future jeopardize our REIT status.
Our charter also prohibits certain cooperatives, governmental entities and
tax-exempt organizations that are exempt from the unrelated business income tax
from owning our shares because a tax could be imposed on us if our shares are
held by these entities.
Our Corporate History
We were formed on August 20, 2003 as a Maryland corporation and a
wholly owned subsidiary of Fieldstone Holdings Corp., a Delaware corporation.
In 1998, Fieldstone Holdings acquired Fieldstone Mortgage Company, a Maryland
corporation formed in 1995 that has been originating and selling residential
mortgage loans since 1996. On November 14, 2003, we completed a private
offering of 47.15 million shares of our common stock pursuant to Rule 144A,
Regulation S and Regulation D under the Securities Act of 1933, as
amended (referred to herein as the 144A Offering), which yielded net proceeds
of approximately $658.1 million. In connection with the private offering,
we merged with Fieldstone Holdings. As the surviving entity, we succeeded to
all of the assets and liabilities of Fieldstone Holdings, and Fieldstone
Mortgage became our wholly owned principal operating subsidiary.
Pursuant to the merger, the shareholders of
Fieldstone Holdings received 565.38168 shares of our common stock for each
share of common stock of Fieldstone Holdings. Immediately following the closing
of the 144A Offering, we redeemed the shares of common stock held by a group of
former shareholders of Fieldstone Holdings for approximately
$188.1 million of the net proceeds of the 144A Offering.
1
RISK FACTORS
An investment in our common
stock involves a high degree of risk. You should carefully consider the
following risk factors, together with the other information contained in this prospectus,
before purchasing our common stock. Any of the following factors could harm our
business, financial condition and results of operations and could result in a
partial or complete loss of your investment.
Risks Related to Our Business
We have invested the
substantial majority of our shareholders' equity in a portfolio of
non-conforming mortgage loans held for investment financed by pledging the
loans to secure mortgage-backed securities. We have a limited operating history
with building and managing an investment portfolio, which limits your ability
to evaluate a key component of our business strategy and our growth prospects
and increases your investment risk.
In August 2003, we began implementing
our portfolio strategy of retaining a substantial portion of the non-conforming
loans we originate, financed by issuing mortgage-backed securities secured by
these loans. From August 1, 2003 through December 31, 2003, we
retained 50% of the non-conforming loans we originated during that period. For
the year ended December 31, 2004, we retained 66% of the non-conforming
loans we originated during that period. The percentage of non-conforming loans
retained, and the rate at which we will invest all of the proceeds of the 144A
Offering by retaining non-conforming loans, will vary based primarily upon the
availability of loans that meet our investment criteria, which criteria are
subject to change due to market conditions or other factors. After we have
invested all of the proceeds, the percentage of loans we retain will vary based
primarily upon the rate of prepayments of principal on the loans we hold in our
portfolio and the availability of loans which meet our investment criteria,
unless we change our targeted leverage or raise additional equity. Our ability
to complete securitizations in the future will depend upon a number of factors,
including the experience and ability of our management team, conditions in the
securities markets generally, conditions in the mortgage-backed securities
market specifically, the performance of our portfolio of securitized loans and
our ability to obtain credit enhancement. In addition, poor performance of any
pool of loans that we securitize could increase the expense of any of our
subsequent securitizations. If we are unable to securitize efficiently the
loans in our portfolio, then our revenues for the duration of our investment in
those loans could decline, which would lower our earnings for the time the
loans remain in our portfolio. We cannot assure you that we will be able to
complete loan securitizations in the future on favorable terms, or at all.
We do not have
comprehensive historical loan performance data on our loans sold on which to
base future loan performance estimates on our loans held for investment. If we
do not receive the payments from the loans that we anticipate, our revenues may
be insufficient to cover our costs to originate, the interest expense and the
losses on these loans, as well as the repayment of principal on the warehouse
or securitization debt used to finance these loans.
Through June 2003, we sold all of the
loans that we originated on a whole-loan, servicing-released basis. As a
result, we are unable to track the delinquency, loss and prepayment history of
these loans. Consequently, we do not have representative historical
delinquency, bankruptcy, foreclosure, default or prepayment experience that may
be referred to for purposes of estimating future delinquency, loss and
prepayment rates for our originated loans. In view of our lack of historical
loan performance data, it is extremely difficult to validate our loss or
prepayment assumptions used to calculate assumed net interest income in current
and future securitizations of our non-conforming loans. If we do not receive
the payments from the loans that we have anticipated, our revenues may be
insufficient to cover our costs to originate, the interest expense and losses
on these loans, as well as the repayment of principal on the warehouse and
securitization debt used to finance these loans. The greater the difference
between our assumptions and actual performance proves to be, the greater the
effect will be on our earnings, the
2
interest rates and
over-collateralization levels of our mortgage-backed securities and the timing
and receipt of our future revenues, the value of the residual interests held on
our statement of condition and our cash flow.
Dependence upon
financing facilities and securitizations and our ability to maintain our status
as a REIT may create liquidity risks.
Pending sale or securitization of a pool of mortgage loans, we will
finance mortgage loans that we originate through borrowings under our warehouse
lines and repurchase facilities. It is possible that our warehouse lenders
could experience changes in their ability to advance funds to us, independent
of our performance or the performance of our loans. In addition, if the
regulatory capital requirements imposed on our lenders change, our lenders may
be required to increase significantly the cost of the lines of credit that they
provide to us. Our repurchase facilities are dependent on our counterparties'
ability to re-sell loans originated by us to third parties. If there is a
disruption of the repurchase market generally, or if one of our counterparties
is itself unable to access the repurchase market, our access to this source of
liquidity could be adversely affected.
We finance substantially all of our loans through three warehouse lines,
two repurchase facilities and one conduit commercial paper facility. Each of
these facilities is cancelable by the lender for cause at any time. As of July 31,  2005, the maximum available outstanding
balance under these six facilities was $2.5 billion. The initial term of
each facility is generally 364 days or less, and the facilities mature at
various times during the year. We cannot provide any assurances that we will be
able to extend these existing facilities on favorable terms, or at all. If we
are not able to renew any of these credit facilities or arrange for new
financing on terms acceptable to us, or if we default on our covenants or are
otherwise unable to access funds under any of these facilities, we may not be
able to originate new loans or continue to fund our operations.
Cash could be required to meet margin calls
under the terms of our borrowings in the event that there is a decline in the
market value of the loans that collateralize our debt, the terms of short-term
debt becomes less attractive, or for other reasons. If we are required to meet
significant margin calls, we may not be able to originate new loans or continue
to fund our operations.
Liquidity risks associated with credit enhancements provided in
connection with our securitizations.
In connection with our securitizations, we provide credit enhancement
for a portion of the mortgage-backed securities that we issue called "senior
securities." The credit enhancement for the senior securities comes primarily
from either designating another portion of the securities we issue as "subordinate
securities" (on which the credit risk from the loans is concentrated),
purchasing financial guaranty insurance policies for the loans, or both. The
market for subordinate securities could become temporarily illiquid or trade at
steep discounts, thereby reducing the cash flow we receive over time from the
loans securing our mortgage-backed securities. If we purchase financial
guaranty insurance policies and the expense of these insurance policies
increases, our net income will be reduced as the cost of borrowing increases.
While we have used these senior and subordinated credit enhancement features in
connection with our previous securitizations, we cannot assure you that these
features will be available at costs that would allow us to achieve our desired
level of net income from future securitizations.
Some of the mortgage-backed securities that we have issued and intend to
issue in the future to finance our portfolio of loans require, or will require,
in the early years after issuance of the mortgage-backed securities that we "lock
out" cash flows and receive less than our pro-rata share of cash flows from
principal payments. In addition, if the performance of the loans pledged to
collateralize the mortgage-backed securities is worse than the thresholds set
forth in the securitization documents, then the net
3
interest income we would otherwise receive
will be held as over-collateralization reserves to provide additional credit
enhancements for the outstanding senior securities.
If prepayments on the loans securitizing any
of our mortgage-backed securities slow or our credit quality deteriorates, cash
flow that we might otherwise receive in connection with the mortgage-backed
securities might be delayed significantly.
Liquidity risks associated with our REIT status.
If our minimum distribution required to
maintain our REIT status exceeds our cash available for distribution, because
our income for tax purposes exceeded our cash flow from operations, we could be
forced to borrow funds, sell assets or raise capital on unfavorable terms in order
to maintain our REIT status. Additionally, negative cash flow could threaten
our continued ability to satisfy the income and assets tests necessary to
maintain our status as a REIT or our solvency. See "—
Risks Associated with our Organization and Structure
."
Liquidity risks associated with the change in our business strategy.
In August 2003, we began to retain a
portion of our non-conforming loans to build a portfolio of non-conforming
mortgages and issue mortgage-backed securities, rather than selling these loans
for a gain shortly after origination. As indicated above, some of the
mortgage-backed securities that we have issued and expect to issue in the
future may, for an initial period, require that any excess cash flow from the
mortgages (after payments required to be made to the senior securities and to
the sub-servicer) be retained in an issuing trust to build
over-collateralization to support the senior securities we have sold.
Accordingly, we may receive little or no cash as the owner of the loans during
that initial period. For some period of time our portfolio of securitized loans
may not generate sufficient net interest income to cover our operating
expenses, and in this event we will use cash and unborrowed collateral, as we
continue to originate new loans for our portfolio. This amount is comprised of
the proceeds remaining from the 144A Offering and retained earnings. If we have
fully invested all of our cash and unborrowed collateral prior to our portfolio
generating sufficient cash for us to fund our operations, if it ever does, then
we will need to either restructure the mortgage-backed securities supporting
our portfolio, sell additional shares of capital stock or debt securities to
generate additional working capital or, if we are unable to sell additional
securities on reasonable terms or at all, we will need to either reduce our
origination business or sell a higher portion of our loans. If we sell our
loans rather than put them into our investment portfolio, then we will reduce
the rate at which we increase our portfolio and we will owe taxes relative to
any gains we achieve by selling our loans. In the event that our liquidity
needs exceed our available capital, we may need to sell assets at an
inopportune time, which will result in a reduction in our earnings.
The failure to
prevail in our litigation with our former shareholders could have a negative
effect on our liquidity.
On November 10, 2003, we entered into a
redemption agreement with the holders of 94.83% of our common stock prior to
the closing of the 144A Offering. Under the terms of the redemption agreement,
the redemption price of the shares was to be $13.95 per share (the offering
price of the shares in the 144A Offering ($15.00 per share), net of the initial
purchaser's discount ($1.05)), subject to the following adjustments: the
redemption price would be increased or reduced by the amount by which our net
worth on the day immediately prior to the closing of the 144A Offering (November 13,
2003), calculated in accordance with generally accepting accounting principles,
was greater than or less than $50 million and increased or reduced by 3.0%
of the amount by which the principal balance of our inventory of non-conforming
loans as of the close of business on the day immediately prior to the closing
of the 144A Offering (November 13, 2003) was greater than or less than
$1.0 billion. These adjustments were estimated prior to the closing of the
144A Offering, but the adjustments were subject to a post-closing audit to be
4
performed by KPMG LLP. We
estimated these adjustments prior to the closing of the 144A Offering, and
based on these estimates, we redeemed the shares for $186,286,482, subject to
the post-closing audit. KPMG conducted its post-closing audit of our November 13,
2003 balance sheet and submitted its audit report on January 12, 2004.
Based on this audit report, we remitted an additional $1,820,443 as part of the
redemption price, for a total redemption price of $188,106,925, or $13.22 per
redeemed share.
On May 24, 2004, our former
shareholders prior to the closing of the 144A Offering filed a lawsuit against
us alleging that the shareholders are entitled to an additional post-closing
redemption price payment of between $15.8 million and $19.8 million.
These shareholders' shares were redeemed following the closing of the 144A
Offering, for approximately $188.1 million. On June 14, 2004, we
filed our answer generally denying all of the allegations in the complaint. The
redemption agreement between the redeemed shareholders and us required us to
adjust the redemption price we paid to the redeemed shareholders based on our November 13,
2003 balance sheet, as audited by KPMG LLP. On January 12, 2004, KPMG
issued an independent auditors' report of our November 13, 2003 balance
sheet. Based on this audit and the terms of the redemption agreement, we paid
an additional $1.8 million to the redeemed shareholders on February 18,
2004. The lawsuit alleges that our November 13, 2003 balance sheet should
have included a deferred tax asset that, if included, would have increased our
net worth on November 13, 2003. The lawsuit also alleges that the redeemed
shareholders are entitled to an increase in the redemption price if our November 13,
2003 balance sheet is revised to include the deferred tax asset. On April 20,
2004, following notification by the redeemed shareholders of their dispute
concerning our November 13, 2003 balance sheet, KPMG advised that their January 12,
2004 independent auditors' report of our November 13, 2003 balance sheet should
no longer be relied upon. On September 9, 2004, in its response to a
request for disclosure from the plaintiffs, KPMG stated, among other things,
that it had determined that the deferred tax asset, which is reflected in our December 31,
2003 audited financial statements, should have been reflected in our November 13,
2003 balance sheet. If we ultimately are unsuccessful, we could be required to
pay to the redeemed shareholders in excess of $19 million, plus any
potential interest or third-party costs associated with the litigation, which
at such time could have an adverse effect on our liquidity. The
$19.0 million payment will be an increase in the redemption price of their
shares and will be recorded as a reduction of our paid in capital in the period
in which the dispute is resolved and will not be reflected in our statement of
operations. Any interest and other third-party costs, if payable as part of a
settlement, will be recorded to earnings in the period in which the dispute is
resolved.
Our ability to
generate net interest income from our securitized loans is dependent upon the
success of our portfolio-based model of securitizations, which is subject to
several risks.
The success of our portfolio-based model of
securitizations is subject to the effects of fluctuations in interest rates and
loan defaults.
We expect to generate a substantial portion of our earnings and cash
flow from the non-conforming loans we originate and securitize, primarily
through net interest income. A substantial portion of the net interest income
generated by our securitized loans is based upon the difference between the
weighted average interest earned on the mortgage loans held in our portfolio
and the interest payable to holders of the mortgage-backed securities. The interest
expense on the mortgage-backed securities is typically adjusted monthly
relative to market interest rates. Because the interest expense associated with
the mortgage-backed securities typically adjusts faster than the interest
income from the mortgage loans, our net interest income can be volatile in
response to changes in interest rates. Also, the net interest income we receive
from securitizations will likely decrease and our cash flow will be reduced if
there are defaults on a significant number of our securitized loans or if a
large number of our securitized loans prepay prior to their scheduled
maturities. The effects will be magnified if the defaults or prepayments occur
with respect to securitized loans with interest rates that are high relative to
the rest of our securitized loans. Generally, loans with higher relative
interest rates represent loans to higher-risk borrowers and these loans
generally
5
have a higher default rate than loans to
lower-risk borrowers. As a result, our cash flow could be significantly
reduced, limiting our ability to make distributions to you.
We are subject to the risk of margin calls
while our loans held for investment are financed with short term borrowings,
and we are obligated to repay the full amount of our debt under our short term
borrowings regardless of the value of the mortgage loans collateralizing the
debt.
Our portfolio-based model is based on our
expectation that the interest income we receive from the loans in the portfolio
will exceed the interest expense of the debt we incur for financing those
loans. However, we are required to repay our portfolio debt regardless of the
loans' performance, which means that our portfolio income is at risk for the
expense of repaying our debt as well as for the performance of the loans. This
is true both for the short-term debt we incur to finance loans held for
investment prior to securitization and for the securitization debt that we
incur as long term financing of our loans held for investment. We are subject
to two risks while our loans held for investment are financed with short term
borrowings that we are not subject to relative to our securitization debt:
first, we may be required to make additional payments to our lenders (known as "margin
calls") relative to our short term financing if the lenders determine that the
market value of the mortgage loans they hold as collateral has declined, which
could happen at any time as a result of increases in market interest rates; and
second, we are obligated to repay the full amount of our debt under our short
term borrowings regardless of the value of the mortgage loans collateralizing
the debt. Our securitization debt is long-term structured debt on which we
never have margin calls and are at risk only for the amount we have invested in
the loans, which exceeds the securitization debt.
Over-collateralization may reduce or eliminate our net interest income.
As a relatively new issuer of mortgage-backed securities, we may be
required to provide higher than average levels of credit enhancement and
over-collateralization on our initial securitizations, which may delay our
receipt of net interest income from our securitizations. Even after we have
established ourselves as an issuer of mortgage-backed securities, if any of our
loan pools fail to perform, our credit enhancement expenses likely will
increase.
The nature and level of credit enhancement required to achieve specified
ratings for a securitization transaction are established in negotiations and
discussions among the issuer, underwriter and rating agencies and are based, in
significant measure, on the loan characteristics of the securitized pool. To
date, we have securitized seven separate pools of residential mortgage loans.
Our securitizations have been structured to achieve AAA ratings for the most
senior classes of issued securities. To achieve those ratings, our
securitization transactions have included credit enhancement in the form of
structural subordination, over-collateralization and the allocation of excess
cash flow to cover pool losses. We have retained the most subordinated interest
in each securitized pool. Our securitization transactions generally require an
initial over-collateralization percentage of approximately 2.50% for the first
36 months of the transaction to support BBB ratings for the most junior
classes of securities issued. Thereafter, the required over-collateralization
percentage may be reduced in accordance with a prescribed formula, subject to
the satisfaction of certain pool performance criteria. Specifically, any
reduction in the over-collateralization percentage is conditioned on
satisfaction of certain pool loss and delinquency levels, sometimes referred to
as triggers. The loss triggers for our outstanding securitizations require that
the over-collateralization percentage not be reduced if pool losses exceed
certain percentages, which increase over the life of the pool.
The delinquency triggers for our outstanding transactions require that
all principal receipts on the mortgage loans be allocated to senior classes of
securities if the percentage of pool mortgage loans that are 60 days or
more delinquent represents more than approximately 40% of the credit
enhancement available to such senior classes.
6
As the holder of the most subordinated interest in our securitized
pools, we are entitled to distributions from the securitization trusts only to
the extent that amounts received in respect of the securitized mortgage loans
are not allocated to the payment of any related outstanding class of
securities. Therefore, as a result of the required credit enhancement
provisions and, particularly, the effects of loss and delinquency triggers,
credit losses or delinquencies on the mortgage loans in a securitized pool
could result in a reduction or elimination of amounts available for
distribution to us from the related securitized pool.
Over the next two to five years, as
performance data on our securitized loans becomes available to the rating
agencies, we expect that our credit enhancement levels will be refined for
future securitizations. Whether or not our enhancement levels are lowered will
depend upon whether our performance meets or exceeds the rating agencies'
expectations.
We may not succeed in developing a portfolio-based model of
securitizations.
We expect to rely upon our ability to securitize our non-conforming
loans to generate cash proceeds for repayment of our warehouse lines and
repurchase facilities and to originate additional conforming and non-conforming
mortgage loans. We cannot assure you, however, that we will be successful in
securitizing a substantial portion of the non-conforming loans that we
accumulate. In the event that it is not possible or economical for us to
complete the securitization of a substantial portion of our non-conforming
loans, we may continue to hold these loans and bear the risks of interest rate
changes and loan defaults and delinquencies, and we may exceed our capacity
under our warehouse lines and repurchase facilities and be unable or limited in
our ability to originate future mortgage loans. If we determine that we should
sell all or part of our non-conforming loans initially funded in our investment
portfolio rather than securitizing them, there could be a significant reduction
in our net income and stockholder distributions because of the potential
application of a 100% tax on gains of such sales pursuant to the rules governing
REITs.
The senior
securities that we issue in connection with our securitizations have various
ratings and are priced at a spread over an identified benchmark rate, such as
the yield on United States Treasury bonds, interest rate swaps, or the London
Inter-Bank Offered Rate (LIBOR). If the spread that investors demand over the
benchmark rate widens and the rates we charge on our non-conforming loans are
not commensurately increased, we may experience a decrease in the net interest
income from any additional securitizations and therefore experience a reduction
in the economic value of the pool of loans in our portfolio.
Fluctuating
or rising interest rates may reduce our earnings or limit or eliminate our
ability to borrow under our warehouse lines and repurchase facilities and to
originate mortgages.
Changes in interest rates could affect our ability to originate loans,
affect the value of the conforming and non-conforming loans we have originated
prior to the time of the change in interest rates, inhibit our ability to
securitize our non-conforming loans, or diminish the value of our retained
interests in loan pools. Because the interest payable on the mortgage-backed
securities issued in a securitization generally will adjust monthly and be
based on shorter term floating interest rates, and the interest income we
receive from our securitized loans generally will either be fixed, adjust less
frequently than monthly or be subject to caps on the rates the borrowers pay,
the net interest income generated by the securitized mortgages likely will
decrease in a period of rising interest rates. In addition, when interest rates
rise, the variable interest rates that we pay to finance our operations may
rise above the interest we collect on our loans.
Fluctuations in interest rates may also
affect our profitability in other ways, including the following:
·
lower
interest rates may cause prepayments to increase, reducing our net interest
income over time from our securitized loans;
7
·
higher
interest rates may reduce overall demand for mortgage loans, particularly
conforming loans, and accordingly reduce our origination of new loans;
·
increases in
short- or long-term interest rates may reduce the value of loans on our
consolidated statement of condition; and
·
decreases in
short-term interest rates will result in a non-cash charge being recognized for
income reporting to reflect the mark to market of the interest rate derivatives
hedging the variable rate debt financing our held for investment portfolio.
In addition, the amount available to us
under our warehouse lines and repurchase facilities depends in large part on
the lender's valuation of the mortgage loans that secure the facilities. Each
credit facility provides the lender the right, under certain circumstances, to
re-evaluate the loan collateral that secures our outstanding borrowings at any
time. In the event the lender determines that the value of the loan collateral
has decreased, it has the right to initiate a margin call. A margin call would
require us to provide the lender with additional collateral or to repay a
portion of the outstanding borrowings at a time when we may not have a
sufficient inventory of loans or cash to satisfy the margin call. Accordingly,
any failure by us to meet a margin call could cause us to default on our credit
facilities and limit or eliminate our ability to borrow and to originate
mortgages.
Our
internal controls and disclosure controls and procedures may not be adequate to
ensure that we are able to report accurately our financial results.
Effective internal controls are necessary for us to provide reliable
financial reports. In order to establish effective internal control over
financial reporting, we must evaluate and document the design of and test the
effectiveness of our internal controls over financial reporting. During this
process, we, or our independent auditors, may identify deficiencies in our
system of internal control over financial reporting that may require
remediation.
In conjunction with the audit of our
financial statements as of December 31, 2004, our independent auditors,
KPMG LLP, reported several significant deficiencies to our Audit Committee. A
significant deficiency is a control deficiency, or combination of control
deficiencies, that adversely affects a company's ability to initiate,
authorize, record, process, or report external financial data reliably and in
accordance with GAAP, such that there is more than a remote likelihood that a
misstatement of annual or interim financial statements that is more than
inconsequential will not be prevented or detected. KPMG reported several
significant deficiencies in our information technology area related to access
controls that leave us vulnerable to unauthorized or inappropriate access to
relevant financial reporting applications or data, and change management
controls. KPMG also reported a significant deficiency in the process for
determining the application of accounting principles to individual
transactions. This significant deficiency primarily was in connection with our
recent restatement of our audited financial statements for the year ended December 31,
2003 to eliminate the use of cash flow hedge accounting for our interest rate
swap transactions because we determined that our hedge documentation was not
sufficient to qualify for cash flow hedge accounting in accordance with the
requirements of Statement of Financial Accounting Standards No. 133
(Statement 133)
"Accounting for Derivative
Instruments and Hedging Activities."
Management has discussed these
deficiencies with our independent auditors, and is in the process of developing
and implementing remediation plans. Any failure to remediate a significant
deficiency or to implement required new or improved controls could lead to
material errors in our financial statements, cause us to fail to meet our
reporting obligations, and expose us to civil and criminal actions. Any of
these results could cause investors to lose confidence in our reported
financial information, which could have a material adverse effect on the
trading price of our common stock.
8
If
we do not manage our growth effectively, our management, administrative,
operational and infrastructure may be harmed.
In recent years, we have experienced rapid
growth that has placed, and will continue to place, pressures on our
management, administrative, operational and financial infrastructure. We also intend
to increase our business in the future by permanently servicing and continuing
to securitize non-conforming loans, which will require capital and systems
development and human resources beyond those that we currently have. To develop
the capacity to permanently service loans, we may acquire a third party with
servicing capacity or a servicing component of a third party or, alternatively,
develop servicing capacity internally. If we are unable to or choose not to
acquire this servicing capacity from a third party, we will require significant
time to develop the capacity internally. We have not determined how we will
develop the servicing capacity and as a result, we cannot determine if and when
we will have the capacity to service our non-conforming loans on a permanent
basis. In addition, we cannot assure you that we will be able to satisfy our
capital needs, expand our systems effectively, allocate our human resources
optimally, identify and hire additional qualified employees, satisfactorily
perform our servicing obligations or incorporate effectively the components of
any businesses that we may acquire to achieve this growth. If we are unable to
manage growth effectively, we may become less efficient in originating, selling
and securitizing loans, which could result in a decrease in our profit on loans
sold and our net interest income from retained loans.
Our
hedging strategies may not be successful in mitigating our risks associated
with changes in interest rates.
We use various derivative financial instruments to provide a level of
protection against interest rate risks, but no hedging strategy can protect us
completely. When interest rates change, we expect the gain or loss on
derivatives to be offset by a related but inverse change in the value of loans
held for sale. We cannot assure you, however, that our use of derivatives will
fully offset the risks related to changes in interest rates. There have been
periods, and it is likely that there will be periods in the future, during
which we will recognize losses on our derivative financial instruments under
required accounting rules that will not be fully offset by gains we
recognize on loans held for sale or loans held for investment. The derivative
financial instruments that we select may not have the effect of reducing our
price risk on our loans, including our interest rate risk. In addition, the
nature and timing of hedging transactions may influence the effectiveness of
these strategies. Poorly designed strategies, improperly executed transactions or
unanticipated market fluctuations could actually increase our risk and losses.
In addition, hedging strategies involve transaction and other costs. We cannot
assure you that our hedging strategy and the derivatives that we use will
adequately offset the risk of interest rate volatility or that our hedging
transactions will not result in losses.
Furthermore, we cannot assure you that the
period in which the income or expense from the hedging transaction is
recognized in our earnings will coincide with the period or periods in which
the income or expense from the item we are economically hedging will be
recognized in our earnings because we are marking to market our interest rate
derivatives hedging our variable rate debt through earnings each period. These
derivatives are structured to limit the volatility of our current period
interest expense due to changes in interest rates over a period of generally
two years. The fair market value of the derivatives will incorporate the market's
expected level of interest rates in these future periods. Accordingly, the mark
to market of the derivatives through the income statement will bring the market's
expectation about changes in interest rates in the future into current period
earnings. It is possible that there will be periods during which we will
recognize non-cash losses on derivative transactions that may result in us
reporting a net loss for the period. As a result, without cash flow hedge
accounting, our reported earnings will be subject to greater volatility.
9
Our
portfolio consists primarily of adjustable rate mortgage (ARM) loans, many of
which are "interest only" for up to the first five years, which exposes us to a
higher risk of default.
Our portfolio consists almost entirely of adjustable rate mortgage (ARM)
loans, the payments on which are adjustable from time to time as interest rates
change, generally after an initial period during which the loans' interest
rates are fixed and do not change. After the initial fixed rate period, the
borrowers' payments on our ARM loans adjust once every six months to a
pre-determined margin over a measure of market interest rates, generally the
London InterBank Offered Rate (LIBOR) for one-month deposits. As of June 30,
2005, 60.7% of our ARM loans held for investment also have an "interest only"
feature for up to the first five years of the loan, so that the borrowers do
not begin to re-pay the principal balance of the loans until after a certain
period of time. After such time, the borrowers' payments increase to amortize
the entire principal balance owed over the remaining life of the loan.
These features will likely result in the
borrowers' payments increasing in the future. Since these features will
increase the debt service requirements of our borrowers, it may increase our
risk of default in our investment portfolio for loans that remain in our
portfolio for at least two years (relative to the ARM feature) or for five
years (relative to the interest only feature).
Our
warehouse lines, repurchase facilities and conduit commercial paper facility
contain covenants that restrict our operations and any default under these
credit facilities would inhibit our ability to grow our business and increase
revenues.
Our existing warehouse lines, repurchase facilities and conduit commercial
paper facility contain extensive restrictions and covenants and require us to
maintain or satisfy specified financial ratios and tests, including among other
things, minimum levels of consolidated tangible net worth, liquidity and
profitability, maximum ratio of indebtedness to consolidated adjusted tangible
net worth and maintenance of asset quality and portfolio performance tests.
Failure to meet or satisfy any of these covenants, financial ratios or
financial tests could result in an event of default under these agreements.
These agreements are secured by substantially all of our assets and also
contain cross-default provisions, so that an event of default under any
agreement will trigger an event of default under other agreements, giving the
lenders the right to declare all amounts outstanding under their particular
credit agreement to be immediately due and payable, enforce their rights by
foreclosing on collateral pledged under these agreements and restrict our
ability to make additional borrowings under these agreements.
Our warehouse lines and repurchase
facilities also restrict our ability to, among other things:
·
incur
additional debt;
·
acquire all
or substantially all of the assets or ownership interests of another entity;
and
·
engage in mergers
or consolidations.
These restrictions may interfere with our
ability to obtain financing or to engage in other business activities, which
may inhibit our ability to grow our business and increase revenues.
If
the prepayment rates for our mortgage loans are higher than expected, our net
interest income may be reduced.
The rate and timing of unscheduled payments
and collections of principal on our loans is impossible to predict accurately
and will be affected by a variety of factors, including, without limitation,
the level of prevailing interest rates, refinancing incentives that are a
function of home value changes, restrictions on voluntary prepayments contained
in the loans, the availability of lender credit and other economic,
demographic, geographic, tax and legal factors. In general, however, if
prevailing interest rates fall significantly below the interest rate on a loan,
the borrower is more likely to prepay the then higher rate loan than if
prevailing rates remain at or above the interest rate on the loan. Unscheduled
principal
10
prepayments are
permitted under all of our loans. Our results of operations could be reduced to
the extent that we are unable to reinvest the funds we receive from unscheduled
principal prepayments at an equivalent or higher rate, if at all. In addition,
a large amount of prepayments, especially prepayments on loans with interest
rates that are high relative to the rest of the loan portfolio, will likely
decrease the net interest income we receive from the portfolio. Also, elevated
prepayment levels will cause the amortization of deferred origination costs to
increase and reduce net interest income.
Our
non-conforming loans are underwritten to non-conforming underwriting standards,
which may result in losses or shortfalls on our mortgage-backed securities.
We underwrite all of our non-conforming
loans in accordance with our non-conforming credit underwriting standards. A
non-conforming mortgage loan is a mortgage loan which is ineligible for
purchase by Fannie Mae or Freddie Mac due to either loan size, credit
characteristics of the borrower or documentation standards in connection with
the underwriting of the borrower's income. The credit characteristics that
cause a loan to be ineligible include those where there is a relatively higher
level of debt service carried by the borrower, higher LTV, and loans by
borrowers who may have a record of credit write-offs, outstanding judgments,
prior bankruptcies and other credit items that do not satisfy the Fannie Mae or
Freddie Mac underwriting guidelines. Documentation standards that are not
eligible may include borrowers who provide limited or no documentation of their
income in connection with the underwriting of the related mortgage loan.
Accordingly, mortgage loans underwritten under our non-conforming credit
underwriting standards are likely to experience rates of delinquency,
foreclosure and loss that are higher, and may be substantially higher, than
mortgage loans originated in accordance with Fannie Mae or Freddie Mac underwriting
guidelines. We cannot provide assurance that our underwriting criteria or
collection methods will afford adequate protection against the higher risks
associated with loans made to non-conforming borrowers. If we are unable to
mitigate these risks, our net interest income from our securitizations may be
reduced.
We may be required to
repurchase mortgage loans that we have sold, or replace loans that have been
securitized, which could significantly reduce our cash flow and limit our
ability to make distributions to our stockholders.
When we sell or
securitize a loan we make certain representations, warranties and covenants
regarding certain characteristics of the loans, the borrowers and the
underlying properties, including that:
·
we deliver
all required documentation within the applicable time period for delivery;
·
we will
repurchase the loan in the event of an early payment default (generally defined
as a default of the first payment after sale or default of two of the first
four payments after sale); and
·
the borrower's
credit documents submitted for loan underwriting were not falsified, contained
no untrue statement of material fact and did not omit to state a material fact.
If we are found to have breached any of our
representations or warranties, we may be required to repurchase those loans or,
in the case of securitized loans, replace them with substitute loans or cash.
If this occurs, we may have to bear any associated losses directly. In
addition, in the case of loans that we sold, we may be required to indemnify
the purchasers of the loans for losses or expenses incurred as a result of a
breach of a representation or warranty. Repurchased loans typically require a
significant allocation of working capital to carry on our books, and our
ability to borrow against these loans is limited. Any significant repurchases
or indemnification payments we make could significantly reduce our cash flow
and limit our ability to make distributions to you.
In May 2004, the conforming division of
Fieldstone Mortgage, d/b/a Broad Street Mortgage Co., received notification
from HUD's Regional Office of the Inspector General for Audit, in Fort Worth,
Texas (the HUD IG), that an audit would be conducted to review loan origination
procedures and the
11
quality control plan
for FHA loans originated by one of the division's San Antonio branches. The HUD
IG audit was triggered by the relatively high delinquency rate of loans
originated by this San Antonio branch, even though the delinquency rate on FHA
loans originated by all of Fieldstone Mortgage's other branches is not above
the national average. On August 31, 2004, we closed this San Antonio
branch and terminated the staff through a reduction in force.
On May 26, 2005, HUD
IG issued its audit report of this now closed San Antonio branch. The audit
report alleges underwriting deficiencies with respect to 24 FHA-insured loans. Specifically,
the audit report asserts that the branch did not follow HUD requirements with
respect to the approval of loans where the borrowers received gift funds from
non-profit organizations that were used as borrower downpayments. Downpayment
assistance programs involving gift funds from non-profit organizations are
expressly permitted under HUD's FHA regulations. The audit report also asserts
that the price of the property was increased by the amount of assistance
provided to the borrower. Each of the 24 loans cited in the audit report had an
independent appraisal performed on the property supporting the purchase price
paid by the borrower. The audit report does not cite any deficiencies in any of
the specific appraisals performed on the 24 properties. The audit report
recommends that HUD require that Fieldstone Mortgage provide indemnification
for any losses suffered by HUD in connection with the 24 loans identified in
the audit report. The audit report has been sent to HUD's Office of Housing for
resolution of the audit recommendations.
We intend to continue to
vigorously defend the actions of the San Antonio branch with respect to the use
of downpayment assistance programs and to continue to seek reversal of the HUD
IG's findings with respect to the 24 loans at issue. We remain in good standing
with HUD.
The success of our
portfolio management and securitization business will depend upon our ability to
service effectively the loans held in our portfolio and in our securitizations.
Once we securitize non-conforming loans, our
strategy is to retain the servicing of those loans, including, but not limited
to, all collection, advancing and loan level reporting obligations, maintenance
of custodial and escrow accounts, and maintenance of insurance and enforcement
of foreclosure proceedings. Historically, we have only serviced loans for the
initial interim period between when we fund the loans and when we sell the
loans and transfer the servicing at the direction of the purchaser. We have no
experience servicing a large portfolio of loans for an extended period of time.
We must either implement a servicing function or continue to contract with a
third party to service the loans for us to fully implement our strategy. We
cannot assure you that we will be able to service the loans according to
industry standards either now or in the future. Any failure to service the
loans properly will harm our operating results. Because we have not built or
acquired the servicing capabilities that we need, we presently contract with
Wells Fargo Bank, N.A., an experienced master servicer of non-conforming
mortgage loans, to serve as master servicer, and Chase Home Finance LLC, an
experienced servicer of non-conforming loans, to "sub-service" our loans for
us. The aggregate fees paid to our master servicer and sub-servicer, generally
between 21 and 25 basis points of the outstanding principal balance, are a
component of our general and administrative expenses. Furthermore, our net
interest income depends upon the effectiveness of the third party sub-servicer.
A prolonged economic
slowdown, a lengthy or severe recession or declining real estate values may
result in a reduction of mortgage origination activity, which could limit our
ability to grow our loan portfolio and thus our net income.
An economic slowdown or a recession may have
an adverse impact on our operations and our financial condition, particularly
if accompanied by declining real estate values. Declining real estate values
likely will reduce our level of new originations because borrowers use
increases in the value of their homes to support new loans and higher levels of
borrowings. Declining real estate values also negatively affect loan-to-value
ratios of our existing loans and increase the likelihood that borrowers may
default on existing
12
loans. Any sustained
period of delinquencies, foreclosures or losses could adversely affect our net
interest income from loans in our portfolio, as well as our ability to
originate, sell and securitize loans.
The residential mortgage
origination business is a cyclical industry, and we expect that a rise in
interest rates may result in a decreased volume of loan originations in the
foreseeable future resulting in increased competition for the remaining loans.
The residential mortgage origination
business historically has been a cyclical industry, enjoying periods of strong
growth and profitability followed by periods of shrinking volumes and
industry-wide losses. The residential mortgage industry has experienced rapid
growth over the past three years due largely to declining interest rates. The
Mortgage Bankers Association of America has predicted that residential mortgage
originations will decrease in 2005 relative to the 2004 levels due to rising
interest rates. During periods of rising interest rates, refinancing
originations decrease, as higher interest rates provide reduced economic
incentives for borrowers to refinance their existing mortgages. We expect this
to result in a decreased volume of originations in the foreseeable future,
especially for conforming loans. Due to stable and decreasing interest rates
over recent years, our historical performance will not be indicative of results
in a rising interest rate environment. If interest rates rise, the number of
loan originations may decrease generally, resulting in increased competition
for the remaining loans. In addition, our recent and rapid growth may distort
some of our ratios and financial statistics and may make period-to-period
comparisons difficult. In light of this growth, our historical performance and
operating and origination data may be of little relevance in predicting our
future performance.
Our business may be
significantly affected by the economies of California, Illinois and Colorado,
where we conduct a significant amount of our business.
Although we are licensed or exempt from
licensing requirements to originate loans in 48 states and the District of
Columbia, and we regularly originate loans in most of these states, as of June 30,
2005, approximately 43.4% of the loans we originated were loans secured by
properties located in California, 6.9% were loans secured by properties located
in Illinois, and 5.22% were loans secured by properties located in Florida. An
overall decline in the economy or the residential real estate market, or the
occurrence of a natural disaster, such as an earthquake, in California,
Illinois or Florida could adversely affect the value of the mortgaged
properties in those states and increase the risk of delinquency, foreclosure,
bankruptcy or loss on mortgage loans in our portfolio. This would negatively
affect our ability to originate, sell and securitize mortgage loans, which
could result in a decrease in our profit on loans sold and our net interest
income from retained loans.
We face intense competition
that could adversely affect our market share and our revenues.
We face intense competition from finance and
mortgage banking companies, other mortgage REITs, Internet-based lending
companies where entry barriers are relatively low and, to a growing extent,
from traditional bank and thrift lenders that have entered the mortgage
industry. As we seek to expand our business, we will face a significant number
of additional competitors that may be well established in the markets we seek
to penetrate. Some of our competitors are much larger than we are, have better
name recognition than we do and have far greater financial and other resources than
we do.
In addition to mortgage banking companies,
other mortgage REITs, Internet-based lending companies, traditional banks and
thrift lenders, the government-sponsored entities (Fannie Mae and Freddie Mac),
are also expanding their participation in the mortgage industry. These
government-sponsored entities have a size and cost-of-funds advantage that
allows them to purchase loans with lower rates or fees than we are able to
offer. While these entities are not legally authorized to originate mortgage loans,
they do have the authority to buy loans. A material expansion of their
involvement in the market to purchase non-conforming loans could change the
dynamics of the industry by virtue of their sheer size, pricing power and the
inherent advantages of a government charter. In addition, if as a result of
their
13
purchasing
practices, Fannie Mae or Freddie Mac experiences significantly
higher-than-expected losses, the experience could adversely affect the overall
investor perception of the non-conforming mortgage industry.
The intense competition in the
non-conforming mortgage industry has also led to rapid technological
developments, evolving industry standards and frequent releases of new products
and enhancements. As mortgage products are offered more widely through
alternative distribution channels, such as the Internet, we may be required to
make significant changes to our current retail and wholesale origination
structure and information systems to compete effectively. An inability to
continue enhancing our current systems and Internet capabilities, or to adapt
to other technological changes in the industry, could significantly harm our
business, financial condition and results of operations.
Competition in the mortgage industry can
take many forms, affecting interest rates and costs of a loan, stringency of
underwriting standards, convenience in obtaining a loan, customer service, loan
amounts and loan terms and marketing and distribution channels. The need to
maintain mortgage loan volume in a competitive environment may create price
competition, which could cause us to lower the interest rates that we charge
borrowers, and could lower the value of our loans held for sale or in our
portfolio, or credit competition, which could cause us to adopt less stringent
underwriting standards. The combination of price competition and credit
competition could result in greater loan risk without compensating pricing. If
we do not address either or both of these competitive pressures in response to
our competitors, we could lose market share, reduce the volume of our loan
originations and sales and significantly harm our business, financial condition
and results of operations.
The cyclical decline in the mortgage industry's overall level of
originations following 2004 may lead to increased competition for the remaining
loans.
An
interruption in or breach of our information systems could impair our ability
to originate loans on a timely basis and may result in lost business.
We rely heavily upon communications and information systems to conduct
our business. Any failure or interruption or breach in security of our
information systems or the third-party information systems that we rely on
could cause delays in underwriting, fewer loan applications to be received and
processed and reduced efficiency in loan servicing. We currently contract with
a third party, LION, Inc., to provide a software database application to
track and provide market valuations for our conforming originations and related
derivatives. This contract is renewable annually. We also contract with a third
party, Ceridian Corporation, to provide payroll services, including employee
pay disbursement, payroll tax deposits and all related federal and state
payroll tax reporting requirements. This contract is renewable annually. We
cannot assure you that no failures or interruptions will occur or, if they do
occur, that we or the third parties on which we rely will adequately address
them. The occurrence of any failures or interruptions could significantly harm
our business, financial condition and results of operations.
Our independent auditors have reported to our Audit Committee that for
2004 we had significant deficiencies in the information technology area related
to systems access and change management controls. If we are unable to remediate
these significant deficiencies, it could materially harm our ability to
implement effective internal control over financial reporting.
14
If
we are unable to maintain and expand our network of independent brokers, our
loan origination business will decrease.
A significant portion of the mortgage loans
that we originate comes from independent brokers. As of June 30, 2005,
approximately 4,700 brokers were involved in the origination of approximately
86.6% of our mortgage loans. Our brokers are not contractually obligated to do
business with us. Further, our competitors also have relationships with our
brokers and actively compete with us in our efforts to obtain loans from our
brokers and to expand broker networks. Accordingly, we cannot assure you that
we will be successful in maintaining our existing broker relationships or
expanding our broker networks. If we are not successful, it could negatively
affect the volume and pricing of our loans.
Loss
of our key management or the inability to attract and retain key employees may
impair our ability to operate successfully.
Our future success depends to a significant extent on the continued
services of our senior management and the senior management of Fieldstone
Mortgage, particularly, Michael J. Sonnenfeld, our President and Chief
Executive Officer, Walter P. Buczynski, Executive Vice President—Secondary
Marketing, James T. Hagan, Jr., Executive Vice President—Non-Conforming
Wholesale Division (Fieldstone Mortgage), John C. Kendall, Senior Vice
President—Investment Portfolio, John C. Camp, IV, Senior Vice
President—Information Systems and Facilities and Gary K. Uchino, Senior Vice
President and our Chief Credit Officer. We do not maintain "key person" life
insurance for any of our personnel. The loss of the services of any of our
senior managers, or other key employees, could harm our business and our
prospects. Further, loss of a key member of our senior management team could be
negatively perceived in the capital markets, which could have a negative impact
on the market price of our common stock.
In addition, we depend on our production
managers, account executives and loan officers to attract borrowers by, among
other things, developing relationships with other financial institutions,
mortgage companies and mortgage brokers, real estate agents and real estate
brokers and others. These relationships lead to repeat and referral business.
The market for skilled production managers, account executives and loan
officers is highly competitive. Competition for qualified production managers,
account executives and loan officers may lead to increased hiring and retention
costs. If we are unable to attract or retain a sufficient number of skilled
production managers, account executives and loan officers at manageable costs,
it could harm our business, financial condition and results of operations.
We
may be subject to losses due to fraudulent and negligent acts on the part of
loan applicants, mortgage brokers, other vendors and our employees.
When we originate mortgage loans, we rely upon information supplied by
third parties, including the information contained in the loan application made
by the applicant, property appraisal, title information and employment and
income documentation. If a third party misrepresents any of this information
and we do not discover the misrepresentation prior to funding the loan, the
value of the loan may be significantly lower than anticipated. As a practical
matter, we generally bear the risk of loss associated with the
misrepresentation whether it is made by the loan applicant, the mortgage
broker, another third party or one of our employees. A loan that is subject to
a material misrepresentation is typically unsaleable or subject to repurchase
if it is sold prior to detection of the misrepresentation. Although we may have
rights against persons who, or entities that, made, or knew about, the
misrepresentation, those persons and entities may be difficult to locate, and
it is often difficult to collect from them any monetary losses that we have
suffered.
In addition, for approximately 40% of the non-conforming loans that we
originate, we receive little or no documentation of the borrowers' income.
Instead, we base our credit decisions on the borrowers' credit
15
score and credit
history, the collateral value of the property securing the loan and the effect
of the loan on the borrowers' debt service. There is a higher risk of default
on loans where there is little or no documentation of the borrower's income.
The
success and growth of our business will depend upon our ability to adapt to and
implement technological changes.
Our mortgage loan origination business is
dependent upon our ability to interface effectively with our brokers, borrowers
and other third parties and to effectively and efficiently process loan
applications. The origination process is becoming more dependent upon advanced
technology to process applications over the Internet, interface with brokers,
borrowers and other third parties through electronic means and underwrite loan
applications. Over the next six to nine months, we plan to continue developing
and implementing new software technology for use in our loan origination
system. The estimated cost of implementing this new system is approximately
$6.1 million. Implementing this new technology and maintaining the
effectiveness and efficiency of the technology currently used in our operations
may require significant capital expenditures. We will have to fully develop our
technological capabilities to remain competitive.
Our
operations are subject to a body of complex laws and regulations at the
federal, state and local levels, thereby potentially increasing our exposure to
the risks of non-compliance.
Because we originate loans nationwide, we must comply with the laws, rules and
regulations, as well as judicial and administrative decisions, of all relevant
jurisdictions, as well as an extensive body of federal laws, rules and
regulations. The volume of new or modified laws, rules and regulations has
increased in recent years, and, in addition, individual municipalities have
begun to enact laws, rules and regulations that restrict loan origination
activities, and in some cases loan servicing activities. The laws, rules and
regulations of each of these jurisdictions are different, complex and, in some
cases, in direct conflict with each other. As our operations continue to grow,
it may be more difficult to understand and deal with all of these laws, rules and
regulations, thereby potentially increasing our exposure to the risks of
non-compliance.
Local jurisdictions in California and Ohio have enacted laws restricting
loan origination activities. In Cleveland Heights, Ohio, where we lend,
additional disclosures are required. In Cleveland, Ohio, where we do not
currently lend, restrictions have been placed on loan flipping, negative
amortization, balloon loans as well as caps on points, fees and APRs for first
and second liens. We originate all conforming and non-conforming loans through
Fieldstone Mortgage, which is licensed to originate residential mortgages in
all states in which it conducts business and in which a license is required.
Fieldstone Mortgage is licensed or exempt from licensing requirements to
originate residential mortgages in the District of Columbia and all of the
states except for Alabama and New York. With respect to our portfolio of
non-conforming loans held for investment, Fieldstone Mortgage closes the loans in
its own name using funds advanced by Fieldstone Investment, with a simultaneous
assignment of the loans to Fieldstone Investment. Fieldstone Mortgage services
the loans for a fee until transferred to the sub-servicer. Fieldstone
Investment is licensed or exempt from licensing requirements to fund
residential mortgage loans or acquire closed residential mortgage loans in all
states in which it conducts business and in which a license is required.
Our failure to comply with these laws, rules and
regulations can lead to:
·
civil and
criminal liability, including potential monetary penalties;
·
loss of state
licenses or other approved status required for continued lending and servicing
operations;
16
·
legal
defenses causing delay or otherwise adversely affecting the servicer's ability
to enforce loans, or giving the borrower the right to rescind or cancel the
loan transaction;
·
demands for
indemnification or loan repurchases from purchasers of our loans;
·
class action
lawsuits; and
·
administrative
enforcement actions.
Some states in which we operate may impose
regulatory requirements for financial disclosure on our officers and directors
and parties holding 10%, and in some cases 5%, of our outstanding shares of
stock. If any officer, director or person holding 10%, and in applicable cases
5%, or more of our outstanding shares of stock fails to meet or refuses to
comply with a state's applicable regulatory requirements for mortgage lending,
we could lose our authority to conduct business in that state. If we lost our
authority to conduct business in a state for this or any other reason, and we
were unable to increase our mortgage originations in other states, our
residential mortgage originations will decrease, reducing our profits on loans
sold and our net interest income from retained loans.
New
legislation may restrict our ability to make loans, negatively affecting our
revenues.
In recent years, federal and many state and local laws, rules and
regulations have been adopted, or are under consideration, that are intended to
eliminate certain lending practices, often referred to as "predatory" lending
practices that are considered to be abusive. Many of these laws, rules and
regulations restrict commonly accepted lending activities and impose additional
costly and burdensome compliance requirements. These laws, rules and
regulations impose restrictions on loans on which various points and fees or
the annual percentage rate, or APR, meets or exceeds specified thresholds. Some
of these restrictions expose a lender to risks of litigation and regulatory
sanction no matter how carefully a loan is underwritten or originated. In
addition, an increasing number of these laws, rules and regulations seek
to impose liability for violations on purchasers of loans, regardless of
whether a purchaser knew of, or participated in, the violation. Accordingly,
the companies that buy our loans or provide financing for our loan originations
may not want, and are not contractually required, to buy or finance any loans
subject to these types of laws, rules and regulations.
The continued enactment of these laws, rules and regulations may
prevent us from making some loans and may cause us to reduce the APR or the
points and fees on loans that we do make. In addition, the difficulty of
managing the compliance risks presented by these laws, rules and
regulations may decrease the availability of warehouse financing and the
overall demand for non-conforming loans. These laws, rules and regulations
have increased our cost of doing business, as we have been required to develop
systems and procedures to ensure that we do not violate any aspect of these new
requirements.
In addition, many of these state laws, rules and regulations are
not applicable to the mortgage operations of national banks, or other financial
institutions chartered by the federal government, thereby giving the mortgage
operations of these institutions a competitive advantage over us.
The federal Home Ownership and Equity Protection Act (HOEPA) identifies
a category of mortgage loans as "high cost" and subjects such loans to
restrictions not applicable to other mortgage loans. Loans subject to HOEPA
consist of loans on which certain points and fees or the annual percentage rate
(APR) exceed specified levels. Liability for violations of applicable law with
regard to loans subject to HOEPA would extend not only to us, but to the
purchasers of our loans as well. Our policy is to not make loans that are
subject to HOEPA. We anticipate that we will continue to avoid making loans
subject to HOEPA, and any lowering of the thresholds beyond which loans become
subject to HOEPA may prevent us from making certain loans and may cause us to
reduce the APR or the points and fees on loans that we do make. If we
inadvertently make a loan subject to HOEPA or if we decide to relax our
restrictions on loans subject to HOEPA, we will be subject to greater risks for
non-compliance with HOEPA and other applicable laws,
17
including demands for indemnification or
loan repurchases from our lenders and loan purchasers, class action lawsuits
and administrative enforcement actions.
Our policy is to avoid originating loans that are designated as "high
cost" by the federal HOEPA law and the various state and local laws, rules and
regulations. Although these laws, rules and regulations do not prohibit us
from making a "high cost" loan that is covered by these laws, if we do, we are
subject to certain additional requirements that, although different from state
to state, generally include restrictions on prepayment fees, balloon payments
and negative amortization, prohibitions against interest rate increases as a
result of default, a decreased ability to accept a loan with a less favorable
risk grade or accepting a loan at a higher cost, caps on finance points and
fees, and prohibitions against refinancing and "flipping" of loans (a practice
involving repeatedly refinancing loans so that the borrower's equity is
depleted by the lender's fees and making loans without a reasonable expectation
that the borrowers will be able to repay the loans).
Laws, rules and regulations have been
adopted, or are under consideration, at the state and local levels that are
similar to HOEPA in that they impose certain restrictions on loans on which
certain points and fees or the APR exceeds specified thresholds. The following
table sets forth the APR and points and fees thresholds imposed by states that
have enacted these laws at the present time.
APR and Points and Fees Thresholds
Interest
Rate
APR-First Liens
APR-Subordinate Liens
Points & Fees
3%
—
—
IL(1)
<4.5%
—
—
NJ(2)
<5%
—
—
AR(3), CT(8), DC, GA(4),
  IL, IN(2), MA, NC(4), NM(4), PA(4), SC(4)
<6%
DC, IL
—
AR(5), CA, CO,
  IN(10) NJ(11)(12), WI
£
7%
MD, NM
DC
MD
£
8%
AR, CA, CO, CT, Fl GA,
  IN, KY, ME, MA NC, NJ, OH, OK, PA, SC, TX, UT, WI
CA, IL
AR(6), CT(9), FL, GA(7),
  KY, ME, NC(7), NM(7), OH, OK, PA, SC (7), TX, UT
£
9%
—
MD, MA, NM
—
£
10%
—
AR, CO, CT, FL, GA IN,
  KY, ME, NC, NJ, OH, OK, PA, SC, TX, UT, WI
—
(1)
Applies to
loans with an APR
³
8%.
(2)
Applies to
loans
³
$40,000.
(3)
Applies to
loans
³
$75,000.
(4)
Applies to loans
³
$20,000.
(5)
Applies to
loans $20,001 to $74,999.
(6)
Applies to
loans
£
$20,000.
18
(7)
Applies to
loans < $20,000, lesser of 8% or $1,000.
(8)
Applies to 1
st
lien fees greater of 5% or $2,000.
(9)
Applies to 2
nd
lien fees.
(10)
Applies to
loans < $40,000.
(11) Applies to loans < $20,000, lesser
of 6% or $1,000.
(12) Applies to loans
³
$20,000 to $39,999.
We may decide to make a loan that is covered
by one of these laws, rules or regulations only if, in our judgment, the loan
is made in accordance with our strict legal compliance standards and without
undue risk relative to litigation or to the enforcement of the loan according
to its terms. If we decide to relax our self-imposed restrictions on
originating loans subject to these laws, rules and regulations, we will be
subject to greater risks for actual or perceived non-compliance with the laws, rules and
regulations, including demands for indemnification or loan repurchases from the
parties to whom we broker or sell loans, class action lawsuits, increased
defenses to foreclosure of individual loans in default, individual claims for
significant monetary damages, and administrative enforcement actions. Any of
the foregoing could significantly harm our business, financial condition and
results of operations.
We
are exposed to environmental liabilities with respect to properties to which we
take title, which may harm our liquidity and results of operations.
In the course of our business we may
foreclose and take title to residential properties and, if we take title, we
could be subject to environmental liabilities with respect to these properties.
From January 1, 2000 through June 30, 2005, we foreclosed on 0.03% of
the loans we funded during that period. In those circumstances, we may be
liable to a governmental entity or third parties for property damage, personal
injury, investigation or clean-up costs incurred by these parties in connection
with environmental contamination, or we may be required to investigate or clean
up hazardous or toxic substances or chemical releases at a property. The costs
associated with investigation or remediation activities could be substantial
and may harm our liquidity and results of operations.
Risks Related to this Offering
We
have not established a minimum distribution payment level. If cash we generate
from our operations is insufficient to make our REIT distributions, we may need
to borrow funds on a short-term basis to make distributions to stockholders.
Our payment of required REIT distributions could reduce our stockholders'
equity. We cannot assure you of our ability to make distributions to our
stockholders in the future.
To qualify as a REIT, we must distribute to our stockholders at least
90% of our net taxable income with respect to each year, determined without regard
to the dividends paid deduction permitted to REITs and by excluding our net
capital gain. In addition, we are subject to a tax on any undistributed portion
of our income at regular corporate rates and also may be subject to a 4% excise
tax on this undistributed income if we do not meet certain minimum distribution
requirements in a calendar year. We intend to make quarterly distributions to
our stockholders in order to distribute all or substantially all of our REIT
taxable income with respect to each year, beginning in 2004. Doing this, and
meeting other criteria, should enable us to qualify for the tax benefits
accorded to a REIT under the Internal Revenue Code. We have not established a
minimum distribution payment level, and our ability to make distributions might
be harmed by the risk factors described in this prospectus. All distributions
will be made at the discretion of our board of directors and will depend on our
earnings, our financial condition, maintenance of our REIT status and such
other factors as our board of directors may deem relevant from time to time. We
could be required to borrow funds on a short-term basis to meet the
distribution requirements that are necessary to
19
achieve the tax
benefits associated with qualifying as a REIT, even if conditions are not
favorable for borrowing and we cannot assure you that we will have the ability
to make distributions to our stockholders in the future. In addition, due to
differences between the computation of our income for federal income tax purposes
and the computation of our income under generally accepted accounting
principles, or GAAP, we may be required under the applicable tax rules to
pay distributions that are based on our REIT taxable income but that exceed our
GAAP income, which would have the effect of reducing our stockholders' equity.
Restrictions
on ownership of a controlling percentage of our capital stock might limit your
opportunity to receive a premium on our stock.
For the purpose of preserving our REIT
qualification and for other reasons, our charter prohibits direct or
constructive ownership by any person of more than 9.8% (in value or number of
shares, whichever is more restrictive) of the outstanding shares of our common
stock or any class or series of our outstanding preferred stock or other stock.
The constructive ownership rules in our charter are complex and may cause
the outstanding stock owned by a group of related individuals or entities to be
deemed to be constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% of a class of outstanding stock by an individual
or entity could cause that individual or entity to own constructively in excess
of 9.8% of the class of outstanding stock, and subject the individual or entity
to the ownership limit in our charter. Any attempt to own or transfer shares of
our common stock or preferred stock in excess of the ownership limit without
the consent of our board of directors shall be void and may result in the
shares being transferred by operation of law to a charitable trust. These
ownership restrictions might inhibit market activity and opportunities for our
stockholders to receive a premium for their shares if any person were to
attempt to assemble a block of shares of our stock, which although in violation
of these ownership restrictions, might be in the best interests of our
stockholders.
Future
offerings of debt or preferred equity securities that are senior to our common
stock and other equity securities upon liquidation, or other equity securities
may dilute our existing stockholders, may be senior to our common stock for the
purposes of distributions and may harm the value of our common stock.
In the future, we may attempt to increase
our capital resources by making additional offerings of debt or equity
securities, including commercial paper, medium-term notes, senior or
subordinated notes and classes of preferred stock or common stock. Upon the
liquidation of our company, holders of our debt securities and shares of
preferred stock and lenders with respect to other debt will receive a
distribution from our available assets prior to the holders of our common
stock. Additional equity offerings by us may dilute the holdings of our
existing stockholders or reduce the value of our common stock, or both. Our
preferred stock, if issued, would have a preference on distributions that could
limit our ability to make distributions to the holders of our common stock.
Because our decision to issue securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot predict or
estimate the amount, timing or nature of our future offerings. Our stockholders
bear the risk of our future offerings reducing the market price of our common
stock and diluting their stock holdings in us.
A
regular trading market for our common stock might not develop, which would harm
the liquidity and value of our common stock.
Our common stock trades on the NASDAQ
National Market under the symbol "FICC." However, we cannot assure you that
regular trading of our common stock will develop on NASDAQ or elsewhere or, if
developed, that any market will be sustained. Accordingly, we cannot assure you
of:
·
the
likelihood that a regular market for our common stock will develop;
20
·
the liquidity
of any market for our common stock;
·
the ability
of our stockholders to sell their shares of our common stock; or
·
the prices
that our stockholders may obtain for their shares of our common stock.
The
market price and trading volume of our common stock may be volatile, which
could result in rapid and substantial losses for our stockholders.
Even if an active trading market develops
for our common stock, the market price of our common stock may be highly
volatile and subject to wide fluctuations. In addition, the trading volume in
our common stock may fluctuate and cause significant price variations to occur.
If the market price of our common stock declines significantly, you may be
unable to resell your shares at or above your purchase price. We cannot assure
you that the market price of our common stock will not fluctuate or decline
significantly in the future. Some of the factors that could negatively affect
our stock price or result in fluctuations in the price or trading volume of our
common stock include:
·
actual or
anticipated variations in our quarterly operating results or distributions;
·
changes in
our cash flows, funds from operations or earnings estimates or publication of
research reports about us or our industry, although there can be no assurance
that any research reports about us will be published;
·
increases in
market interest rates that lead purchasers of our shares of common stock to
demand a higher yield;
·
changes in
market valuations of similar companies;
·
adverse
market reaction to any indebtedness we incur in the future;
·
additions or
departures of key management personnel;
·
actions by
institutional stockholders;
·
speculation
in the press or investment community; and
·
general
market and economic conditions.
Broad
market fluctuations could harm the market price of our common stock.
The stock market has experienced extreme
price and volume fluctuations that has affected the market price of many
companies in industries similar or related to ours and that have been unrelated
to these companies' operating performance. These broad market fluctuations
could reduce the market price of our common stock. Furthermore, our operating
results and prospects may be below the expectations of public market analysts
and investors or may be lower than those of companies with comparable market
capitalizations, which could harm the market price of our common stock.
Shares
of our common stock eligible for future sale may harm our stock price.
We cannot predict the effect, if any, of
future sales of shares of our common stock, or the availability of shares for
future sales, on the market price of our common stock. Sales of substantial
amounts of our shares of common stock, or the perception that large sales could
occur, may harm prevailing market prices for our common stock. As of August 17,
2005, there were:
·
48,835,876
outstanding shares of our common stock;
21
·
outstanding
options to purchase 836,000 shares of our common stock at a weighted average
exercise price of $14.86 per share; and
·
an additional
1,294,560 shares of our common stock available for future awards under our
equity incentive plan.
Changes
in yields may harm the market price of our stock.
Our earnings are derived primarily from the
expected positive net interest income we expect to receive from the yield on
our portfolio of mortgage loans less the cost of our borrowings and other
expenses and loan losses. This net interest income will not necessarily be
larger in high interest rate environments than in low interest rate
environments and also may be negative. In addition, during periods of high
interest rates, our net income, and therefore the amount of any distributions
on our common stock, might be less attractive compared to alternative
investments of equal or lower risk. Each of these factors could harm the market
price of our common stock.
Risks Related to our Organization and
Structure
Our
organizational documents contain provisions that may inhibit potential
acquisition bids that our stockholders may consider favorable, and the market
price of our common stock may be lower as a result.
Our organiz
a
tional
documents contain provisions that may have an anti-takeover effect and inhibit
a change in our board of directors. These provisions include the following:
·
There are ownership limits and restrictions on transferability in our
charter
.   In order to qualify as a REIT, not more than 50% of the value of
our outstanding shares (after taking into account options to acquire shares)
may be owned, directly or constructively, by 5 or fewer individuals and our
shares must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate
part of a shorter taxable year. To assist us in satisfying these tests, subject
to some exceptions, our charter generally prohibits any stockholder from actually
or constructively owning more than 9.8% of our outstanding shares of common
stock. This restriction may:
·
discourage a
tender offer or other transactions or a change in the composition of our board
of directors or control that might involve a premium price for our shares or
otherwise be in the best interests of our stockholders; or
22
·
compel a
shareholder who had acquired more than 9.8% of our shares to dispose of the
additional shares and, as a result, to forfeit the benefits of owning the
additional shares. Any acquisition of our common stock in violation of these
ownership restrictions will be void
ab initio
or will result in automatic transfers of our common stock to a charitable
trust, which will be responsible for selling the common stock to permitted
transferees and distributing at least a portion of the proceeds to the prohibited
transferees.
·
Our
charter permits our board of directors to issue preferred stock with terms that
may discourage a third party from acquiring us
.   Our
charter permits our board of directors to issue up to 10,000,000 shares of
preferred stock, having preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications or terms or
conditions of redemption as determined by our board. Our board could authorize
the issuance of preferred stock with terms and conditions that could have the
effect of discouraging a takeover or other transaction in which holders of some
or a majority of our shares might receive a premium for their shares over the
then-prevailing market price.
·
Our charter and bylaws contain other possible anti-takeover provisions
.   Our
charter and bylaws contain other provisions that may have the effect of
delaying, deferring or preventing a change in control or the removal of
existing directors and, as a result, could prevent our stockholders from being
paid a premium for their common stock over the then-prevailing market price.
These provisions include advance notice requirements for stockholder proposals.
In addition, Maryland law provides
protection for Maryland corporations against unsolicited takeovers by limiting,
among other things, the duties of the directors in unsolicited takeover
situations. The duties of directors of Maryland corporations do not require
them to:
·
accept,
recommend or respond to any proposal by a person seeking to acquire control of
the corporation;
·
authorize the
corporation to redeem any rights under, or modify or render inapplicable, any
stockholder rights plan;
·
make a
determination under the Maryland Business Combination Act or the Maryland
Control Share Acquisition Act; or
·
act or fail
to act solely because of the effect that the act or failure to act might have
on an acquisition or potential acquisition of control of the corporation or the
amount or type of consideration that may be offered or paid to the stockholders
in an acquisition.
Moreover, under Maryland law, the act of the
directors of a Maryland corporation relating to or affecting an acquisition or
potential acquisition of control is not subject to any higher duty or greater
scrutiny than is applied to any other act of a director. Maryland law also
contains a statutory presumption that an act of a director of a Maryland
corporation satisfies the applicable standards of conduct for directors under
Maryland law.
Our rights and the
rights of our stockholders to take action against our directors and officers
are limited.
Maryland law provides that a director or
officer has no liability in that capacity if he or she performs his or her
duties in good faith and in a manner that he or she reasonably believes is in the
best interests of the corporation and its stockholders and in a manner that an
ordinarily prudent person in a like position would use under similar
circumstances. Our charter, in the case of directors and officers, requires us
to indemnify our directors and officers for actions taken by them in those
capacities to the full extent permitted by Maryland law. As a result, we and
our stockholders may have more limited rights against our directors and
officers than might otherwise exist under common law.
23
Tax Risks
We
may be unable to comply with the requirements applicable to REITs, or
compliance with these requirements could adversely affect our financial
condition.
Commencing with our short taxable year ended
December 31, 2003, which began on November 13, 2003, we believe that
we qualify as a REIT under the Internal Revenue Code. The determination that we
qualify as a REIT requires an analysis of various factual matters and
circumstances, some of which may not be totally within our control. For
example, to qualify as a REIT, at least 75% of our annual gross income must
come from real estate sources, including mortgages on real property, and 95% of
our annual gross income must come from real estate sources and other sources
that are itemized in the REIT tax laws, mainly interest and dividends. We are
subject to various limitations on our ownership of investments, including a
limitation that the fair market value of our investment in our taxable REIT
subsidiary, Fieldstone Mortgage, together with any other investments in taxable
REIT subsidiaries that we may hold in the future, cannot exceed more than 20%
of our total assets at the close of any quarter (subject to a 30-day "cure"
period following the close of each quarter). Fieldstone Mortgage conducts
substantial loan origination and servicing activities and will accumulate some
or all of the income from those activities. As of June 30, 2005, the
estimated fair market value of our investment in Fieldstone Mortgage was 4.25%
of our total assets. In addition to this limitation, at least 75% of our assets
at the close of any quarter (subject to the 30-day "cure" period) must be
qualified real estate assets, government securities and cash and cash items.
Certain other quarterly asset ownership requirements also apply. Although we
have attempted to be prudent in valuing our investment in Fieldstone Mortgage
and our other assets and believe that we currently satisfy all of the asset
ownership requirements, we cannot provide assurance that the Internal Revenue
Service (IRS) will agree with these determinations. The need to comply with the
income and asset ownership requirements applicable to REITs may cause us to
acquire other assets that are qualified real estate assets for purposes of
these requirements (for example, interests in other mortgage loan portfolios)
but that are not part of our overall business strategy and might not otherwise
be the best investment alternative for us.
There would be
adverse consequences to us and our stockholders if we failed to qualify as a
REIT.
The requirements for qualification as a REIT are highly technical and
complex and even a technical or inadvertent mistake could jeopardize our REIT
status. Moreover, legislation, new regulations, administrative interpretations
or court decisions may adversely affect, possibly retroactively, our ability to
qualify as a REIT or the federal income tax consequences of such qualification.
If we fail to qualify or remain qualified as
a REIT in any taxable year and the relief provisions set forth in the Internal
Revenue Code do not apply, among other things:
·
we will have
to pay federal, state and local tax, including any applicable alternative
minimum tax, on our taxable income at regular corporate rates because our
distributions will not be deductible by us;
·
we will not
be required to make any distributions to our stockholders;
·
our
securitizations may be subject to an entity level tax, and the cash flows from
these securitizations may be diverted to accelerate the repayment of the
underlying bonds;
·
any
distributions we make to our stockholders will be taxable to them as dividends
to the extent of our current and accumulated earnings and profits, although,
subject to limitations of the Internal Revenue Code, corporate distributees may
be eligible for the dividends received deduction with respect to these
distributions, and individual distributees may be eligible for the capital
gains tax rate of 15% or less on such dividends; and
24
·
we generally
will be disqualified from electing treatment as a REIT for the four taxable
years following the year in which our REIT status is lost, unless we are
entitled to relief under statutory provisions.
In addition to the consequences listed
above, the tax liability resulting from our failure to qualify as a REIT:
·
would
substantially reduce our earnings and our cash available to pay distributions
(and, consequently, your yield on your investment in our common stock);
·
might cause
us to borrow funds, liquidate some of our investments or take other steps that
could negatively affect our operating results; and
·
could affect
the trading price of our common stock.
In October 2004, new legislation,
referred to as the "American Jobs Creation Act of 2004," was enacted into law.
This new legislation contained several provisions applicable to REITs,
including provisions that could provide relief in the event we violate a
provision of the Code that would result in our failure to qualify as a REIT. If
these relief provisions, which generally became applicable to us beginning January 1,
2005, are inapplicable to a particular set of circumstances which otherwise
would disqualify us as a REIT, we would fail to qualify as a REIT. Even if
these relief provisions apply, we would be subject to a penalty tax of at least
$50,000 for each disqualifying event in most cases.
Despite our REIT
status, we remain subject to various taxes, including substantial contingent
tax liabilities.
Similar provisions of the Internal Revenue Code apply to REITs and to S
corporations that acquire any assets from a non-REIT C corporation in a
carry-over basis transaction. These provisions permit the REIT or S
corporation, as applicable, to avoid the recognition of gain and the imposition
of corporate level tax with respect to a built-in gain asset acquired in a
carry-over basis transaction from a non-REIT C corporation unless and until the
REIT or S corporation disposes of that built-in gain asset during the ten-year
period following its acquisition. At the time of the disposal, the REIT or S
corporation would recognize and be subject to tax at the highest regular
corporate rate on the "built-in gain." Built-in gain is the amount by which an
asset's fair market value exceeds its adjusted tax basis at the time the REIT
or S corporation acquires the asset.
On January 1, 2003, the effective date of the S election made by
our predecessor, Fieldstone Holdings, a material amount of "franchise value"
existed in the business in excess of its book value, which could give rise to a
tax liability pursuant to the built-in gain rules described above on a
sale of the business prior to December 31, 2012. We inherited the
potential tax liability relating to any built-in gain of Fieldstone Holdings as
a result of our merger with Fieldstone Holdings on November 14, 2003.
Accordingly, if we sell our business or substantially all of our assets during
the ten-year period ending December 31, 2012, we will be subject to
regular corporate tax on some amount of gain. The total amount of gain on which
we can be taxed is limited to the excess of the aggregate fair market value of
our assets on January 1, 2003, the effective time of Fieldstone Holdings'
S election, over the adjusted tax bases of those assets at that time. As this
tax would be significant, we intend to manage our affairs in a manner that
takes into account the potential incurrence of this tax, which may result in
our seeking to avoid any taxable disposition of our business or substantially
all of our assets prior to January 1, 2013, even if such a transaction
might otherwise be in our best interests if this tax were not to apply. None of
the loan sales made by Fieldstone Holdings since January 1, 2003 triggered
any built-in gains tax because these loans were held for sale, and Fieldstone
Holdings was required to use "mark-to-market" accounting for its tax
accounting. Consequently, no gain was attributable to those loans for tax
purposes at the time of the S election.
25
In addition, notwithstanding our status as a
REIT, we remain subject to federal, state and local taxes on our income and
property. We may be subject to some state and local income taxes because not
all states and localities treat REITs in the same manner that they are treated
for federal income tax purposes.
We may not qualify
as a REIT if we failed to distribute by the close of 2003 any undistributed
earnings and profits that were attributable to a non-REIT C corporation taxable
year.
To qualify as a REIT, at the end of any taxable year, we cannot have any
undistributed or retained earnings and profits that are attributable to a
non-REIT C corporation taxable year (non-REIT C corporation earnings and
profits, or E&P). For certain years prior to January 1, 2003, our
predecessor, Fieldstone Holdings, and its wholly owned subsidiary, Fieldstone
Mortgage, were taxable as C corporations for federal income tax purposes.
Effective January 1, 2003, Fieldstone Holdings elected to be treated as an
S corporation, and Fieldstone Mortgage became a "qualified subchapter S
subsidiary" of Fieldstone Holdings that was disregarded as separate from
Fieldstone Holdings. As of the effective date of Fieldstone Holdings' S
election, Fieldstone Holdings had non-REIT C corporation E&P. We
commissioned a national accounting firm to verify our calculation of this
E&P. Prior to the merger with Fieldstone Investment, Fieldstone Holdings
made distributions of non-REIT C corporation E&P in 2003 to its
shareholders in an amount greater than the amount of non-REIT C corporation
E&P as determined by our verified calculations. We succeeded to any non-REIT
C corporation E&P of Fieldstone Holdings remaining after those dividends
were paid and had until December 31, 2003, the close of our first taxable
year as a REIT, to distribute any remaining non-REIT C corporation E&P. We
believe that, as of the close of 2003, we had no undistributed non-REIT C
corporation E&P based on our calculations and the review of those
calculations by a national accounting firm.
There can be no assurance, however, that the
IRS will not examine our tax returns from our years as a C corporation and
propose adjustments to increase our taxable income from those years. If the IRS
determines that we failed to distribute all of our non-REIT C corporation
E&P by the close of 2003, although the law on this issue is not entirely
clear, we may avoid being disqualified as a REIT for each taxable year during
which we had non-REIT C corporation E&P, provided that we satisfy the "deficiency
dividend" procedures described in "Material Federal Income Tax
Considerations—Annual Distribution Requirements Applicable to REITs." Our REIT
shareholders would be subject to tax on the dividends at the applicable
ordinary income tax rates even though these dividends would be, as a practical
matter, a return of a portion of the capital invested in us. For individuals,
these distributions would be eligible for the lower capital gains rates. Due to
the inherently factual nature of the determination of our earnings and profits,
and given the inability of counsel to opine on this issue, there is a risk that
the IRS could succeed in challenging our determination that we do not have any
undistributed non-REIT C corporation E&P, in which event we either could
fail to qualify as a REIT or could be required to satisfy the "deficiency
dividend" procedures referenced above.
The tax imposed on
REITs for "prohibited transactions" limits our ability to engage in
transactions, including certain methods of securitizing our loans, that would
be treated as sales for federal income tax purposes.
A REIT's net income from prohibited transactions
is subject to a 100% tax. In general, prohibited transactions are sales or
other dispositions of property held for sale, other than foreclosure property,
but including any mortgage loans held in inventory primarily for sale to
customers in the ordinary course of business. We might be subject to this tax
if we were to sell a loan or securitize the loans in a manner that was treated
as a sale of inventory for federal income tax purposes. Therefore, in order to
avoid the prohibited transactions tax, we may choose not to engage in certain
sales of loans and may limit the structures used for our securitization
transactions even though these sales or structures might otherwise be
26
beneficial for us.
In addition, this prohibition may limit our ability to restructure our
portfolio of mortgage loans from time to time even if we believe it would be in
our best interest to do so. However, loan sales by Fieldstone Mortgage are not
subject to this prohibited transaction tax because Fieldstone Mortgage has
elected to be treated as a taxable REIT subsidiary, although the net income
recognized by Fieldstone Mortgage from any sales is subject to tax at regular
corporate rates.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Some of the statements in this prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Report Act
of 1995. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. In some
cases, you can identify forward-looking statements by terms such as "anticipate,"
"believe," "could," "estimate," "expect," "intend," "may," "plan," "potential,"
"should, "will" and "would" or the negative of these terms or other comparable
terminology.
The forward-looking statements are based on
our beliefs, assumptions and expectations of our future performance, taking
into account all information currently available to us. These beliefs,
assumptions and expectations can change as a result of many possible events or
factors, not all of which are known to us or are within our control. If a
change occurs, our business, financial condition and results of operations may
vary materially from those expressed in our forward-looking statements. You
should carefully consider these risks before you make an investment decision
with respect to our common stock, along with the following factors that could
cause actual results to vary from our forward-looking statements:
·
the factors
referenced in the accompanying prospectus, including those set forth under the
section captioned "Risk Factors;"
·
general
volatility of the capital markets and the market price of our common stock;
·
changes in
our business strategy;
·
availability,
terms and deployment of capital;
·
availability
of qualified personnel;
·
changes in
our industry, interest rates or the general economy;
·
increased
rates of default under or prepayment of our mortgage loans; and
·
the degree
and nature of our competition.
For further discussion of these and other
factors that could impact our future results, performance, achievements or
transactions, see the documents we file from time to time with the SEC.
27
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed by us with
the SEC are incorporated by reference into this prospectus:
·
Our
Annual Report on Form 10-K for the fiscal year ended December 31,
2004, which includes audited financial statements for us for the fiscal year
ended December 31, 2004.
·
Our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
·
Our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
·
Our
Current Reports on Form 8-K, as filed with the SEC on April 6, 2005, April 22,
2005, May 4, 2005, May 16, 2005, June 27, 2005 and August 2, 2005.
·
Our Definitive Proxy
Statement, as filed with the SEC on April 1, 2005 for our 2005 Annual Meeting
of Stockholders.
·
The
description of our common stock contained in the registration statement on Form 8-A
filed on September 14, 2004.
Any report or other
document subsequently filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act, prior to the filing of a post-effective amendment that
indicates that all securities offered have been sold or which de-registers all
securities then remaining unsold shall be deemed to be incorporated by
reference into this prospectus and to be part hereof from the date of filing of
such report or other document. Any statement in a report or document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for the purposes of this prospectus to the extent
that a statement contained herein or in any other subsequently filed report or
document which also is or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus. We are not, however, incorporating by reference any
documents, or portions of documents, that are not deemed "filed" with the SEC,
including any information furnished pursuant to Items 2.02 or 7.01 of Form 8-K.
USE OF PROCEEDS
We will not receive any proceeds from the
sale of the shares of our common stock by the selling stockholders from time to
time pursuant to this prospectus. The proceeds from the offering are solely for
the account of the selling stockholders. The selling stockholders will pay any
underwriting discounts, commissions and expenses for brokerage, or any other
expenses they incur in disposing of the shares. We will bear all other costs,
fees and expenses incurred in effecting the registration of the shares covered
by this prospectus.
28
SELLING STOCKHOLDERS
This prospectus covers the reoffer and resale of common stock acquired,
or that will be acquired, by the selling stockholders as a result of the
receipt of such shares under, or as a result of the exercise of stock options
granted under, the Plan, and who may be deemed "affiliates" of the company or
who have previously received "restricted securities" (as defined under Rule 144
of the Securities Act) under the Plan. An "affiliate" is defined under Rule 405
of the Securities Act as "a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with" the company. Of the 2,340,116 shares of common stock offered for resale
under this prospectus, 560,056 shares are restricted securities.
When we refer to the "selling stockholders" in this
prospectus, we mean those persons specifically identified in the table below,
as well as the permitted transferees, pledges, donees, assignees, successors
and others who later come to hold any of the selling stockholders' interests
other than through a public sale.
The table below has been prepared based on
information provided to us by the selling stockholders on or before August 17,
2005 and sets forth the name of each selling stockholder, the number of shares
of our common stock that each selling stockholder may offer pursuant to this
prospectus, from time to time, and any material relationship the selling
stockholder has had with us since August 17, 2002.
Because the selling stockholders may offer all, some or none of the
shares of the common stock pursuant to this prospectus, and because there
currently are no agreements, arrangements or understandings with respect to the
sale of any of these shares, no definitive estimate can be given as to the
amount of shares that will be held by the selling stockholders after completion
of this offer. The following table has been prepared assuming that the selling
stockholders sell all of the shares of our common stock beneficially owned by
them that have been registered by us pursuant to this prospectus and do not
acquire any additional shares of stock during the offering. We cannot advise
you as to whether the selling stockholders will in fact sell any or all of
their shares of our common stock registered by us pursuant to this prospectus.
In addition, the selling stockholders may have sold, transferred or otherwise
disposed of, or may sell, transfer or otherwise dispose of, at any time and
from time to time, the shares of our common stock in transactions exempt from
the registration requirements of the Securities Act after the date on which
they provided the information set forth in the table below.
29
Information
concerning the selling stockholders may change from time to time, and executive
officers, directors and others who are considered to be affiliates of the
company who acquire common stock under the Plan may be added to the list of
selling stockholders, with such shares of common stock included hereunder. Any
changed information will be set forth in prospectus supplements or
post-effective amendments, as may be appropriate.
Beneficial Ownership
Prior to Resale
Offering
Shares Offered
Pursuant to
This Prospectus
(Maximum
Beneficial Ownership
After Resale
Offering(3)
Selling Stockholders(1)
Present Position or Office Held with Us or
Our Predecessor or Affiliates
Shares
Percentage
of Class(4)
Number That
May Be Sold)(2)
Shares
Percentage
of Class(4)
Abts, James D.(5)
Senior Vice President—Non-Conforming
  Retail Division++
12,579
*
12,579
—
*
Auen, Greg(6)
—
10,472
*
3,972
6,500
*
Bernstein, Allan B.(7)
Regional Vice
  President—Conforming East Retail Region++
7,500
*
7,500
—
*
Buczynski, Walter P.(8)
Executive Vice
  President—Secondary
108,255
*
88,255
20,000
*
Byers, James W.(9)
Regional Vice
  President—Southeast Wholesale Division++
15,000
*
12,500
2,500
*
Camarena, John M.(10)
Senior Vice
  President—Southwest Non-Conforming Region++
58,906
*
28,240
30,666
*
Camp, John C.(11)
Senior Vice
  President—Information Systems and Facilities
80,800
*
62,800
18,000
*
Eckert, Thomas D.(12)
Chairman of the Board of
  Directors
137,000
*
50,000
87,000
*
Engelman, David S.(13)
Director
37,663
*
25,000
12,663
*
George, Brendan A.(14)
Senior Vice
  President—Conforming Division Production++
18,500
*
12,500
6,000
*
Goldberg, Harvey(15)
Regional Vice
  President—Northeast Region++
9,210
*
9,210
—
*
Hagan, James T.(16)
Executive Vice
  President—Non-Conforming Wholesale Division++
78,100
*
44,800
33,300
*
Harkness, Cynthia L.(17)
Senior Vice
  President—General Counsel and Secretary
23,640
*
23,640
—
*
Henry, Tamara J.(18)
Regional Vice
  President—Concord Wholesale Region++
10,000
*
10,000
—
*
Jacobs, John J.(19)
Senior Vice
  President—Conforming Division++
18,500
*
12,500
6,000
*
Kendall, John C.(2)
Senior Vice
  President—Investment Portfolio
27,800
*
27,800
—
*
Krebs, Mark C.(21)
Senior Vice President—Treasurer
+
24,890
*
23,640
1,250
*
Martin, Celia V.(22)
Director
58,500
*
25,000
33,500
*
McDermott, Teresa A.(23)
Senior Vice
  President—Controller
+
12,130
*
12,130
—
*
Michael, Jonathan E.(24)
Director
42,000
*
25,000
17,000
*
O'Bannon, Mary M.(25)
Senior Vice
  President—Conforming Division Operations++
14,200
*
10,000
4,200
*
Partlow, Robert G.(26)
Senior Vice
  President—Chief Financial Officer
41,700
*
12,500
29,200
*
Poidomani, Peter G.(27)
Regional Vice
  President—Central Region++
10,000
*
10,000
—
*
Rapp, Teresa A.(28)
Senior Vice
  President—Non-Conforming Wholesale Division Operations++
34,240
*
18,240
16,000
*
Resta, George A.(29)
Regional Vice
  President—Conforming East Retail Region++
7,500
*
7,500
—
*
Rytz, Hans J.(30)
Regional Vice President—LA
  Wholesale Region++
10,000
*
10,000
—
*
Schoenholz, David A.(31)
Director
29,000
*
25,000
4,000
*
Slack, Diane L.(32)
—
1,250
*
1,250
—
*
Sonnenfeld, Michael J.(33)
Director, President and
  Chief Executive Officer
1,187,900
2.43%
351,600
836,300
1.71%
Springer, Jeffrey R.(34)
Director
37,000
*
25,000
12,000
*
Stush, Edmund J.(35)
Regional Vice
  President—West Wholesale Region++
10,000
*
10,000
—
*
Uchino, Gary K.(36)
Senior Vice
  President—Chief Credit Officer
111,800
*
62,800
49,000
*
+
Indicates that the position is a non-executive officer position with
Fieldstone Investment.
30
++
Indicates that the position is held with Fieldstone Mortgage Company
only.
*
Less than one percent (1%).
(1)
To the best of our knowledge, each Selling Stockholder has sole voting
and investment power with respect to shares shown after such person's name in
the above table.
(2)
This registration statement shall also cover any additional shares of
common stock that become issuable in connection with the shares registered for
sale in this prospectus because of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt of
consideration, which results in an increase in the number of the registrant's
outstanding shares of common stock.
(3)
Because the selling stockholders are not obligated to sell all or any
portion of the shares of our common stock shown as offered by them, we cannot
estimate the actual number of shares (or actual percentage of the class) of our
common stock that will be held by any selling stockholder upon completion of
this resale offering.
(4)
Calculated based on Rule 13d-3(d)(i) of the Exchange Act
using 48,835,876  shares of common stock
outstanding as of August 15, 2005 . In calculating this amount for each
holder, we treated as outstanding the number of shares of common stock issuable
upon conversion of any options to purchase common stock held by the selling
stockholder; however, we did not assume exercise of any other holder's options.
(5)
Includes 9,339 shares of restricted stock issued under our Plan and up
to 3,240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December 31, 2006.
(6)
Mr. Auen is a former employee of Fieldstone Mortgage. Includes
3,972 shares of restricted stock issued under our Plan.
(7)
Includes 7,500 shares of restricted stock issued under our Plan.
(8)
Includes 35,455 shares of restricted stock issued under our Plan, up to
4,800 shares covered by a performance award granted under our Plan to be issued
if the maximum performance goals to which such award relates are met for the
performance period ending December 31, 2006 and 48,000 shares underlying
options granted under our Plan. Mr. Buczynski
has been an officer since joining
us in 2001 and a director of Fieldstone Mortgage since October 2004.
In the second and third quarter of 2003, we advanced a total of $60,000
to Mr. Buczynski against future earnings during his employment with us.
This advance was repaid in full, without interest, on December 30, 2003.
(9)
Includes 10,000 shares of restricted stock issued under our Plan and
2,500 shares acquired as a result of the exercise of options granted under our
Plan.
(10)
Includes 25,000 shares of restricted stock issued under our Plan and up
to 3,240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December 31, 2006.
(11)
Includes 20,000 shares of restricted stock issued under our Plan, up to
4.800 shares covered by a performance award granted under our Plan to be issued
if the maximum performance goals to which such award relates are met for the
performance period ending December 31, 2006 and 38,000 shares underlying
options granted under our Plan. Mr. Camp has been an officer since joining
us in June 1999
.
(12)
Includes 20,000 shares of restricted stock issued under our Plan and
30,000 shares underlying options granted under our Plan. Mr. Eckert has
been a director since November 2003.
(13)
Includes 10,000 shares of restricted stock issued under our Plan and
15,000 shares underlying options granted under our Plan. Mr. Engelman has
been a director since November 2003.
(14)
Includes 12,500 shares of restricted stock issued under our Plan.
(15)
Includes 9,210 shares of restricted stock issued under our Plan.
(16)
Includes 40,000 shares of restricted stock issued under our Plan and up
to 4.800 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December 31, 2006  Mr. Hagen has been a director of
Fieldstone Mortgage since October 2004(17)       Includes 5,000 shares of restricted stock issued under our
Plan, up to 3.240 shares covered by a performance award granted under our Plan
to be issued if the maximum performance goals to which such award relates are
met for the performance period ending December 31, 2006 and 15,400 shares
underlying options granted under our Plan. Ms. Harkness has been an
officer since joining us in March 2004.
(18)
Includes 10,000 shares of restricted stock issued under our Plan.
(19)
Includes 12,500 shares of restricted stock issued under our Plan.
(20)
Includes 5,000 shares of restricted stock issued under our Plan, up to
4.800 shares covered by a performance award granted under our Plan to be issued
if the maximum performance goals to which such award relates are met for the
performance period ending December 31, 2006 and 18,000 shares underlying
options granted under our Plan. Mr. Kendall has been an officer since
joining us in April 2004.
31
(21)
Includes 5,000 shares of restricted stock issued under our Plan and up
to 3.240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December 31, 2006.
(22)
Includes 10,000 shares of restricted stock issued under our Plan and
15,000 shares underlying options granted under our Plan. Ms. Martin has
been a director since November 2003.
(23)
Includes 8,890 shares of restricted stock issued under our Plan and up
to 3.240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December 31, 2006.
(24)
Includes 10,000 shares of restricted stock issued under our Plan and
15,000 shares underlying options granted under our Plan. Mr. Michael has
been a director since November 2003.
(25)
Includes 10,000 shares of restricted stock issued under our Plan.
(26)
Includes 5,000 shares of vested restricted stock issued under our Plan
and 7,500 shares underlying vested options granted under our Plan.
(27)
Includes 10,000 shares of restricted stock issued under our Plan.
(28)
Includes 15,000 shares of restricted stock issued under our Plan and up
to 3.240 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December 31, 2006.
(29)
Includes 7,500 shares of restricted stock issued under our Plan.
(30)
Includes 10,000 shares of restricted stock issued under our Plan.
(31)
Includes 10,000 shares of restricted stock issued under our Plan and 15,000
shares underlying options granted under our Plan. Mr. Schoenholz has been
a director since August 2004.
(32)
Includes 1,250 shares of restricted stock issued under our Plan. Ms. Slack
is a former employee of Fieldstone Mortgage.
(33)
Includes 100,000 shares of restricted stock issued under our Plan, up to
21,600 shares covered by a performance award granted under our Plan to be
issued if the maximum performance goals to which such award relates are met for
the performance period ending December 31, 2006, 215,600 shares underlying
options granted under our Plan, and 14,400 shares acquired as a result of the
exercise of options granted under our Plan. Mr. Sonnenfeld is our founder.
He has been the President of Fieldstone Mortgage since its inception in 1995
and has been our President, Chief Executive Officer and a director since August 2003.
At December 31, 2002, we had a $12.0 million revolving line of credit
with PRB Financial Services, Inc., a Texas corporation, which subsequently
assigned all of its interest in the revolving line of credit to PRB Financial
Services, a Texas general partnership and shareholder of our predecessor,
Fieldstone Holdings. The loan was guaranteed by all of the shareholders of
Fieldstone Holdings, including Mr. Sonnenfeld. The loan was subordinated
to our warehouse lines and repurchase facilities. This revolving line was
increased to $32.8 million on September 15, 2003. We repaid the loan in
full on November 14, 2003, and subsequently terminated this line of
credit. As of December 31, 2002, the balance outstanding was $12.0
million. The interest rate on this facility was the prime rate and it was to
have matured on October 30, 2008. For the years ended December 31,
2003 and 2002, we recognized interest expense on this debt of $0.5 million and
$0.6 million, respectively. In October 2000, Mr. Sonnenfeld, borrowed
$765,301 from PRB Financial Services to purchase shares of common stock of our
predecessor, Fieldstone Holdings, in a recapitalization transaction. The
purchased shares were pledged to secure the loan. This loan accrued interest at
the prime rate. This loan was repaid in full, together with $133,000 in accrued
interest, on November 14, 2003.
(34)
Includes 10,000 shares of restricted stock issued under our Plan and
15,000 shares underlying options granted under our Plan. Mr. Springer has
been a director since November 2003.
(35)
Includes 10,000 shares of restricted stock issued under our Plan.
(36)
Includes 20,000 shares of restricted stock issued under our Plan, up to
4,800 shares covered by a performance award granted under our Plan to be issued
if the maximum performance goals to which such award relates are met for the
performance period ending December 31, 2006 and 38,000 shares underlying
options granted under our Plan. Mr. Uchino has been an officer with us
since December 1995.
32
PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus to permit the selling stockholders to conduct public secondary
trades of these securities from time to time after the date of this prospectus.
We have been advised by the selling stockholders that the selling stockholders
or permitted pledgees, donees or transferees of, or other successors in
interest to, the selling stockholders may sell all or a portion of the shares
of our common stock beneficially owned by them and offered hereby from time to
time either directly, or through underwriters, broker-dealers or agents, who
may act solely as agents or who may acquire the shares of our common stock as
principals or as both, and who may receive compensation in the form of
discounts, commissions or concessions from the selling stockholders or from the
purchasers of our common stock for whom they may act as agent (which
compensation as to a particular broker-dealer may be less than or in excess of
customary commissions).
Unless otherwise permitted by law, if shares of our common stock are to
be sold pursuant to this prospectus by permitted pledgees, donees or
transferees of, or other successors in interest to, the selling stockholders,
then we must file a prospectus supplement or an amendment to the
registration statement of which this prospectus is a part under applicable
provisions of the Securities Act amending the list of selling stockholders to
include such pledgee, donee, transferee or other successors in interest as
selling stockholders under this prospectus.
Except as may be described in any prospectus supplement accompanying
this prospectus, the selling stockholders may offer their shares of our common
stock pursuant to this prospectus from time to time at fixed prices, which may
be changed, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale, or at negotiated prices. The prices will be
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters or dealers.
The sales described in the preceding
paragraphs may be effected in transactions:
·
on any
national securities exchange or quotation service on which the shares of our
common stock are listed or quoted at the time of sale;
·
in the
over-the-counter market;
·
in
transactions (which may include underwritten transactions) otherwise than on
such exchanges or services or in the over-the-counter market;
·
through the
writing of options whether the options are listed on an option exchange or
otherwise; or
·
through the
settlement of short sales;
·
or any
combination of the foregoing.
These transactions may include block transactions or crosses. Crosses
are transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of our common stock, selling stockholders may
enter into hedging transactions with broker-dealers. These broker-dealers may
in turn engage in short sales of our common stock in the course of hedging
their positions. The selling stockholders may also sell the shares of our
common stock short and deliver shares of our common stock to close out short
positions, or loan or pledge shares of our common stock to broker-dealers that
in turn may sell the shares.
The selling stockholders or their successors in interest may also enter
into option or other transactions with broker-dealers that require the delivery
by such broker-dealers of our common stock which may be resold thereafter
pursuant to this prospectus if our common stock is delivered by the selling
stockholders. However, if the common stock is to be delivered by the selling
stockholders' successors in interest, we must file a prospectus supplement
or an amendment to this registration statement under applicable provisions
33
of the Securities Act amending the list of
selling stockholders to include the successors in interest as selling
stockholders under this prospectus.
Selling stockholders might not sell any, or all, of our common stock
offered by them pursuant to this prospectus. In addition, we cannot assure you
that a selling stockholder will not transfer the shares of our common stock by
other means not described in this prospectus.
To the extent required, upon being notified by a selling stockholder
that any arrangement has been entered into with any agent, underwriter or
broker-dealer for the sale of the shares of common stock through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
of any agent, underwriter or broker-dealer(s), the name(s) of the selling
stockholder(s) and of the participating agent, underwriter or
broker-dealer(s), specific common stock to be sold, the respective purchase
prices and public offering prices, any applicable commissions or discounts, and
other facts material to the transaction will be set forth in a supplement to
this prospectus or a post-effective amendment to the registration statement of
which this prospectus is a part, as appropriate.
In addition, any securities registered and offered pursuant to this
prospectus which qualify for sale pursuant to Rule 144 or Rule 144A
of the Securities Act may be sold under Rule 144 or Rule 144A rather
than pursuant to this prospectus.
In order to comply with the securities laws of some states, our common
stock may be sold in such states only through registered or licensed brokers or
dealers.
The selling stockholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules include,
without limitation, Regulation M, which may limit the timing of purchases
and sales of any common stock by the selling stockholders and any such other
person. In addition, Regulation M of the Exchange Act may restrict the
ability of any person engaged in the distribution of our common stock to engage
in market-making activities with respect to the particular shares of our common
stock being registered and offered hereby for a period of up to five business
days prior to the commencement of the distribution. This may affect the marketability
of our common stock and the ability of any person or entity to engage in
market-making activities with respect to our common stock.
The selling stockholders and any brokers,
dealers, agents or underwriters that participate with the selling stockholders
in the distribution of our common stock pursuant to this prospectus may be
deemed to be "underwriters" within the meaning of the Securities Act. In this
case, any commissions received by these broker-dealers, agents or underwriters
and any profit on the resale of our common stock purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act. In
addition, any profits realized by the selling stockholders may be deemed to be
underwriting commissions. Neither we nor any selling stockholder can presently
estimate the amount of such compensation. If a selling stockholder is deemed to
be an underwriter, the selling stockholder may be subject to certain statutory
liabilities including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act. Selling
stockholders who are deemed underwriters within the meaning of the Securities
Act will be subject to the prospectus delivery requirements of the Securities
Act.
34
DESCRIPTION OF CAPITAL STOCK
The following summary description of our capital
stock does not purport to be complete and is subject to and qualified in its
entirety by reference to our charter and our bylaws, copies of which are filed
as exhibits to the registration statement of which this prospectus is a part.
See "Where You Can Find More Information About Fieldstone Investment
Corporation" on page 64.
General
Our charter provides that we may issue up to
90,000,000 shares of common stock and 10,000,000 shares of preferred stock,
both having par value $0.01 per share. As of August 17, 2005, 48,835,876
shares of common stock were issued and outstanding and no shares of preferred
stock were issued and outstanding. Maryland law provides that none of our
stockholders is personally liable for any of our obligations solely as a result
of that stockholder's status as a stockholder.
Voting Rights of Common Stock
Subject to the provisions of our charter regarding restrictions on the
transfer and ownership of shares of common stock, each outstanding share of
common stock will entitle the holder to one vote on all matters submitted to a
vote of stockholders, including the election of directors, and, except as
provided with respect to any other class or series of shares of our stock, the
holders of our common stock will possess the exclusive voting power. There will
be no cumulative voting in the election of directors, which means that the
holders of a majority of the outstanding shares of common stock, voting as a
single class, can elect all of the directors then standing for election.
Under Maryland law, a Maryland corporation
generally cannot dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative vote
of stockholders holding at least two-thirds of the shares entitled to vote on
the matter, unless a lesser percentage (but not less than a majority of all the
votes entitled to be cast on the matter) is set forth in the corporation's
charter. Our charter provides for approval by a majority of all the votes
entitled to be cast on the matter for the matters described in this paragraph.
Dividends,
Liquidation and Other Rights
Holders of our shares of common stock are entitled to receive dividends
when authorized by our board of directors out of assets legally available for
the payment of dividends. They also are entitled to share ratably in our assets
legally available for distribution to our stockholders in the event of our
liquidation, dissolution or winding up, after payment of or adequate provision
for all of our known debts and liabilities. These rights are subject to the
preferential rights of any other class or series of our stock and to the
provisions of our charter regarding restrictions on transfer of our stock.
Holders of our shares of common stock have no preference, conversion,
exchange, sinking fund or redemption rights and will have no preemptive rights
to subscribe for any of our securities. Subject to the restrictions on transfer
of capital stock contained in our charter and to the ability of the board of
directors to create shares of common stock with differing voting rights, all
shares of our common stock have equal dividend, liquidation and other rights.
Our charter authorizes our board of
directors to reclassify any unissued shares of our common stock into other
classes or series of classes of our stock (including preferred stock), to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
35
Preferred Stock
Our charter authorizes our board of
directors to reclassify any unissued shares of common stock into preferred
stock, to classify any unissued shares of preferred stock and to reclassify any
previously classified but unissued shares of any series of preferred stock
previously authorized by our board of directors. Prior to issuance of shares of
each class or series of preferred stock, our board will be required by Maryland
law and our charter to fix the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or series. Our board could authorize the issuance of shares of preferred
stock with terms and conditions that could have the effect of delaying,
deferring or preventing a transaction or a change of control that might involve
a premium price for holders of our common stock or otherwise be in their best
interest. As of August 4, 2005, no shares of preferred stock are outstanding
and we have no present plans to issue any preferred stock.
Power to Issue
Additional Shares of Common Stock and Preferred Stock
We believe that the power of our board of
directors to issue additional authorized but unissued shares of our common
stock or preferred stock and to classify or reclassify unissued shares of our
common stock or preferred stock and thereafter to cause us to issue such
classified or reclassified shares of stock will provide us with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs that might arise. The additional classes or series, as well
as our common stock, will be available for issuance without further action by
our stockholders, unless stockholder action is required by applicable law or
the rules of any stock exchange or automated quotation system on which our
securities may be listed or traded. Although our board of directors has no
intention at the present time of doing so, it could authorize us to issue a
class or series that could, depending upon the terms of such class or series,
delay, defer or prevent a transaction or a change in control that might involve
a premium price for holders of our common stock or otherwise be in their best
interest.
Restrictions on Ownership
and Transfer
As a REIT, under the Internal Revenue Code, our shares of capital stock
must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months or during a proportionate part of a shorter
taxable year starting in 2004, our first full year after electing REIT status.
Also, no more than 50% of the value of our outstanding shares of capital stock
(after taking into account options to acquire shares of stock) may be owned,
directly or constructively, by 5 or fewer individuals (as defined in the
Internal Revenue Code to include certain entities) as of December 31,
2004, the end of our first full year after electing REIT status. In addition,
although the law on the matter is unclear, a tax might be imposed if we hold a
taxable mortgage pool and will be imposed on us if we hold a residual interest
in a REMIC, and if certain types of entities hold our shares.
Because our board of directors believes that it is essential for us to
qualify as a REIT, our charter, subject to certain exceptions, contains
restrictions on the number of shares of our capital stock that a person may own
and will prohibit certain entities from owning our shares. Our charter provides
that no person may own, or be deemed to own by virtue of the attribution
provisions of the Internal Revenue Code, more than 9.8% in value or in number
of shares, whichever is more restrictive, of any class or series of our
outstanding shares of capital stock. In addition, our charter prohibits the
following entities from owning our shares: the United States; any state or
political subdivision of the United States; any foreign government; any
international organization; any agency or instrumentality of any of the
foregoing; any other tax-exempt organization, other than a farmer's cooperative
described in Section 521 of the Internal Revenue Code, that is exempt from
both income taxation and from taxation under the unrelated business taxable
income provisions of the Internal Revenue Code; and any rural electrical or telephone
cooperative.
36
Our charter also prohibits any person from (i) beneficially owning
shares of our capital stock that would result in us being "closely held" under Section 856(h) of
the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT
and (ii) transferring shares of our capital stock if such transfer would
result in our capital stock being owned by fewer than 100 persons. Any person
who acquires or attempts or intends to acquire beneficial ownership of shares
of our capital stock that will or may violate any of the foregoing restrictions
on transferability and ownership will be required to give notice immediately to
us and provide us with such other information as we may request in order to
determine the effect of such transfer on our status as a REIT. The foregoing
restrictions on transferability and ownership will not apply if our board of
directors determines that it is no longer in our best interests to attempt to
qualify, or to continue to qualify, as a REIT.
Under the terms of our charter, our board of directors may grant an
exception to the 9.8% ownership limit to, and establish a higher ownership
limit for, a shareholder that is not an individual if such shareholder provides
information and makes representations to the board that are satisfactory to the
board, in its reasonable discretion, to establish that such person's ownership
in excess of the 9.8% limit would not jeopardize our qualification as a REIT.
All certificates representing shares of our capital stock bear a legend
referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Internal Revenue Code or the regulations promulgated thereunder) of all classes
or series of our stock, including shares of common stock, within 30 days
after the end of each taxable year, is required to give written notice to us
stating the name and address of the owner, the number of shares of each class
and series of shares of our stock that the owner beneficially owns and a description
of the manner in which the shares are held. Each owner shall provide to us such
additional information as we may request in order to determine the effect, if
any, of such owner's beneficial ownership on Fieldstone Investment's status as
a REIT and to ensure compliance with the ownership limitations. In addition,
each stockholder shall upon demand be required to provide to us such
information as we may request, in good faith, in order to determine our status
as a REIT and to comply with the requirements of any taxing authority or
governmental authority or to determine such compliance.
These ownership limitations could delay,
defer or prevent a transaction or a change in control that might involve a
premium price for the common stock or might otherwise be in the best interest
of our stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for our shares of common stock is
American Stock Transfer & Trust Company.
37
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the
material federal income tax consequences relating to our taxation as a REIT,
and the ownership and disposition of our common stock. Because this is a
summary that is intended to address only federal income tax considerations
relating to the ownership and disposition of our common stock, it may not
contain all the information that may be important to you. As you review this
discussion, you should keep in mind that:
·
the tax considerations
to you may vary depending on your particular tax situation;
·
special rules that
are not discussed below may apply to you if, for example, you are:
tax-exempt organization;
·
broker-dealer;
·
non-U.S.
person;
·
a trust,
estate, regulated investment company, REIT, financial institution, insurance
company or S corporation;
·
subject to
the alternative minimum tax provisions of Internal Revenue Code;
·
holding the
stock as part of a hedge, straddle, conversion or other risk-reduction or
constructive sale transaction;
·
holding the
stock through a partnership or similar pass-through entity;
·
a person with
a "functional currency" other than the U.S. dollar;
·
beneficially
or constructively holding 10% or more (by vote or value) of the beneficial interest
in us;
·
a U.S.
expatriate; or
·
otherwise
subject to special tax treatment under the Internal Revenue Code;
·
this summary
does not address state, local or non-U.S. tax considerations;
·
this summary
deals only with investors that hold the stock as a "capital asset," within the
meaning of Section 1221 of the Internal Revenue Code; and
·
this
discussion is not intended to be, and should not be construed as, tax advice.
You are urged both to review the following discussion and to consult
with your own tax advisor to determine the effect of ownership and disposition
of our stock on your individual tax situation, including any state, local or
non-U.S. tax consequences.
The information in this section is based on
the Internal Revenue Code, current, temporary and proposed regulations, the
legislative history of the Internal Revenue Code, current administrative
interpretations and practices of the Internal Revenue Service (IRS), and court
decisions. The reference to IRS interpretations and practices includes IRS
practices and policies as endorsed in private letter rulings, which are not
binding on the IRS except with respect to the taxpayer that receives the
ruling. In each case, these sources are relied upon as they exist on the date
of this registration statement. Future legislation, regulations, administrative
interpretations and court decisions could change current law or adversely
affect existing interpretations of current law. Any change could apply
retroactively. We have not received, and do not currently intend to seek, any
rulings from the IRS concerning our qualification as a REIT. Accordingly, even
if there is no change in the applicable law, no assurance can be provided that
the statements made in
38
the following
discussion, which do not bind the IRS or the courts, will not be challenged by
the IRS or will be sustained by a court if so challenged.
Each prospective
investor is advised to consult with his or her own tax advisor to determine the
impact of his or her personal tax situation on the anticipated tax consequences
of the ownership and sale of our common stock. This includes the federal,
state, local, foreign and other tax consequences of the ownership and sale of
our common stock and the potential changes in applicable tax laws.
Our Qualification
and Taxation as a REIT
General.
For certain
years prior to 2003, our predecessor, Fieldstone Holdings, was a Delaware
corporation that was subject to tax as a non-REIT C corporation. Fieldstone
Holdings owned 100% of Fieldstone Mortgage, which was formed in 1995 and was
also subject to tax as a C corporation for certain of its taxable years until
2003. Fieldstone Holdings elected to be treated as an S corporation for federal
income tax purposes, effective January 1, 2003. As a result of Fieldstone
Holdings' S election, on January 1, 2003, Fieldstone Mortgage became a "qualified
subchapter S subsidiary" of Fieldstone Holdings and was disregarded as an
entity separate from Fieldstone Holdings for federal income tax purposes from
that date. Effective November 13, 2003, Fieldstone Holdings revoked its S
corporation status. The termination of its S election caused its tax year
(short S corporation year) to terminate and a new tax year (short C corporation
year) to commence on November 13, 2003, the termination date. The short C
corporation year that commenced on November 13, 2003 ended on December 31,
2003. On November 14, 2003, Fieldstone Holdings merged with and into us,
and we were the surviving entity.
We have elected to be taxed as a REIT under Sections 856 through 859 of
the Internal Revenue Code, effective on November 13, 2003, the first day
of the short C corporation year. A REIT generally is not subject to federal
income tax on the income that it distributes to shareholders if it meets the
applicable REIT distribution requirements and other requirements for
qualification as a REIT. Commencing with the short C corporation year, we
believe that we have been organized and have operated in such a manner as to
qualify for taxation as a REIT, and we intend to continue to be organized and
to operate in such a manner.
Qualification and taxation as a REIT depend upon our ability to meet on
a continuing basis, through actual annual (or in some cases quarterly)
operating results, various requirements under the Internal Revenue Code, with
regard to, among other things, the sources of our gross income, the composition
and values of our assets, our distribution levels, and the diversity of
ownership of our stock. Our ability to satisfy the asset and gross income tests
applicable to a REIT depends, among other things, on the fair market values of
our assets and the fair market value of the real estate that is collateral for
our mortgage loans. Such values may not be susceptible to a precise
determination. While we intend to operate so that we will qualify as a REIT,
given the highly complex nature of the rules governing REITs, the ongoing
importance of factual determinations, and the possibility of future changes in
our circumstances, no assurance can be given by us that we will so qualify for
any particular year. For a discussion of the tax consequences of the failure to
qualify as a REIT, see "—Failure to Qualify."
The sections of the Internal Revenue Code and the corresponding
regulations that govern the federal income tax treatment of a REIT and its
stockholders are highly technical and complex. The following discussion is
qualified in its entirety by the applicable Internal Revenue Code provisions, rules and
regulations promulgated thereunder, and administrative interpretations thereof.
In any year in which we qualify for taxation as a REIT, we generally
will not be subject to federal corporate income taxes on that portion of our
REIT taxable income that we distribute currently to stockholders. However, our
stockholders will generally be taxed on dividends that they receive at ordinary
income rates unless such dividends are designated by us as capital gain
dividends or qualified dividend income. This differs from non-REIT C
corporations, which generally are subject to federal corporate
39
income taxes but whose stockholders who are
taxed as individuals are generally taxed on dividends they receive at capital
gains rates, which are lower for individuals than ordinary income rates, and
whose stockholders who are taxed at regular corporate rates receive the benefit
of a dividends received deduction that substantially reduces the effective rate
that they pay on such dividends. Overall, income earned by a REIT and
distributed to its stockholders will be subject to less federal income taxation
than if such income were earned by a non-REIT C corporation, subjected to
corporate income tax, and then distributed to stockholders and subjected to tax
either at capital gain rates or the effective rate paid by a corporate
recipient entitled to the benefit of the dividends received deduction.
While we are generally not subject to
corporate income taxes on income that we distribute currently to stockholders,
we will be subject to federal income tax as follows.
·
We will be
taxed at regular corporate rates on any "REIT taxable income." REIT taxable
income is the taxable income of the REIT subject to specified adjustments,
including a deduction for dividends paid.
·
Under some
circumstances, we (or our stockholders) may be subject to the "alternative
minimum tax" due to our undistributed items of tax preference and alternative
minimum tax adjustments.
·
If we have
net income from the sale or other disposition of "foreclosure property" that is
held primarily for sale to customers in the ordinary course of business, or
other non-qualifying income from foreclosure property, we will be subject to
tax at the highest corporate rate on this income.
·
Our net
income from "prohibited transactions" will be subject to a 100% tax. In
general, prohibited transactions are sales or other dispositions of property,
other than foreclosure property, but including mortgage loans, held primarily
for sale to customers in the ordinary course of business.
·
If we fail to
satisfy either the 75% gross income test or the 95% gross income test discussed
below, but nonetheless maintain our qualification as a REIT because other
requirements are met, we will be subject to a tax equal to the gross income
attributable to the greater of either (i) the amount by which 75% of our
gross income exceeds the amount qualifying under the 75% test for the taxable
year or (ii) the amount by which 95% of our gross income exceeds the
amount of our income qualifying under the 95% test for the taxable year,
multiplied in either case by a fraction intended to reflect our profitability.
·
We will be
subject to a 4% excise tax on the excess of the required distribution over the
sum of the amounts actually distributed and amounts retained for which federal
income tax was paid, if we fail to distribute during each calendar year at
least the excess of the sum of:
·
85% of our
REIT ordinary income for the year;
·
95% of our
REIT capital gain net income for the year; and
·
any
undistributed taxable income from prior taxable years over excess distributions
made with respect to prior years.
·
We may elect
to retain and pay income tax on our net long-term capital gain. In that case, a
U.S. stockholder would include its proportionate share of our undistributed
long-term capital gain (to the extent we make a timely designation of such gain
to the stockholder) in its income, would be deemed to have paid the tax that we
paid on such gain and would be allowed a credit for its proportionate share of
the tax deemed to have been paid and an adjustment would be made to increase
the basis of the U.S. stockholder in our stock.
·
If we fail to
satisfy the "10% value test" discussed below under "—Asset Tests Applicable to
REITs" because we own assets the total value of which exceeds a statutory de
minimis standard but
40
nonetheless maintain our qualification as a
REIT because other requirements are met, we will be subject to a tax equal to
the greater of $50,000 or the amount determined by multiplying the net income
generated by such nonqualifying assets by the highest rate of tax applicable to
corporations.
·
If we fail to
satisfy a requirement under the Code the failure of which would result in the
loss of our REIT status, other than a failure of one or both of the gross
income tests or the "10% value test" as described above, but nonetheless
maintain our qualification as a REIT because the requirements of certain relief
provisions are satisfied, we will be subject to a penalty of $50,000 for each
such failure due to reasonable cause and not willful neglect.
·
We will be
subject to a 100% penalty tax on amounts received by us (or on certain expenses
deducted by a taxable REIT subsidiary of ours) if certain arrangements between
us and a taxable REIT subsidiary of ours, as further described below, are not
comparable to similar arrangements among unrelated parties.
·
With respect
to an interest in a taxable mortgage pool or a real estate mortgage investment
conduit, or REMIC, the ownership of which is attributed to us or to a REIT in
which we own an interest, although the law on the matter is unclear as to the
ownership of an interest in a taxable mortgage pool, we might be taxable at the
highest corporate rate on the amount of any excess inclusion income for the
taxable year allocable to the percentage of our stock that is held by "disqualified
organizations." For a discussion of "excess inclusion income," see "—Taxable
Mortgage Pools and REMICs." A "disqualified organization" includes:
·
the United
States;
·
any state or
political subdivision of the United States;
·
any foreign
government; any international organization;
·
any agency or
instrumentality of any of the foregoing;
·
any other
tax-exempt organization, other than a farmer's cooperative described in
section 521 of the Internal Revenue Code, that is exempt both from income
taxation and from taxation under the unrelated business taxable income
provisions of the Internal Revenue Code; and
·
any rural
electrical or telephone cooperative.
For this reason, our charter prohibits
disqualified organizations from owning our shares.
·
If we acquire
any assets from a non-REIT C corporation in a carry-over basis transaction
(including as a result of our conversion to a REIT from an S corporation that
was taxable as a non-REIT C corporation in previous years), we could be liable
for specified tax liabilities inherited from that non-REIT C corporation with
respect to that corporation's "built-in gain" in its assets. Built-in gain is
the amount by which an asset's fair market value exceeds its adjusted tax basis
at the time we acquire the asset. Applicable Treasury regulations, however,
allow us to avoid the recognition of gain and the imposition of corporate level
tax with respect to a built-in gain asset acquired in a carry-over basis
transaction from a non-REIT C corporation unless and until we dispose of that
built-in gain asset during the 10-year period following its acquisition,
at which time we would recognize, and would be subject to tax at the highest
regular corporate rate on, the built-in gain.
The provisions of the Internal Revenue Code applicable to S corporations
apply a rule similar to the one described in the last bullet point above
to tax built-in gain attributable to a non-REIT C corporation if the C
corporati
on makes an S election and recognizes any of the built-in gain
during the 10-year period following the effective
date of the
S election. On the effective date of the S election of Fieldstone
41
Holdings, our predecessor, which was January 1,
2003, Fieldstone Holdings had a material amount of "franchise value" in its
business in excess of its book value, which could give rise to a tax liability
attributable to the built-in gain rules described above. As a consequence
of the merger and our REIT election, we inherited the potential tax liability
relating to any built-in gain of Fieldstone Holdings. Accordingly, if we sell
our business or substantially all of our assets during the 10-year period
ending December 31, 2012, we will be subject to regular corporate tax on
some amount of gain. The total amount of gain on which we can be taxed is
limited to the excess of the aggregate fair market value of Fieldstone Holdings'
assets at the time of the S election over the adjusted tax bases of those
assets at that time. As this tax would be significant, we intend to manage our
affairs in a manner that takes into account the potential incurrence of this
tax. This may result in our seeking to avoid any taxable disposition of our
business or substantially all of our assets prior to January 1, 2013, even
if such transaction might otherwise be in our best interests if this tax were
not to apply. None of the loan sales made by Fieldstone Holdings since January 1,
2003 triggered any built-in gains tax because those loans were held for sale
and, therefore, Fieldstone Holdings was required to use "mark-to-market"
accounting with respect to those loans for its tax accounting. Consequently,
there was no gain attributable to those loans for tax purposes at the time of
Fieldstone Holdings' S election.
In addition, notwithstanding our status as a REIT, we may also have to
pay certain state and local income taxes, because not all states and localities
treat REITs in the same manner that they are treated for federal income tax
purposes. Moreover, as further described below, any taxable REIT subsidiary in
which we own an interest, including Fieldstone Mortgage, will be subject to
federal corporate income tax on its net income.
Requirements for
Qualification as a REIT.
The Internal Revenue Code defines a REIT as
a corporation, trust or association:
(1)   that is managed by one or
more trustees or directors;
(2)   the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest;
(3)   that would be taxable as a
domestic corporation, but for Sections 856 through 859 of the Internal Revenue
Code;
(4)   that is neither a financial
institution nor an insurance company subject to certain provisions of the
Internal Revenue Code;
(5)   the beneficial ownership of
which is held by 100 or more persons;
(6)   of which not more than 50% in
value of the outstanding shares are owned, directly or indirectly, by five or
fewer individuals (as defined in the Internal Revenue Code to include certain
entities) after applying certain attribution rules;
(7)   that makes an election to be
a REIT for the current taxable year or has made such an election for a previous
taxable year, which has not been terminated or revoked; and
(8)   that meets other tests,
described below, regarding the nature of its income and assets.
Conditions (1) through (4), inclusive, must be met during the
entire taxable year. Condition (5) must be met during at least
335 days of a taxable year of 12 months, or during a proportionate
part of a taxable year of less than 12 months other than the first taxable
year for which an election to become a REIT is made. Condition (6) must be
met during the last half of each taxable year other than the first taxable year
for which an election to become a REIT is made. For purposes of determining the
ownership of shares under condition (6), a supplemental unemployment
compensation benefits plan, a private foundation or a portion of a trust
permanently set aside or used exclusively for charitable purposes generally is
considered
42
an individual. However, a trust that is a
qualified trust under Section 401(a) of the Internal Revenue Code
generally is not considered an individual, and beneficiaries of a qualified
trust are treated as holding shares of a REIT in proportion to their actuarial
interests in the trust for purposes of condition (6). We believe that we will
issue sufficient shares of stock with sufficient diversity of ownership to
allow us to satisfy conditions (5) and (6) above. In addition, our
charter contains restrictions regarding the transfer of our stock that are
intended to assist us in continuing to satisfy the share ownership requirements
described in (5) and (6) above. These restrictions, however, may not
ensure that we will be able to satisfy these share ownership requirements. If
we fail to satisfy these share ownership requirements and cannot avail
ourselves of any statutory relief provisions, we will fail to qualify as a
REIT.
If we comply with regulatory rules pursuant to which we are
required to send annual letters to holders of our stock requesting information
regarding the actual ownership of our stock, and we do not know, or exercising
reasonable diligence would not have known, whether we failed to meet
requirement (6) above, we will be treated as having met the requirement.
In addition, we must satisfy all relevant filing and other
administrative requirements established by the IRS that must be met to elect
and maintain REIT status, use a calendar year for federal income tax purposes,
and comply with the record keeping requirements of the Internal Revenue Code
and regulations promulgated thereunder.
Distribution of "Earnings and Profits" Attributable to
Non-REIT C corporation Taxable Years.
To qualify as
a REIT, we cannot have at the end of any taxable year any undistributed
earnings and profits that are attributable to a non-REIT C corporation taxable
year (non-REIT C corporation E&P). As of the effective date of Fieldstone
Holdings' S election, Fieldstone Holdings had non-REIT C corporation E&P.
We succeeded to any non-REIT C corporation E&P of Fieldstone Holdings and
had until the close of our first taxable year as a REIT, December 31,
2003, to distribute any such remaining non-REIT C corporation E&P. Prior to
the effective date of our REIT election, November 13, 2003, during
Fieldstone Holdings' short S corporation year, Fieldstone Holdings made regular
tax distributions to its S corporation shareholders. Ordinarily, distributions
paid by an S corporation are treated by a shareholder, first, as a nontaxable
return of capital to the extent of the shareholder's share of the S corporation's
"accumulated adjustments account," and, second, as a dividend to the extent of
the S corporation's accumulated non-REIT C corporation E&P. Fieldstone
Holdings obtained the consent of each of its S corporation shareholders to whom
a distribution was made during the short S corporation year to elect to have
its 2003 distributions treated first as dividends to the extent of Fieldstone
Holdings' non-REIT C corporation E&P.
Fieldstone Holdings commissioned a national accounting firm to prepare
an estimate of its non-REIT C corporation E&P at December 31, 2002.
This estimate formed the basis of our determination of the amount of dividends
that were paid to Fieldstone Holdings' shareholders prior to the closing of the
144A Offering to purge the non-REIT C corporation E&P for Fieldstone
Holdings. Accordingly, we believe that as of the close of 2003, we no longer
had any non-REIT C corporation E&P.
There can be no assurance, however, that the IRS will not examine
Fieldstone Holdings' tax returns from its years as a C corporation and propose
adjustments to increase Fieldstone Holdings' taxable income from those years.
If the IRS determines that we failed to distribute all of our non-REIT C
corporation E&P by the close of 2003, although the law on this issue is not
entirely clear, we may avoid being disqualified as a REIT for each taxable year
during which we had non-REIT C corporation E&P, provided that we satisfy
certain "deficiency dividend" procedures described below in "—Annual
Distribution Requirements Applicable to REITs."
Qualified REIT Subsidiaries.
If a REIT
owns a corporate subsidiary that is a "qualified REIT subsidiary," the separate
existence of that subsidiary is disregarded for federal income tax purposes.
Generally, a qualified REIT subsidiary is a corporation, other than a taxable
REIT subsidiary, all of the capital stock of which is owned by the REIT. All
assets, liabilities and items of income, deduction and
43
credit of the qualified REIT subsidiary will
be treated as assets, liabilities and items of income, deduction and credit of
the REIT itself. A qualified REIT subsidiary of ours is not subject to federal
corporate income taxation, although it may be subject to state and local
taxation in some states.
Taxable REIT Subsidiaries.
A "taxable
REIT subsidiary" is an entity that is taxable as a corporation in which we
directly or indirectly own stock and that elects with us to be treated as a
taxable REIT subsidiary under Section 856(l) of the Internal Revenue
Code. In addition, if one of our taxable REIT subsidiaries owns, directly or
indirectly, securities representing 35% or more of the vote or value of a
subsidiary corporation, that subsidiary will also be treated as a taxable REIT
subsidiary of ours. However, an entity will not qualify as a taxable REIT
subsidiary if it directly or indirectly operates or manages a lodging or health
care facility or, generally, provides to another person, under a franchise,
license or otherwise, rights to any brand name under which any lodging facility
or health care facility is operated. Currently, we have one subsidiary,
Fieldstone Mortgage, which we have elected to treat as a taxable REIT
subsidiary of ours. As a taxable REIT subsidiary, Fieldstone Mortgage is
subject to federal income tax, and state and local income tax where applicable,
as a regular C corporation on its net income. To the extent that Fieldstone
Mortgage is required to pay taxes, we will have less cash available for
distribution to shareholders. If dividends are paid by Fieldstone Mortgage to
us, then dividends from us to our shareholders who are taxed at individual
rates, up to the amount of dividends we receive from Fieldstone Mortgage, will
generally be eligible to be subject to tax at reduced capital gains rates,
rather than taxed at ordinary income rates. See "Taxation of U.S. Holders of
Our Common Stock—Qualified Dividend Income." Currently, we anticipate that
Fieldstone Mortgage will retain any income it generates, net of any tax
liability it incurs on that income.
Income earned by a taxable REIT subsidiary is not attributable to the
REIT. As a result, income that might not be qualifying income for purposes of
the income tests applicable to REITS, such as fees from the origination and/or
servicing of loans for third parties, could be earned by a taxable REIT
subsidiary without affecting our status as a REIT. We sell all of our
conforming loans and the portion of our non-conforming loans that we do not
hold in portfolio, and perform other servicing and origination functions, through
Fieldstone Mortgage.
Several provisions of the Internal Revenue Code regarding the
arrangements between a REIT and its taxable REIT subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary is limited in its
ability to deduct interest payments made to its REIT owner, although we
currently do not anticipate that this limitation will apply to interest
payments made by Fieldstone Mortgage to us. In addition, we would be obligated to
pay a 100% penalty tax on some payments that we receive from, or on certain
expenses deducted by, Fieldstone Mortgage if the IRS were to assert
successfully that the economic arrangements between us and Fieldstone Mortgage
are not comparable to similar arrangements among unrelated parties.
Taxable Mortgage Pools and
REMICs.
An entity, or a portion of an entity, that does not
elect to be treated as a REMIC may be classified as a taxable mortgage pool
under the Internal Revenue Code if:
·
substantially
all of its assets consist of debt obligations or interests in debt obligations;
·
more than 50%
of those debt obligations are real estate mortgages or interests in real estate
mortgages as of specified testing dates;
·
the entity
has issued debt obligations (liabilities) that have two or more maturities; and
·
the payments
required to be made by the entity on its debt obligations "bear a relationship"
to the payments to be received by the entity on the debt obligations that it
holds as assets.
44
Under the Treasury regulations, if less than 80% of the assets of an
entity (or a portion of an entity) consists of debt obligations, these debt
obligations are considered not to comprise "substantially all" of its assets,
and therefore the entity would not be treated as a taxable mortgage pool.
An entity or portion of an entity will be
treated as a REMIC for purposes of the Internal Revenue Code if:
·
it satisfies
requirements relating to the types of interests in the entity;
·
substantially
all of its assets are comprised of qualified mortgages and certain other
permitted instruments at all times, except during an initial and final period;
·
it adopts
arrangements to ensure that disqualified organizations will not hold residual
interests and that information needed to calculate the tax on transfers of
residual interests to such organizations will be made available by the entity;
·
it has a
taxable year that is the calendar year, and
·
the election
to be treated as a REMIC applies for the taxable year and all prior taxable
years.
Where an entity, or a portion of an entity, is classified as a taxable
mortgage pool, it is generally treated as a taxable corporation for federal
income tax purposes. In the case of a REIT, a portion of a REIT, or a REIT
subsidiary that is disregarded as a separate entity from the REIT that is a
taxable mortgage pool, however, special rules apply. The portion of a REIT's
assets, held directly or through a REIT subsidiary that is disregarded as a
separate entity from the REIT, that qualifies as a taxable mortgage pool is
treated as a qualified REIT subsidiary that is not subject to corporate income
tax, and the taxable mortgage pool classification does not directly affect the
tax status of the REIT. Rather, the consequences of the taxable mortgage pool
classification would generally, except as described below, be limited to the
REIT's shareholders. The Treasury Department has yet to issue regulations
governing the tax treatment of the shareholders of a REIT that owns an interest
in a taxable mortgage pool.
A portion of our income from a REMIC or taxable mortgage pool
arrangement, which might be non-cash accrued income, or "phantom" taxable
income, could be treated as "excess inclusion income." Excess inclusion income
is an amount, with respect to any calendar quarter, equal to the excess, if
any, of (i) income allocable to the holder of a residual interest in a
REMIC or taxable mortgage pool interest during such calendar quarter over (ii) the
sum of an amount for each day in the calendar quarter equal to the product of (a) the
adjusted issue price of the interest at the beginning of the quarter multiplied
by (b) 120 percent of the long-term federal rate (determined on the
basis of compounding at the close of each calendar quarter and properly
adjusted for the length of such quarter). This non-cash or "phantom" income
would nonetheless be subject to the distribution requirements that apply to us
and could therefore adversely affect our liquidity. See "—Annual Distribution
Requirements Applicable to REITs."
Our excess inclusion income would be allocated among our shareholders. A
shareholder's share of excess inclusion income (i) would not be allowed to
be offset by any net operating losses otherwise available to the shareholder, (ii) would
be subject to tax as unrelated business taxable income in the hands of most
types of shareholders that are otherwise generally exempt from federal income
tax, and (iii) would result in the application of U.S. federal income tax
withholding at the maximum rate (30%), without reduction for any otherwise
applicable income tax treaty, to the extent allocable to most types of foreign
shareholders. See "Taxation of Non-U.S. Holders of Our Common
Stock—Distributions." Although the law on this matter is unclear with regard to
taxable mortgage pool interests, to the extent excess inclusion income is
allocated to a tax-exempt stockholder of ours that is not subject to unrelated
business income tax (such as a government entity), we would be taxable on this
income at the highest applicable corporate tax rate (currently 35%). While our
charter prohibits our stock from being held by entities that might subject us
to this tax, this prohibition may not ensure that this tax will not be imposed
by us. The manner in which
45
excess inclusion income would be allocated
among shares of different classes of our stock or how such income is to be
reported to stockholders is not clear under current law. Tax-exempt investors,
foreign investors and taxpayers with net operating losses should carefully
consider the tax consequences described above and are urged to consult their
tax advisors in connection with their decision to invest in our common stock.
In connection with the securitization that closed on October 7,
2003, we elected to treat the securitization trust as a REMIC. At the closing
of the securitization, we sold the REMIC residual interest to a third party.
Therefore we do not expect that any of our retained interest in the REMIC
securities will give rise to "excess inclusion income." With regard to each of
the securitizations that closed in 2004, we have received an opinion of counsel
from McKee Nelson LLP that, although the securitization trust will be
classified as a taxable mortgage pool during the time any notes secured by the
assets in the trust are outstanding, the trust will not be subject to federal
income tax during such time as long as we qualify as a REIT.
If a subsidiary partnership of ours, not
wholly-owned by us directly or through one or more disregarded entities, were a
taxable mortgage pool, the foregoing rules would not apply. Rather, the
partnership that is a taxable mortgage pool would be treated as a corporation
for federal income tax purposes, and would potentially be subject to corporate
income tax. In addition, this characterization would alter our REIT income and
asset test calculations and could adversely affect our compliance with those
requirements. We currently do not believe that we have, and currently do not
intend to form, any subsidiary partnerships that are or will become taxable
mortgage pools, and we intend to monitor the structure of any taxable mortgage
pools in which we have an interest to ensure that they will not adversely
affect our status as a REIT.
Income Tests
To qualify as a REIT, we must satisfy two
gross income requirements, each of which is applied on an annual basis. First,
at least 75% of our gross income, excluding gross income from prohibited
transactions, for each taxable year generally must be derived directly or
indirectly from:
·
rents from
real property;
·
interest on
debt secured by mortgages on real property or on interests in real property;
·
dividends or
other distributions on, and gain from the sale of, stock in other REITs;
·
gain from the
sale of real property or mortgage loans;
·
amounts, such
as commitment fees, received in consideration for entering into an agreement to
make a loan secured by real property, unless such amounts are determined by
reference to income and profits;
·
income
derived from a REMIC in proportion to the real estate assets held by the REMIC,
unless at least 95% of the REMIC's assets are real estate assets, in which case
all of the income derived from the REMIC; and
·
interest or
dividend income from investments in stock or debt instruments attributable to
the temporary investment of new capital during the one-year period following
our receipt of new capital that we raise through equity offerings or public
offerings of debt obligations with at least a five-year term.
Second, at least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived from sources
that qualify for purposes of the 75% test, and from
46
(i) dividends, (ii) interest, and (iii) gain
from the sale or disposition of stock or securities. If less than 95% of the
assets of a REMIC in which we hold an interest are real estate assets, we will
be treated as receiving directly our proportionate share of the REMIC's income
for purposes of the gross income tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for that year if we
are entitled to relief under the Code. These relief provisions generally will
be available if our failure to meet the tests was due to reasonable cause and
not due to willful neglect, and following identification of the failure, we
file with the Internal Revenue Service a schedule describing each item of our
gross income.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because non-qualifying income that we
intentionally incur exceeds the limits on non-qualifying income, the Internal
Revenue Service could conclude that the failure to satisfy the tests was not
due to reasonable cause. If we fail to satisfy the 75% or 95% gross income test
and these relief provisions do not apply, we will fail to qualify as a REIT.
Even if these relief provisions applied, we would be subject to a penalty tax
based on the amount of our non-qualifying income.
Our income for purposes of these tests includes our allocable share of
all income earned by any entities in which we own an interest that are
partnerships or disregarded entities for income tax purposes (including
qualified REIT subsidiaries), and the subsidiaries of these partnerships or
disregarded entities that are partnerships or disregarded entities for income
tax purposes.
The income tests described above are based on our gross income. For
federal income tax purposes, we will be treated as earning interest income on
all of our loans that have been securitized and with respect to which we have
not made a REMIC election, including, without limitation, the loans that were
securitized in 2004. Although we will have a partially offsetting interest
expense with respect to the interest owed on the securities issued pursuant to
these securitizations, this interest expense will not reduce the gross income
that we are considered to recognize for purposes of the gross income tests. We
elected to treat the securitization trust as a REMIC election with regard to
the securitization that closed on October 7, 2003. If less than 95% of the
REMIC's assets are real estate assets, we will be treated as earning directly
our proportionate share of the REMIC's income (although we expect that
substantially all of the income will generally be treated as qualifying
interest for purposes of both gross income tests). If at least 95% of the REMIC's
assets are real estate assets, we will include in gross income 100% of the
income earned on our REMIC interests, which will be treated as qualifying
interest for purposes of both gross income tests.
Gross income from servicing and loan origination fees is not qualifying
income for purposes of either gross income test. In addition, gross income from
our sale of property that we hold primarily for sale to customers in the
ordinary course of business is excluded from both the numerator and the
denominator in both income tests. We will monitor the amount of our
non-qualifying income and we will manage our portfolio to comply at all times
with the gross income tests. The following paragraphs discuss some of the
specific applications of the gross income tests to us.
Dividends.
Our share of
any dividends received from Fieldstone Mortgage or from any other corporations
in which we may own an interest will qualify for purposes of the 95% gross
income test but not for purposes of the 75% gross income test. We expect to
limit any dividends from Fieldstone Mortgage to stay within the limit on
nonqualifying income under the 75% gross income test.
Interest.
The term "interest,"
as defined for purposes of both gross income tests, generally excludes any
amount that is based in whole or in part on the income or profits of any
person. We do not expect that any of our mortgage loans will be based in whole
or in part on the income or profits of any person.
Interest on debt secured by mortgages on real property or on interests
in real property, including, for this purpose, prepayment fees, loan assumption
fees and late payment charges that are not compensation
47
for services, generally is qualifying income
for purposes of the 75% gross income test. However, if the highest principal
amount of a loan outstanding during a taxable year exceeds the fair market
value of the real property securing the loan as of the date we agreed to
originate or acquire the loan, a portion of the interest income from such loan
will not be qualifying income for purposes of the 75% gross income test but
will be qualifying income for purposes of the 95% gross income test. The
portion of the interest income that will not be qualifying income for purposes
of the 75% gross income test will be equal to the portion of the principal
amount of the loan that is not secured by real property—that is, the amount by
which the loan exceeds the value of the real estate that is security for the
loan.
The interest, original issue discount, and market discount income that
we receive from our mortgage loans generally is qualifying income for purposes
of both gross income tests. However, as discussed above, if the fair market
value of the property of the real estate securing any of our loans is less than
the principal amount of the loan, a portion of the income from that loan will
be qualifying income for purposes of the 95% gross income test but not the 75%
gross income test. We expect that all or substantially all of our interest from
our mortgage loans will be qualifying income for purposes of the 75% and 95%
gross income tests.
Fee Income.
We may
receive various fees in connection with the mortgage loans. The fees will be
qualifying income for purposes of both the 75% and 95% income tests if they are
received in consideration for entering into an agreement to make a loan secured
by real property, and the fees are not determined by income and profits.
Therefore, commitment fees will generally be qualifying income for purposes of
the income tests. Other fees, such as fees received for servicing loans for
third parties and origination fees, are not qualifying income for purposes of
either income test. Currently, it is our intention that our taxable REIT
subsidiary, Fieldstone Mortgage, conduct all of our conforming loan origination
and sales, as well as other servicing and origination functions. In this case,
the income earned by Fieldstone Mortgage from these services is not included
for purposes of our income tests.
Hedging Transactions.
From time to
time, we enter into hedging transactions with respect to one or more of our
assets or liabilities. Our hedging activities may include entering into
interest rate swaps, caps, and floors, options to purchase these items, futures
and forward contracts and other financial instruments. To the extent that we
enter into a transaction in the normal course of our business primarily to
manage the risk of interest rate changes, price changes or currency
fluctuations with respect to indebtedness incurred or to be incurred by us to
acquire or carry real estate assets, including mortgage loans, any income or gain
from the hedging transaction will be disregarded for purposes of the 95% income
test, provided that we clearly and timely identify such hedging transaction in
the manner required under the Internal Revenue Code and the regulations
promulgated thereunder. For our taxable years beginning prior to January 1,
2005, to the extent that we entered into an interest rate swap or cap contract,
option, futures contract, forward rate agreement, or any similar financial
instrument to hedge our indebtedness incurred or to be incurred to acquire or
carry "real estate assets," any periodic income or gain from the disposition of
that contract attributable to the carrying or acquisition of the real estate
assets was generally qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. To the extent that we hedged with
nonqualifying types of financial instruments prior to January 1, 2005, we
hedge against other types of risks or a portion of our mortgage loans is not
secured by "real estate assets" (as described below under "—Asset Tests"), the
income from those transactions is not likely to be treated as qualifying income
for purposes of the gross income tests. We intend to structure any hedging
transactions in a manner that does not jeopardize our status as a REIT.
Rents from Real Property.
We currently
do not own any real property other than a small amount of real property
acquired through the foreclosure of mortgage loans. To the extent that we
acquire real property or an interest therein in the future, rents we receive
will qualify as "rents from real property" in satisfying the gross income
requirements for a REIT described above only if several conditions are met.
These conditions relate to the identity of the tenant, the computation of the
rent payable, and the nature of
48
the property leased. First, the amount of
rent must not be based in whole or in part on the income or profits of any
person. However, amounts received or accrued generally will not be excluded
from rents from real property solely by reason of being based on fixed percentages
of receipts or sales. Second, rents we receive from a "related party tenant"
will not qualify as rents from real property in satisfying the gross income
tests unless the tenant is a taxable REIT subsidiary, at least 90% of the
property is leased to unrelated tenants and the rent paid by the taxable REIT
subsidiary is substantially comparable to the rent paid by the unrelated
tenants for comparable space. A tenant is a related party tenant if the REIT,
or an actual or constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of the tenant. Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to the personal property will not qualify as rents from real
property. Finally, for rents to qualify as "rents from real property" for
purposes of the gross income tests, we are only allowed to provide services
that are both "usually or customarily rendered" in connection with the rental
of real property and not otherwise considered "rendered to the occupant."
Prohibited Transactions Tax.
A REIT will
incur a 100% tax on the net income derived from any sale or other disposition
of property, other than foreclosure property, that the REIT holds primarily for
sale to customers in the ordinary course of a trade or business. We believe
that none of our portfolio assets are held for sale to customers and that a
sale of any of our portfolio assets would not be in the ordinary course of our
business. Whether a REIT holds an asset primarily for sale to customers in the
ordinary course of a trade or business depends, however, on the facts and
circumstances in effect from time to time, including those related to a
particular asset. Nevertheless, we will attempt to comply with the terms of
safe-harbor provisions in the federal income tax laws prescribing when an asset
sale will not be characterized as a prohibited transaction. We cannot assure
you, however, that we can comply with the safe-harbor provisions or that we
will avoid owning property that may be characterized as property that we hold
primarily for sale to customers in the ordinary course of a trade or business.
Sales of loans by our taxable REIT subsidiary, Fieldstone Mortgage, are not
subject to this 100% tax but Fieldstone Mortgage is subject to regular
corporate taxes on its net income.
It is our current intention that any securitizations that we undertake
with regard to our non-conforming loans will not be treated as sales for tax
purposes. On the other hand, if we were to transfer a mortgage loan to a REMIC,
this transfer would be treated as a sale for tax purposes and the sale may be
subject to the prohibited transactions tax. As a result, REMICs are not a
viable option for us to securitize our non-conforming mortgage loans. The
securitization that we closed on October 7, 2003 will be treated as a sale
for federal income tax purposes because we elected to treat the securitization
trust as a REMIC. Because this securitization closed before the effective date
of our REIT election, such sale will not be subject to the prohibited
transactions tax applicable to REITs. Since the effective date of our REIT
election, our taxable REIT subsidiary, Fieldstone Mortgage, continues to sell
the conforming loans that it originates on a whole loan sale basis and any
other loans the sale of which we believe would be subject to the prohibited
transactions tax.
Foreclosure Property.
Foreclosure
property is any real property, including interests in real property, and any
personal property incident to such real property:
·
that is
acquired by a REIT as the result of the REIT having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default or default
was imminent on a lease of such property or on indebtedness that such property
secured;
·
for which the
related loan was acquired by the REIT at a time when the default was not
imminent or anticipated; and
49
·
for which the
REIT makes a proper election to treat the property as foreclosure property.
However, a REIT will not be considered to have foreclosed on a property
where the REIT takes control of the property as a mortgagee-in-possession and
cannot receive any profit or sustain any loss except as a creditor of the
mortgagor.
Property generally ceases to be foreclosure
property at the end of the third taxable year following the taxable year in
which the REIT acquired the property, or longer if an extension is granted by
the Secretary of the Treasury. This grace period terminates and foreclosure
property ceases to be foreclosure property on the first day:
·
on which a
lease is entered into for the property that, by its terms, will give rise to
income that does not qualify for purposes of the 75% gross income test, or any
amount is received or accrued, directly or indirectly, pursuant to a lease
entered into on or after such day that will give rise to income that does not qualify
for purposes of the 75% gross income test;
·
on which any
construction takes place on the property, other than completion of a building
or any other improvement, where more than 10% of the construction was completed
before default became imminent; or
·
which is more
than 90 days after the day on which the REIT acquired the property and the
property is used in a trade or business that is conducted by the REIT, other
than through an independent contractor from whom the REIT itself does not
derive or receive any income.
We will be subject to tax at the maximum corporate rate on any income
from foreclosure property, other than income that otherwise would be qualifying
income for purposes of the 75% gross income test, less expenses directly
connected with the production of that income. However, income from foreclosure
property, including gain from the sale of foreclosure property held for sale in
the ordinary course of a trade or business, will qualify for purposes of the
75% and 95% gross income tests.
We may have the option to foreclose on
mortgage loans when a borrower is in default. The foregoing rules would
affect the implications of a decision by us to foreclose on a particular
mortgage loan and may affect whether we will choose to foreclose with regard to
a particular mortgage loan.
Asset Tests
At the close of each quarter of our taxable
year, we must satisfy six tests relating to the nature of our assets.
·
At least 75%
of the value of our total assets must be represented by the following:
·
interests in
real property, including leaseholds and options to acquire real property and
leaseholds;
·
interests in
mortgages on real property;
·
stock in
other REITs;
·
cash and cash
items;
·
government
securities;
·
investments
in stock or debt instruments attributable to the temporary investment of new
capital during the one-year period following our receipt of new capital that we
raise through equity offerings or public offerings of debt obligations with at
least a five-year term; and
50
·
regular or
residual interests in a REMIC. However, if less than 95% of the assets of a
REMIC consists of assets that are qualifying real estate-related assets under
the federal income tax laws, determined as if we held such assets directly, we
will be treated as holding directly our proportionate share of the assets of
such REMIC.
·
Not more than
25% of our total assets may be represented by securities, other than those in
the 75% asset class.
·
Except for
securities of taxable REIT subsidiaries and the securities in the 75% asset
class described in the first bullet point above, the value of any one issuer's
securities owned by us may not exceed 5% of the value of our total assets.
·
Except for
securities of taxable REIT subsidiaries, the securities in the 75% asset class
described in the first bullet point above and certain types of indebtedness
that are not treated as securities for purposes of this test, as discussed
below, we may not own more than 10% of any one issuer.
·
Not more than
20% of the value of our total assets may be represented by the securities of
one or more taxable REIT subsidiaries.
Our assets for purposes of these tests include our allocable share of
all assets held by any entities in which we own an interest that are
partnerships or disregarded entities (including qualified REIT subsidiaries)
for income tax purposes, and the subsidiaries of these partnerships or
disregarded entities that are partnerships or disregarded entities for income
tax purposes.
The asset tests described above are based on our total assets. With
regard to our securitizations for federal income tax purposes, we will be
treated as owning both the loans we hold directly and the loans that we have
securitized and with respect to which we have not made a REMIC election,
including, without limitation, the loans that we have securitized in 2004.
Although we will have a partially offsetting obligation with respect to the
securities issued pursuant to the securitizations, these offsetting obligations
will not reduce the total assets we are considered to own for purposes of the
asset tests. Because we elected to treat as a REMIC the securitization trust
used for the securitization that we closed on October 7, 2003, we are no
longer treated as owning the mortgage loans that we transferred in the
securitization; instead we are treated as owning interests in a REMIC, with the
consequences described above and under "—Taxable Mortgage Pools and REMICs" and
"—Income Tests."
Securities, for purposes of the asset tests, may include debt we hold
from other issuers. However, the Code specifically provides that the following
types of debt will not be taken into account as securities for purposes of the
10% value test: (i) securities that meet the "straight debt" safe harbor,
as discussed in the next paragraph; (ii) loans to individuals or estates; (iii) obligations
to pay rents from real property; (iv) rental agreements described in Section 467
of the Code (other than such agreements with related party tenants); (v) securities
issued by other REITs; (vi) debt issued by partnerships that derive at
least 75% of their gross income from sources that constitute qualifying income
for purposes of the 75% gross income test; (vii) any debt not otherwise
described in this paragraph that is issued by a partnership, but only to the
extent of our interest as a partner in the partnership; (viii) certain
securities issued by a state, the District of Columbia, a foreign government,
or a political subdivision of any of the foregoing, or the Commonwealth of
Puerto Rico; and (ix) any other arrangement described in future Treasury
regulations.
51
Debt will meet the "straight debt" safe harbor if (i) neither we,
nor any of our taxable REIT subsidiaries, own any securities not described in
the preceding paragraph that have an aggregate value greater than one percent
of the issuer's outstanding securities, as calculated under the Internal
Revenue Code, (ii) the debt is a written unconditional promise to pay on
demand or on a specified date a sum certain in money, (iii) the debt is
not convertible, directly or indirectly, into stock, and (iv) the interest
rate and the interest payment dates of the debt are not contingent on the
profits, the borrower's discretion or similar factors. However, contingencies
regarding time of payment and interest are permissible for purposes of
qualifying as a straight debt security if either (i) such contingency does
not have the effect of changing the effective yield of maturity, as determined
under the Code, other than a change in the annual yield to maturity that does
not exceed the greater of (x) 5% of the annual yield to maturity or (y) 0.25%,
or (ii) neither the aggregate issue price nor the aggregate face amount of
the issuer's debt instruments held by the REIT exceeds $1,000,000 and not more
than 12 months of unaccrued interest can be required to be prepaid
thereunder. In addition, debt will not be disqualified from being treated as "straight
debt" solely because the time or amount of payment is subject to a contingency
upon a default or the exercise of a prepayment right by the issuer of the debt,
provided that such contingency is consistent with customary commercial
practice.
We believe that all or substantially all of the mortgage loans that we
are considered to own for purposes of these rules are qualifying assets
for purposes of the 75% asset test. For purposes of these rules, however, if
the outstanding principal balance of a mortgage loan exceeds the fair market
value of the real property securing the loan, a portion of such loan likely
will not be a qualifying real estate asset under the federal income tax laws. Although
the law on the matter is not entirely clear, it appears that the non-qualifying
portion of that mortgage loan will be equal to the portion of the loan amount
that exceeds the value of the associated real property that is security for
that loan. To the extent that we own debt securities issued by C corporations
that are not secured by mortgages on real property, those debt securities will
not be qualifying assets for purposes of the 75% asset test. We will monitor
the status of our assets for purposes of the various asset tests and will seek
to manage our portfolio to comply at all times with such tests. There can be no
assurances, however, that we will be successful in this effort. In this regard,
to determine our compliance with these requirement, we will need to estimate
the value of the real estate securing our mortgage loans at various times. In
addition, we will have to value our investment in Fieldstone Mortgage and our
other assets to ensure compliance with the 20% asset test applicable to our
investment in one or more taxable REIT subsidiaries. Although we will seek to
be prudent in making these estimates, there can be no assurances that the IRS
might not disagree with these determinations and assert that a lower value is
applicable, in which case we might not satisfy the 75% and 20% asset tests and
would fail to qualify as a REIT.
After initially meeting the asset tests after the close of any quarter,
we will not lose our status as a REIT if we fail to satisfy the asset tests at
the end of a later quarter solely by reason of changes in the relative values
of our assets. If the failure to satisfy the asset tests results from an
increase in the value of our assets after the acquisition of securities or
other property during a quarter, the failure can be cured by a disposition of
sufficient non-qualifying assets within 30 days after the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and to take any available action within
30 days after the close of any quarter as may be required to cure any
noncompliance with the asset tests. We cannot ensure that these steps always
will be successful. If we fail to cure the noncompliance with the asset tests
within this 30-day period, we could fail to qualify as a REIT, except as
described below.
For our taxable years beginning after December 31, 2004, the
failure to satisfy the asset tests can be remedied even after the 30-day
cure period. If the total value of the assets that caused a failure of the 5%
limitation, the 10% voting securities limitation or the 10% value limitation
does not exceed either 1% of our assets at the end of the relevant quarter or
$10,000,000, we can cure such a failure by disposing of
52
sufficient assets to cure such a violation
within six months following the last day of the quarter in which we first
identify the failure of the asset test. For a violation of any of the asset
tests attributable to the ownership of assets, the total value of which exceeds
the amount described in the preceding sentence, we can avoid disqualification
as a REIT if the violation is due to reasonable cause and we dispose of an
amount of assets sufficient to cure such violation within the six-month period
described in the preceding sentence, pay a tax equal to the greater of $50,000
or the highest corporate tax rate multiplied by the net income generated by the
non-qualifying assets during the period of time that the assets were held as
non-qualifying assets, and file a schedule with the Internal Revenue
Service that describes the assets.
We currently believe that the loans,
securities and other assets that we hold satisfy the foregoing asset test
requirements. However, no independent appraisals will be obtained to support
our conclusions as to the value of our assets and securities, or in many cases,
the real estate collateral for the mortgage loans that we hold. Moreover,
values of some assets may not be susceptible to a precise determination. As a
result, there can be no assurance that the IRS will not contend that our
interest in securities and other assets will not cause a violation of the asset
tests applicable to REITs.
Annual Distribution Requirements Applicable to REITs
To qualify as a REIT, we generally must
distribute dividends (other than capital gain dividends) to our shareholders in
an amount at least equal to:
·
the sum of (i) 90%
of our REIT taxable income, computed without regard to the dividends paid
deduction and our net capital gain and (ii) 90% of our net income after tax,
if any, from foreclosure property;
minus
·
the excess of
the sum of specified items of non-cash income (including original issue
discount on our mortgage loans) over 5% of our REIT taxable income, computed
without regard to the dividends paid deduction and our net capital gain.
Distributions generally must be made during the taxable year to which
they relate. Distributions may be made in the following year in two
circumstances. First, if we declare a dividend in October, November, or December of
any year with a record date in one of these months and pay the dividend on or
before January 31 of the following year, we will be treated as having paid
the dividend on December 31 of the year in which the dividend was
declared. Second, distributions may be made in the following year if the
dividends are declared before we timely file our tax return for the year and if
made before the first regular dividend payment made after such declaration. To
the extent that we do not distribute all of our net capital gain or distribute
at least 90%, but less than 100% of our REIT taxable income, as adjusted, we
will be subject to tax on the undistributed amount at regular corporate tax
rates.
Furthermore, we will incur a 4% nondeductible excise tax on the excess
of the required distribution over the sum of the amounts actually distributed
and amounts retained for which federal income tax was paid if we fail to
distribute during a calendar year (or, in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January following such calendar year) at least the
excess of the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95%
of our REIT capital gain net income for such year and (iii) any undistributed
taxable income from prior periods, over excess distributions from prior years.
We may elect to retain rather than distribute all or a portion of our
net capital gains and pay the tax on the gains. In that case, we may elect to
have our stockholders include their proportionate share of the undistributed
net capital gains in income as long-term capital gains and receive a credit for
their share of the tax paid by us. For purposes of the 4% excise tax described
above, any retained amounts for which we elect this treatment would be treated
as having been distributed.
53
We intend to make timely distributions sufficient to satisfy the
distribution requirements. It is possible that, from time to time, we may not
have sufficient cash to meet the distribution requirements due to timing
differences between (i) the actual receipt of cash, including the receipt
of distributions from subsidiaries, and (ii) the inclusion of items of
income by us for federal income tax purposes. Other potential sources of
non-cash taxable income include loans and securities that are financed through
securitization structures, which require some or all of the available interest
income from these assets to be used to repay principal on these borrowings;
distressed loans on which we may be required to accrue interest or discount
income even though the borrower is unable to make current or past due debt
service payments; and, to a limited extent, loans or mortgage backed securities
held by us as assets that are issued at a discount and require the accrual of
taxable income in advance of the receipt of the related cash flow. In the event
that such timing differences occur, and in other circumstances, it might be
necessary in order to satisfy the distribution requirements to arrange for
short-term, or possibly long-term, borrowings, or to pay the dividends in the
form of taxable in-kind distributions of property (including, for example, our
own debt securities).
Under some circumstances, we may be able to
rectify a failure to meet the distribution requirement for a year by paying
deficiency dividends to shareholders in a later year, which may be included in
our deduction for dividends paid for the earlier year. Thus, we may be able to
avoid being taxed on amounts distributed as deficiency dividends. However, we
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
Record Keeping Requirements
We are required to comply with applicable
record keeping requirements. Failure to comply could result in monetary fines.
For example, we must request on an annual basis information from our
shareholders designed to disclose the actual ownership of our outstanding
common stock.
Failure to Qualify
For our taxable years beginning after December 31,
2004, if we do not comply with one or more of the conditions required for
qualification as a REIT (other than the asset tests and the income tests that
have the specific savings clauses discussed above in "—Asset Tests" and "—Income
Tests"), we can avoid disqualification of our REIT status by paying a penalty
of $50,000 for each such failure, provided that our noncompliance was due to
reasonable cause and not willful neglect. If we fail to qualify for taxation as
a REIT in any taxable year and the relief provisions do not apply, we will be
subject to tax, including any applicable alternative minimum tax, on our
taxable income at regular corporate rates. This would significantly reduce both
our cash available for distribution to our stockholders and our earnings and
could affect the trading price of our common stock. If we fail to qualify as a
REIT, we will not be required to make any distributions to stockholders and any
distributions that are made will not be deductible by us. Moreover, all
distributions to stockholders would be taxable as dividends to the extent of
our current and accumulated E&P, whether or not attributable to capital
gains of ours. Subject to certain limitations of the Internal Revenue Code,
corporate distributees may be eligible for the dividends received deduction
with respect to those distributions, and individual distributees may be
eligible for the reduced income tax rate of 15% or less on such dividends.
Unless we are entitled to relief under specific statutory provisions, we also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. We cannot state whether
in all circumstances we would be entitled to this statutory relief.
54
Taxation of U.S.
Holders of Our Common Stock
U.S. Holder.
As
used in the remainder of this discussion, the term "U.S. holder" means a
beneficial owner of our common stock that is for United States federal income
tax purposes:
·
a citizen or
resident alien individual, as defined in Section 7701(b) of the Internal
Revenue Code, of the United States;
·
a
corporation, partnership, limited liability company or other entity treated as
a corporation or partnership for federal income tax purposes, created or
organized in or under the laws of the United States or any state or the
District of Columbia, unless, in the case of a partnership, Treasury
regulations provide otherwise;
·
an estate the
income of which is subject to United States federal income taxation regardless
of its source; or
·
in general, a
trust subject to the primary supervision of a United States court and the
control of one or more United States persons or a trust that was in existence
on August 20, 1996 and has made a valid election to be treated as a U.S.
person.
In the case of an entity treated as a partnership for United States
federal income tax purposes that holds our common stock, the treatment of its
partners generally will depend upon the status of the partner and the
activities of the partnership. Persons that have an indirect interest in our common
stock through entities treated as partnerships for federal income tax purposes
should consult their tax advisors.
A "non-U.S. holder" is a holder of our common stock who is not a "U.S.
holder."
Distributions Generally.
As
long as we qualify as a REIT, distributions made to taxable U.S. holders of our
common stock out of current or accumulated earnings and profits that are not
designated as capital gain dividends or "qualified dividend income" will be
taken into account by them as ordinary income taxable at ordinary income tax
rates and will not qualify for the maximum 15% capital gains rate that
generally applies to distributions by non-REIT C corporations to stockholders
who are taxed as individuals. In determining the extent to which a distribution
constitutes a dividend for tax purposes, our earnings and profits will be
allocated first to distributions with respect to our preferred stock, if any,
and then to our common stock. Corporate stockholders will not be eligible for
the dividends received deduction with respect to these distributions.
Distributions in excess of both current and accumulated earnings and
profits will not be taxable to a U.S. holder to the extent that the
distributions do not exceed the adjusted basis of the holder's stock. Rather,
such distributions will reduce the adjusted basis of the stock. To the extent
that distributions exceed the adjusted basis of a U.S. holder's stock, the
distributions will be taxable as capital gains, assuming the stock is held as a
capital asset in the hands of the U.S. holder.
Distributions will generally be taxable, if at all, in the year of the
distribution. However, if we declare a dividend in October, November, or December of
any year with a record date in one of these months and pay the dividend on or
before January 31 of the following year, we will be treated as having paid
the dividend, and the shareholder will be treated as having received the
dividend, on December 31 of the year in which the dividend was declared.
Capital Gain Dividends.
We
may elect to designate distributions of our net capital gain as "capital gain
dividends." Capital gain dividends are taxed to U.S. holders of our stock as
gain from the sale or exchange of a capital asset held for more than one year.
This tax treatment applies regardless of the period during which the
stockholders have held their stock. If we designate any portion of a dividend
as a capital gain dividend, the amount that will be taxable to the shareholder
as capital gain will be indicated to U.S.
55
holders on IRS Form 1099-DIV.
Corporate stockholders, however, may be required to treat up to 20% of capital
gain dividends as ordinary income.
Instead of paying capital gain dividends, we may elect to require
stockholders to include our undistributed net capital gains in their income. If
we make such an election, U.S. holders (i) will include in their income as
long-term capital gains their proportionate share of such undistributed capital
gains and (ii) will be deemed to have paid their proportionate share of
the tax paid by us on such undistributed capital gains and thereby receive a
credit or refund for such amount. A U.S. holder of our stock will increase the
basis in its stock by the difference between the amount of capital gain
included in its income and the amount of tax it is deemed to have paid. Our
earnings and profits will be adjusted appropriately.
We must classify portions of our designated
capital gain dividend into the following categories:
·
a 15% gain
distribution, which would be taxable to non-corporate U.S. holders of our stock
at a maximum rate of 15%; or
·
an
unrecaptured Section 1250 gain distribution, which would be taxable to
non-corporate U.S. holders of our stock at a maximum rate of 25%.
We must determine the maximum amounts that we may designate as 15% and
25% capital gain dividends by performing the computation required by the
Internal Revenue Code as if the REIT were an individual whose ordinary income
were subject to a marginal tax rate of at least 28%. Designations made by the
REIT only will be effective to the extent that they comply with Revenue Ruling
89-81, which requires that distributions made to different classes of
stock be composed proportionately of dividends of a particular type.
Recipients of capital gain dividends that are taxed at corporate income
tax rates will be taxed at the normal corporate income tax rates on those
dividends.
Qualified Dividend Income.
Distributions
that are treated as dividends may be taxed at capital gains rates, rather than
ordinary income rates, if they are distributed to a non-corporate taxpayer, are
properly designated by us as qualified dividend income and certain other
requirements are satisfied. Dividends are eligible to be designated by us as
qualified dividend income up to an amount equal to the sum of the qualified
dividend income received by us during the year of the distribution from other C
corporations (including Fieldstone Mortgage), our "undistributed" REIT taxable
income from the immediately preceding year, and any income attributable to the
sale of a built-in gain asset from the immediately preceding year (reduced by
any federal income taxes that we paid with respect to such REIT taxable income
and built-in gain).
Dividends that we receive will be treated as qualified dividend income
to us if certain criteria are met. For example, the dividends must be received
from a domestic corporation (other than a REIT or a regulated investment
company) or a qualifying foreign corporation. A foreign corporation generally
will be a qualifying foreign corporation if it is incorporated in a possession
of the United States, the corporation is eligible for benefits of an income tax
treaty with the United States which the Secretary of Treasury determines is
satisfactory, or the stock on which the dividend is paid is readily tradable on
an established securities market in the United States. However, if a foreign
corporation is either a foreign personal holding company, a foreign investment
company or a passive foreign investment company, then it will not be treated as
a qualifying foreign corporation and the dividends we receive from such an
entity would not constitute qualified dividend income.
Furthermore, certain exceptions and special rules apply in order to
determine whether dividends may be treated as qualified dividend income to us.
These rules include certain holding requirements that we would have to
satisfy with respect to the stock on which the dividend is paid, and special rules with
regard to dividends received from regulated investment companies and other
REITs.
56
In addition, even if we designate certain dividends as qualified
dividend income to our shareholders, the stockholder will have to meet certain
other requirements for the dividend to qualify for taxation at capital gains
rates. For example, the stockholder will only be eligible to treat the dividend
as qualifying dividend income if the stockholder is taxed at individual rates
and meets certain holding requirements. In general, in order to treat a
particular dividend as qualified dividend income, a stockholder will be
required to hold our stock for at least 61 days during the 121-day
period beginning on the date that is 60 days before the date on which the
stock becomes ex-dividend. A longer holding period may apply to preferred
dividends that are attributable to a period or periods aggregating in excess of
366 days.
Other Tax Considerations.
Distributions
made by us and gain arising from the sale or exchange by a U.S. holder of our
stock will not be treated as passive activity income, and as a result, U.S.
holders of our stock generally will not be able to apply any "passive losses"
against this income or gain. In addition, taxable distributions from us
generally will be treated as investment income for purposes of the investment
interest limitations. A non-corporate U.S. holder of our stock may elect to
treat capital gain dividends, capital gains from the disposition of stock and
income designated as qualified dividend income as investment income for
purposes of the investment interest limitation, in which case the applicable
gains will be taxed at ordinary income tax rates. U.S. holders of our stock may
not include in their individual income tax returns any of our net operating
losses or capital losses. Our operating or capital losses would be carried over
by us for potential offset against future income, subject to applicable
limitations.
If "excess inclusion income" from a taxable mortgage pool or a REMIC is
allocated to any U.S. holder, which will generally occur to the extent we have
excess inclusion income that exceeds our undistributed REIT taxable income in a
particular year, this income will be taxable in the hands of the U.S. holder
and would not be offset by any net operating losses of the U.S. holder that
would otherwise be available. See "Our Taxation as a REIT—Taxable Mortgage
Pools and REMICs."
Sales of Our Common Stock.
Upon any taxable sale or other disposition of our common
stock, a U.S. holder of our common stock will recognize gain or loss for
federal income tax purposes on the disposition of our common stock in an amount
equal to the difference between:
·
the amount of
cash and the fair market value of any property received on such disposition;
and
·
the U.S.
holder's adjusted basis in such common stock for tax purposes.
Gain or loss will be capital gain or loss if the common stock has been
held by the U.S. holder as a capital asset. The applicable tax rate will depend
on the holder's holding period in the asset (generally, if an asset has been
held for more than one year it will produce long-term capital gain) and the
holder's tax bracket. A U.S. holder who is an individual or an estate or trust
and who has long-term capital gain or loss will be subject to a maximum capital
gain rate of 15%. The IRS has the authority to prescribe, but has not yet
prescribed, regulations that would apply a capital gain tax rate of 25% (which
is generally higher than the long-term capital gain tax rates for non-corporate
holders) to a portion of capital gain realized by a non-corporate holder on the
sale of REIT common stock that would correspond to the REIT's "unrecaptured Section 1250
gain." Holders are advised to consult with their own tax advisors with respect
to their capital gain tax liability. A corporate U.S. holder will be subject to
tax at a maximum rate of 35% on capital gain from the sale of our stock.
In general, any loss upon a sale or exchange
of our common stock by a U.S. holder who has held such stock for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss, but only to the extent of distributions from us
received by such U.S. holder that are required to be treated by such U.S.
holder as long-term capital gains.
57
U.S. Taxation of
Non-U.S. Holders of Our Common Stock
Distributions.
Distributions
by us to a non-U.S. holder of our common stock that are neither attributable to
gain from sales or exchanges by us of "U.S. real property interests" nor
designated by us as capital gains dividends will be treated as dividends of
ordinary income to the extent that they are made out of our current or
accumulated earnings and profits. These distributions ordinarily will be
subject to U.S. federal income tax on a gross basis at a rate of 30%, or a
lower rate as permitted under an applicable income tax treaty, unless the
dividends are treated as effectively connected with the conduct by the non-U.S.
holder of a U.S. trade or business. Under some treaties, however, lower rates
generally applicable to dividends do not apply to dividends from REITs.
Further, reduced treaty rates are not available to the extent that the income
allocated to the foreign shareholder is excess inclusion income. Excess
inclusion income will generally be allocated to our shareholders to the extent
we have "excess inclusion income" that exceeds our undistributed REIT taxable
income in a particular year. See "Our Qualification and Taxation as a
REIT—Taxable Mortgage Pools and REMICs." Dividends that are effectively
connected with a trade or business will be subject to tax on a net basis, that
is, after allowance for deductions, at graduated rates, in the same manner as
U.S. holders are taxed with respect to these dividends, and are generally not
subject to withholding. Applicable certification and disclosure requirements must
be satisfied to be exempt from withholding under the effectively connected
income exception. Any dividends received by a corporate non-U.S. holder that is
engaged in a U.S. trade or business also may be subject to an additional branch
profits tax at a 30% rate, or lower applicable treaty rate. We expect to
withhold U.S. income tax at the rate of 30% on any dividend distributions, not
designated as (or deemed to be) capital gain dividends, made to a non-U.S.
holder unless:
·
a lower
treaty rate applies and the non-U.S. holder files an IRS Form W-8BEN
with us evidencing eligibility for that reduced rate is filed with us; or
·
the non-U.S.
holder files an IRS Form W-8ECI with us claiming that the
distribution is income effectively connected with the non-U.S. holder's trade
or business.
Distributions in excess of our current or accumulated earnings and
profits that do not exceed the adjusted basis of the non-U.S. holder in its
common stock will reduce the non-U.S. holder's adjusted basis in its common
stock and will not be subject to U.S. federal income tax. Distributions in
excess of current and accumulated earnings and profits that do exceed the
adjusted basis of the non-U.S. holder in its common stock will be treated as
gain from the sale of its stock, the tax treatment of which is described below.
See "U.S. Taxation of Non-U.S. Holders of Our Common Stock—Sales of Our Common
Stock."
We may be required to withhold at least 10% of any distribution in
excess of our current and accumulated earnings and profits, even if a lower
treaty rate applies or the non-U.S. holder is not liable for tax on the receipt
of that distribution. However, a non-U.S. holder may seek a refund of these
amounts from the IRS if the non-U.S. holder's U.S. tax liability with respect
to the distribution is less than the amount withheld.
Distributions to a non-U.S. holder that are
designated by us at the time of the distribution as capital gain dividends,
other than those arising from the disposition of a U.S. real property interest,
generally should not be subject to U.S. federal income taxation unless:
·
the
investment in the common stock is effectively connected with the non-U.S.
holder's trade or business, in which case the non-U.S. holder will be subject
to the same treatment as U.S. holders with respect to any gain, except that a
holder that is a foreign corporation also may be subject to the 30% branch
profits tax, as discussed above; or
58
·
the non-U.S.
holder is a nonresident alien individual who is present in the U.S. for
183 days or more during the taxable year and has a "tax home" in the U.S.,
in which case the nonresident alien individual will be subject to a 30% tax on
the individual's capital gains.
Except as described in the next sentence, distributions to a non-U.S.
holder that are attributable to gain from sales or exchanges by us of U.S. real
property interests, whether or not designated as a capital gain dividend, will
be subject to U.S. federal income tax in the manner described in the first
three paragraphs above under "—Distributions."
This treatment will not apply, however, to any such distribution
received with respect to a class of stock that is not regularly traded on an
established securities market located in the United States or is paid to a
non-U.S. holder who owns, at any time during the tax year in which the
distribution is received, more than 5% of the class of stock with regard to
which the distribution is paid. Under the Foreign Investment in Real Property
Tax Act, which is referred to as "FIRPTA," a non-U.S. holder receiving a
distribution described in the previous sentence will be treated as recognizing
gain that is income effectively connected with a U.S. trade or business.
Non-U.S. holders will be taxed on this gain at the same rates applicable to
U.S. holders, subject to a special alternative minimum tax in the case of
nonresident alien individuals. Also, this gain may be subject to a 30% (or
lower applicable treaty rate) branch profits tax in the hands of a non-U.S.
holder that is a corporation. We will be required to withhold and remit to the
Internal Revenue Service 35% (or 15% to the extent provided for in Treasury
regulations) of any such distribution to non-U.S. holders that is either
designated as a capital gain dividend, or, if greater, 35% (or 15% to the
extent provided for in Treasury regulations) of a distribution that could have
been designated as a capital gain dividend. Distributions can be designated as
capital gains to the extent of our net capital gain for the taxable year of the
distribution. The amount withheld is creditable against the non-U.S. holder's
U.S. federal income tax liability.
Although the law is not clear on the matter, it appears that amounts we
designate as undistributed capital gains in respect of the stock held by U.S.
holders generally should be treated with respect to non-U.S. holders in the
same manner as actual distributions by us of capital gain dividends. Under that
approach, the non-U.S. holders would be able to offset as a credit against any
United States federal income tax liability resulting therefrom their
proportionate share of the tax paid by us on the undistributed capital gains,
and to receive from the IRS a refund to the extent that their proportionate
share of this tax paid by us were to exceed their actual United States federal
income tax liability.
Sales of Our Common Stock.
Gain
recognized by a non-U.S. holder upon the sale or exchange of our stock
generally would not be subject to United States taxation unless:
·
the
investment in our common stock is effectively connected with the non-U.S.
holder's U.S. trade or business, in which case the non-U.S. holder will be
subject to the same treatment as domestic holders with respect to any gain;
·
the non-U.S.
holder is a nonresident alien individual who is present in the United States
for 183 days or more during the taxable year and has a tax home in the
United States, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's net capital gains for the taxable year; or
·
our common
stock constitute a U.S. real property interest within the meaning of FIRPTA, as
described below.
59
Our common stock will not constitute a United States real property
interest if we either are not a U.S. real property holding corporation or we
are a domestically-controlled REIT. Whether we are a U.S. real property holding
corporation will depend upon whether the fair market value of U.S. real
property interests owned by us equals or exceeds 50% of the fair market value
of these interests, any interests in real estate outside of the United States,
and our other trade and business assets. Because our assets will consist
primarily of single-family residential mortgage loans, we do not expect that
our assets will cause us to be considered a U.S. real property holding
corporation. We will be a domestically-controlled REIT if, at all times during
a specified testing period, less than 50% in value of our stock is held
directly or indirectly by non-U.S. holders. We believe that, currently, we are
a domestically-controlled REIT and, therefore, that the sale of our common
stock would not be subject to taxation under FIRPTA. Because our stock will
become publicly traded, however, we cannot guarantee that we will remain a
domestically-controlled REIT.
Even if we were a U.S. real property holding
corporation and did not qualify as a domestically-controlled REIT at the time a
non-U.S. holder sells our stock, the gain from such a sale by such a non-U.S.
holder will not be subject to FIRPTA tax if:
·
the class or
series of stock sold is considered regularly traded under applicable Treasury
regulations on an established securities market; and
·
the selling
non-U.S. holder owned, actually or constructively, 5% or less in value of the
outstanding class or series of stock being sold during the shorter of the
period during which the non-U.S. holder held such class or series of stock or
the five-year period ending on the date of the sale or exchange.
If gain on the sale or exchange of our
common stock were subject to taxation under FIRPTA, a non-U.S. holder would be
subject to regular U.S. income tax with respect to any gain in the same manner
as a taxable U.S. holder, subject to any applicable alternative minimum tax and
special alternative minimum tax in the case of nonresident alien individuals.
Taxation of Tax-Exempt Holders
Provided that a tax-exempt holder has not held its common stock as "debt
financed property" within the meaning of the Internal Revenue Code and our
shares of stock are not being used in an unrelated trade or business, the
dividend and interest income from us generally will not be unrelated business
taxable income, referred to as UBTI, to a tax-exempt holder. Similarly, income
from the sale of our common stock will not constitute UBTI unless the
tax-exempt holder has held its common stock as debt financed property within
the meaning of the Internal Revenue Code or has used the common stock in a
trade or business. To the extent, however, that we, or a part of us, or a
disregarded subsidiary of ours, is a taxable mortgage pool, or we hold residual
interests in a REMIC, a portion of the dividends paid to a tax-exempt
stockholder that is allocable to excess inclusion income may be subject to tax
as UBTI. Excess inclusion income will generally be allocated to our
stockholders to the extent we have excess inclusion income that exceeds our
undistributed REIT taxable income in a particular year. See "Our Qualification
and Taxation as a REIT—Taxable Mortgage Pools and REMICs."
Further, for a tax-exempt holder that is a social club, voluntary
employee benefit association, supplemental unemployment benefit trust, or
qualified group legal services plan exempt from federal income taxation under
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, or a single parent title-holding corporation exempt under Section 501(c)(2) the
income of which is payable to any of the aforementioned tax-exempt
organizations, income from an investment in our common stock will constitute
UBTI unless the organization properly sets aside or reserves such amounts for
purposes specified in the Internal Revenue Code. These tax-exempt holders
should consult their own tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" are treated as UBTI as to any trust which is described in Section 401(a) of
the Internal Revenue Code, is tax-
60
exempt under Section 501(a) of the
Internal Revenue Code, and holds more than 10%, by value, of the interests in
the REIT. Tax-exempt pension funds that are described in Section 401(a) of
the Internal Revenue Code are referred to below as "pension trusts."
A REIT is a "pension held REIT" if it meets
the following two tests:
·
it would not
have qualified as a REIT but for Section 856(h)(3) of the Internal
Revenue Code, which provides that stock owned by pension trusts will be
treated, for purposes of determining whether the REIT is closely held, as owned
by the beneficiaries of the trust rather than by the trust itself; and
·
either (i) at
least one pension trust holds more than 25% of the value of the interests in
the REIT, or (ii) a group of pension trusts each individually holding more
than 10% of the value of the REIT's stock, collectively owns more than 50% of
the value of the REIT's stock.
The percentage of any REIT dividend from a "pension
held REIT" that is treated as UBTI is equal to the ratio of the UBTI earned by
the REIT, treating the REIT as if it were a pension trust and therefore subject
to tax on UBTI, to the total gross income of the REIT. An exception applies
where the percentage is less than 5% for any year, in which case none of the
dividends would be treated as UBTI. The provisions requiring pension trusts to
treat a portion of REIT distributions as UBTI will not apply if the REIT is not
a "pension held REIT" (for example, if the REIT is able to satisfy the "not
closely held requirement" without relying on the "look through" exception with
respect to pension trusts). Based on the current estimated ownership of our
common stock and the limitations on transfer and ownership of common stock in
our charter, we do not expect to be classified as a "pension held REIT."
Backup Withholding Tax and Information
Reporting
U.S. Holders of Common Stock.
In
general, information-reporting requirements will apply to payments of dividends
and interest on and payments of the proceeds of the sale of our common stock
held by U.S. holders, unless an exception applies.
The payor is required to withhold tax on such payments, currently at the
rate of 28%, if (i) the payee fails to furnish a taxpayer identification
number, or TIN, to the payor or to establish an exemption from backup
withholding, or (ii) the IRS notifies the payor that the TIN furnished by
the payee is incorrect.
In addition, a payor of the dividends or interest on our common stock is
required to withhold tax at a rate of 28% if (i) there has been a notified
payee under-reporting with respect to interest, dividends or original issue
discount described in Section 3406(c) of the Internal Revenue Code,
or (ii) there has been a failure of the payee to certify under the penalty
of perjury that the payee is not subject to backup withholding under the
Internal Revenue Code.
A U.S. shareholder that does not provide us with a correct taxpayer
identification number may also be subject to penalties imposed by the IRS.
Some U.S. holders of our common stock, including corporations, may be
exempt from backup withholding. Any amounts withheld under the backup
withholding rules from a payment to a shareholder will be allowed as a
credit against the shareholder's United States federal income tax and may
entitle the shareholder to a refund, provided that the required information is
furnished to the IRS.
The payor will be required to furnish annually to the IRS and to holders
of our common stock information relating to the amount of dividends and
interest paid on our common stock, and that information reporting may also
apply to payments of proceeds from the sale of our common stock. Some holders,
including corporations, financial institutions and certain tax-exempt
organizations, are generally not subject to information reporting.
61
Non-U.S. Holders of Our Common Stock.
Generally,
information reporting will apply to payments of interest and dividends on our
common stock, and backup withholding described above for a U.S. holder will
apply, unless the payee certifies that it is not a U.S. person or otherwise
establishes an exemption.
The payment of the proceeds from the disposition of our common stock to
or through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and backup withholding as described above for U.S.
holders unless the non-U.S. holder satisfies the requirements necessary to be
an exempt non-U.S. holder or otherwise qualifies for an exemption. The proceeds
of a disposition by a non-U.S. holder of our common stock to or through a
foreign office of a broker generally will not be subject to information
reporting or backup withholding. However, if the broker is a U.S. person, a
controlled foreign corporation for U.S. tax purposes, a foreign person 50% or
more of whose gross income from all sources for specified periods is from
activities that are effectively connected with a U.S. trade or business, a
foreign partnership if partners who hold more than 50% of the interest in the partnership
are U.S. persons, or a foreign partnership that is engaged in the conduct of a
trade or business in the U.S., then information reporting generally will apply
as though the payment was made through a U.S. office of a U.S. or foreign
broker.
Applicable Treasury regulations provide
presumptions regarding the status of a holder of our common stock when payments
to such holder cannot be reliably associated with appropriate documentation
provided to the payer. Because the application of these Treasury regulations
varies depending on the stockholder's particular circumstances, you are advised
to consult your tax advisor regarding the information reporting requirements
applicable to you.
Sunset of Reduced Tax Rate Provisions
Several of the tax considerations described
herein are subject to a sunset provision. The sunset provisions generally
provide that for taxable years beginning after December 31, 2008, certain
provisions that are currently in the Internal Revenue Code will revert back to
a prior version of those provisions. These provisions include provisions
related to the reduced maximum income tax rate for capital gains of 15% (rather
than 20%) for taxpayers taxed at individual rates, qualified dividend income,
including the application of the 15% capital gains rate to qualified dividend
income, and certain other tax rate provisions described herein. The impact of
this reversion is not discussed herein. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of sunset provisions
on an investment in our common stock.
Tax Aspects of Our Investments in
Partnerships, Limited Liability Companies and Business Trusts
General.
The ownership
by us of an interest in one or more partnerships, limited liability companies
or business trusts may involve special tax considerations. These tax
considerations include the following:
·
the
allocations of income and expense items of the subsidiary partnerships, limited
liability companies or business trusts, which could affect the computation of
our taxable income;
·
the status of
each subsidiary partnership, limited liability company or business trust as a
partnership or entity disregarded as separate from its owner (as opposed to an
association taxable as a corporation) for income tax purposes; and
·
the taking of
actions by any of the subsidiary partnerships, limited liability companies or
business trusts that could adversely affect our qualification as a REIT.
We believe that any subsidiary partnership, limited liability company or
business trust in which we own or acquire an interest will be treated for
income tax purposes as a partnership or entity disregarded as separate from its
owner (and not as an association taxable as a corporation). If any subsidiary
partnership, limited liability company or business trust were to be treated as
a corporation, and we owned less than 100% of the interests in such entity, it
would be subject to an entity level tax on its income. In such a situation, the
character of our assets and items of gross income would change, which could
preclude us
62
from satisfying the asset tests and possibly
the income tests, and in turn prevent us from qualifying as a REIT.
Ownership of Partnership Interests and Interests in a
Disregarded Entity by a REIT.
If we own 100% of the interests in a limited
liability company or a business trust, and the entity is not treated as a
corporation for tax purposes, then we will be treated as owning the assets, and
having earned the income, of such entity directly.
If we are a partner in an entity treated as
a partnership for income tax purposes, we will be deemed to own our
proportionate share of the assets of the partnership and will be deemed to earn
our proportionate share of the partnership's income. In addition, the assets
and gross income of such a partnership retain the same character in our hands
for purposes of the gross income and asset tests applicable to REITs. Thus, our
proportionate share of the assets and items of income of these partnerships is
treated as our assets and items of income for purposes of applying the asset
and income tests. It is our current intention to have direct control of any
entity in which we own an interest that is treated as a partnership for income
tax purposes and to operate the partnership in a manner that is consistent with
the requirements for qualification as a REIT.
State and Local Taxes
We and our stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which we or they transact
business or reside. Our state and local tax treatment and that of our
stockholders may not conform to the federal income tax treatment discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
our common stock.
A portion of our income is earned through
Fieldstone Mortgage. Fieldstone Mortgage is subject to federal and state income
tax at normal applicable corporate rates. In addition, Fieldstone Mortgage may
be limited in its ability to deduct some payments made to us. To the extent
that we and Fieldstone Mortgage are required to pay federal, state and local
taxes, we will have less cash available for distribution to our stockholders.
Tax Shelter Reporting
If a stockholder recognizes a loss with
respect to our stock of at least (i) for a stockholder that is an
individual, S corporation, trust or a partnership with at least one
noncorporate unitholder, $2 million or more in a single taxable year or
$4 million or more in a combination of taxable years, or (ii) for a
shareholder that is either a corporation or a partnership with only corporate
unitholders, $10 million or more in a single taxable year or
$20 million or more in a combination of taxable years, such stockholder
may be required to file a disclosure statement with the IRS on Form 8886.
Direct stockholders of portfolio securities are in many cases exempt from this
reporting requirement, but stockholders of a REIT currently are not excepted. The
fact that a loss is reportable under these regulations does not affect the
legal determination of whether the taxpayer's treatment of the loss is proper.
Stockholders should consult their tax advisors to determine the applicability
of these regulations in light of their individual circumstances.
LEGAL MATTERS
The validity of the common stock has been
passed upon for us by Hogan & Hartson L.L.P.
EXPERTS
The consolidated financial statements of
Fieldstone Investment Corporation and Subsidiaries as of December 31, 2004
and 2003, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended December 31,
2004, including Schedule IV-mortgage loans on real estate as of December 31,
2004, have been incorporated by reference
63
herein and in the
registration statement of which this prospectus is a part in reliance upon the
reports of KPMG LLP, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Maryland General Corporation Law (MGCL) permits a
Maryland corporation to include in its charter a provision limiting the
liability of its directors and officers to the corporation and its stockholders
for money damages except for liability resulting from (a) actual receipt
of an improper benefit or profit in money, property or services, or (b) active
and deliberate dishonesty established by a final judgment as being material to
the cause of action.
Our charter contains a provision that eliminates the
above-described liability to the maximum extent permitted by the MGCL. Our
charter and bylaws obligate us, to the maximum extent permitted by Maryland law,
to indemnify any person who is or was a party to, or is threatened to be made a
party to, any threatened or pending proceeding by reason of the fact that such
person is or was a director or officer of the Registrant, or while a director
or officer of the Registrant is or was serving, at our request, as a director,
officer, agent, partner or trustee of another corporation, partnership, joint
venture, limited liability company, trust, real estate investment trust,
employee benefit plan or other enterprise. To the maximum extent permitted by
Maryland law, the indemnification provided for in our charter and bylaws shall
include expenses (including attorney's fees), judgments, fines and amounts paid
in settlement, and any such expenses may be paid or reimbursed by us in advance
of the final disposition of any such proceeding.
The MGCL requires a corporation (unless its charter
provides otherwise, which our charter does not) to indemnify a director or
officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (1) was committed in bad faith or (2) was
the result of active and deliberate dishonesty; (b) the director or
officer actually received an improper personal benefit in money, property or
services; or (c) in the case of any criminal proceeding, the director or
officer had reasonable cause to believe that the act or omission was unlawful.
However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation's receipt of (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation, and (b) a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met.
WHERE YOU CAN FIND MORE INFORMATION ABOUT
FIELDSTONE INVESTMENT CORPORATION
We are subject to the informational
requirements of the Exchange Act, and file reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-8 under the Securities Act, including exhibits
and schedules, for the shares of our common stock to be offered by the selling
stockholders, from time to time, pursuant to the registration statement of
which this prospectus is a part. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information, we refer you to the
64
registration
statement, including the exhibits and schedules filed with the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document referred to in this prospectus are not necessarily
complete and, where that contract is an exhibit to the registration statement,
we refer you to the full text of the contract or other document filed as an
exhibit to the registration statement. Copies of the registration statement,
including the exhibits and schedules to the registration statement, may be
examined without charge at the public reference room of the SEC, 100 F. Street,
N.W., Room 1580, Washington, DC 20549. Information about the operation of
the public reference room may be obtained by calling the SEC at (202) 551-8090.
Copies of all or a portion of the registration statement can be obtained from
the public reference room of the SEC upon payment of prescribed fees. Our SEC
filings, including our registration statement, are also available to you free
of charge on the SEC's website at
www.sec.gov
and on our website at
www.FieldstoneInvestment.com
.
Website Access to our Periodic SEC Reports
Our corporate website is
www.FieldstoneInvestment.com
.
Our periodic SEC reports (on Forms 10-K and 10-Q) and current
reports (on Form 8-K), as well as the beneficial ownership reports
filed by our directors, officers and 10% shareholders (on Forms 3, 4 and 5),
are available free of charge through our website as soon as reasonably
practicable after they are filed electronically with the SEC. We may from time
to time provide important disclosures to investors by posting them in the
investor relations section of our website, as allowed by SEC rules. The
information on our website is not a part of this prospectus.
65
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3.   Incorporation of Documents by Reference.
The following
documents previously filed by the Registrant with the SEC are incorporated by
reference into this Registration Statement:
·
The
Registrant's Prospectus dated April 4, 2005 (File No. 333-114802), as
filed with the SEC pursuant to Rule 424(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which includes audited financial
statements for the Registrant for the fiscal year ended December 31, 2004.
·
The
Registrant's Quarterly Reports on Form 10-Q for the quarters ended March 31,
2005 and June 30, 2005.
·
The
Registrant's Current Reports on Form 8-K, as filed with the SEC on April 6,
2005, April 22, 2005, May 4, 2005, May 16, 2005, June 27,
2005 and August 2, 2005.
·
The
Registrant's Definitive Proxy Statement, as filed with the SEC on April 1, 2005
for our 2005 Annual Meeting of Stockholders.
·
The
description of the Registrant's Common Stock contained in the registration
statement on Form 8-A filed on September 14, 2004.
Any report or other
document subsequently filed by the Registrant pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment that indicates that all securities offered have been
sold or which de-registers all securities then remaining unsold shall be deemed
to be incorporated by reference into this Registration Statement and to be part
hereof from the date of filing of such report or other document. Any statement
in a report or document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for the purposes of this
Registration Statement to the extent that a statement contained herein or in
any other subsequently filed report or document which also is or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Registration Statement. The
Registrant is not however, incorporating by reference any documents, or
portions of documents, that are not deemed "filed" with the SEC, including any
information furnished pursuant to Items 2.02 or 7.01 of Form 8-K.
Item 4.   Description of Securities.
Not applicable.
Item 5.   Interests of Named Experts and Counsel.
Not applicable.
Item 6.   Indemnification of Directors and
Officers.
The Maryland General Corporation Law ("MGCL") permits
a Maryland corporation to include in its charter a provision limiting the
liability of its directors and officers to the corporation and its stockholders
for money damages except for liability resulting from (a) actual receipt
of an improper benefit or profit in money, property or services, or (b) active
and deliberate dishonesty established by a final judgment as being material to
the cause of action.
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1
The Registrant's charter contains a provision that
eliminates the above-described liability to the maximum extent permitted by the
MGCL. The Registrant's charter and bylaws obligate it, to the maximum extent
permitted by Maryland law, to indemnify any person who is or was a party to, or
is threatened to be made a party to, any threatened or pending proceeding by
reason of the fact that such person is or was a director or officer of the
Registrant, or while a director or officer of the Registrant is or was serving,
at the Registrant's request, as a director, officer, agent, partner or trustee
of another corporation, partnership, joint venture, limited liability company,
trust, real estate investment trust, employee benefit plan or other enterprise.
To the maximum extent permitted by Maryland law, the indemnification provided
for in the Registrant's charter and bylaws shall include expenses (including
attorney's fees), judgments, fines and amounts paid in settlement, and any such
expenses may be paid or reimbursed by the Registrant in advance of the final
disposition of any such proceeding. The MGCL requires a corporation (unless its
charter provides otherwise, which the Registrant's charter does not) to
indemnify a director or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. The MGCL permits a corporation to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (1) was committed
in bad faith or (2) was the result of active and deliberate dishonesty; (b) the
director or officer actually received an improper personal benefit in money,
property or services; or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission
was unlawful.
However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation's receipt of (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation, and (b) a
written undertaking by or on his behalf to repay the amount paid or reimbursed
by the corporation if it shall ultimately be determined that the standard of
conduct was not met.
Item 7.   Exemption from Registration Claimed.
With respect to the 560,056 shares of common stock
constituting "restricted securities" under Rule 144 of the Securities Act
to be reoffered or resold pursuant to this registration statement, 495,016 of
these shares were issued pursuant to the Plan to our directors, officers and
employees in accordance with Rule 701 under the Securities Act. Of these
shares, 448,671 shares were granted directly as restricted stock awards to our
directors, officers and employees on November 13, 2003, 19,445 shares were
granted directly as restricted stock awards to our officers on February 25,
2004, 10,000 shares were granted directly as a restricted stock award to one of
our directors upon his appointment to our board of directors in August 2004,
and 16,900 shares were issued upon exercise of options previously awarded under
the Plan to our officers and employees.
The remaining 65,040
shares constituting "restricted securities" under Rule 144 of the
Securities Act represent the maximum number of shares that may be awarded to
recipients upon the achievement of performance targets set forth in performance
share awards granted by the Registrant to certain of its executive and senior
officers on June 22, 2005 in reliance on the exemption from registration
under the Securities Act provided in Section 4(2) of the Securities
Act.
II-
2
Item 8.   Exhibits.
Exhibit
Number
Description
3.1
Articles of Amendment and Restatement of the
  Registrant(1)
3.2
Bylaws of the Registrant(2)
4.1
Fieldstone Investment Corporation Equity Incentive
  Plan(3)
5.1
Opinion of Hogan & Hartson L.L.P. (filed
  herewith)
23.1
Consent of Hogan & Hartson L.L.P. (included
  in Exhibit 5.1)
23.2
Consent of KPMG LLP (filed herewith)
24.1
Power of Attorney (included on the signature
  page hereof)
(1)
Incorporated
by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-11
filed with the SEC on April 23, 2004 (SEC File No. 333-114802).
(2)
Incorporated by
reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-11
filed with the SEC on April 23, 2004 (SEC File No. 333-114802).
(3)
Incorporated by
reference to Exhibit 10.1 to Amendment No. 9 to the Registrant's
Registration Statement on Form S-11 filed with the SEC on January 31,
2005 (SEC File No. 333-114802).
Item 9.   Undertakings.
(a)   The
undersigned registrant hereby undertakes:
(1)   To file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement:
(i)
To include any
prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
To reflect in the
prospectus any facts or events arising after the effective date of this
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and
(iii)
To include any material
information with respect to the plan of distribution not previously disclosed
in this Registration Statement or any material change to such information in
this Registration Statement;
provided,
however,
that
paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Exchange Act that
are incorporated by reference in this Registration Statement.
(2)   That, for
the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial
bona fide
offering thereof.
(3)   To remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
(b)   The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of
II-
3
the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
(h)   Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, executive officers and controlling persons of the
registrant pursuant to the provisions described in Item 6 above, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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4
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant,
Fieldstone Investment Corporation, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-8 and
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Howard, State of
Maryland, on this 18th day of August, 2005.
FIELDSTONE
  INVESTMENT CORPORATION
(registrant)
By:
/s/ MICHAEL J.
  SONNENFELD
Michael
  J. Sonnenfeld
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes
and appoints Michael J. Sonnenfeld, as his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments, exhibits thereto and
other documents in connection therewith) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, granting unto said attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature
Title
Date
/s/ MICHAEL J. SONNENFELD
President and Chief Executive Officer, Director
August 18, 2005
Michael J. Sonnenfeld
(Principal
  Executive Officer)
/s/ ROBERT G. PARTLOW
Chief Financial Officer
August 18, 2005
Robert G. Partlow
(Principal
  Financial and Accounting Officer)
/s/ THOMAS D. ECKERT
Chairman of the Board
August 18, 2005
Thomas D. Eckert
/s/ DAVID S. ENGELMAN
Director
August 18, 2005
David S. Engelman
/s/ CELIA V. MARTIN
Director
August 18, 2005
Celia V. Martin
/s/ JONATHAN E. MICHAEL
Director
August 18, 2005
Jonathan E. Michael
/s/ DAVID A. SCHOENHOLZ
Director
August 18, 2005
David A. Schoenholz
/s/ JEFFREY R. SPRINGER
Director
August 18, 2005
Jeffrey R. Springer
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5
EXHIBIT INDEX
Exhibit
Number
Description
3.
1
Articles of Amendment and Restatement of the
  Registrant(1)
3.
2
Bylaws of the Registrant(2)
4.
1
Fieldstone Investment Corporation Equity Incentive
  Plan(3)
5.
1
Opinion of Hogan & Hartson L.L.P. (filed
  herewith)
23.
1
Consent of Hogan & Hartson L.L.P. (included
  in Exhibit 5.1)
23.
2
Consent of KPMG LLP (filed herewith)
24.
1
Power of Attorney (included on the signature
  page hereof)
(1)
Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-11
filed with the SEC on April 23, 2004 (SEC File No. 333-114802).
(2)
Incorporated by
reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-11
filed with the SEC on April 23, 2004(SEC File No. 333-114802).
(3)
Incorporated by
reference to Exhibit 10.1 to Amendment No. 9 to the Registrant's
Registration Statement on Form S-11 filed with the SEC on January 31,
2005 (SEC File No. 333-114802).