Luminent Mortgage Capital, Inc. (Luminent), incorporated in April 2003, is a real estate investment trust (REIT). The Company invests primarily in the United States agency and other single-family, adjustable-rate, hybrid adjustable-rate and fixed-rate, mortgage-backed securities, which it acquires in the secondary market. During the year ended December 31, 2005, Luminent expanded its mortgage investments to include mortgage loan acquisition and securitization, as well as investments in mortgage-backed securities that have credit ratings of below AAA. The Company's investment in mortgage-backed securities principally consists of pass-through certificates, which are securities representing interests in pools of mortgage loans secured by residential real property. Pursuant to a management agreement between Seneca Capital Management LLC (Seneca) and the Company, Seneca manages the mortgage-backed securities held in the Company's Spread portfolio. Luminent's spread portfolio includes the United States agency and other single-family, adjustable-rate and hybrid adjustable-rate, mortgage-backed securities. Luminent holds investments in several types of mortgage-backed securities, including adjustable-rate, hybrid-adjustable rate and balloon maturity mortgage-backed securities, as well as collateralized mortgage obligations (CMOs). Adjustable-rate, mortgage-backed securities have an interest rate that varies over time and usually resets based on market interest rates. Hybrid adjustable-rate, mortgage-backed securities have a fixed-rate for the first few years, typically three, five, seven or 10 years, and thereafter reset periodically like a traditional adjustable-rate, mortgage-backed security. Balloon maturity mortgage-backed securities are a type of fixed-rate, mortgage-backed security, and therefore they have a static interest rate for the life of the loan. CMOs are a type of mortgage-backed security, in which interest and principal on a CMO are paid, in most cases, on a monthly basis. The Company does not invest in fixed-rate, mortgage-backed securities. The Company also invests in residential mortgage loans. The loans acquired by Luminent are first lien, single-family residential traditional adjustable-rate and hybrid adjustable-rate loans with original terms to maturity of not more than 40 years, and are either fully amortizing or are interest only for up to 10 years, and fully amortizing thereafter. It also invests in credit-sensitive residential mortgage securities. These mortgage-backed securities have credit ratings below AAA, and are sometimes referred to as subordinated residential mortgage-backed securities. Luminent acquires and accumulates mortgage loans. Mortgage loans are purchased through its network of origination partners, which include banks, mortgage bankers and other mortgage lenders. Luminent acquires other investments that include equity and debt securities issued primarily by other mortgage-related finance companies, interests in mortgage-related collateralized bond obligations, other subordinated interests in pools of mortgage-related assets, commercial mortgage loans and securities, equity investments in other REITs and residential mortgage loans other than high-credit quality mortgage loans.

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