PROSPECTUS SUPPLEMENT

We are offering 20,000,000 shares of our 10% Series F Cumulative Convertible Redeemable Preferred Stock, par value $0.01 per share, or “Series F Preferred Stock.” We will pay cumulative cash dividends on the Series F Preferred Stock if, when and as declared by our Board of Directors. Such dividends will be payable quarterly in an amount per share of Series F Preferred Stock equal to the greater of (i) $0.6250 per quarter (which is equal to an annual base rate of 10% of the $25.00 liquidation preference per share or $2.50 per year) or (ii) if, with respect to any calendar quarter, we distribute to the holders of our common stock, or “Common Stock,” any cash, including quarterly cash dividends, an amount that is the same percentage of the $25.00 liquidation preference per share of Series F Preferred Stock as the Common Stock dividend yield for that quarter. The Common Stock dividend yield for a quarter is the quotient (expressed as a percentage) obtained by dividing the cash per share of Common Stock distributed to holders of Common Stock with respect to such quarter by the average daily closing price of our Common Stock on the New York Stock Exchange, or the “NYSE,” for the ten trading days immediately following the day that any Common Stock dividend is declared for that quarter. Dividends on the Series F Preferred Stock will be payable quarterly in arrears on February 15, May 15, August 15 and November 15 or if such day is not a business day, the next succeeding business day. The first expected dividend payment date in respect of the Series F Preferred Stock offered hereby will be November 15, 2007 and will be for less than a full quarter. Holders of the Series F Preferred Stock shall have the right to one vote for each share of Common Stock into which such share of Series F Preferred Stock could then be converted. They will have additional voting rights if we fail to pay dividends for six or more quarters (whether or not consecutive) and in certain other events.

Shares of the Series F Preferred Stock are convertible at the option of the holder at any time into a number of shares of Common Stock determined by multiplying the number of shares of Series F Preferred Stock by the conversion rate then in effect. The conversion rate will initially be 2.1739 shares of Common Stock per share of Series F Preferred Stock, which is equivalent to an initial conversion price of $11.50 per share of Common Stock. The conversion rate is subject to adjustment upon the occurrence of certain events. On or after September 7, 2012, we may, at our option, require holders to convert the Series F Preferred Stock into that number of shares of Common Stock that are issuable at the conversion rate then in effect. We may exercise our conversion option only if the closing price of the Common Stock equals or exceeds 130% of the then prevailing conversion price of the Series F Preferred Stock for at least 20 trading days within any period of 30 consecutive trading days (including the last trading day of such period) ending on the trading day immediately prior to our issuance of a press release announcing the exercise of our conversion option.

If at any time both (i) the Series F Preferred Stock is not listed on the NYSE, or the American Stock Exchange, or “AMEX,” or quoted on the NASDAQ Stock Market, Inc., or “NASDAQ,” and (ii) we are not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” we will have the option to redeem the Series F Preferred Stock, in whole but not in part, within 90 days after the date upon which the Series F Preferred Stock ceases to be listed and we cease to be subject to such reporting requirements, for cash at $25.00 per share, plus all accumulated, accrued and unpaid dividends (whether or not declared), if any, to and including the redemption date. Except as described above and in limited circumstances to preserve our status as a real estate investment trust, or “REIT,” we may not redeem the Series F Preferred Stock before September 7, 2012. On or after September 7, 2012, we may, at our option, redeem the Series F Preferred Stock, in whole or in part, at any time and from time to time, for cash at a price of $25.00 per share, plus accumulated, accrued and unpaid dividends (whether or not declared), if any, to and including the date of redemption. Any partial redemption will generally be on a pro rata basis. The Series F Preferred Stock has no stated maturity date and we are not required to redeem the Series F Preferred Stock.

No market currently exists for our Series F Preferred Stock. We anticipate that the Series F Preferred Stock will be listed on the NYSE, under the symbol “TMA PRF.” Our Common Stock is listed on the NYSE under the symbol “TMA,” our 8.00% Series C Cumulative Redeemable Preferred Stock, or “Series C Preferred Stock,” is listed on the NYSE under the symbol “TMA PRC,” our Series D Adjusting Rate Cumulative Redeemable Preferred Stock, or “Series D Preferred Stock,” is listed on the NYSE under the symbol “TMA PRD,” and our 7.50% Series E Cumulative Convertible Redeemable Preferred Stock, or “Series E Preferred Stock,” is listed on the NYSE under the symbol “TMA PRE.”

Investing in our Series F Preferred Stock involves risks. See “Recent Developments” beginning on page S-4 and “ Risk Factors” beginning on page S-16 of this prospectus supplement, on page 9 of the accompanying base prospectus and on page 15 of our Annual Report on Form 10-K for the year ended December 31, 2006.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement and the accompanying base prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We have granted the underwriter a 30-day option to purchase up to an additional 3,000,000 shares of Series F Preferred Stock from us to cover over-allotments, if any. The underwriter expects that the Series F Preferred Stock will be ready for delivery in book-entry form through the facilities of The Depository Trust Company on or about September 7, 2007.

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

Base Prospectus


		Page
About This Prospectus		1
Forward-Looking Statements		1
About Thornburg Mortgage, Inc.		1
Risk Factors		9
Use of Proceeds		13
Ratio of Earnings to Fixed Charges		13
Description of Debt Securities		14
Description of Equity Securities		19
Federal Income Tax Considerations		26
Plan of Distribution		37
Experts		38
Legal Matters		38
Where You Can Find More Information		38
Incorporation of Certain Documents by Reference		39

This document is in two parts. The first part is the prospectus supplement which describes our business and the terms of this offering. The second part is the base prospectus which gives more general information, some of which may not apply to this offering. Generally, when we refer to the “prospectus,” we refer to both this prospectus supplement and the accompanying base prospectus combined. If information varies between this prospectus supplement, the accompanying base prospectus or the documents we have incorporated by reference, you should rely on the most recent information. If information in an incorporated document conflicts with information in another incorporated document, you should rely on the information in the most recent incorporated document.

This prospectus supplement and the accompanying base prospectus contain or incorporate by reference certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of the Exchange Act, that are based on our current expectations, estimates and projections. Pursuant to those sections, we may obtain a “safe harbor” for forward-looking statements by identifying those statements and by accompanying those statements with cautionary statements, which identify factors that could cause actual results to differ from those expressed in the forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. The words “believe,” “anticipate,” “intend,” “aim,” “expect,” “will,” “strive,” “target,” “project,” “estimate,” “have confidence,” and similar words identify forward-looking statements. Such statements are not guarantees of future performance, events or results and involve potential risks and uncertainties. Accordingly, our actual results may differ from our current expectations, estimates and projections. Important factors that may impact our actual results or may cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf include, but are not limited to, changes in interest rates, changes in yields available for purchase on adjustable and variable rate mortgage assets, changes in the yield curve, changes in prepayment rates, changes in the supply of mortgage-backed securities and loans, changes in market prices for mortgage securities, our ability to obtain financing and the terms of any financing that we do obtain. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Recent Developments” and “Risk Factors” in this prospectus supplement, in the accompanying base prospectus and in our Annual Report on Form 10-K. We do not undertake to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

This summary highlights selected information about us. This summary may not contain all of the information that is important to you. We encourage you to read this prospectus supplement and the accompanying base prospectus, as well as the documents that are incorporated by reference into the accompanying base prospectus, in their entireties. You should carefully consider the factors set forth under the captions “Recent Developments” beginning on page S-4 of this Prospectus Supplement and “Risk Factors” beginning on page 15 of our Annual Report on Form 10-K for the year ended December 31, 2006, on page S-16 of this prospectus supplement and on page 9 of the accompanying base prospectus before making an investment decision to purchase shares of our Series F Preferred Stock. Unless the context otherwise requires, all references to “we,” “us” or the “Company” in this prospectus supplement and the accompanying base prospectus refer to Thornburg Mortgage, Inc. and its subsidiaries. Unless otherwise indicated, the information in this prospectus supplement assumes that the underwriter does not exercise the over-allotment option described under the caption “Underwriting.”

We commenced operations in 1993. Our Common Stock is listed on the NYSE under the symbol “TMA,” our Series C Preferred Stock is listed on the NYSE under the symbol “TMA PRC,” our Series D Preferred Stock is listed on the NYSE under the symbol “TMA PRD,” and our Series E Preferred Stock is listed on the NYSE under the symbol “TMA PRE.” We are a single-family residential mortgage lender that originates, acquires and retains investments in adjustable rate mortgage, or “ARM,” assets, thereby providing capital to the single-family residential housing market. Our ARM assets consist of purchased ARM assets and ARM loans, or “ARM Assets,” and are comprised of traditional ARM Assets, which have interest rates that reprice in a year or less, and hybrid ARM Assets, which have a fixed interest rate for an initial period of three to ten years before converting to traditional ARM Assets for their remaining terms to maturity. Purchased ARM assets are mortgage-backed securities that represent interests in pools of ARM loans, which are publicly rated and issued by third parties and may include guarantees or other third-party credit enhancements against losses from loan defaults. ARM loans are either loans that we have securitized from our own loan origination or acquisition activities, loans that we use as collateral to support the issuance of collateralized mortgage debt or loans pending securitization. Like traditional banking institutions, our income is generated primarily from the net spread or difference between the interest income we earn on our ARM Assets and the cost of our borrowings. Our strategy is to maximize the long-term sustainable difference between the yield on our ARM Assets and the cost of financing these assets, and to maintain that difference through interest rate and credit cycles.

While we are not a bank or savings and loan institution, our business purpose, strategy, method of operation and risk profile are best understood in comparison to such institutions. We have financed the purchases and originations of our ARM Assets with equity capital, unsecured debt, collateralized mortgage debt and short-term borrowings such as reverse repurchase agreements, asset-backed commercial paper, whole loan financing facilities, and other collateralized financings that we may establish in the future. When we borrow short-term or floating-rate funds to finance our hybrid ARM Assets, we also enter into interest rate hedging transactions, which are intended to fix, or cap, our borrowing costs during the fixed-rate period of the hybrid ARM Assets. We believe we have minimized our exposure to changes in interest rates since the assets we hold are primarily ARM Assets and we generally match the effective duration, which is a calculation expressed in months or years that is a measure of the expected price change of financial instruments based on changes in interest rates, of those assets with funding of comparable effective duration. We have a policy to operate with an adjusted equity-to-assets ratio of at least 8%. This is a non-GAAP capital utilization measurement that we use to limit the amount of assets we carry relative to the amount of equity on our balance sheet. For a description of this ratio and a reconciliation to a comparable GAAP utilization measurement, please see our most recently filed periodic report under the section entitled “Capital Utilization and Leverage.” Moreover, we focus on acquiring high quality assets to minimize potential credit losses and to ensure our access to financing. Our operating structure has resulted in operating costs well below those of other mortgage originators. Our corporate structure differs from most lending

institutions in that we are organized for tax purposes as a REIT, and, therefore, pay substantially all of our earnings in the form of dividends to shareholders.

The 12 members of our management team have an average of 26 years of experience in the fields of mortgage lending, investment advisory and management services, financial services, capital markets, financial reporting and marketing, providing us with significant expertise in the key disciplines required for success in our business. We are an externally advised REIT and are managed under a management agreement with Thornburg Mortgage Advisory Corporation, which manages our operations, subject to the supervision of our Board of Directors.

Our principal executive offices are located at 150 Washington Avenue, Suite 302, Santa Fe, New Mexico 87501 and our telephone number is (505) 989-1900.

Our internet website address is www.thornburgmortgage.com. The information on our website is not considered part of this prospectus supplement or the accompanying base prospectus. We make available free of charge, through our website, under the “Investor Information—SEC Filings” section, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports that we file or furnish pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or the “SEC.”

You may also find our Code of Business Conduct and Ethics, Corporate Governance Guidelines and the charters of the Audit Committee, Nominating/Corporate Governance Committee and Compensation Committee of our Board of Directors at our website under the “Investor Information—Corporate Governance” section. These documents are also available in print free of charge to anyone who requests them by writing to us at the following address: 150 Washington Avenue, Suite 302, Santa Fe, New Mexico, 87501, or by phoning us at 1-888-898-8698.

In early August 2007, the secondary market for financing prime quality mortgage assets and rated mortgage-backed securities (“MBS”) came under severe pressure for a number of reasons. During 2007, lower credit quality loans and securities backed by subprime mortgage loans and, to a lesser extent, Alt-A mortgage loans were downgraded by ratings agencies as the credit performance of the underlying loans deteriorated and, as a result, the prices of securities backed by those loans declined. In late July and early August, concerns were fueled among mortgage investors owning MBS as a result of (i) suggestions by mortgage originators that credit problems were beginning to appear in their prime mortgage loan portfolios, (ii) bankruptcy filings of some mortgage lenders, and (iii) public announcements by several large mortgage originators that they were planning to cease lending in the prime jumbo segment of the mortgage market because of a lack of ability to sell those mortgages in the secondary market. In response to these market events and the concerns that they created among mortgage investors, market prices of private-label MBS backed by prime mortgage loans suddenly and unexpectedly began to decline despite falling interest rates and investors in mortgage securities and loans backed by high quality mortgages rapidly curtailed their purchases of mortgage loans and securities in the secondary mortgage market. Further affecting our liquidity situation was the fact that investors began to buy Treasury securities as a “safe haven” for investing, pushing down Treasury securities yields and interest rate swap yields. Since we had a substantial hedging position in interest rate swap agreements, our liquidity was also adversely affected by the decline in the value of these hedging instruments.

The secondary market for financing and selling mortgage assets operates through several channels. One channel is the market for securities backed by mortgage loan collateral. The deterioration in this asset-backed market was precipitated, in part, by a series of rating agency downgrades in the non-prime segment of this market in 2007. This led first to a decline in the issuance of new MBS and, shortly thereafter, a complete halt in the

issuance of securities backed by lower credit quality loan collateral. To sell these MBS or effect financings, the interest rates on these mortgage securities had to be increased. Most traditional buyers, however, were suddenly unwilling to buy at any price regardless of the quality of the underlying loans. We had regularly issued asset-backed securities backed by our own originated high quality mortgage loans in order to permanently finance our mortgage loans and had done so as recently as July 31, 2007, but were suddenly unable to finance loans in this fashion.

A second channel for financing mortgage loans and mortgage securities is the commercial paper market which involves rolling short-term borrowing secured by MBS or other mortgage assets. A number of Alt-A lenders and subprime lenders that had been using the commercial paper market to fund their loans and securities went out of business or declared bankruptcy in 2007. As many of these commercial paper issuers ran into their own financing difficulties, they exercised extendable maturity features instead of paying off maturing amounts on their commercial paper. As a result, commercial paper investors stopped investing in mortgage-backed commercial paper with extendable maturities. As an issuer of commercial paper with an extendable maturity feature, we were unable to continue rolling over our maturing commercial paper as a result of the general disruption in the commercial paper market. To date, we have paid all of our commercial paper at maturity in part from sales of assets and in part from a transfer of collateral to reverse repurchase agreements. However, we are not currently able to issue new commercial paper as that market is still not functioning.

With two readily available sources of loan and securities financing suddenly not available, we turned to the reverse repurchase agreement market as another source of balance sheet funding. There was, however, an increased demand for reverse repurchase agreement financing as others also sought financing in this market. The financing requests appeared greater than the amount of financing that reverse repurchase agreement dealers could provide, leading dealers to limit the financing they were willing to make available. Declining MBS prices compounded the problem and many borrowers in the reverse repurchase agreement market did not have enough liquidity to meet their margin requirements. As a result, they were forced to sell their loan or securities collateral. As mortgage securities were sold, prices declined further and trading activity in the secondary market for mortgage assets diminished, which triggered more margin calls by reverse repurchase agreement dealers. Further, because of the decline in trading activity, many dealers found it increasingly difficult to sell securities in the market. Some dealers began to increase their margin requirements at the same time that prices were falling. This further fueled the acceleration of collateral liquidations, leading to further declines in mortgage securities prices. As a result, the reverse repurchase agreement market, while functioning, is no longer functioning as it had prior to these events. In spite of these market stresses, we have retained some of our ability to borrow in the reverse repurchase agreement market in part because we have reduced the size of our reverse repurchase agreement borrowings and in part because we have satisfied the margin requirements of our current reverse repurchase counterparties.

Another vehicle that we use to finance our mortgage assets is the warehouse lending market. Warehouse financing lines are temporary financing facilities in which loans are aggregated pending permanent financing, which is usually achieved through some form of securitization transaction. To date, we continue to be able to finance our loans on our warehouse lines and have been able to add small amounts of new or previously funded loans to those facilities. We believe that we have several securitization options available to us, which may include the issuance of a collateralized mortgage debt obligation, the creation of a pass-through securitization that would be financed in the reverse repurchase agreement market, or the sale of those securitized loans, that will enable us to pay off our warehouse lenders and allow us to continue to fund and warehouse new loans.

These significant disruptions in our sources of secondary market financing, continued declines in the market value of our securities portfolio, and increases in margin requirements have adversely reduced our cash and liquidity and led to the actions described below.

On August 14, 2007, we announced that our Board of Directors had rescheduled the payment date of our previously declared second quarter Common Stock dividend of $0.68 per share to September 17, 2007. The

dividend was originally scheduled to be paid on August 15, 2007 to shareholders of record on August 3, 2007. The Board of Directors took this action in response to the recent significant disruptions in the mortgage market described above which resulted in the sudden and unprecedented decline in the market prices of our AAA-rated mortgage securities that began on August 9, 2007 and subsequent increase in margin calls related to our reverse repurchase agreement financings on those securities, coincident with decreased value on our hedging instruments due to falling interest rate swap rates, which also had to be collateralized. Under normal market conditions, mortgage asset prices would rise in periods when interest rates fall, helping to offset the value decline in our hedging instruments. In light of these market disruptions, the Board of Directors determined that preserving cash would be more beneficial for our shareholders than would paying the dividend on the originally scheduled payment date.

On August 20, 2007, we announced that we had undertaken the following actions in order to stabilize our financing needs (All amounts are estimated as of August 17, 2007 and do not reflect certain normal recurring adjustments for the period from August 1, 2007 to August 17, 2007. We do not believe that the amounts are likely to be material to the information presented below.):

The sale of MBS resulted in the reduction of (i) our mortgage asset portfolio from $56.4 billion at June 30, 2007 to approximately $36.4 billion at August 17, 2007, (ii) our reverse repurchase agreement and commercial paper borrowings from $32.9 billion at June 30, 2007 to approximately $12.4 billion at August 17, 2007, (iii) our total borrowings from $54.5 billion at June 30, 2007 to approximately $34.8 billion at August 17, 2007, and (iv) our unencumbered assets from $1.6 billion at June 30, 2007 to approximately $819 million at August 17, 2007. Our mortgage asset portfolio at August 17, 2007 consisted of the following: (i) approximately $10.6 billion of ARM securities, (ii) approximately $810 million of purchased securitized loans, (iii) approximately $2.5 billion of ARM loans securitized by the Company, (iv) approximately $20.7 billion of ARM loans collateralizing debt, and (v) approximately $1.7 billion of ARM loans held for securitization. Our operating debt at August 17, 2007, consisted of the following: (i) approximately $9.1 billion of reverse repurchase agreements; (ii) approximately $3.3 billion of asset-backed commercial paper, (iii) approximately $20.3 billion of collateralized mortgage debt, and (iv) approximately $1.5 billion of whole loan financing. Our shareholders’ equity at August 17, 2007 consisted of (i) approximately $330 million of preferred stock and (ii) approximately $1.5 billion of Common Stock, paid-in capital, accumulated other comprehensive loss and accumulated deficit. At August 17, 2007, (i) our debt/equity ratio was approximately 18.5 times, (ii) our weighted average coupon was approximately 5.82%, (iii) our weighted average cost of funds was approximately 5.01%, (iv) the difference between the interest rates on our mortgage assets and our cost of funds, which excludes any premium amortization, was approximately 0.81% as compared to 0.61% at June 30, 2007, and (v) the unamortized cost basis at which we held our ARM assets was approximately 100.74%. Notably, the difference between the interest rate on our mortgage assets and our cost of funds increased by 0.20% between June 30, 2007 and August 17, 2007 because the majority of assets sold had a lower interest rate than the average in our portfolio. The increased spread is expected to result in a higher rate of return on the reduced portfolio.

Because of these actions, we estimate that we will realize an aggregate approximate loss of $863 million, considered a capital loss for tax purposes, as a result of mortgage securities sales for the quarter ending September 30, 2007. This market value loss is considered to be an estimate and is likely to be further revised between now and the end of the quarter as additional information is received related to some asset sales that were undertaken by some of our reverse repurchase agreement counterparties. A majority of the $700 million that was already reflected as an accumulated comprehensive loss on our consolidated balance sheet at June 30, 2007 relates to the estimated loss of $863 million. Further, as a result of the termination of our interest rate hedging instruments, we realized a net gain of approximately $5 million, the majority of which will be recorded in other comprehensive income and amortized over the remaining life of those hedging instruments as required by FAS 133. Unrealized gains on hedging instruments included in accumulated comprehensive loss at June 30, 2007

totaled $315 million. Despite the significant reduction in our hedge position, we calculate that the Net Effective Duration of our hybrid ARM portfolio currently exceeds one year, which is outside our permitted policy of having a Net Effective Duration of one year or less. For purposes of this prospectus supplement, the definition of Net Effective Duration has the same meaning as that found in the Glossary beginning on page 64 of our Quarterly Report on Form 10-Q for the period ended June 30, 2007 filed with the SEC on August 8, 2007. Given our current Net Effective Duration position, we would benefit if short-term interest rates were to fall and we would be negatively affected if short-term interest rates were to rise. Once our liquidity has stabilized, we expect to add additional hedging instruments to our portfolio in order to reduce our current Net Effective Duration to within our permitted policy. In addition, the asset sales will have a material impact on our earnings in the current quarter and for the balance of the year.

Our book value is estimated to be $12.61 as of August 17, 2007, which includes an estimated unrealized market value loss on our remaining mortgage securities portfolio of $2.42 per share reflected as an accumulated comprehensive loss, compared to $14.28 per share estimated as of August 13, 2007, and $19.38 per share as of June 30, 2007. The further decline in book value is reflective of the continued mortgage market deterioration as well as the market impact of our sale activities, not a change in the credit quality of our mortgage assets. At present, 93.7% of our real estate assets are rated AA or AAA and our 60-day plus delinquent loans increased by only 2 basis points between June 30, 2007 and July 31, 2007, to 0.23% from 0.21%, or 79 delinquent loans out of approximately 38,000 loans in our portfolio. In addition, we believe the weighted average FICO of our ARM loan portfolio of 744 and the weighted average effective original loan-to-value of 67.1% as of June 30, 2007 have not changed materially as of August 17, 2007.

Our ability to continue to fund loans for our existing customers and lending partners has also been adversely affected as a result of disruptions in the secondary market for financing loans and our liquidity situation. Our loan fundings over the past several weeks have declined significantly, and we have currently delayed the funding of approximately $231.6 million of loans for our customers and lending partners pending stabilization of our liquidity position. Additionally, in order to minimize any potential consumer liability related to accepting loan locks and then not being able to fund such locks, we have temporarily suspended accepting new locks. We review our lock situation on a daily basis.

To qualify as a REIT for U.S. federal income tax purposes, we must meet two gross income tests on an annual basis. First, we must derive at least 75% of our gross income on an annual basis from certain real estate-related sources including interest on obligations secured by real property. Second, we must derive at least 95% of our gross income each year from such real estate-related sources, and other types of passive income, including dividends, interest and gains from the sale of stock or other financial instruments not held for sale in the ordinary course of business. Income we earn with respect to certain REIT qualified hedging transactions is excluded for purposes of determining our compliance with the 95% gross income test, while income earned with respect to certain other nonqualified hedging transactions is treated as nonqualifying income for purposes of the 95% gross income test. As a result of the termination of certain of our hedging instruments as described above, we recognized a significant amount of hedging income which will be nonqualifying for purposes of the 95% gross income test. In addition, the sale of a significant portion of our MBS portfolio will result in a decrease to our total qualifying 95% gross income for this year. In order to mitigate the amount of income which does not qualify for the 95% annual gross income test, we intend to transfer to a taxable REIT subsidiary, or “TRS,” certain hedging instruments currently producing nonqualifying income for purposes of the 95% gross income test.

We currently project that we will satisfy the 95% gross income test for 2007 by a narrow margin. We may, however, be forced to sell additional assets or terminate additional hedging in transactions to meet liquidity needs and avoid interest rate exposure given the uncertainty in the mortgage market. Any such actions, or delays in transferring certain hedging instruments to a TRS, could adversely affect our ability to meet the 95% gross income test for 2007. Accordingly, there is no assurance that the results of our operations for the current taxable year will allow us to satisfy the 95% gross income test. If we were to fail the 95% gross income test, we could be liable for a penalty tax or fail to maintain our qualification as a REIT, depending on whether the failure was determined to be based on reasonable cause. Payment of a penalty tax would reduce our cash available for

distribution to our shareholders. If we were unable to maintain our qualification as a REIT, our income would be subject to U.S. federal income taxation, which would have a material adverse effect on our results of operations.

Since August 17, 2007, the following additional developments relating to our Company have transpired:

Since announcing on August 20, 2007, an aggregate approximate loss of $930 million for the third quarter resulting from the sale of approximately $20.5 billion of primarily AAA-rated MBS, we have been able to recover approximately $67 million related to asset sales that were undertaken by some of our reverse repurchase agreement counterparties. We expect that these recoveries will enable us to reduce the amount of our estimated loss by the amount of the recoveries. We believe that there may be additional recoveries, which could further decrease our estimated aggregate loss. However, there can be no assurance that we will realize any such additional recoveries. Our estimated loss is likely to be further revised between now and the end of the quarter as additional information is received related to certain asset sales that were undertaken by some of our reverse purchase agreement counterparties.

On August 20, 2007, we also announced that as a result of the termination of approximately $41.1 billion of interest rate hedging instruments, we realized a net gain of approximately $40 million. Since that time, we have determined that we terminated approximately $43.8 billion of interest rate hedging agreements, and that we realized a net gain of approximately $5 million.

We also began funding existing pipeline loans as of this date, and expect that our loan lock desk will be able to begin locking loans for clients and accepting jumbo ARM applications in the near future. However, if market conditions do not improve and we are unable to secure additional long-term capital or short-term financing, we may not be able to continue funding existing pipeline loans or reopen our loan lock desk.

We are currently negotiating the financing of approximately $1.4 billion of prime hybrid ARM loans in a securitization. If this transaction is consummated, we expect to use the proceeds of the financing to reduce borrowings under our warehouse line by approximately $1.4 billion. The final terms of this transaction have not yet been determined, and there can be no assurance we will be able to consummate this transaction on acceptable terms, or at all.

Unfortunately, the secondary mortgage market continues to be in a constant state of change, and our cash and liquidity situation changes daily. We continue to pursue strategies intended to improve our cash and liquidity needs in order to continue to operate through this environment, but there is a risk that a recovery in the mortgage market will not occur or will be substantially delayed. We may become subject to additional margin calls on our remaining outstanding indebtedness or encounter difficulties in refunding our existing reverse repurchase agreements as they mature. If market conditions do not improve and we are unable to secure additional long-term capital (including, but not limited to, the proceeds from this offering), or secure short-term financing through reverse repurchase agreements, commercial paper or other alternative short-term financing, then we may have to continue selling assets, including our own securitized assets, which could result in the recognition of additional losses that are currently reflected in our GAAP book value or other comprehensive income. Further, at September 30, 2007, we will be in violation of our covenants in our warehouse financing agreements related to our profitability over the prior four quarters. Our current warehouse lenders are currently aware of this situation and are continuing to finance loans on the warehouse lines. The Company intends to obtain waivers from these lenders. However, if the warehouse lenders were to decide to cease financing our unsecuritized loans, we would likely have to curtail new loan fundings until such time as we could re-establish warehouse facilities. In addition, we may need to extend the period that we refrain from funding additional mortgage loans. Notwithstanding the above, given that approximately 56.9% of our mortgage assets at August 17, 2007 were permanently funded by

previously issued collateralized mortgage debt which is not subject to margin calls and that mortgage prices seem to be stabilizing, we expect to able to weather this difficult market environment.

On August 21, 2007, a complaint, or the “Original Complaint,” for a securities class action entitled Slater v. Thornburg, et al. was filed in the United States District Court for the District of New Mexico against the Company and certain of our officers and directors. The Original Complaint alleges that we and the other named defendants violated federal securities laws by issuing false and misleading statements in financial reports filed with the SEC, press releases and other public statements, which resulted in artificially inflated market prices of our Common Stock, and that the named plaintiff and the members of the putative class purchased Common Stock at these artificially inflated market prices between October 6, 2005 and August 17, 2007. The Original Complaint seeks unspecified money damages in favor of the putative class of purchasers of our securities, the costs and expenses of the action and other relief that may be granted by the court.

On August 24, 2007, a shareholder derivative complaint, or the “Derivative Complaint,” entitled Donio v. Thornburg, et al. was filed in the First Judicial District of New Mexico (Santa Fe County). The Derivative Complaint alleges that certain of our officers and directors violated state law, breached their fiduciary duties, and were unjustly enriched, during the period between October 2005 and the date of filing of the complaint, resulting in substantial monetary losses and other damages to the Company. The Derivative Complaint seeks unspecified money damages, the costs and expenses of the action, changes in corporate governance and internal procedures and other relief that may be granted by the court.

We anticipate that actions similar to the abovementioned actions may be filed in the future. We believe that the allegations in the abovementioned complaints are without merit and we intend to defend against these allegations vigorously.

We intend to file articles supplementary to our Articles of Incorporation to authorize 23,000,000 shares of Series F Preferred Stock.

The following table sets forth selected summary financial data from our audited consolidated financial statements for each of the three years in the period ended December 31, 2006 and from our unaudited consolidated financial statements for the six months ended June 30, 2007 and 2006. Our unaudited interim results, in the opinion of management, reflect all adjustments (consisting solely of normal recurring adjustments) which are necessary to present fairly the results for the unaudited interim period. Our unaudited interim results for the six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. You should read the following selected summary financial data in conjunction with the financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2006 and our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2007 and March 31, 2007, which are incorporated by reference into the accompanying base prospectus, as well as the section of this prospectus supplement entitled “Recent Developments” beginning on page S-4 which describes recent events and developments that have had and will continue to have a material impact on our financial condition and results of operations.

The following is a brief summary of certain terms of this offering. For a more complete description of the terms of the Series F Preferred Stock, see “Description of Series F Preferred Stock” in this prospectus supplement.

For additional information regarding the terms of the Series F Preferred Stock, see “Description of Series F Preferred Stock” beginning on page S-20 of this prospectus supplement.

This section describes some, but not all, of the risks of acquiring shares of Series F Preferred Stock in this offering. You should carefully consider these risks and the risks described under “Risk Factors” beginning on page 15 of our Annual Report on Form 10-K for the year ended December 31, 2006 and page 9 of the accompanying base prospectus, and “Recent Developments” beginning on page S-4 of this prospectus supplement, in addition to the other information contained or incorporated by reference in this prospectus supplement and the accompanying base prospectus, before acquiring shares of Series F Preferred Stock. In connection with the forward-looking statements that appear in this prospectus supplement and the accompanying base prospectus, you should also carefully review the cautionary statements referred to in “Forward-Looking Statements.”

The Series F Preferred Stock is a new issue, does not have an established trading market and such a market may not develop, which may negatively affect the trading price of the Series F Preferred Stock and your ability to transfer or sell your shares.

The shares of Series F Preferred Stock are a new issue of securities with no established trading market and no stated maturity date. We intend to file an application to list the Series F Preferred Stock on the NYSE under the symbol “TMA PRF.” We expect that trading of the Series F Preferred Stock will commence as soon as possible after the initial delivery of shares of Series F Preferred Stock. However, an active trading market for the shares on the NYSE may not develop or, even if it develops, may not be sustained, in which case the trading price of the shares could be adversely affected and your ability to transfer your shares could be limited.

Numerous factors may affect the trading price of the Series F Preferred Stock.

The shares of Series F Preferred Stock may trade at prices higher or lower than their initial offering price. The trading price of our Series F Preferred Stock may depend on many factors, including:

Investors in our Series F Preferred Stock may experience losses and volatility, and we may reduce or delay payment of our dividends in a variety of circumstances.

Our earnings, cash flow, book value and dividends may fluctuate. Although we intend to pay a regular dividend on the Series F Preferred Stock at a specified rate, we may reduce, cancel or delay our dividend payments in the future for a variety of reasons. We may not provide public warnings of such dividend reductions, cancellations or payment delays prior to their occurrence. Fluctuations in our current and prospective earnings, cash flow and dividends, the market for similar securities, as well as many other factors such as perceptions, economic conditions and stock market conditions, can affect the price of our Series F Preferred Stock. For example, higher market interest rates could cause the market price of our Series F Preferred Stock to decline. Investors may experience volatile returns and material losses.

The Series F Preferred Stock is subordinated to our existing and future debt and there is no restriction on the issuance of parity preferred securities.

As of June 30, 2007, our total indebtedness was approximately $54.5 billion. Our indebtedness has since been reduced to approximately $34.8 billion at August 17, 2007. See “Recent Developments” beginning on page S-4 of this prospectus supplement. We expect to incur additional debt in the future to finance the acquisition of additional assets. Payment of amounts due on our Series F Preferred Stock will be subordinated to all of our existing and future debt. The Series F Preferred Stock will rank on a parity with the Series E Preferred Stock, the Series D Preferred Stock and the Series C Preferred Stock, meaning that holders of all such shares will be entitled to receive payments of dividends and distributions of assets upon liquidation, dissolution or winding up without preference of one series over the other. We may issue additional preferred stock in the future which is on a parity with (or, upon the affirmative vote or consent of the holders of two-thirds of the outstanding shares of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock and each other class or series of preferred stock ranking on a parity with the Series F Preferred Stock which is entitled to similar voting rights, each voting as a separate class, senior to) the Series F Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up. Any of these factors may affect the trading price of the Series F Preferred Stock.

It is possible that our Series F Preferred Stock will be rated by one or more rating agencies. We cannot assure you that any such ratings would not adversely affect the market price of the Series F Preferred Stock. Such ratings would only reflect the views of the rating agency or agencies issuing the ratings and such ratings could be revised downward or withdrawn entirely at the discretion of the issuing rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of a rating could have an adverse effect on the market price of our Series F Preferred Stock.

Our future offerings of preferred equity securities may adversely affect the value of our Series F Preferred Stock.

We may issue additional shares of Series F Preferred Stock and/or shares of another class or series of preferred stock. The issuance of additional preferred stock on parity with or senior to the Series F Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up could have the effect of diluting the amounts we may have available for distribution to holders of the Series F Preferred Stock. None of the provisions relating to the Series F Preferred Stock affords the holders of the Series F Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or business, that might adversely affect the holders of the Series F Preferred Stock.

Please see the “Recent Developments” section beginning on page S-4 of this prospectus supplement for a discussion of recent adverse developments in the secondary market for financing prime quality mortgage assets and rated MBS and the impact of those developments on the Company. You should also consider the risks described under “Risk Factors” beginning on page 15 of our Annual Report on Form 10-K for the year ended December 31, 2006 and page 9 of the accompanying base prospectus, in addition to the other information contained or incorporated by reference in this prospectus supplement and the accompanying base prospectus, before acquiring shares of Series F Preferred Stock.

We expect to receive approximately $474,000,000 in net proceeds from the sale of shares of our Series F Preferred Stock in this offering, or approximately $545,250,000 if the underwriter’s over-allotment option is exercised in full, after payment of our expenses related to this offering and underwriting discounts and commissions.

We intend to use the net proceeds of this offering for financing the acquisition or origination of additional ARM assets, to meet margin calls and other liquidity needs, and for working capital, which may include the repayment of maturing reverse repurchase agreements and asset-backed commercial paper.

The following table sets forth our ratios of earnings to fixed charges and to combined fixed charges and preferred stock dividends for the periods shown:

The ratios of earnings to fixed charges were computed by dividing earnings as adjusted by fixed charges. The ratios of earnings to combined fixed charges and preferred stock dividends were computed by dividing earnings as adjusted by fixed charges and preferred stock dividends. For these purposes, earnings consist of net income from continuing operations and fixed charges. Fixed charges consist of interest expense, including the amortization of capitalized issuance costs relating to indebtedness. As discussed in the Recent Developments section beginning on page S-4 of this prospectus supplement, recent adverse developments in the secondary market for financing prime quality mortgage assets and rated MBS led us to take actions that will have an adverse impact on our earnings, thereby adversely affecting the ratios reported in the table above for the current quarter and for the balance of the year.

The following table sets forth our capitalization as of June 30, 2007 and as adjusted to give effect to the sale of 20,000,000 shares of our Series F Preferred Stock at an assumed offering price of $25.00 and the application of the net proceeds of this offering as described under the caption “Use of Proceeds.”

The information set forth in the following table should be read in conjunction with, and is qualified in its entirety by, the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006 and our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2007 and March 31, 2007, which are incorporated by reference into the accompanying base prospectus. Also see “Recent Developments” beginning on page S-4 of this prospectus supplement.

The following summary of the terms and provisions of the Series F Preferred Stock does not purport to be complete and is qualified in its entirety by reference to our charter and the articles supplementary establishing the Series F Preferred Stock, each of which is or will be incorporated by reference in this prospectus supplement and the accompanying base prospectus. This description of the particular terms of the Series F Preferred Stock supplements and, to the extent inconsistent therewith, supersedes the description of the general terms and provisions of our preferred stock set forth in the accompanying base prospectus. If the description of the Series F Preferred Stock in this prospectus supplement differs from the general description of our preferred stock in the accompanying base prospectus, you should rely on the information in this prospectus supplement.

We are authorized to issue up to 500,000,000 shares of capital stock from time to time, in one or more series or classes, with such designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption, in each case, if any, as are permitted by Maryland law and as our Board of Directors may determine prior to issuance thereof by adoption of articles supplementary to our charter without any further vote or action by our shareholders. Our Board of Directors has adopted articles supplementary to our Articles of Incorporation establishing the number and fixing the terms, designations, powers, preferences, rights, limitations and restrictions of a series of our preferred stock classified as 10% Series F Cumulative Convertible Redeemable Preferred Stock. Our Board of Directors has authorized 23,000,000 shares of Series F Preferred Stock. We will file articles supplementary authorizing 23,000,000 shares of Series F Preferred Stock. This offering relates to 20,000,000 shares of Series F Preferred Stock.

Our Series F Preferred Stock, with respect to dividend rights and rights upon liquidation, dissolution or winding up of our Company, will rank senior to our Common Stock and Series B Preferred Stock and will rank (i) prior or senior to any other class or series of equity securities, if the holders of Series E Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of shares of such class or series; (ii) on a parity with our Series E Preferred Stock, our Series D Preferred Stock, our Series C Preferred Stock and any other class or series of our equity securities if, pursuant to the specific terms of such class or series of equity securities, the holders of such class or series of equity securities and the Series F Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other; (iii) junior to any other class or series of our equity securities if, pursuant to the specific terms of such class or series, the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Series F Preferred Stock; and (iv) junior to all of our existing and future indebtedness. The term “equity securities” does not include convertible debt securities, which will rank senior to the Series F Preferred Stock prior to conversion.

Holders of Series F Preferred Stock will be entitled to receive, when, as and if authorized by our Board of Directors and declared by us, out of funds legally available for payment, cumulative cash dividends payable quarterly in an amount per share of Series F Preferred Stock equal to the greater of:

The Common Stock dividend yield for a quarter is the quotient (expressed as a percentage) obtained by dividing the cash per share of Common Stock distributed to holders of our Common Stock with respect to such quarter by the average daily closing price of our Common Stock on the NYSE for the ten trading days immediately following the day that any Common Stock dividend is declared for such quarter.

Such dividends shall accrue on a daily basis on a 360-day year, consisting of twelve 30-day months. Any dividend payable on the Series F Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year.

Dividends shall be cumulative from (and including) September 7, 2007 for shares issued in this offering, whether or not in any dividend period or periods (i) such dividends shall be declared; (ii) there shall be funds legally available for the payment of such dividends; or (iii) any agreement exists that prohibits our payment of such dividends. Such dividends shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day). The first dividend payment date in respect of the Series F Preferred Stock offered by this prospectus supplement and the accompanying base prospectus will be November 15, 2007 and will be for less than a full quarter. Dividends will be payable in arrears to holders of record as they appear on our records at the close of business on the last day of each of January, April, July and October, as the case may be, immediately preceding the applicable dividend payment date. Holders of Series F Preferred Stock will not be entitled to receive any dividends in excess of cumulative dividends on the Series F Preferred Stock. No interest will be paid in respect of any dividend payment or payments on the Series F Preferred Stock that may be in arrears.

When dividends are not paid in full upon the Series F Preferred Stock, the Series E Preferred Stock, the Series D Preferred Stock, the Series C Preferred Stock or any other class or series of parity stock, or a sum sufficient for such payment is not set apart, all dividends declared upon the Series F Preferred Stock, the Series E Preferred Stock, the Series D Preferred Stock, the Series C Preferred Stock and any other class or series of parity stock shall be declared ratably in proportion to the respective amounts of dividends accumulated, accrued and unpaid on the Series F Preferred Stock and accumulated, accrued and unpaid on such parity stock. Except as set forth in the preceding sentence, unless dividends on the Series F Preferred Stock equal to the full amount of accumulated, accrued and unpaid dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof set apart for such payment for all past dividend periods, no dividends shall be declared or paid or set aside for payment by us with respect to any class or series of parity stock. Unless full cumulative dividends on the Series F Preferred Stock have been paid or declared and set apart for payment for all past dividend periods, no dividends (other than dividends paid in shares junior in rank to the Series F Preferred Stock or options, warrants or rights to subscribe for or purchase such junior stock) shall be declared or paid or set apart for payment by us with respect to any junior stock, nor shall any junior stock or parity stock be redeemed, purchased or otherwise acquired (except for purposes of an employee benefit plan) for any consideration, or any monies be paid to or made available for a sinking fund for the redemption of any junior stock or parity stock (except by conversion or exchange for junior stock, or options, warrants or rights to subscribe for or purchase junior stock), nor shall any other cash or property be paid or distributed to or for the benefit of holders of junior stock or parity stock. Notwithstanding the foregoing, we shall not be prohibited from (i) declaring or paying or setting apart for payment any dividend or distribution on any parity stock or (ii) redeeming, purchasing or otherwise acquiring any stock, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain our qualification as a REIT.

No dividends on Series F Preferred Stock shall be authorized by our Board of Directors or declared or paid or set apart for payment at such time as the terms and provisions of any agreement, including any agreement relating to our indebtedness, prohibits such declaration, payment or setting apart for payment or provides that

such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

If, for any taxable year, we elect to designate as “capital gain dividends” (as defined in Section 857 of the Code) any portion of the dividends (as determined under the Code) paid or made available for the year to holders of all classes of capital stock, then the portion of the capital gains amount that shall be allocable to the holders of Series F Preferred Stock shall be the amount that the total dividends (as determined under the Code) paid or made available to the holders of the Series F Preferred Stock for the year bears to the total dividends. We may elect to retain and pay income tax on our net long-term capital gains. In such a case, the holders of Series F Preferred Stock would include in income an appropriate share of our undistributed long-term capital gains, as designated by us.

In determining whether a distribution (other than upon voluntary or involuntary liquidation, dissolution or winding up of our Company), by dividend, redemption or otherwise, is permitted, amounts that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the liquidation preference of the Series F Preferred Stock (as discussed below) will not be added to our total liabilities.

Upon any voluntary or involuntary liquidation, dissolution or winding up of our Company, before any payment or distribution shall be made to or set apart for the holders of any junior stock, the holders of Series F Preferred Stock shall be entitled to receive a liquidation preference of $25.00 per share, plus an amount equal to all accumulated, accrued and unpaid dividends (whether or not earned or declared) to and including the date of final distribution to such holders; but such holders shall not be entitled to any further payment. Until the holders of the Series F Preferred Stock have been paid the liquidation preference in full, plus an amount equal to all accumulated, accrued and unpaid dividends (whether or not earned or declared) to and including the date of final distribution to such holders, no payment shall be made to any holder of junior stock upon the liquidation, dissolution or winding up of our Company. If upon any liquidation, dissolution or winding up of our Company, our assets, or proceeds thereof, distributable among the holders of Series F Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on the Series E Preferred Stock, the Series D Preferred Stock, the Series C Preferred Stock and any other shares of any class or series of parity stock, then such assets, or the proceeds thereof, shall be distributed among the holders of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock and any such other parity stock ratably in the same proportion as the respective amounts that would be payable on such Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock and any such other parity stock if all amounts payable thereon were paid in full. Our voluntary or involuntary liquidation, dissolution or winding up shall not include our consolidation or merger with or into one or more entities, a sale or transfer of all or substantially all of our assets or a statutory stock exchange.

Upon any liquidation, dissolution or winding up of our Company, after payment shall have been made in full to the holders of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock and any other parity stock, any other series or class or classes of junior stock shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock and any other parity stock shall not be entitled to share therein.

If at any time both (i) the Series F Preferred Stock is not listed on the NYSE or the AMEX or quoted on the NASDAQ, and (ii) we are not subject to the reporting requirements of the Exchange Act, we will have the option to redeem the Series F Preferred Stock, in whole but not in part, within 90 days after the date upon which the Series F Preferred Stock ceases to be listed and we cease to be subject to such reporting requirements, for cash at

the liquidation preference of $25.00 per share, plus all accumulated, accrued and unpaid dividends (whether or not declared), if any, to and including the date of redemption. We will not be required to set aside funds to redeem the Series F Preferred Stock.

Other than as set forth above in “—Special Optional Redemption,” we may not redeem the Series F Preferred Stock prior to September 7, 2012, except in certain limited circumstances relating to our maintenance of our ability to qualify as a REIT as described in “Description of Equity Securities—Restrictions on Ownership and Transfer” in the accompanying base prospectus. On or after September 7, 2012, we may redeem any Series F Preferred Stock, in whole or from time to time in part, at a cash redemption price of $25.00 per share plus all accumulated, accrued and unpaid dividends to and including the date fixed for redemption. The redemption date shall be selected by us and shall not be less than 30 days nor more than 60 days after the date we send notice of redemption. If full cumulative dividends on all outstanding shares of Series F Preferred Stock have not been paid or declared and set apart for payment, no Series F Preferred Stock may be redeemed unless all outstanding Series F Preferred Stock are simultaneously redeemed; provided, however, that we shall not be prevented from purchasing Series F Preferred Stock pursuant to our charter or otherwise in order to ensure that we remain qualified as a REIT under the Code. Additionally, unless full cumulative dividends on all outstanding shares of Series F Preferred Stock have been paid or declared or set apart for payment for all past dividend periods, we may not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or made available for a sinking fund for the redemption of, any shares of Series F Preferred Stock or any other class of parity stock or junior stock (except by conversion into or exchange for junior stock); provided, however, that we shall not be prevented from purchasing any Series F Preferred Stock pursuant to our charter or otherwise in order to ensure that we remain qualified as a REIT under the Code.

Notice of redemption of the Series F Preferred Stock shall be mailed to each holder of record of the shares to be redeemed by first class mail, postage prepaid at such holder’s address as the same appears on our stock records. Any notice which was mailed as described above shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. In addition to any information required by law or by the applicable rules of the exchange upon which the Series F Preferred Stock may be listed or admitted to trading, each notice shall state: (i) the redemption date; (ii) the redemption price; (iii) the number of shares of Series F Preferred Stock to be redeemed; and (iv) the place or places where certificates for such shares of Series F Preferred Stock are to be surrendered for cash. Any such redemption may be made conditional on such factors as may be determined by our Board of Directors and as set forth in the notice of redemption. From and after the redemption date, dividends on the Series F Preferred Stock to be redeemed will cease to accrue, such shares shall no longer be deemed to be outstanding and all rights of the holders thereof shall cease (except the right to receive the cash payable upon such redemption).

The Series F Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions except as provided under “Description of Equity Securities—Restrictions on Ownership and Transfer” in the accompanying base prospectus.

Subject to applicable law and the limitation on purchases when dividends on the Series F Preferred Stock are in arrears, we may, at any time and from time to time, purchase Series F Preferred Stock in the open market, by tender or by private agreement.

Any shares of Series F Preferred Stock redeemed, purchased or otherwise acquired by us in any manner whatsoever shall become our authorized but unissued and unclassified capital stock and may be reissued or reclassified by us in accordance with the applicable provisions of our charter.

Holders of Series F Preferred Stock may, at their option, convert some or all of their outstanding Series F Preferred Stock initially at a Conversion Rate of 2.1739 shares of Common Stock per $25.00 liquidation

preference which is equivalent to an initial conversion price of $11.50 per share of Common Stock, a 3.05% premium over $11.16 per share, the last reported sales price of our Common Stock on August 29, 2007. The Conversion Rate is subject to adjustment upon the occurrence of certain events. Except as otherwise provided, shares of our Series F Preferred Stock will only be convertible into shares of our Common Stock.

We will not issue fractional shares of Common Stock upon the conversion of Series F Preferred Stock. Instead, we will pay the cash value of such fractional shares based upon the closing sale price of shares of our Common Stock on the trading day immediately prior to the Conversion Date (as defined below).

On or after September 7, 2012, we may, at our option, require holders of Series F Preferred Stock to convert their shares of Series F Preferred Stock into that number of shares of Common Stock that are issuable at the Conversion Rate then in effect (as adjusted). We may exercise our Company Conversion Option only if the closing price of our Common Stock equals or exceeds 130% of the then prevailing conversion price of the Series F Preferred Stock for at least 20 trading days in a period of 30 consecutive trading days (including the last trading day of such period) ending on the trading day immediately prior to our issuance of a press release announcing the exercise of our Company Conversion Option.

To exercise our Company Conversion Option described above, we must issue a press release for publication through Dow Jones & Company, Inc., Business Wire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public) prior to the opening of business on the first trading day following any date on which the conditions described in the preceding paragraph are met, announcing such conversion. We will also give notice by mail or by publication (with subsequent prompt notice by mail) to holders of Series F Preferred Stock (not more than four trading days after the date of the press release) of the exercise of our Company Conversion Option announcing our intention to convert the Series F Preferred Stock. The Conversion Date or the “Company Conversion Option Date” will be the date that is five trading days after the date on which we issue such press release.

In addition to any information required by applicable law or regulation, the press release and notice of the exercise of our Company Conversion Option will state, as appropriate:

Holders of Series F Preferred Stock may convert some or all of their shares of Series F Preferred Stock by surrendering to us at our principal office or at the office of the Agent, the certificate or certificates for the Series F Preferred Stock to be converted accompanied by a written notice stating that such holder elects to convert all or a specified whole number of those shares in accordance with the provisions described in this prospectus supplement and specifying the name or names in which the holder wishes the certificate or certificates for the shares of Common Stock to be issued. In case the notice specifies a name or names other than the holder’s name, the notice must be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in that name or names. Other than those taxes, we will pay any documentary, stamp or similar issue or transfer taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of the Series F Preferred Stock. As promptly as practicable after the surrender of that certificate

or certificates and the receipt of the notice relating to the conversion and payment of all required transfer taxes, if any, or the demonstration to our satisfaction that those taxes have been paid, we will deliver or cause to be delivered (a) certificates representing the number of validly issued, fully paid and non-assessable full shares of Common Stock to which the holder, or the holder’s transferee, will be entitled and (b) if less than the full number of shares of Series F Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by the surrendered certificate or certificates, less the number of shares being converted. This conversion will be deemed to have been made at the close of business on the date of giving the notice and of surrendering the certificate or certificates representing the shares of the Series F Preferred Stock to be converted, or the “Conversion Date,” so that the holder’s rights as to the shares being converted will cease except for the right to receive the conversion value, and, if applicable, the person entitled to receive common shares will be treated for all purposes as having become the record holder of those shares of Common Stock at that time.

In lieu of the foregoing procedures, if the shares of Series F Preferred Stock are held in global certificate form, a holder of Series F Preferred Stock must comply with the procedures of DTC to convert such holder’s beneficial interest in respect of the Series F Preferred Stock evidenced by a global stock certificate of the Series F Preferred Stock.

In case any shares of Series F Preferred Stock are to be redeemed by us or converted pursuant to our Company Conversion Option, the right of a holder of Series F Preferred Stock to voluntarily convert those shares of Series F Preferred Stock will terminate if we have not received such holder’s conversion notice by 5:00 p.m., New York City time, on the trading day immediately preceding the date fixed for redemption or conversion pursuant to our Company Conversion Option.

If more than one share of Series F Preferred Stock is surrendered for conversion at the same time, the number of shares of full Common Stock issuable on conversion of those shares of Series F Preferred Stock will be computed on the basis of the total number of shares of Series F Preferred Stock so surrendered.

We will at all times reserve and keep available, free from preemptive rights out of our authorized but unissued shares of capital stock, for issuance upon the conversion of Series F Preferred Stock, a number of our authorized but unissued shares of Common Stock that will from time to time be sufficient to permit the conversion of all outstanding Series F Preferred Stock.

Before the delivery of any securities upon conversion of the Series F Preferred Stock, we will comply with all applicable federal and state laws and regulations. All Common Stock delivered upon conversion of the Series F Preferred Stock will upon delivery be duly authorized, validly issued, fully paid and non-assessable, free of all liens and charges and not subject to any preemptive rights.

General. If a holder of Series F Preferred Stock exercises its conversion rights, upon delivery of the Series F Preferred Stock for conversion, those shares of Series F Preferred Stock will cease to cumulate dividends as of the end of the day immediately preceding the Conversion Date and such holder will not receive any cash payment representing accrued and unpaid dividends on the Series F Preferred Stock, except in those limited circumstances discussed below. Except as provided below, we will make no payment for accrued and unpaid dividends, whether or not in arrears, on Series F Preferred Stock converted at the holder’s election, or for dividends on the Common Stock issued upon such conversion.

Conversion On or Before Dividend Record Date. If we receive a conversion notice before the close of business on a dividend record date, the holder of Series F Preferred Stock will not be entitled to receive any portion of the dividend payable on such converted stock on the corresponding dividend payment date.

Conversion After Record Date and Prior to Dividend Payment Date. If we receive a conversion notice after the dividend record date but prior to the corresponding dividend payment date, the Series F preferred shareholder of record on the dividend record date will receive on that dividend payment date accrued dividends on those shares of Series F Preferred Stock, notwithstanding the conversion of those shares of Series F Preferred Stock prior to that dividend payment date, because such holder will have been the Series F preferred shareholder of record on the corresponding dividend record date. At the time that such holder surrenders Series F Preferred Stock for conversion, however, it must pay to us an amount equal to the dividend that has accrued and that will be paid on the related dividend payment date.

Conversion On or After Dividend Payment Date. If the Series F preferred shareholder is a Series F preferred shareholder on a dividend record date who converts such shares of Series F Preferred Stock into shares of Common Stock on or after the corresponding dividend payment date, such holder will be entitled to receive the dividend payable on such shares of Series F Preferred Stock on such dividend payment date, and such holder will not need to include payment of the amount of such dividend upon surrender for conversion of shares of the Series F Preferred Stock.

General. If we convert a Series F preferred shareholder’s shares pursuant to our Company Conversion Option, whether prior to, on, or after the dividend record date for the current period, all unpaid dividends that are in arrears as of the Company Conversion Option Date will be payable to such holder.

Conversion Before Dividend Record Date. If we exercise our Company Conversion Option and the effective date of the conversion of the Series F Preferred Stock is a date that is prior to the close of business on any dividend record date, the Series F preferred shareholder will not be entitled to receive any portion of the dividend payable for such period on such converted shares on the corresponding dividend payment date.

Conversion On or After Dividend Record Date and Prior to Dividend Payment Date. If we exercise our Company Conversion Option and the effective date of the conversion of the Series F Preferred Stock is a date that is on or after the close of business on any dividend record date and prior to the close of business on the corresponding dividend payment date, all dividends, including accrued and unpaid dividends, whether or not in arrears, with respect to the Series F Preferred Stock called for a conversion on such date, will be payable on such dividend payment date to the Series F preferred shareholder if the Series F preferred shareholder is the record holder of such shares on such record date.

1. We issue shares of our Common Stock as a dividend or distribution to all or substantially all of our common shareholders (other than pursuant to our DRSPP or any future dividend reinvestment and share purchase plan we adopt which is not materially adverse to Series F preferred shareholders);

3. We distribute to all or substantially all of our common shareholders certain rights or warrants to subscribe for or purchase, for a period expiring within 60 days, Common Stock, or securities convertible into or exchangeable or exercisable for our Common Stock, at less than the closing sale price of our Common Stock on the trading day immediately preceding the date of the announcement of such distribution, provided that the Conversion Rate will be readjusted to the extent that such rights or warrants are not exercised prior to the expiration;

4. We distribute to all or substantially all of our common shareholders shares of our capital stock or issue evidence of our indebtedness or assets, including securities, but excluding:

5. We distribute to all or substantially all of our common shareholders capital stock of one of our subsidiaries, with such adjustment, if any, based on the market value of the subsidiary capital stock so distributed relative to the market value of our Common Stock, in each case over a measurement period following the distribution;

6. We make payments in respect of a tender offer or exchange offer for our Common Stock by us or any of our subsidiaries to the extent that the cash and fair market value of any other consideration included in the payment per stock exceeds the closing price of our Common Stock on the trading day following the last date on which tenders or exchanges may be made pursuant to such tender offer or exchange offer.

To the extent we have a rights plan in effect upon conversion of the Series F Preferred Stock into Common Stock, holders of Series F Preferred Stock will receive, in addition to the Common Stock, the rights under the rights plan unless the rights have separated from the Common Stock prior to the time of conversion, in which case the Conversion Rate will be adjusted at the time of separation as if we made a distribution referred to in 4 above (without regard to any of the exceptions there).

in each case, as a result of which our common shareholders are entitled to receive stock, other securities, other property or assets (including cash or any combination thereof) with respect to or in exchange for our Common Stock, a Series F preferred shareholder will be entitled thereafter to convert such Series F Preferred Stock into the kind and amount of stock, other securities or other property or assets (including cash or any combination thereof) which such Series F preferred shareholder would have owned or been entitled to receive upon such Business Combination. In the event that our common shareholders have the opportunity to elect the form of consideration to be received in such Business Combination, we will make adequate provision whereby Series F preferred shareholders shall have a reasonable opportunity to determine the form of consideration into which all of the Series F Preferred Stock, treated as a single class, shall be convertible from and after the effective date of such Business Combination. Such determination shall be based on the weighted average of elections made by the holders of the Series F Preferred Stock who participate in such determination, shall be subject to any limitations to which all of our common shareholders are subject, such as pro rata reductions applicable to any portion of the consideration payable in such Business Combination, and shall be conducted in such a manner as to be completed by the date which is the earliest of (1) the deadline for elections to be made by our common shareholders, and (2) two trading days prior to the anticipated effective date of the Business Combination.

We will provide notice of the opportunity to determine the form of such consideration, as well as notice of the determination made by holders of the Series F Preferred Stock (and the weighted average of elections), by

posting such notice with DTC and providing a copy of such notice to the Agent. If the effective date of a Business Combination is delayed beyond the initially anticipated effective date, Series F preferred shareholders will be given the opportunity to make subsequent similar determinations in regard to such delayed effective date. We may not become a party to any such transaction unless its terms are consistent with the preceding. None of the foregoing provisions shall affect the right of a holder of Series F Preferred Stock to convert its shares into our Common Stock prior to the effective date.

To the extent permitted by law, we may, from time to time, increase the Conversion Rate for a period of at least 20 days if our Board of Directors determines that such an increase would be in our best interests. Any such determination by our Board of Directors will be conclusive. In addition, we may increase the Conversion Rate if our Board of Directors deems it advisable to avoid or diminish any income tax to common shareholders resulting from any distribution of Common Stock or similar event. We will give the Series F preferred shareholders at least 15 trading days’ notice of any increase in the Conversion Rate.

We will not adjust the Conversion Rate pursuant to these provisions to the extent that the adjustments would reduce the conversion price below $0.01. Nor will we be required to make an adjustment in the Conversion Rate unless the adjustment would require a change of at least one percent in the Conversion Rate. However, any adjustments that are not required to be made because they would have required an increase or decrease of less than one percent will be carried forward and taken into account in any subsequent adjustment of the Conversion Rate. Except as described above in this section, we will not adjust the Conversion Rate for any issuance of our Common Stock or any securities convertible into or exchangeable or exercisable for our Common Stock or rights to purchase our Common Stock or such convertible, exchangeable or exercisable securities.

A Series F preferred shareholder may, in some circumstances, including the distribution of cash dividends to shareholders, be deemed to have received a distribution or dividend subject to U.S. federal income tax as a result of an adjustment or the nonoccurrence of an adjustment to the Conversion Rate. See “Additional Federal Income Tax Considerations” below.

Each holder of Series F Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series F Preferred Stock could then be converted (with any fractional share determined on an aggregate conversion basis being rounded to the nearest whole share), and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any other provision of the articles supplementary, to notice of any shareholders’ meeting in accordance with the bylaws of the Company, and shall be entitled to vote, together with the holders of Common Stock, with respect to any matter upon which holders of Common Stock are entitled to vote.

If and whenever dividends on any shares of Series F Preferred Stock or any series or class of parity stock shall be in arrears for six or more quarterly periods (whether or not consecutive), the number of directors then constituting our Board of Directors shall be increased by two and the holders of such Series F Preferred Stock (voting together as a single class with all other parity stock of any other class or series which is entitled to similar voting rights) will be entitled to vote for the election of the two additional directors at any annual meeting of shareholders or at a special meeting of the holders of the Series F Preferred Stock and of any other voting preferred stock called for that purpose. We must call such special meeting upon the request of the holders of record of 20% or more of the Series F Preferred Stock. Whenever dividends in arrears on outstanding Series F Preferred Stock and any other voting preferred stock shall have been paid in full or declared by us and set aside for payment in full, then the right of the holders of the Series F Preferred Stock to elect such additional two directors shall cease and the terms of office of such directors shall terminate and the number of directors constituting the Board of Directors shall be reduced accordingly.

The affirmative vote or consent of at least 66²/3% of the votes entitled to be cast by the holders of the outstanding shares of Series F Preferred Stock, voting separately as a class, in addition to any other vote required by our charter or Maryland law, will be required to: (i) authorize the creation of, the increase in the authorized amount of, or the issuance of any shares of any class of stock ranking senior to the Series F Preferred Stock or any security convertible into shares of any class of such senior stock or (ii) amend, alter or repeal any provision of, or add any provision to, our charter, including the articles supplementary establishing the Series F Preferred Stock, if such action would materially adversely affect the powers, rights or preferences of the holders of the Series F Preferred Stock. An amendment of our charter to authorize, create, or increase the authorized amount of junior stock or any shares of any class of parity stock, including additional Series F Preferred Stock, shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series F Preferred Stock. No such vote of the holders of Series F Preferred Stock as described above shall be required if provision is made to redeem all Series F Preferred Stock at or prior to the time such amendment, alteration or repeal is to take effect, or when the issuance of any such shares or convertible securities is to be made, as the case may be.

With respect to the exercise of the above described voting rights, each share of Series F Preferred Stock shall have one vote per share, except that when any other class or series of preferred stock shall have the right to vote with the Series F Preferred Stock as a single class, then the Series F Preferred Stock and such other class or series shall have one vote per $25.00 of liquidation preference.

During any period in which we are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any shares of our Series F Preferred Stock are outstanding, we will (i) transmit by mail to all holders of the Series F Preferred Stock, copies of the annual reports and quarterly reports that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject to those sections (other than any exhibits that would have been required) and (ii) promptly upon written request, make available copies of such reports to any prospective holder of Series F Preferred Stock. We will mail the reports to the holders of Series F Preferred Stock within 15 days after the respective dates by which we would have been required to file the reports with the SEC if we were subject to Section 13 or 15(d) of the Exchange Act.

American Stock Transfer & Trust Company will act as the transfer and dividend payment agent and registrar in respect of the Series F Preferred Stock.

To maintain our qualification as a REIT under the 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). Also, not more than 50% in value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year. To ensure that we will comply with those share ownership rules, our charter contains provisions that restrict the ownership and transfer of our shares of capital stock. With certain limited exceptions, our charter prohibits direct or indirect ownership by any person of more than 9.8% of the outstanding shares of our capital stock. In addition, the Articles Supplementary creating the Series F Preferred Stock will provide that, subject to certain limited exceptions, no person owning shares of Series F Preferred Stock shall directly or indirectly own more than 9.8% of the value of the outstanding shares of our capital stock. See “Description of Equity Securities—Restrictions on Ownership and Transfer” in the accompanying base prospectus for additional discussion.

This section supplements the discussion under the caption “Federal Income Tax Considerations” in the accompanying base prospectus which is relevant to all investors in our securities.

To qualify as a REIT for U.S. federal income tax purposes, we must meet two gross income tests on an annual basis. First, we must derive at least 75% of our gross income on an annual basis from certain real estate-related sources including interest on obligations secured by real property. Second, we must derive at least 95% of our gross income each year from such real estate-related sources, and other types of passive income, including dividends, interest and gains from the sale of stock or other financial instruments not held for sale in the ordinary course of business. Income we earn with respect to certain REIT qualified hedging transactions is excluded for purposes of determining our compliance with the 95% gross income test, while income earned with respect to certain other nonqualified hedging transactions is treated as nonqualifying income for purposes of the 95% gross income test. As a result of the termination of certain of our hedging instruments as described in the section entitled “Recent Developments” beginning on page S-4 of this prospectus supplement, we recognized a significant amount of hedging income which will be nonqualifying for purposes of the 95% gross income test. In addition, the sale of a significant portion of our MBS portfolio will result in a decrease to our total qualifying 95% gross income for this year. In order to mitigate the amount of income which does not qualify for the 95% annual gross income test, we intend to transfer to a taxable REIT subsidiary, or “TRS,” certain hedging instruments currently producing nonqualifying income for purposes of the 95% gross income test.

We currently project that we will satisfy the 95% gross income test for 2007 by a narrow margin. We may, however, be forced to sell additional assets or terminate additional hedging in transactions to meet liquidity needs and avoid interest rate exposure given the uncertainty in the mortgage market. Any such actions, or delays in transferring certain hedging instruments to a TRS, could adversely affect our ability to meet the 95% gross income test for 2007. Accordingly, there is no assurance that the results of our operations for the current taxable year will allow us to satisfy the 95% gross income test. If we were to fail the 95% gross income test, we could be liable for a penalty tax or fail to maintain our qualification as a REIT, depending on whether the failure was determined to be based on reasonable cause. If we were unable to maintain our qualification as a REIT, our income would be subject to U.S. federal income taxation.

In connection with this offering, Heller Ehrman LLP, our counsel, is issuing an opinion that commencing with our taxable year ended December 31, 1993, we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our proposed method of operation will enable us to continue to qualify as a REIT. Heller Ehrman LLP’s opinion is conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our properties and the past and future conduct of our business including a representation that we will satisfy the 95% gross income test for 2007, and is not binding upon the Service or any court. You should be aware that Heller Ehrman LLP’s opinion with respect to taxable years beginning prior to January 1, 2005, is based on the opinions of our prior counsel, Dechert LLP and Falk, Shaff & Ziebell, LLP.

The following discussion describes additional U.S. federal income tax considerations relating to the ownership of our Series F Preferred Stock. Because the discussions in this prospectus supplement and the accompanying base prospectus are summaries intended to address only U.S. federal income tax consequences generally relevant to all owners of our securities, they may not contain all the information that may be important to prospective investors.

We urge prospective investors to consult their own tax advisors regarding the specific tax consequences to them of the acquisition, ownership and disposition of our securities and of our election to be taxed as a REIT. Specifically, prospective investors should consult their own tax advisors regarding the U.S. federal, state, local, foreign, and other tax consequences of such acquisition, ownership, disposition and election, and regarding potential changes in applicable tax laws.

As long as we qualify to be taxed as a REIT, distributions made to our shareholders out of current or accumulated earnings and profits will be treated as dividends under the Code and thus taxed to them as ordinary income, except that distributions of net capital gains designated by us as capital gain dividends will be taxed to them as long-term capital gain. To the extent that distributions exceed current and accumulated earnings and profits, they will constitute a return of capital, rather than dividend or capital gain income, and will reduce the basis for the shareholder’s stock with respect to which the distributions are paid or, to the extent that they exceed such basis, will be taxed in the same manner as gain from the sale of that stock. For purposes of determining whether distributions are out of current or accumulated earnings and profits, our earnings and profits will be allocated first to our preferred stock and then to our Common Stock. Therefore, depending on our earnings and profits, distributions with respect to the Series F Preferred Stock (as compared to distributions with respect to our Common Stock) are more likely to be treated as dividends than as return of capital or a distribution in excess of basis.

Dividends paid by regular C corporations to shareholders other than corporations are generally taxed at the rate applicable to long-term capital gains, which is a maximum of 15% (through 2010), subject to certain limitations. Because we are a REIT, however, our dividends, including dividends paid on our Series F Preferred Stock, other than those designated as capital gains dividends, generally will continue to be taxed at regular ordinary income tax rates, except to the extent that we elect to designate a portion of such dividends as “qualified dividend income.” The portion of a distribution that is properly designated as qualified dividend income is taxable to non-corporate U.S. shareholders as capital gain, provided that such shareholder has held the Series F Preferred Stock with respect to which the distribution is made for more than 60 days during the 121-day period beginning on the date that is 60 days before the date on which the Series F Preferred Stock became ex-dividend with respect to the relevant distribution. The maximum amount of our distributions eligible to be designated as qualified dividend income for a taxable year is equal to the sum of:

(a) the qualified dividend income received by us during such taxable year from non-REIT C corporations that are subject to U.S. federal income tax; and

(b) the excess of (i) the sum of any “undistributed” REIT taxable income recognized during the immediately preceding year and any income recognized during such year attributable to the sale of a built-in gain asset that was acquired in a carryover basis transaction from a non-REIT C corporation over (ii) the U.S. federal income tax paid by us with respect to such undistributed REIT taxable income and such built-in gain.

An investor should be aware that the purchase price of Series F Preferred Stock purchased in this offering may reflect the value of any accrued dividends on the Series F Preferred Stock. Investors purchasing Series F Preferred Stock during a dividend period will receive a subsequent dividend distribution which will be taxable to them even though it represents in part a return of invested capital.

If, for any taxable year, we elect to designate as capital gain dividends any portion of the distributions paid for the year to the holders of our capital stock, the portion of the amount so designated (not in excess of our net capital gain for the year) that will be allocable to the holders of the Series F Preferred Stock will be the amount so designated multiplied by a fraction, the numerator of which will be the total dividends (within the meaning of the Code) paid to the holders of the Series F Preferred Stock for the year and the denominator of which will be the total dividends paid to the holders of shares of all classes of our stock for the year. The remainder will be allocated to the holders of our Series E Preferred Stock, our Series D Preferred Stock, our Series C Preferred Stock and our Common Stock.

We may redeem the Series F Preferred Stock at our option, in whole or from time to time in part, beginning on September 7, 2012, for cash at $25.00 per share plus any accumulated, accrued and unpaid dividends to and

including the date of redemption. We may redeem the Series F Preferred Stock at any time to enforce the limitations on ownership necessary to preserve our tax qualification as a REIT as described in this prospectus supplement and the accompanying base prospectus. In addition, if at any time both (i) the Series F Preferred Stock is not listed on the NYSE or the AMEX or quoted on the NASDAQ, and (ii) we are not subject to the reporting requirements of the Exchange Act, we will have the option to redeem the Series F Preferred Stock, in whole but not in part, within 90 days after the date upon which the Series F Preferred Stock ceases to be listed and we cease to be subject to such reporting requirements, for cash at the liquidation preference of $25.00 per share, plus accumulated and unpaid dividends (whether or not declared), if any, to and including the date of redemption.

A redemption of Series F Preferred Stock will be treated under Section 302 of the Code as a distribution taxable as a dividend (to the extent of our current and accumulated earnings and profits) at ordinary income rates, unless the redemption satisfies one of the tests set forth in Section 302(b) of the Code and is therefore treated as a sale or exchange of the redeemed shares. The redemption will be treated as a sale or exchange if it (i) is “substantially disproportionate” with respect to the holder (which will not be the case if only Series F Preferred Stock is redeemed, since the shares of Series F Preferred Stock generally do not have voting rights), (ii) results in a “complete termination” of the holder’s equity interest in our Company, or (iii) is “not essentially equivalent to a dividend” with respect to the holder, all within the meaning of Section 302(b) of the Code. In determining whether any of these tests has been met, shares of our Common Stock and preferred stock considered to be owned by the holder by reason of certain constructive ownership rules set forth in the Code, as well as shares of our Common Stock and preferred stock actually owned by the holder, must generally be taken into account. If a holder of Series F Preferred Stock owns (actually and constructively) no shares of our outstanding Common Stock or an insubstantial percentage thereof, a redemption of shares of Series F Preferred Stock of that holder is likely to qualify for sale or exchange treatment because the redemption would be “not essentially equivalent to a dividend.” However, because the determination as to whether any of the alternative tests of Section 302(b) of the Code will be satisfied with respect to any particular holder of Series F Preferred Stock depends upon the facts and circumstances at the time the determination must be made, prospective holders of Series F Preferred Stock are advised to consult their own tax advisors to determine such tax treatment.

If a redemption of Series F Preferred Stock is not treated as a distribution taxable as a dividend to a particular holder, it will be treated as a taxable sale or exchange by that holder. As a result, the holder will recognize gain or loss for federal income tax purposes in an amount equal to the difference between (i) the amount of cash and the fair market value of any property received (less any portion thereof attributable to accumulated and declared but unpaid dividends, which will be taxable as a dividend to the extent of our current and accumulated earnings and profits) and (ii) the holder’s adjusted tax basis in the shares of Series F Preferred Stock. Such gain or loss will be capital gain or loss if the shares of Series F Preferred Stock were held as a capital asset, and will be long-term gain or loss if such shares were held for more than one year.

If a redemption of Series F Preferred Stock is treated as a distribution taxable as a dividend, the amount of the distribution will be measured by the amount of cash and the fair market value of any property received by the holder. The holder’s adjusted tax basis in the redeemed shares of Series F Preferred Stock will be transferred to the holder’s remaining shares of our stock. If the holder owns no other shares of our stock, such basis may, under certain circumstances, be transferred to a related person or it may be lost entirely. Previously proposed Treasury Regulations would have, if adopted, altered the method for recovering the holder’s adjusted tax basis in any shares redeemed in a dividend-equivalent redemption. In April 2006, the Service and the U. S. Treasury Department withdrew the proposed regulations, but announced that they were continuing to study the proper treatment of basis in redemption transactions treated as dividend distributions. It is possible that they will propose other rules changing the treatment of redemptions in the future.

Except as provided in the next sentence, a holder will not recognize gain or loss upon the conversion of some or all of the holder’s Series F Preferred Stock into shares of our Common Stock. Any cash received in lieu

of fractional shares, however, generally will be treated as a payment in exchange for such fractional share and the holder will recognize gain or loss equal to the difference between the amount of cash received and the portion of the holder’s adjusted basis allocable to the fractional share. The holder’s tax basis in the common shares received upon conversion will equal the holder’s tax basis in the Series F Preferred Stock tendered for conversion, less the tax basis allocated to any fractional share for which cash is received. The holder’s holding period in the common shares received upon conversion of Series F Preferred Stock will include the holding period of the Series F Preferred Stock so converted.

As described under “Description of Series F Preferred Stock—Payment of Dividends on Conversion—Optional Conversion,” if we receive a conversion notice from a holder after a dividend record date but prior to the corresponding dividend payment date, the holder will be required to pay to us an amount equal to the dividend that has accrued and that will be paid on such dividend payment date. A prospective investor should consult its own tax advisor concerning the tax consequences of such a payment and of receipt of the related dividend.

If an entity treated as a partnership for U.S. federal income tax purposes holds shares of our Series F Preferred Stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. If any prospective investor is a partner of a partnership holding shares of our Series F Preferred Stock, such prospective investor should consult its own tax advisor regarding the tax consequences of the ownership and disposition of our Series F Preferred Stock.

Prospective investors should recognize that the present U.S. federal income tax treatment of an investment in us may be modified by legislative, judicial or administrative action at any time, and that any such action may affect investments and commitments previously made. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Service and the U.S. Treasury Department, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes. Revisions in U.S. federal tax laws and interpretations thereof could adversely affect the tax consequences of an investment in our securities.

Friedman, Billings, Ramsey & Co., Inc. is acting as the sole underwriter of this offering. Subject to the terms and conditions set forth in the underwriting agreement, we have agreed to sell to the underwriter, and the underwriter has agreed to purchase from us, 20,000,000 shares of our Series F Preferred Stock. The underwriting agreement provides that the obligation of the underwriter to pay for and accept delivery of our Series F Preferred Stock is subject to certain conditions.

We have granted the underwriter an option exercisable during the 30-day period after the date of this prospectus supplement to purchase from us, at the public offering price less underwriting discounts and commissions, up to an additional 3,000,000 shares of our Series F Preferred Stock for the sole purpose of covering over-allotments, if any.

Under the terms and conditions of the underwriting agreement, the underwriter is committed to purchase all of the Series F Preferred Stock offered by this prospectus supplement, other than the shares subject to the over-allotment option, if any are purchased. We have agreed to indemnify the underwriter against certain civil liabilities under the Securities Act or to contribute to payments the underwriter may be required to make in respect of such liabilities. We also have agreed to reimburse the underwriter for its reasonable out-of-pocket expenses in connection with this offering.

The underwriter initially proposes to offer the Series F Preferred Stock directly to the public at the public offering price set forth on the cover page of this prospectus supplement, and to certain dealers at such offering price less a concession not to exceed $0.75 per share. The underwriter may allow, and such dealers may reallow, a concession not to exceed $0.00 per share to certain other dealers. If all the shares are not sold at the public offering price, the underwriter may change the public offering price and the other selling terms.

The following table provides information regarding the per share and total underwriting discounts and commissions we will pay to the underwriter. These amounts are shown assuming both no exercise and full exercise of the underwriter’s option to purchase from us up to an additional 3,000,000 shares to cover over-allotments.

The expenses of this offering, not including the underwriting discount are estimated at $1,000,000 and are payable by us.

In connection with this offering, the underwriter may purchase and sell shares of our Series F Preferred Stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriter of a greater number of shares than it is required to purchase in this offering. “Covered” short sales are sales made in an amount not greater than the underwriter’s option to purchase additional shares from us in this offering. The underwriter may close out any covered short position by either exercising its option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriter will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which it may purchase shares through the over-allotment option. “Naked” short sales are any sales in excess of such option. The underwriter must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriter is concerned that there may be downward pressure on the price of the Series F Preferred Stock in the open market after pricing that

could adversely affect investors who purchase in the public offering. Stabilizing transactions consist of various bids for or purchases of Series F Preferred Stock made by the underwriter in the open market prior to the completion of this offering.

Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of our Series F Preferred Stock and may stabilize, maintain or otherwise affect the market price of the Series F Preferred Stock. As a result, the price of the Series F Preferred Stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time.

Any of these activities may stabilize or maintain the market price of the Series F Preferred Stock above independent market levels. These transactions may be effected on the NYSE or in the over-the-counter market or otherwise. The underwriter is not required to engage in these activities and may end any of these activities at any time.

The underwriter has informed us that it does not intend to confirm sales of Series F Preferred Stock offered by this prospectus supplement to any accounts over which it exercises discretionary authority.

A prospectus supplement and the accompanying base prospectus in electronic format may be made available on www.fbr.com, the Internet web site maintained by Friedman, Billings, Ramsey Group, Inc., the parent company of the underwriter. The underwriter may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Other than this prospectus supplement and the accompanying base prospectus in electronic format, the information on www.fbr.com is not part of this prospectus supplement and the accompanying base prospectus or the registration statement of which this prospectus supplement and the accompanying base prospectus form a part, has not been approved and/or endorsed by us or Friedman, Billings, Ramsey & Co., Inc. in its capacity as underwriter and should not be relied upon by investors.

The underwriter or its affiliates from time to time provide and may in the future provide investment banking, commercial banking and financial advisory services to us, for which it or they have received and may receive customary compensation.

The legality of the shares of our Series F Preferred Stock will be passed upon for us by Heller Ehrman LLP, Los Angeles, California. Certain legal matters relating to this offering will be passed upon for the underwriter by Clifford Chance US LLP, New York, New York.

The consolidated financial statements and financial statement schedule of the Company as of December 31, 2006 and for the year then ended, and management’s assessment of the effectiveness of internal control as of December 31, 2006, have been incorporated herein and in the registration statement in reliance upon the report 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.

The financial statements incorporated in the accompanying base prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2005 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

We will provide the specific terms of each issuance of these securities in supplements to this prospectus at the time of the offering of the securities, including but not limited to the proposed amount of securities, the initial public offering price of the securities and the names of the underwriters or agents, if any. You should read this prospectus and any supplement carefully before you decide to invest.

This prospectus may not be used to consummate sales of these securities unless it is accompanied by a prospectus supplement.

The New York Stock Exchange lists our common stock under the symbol “TMA” and our 8% Series C Cumulative Redeemable Preferred Stock under the symbol “TMA PRC.”

Our capital stock is subject to transfer restrictions designed to preserve our status as a real estate investment trust. See “Description of Equity Securities—Restrictions on Ownership and Transfer.”

We may sell these securities to or through underwriters, dealers or agents, or directly to investors on our own behalf.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. Under this process, we may offer and sell any combination of common stock, preferred stock, warrants to purchase common stock or preferred stock, and debt securities in one or more offerings for total proceeds of up to $1.5 billion. This prospectus provides you with a general description of the securities we may offer. Each time we offer to sell securities, we will provide a supplement to this prospectus that will contain specific information with respect to the terms of those securities. The prospectus supplement may also add, update or change information contained in this prospectus. It is important for you to consider the information contained in this prospectus, including the documents incorporated by reference herein, and any prospectus supplement together with additional information described under the heading “Where You Can Find More Information.” Unless the context otherwise requires, all references to “we,” “us” or the “Company” in this prospectus and any accompanying prospectus supplement refer to Thornburg Mortgage, Inc. and its subsidiaries.

This prospectus contains or incorporates by reference certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are based on our current expectations, estimates and projections. Pursuant to those sections, we may obtain a “safe harbor” for forward-looking statements by identifying those statements and by accompanying those statements with cautionary statements, which identify factors that could cause actual results to differ from those expressed in the forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. The words “believe,” “anticipate,” “intend,” “aim,” “expect,” “will,” and similar words identify forward-looking statements. Such statements are not guarantees of future performance, events or results and involve potential risks and uncertainties. Accordingly, our actual results may differ from our current expectations, estimates and projections.

Important factors that may impact our actual results or may cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf include, but are not limited to, changes in interest rates, changes in yields available for purchase on adjustable and variable rate mortgage assets, changes in the yield curve, changes in prepayment rates, changes in the supply of mortgage-backed securities and loans, our ability to obtain financing and the terms of any financing that we do obtain. For a discussion of factors which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” on page 9 of this prospectus. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which we may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

We are a single-family residential mortgage lender that originates, acquires and retains investments in adjustable and variable rate mortgage (“ARM”) assets, thereby providing capital to the single-family residential housing market. Our ARM assets consist of ARM securities and ARM loans and are comprised of traditional ARM securities and loans, which have interest rates that reprice in a year or less (“Traditional ARM assets”) and hybrid ARM securities and loans, which have a fixed interest rate for an initial period of three to ten years before converting to Traditional ARM assets for their remaining terms to maturity (“Hybrid ARM assets”). ARM securities represent interests in pools of ARM loans, which are publicly rated and issued by third parties and may

include guarantees or other third-party credit enhancements against losses from loan defaults. ARM loans are either loans that we have securitized from our own origination or loan acquisition activities, loans that we use as collateral to support the issuance of floating-rate or fixed-rate collateralized debt obligations (“CDOs”) or loans pending securitization. Like traditional banking organizations, our income is generated primarily from the net spread or difference between the interest income we earn on our ARM assets and the cost of our borrowings. Our strategy is to maximize the long-term, sustainable difference between the yield on our ARM assets and the cost of financing these assets, and to maintain that difference through interest rate and credit cycles.

While we are not a bank or savings and loan institution, our business purpose, strategy, method of operation and risk profile are best understood in comparison to such institutions. We finance the purchases and originations of our ARM assets with preferred and common equity capital, unsecured debt, CDOs and short-term borrowings such as reverse repurchase agreements, asset-backed commercial paper (“Asset-backed CP”), whole loan financing facilities and other collateralized financings that we may establish in the future. When we borrow short-term or floating-rate funds to finance our Hybrid ARM assets, we also enter into interest rate hedging transactions, which are intended to fix, or cap, our borrowing costs during the fixed-rate period of the Hybrid ARM asset. We believe our exposure to changes in interest rates is minimal since the assets we hold are primarily ARM assets and we generally match the effective duration, which is a calculation expressed in months or years that is a measure of the expected price change of financial instruments based on changes in interest rates (“Effective Duration”), of those assets with funding of comparable Effective Duration. We have a policy to operate with an Adjusted Equity-to-Assets ratio of at least 8% and we typically operate with a 9% to 10% Adjusted Equity-to-Assets Ratio. This is a non-GAAP measurement that we use to limit the amount of assets we carry relative to the amount of equity on our balance sheet. For a description and calculation of this ratio and a reconciliation to a comparable GAAP capital utilization measurement, please see our most recently filed periodic report under the section entitled “Capital Utilization and Leverage.” Moreover, we focus on acquiring high quality assets to minimize potential credit losses and to ensure our access to financing. Similarly, we maintain strict credit underwriting standards and, as of the date of this prospectus, have experienced cumulative credit losses of only $174,000 on our loan portfolio, since we began acquiring loans in 1997. We believe our operating structure has resulted in operating costs well below those of other mortgage originators. We believe that our corporate structure differs from most lending institutions in that we are organized for tax purposes as a real estate investment trust (“REIT”) and, therefore, pay substantially all of our earnings in the form of dividends to shareholders.

Our consolidated financial statements include the accounts of Thornburg Mortgage, Inc. (“TMA”), Thornburg Mortgage Depositor, LLC (“TMD”), Thornburg Mortgage Capital Resources, LLC (“TMCR”), Thornburg Mortgage Home Loans, Inc. (“TMHL”) and TMHL’s two wholly-owned special purpose finance subsidiaries, Thornburg Mortgage Funding Corporation II (“TMFC II”) and Thornburg Mortgage Acceptance Corporation II (“TMAC II”). TMD, which is TMA’s wholly-owned special purpose finance subsidiary, and TMCR, which is TMD’s wholly-owned special purpose finance subsidiary, are qualified REIT subsidiaries and are consolidated with TMA for financial statement and tax reporting purposes. TMHL, which is TMA’s wholly-owned subsidiary, conducts our mortgage loan acquisition, origination, processing, underwriting, securitization and servicing activities. TMFC II and TMAC II facilitate the financing of loans by TMHL. As of the close of business on May 31, 2004, TMHL and its subsidiaries made the election to be taxable REIT subsidiaries and are consolidated with TMA for financial statement purposes but have not been consolidated with TMA for tax reporting purposes from that date forward.

We are an externally advised REIT and are managed under a management agreement (the “Management Agreement”) with Thornburg Mortgage Advisory Corporation (the “Manager”) which manages our operations, subject to the supervision of our Board of Directors. We pay the Manager an annual base management fee generally based on average shareholders’ equity (as defined in the Management Agreement). The Manager is also entitled to earn performance-based incentive compensation pursuant to a formula described in the Management Agreement. The Management Agreement expires in July 2014.

Our principal executive offices are located at 150 Washington Avenue, Suite 302, Santa Fe, New Mexico 87501 and our telephone number is (505) 989-1900.

Our internet website address is www.thornburgmortgage.com. The information on our website is not considered part of this prospectus. We make available free of charge through our website, under the “Investors— SEC Filings” section, our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports that we file or furnish pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

You may also find our Code of Business Conduct and Ethics, Corporate Governance Guidelines and the charters of the Audit Committee, Nominating/ Corporate Governance Committee and Compensation Committee of our Board of Directors at our website under the “Investors—Corporate Governance” section. These documents are also available in print to any shareholder who requests them by contacting us at the address or telephone number listed above.

Our common stock, par value $0.01 per share (“Common Stock”) is traded on the New York Stock Exchange (the “NYSE”) under the symbol “TMA.”

Our 8% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series C Preferred Stock”) is traded on the NYSE under the symbol “TMA PRC.”

Our business strategy is to acquire and originate ARM assets to hold in our portfolio, fund them using equity capital and borrowed funds, and generate earnings from the difference, or spread, between the yield on our assets and our cost of borrowings.

We acquire ARM assets from investment banking firms, broker-dealers and similar financial institutions that regularly make markets in these assets. We also acquire ARM assets from other mortgage providers, including mortgage bankers, banks, savings and loan institutions, home builders and other firms involved in originating, packaging and selling mortgage loans. We believe we have a competitive advantage in acquiring and investing in these ARM assets due to the low cost of our operations relative to traditional mortgage investors and originators.

We originate ARM loans for our portfolio through our correspondent lending program and we originate ARM loans directly to consumers. As of the date of this prospectus, we are authorized to lend in all 50 states and the District of Columbia. We believe that diversifying our sources for ARM loans and ARM securities will enable us to consistently find attractive opportunities to acquire or create high quality assets at attractive yields and spreads for our portfolio.

We have a focused portfolio lending investment policy designed to minimize credit risk and interest rate risk. Our mortgage assets portfolio may consist of ARM securities guaranteed by the Government National Mortgage Association or Ginnie Mae, which is an agency of the federal government, the Federal National Mortgage Association or Fannie Mae, which is a government-sponsored corporation or the Federal Home Loan Mortgage Corporation or Freddie Mac, which is a federally chartered corporation (collectively, “Agency Securities”), or privately issued (generally publicly registered) ARM pass-through securities, multi-class pass-through securities, collateralized mortgage obligations (“CMOs”), “A quality” ARM loans that we intend to

securitize, securities issued by others that are backed by “A quality” loans where we have purchased all of the resulting classes, fixed-rate mortgage-backed securities (“MBS”) with an expected Effective Duration of one year or less or other short-term investments that either mature within one year or have an interest rate that reprices within one year.

Our investment policy requires that we invest at least 70% of our total assets in High Quality ARM assets and short-term investments. High Quality means:

(2) ARM securities and securitized ARM loans which are rated within one of the two highest rating categories by at least one of either Standard & Poor’s Corporation or Moody’s Investors Service, Inc. (the “Rating Agencies”); or

(3) securities and securitized loans that are unrated or whose ratings have not been updated but are determined to be of comparable quality (by the rating standards of at least one of the Rating Agencies) to a High Quality-rated mortgage security, as determined by the Manager and approved by our Board of Directors; or

(4) the portion of ARM loans that have been deposited into a trust and have received a credit rating of AA or better from at least one Rating Agency.

The remainder of our ARM portfolio, comprising not more than 30% of total assets, may consist of Other Investment assets, which may include:

(1) adjustable or variable rate pass-through certificates, multi-class pass-through certificates or CMOs backed by loans that are rated at least Investment Grade at the time of purchase (“Investment Grade” generally means a security rating of BBB, Baa or better by at least one of the Rating Agencies); or

(2) ARM loans collateralized by first liens on single-family residential properties, generally underwritten to “A quality” standards, and acquired for the purpose of future securitization; or

(3) fixed-rate mortgage loans collateralized by first liens on single-family residential properties originated for sale to third parties; or

(4) real estate properties acquired as a result of foreclosing on our ARM loans; or

(5) as authorized by our Board of Directors, ARM securities rated less than Investment Grade that are created as a result of our loan acquisition and securitization efforts or are acquired as part of a loan securitization effected by third parties in which we purchase all of the classes of the loan securitization, and that equal an amount no greater than 17.5% of shareholders’ equity, measured on a historical cost basis.

Our ARM assets include investments in Hybrid ARM assets. We limit our ownership of Hybrid ARM assets with fixed-rate periods of greater than five years to no more than 30% of our total assets. We use Hybrid ARM hedging instruments to fix, or cap, the interest rates on the short-term borrowings and floating-rate CDOs financing our Hybrid ARM assets (collectively, “Hybrid ARM Hedging Instruments”). We have a policy that requires us to maintain a Hybrid ARM portfolio net effective duration of less than one year. Net effective duration is the Effective Duration of ARM assets minus the Effective Duration of borrowings and hedging instruments (“Net Effective Duration”). Hedging instruments are interest rate cap agreements, interest rate swap agreements and Eurodollar futures contracts (collectively, “Hedging Instruments”), which are derivative financial instruments that we use to manage our interest rate exposure when financing the purchase of ARM assets. We use a financial model that simulates interest rate changes and calculates the impact of those changes on the fair value of our Hybrid ARM portfolio. By maintaining a Net Effective Duration of less than one year, we believe that we can maintain relatively stable earnings and dividends given changing interest rates.

To mitigate the adverse effect of an increase in prepayments on our ARM assets, we emphasize the purchase of ARM assets at prices close to or below par. We amortize any premiums paid for our assets over their expected

lives using the effective yield method of accounting. To the extent that the prepayment rate on our ARM assets differs from expectations, our net interest income will be affected. Prepayments generally increase when current mortgage interest rates fall below the interest rates on existing ARM loans. To the extent there is an increase in prepayment rates, resulting in a shortening of the expected lives of our ARM assets, our net income and, therefore, the amount available for dividends could be adversely affected.

We believe that our status as a mortgage REIT makes an investment in our equity securities attractive for tax-exempt investors, such as pension plans, profit sharing plans, 401(k) plans, Keogh plans and Individual Retirement Accounts. We do not invest in real estate mortgage investment conduit residuals or other CMO residuals that would result in the creation of excess inclusion income or unrelated business taxable income.

Acquisition, Securitization and Retention of Traditional ARM and Hybrid ARM Loans

We acquire and originate “A quality” mortgage loans through our wholly-owned mortgage loan origination subsidiary, TMHL, from three sources: (i) correspondent lending, (ii) direct retail loan originations, and (iii) bulk acquisitions. Correspondent lending involves acquiring individual loans from lending partners which we have approved and which originate the individual loans using our product pricing, underwriting criteria and guidelines, or other approved criteria and guidelines. Direct retail loan originations are loans that we originate through financial intermediaries or directly to consumers via the internet or by telephone. Bulk acquisitions involve acquiring pools of whole loans, which are originated using the seller’s guidelines and underwriting criteria. The loans we acquire or originate are financed through warehouse borrowing arrangements pending securitization for our portfolio.

The loans acquired or originated by TMHL are first lien, single-family residential Traditional ARM and Hybrid ARM loans with original terms to maturity of not more than forty years and are either fully amortizing or are interest-only for up to ten years, and fully amortizing thereafter.

All ARM loans that we acquire or originate for our portfolio bear an interest rate tied to an interest rate index. Most loans have periodic and lifetime constraints on how much the loan interest rate can change on any predetermined interest rate reset date. The interest rate on each Traditional ARM loan resets monthly, semi-annually or annually. The Traditional ARM loans generally adjust to a margin over a U.S. Treasury index or a LIBOR index. The Hybrid ARM loans have a fixed rate for an initial period, generally 3 to 10 years, and then convert to Traditional ARM loans for their remaining term to maturity.

We acquire and originate ARM loans for our portfolio with the intention of securitizing them into pools of High Quality ARM securities and retaining them in our portfolio as securitized ARM loans. Alternatively, we may also use our loans as collateral for CDOs. In order to facilitate the securitization or financing of our loans, we generally create subordinate certificates, which provide a specified amount of credit enhancement and which we retain in our portfolio. We issue securities through securities underwriters and either retain these securities and finance them in the repurchase agreement market or the Asset-backed CP market, or finance them through the issuance of CDOs in the capital markets. Our investment policy limits the amount we may retain of below Investment Grade subordinate certificates created as a result of our loan acquisition and securitization efforts, and subordinate classes that we purchase in connection with a whole pool securitization effected by third parties, to 17.5% of shareholders’ equity, measured on a historical cost basis.

We believe acquiring or originating ARM loans and then securitizing them benefits us by providing: (i) greater control over the quality and types of ARM assets acquired; (ii) the ability to acquire ARM assets at lower prices, so that the amount of the premium to be amortized will be reduced in the event of prepayment; (iii) additional sources of new whole-pool ARM assets; and (iv) generally higher yielding investments in our portfolio.

We offer a loan modification program on all loans we originate or service. We believe this program promotes customer retention and reduces loan prepayments. Under the terms of this program, a borrower pays a

fee to modify the mortgage loan to any then-available Hybrid or Traditional ARM product that we offer at the offered retail interest rate plus ¹/8%.

We finance our ARM assets using preferred and common equity capital, unsecured debt, CDOs and short-term borrowings such as reverse repurchase agreements, Asset-backed CP, whole loan financing facilities and other collateralized financings that we may establish in the future. See “Hedging Strategies” below for a discussion of how we convert short-term borrowings into the equivalent of long-term fixed-rate financing for purposes of managing our interest rate risk. Our long-term objective is to achieve a balanced funding mix including Asset-backed CP, CDOs and reverse repurchase agreements.

Reverse repurchase agreements involve a simultaneous sale of pledged assets to a lender at an agreed-upon price in return for the lender’s agreement to resell the same assets back to us at a future date (the maturity of the borrowing) at a higher price. The price difference is the cost of borrowing under these agreements. Because we borrow money under these agreements based on the fair value of our ARM assets, our borrowing ability under these agreements could be limited and lenders could initiate margin calls in the event of interest rate changes or if the value of our ARM assets declines for other reasons.

We enter into two types of reverse repurchase agreements: variable rate term reverse repurchase agreements and fixed-rate reverse repurchase agreements. The interest rates on the variable rate term reverse repurchase agreements are generally indexed to either the one-month or three-month LIBOR rate, and reprice accordingly. Generally, upon repayment of each reverse repurchase agreement, we immediately pledge the ARM assets used to collateralize the financing to secure a new reverse repurchase agreement.

We have an Asset-backed CP facility, which provides us with an alternative way to finance our high quality ARM securities portfolio. We issue Asset-backed CP in the form of secured liquidity notes to money market investors. The notes can be collateralized by Agency Securities and AAA-rated, adjustable-rate MBS that we have either purchased or created through our loan securitization process. Importantly, we have diversified our funding sources by replacing a portion of our reverse repurchase agreement borrowings with the issuance of Asset-backed CP under terms that are comparable to our existing reverse repurchase agreement funding.

We have also financed the purchase of ARM assets by issuing floating-rate and fixed-rate CDOs in the capital markets, which are collateralized by ARM loans that are placed in a trust. The trust pays the principal and interest payments on the debt out of the cash flows received on the collateral. This structure enables us to make more efficient use of our capital because the capital requirement to support these financings is less than the amount our policy requires to support the same amount of financings in the reverse repurchase agreement or Asset-backed CP markets. These transactions are a permanent form of financing and are not subject to margin calls.

We also have financing facilities, or credit lines, for whole loans. A whole loan is the actual mortgage loan evidenced by a note and secured by a mortgage or deed of trust. We use these financing facilities to finance our acquisition of whole loans while we are accumulating loans for securitization.

We have issued senior unsecured notes (“Senior Notes”) in the amount of $305 million as an alternative form of long-term capital. The Senior Notes bear interest at 8%, payable each May 15 and November 15, and mature on May 15, 2013. The Senior Notes are redeemable at a declining premium, in whole or in part, beginning on May 15, 2008, and at par beginning on May 15, 2011. The Senior Notes may also be redeemed under limited circumstances on or before May 15, 2006.

Our Board of Directors has approved a policy that limits our capacity to borrow funds to finance mortgage assets based on our equity capital and unsecured debt (collectively, long-term capital). We monitor the relationship between our assets, borrowings and long-term capital using a variety of different measures. However, the primary operating policy that limits our borrowings and leverage is a requirement to maintain our Adjusted Equity-to-Assets Ratio, a non-GAAP measurement, at a minimum of 8%. Broadly speaking, this ratio reflects the relationship between those assets financed with borrowings that are subject to margin calls and our long term capital position. For a description and calculation of this ratio and a reconciliation to a comparable GAAP capital utilization measurement, please see our most recently filed periodic report under the section entitled “Capital Utilization and Leverage.”

Our primary focus is to acquire and originate high quality, highly liquid assets such that sufficient assets could be readily converted to cash, if necessary, in order to meet our financial obligations. We have adopted a Liquidity Management Policy, which is designed to minimize potential shortfalls in liquidity resulting from adverse changes in interest rates or market conditions. The Liquidity Management Policy requires the frequent measurement of the potential market value exposure of the portfolio to a 100 basis point instantaneous parallel increase in interest rates over expected future interest rates. The calculated potential mark-to-market exposure resulting from this scenario is probability weighted and compared to recent minimum liquidity levels in order to determine whether management needs to take specific actions to improve liquidity or further reduce interest rate risk.

We attempt to mitigate our interest rate risk by funding our ARM assets with a combination of short-term borrowings and Hedging Instruments whose combined Effective Durations approximately match the Effective Durations on our ARM assets. Therefore, some of our borrowings bear variable or short-term (one year or less) fixed interest rates because a portion of our ARM assets, the Traditional ARM assets, have interest rates that adjust within one year. However, we finance our Hybrid ARM portfolio with borrowings hedged with Hybrid ARM Hedging Instruments that fix the interest rate on the borrowings such that the Net Effective Duration is less than one year. A shorter Effective Duration indicates a lower expected volatility of earnings when interest rates change during future periods. When we enter into an interest rate swap agreement, we agree to pay a fixed rate of interest and to receive a variable interest rate, generally based on LIBOR. We also enter into Eurodollar futures contracts (“Eurodollar Transactions”) in order to fix the interest rate changes on our forecasted three-month LIBOR-based liabilities. Each Eurodollar futures contract is a three-month contract with a price that represents the forecasted three-month LIBOR rate. Selling Eurodollar futures contracts locks in a future interest rate. The difference between these two values results in a gain or loss that offsets the change in the three-month LIBOR rate and “locks-in” the forecasted three-month LIBOR rate for financing purposes. We purchase interest rate cap agreements (“Cap Agreements”) by incurring a one-time fee or premium. Pursuant to the terms of the Cap Agreements, we will receive cash payments if the interest rate index specified in any such Cap Agreement increases above contractually specified levels. Therefore, such Cap Agreements have the effect of capping the interest rate on a portion of our borrowings above a specified level as opposed to fixing our cost of funds as in a swap transaction. The notional balances of the Hybrid ARM Hedging Instruments generally decline over the life of these instruments.

We enter into Eurodollar Transactions to manage interest rate risk associated with commitments to purchase ARM loans (“Pipeline Hedging Instruments”). The gain (loss) on the Pipeline Hedging Instruments is expected to offset the gain (loss) recorded for the change in fair value of the loan commitments.

We may enter into additional hedging transactions designed to protect our borrowing costs or portfolio yields from interest rate changes. We may purchase “interest-only” or “principal-only” mortgage derivative

assets or other mortgage derivative products for purposes of mitigating risk from interest rate changes. We may also use, from time to time, futures contracts and options on futures contracts on the Eurodollar, Federal Funds, Treasury bills and Treasury notes and similar financial instruments to mitigate risk from changing interest rates.

The hedging transactions that we currently use generally are designed to protect our income during periods of changing market interest rates. We do not hedge for speculative purposes. Further, no hedging strategy can completely insulate us from risk and certain of the federal income tax requirements that we must satisfy to qualify as a REIT may limit our ability to hedge. We carefully monitor and may have to limit our hedging strategies to ensure that we do not realize excessive hedging income or hold hedging assets having excess value in relation to total assets.

We actively manage the risks associated with our business. Interest rate risks, credit risks, earnings volatility, REIT qualification risks and other risks are monitored, measured and quantified by management in order to assure minimal earnings and dividend fluctuations. However, investors should understand the nature of the risks that we face. Those key risks are discussed below. Any one of the factors listed here, or other factors not so listed, could cause actual results to differ materially from expectations and could adversely affect our profitability. Before making an investment decision, you should carefully consider all of the risks described in this prospectus and in any prospectus supplement.

We borrow money to fund the purchase of additional ARM assets. A significant contributor to our earnings is the interest margin between the yield on our ARM assets and the cost of our borrowings.

We originate and acquire ARM loans and ARM securities and have risk of loss due to mortgage loan defaults.

Some of our directors and officers have ownership interests in the Manager, which may create conflicts of interest.

Unless otherwise indicated in an accompanying prospectus supplement, we intend to use the net proceeds from the sale of the securities offered by this prospectus and the related accompanying prospectus supplement for general corporate purposes. The primary purpose for which we will use such proceeds is the acquisition of ARM assets. We may also use the proceeds for other general corporate purposes such as repayment of maturing obligations, redemption of outstanding indebtedness, financing the acquisition of assets other than ARM assets, capital expenditures and working capital. Pending any such uses, we may invest the net proceeds from the sale of any securities or may use them to reduce short term indebtedness.

The following table sets forth our ratios of earnings to fixed charges and to combined fixed charges and preferred stock dividends for the periods shown:

We may offer under this prospectus debt securities, including Senior Notes, pursuant to the indenture and the first supplemental indenture that we have entered into with Deutsche Bank Trust Company Americas, as trustee (included as exhibits to the registration statement of which this prospectus is a part). We may also offer debt securities pursuant to an indenture to be entered into with a different trustee named therein. Any indenture pursuant to which we issue debt securities will be qualified under and governed by the Trust Indenture Act of 1939, as amended.

We will have the ability to issue an unlimited amount of debt securities under any indenture. However, certain of our existing or future debt agreements may limit the amount and type of debt securities we may issue. We will be able to issue debt securities from time to time and in one or more series as determined by us. In addition, we will be able to issue debt securities of any series with terms different from the terms of debt securities of any other series and the terms of particular debt securities within any series may differ from each other. We will also have the ability to reopen a previous issue of a series of debt securities and issue additional debt securities of that series in an aggregate principal amount determined by us.

The debt securities will be our senior and unsecured obligations. Creditors of our existing and future secured debt will have priority in right of payment over holders of the debt securities with respect to our assets that secure such indebtedness. In addition, a portion of our assets is owned through our subsidiaries which have debt or other liabilities of their own which will be structurally senior to the debt securities. None of our subsidiaries will have any obligations with respect to the debt securities. Therefore, liabilities of our subsidiaries will be prior in right of payment to the debt securities with regard to the assets of those subsidiaries.

The following is a summary of the terms and provisions included in the indenture we entered into with Deutsche Bank Trust Company Americas, as trustee, as well as the general terms and provisions that we anticipate would be included in any other indenture pursuant to which we may offer debt securities in a prospectus supplement (collectively, the “Indenture”). A form of such other indenture is filed as an exhibit to the registration statement of which this prospectus is a part. The particular terms of the debt securities offered by any prospectus supplement and the extent, if any, to which the general terms and provisions described herein may not apply to the debt securities so offered will be described in the prospectus supplement relating to such debt securities. If any particular terms of the debt securities described in a prospectus supplement differ from any of the terms described in this prospectus, then the terms described in the applicable prospectus supplement will supersede the terms described in this prospectus. The following summary does not purport to be complete or restate any such indenture in its entirety and is subject to, and qualified in its entirety by reference to, all provisions of any such indenture (and any amendments or supplements we may enter into from time to time which are permitted under any such indenture) and the specific debt securities. We urge you to read the indenture applicable to a particular series of debt securities because it, and not this description, defines your rights as the holders of the debt securities.

The Indenture provides that, prior to the issuance of debt securities of a series, we and the trustee will execute a supplemental indenture which will describe the following terms, as applicable, relating to the specific series of debt securities being offered, and which will be filed as an exhibit to or incorporated by reference in the registration statement:

The Indenture provides that the terms, if any, on which a series of debt securities may be convertible into or exchangeable for our Common Stock, preferred stock or other securities or assets will be set forth in a supplemental indenture. Such conversion or exchange may be mandatory, at the option of the holder or at our option, and may include provisions pursuant to which the number of shares of our Common Stock, preferred stock or other securities or assets to be received by the holders of the series of debt securities would be subject to adjustment. In the absence of any such terms setting forth rights to convert or exchange the debt securities of that series into or for other securities or assets, holders of the debt securities of that series will not have any such rights.

The Indenture prohibits us from consolidating with, or merging into, any other corporation or conveying, transferring or leasing all or substantially all of our assets to any entity, unless such entity is a corporation organized under the laws of the United States and expressly assumes all of our obligations under the Indenture and the debt securities, no event of default under the Indenture will have occurred and be continuing and we have certified to the trustee that the transaction is in compliance with the above-stated provisions.

The following are events of default under the Indenture with respect to any series of debt securities issued:

If an event of default with respect to debt securities of any series occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding debt securities of that series, by notice in writing to us, and to the trustee if notice is given by such holders, may declare the unpaid principal of, premium, if any, and accrued interest, if any, due and payable immediately. The trustee may withhold notice to the holders of debt securities of any default or event of default, except a default or event of default relating to the payment of principal, premium, if any, or interest, if it determines in good faith that withholding such notice is in the holders’ interest.

The holders of a majority in principal amount of the then outstanding debt securities of an affected series may rescind an acceleration and its consequences if all existing events of default have been cured or waived, except for the nonpayment of principal, premium, if any, or interest, if any, that has become due solely because of the acceleration, and if the rescission would not conflict with any judgment or decree. The holders of a majority in aggregate principal amount of the then outstanding debt securities of an affected series may waive any default or event of default with respect to such series and its consequences, except a default in the payment of principal, premium, if any, or interest on the debt securities of such series or a default in respect of a covenant that cannot be modified or amended without the consent of the holders of all debt securities of that series then outstanding. Any such waiver shall cure such default or event of default.

If an event of default under the Indenture shall occur and be continuing, the trustee will be under no obligation to exercise any of its rights or powers at the request or direction of any of the holders of the applicable series of debt securities, unless such holders have offered the trustee indemnity satisfactory to it. The holders of a majority in principal amount of the then outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or of exercising any trust or power conferred on the trustee, with respect to the debt securities of that series, provided that:

A holder of the debt securities of any series will only have the right to institute a proceeding under the Indenture or to seek other remedies if:

We will periodically file statements with the trustee regarding our compliance with conditions and covenants in the Indenture.

We and the trustee may amend or supplement the Indenture without notice to or the consent of any holders with respect to certain matters, including:

In addition, under the Indenture, the rights of holders of a series of debt securities may be amended or supplemented by us and the trustee with the written consent of the holders of at least a majority in aggregate principal amount of the then outstanding debt securities of each series that is affected. However, we can make the following changes only with the consent of each holder of any outstanding debt securities affected:

The holders of a majority in principal amount of the then outstanding debt securities of each series that is affected may waive compliance by us with any provision of the Indenture with regard to that series of debt securities or the debt securities.

Unless otherwise specified in a supplemental indenture, the debt securities of each series will be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof.

At the option of the holder, unless otherwise specified in a supplemental indenture, debt securities of any series will be exchangeable for other debt securities of the same series, in any authorized denomination and of like tenor and aggregate principal amount. Unless otherwise specified in a supplemental indenture, debt securities will be transferable upon the surrender of the securities to the registrar for registration of transfer. Unless otherwise provided in the debt securities to be transferred or exchanged, we will not charge a fee for any registration of transfer or exchange, but we may require payment of any taxes or other governmental charges. The registrar for any debt securities will be named in the applicable supplemental indenture, and we may at any time designate additional co-registrars.

If the debt securities of any series are to be redeemed, we will not be required to register transfers or exchanges of:

The trustee, other than during the occurrence and continuance of an event of default under the Indenture, undertakes to perform only such duties as are specifically described in the Indenture and, upon an event of default under the Indenture, must use the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the trustee is under no obligation to perform any duty or to exercise any of the powers given it by the Indenture unless it is offered security and indemnity satisfactory to it against any loss, liability or expense that it might incur. The trustee is not required to spend or risk its own money or otherwise become financially liable while performing its duties unless it reasonably believes that it will be repaid or receive indemnity satisfactory to it against the risk or liability.

Unless otherwise indicated in the applicable prospectus supplement, payment of the interest on any debt securities on any interest payment date will be made to the person in whose name such debt securities or one or more predecessor securities are registered at the close of business on the regular record date for such interest.

Principal of and any premium and interest on the debt securities of a particular series will be payable at the office of the paying agent designated by us, except that unless otherwise indicated in the applicable prospectus supplement, interest payments may be made by check mailed to the holder.

Unless otherwise indicated in a prospectus supplement, the Indenture and the debt securities will be governed by the laws of the State of New York.

We may offer under this prospectus one or more of the following categories of securities: (i) shares of our Common Stock; (ii) shares of our preferred stock, in one or more series, including Series C Preferred Stock; (iii) warrants to purchase our Common Stock or preferred stock; and (iv) any combination of the foregoing, either individually or consisting of one or more of the types of securities described in clauses (i) through (iii). The terms of any specific offering of such securities will be set forth in a prospectus supplement relating to such offering.

Our authorized capital stock consists of 492,748,000 shares of Common Stock, 22,000 shares of Series B Cumulative Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”) and 7,230,000 shares of Series C Preferred Stock. Pursuant to our Articles of Incorporation, as amended and supplemented (the “Articles of Incorporation”), our Board of Directors has the right to classify or reclassify any unissued shares of Common Stock into one or more classes or series of Common Stock, preferred stock or other stock. As of the date of this prospectus, we had 100,616,164 shares of Common Stock outstanding and 4,525,000 shares of Series C Preferred Stock outstanding. As of the date of this prospectus, we had no stock options outstanding to purchase our Common Stock. The NYSE lists our Common Stock under the symbol “TMA” and our Series C Preferred Stock under the symbol “TMA PRC.”

Our capital stock, including our Common Stock and Series C Preferred Stock, is subject to restrictions on ownership and transfer. See “Restrictions on Ownership and Transfer” below.

On January 25, 2001, we entered into a Shareholder Rights Agreement. The following summary of certain provisions of the Shareholder Rights Agreement does not purport to be complete and is qualified in its entirety by reference to all of the provisions of the Shareholder Rights Agreement, as amended, which is filed as an exhibit to the registration statement of which this prospectus is a part. Under the Shareholder Rights Agreement, one Preferred Stock Purchase Right (a “Right”) will automatically attach to each share of our Common Stock issued between April 6, 2001 and the Distribution Date, as defined below. In addition, each outstanding share of our Common Stock held by shareholders of record as of the close of business on April 6, 2001 received a dividend distribution of one Right. Each Right entitles the registered holder thereof to purchase a unit consisting of one one-thousandth of a share of the Series B Preferred Stock. Initially, the Rights are not exercisable and are attached to and trade with our Common Stock outstanding as of, and all Common Stock issued after, April 6, 2001. The Rights will separate from the Common Stock and become exercisable upon the earlier of (i) the close of business on the 10th calendar day following the earlier of (a) the date of the first public announcement that a person or a group of affiliated or associated persons has acquired beneficial ownership of 9.8% or more of our outstanding Common Stock (an “Acquiring Person”), or (b) the date on which we first have notice or otherwise determine that a person has become an Acquiring Person, or (ii) the close of business on the 10th business day following the commencement of a tender offer or exchange offer that would result, upon its consummation, in a person or group becoming the beneficial owner of 9.8% or more of our outstanding Common Stock (the earlier of (i) and (ii), the “Distribution Date”).

The Rights have certain anti-takeover effects. The Rights may cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. The Rights should not interfere with any merger or business combination approved by our Board of Directors because of the ability of our Board of Directors to redeem the Rights.

All shares of Common Stock that we may offer under this prospectus will be duly authorized, fully paid and nonassessable. The statements below describing our Common Stock are in all respects subject to and qualified in their entirety by reference to our Articles of Incorporation and our Amended and Restated Bylaws (the “Bylaws”), which are filed as exhibits to the registration statement of which this prospectus is a part, and any amendments or articles supplementary to our Articles of Incorporation.

Each holder of our Common Stock is entitled to one vote for each share of Common Stock held of record on each matter submitted to a vote of shareholders of our Common Stock.

Our Bylaws provide that annual meetings of our shareholders will be held each calendar year on the date determined by our Board of Directors, and special meetings may be called by a majority of our Board of Directors, our Chairman, a majority of our independent directors, our President or by shareholders entitled to cast at least 25% of the votes which all shareholders are entitled to cast at the meeting.

Subject to the preferential rights of any other classes or series of capital stock, shareholders of our Common Stock are entitled to receive dividends when, as and if declared by our Board of Directors out of legally available funds. If we have a liquidation, dissolution or winding-up, shareholders of our Common Stock will share ratably in all of our assets remaining after the payment of all of our debts and other liabilities and the payment of all liquidation and other preference amounts to any shareholders of our preferred stock. Shareholders of our Common Stock have no preemptive or other subscription rights, and there are no conversion rights, or redemption or sinking fund provisions, relating to shares of our Common Stock. Our Articles of Incorporation and Bylaws contain no restrictions on our repurchase of shares of our Common Stock.

We have a Dividend Reinvestment and Stock Purchase Plan (the “DRSPP”) that allows shareholders of our Common Stock to have their cash dividends reinvested in additional shares of our Common Stock. The Common Stock to be acquired under the DRSPP may be purchased from us at a discount from the then prevailing market price, or in the open market or in privately negotiated transactions, at our sole discretion. Shareholders also can make additional monthly cash purchases of Common Stock, subject to a minimum investment of $100 per month ($500 minimum initial investment for new investors) and a maximum investment of $10,000 per month, although we may waive the limitation on the maximum amount upon request, at our sole discretion.

Our Articles of Incorporation authorize our Board of Directors to classify or reclassify any unissued shares of Common Stock into other classes or series of shares. We believe that the power to classify or reclassify unissued shares of our Common Stock and thereafter to issue the classified or reclassified shares of stock provides us with increased flexibility in structuring possible future financings and in meeting other needs which might arise. These actions can be taken without shareholder approval, unless shareholder approval 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.

Prior to the issuance of shares of each class or series, our Board of Directors is required by Maryland law and by our Articles of Incorporation to set, subject to the restrictions on ownership and transfers of our stock contained in our Articles of Incorporation, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control of our Company that might involve a premium price for holders of our Common Stock or otherwise be in their best interest.

The following description sets forth general terms and provisions of the preferred stock to which any prospectus supplement may relate. The statements below describing the preferred stock are in all respects subject to and qualified in their entirety by reference to our Articles of Incorporation and our Bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part, and any amendments or articles supplementary to our Articles of Incorporation, designating terms of a series of preferred stock. The preferred stock, when issued, will be duly authorized, fully paid and nonassessable. Because our Board of Directors has the power to establish the preferences, powers and rights of each series of preferred stock, our Board of Directors may afford the holders of any series of preferred stock preferences, powers and rights, voting or otherwise, senior to the rights of shareholders of our Common Stock.

We may sell additional shares of Series C Preferred Stock or we may establish a new series of preferred stock that we may sell pursuant to this prospectus. The rights, preferences, privileges and restrictions of any new series of preferred stock will be fixed by the articles supplementary relating to such series, which will be filed as an exhibit to or incorporated by reference in the registration statement. A prospectus supplement will describe the following terms, as applicable, relating to the specific series of preferred stock being offered, as follows:

We may issue warrants for the purchase of our Common Stock or preferred stock. Warrants may be issued independently or together with other securities offered under this prospectus and any accompanying prospectus supplement and may be attached to or separate from such other securities. Each issuance of warrants will be issued under a separate agreement to be entered into between us and a bank or trust company, as agent (the “Warrant Agent”), all as set forth in the prospectus supplement relating to the particular issue of offered warrants. Each issue of warrants will be evidenced by warrant certificates (the “Warrant Certificates”). The

applicable warrant agreement and form of Warrant Certificate will be filed as exhibits to or incorporated by reference in the registration statement. The Warrant Agent will act solely as our agent and will not assume any obligation or relationship of agency or trust for or with any holders of Warrant Certificates or beneficial owners of warrants.

If warrants are offered, the applicable prospectus supplement will describe the terms of such warrants, including the following where applicable:

To ensure that we meet the requirements for qualification as a REIT, our Articles of Incorporation prohibit anyone from owning, directly or indirectly, a number of shares of our capital stock in the aggregate, or of our Series C Preferred Stock separately, in excess of 9.8% of the outstanding shares of our capital stock or Series C Preferred Stock, respectively. Shares of capital stock not owned directly will be deemed to be owned indirectly by any person if that person is considered the beneficial owner of such shares for purposes of Rule 13(d)(3) promulgated under the Exchange Act. In addition, indirect ownership refers to constructive ownership in accordance with the constructive ownership provisions of Section 544 of the Internal Revenue Code of 1986, as amended (the “Code”), as modified in Section 856(h) of the Code.

The constructive ownership provisions of Section 544 of the Code generally attribute ownership of securities owned by a corporation, partnership, estate or trust proportionately to its shareholders, partners or beneficiaries; attribute ownership of securities owned by family members to other members of the same family; and set forth rules for attributing securities constructively owned by one person to another person (i.e., “reattribution”). To determine whether a person holds or would hold capital stock in excess of the 9.8% ownership limit, a person will be treated as owning not only shares of capital stock actually or beneficially owned, but also any shares of capital stock attributed to that person under the attribution rules described above. Accordingly, a person who individually owns less than 9.8% of the shares outstanding may nevertheless be in violation of the 9.8% ownership limit. All certificates representing shares of our capital stock will bear a legend referring to the restrictions on ownership described above.

Any purported transfer of shares of our capital stock that would result in an intended transferee (the “purported transferee”) owning (directly or indirectly) shares of our capital stock in excess of the 9.8% ownership limit will constitute “excess shares.” Our Board of Directors has the right to refuse to allow such transfers of excess shares to take place. Our Board of Directors also has the right to redeem the excess shares,

upon at least one week’s notice to the holder of the shares, for a price equal to the closing price of shares of the same class, series or type on the NYSE on the last business day prior to the redemption date. From and after such redemption date, such shares will not be entitled to any distribution or other benefits, with the exception only of the right to payment of the redemption price for such shares.

Any transfer of shares of our capital stock that would cause us to be disqualified as a REIT will be void to the fullest extent permitted by law, and the purported transferee will be deemed to have no interest in those shares. If the foregoing transfer restriction is determined to be void or invalid as a result of any legal decision, statute, rule or regulation, then the purported transferee of any excess shares may be deemed, at our option, to have acted as an agent on our behalf in acquiring the excess shares and to hold the excess shares on our behalf.

At least 15 days prior to any transaction which would cause a shareholder to acquire excess shares in violation of our Articles of Incorporation or within 10 days upon the demand of our Board of Directors, such person must file an affidavit with us setting forth the information required to be reported in returns filed by shareholders under Treasury Regulation 1.857-9 and in reports filed under Section 13(d) of the Exchange Act. Additionally, upon the demand of our Board of Directors, each proposed transferee of shares of our capital stock may be required to file a statement or affidavit with us setting forth the number of shares already owned by such transferee and any related person.

Our Board of Directors may increase or decrease the 9.8% ownership limit. In addition, our Board of Directors may, pursuant to our Articles of Incorporation, waive the 9.8% ownership limit for a purchaser of our stock who has provided the Board with evidence and assurances that our qualification as a REIT will not be jeopardized. At present, we do not intend to waive the 9.8% ownership limit for any purchaser.

The provisions described above may inhibit market activity and the resulting opportunity for the holders of our capital stock to receive a premium for their shares that might otherwise exist in the absence of such provisions. Such provisions also may make us an unsuitable investment vehicle for any person seeking to obtain ownership of more than 9.8% of the outstanding shares of our capital stock.

Our Bylaws provide for a staggered Board of Directors of between three and twelve directors divided into three classes, with terms of three years each. In order for us to qualify as a REIT, a majority of our directors must be independent. The number of directors in each class and the expiration of each class term, as of the date of this prospectus, is as follows:

At each annual meeting of our shareholders, successors of the class of directors whose term expires at that meeting will be elected for a three-year term and the directors in the other two classes will continue in office. A staggered Board of Directors may delay, defer or prevent a change in our control or other transaction that might involve a premium over the then prevailing market price for our Common Stock or other attributes that our shareholders may consider desirable. In addition, a staggered Board of Directors could prevent shareholders who do not agree with the policies of our Board of Directors from replacing a majority of the Board of Directors for two years.

Our Bylaws provide that any vacancy on our Board of Directors may be filled by a majority vote of the remaining directors. Any individual so elected director will hold office for the remaining term of the director that he or she is succeeding. Our Bylaws provide that a director may be removed for cause at any shareholder meeting upon the affirmative vote of a majority of the votes entitled to be cast in the election of directors.

Our Articles of Incorporation obligate us to indemnify our directors and officers to the maximum extent permitted by Maryland law, as amended from time to time. The Maryland General Corporation Law permits a corporation to indemnify its present and former directors and officers against judgments, penalties, fines, settlements and reasonable expenses that they actually incur 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 (1) the act or omission of the director or officer was material to the matter giving rise to the proceeding, and (a) was committed in bad faith, or (b) was the result of active and deliberate dishonesty, or (2) the director or officer actually received an improper personal benefit in money, property or services, or (3) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors and officers pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

The Maryland General Corporation Law permits the charter of a Maryland corporation to include a provision limiting the liability of its directors and officers to the corporation and its shareholders for money damages, except to the extent that (1) it is proved that the person actually received an improper benefit or profit in money, property or services, or (2) a judgment or other final adjudication is entered in a proceeding based on a finding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Our Articles of Incorporation provide for elimination of the personal liability of our directors and officers to us or our shareholders for money damages to the maximum extent permitted by Maryland law, as amended from time to time.

The Maryland General Corporation Law establishes special requirements for “business combinations” between a Maryland corporation and “interested shareholders” unless exemptions are applicable. An interested shareholder is any person who beneficially owns 10% or more of the voting power of the outstanding voting stock or is an affiliate or associate of ours who, at any time within the two-year period prior to the date on which interested shareholder status is determined, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock. Among other things, the law prohibits for a period of five years a merger and other similar transactions between us and an interested shareholder unless the Board of Directors approved the transaction prior to the party becoming an interested shareholder. The five-year period runs from the most recent date on which the interested shareholder became an interested shareholder. The law also requires payment of a fair price to shareholders to be determined as set forth in the statute or a supermajority shareholder vote for such transactions after the end of the five-year period. This means that the transaction must be approved by at least:

The business combination statute restricts the ability of third parties who acquire, or seek to acquire, control of us to complete mergers and other business combinations without the approval of our Board of Directors even if such a transaction would be beneficial to shareholders.

The Maryland General Corporation Law provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by a shareholder vote.

Two-thirds of the shares eligible to vote must vote in favor of granting the “control shares” voting rights. “Control shares” are shares of stock that, taken together with all other shares of stock the acquiror previously acquired, would entitle the acquiror to exercise at least 10% of the voting power in electing directors. Control shares do not include shares of stock that the acquiring person is entitled to vote as a result of having previously obtained shareholder approval. A “control share acquisition” means the acquisition of control shares, subject to certain exceptions.

A person who has made (or proposes to make) a control share acquisition and who satisfies certain conditions (including agreeing to pay expenses) may compel the Board of Directors to call a special meeting of shareholders to be held within 50 days to consider the voting rights of the shares. If such a person makes no request for a meeting, we have the option to present the question at any shareholders’ meeting.

If voting rights are not approved at a meeting of shareholders or if the acquiring person does not deliver an acquiring person statement as required by the statute, then we may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value. We will determine the fair value of the shares, without regard to the absence of voting rights, as of the date of either:

If voting rights for control shares are approved at a shareholders’ meeting and the acquiror becomes entitled to vote a majority of the shares of stock entitled to vote, all other shareholders may exercise appraisal rights. This means that shareholders would be able to require us to redeem shares of our stock from them for fair value. Under Maryland law, the fair value may not be less than the highest price per share paid by the acquiring person in the control share acquisition. Furthermore, certain limitations otherwise applicable to the exercise of appraisal rights would not apply in the context of a control share acquisition.

The control share acquisition statute would not apply to shares acquired in a merger, consolidation or share exchange if we were a party to the transaction.

The control share acquisition statute could have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our shareholders’ best interests.

American Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York 10038, is the transfer agent and registrar for our Common Stock and Series C Preferred Stock. Its telephone number is (800) 937-5449 (toll-free) or (718) 921-8200, ext. 6820 (customer service).

Based on various assumptions and factual representations that we have made regarding our operations, in the opinion of our prior counsel, commencing with our taxable year ended December 31, 1993, we have been organized in conformity with the requirements for qualification as a REIT under the Code. In the opinion of Dechert LLP, our counsel, we are organized in conformity with the requirements for qualification as a REIT under the Code, and, we believe, our method of operating will continue to enable us to meet the requirements for qualification and taxation as a REIT. Our qualification as a REIT depends upon our ability to meet the various requirements imposed under the Code through actual operations. Our counsel will not review our operations, and we cannot give any assurance that actual operations will meet these requirements. The opinion of our counsel is based upon existing law, U.S. Department of Treasury regulations, currently published administrative positions of the Internal Revenue Service (the “Service”) and judicial decisions, all of which are subject to change either prospectively or retroactively. The opinion of our counsel is not binding on the Service or any court.

The following discusses the material federal income tax considerations that relate to our treatment as a REIT and that apply to an investment in our securities. This discussion pertains only to Thornburg Mortgage, Inc., our qualified REIT subsidiaries and our shareholders and not to any taxable REIT subsidiaries, which operate as taxable entities. This summary deals only with securities held as a capital asset, which generally means property that is held for investment. In addition, except to the extent discussed below, this summary does not address tax considerations applicable to individual investors or entities subject to special tax rules, such as:

This discussion is based upon the provisions of the Code and regulations, rulings and judicial decisions interpreting the Code as of the date of this prospectus that are subject to changes occurring after that date. Any of these authorities may be repealed, revoked or modified, perhaps with retroactive effect, so as to result in federal income tax consequences different from those discussed below. We cannot give any assurance that the conclusions set out below would be sustained by a court if challenged by the Service.

The Code provides special tax treatment for organizations that qualify and elect to be taxed as REITs. However, it is impractical to set forth in this prospectus all aspects of federal, state, local and foreign tax law that may have tax consequences with respect to an investor’s purchase of our securities. In brief, if detailed conditions imposed by the Code are met, an entity (a) that invests primarily in real estate assets, including mortgage loans, (b) that elects to be a REIT, and (c) that otherwise would be taxed as a corporation with limited exceptions, is not taxed at the corporate level on its taxable income that is currently distributed to its shareholders. This treatment eliminates most of the “double taxation” at the corporate level and then again at the shareholder level when the income is distributed, that typically results from the use of corporate investment vehicles. A qualifying REIT, however, may be subject to certain excise and other taxes, as well as normal corporate tax, on taxable income that is not currently distributed to its shareholders.

We urge you to consult your own tax advisors regarding the tax consequences of an investment in our securities, including the application to your particular situation of the tax considerations discussed below, as well as the application of state, local or foreign tax laws.

We elected to become subject to tax as a REIT for federal income tax purposes effective for our taxable year ending on December 31, 1993, and we plan to continue to meet the requirements for taxation as a REIT. Based on existing law, we have operated in a manner consistent with our qualifying as a REIT under the Code and we believe that our organization and method of operation are such as to enable us to so qualify for this year and subsequent years.

There can be no assurance, however, that we will qualify as a REIT in any particular taxable year 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. If we fail to qualify as a REIT in any particular taxable year, we will be subject to federal income tax as a regular domestic corporation, and our shareholders will be subject to tax in the same manner as shareholders of regular domestic corporations. In that event, we may be subject to a substantial income tax liability with respect to each taxable year that we fail to qualify as a REIT, and the amount of earnings and cash available for distribution to our shareholders could be significantly reduced or eliminated. See “Failure to Qualify” below.

The following is a brief summary of the material technical requirements imposed by the Code that we must satisfy on an ongoing basis to qualify, and remain qualified, as a REIT.

Tax-exempt entities, other than private foundations and certain unemployment compensation trusts, are generally not treated as individuals for these purposes. These stock ownership requirements must be satisfied in each taxable year. Our Articles of Incorporation impose restrictions on the transfer of our shares to help us meet the stock ownership requirements. In addition, Treasury regulations require us to demand from the record holders of designated percentages of our capital stock, annual written statements disclosing actual and constructive ownership of our stock. The same regulations require us to maintain permanent records showing the information we have received regarding actual and constructive stock ownership and a list of those persons failing or refusing to comply with our demand.

We generally must meet the following asset requirements at the close of each quarter of each taxable year:

The American Jobs Creation Act of 2004 (the “AJCA”) modifies the manner in which we apply the asset test requirements under the Code. Specifically, the AJCA expands the types of securities that qualify as “straight debt” for purposes of the 10% value limitation. The AJCA also clarifies that certain types of debt instruments, including loans to individuals or estates and securities of a REIT, are not “securities” for purposes of the 10% value limitation.

The AJCA also sets forth rules that permit a REIT to avoid disqualification for de minimis failures (as defined in the AJCA) to satisfy the 5% and 10% value limitations under the asset tests if the REIT either disposes of the assets within six months after the last day of the quarter in which the REIT identifies the failure (or such other time period prescribed by the Treasury), or otherwise meets the requirements of such asset tests by the end of such time period. In addition, if a REIT fails to meet any of the asset test requirements for a particular quarter, and the de minimis exception described above does not apply, the REIT may cure such failure if the failure was due to reasonable cause and not to willful neglect, the REIT identifies such failure to the IRS and disposes of the assets that caused the failure within 6 months after the last day of the quarter in which the identification occurred, and the REIT pays a tax with respect to the failure equal to the greater of (i) $50,000, or (ii) an amount determined (pursuant to Treasury regulations) by multiplying the highest rate of tax for corporations under Section 11 of the Code, by the net income generated by the assets for the period beginning on the first date of the failure and ending on the date the REIT has disposed of the assets (or otherwise satisfies the requirements).

“Qualified REIT assets” generally include (among other assets) interests in mortgages on real property including the ARM assets that we acquire and hold, ownership interests in real property and shares in other REITs.

A “Taxable REIT Subsidiary” is a corporation that may earn income that would not be qualifying income if earned directly by the REIT. A REIT may hold up to 100% of the stock in a Taxable REIT Subsidiary. A Taxable REIT Subsidiary will pay tax at the corporate rates on any income it earns. Moreover, the Code provides for a penalty on a REIT that imposes charges in excess of the arm’s length price in connection with contractual arrangements between a Taxable REIT Subsidiary and the parent REIT.

If we fail to meet any of the asset tests as of the close of a calendar quarter due to the acquisition of securities or other assets, the Code allows us a 30-day period following the close of the calendar quarter to come into compliance with the asset tests. If we do cure a failure within the 30-day period, we will be treated as having satisfied the asset tests at the close of the calendar quarter.

We generally must meet the following gross income requirements for each taxable year:

The investments that we make and intend to make will give rise primarily to mortgage interest qualifying under the 75% of income test.

In order to help ensure compliance with the 95% of income test and the 75% of income test, we intend to limit substantially all of the assets that we acquire, other than the stock of any taxable affiliate and qualified hedges, to qualified REIT assets. Our policy to maintain our REIT status may limit the type of assets, including hedging contracts, that we otherwise might acquire.

With respect to the gross income tests, the AJCA provides that for our taxable years beginning on or after January 1, 2005, except to the extent provided by Treasury regulations, our income from certain hedging transactions that are clearly identified as hedges under Section 1221 of the Code, including gain from the sale or disposition of such a transaction, will be excluded from gross income for purposes of the 95% gross income test to the extent the transaction hedges any indebtedness incurred or to be incurred by the trust to acquire or carry real estate.

We must distribute to our shareholders on a pro rata basis each year an amount equal to:

We intend to make distributions to our shareholders in amounts sufficient to meet this 90% distribution requirement. Such distributions must be made in the taxable year to which they relate or, if declared before the timely filing of the tax return for such year and paid not later than the first regular dividend payment after such declaration, in the following taxable year.

If we fail to meet the 90% distribution test as a result of an adjustment to tax returns by the Service, by following certain requirements set forth in the Code, we may pay a deficiency dividend within a specified period which will be permitted as a deduction in the taxable year to which the adjustment is made. We would be liable for interest based on the amount of the deficiency dividend. A deficiency dividend is not permitted if the deficiency is due to fraud with intent to evade tax or to a willful failure to file a timely tax return. We generally distribute dividends equal to 100% of our taxable income to eliminate corporate level tax. As to our net capital gains, rather than distribute them, we may elect to retain and pay the federal income tax on them, in which case our shareholders will (1) include their proportionate share of the undistributed net capital gains in income, (2) receive a credit for their share of the federal income tax we pay and (3) increase the basis in their stock by the difference between their share of the capital gain and their share of the credit.

A nondeductible excise tax, equal to 4% of the excess of such required distributions over the amounts actually distributed will be imposed for each calendar year to the extent that dividends paid during the year, or declared during the last quarter of the year and paid during January of the succeeding year, are less than the sum of:

If we fail to qualify as a REIT in any taxable year and the relief provisions provided in the Code do not apply, we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income in that taxable year and all subsequent taxable years at the regular corporate income tax rates. We will not be allowed to deduct distributions to shareholders in these years, thereby reducing our after-tax cash available for dividend distribution. If we are not a REIT, the Code would not require us to make distributions. If we fail to meet the requirements described above, we will not be eligible again to elect REIT status until the fifth taxable year which begins after the year for which the election was terminated unless all of the following relief provisions apply:

We may also voluntarily revoke our election, although we have no intention of doing so, in which event we will be prohibited, without exception, from electing REIT status for the year to which the revocation relates and the following four taxable years.

We intend to monitor on an ongoing basis our compliance with the REIT requirements described above. To maintain our REIT status, we will be required to limit the types of assets that we might otherwise acquire, or hold some assets at times when we might otherwise have determined that the sale or other disposition of these assets would have been more prudent.

In addition to the foregoing, the AJCA also provides that if a REIT fails to satisfy one or more requirements for REIT qualification, other than by reason of a failure to comply with the provisions of the reasonable cause exception to the gross income tests and the provisions described above with respect to failure to comply with the asset tests, the REIT may retain its REIT qualification if the failures are due to reasonable cause and not willful neglect, and if the REIT pays a penalty of $50,000 for each such failure.

In each year in which we qualify as a REIT, we generally will not be subject to federal income tax on that portion of our REIT taxable income or capital gain that we distribute to our shareholders. We will, however,

be subject to federal income tax at regular corporate income tax rates on any undistributed taxable income or capital gain.

Notwithstanding our qualification as a REIT, we may also be subject to tax in the following other circumstances:

Unless you are a tax-exempt entity, distributions that we make to you, including distributions reinvested through our dividend reinvestment plan, generally will be subject to tax as ordinary income to the extent of our current and accumulated earnings and profits as determined for federal income tax purposes. If the amount we distribute to you exceeds your allocable share of current and accumulated earnings and profits, the excess will be treated as a return of capital to the extent of your adjusted basis in your stock, which will reduce your basis in your stock but will not be subject to tax. To the extent the amount we distribute to you exceeds both your allocable share of current and accumulated earnings and profits and your adjusted basis, this excess amount will be treated as a gain from the sale or exchange of a capital asset. Distributions to our corporate shareholders, whether characterized as ordinary income or as capital gain, are not eligible for the corporate dividends received deduction, as long as our REIT election is in effect.

Distributions that we designate as capital gain dividends generally will be taxable in your hands as long term capital gains, to the extent such distributions do not exceed our actual net capital gain for the taxable year. In the event that we realize a loss for the taxable year, you will not be permitted to deduct any share of that loss. Further, if we, or a portion of our assets, were to be treated as a taxable mortgage pool, any excess inclusion income that is allocated to you could not be offset by any losses or other deductions you may have and would be treated as unrelated business income for tax-exempt entity shareholders. (See the discussions under the captions “Taxation of Tax-Exempt Entities” or “Foreign Shareholders.”) We have consistently avoided, and intend to continue avoiding, the recognition of excess inclusion income. Future Treasury regulations may require you to take into account, for purposes of computing your individual alternative minimum tax liability, some of our tax preference items.

Dividends that we declare during the last quarter of a calendar year and actually pay to you during January of the following taxable year, generally are treated as if we had paid them and you had received them on December 31st of the calendar year and not on the date actually paid. In addition, we may elect to treat other dividends distributed after the close of the taxable year as having been paid during the taxable year, so long as they meet the requirements described in the Code, but you will be treated as having received these dividends in the taxable year in which the distribution is actually made.

If you sell or otherwise dispose of our stock, you will generally recognize a capital gain or loss in an amount equal to the difference between the amount realized and your adjusted basis in the stock, which gain or loss will

be long term if the stock is held for more than one year. Any loss recognized on the sale or exchange of stock held for six months or less generally will be treated as a long term capital loss to the extent of (1) any long term capital gain dividends you receive with respect to the stock and (2) your proportionate share of any long term capital gains that we retain (see the discussion under the caption “Distribution Requirements”).

If we fail to qualify as a REIT in any year, distributions we make to you will be taxable in the same manner discussed above, except that:

In the event that we ceased to be a REIT, we could be subject to substantial federal income tax liability as a C corporation, and the amount of earnings and cash available for distribution to you and other shareholders could be significantly reduced or eliminated.

For each calendar year, we will report to our domestic shareholders and to the Service the amount of distributions that we pay, and the amount of tax (if any) that we withhold on these distributions. Under the backup withholding rules, you may be subject to backup withholding tax with respect to distributions paid unless you:

A domestic shareholder may satisfy this requirement by providing us an appropriately prepared Form W-9. If you do not provide us with your correct taxpayer identification number, then you may also be subject to penalties imposed by the Service.

Backup withholding tax is not an additional tax. Any amounts withheld under the backup withholding tax rules will be refunded or credited against your federal income tax liability, provided you furnish the required information to the Service.

Our stock is eligible for purchase by tax-exempt investors, such as pension plans, profit sharing plans, 401(k) plans, Keogh plans and individual retirement accounts, because we do not generate unrelated business income taxable to those types of entities.

The discussion under this heading only applies to you if you are a tax-exempt entity. In general, a tax-exempt entity that is a shareholder of our stock is not subject to tax on distributions. We have consistently avoided, and intend to continue to avoid, recognition of income that could cause an investment in our stock to generate unrelated business income for tax-exempt investors. The Service has ruled that amounts distributed by a REIT to an exempt employees’ pension trust do not constitute unrelated trade or business income and thus should be nontaxable to such a tax-exempt entity. Any indebtedness that we incurred in connection with the acquisition of real estate assets such as mortgage loans will not cause dividends paid to a shareholder that is a tax-exempt entity to be unrelated trade or business income, provided that the tax-exempt entity has not financed the

acquisition of its stock with “acquisition indebtedness” within the meaning of the Code. Under some conditions, if a tax-exempt employee pension or profit sharing trust were to acquire more than 10% of our stock, a portion of the dividends on such stock could be treated as unrelated trade or business income. Our charter generally prohibits the ownership of more than 9.8% of our stock by any one owner; therefore, we do not expect that any one pension or profit-sharing trust will acquire more than 10% of our stock.

For social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans exempt from federal income taxation under Code Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an investment in our stock or securities will constitute unrelated trade or business income unless the organization is able to properly deduct amounts set aside or placed in reserve for certain purposes so as to offset the unrelated trade or business income generated by its investment. Such entities should review Code Section 512(a)(3) and should consult their own tax advisors concerning these “set aside” and reserve requirements.

The preceding discussion does not address the federal income tax consequences to foreign shareholders, nonresident aliens and foreign corporations as defined in the Code, of an investment in our stock. In general, foreign shareholders will be subject to special withholding tax requirements on income and capital gains distributions attributable to their ownership of our stock. Foreign shareholders should consult their own tax advisors concerning the federal income tax consequences to them of a purchase of shares of our stock including the federal income tax treatment of dispositions of interests in, and the receipt of distributions from, REITs by foreign shareholders. In addition, federal income taxes must be withheld on certain distributions by a REIT to foreign shareholders at a flat rate of 30% unless reduced or eliminated by an income tax treaty between the United States and the foreign shareholder’s country or unless the shares are held in connection with the foreign shareholder’s U.S. business. Any income that a foreign shareholder recognized from an investment in our shares would not be eligible for reduced withholding to the extent that such income were treated as excess inclusion income. A foreign shareholder eligible for reduction or elimination of withholding must file an appropriate form with us (or the appropriate withholding agent) in order to claim such treatment.

A redemption of preferred stock will be treated under Section 302 of the Code as a distribution taxable as a dividend (to the extent of our current and accumulated earnings and profits) at ordinary income rates, unless the redemption satisfies one of the tests set forth in Section 302(b) of the Code and is therefore treated as a sale or exchange of the redeemed shares. Such a redemption will be treated as a sale or exchange if it (i) is “substantially disproportionate” with respect to the holder (which will not be the case if only non-voting preferred stock is redeemed), (ii) results in a “complete termination” of the holder’s equity interest in our Company, or (iii) is “not essentially equivalent to a dividend” with respect to the holder, all within the meaning of Section 302(b) of the Code.

In determining whether any of these tests has been met, shares of our Common Stock and preferred stock considered to be owned by the holder by reason of certain constructive ownership rules set forth in the Code, as well as shares of our Common Stock and preferred stock actually owned by the holder, must generally be taken into account. If a holder of preferred stock owns (actually and constructively) no shares of our outstanding Common Stock or an insubstantial percentage thereof, a redemption of shares of preferred stock of that holder is likely to qualify for sale or exchange treatment because the redemption would be “not essentially equivalent to a dividend.” However, because the determination as to whether any of the alternative tests of Section 302(b) of the Code will be satisfied with respect to any particular holder of preferred stock depends upon the facts and circumstances at the time the determination must be made. Prospective holders of preferred stock are advised to consult their own tax advisors to determine such tax treatment.

If a redemption of preferred stock is not treated as a distribution taxable as a dividend to a particular holder, it will be treated as a taxable sale or exchange by that holder. As a result, the holder will recognize gain or loss for federal income tax purposes in an amount equal to the difference between (i) the amount of cash and the fair market value of any property received (less any portion thereof attributable to accumulated and declared but unpaid dividends, which will be taxable as a dividend to the extent of our current and accumulated earnings and profits) and (ii) the holder’s adjusted tax basis in the shares of the preferred stock. Such gain or loss will be capital gain or loss if the shares of preferred stock were held as a capital asset, and will be long-term gain or loss if such shares were held for more than one year.

If a redemption of preferred stock is treated as a distribution taxable as a dividend, the amount of the distribution will be measured by the amount of cash and the fair market value of any property received by the holder. The holder’s adjusted tax basis in the redeemed shares of the preferred stock will be transferred to the holder’s remaining shares of our stock. If the holder owns no other shares of our stock, such basis may, under certain circumstances, be transferred to a related person or it may be lost entirely. Proposed Treasury Regulations would, if adopted, alter the method for recovering your adjusted tax basis in any shares redeemed in a dividend-equivalent redemption. Under the proposed Treasury Regulations, you would be treated as realizing a capital loss on the date of the dividend-equivalent redemption equal to the adjusted tax basis of the preferred stock redeemed, subject to adjustments. The recognition of such loss would generally be deferred until the occurrence of specified events, such as, for example, when you cease to own, actually or constructively, any shares of our stock. There can be no assurance that the proposed Treasury Regulations will be adopted, or that they will be adopted in their current form.

In general, no gain or loss will be recognized for federal income tax purposes upon conversion of the preferred stock solely into shares of Common Stock. The basis that a shareholder will have for tax purposes in the shares of Common Stock received upon conversion will be equal to the adjusted basis for the shareholder in the shares of preferred stock so converted, and provided that the shares of preferred stock were held as a capital asset, the holding period for the shares of Common Stock received would include the holding period for the shares of preferred stock converted. A shareholder will, however, generally recognize gain or loss on the receipt of cash in lieu of fractional shares of Common Stock in an amount equal to the difference between the amount of cash received and the shareholder’s adjusted basis for tax purposes in the preferred stock for which cash was received. Furthermore, under certain circumstances, a shareholder of shares of preferred stock may recognize gain or dividend income to the extent that there are dividends in arrears on the shares at the time of conversion into Common Stock.

Adjustments in the conversion price, or the failure to make such adjustments, pursuant to the anti-dilution provisions of the preferred stock or otherwise, may result in constructive distributions to the shareholders of preferred stock that could, under certain circumstances, be taxable to them as dividends pursuant to Section 305 of the Code. If such a constructive distribution were to occur, a shareholder of preferred stock could be required to recognize ordinary income for tax purposes without receiving a corresponding distribution of cash.

Upon the exercise of a warrant, a shareholder will not recognize gain or loss and will have a tax basis in the Common Stock received equal to the tax basis in such shareholder’s warrant plus the exercise price of the warrant. The holding period for the Common Stock purchased pursuant to the exercise of a warrant will begin on the day following the date of exercise and will not include the period that the shareholder held the warrant.

Upon a sale or other disposition of a warrant, a holder will recognize capital gain or loss in an amount equal to the difference between the amount realized and the holder’s tax basis in the warrant. Such a gain or loss will

be long term if the holding period is more than one year. In the event that a warrant lapses unexercised, a holder will recognize a capital loss in an amount equal to his tax basis in the warrant. Such loss will be long term if the warrant has been held for more than one year.

As used herein, the term “U.S. Holder” means a beneficial owner of debt securities that is for United States federal income tax purposes:

As used herein, the term “Non-U.S. Holder” means a beneficial owner of debt securities that is not a U.S. Holder.

In general, interest on debt securities will be taxable to a U.S. Holder as ordinary income at the time it accrues or is received, in accordance with the U.S. Holder’s regular method of accounting for United States federal income tax purposes. In general, if the terms of a debt instrument entitle a holder to receive payments other than “qualified stated interest” (generally, stated interest that is unconditionally payable in cash or in property (other than debt instruments of the issuer) at least annually at a single fixed or qualifying floating rate), such holder might be required to recognize additional interest as “original issue discount” over the term of the instrument.

In general, a U.S. Holder of a debt security will recognize gain or loss upon the sale, retirement or other taxable disposition of such debt security in an amount equal to the difference between:

A U.S. Holder’s tax basis in a debt security generally will be equal to the price paid for such debt security. A U.S. Holder’s gain or loss will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder held the debt security for more than one year. Long-term capital gain recognized by a non-corporate U.S. Holder generally will be subject to tax at a rate not to exceed 15%, whereas short-term capital gain recognized by a non-corporate U.S. Holder generally will be subject to tax at ordinary income tax rates. Capital gain recognized by a corporate U.S. Holder will be subject to tax at the ordinary income tax rates applicable to corporations regardless of the corporation’s holding period. The deductibility of capital losses is subject to

certain limitations. A U.S. Holder who sells a debt security between record dates for payments of distributions will be required to include accrued but unpaid interest or original issue discount on the debt security through the date of disposition as ordinary income and to add the amount of the original issue discount to its adjusted tax basis in the debt security.

A Non-U.S. Holder will not be subject to United States federal income or withholding tax on payments of principal, premium (if any) or interest (including original issue discount, if any) on a debt security if such payments are not effectively connected with the conduct of a U.S. trade or business, unless such Non-U.S. Holder owns directly, or by attribution, 10% or more of the total combined voting power of all classes of our stock entitled to vote or is a controlled foreign corporation related to us. If this exemption does not apply, such interest will be subject to a 30% gross withholding tax (unless reduced or eliminated by an applicable treaty). To qualify for the exemption from taxation (or the elimination or reduction of the applicable withholding tax under a treaty), the last United States payor in the chain of payment prior to payment to a Non-U.S. Holder, or the “Withholding Agent,” must have received, before payment, a statement that:

The statement may be made on an IRS Form W-8BEN or a substantially similar form, and the Non-U.S. Holder must inform the Withholding Agent of any change in the information on the statement within 30 days of such change.

In addition, a Non-U.S. Holder generally will not be subject to Federal income or withholding tax on any amount which constitutes gain upon retirement or disposition of a debt security, unless the gain is effectively connected with the conduct of a trade or business in the United States by the Non-U.S. Holder or, in the case of a Non-U.S. Holder who is an individual, the Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met. Certain other exceptions may be applicable, and a Non-U.S. Holder should consult its tax advisor in this regard.

If interest and other payments received by a Non-U.S. Holder with respect to the debt securities (including proceeds from a sale, retirement or other disposition of the debt securities) are effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States (or the Non-U.S. Holder is otherwise subject to United States federal income taxation on a net basis with respect to such holder’s ownership of the debt securities), such Non-U.S. Holder will generally be subject to the rules described above for a U.S. Holder (subject to any modification provided under an applicable income tax treaty). Such Non-U.S. Holder may also be subject to the “branch profits tax” if such holder is a corporation.

The value of a debt security will not be includable in the estate of an individual Non-U.S. Holder unless the individual owns directly, or by attribution, 10% or more of the total combined voting power of all classes of our stock entitled to vote or, at the time of such individual’s death, payments in respect of the debt security would have been effectively connected with the conduct by such individual of a trade or business in the United States.

We are subject to state or local taxation in various jurisdictions, including those in which we transact business. Our shareholders are subject to state and local taxation in the jurisdiction in which they reside. The state and local tax treatment that applies to us and our shareholders may not conform to the federal income tax considerations discussed above. Consequently, we urge you to consult your own tax advisors regarding the effect of state and local tax laws.

We may sell the securities offered pursuant to this prospectus and any accompanying prospectus supplements to or through one or more underwriters or dealers or we may sell the securities to investors directly or through agents. Any underwriter or agent involved in the offer and sale of the securities will be named in the applicable prospectus supplement. Underwriters and agents in any distribution contemplated hereby, including but not limited to at-the-market equity offerings, may from time to time include Cantor Fitzgerald & Co. We may sell securities directly to investors on our own behalf in those jurisdictions where we are authorized to do so.

Underwriters may offer and sell the securities at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices. We also may, from time to time, authorize dealers or agents to offer and sell these securities upon such terms and conditions as may be set forth in the applicable prospectus supplement. In connection with the sale of any of these securities, underwriters may receive compensation from us in the form of underwriting discounts or commissions and may also receive commissions from purchasers of the securities for whom they may act as agent. Underwriters may sell the securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters or commissions from the purchasers for which they may act as agents.

Shares may also be sold in one or more of the following transactions: (a) block transactions (which may involve crosses) in which a broker-dealer may sell all or a portion of the shares as agent but may position and resell all or a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by the broker-dealer for its own account pursuant to a prospectus supplement; (c) a special offering, an exchange distribution or a secondary distribution in accordance with applicable NYSE or other stock exchange rules; (d) ordinary brokerage transactions and transactions in which a broker-dealer solicits purchasers; (e) sales at-the-market to or through a market maker or into an existing trading market, on an exchange or otherwise, for shares; and (f) sales in other ways not involving market makers or established trading markets, including direct sales to purchasers. Broker-dealers may also receive compensation from purchasers of the shares which is not expected to exceed that customary in the types of transactions involved.

Any underwriting compensation that we pay to underwriters or agents in connection with the offering of these securities, and any discounts or concessions or commissions allowed by underwriters to participating dealers, will be set forth in the applicable prospectus supplement. Dealers and agents participating in the distribution of the securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit on resale of the securities that they realize may be deemed to be underwriting discounts and commissions.

Underwriters, dealers and agents may be entitled, under agreements entered into with us, to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act. Unless otherwise set forth in the prospectus supplement, the obligations of any underwriters to purchase any of these securities will be subject to certain conditions precedent. Underwriters, dealers and agents may engage in transactions with, or perform services for, us and our affiliates in the ordinary course of business.

In connection with the offering of the securities hereby, certain underwriters and selling group members and their respective affiliates, may engage in transactions that stabilize, maintain or otherwise affect the market price of the applicable securities. These transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M promulgated by the SEC pursuant to which these persons may bid for or purchase securities for the purpose of stabilizing their market price.

The underwriters in an offering of securities may also create a “short position” for their account by selling more securities in connection with the offering than they are committed to purchase from us. In that case, the underwriters could cover all or a portion of the short position by either purchasing securities in the open market

following completion of the offering of these securities or by exercising any over-allotment option granted to them by us. In addition, the managing underwriter may impose “penalty bids” under contractual arrangements with other underwriters, which means that they can reclaim from an underwriter (or any selling group member participating in the offering) for the account of the other underwriters, the selling concession for the securities that are distributed in the offering but subsequently purchased for the account of the underwriters in the open market. Any of the transactions described in this paragraph or comparable transactions that are described in any accompanying prospectus supplement may result in the maintenance of the price of the securities at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph or in an accompanying prospectus supplement are required to be taken by any underwriters and, if they are undertaken, may be discontinued at any time.

Our Common Stock is listed on the NYSE under the symbol “TMA” and our Series C Preferred Stock is listed on the NYSE under the symbol “TMA PRC.” Any shares of Common Stock or Series C Preferred Stock sold pursuant to this prospectus, and any supplement thereto, will be listed on the NYSE, subject to official notice of issuance. Our Senior Notes are not listed on any securities exchange. Any other securities that we sell pursuant to this prospectus, and any supplement thereto, will be new issues of securities with no established trading market and may or may not be listed on a national securities exchange. Any underwriters or agents to or through which we sell securities may make a market in the securities, but these underwriters or agents will not be obligated to do so and any of them may discontinue any market making at any time without notice. We cannot, therefore, give any assurance as to the liquidity of or trading market for any securities that we sell, other than our Common Stock or Series C Preferred Stock.

The financial statements and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Annual Report on Internal Control over Financial Reporting) incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2004 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The validity of the securities offered hereby is being passed upon for us by Dechert LLP. The opinion of counsel described under the heading “Federal Income Tax Considerations” is being rendered by Dechert LLP. This opinion is subject to various assumptions and is based on current tax law. Michael Jeffers, our Secretary, is counsel to that firm and, as of May 10, 2005, owns 59,666 shares of Common Stock, dividend equivalent rights for 63,671 shares of Common Stock, phantom stock rights for 34,739 shares of Common Stock, and owns a 1% equity interest of the Manager. If the offered securities are distributed in an underwritten offering or through agents, various legal matters may be passed upon for any underwriters or agents by their counsel, which shall be named in the applicable prospectus supplement.

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may inspect and copy such reports, proxy statements and other information at the public reference facilities maintained by the SEC in the Public Reference Room, Judiciary Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information. This material can also be obtained from the SEC’s website at www.sec.gov. All reports, proxy statements and other information that we file with the SEC are also available on our website at www.thornburgmortgage.com. Information contained on our website is not, and should not be interpreted to be, a part of this prospectus or any accompanying prospectus supplement.

We have filed a registration statement, of which this prospectus is a part, covering the securities offered hereby. As allowed by SEC rules, this prospectus does not contain all the information set forth in the registration statement and the exhibits, financial statements and schedules thereto. We refer you to the registration statement, the exhibits, financial statements and schedules thereto for further information. This prospectus is qualified in its entirety by such other information.

The SEC allows us to “incorporate by reference” information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information in this prospectus. We have filed the documents listed below with the SEC under the Exchange Act and these documents are incorporated herein by reference:

Any documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and prior to the termination of the offering of the securities to which this prospectus relates will automatically be deemed to be incorporated by reference in this prospectus and to be part hereof from the date of filing those documents. Any documents we file pursuant to these sections of the Exchange Act after the date of the initial registration statement that contains this prospectus and prior to the effectiveness of the registration statement will automatically be deemed to be incorporated by reference in this prospectus and to be part hereof from the date of filing those documents.

Any statement contained in this prospectus or in a document incorporated by reference shall be deemed to be modified or superseded for all purposes to the extent that a statement contained in this prospectus or in any other document which is also incorporated by reference modifies or supersedes that statement.

You may obtain copies of all documents which are incorporated in this prospectus by reference (other than the exhibits to such documents which are not specifically incorporated by reference herein) without charge upon written or oral request to Investor Relations, at Thornburg Mortgage, Inc., 150 Washington Avenue, Suite 302, Santa Fe, New Mexico 87501, telephone number (505) 989-1900 or by visiting our website at www.thornburgmortgage.com.


	Per Share	Total
Public offering price(1)	$25.00	$500,000,000
Underwriting discount(1)	$1.25	$25,000,000
Proceeds, before expenses, to us	$23.75	$475,000,000


	As of and for the six months ended June 30,						As of and for the years ended December 31,
	2007			2006			2006			2005			2004
	(in thousands except per share data)
Income Statement Highlights:
Net interest income	$	192,943		$	168,861		$	346,684		$	344,457		$	293,699
Net income		158,396			142,071			297,697			282,844			232,564
Earnings per share		1.27			1.26			2.58			2.79			2.80
Dividends declared per common share		1.36			1.36			2.72			2.72			2.66
Average common shares outstanding (diluted)		116,699			108,618			111,055			99,187			83,001
Yield on net interest earning assets (portfolio margin)		0.72	%		0.76	%		0.73	%		1.01	%		1.25	%
Return on average common equity		13.52	%		12.40	%		12.78	%		14.04	%		15.55	%
Noninterest expense to average assets		0.19	%		0.21	%		0.20	%		0.25	%		0.32	%
Yield on ARM Assets		5.50	%		4.96	%		5.17	%		4.42	%		3.98	%

Balance Sheet Highlights:
ARM Assets	$	56,434,960		$	48,492,111		$	51,532,955		$	41,484,029		$	28,743,061
Total assets		57,507,370			49,910,921			52,705,052			42,507,741			29,212,402
Total debt(1)		54,523,337			47,134,677			49,971,867			39,567,144			26,416,119
Shareholders’ equity		2,705,737			2,522,322			2,377,072			2,207,086			1,789,184
Book value per common share		19.38			21.27			18.92			20.00			19.47
Common shares outstanding		122,814			113,047			113,775			104,775			91,904


	June 30, 2007
	Actual			As Adjusted (1)
	(dollars in thousands, except per share data)
10% Series F Cumulative Convertible Redeemable Preferred Stock, par value $0.01 per share; no shares authorized on an actual basis and 23,000,000 shares authorized on an as adjusted basis; no shares issued and outstanding on an actual basis and 20,000,000 shares issued and outstanding on an as adjusted basis	$	—		$	474,000

7.50% Series E Cumulative Convertible Redeemable Preferred Stock, par value $0.01 per share; 6,162,500 shares authorized on an actual and as adjusted basis; 2,956,250 shares issued and outstanding on an actual and as adjusted basis(2)		71,178			71,178

Series D Adjusting Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized; 4,000,000 shares issued and outstanding on an actual and as adjusted basis		96,303			96,303

8.00% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share; 7,230,000 shares authorized; 6,525,000 shares issued and outstanding on an actual basis and as adjusted basis		157,958			157,958

Series B Cumulative Preferred Stock, par value $0.01 per share; 22,000 shares authorized; no shares issued and outstanding on an actual and as adjusted basis		—			—

Common Stock, par value $0.01 per share; 481,585,500 shares authorized on an actual basis and 458,585,500 shares authorized on an as adjusted basis; 122,814,000 shares issued and outstanding on an actual and as adjusted basis(2)		1,228			1,228
Additional paid-in capital		2,712,419			2,712,419
Accumulated other comprehensive loss		(388,328	)		(388,328	)

Retained earnings (accumulated deficit)		54,979			(808,021	)

Total shareholders’ equity		2,705,737			2,316,737

Total capitalization	$	2,705,737		$	2,316,737


	Total
	Per Share		No Exercise		Full Exercise
Public offering price(1)	$	25.00	$	500,000,000	$	575,000,000
Underwriting discounts and commissions(1)	$	1.25	$	25,000,000	$	28,750,000
Proceeds, before expenses, to us	$	23.75	$	475,000,000	$	546,250,000
(1) An affiliate of the underwriter agreed to purchase 774,186 shares of Series F Preferred Stock in this offering at the public offering price less the underwriting discount.


Class I	4 Directors	Expires 2007
Class II	2 Directors	Expires 2008
Class III	4 Directors	Expires 2006


		Page
About This Prospectus Supplement		S-2
Forward-Looking Statements		S-2
Summary		S-3
Risk Factors		S-16
Use of Proceeds		S-18
Ratio of Earnings to Fixed Charges		S-18
Capitalization		S-19
Description of Series F Preferred Stock		S-20
Additional Federal Income Tax Considerations		S-30
Underwriting		S-34
Legal Matters		S-36
Experts		S-36