Attention Anworth Stockholders: Don't Be Fooled By Management's Cherry-Picked Data

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By Arthur Lipson :

Dear Fellow Anworth Stockholder:

Management and the Board of Directors of Anworth Mortgage Asset Corporation (NYSE: [[ANH]]; "Anworth") have failed you.

Don't be fooled by management's attempts to obscure Anworth's horrible performance results. When compared to its peers, Anworth has fallen far below average over ALL relevant periods for the past decade.


Don't be fooled by management's cherry picked data.

REIT 1 year 3 years 5 years 10 years 10 ½ years
Anworth Mortgage Asset Corporation (11.2)% 1.2% 58.5% 1.2% (5.7)%
Annaly Capital Management, Inc. (NYSE: [[NLY]]) (22.3)% (8.2)% 56.3% 69.5% 86.2%
Capstead Mortgage Corp.(NYSE: [[CMO]]) 9.5% 40.1% 120.9% 172.9% 219.6%
Dynex Capital Inc. (NYSE: [[DX]]) (8.1)% 23.2% 116.5% 145.5% 219.4%
MFA Financial, Inc.(NYSE: [[MFA]]) (1.3)% 51.4% 172.3% 131.8% 135.7%
AVERAGE (5.6)% 26.6% 116.5% 129.9% 165.2%
DIFFERENCE (5.7)% (25.4)% (58.0)% (128.7)% (170.9)%

We are a significant stockholder of Anworth, owning approximately 4.0% of Anworth's outstanding shares. We are seeking your support on the GOLD proxy card FOR the election of our truly INDEPENDENT director nominees to Anworth's Board of Directors, none of whom are affiliated with or controlled by Western Investment.

We believe Anworth management has failed and it is time for stockholders to replace the Board with directors who will take action that will lead to maximum value for investors.

  • We believe Anworth has been severely mismanaged to date, and stockholders have seen over a decade of investment declines. Change is needed in order to maximize long-term value for all stockholders. Stockholders who invested in Anworth on August 31, 2003 have a cumulative loss of almost 6%, even after giving effect to reinvested dividends.
  • Management has collected almost $80 million in fees over the past decade despite Anworth's pathetic performance. Management is being over-compensated for under-performance. To continue to pay management for such consistently terrible results is outrageous. Stockholders are not getting fair value for these services.
  • Stockholders cannot receive full value for their shares due to Anworth's significant discount to per share book value. Anworth's common stock trades at a significant discount to its book value. This discount to book value has magnified the loss to stockholders. Shockingly, on December 31, 2013, the stock price closed at a 29.6% discount to book value, and as of March 31 the discount remained very wide at 18.7%.
  • Stockholders may incur significant losses if our nominees are not elected. Anworth's stock price is currently significantly above the closing price at the end of 2013. We believe that this increase is primarily attributable to the possibility of electing a new board. If the status quo remains, we fear that the stock price is likely to return to its prior depressed level.

What has been Anworth management's response? Anworth recently announced an investment diversification strategy, including new risky credit-based strategies. We see absolutely no indication that management has the necessary experience or competence in these new strategies. We fear this strategy could be a repeat of past failed efforts. In 2002, Anworth pursued another credit-based strategy, which was a colossal failure resulting in the loss of approximately $151 million. Unbelievably, management's fees were quadrupled in 2008 following Anworth's huge losses in 2007. CAN STOCKHOLDERS AFFORD MORE LOSSES?

Over a decade of negative investment performance is too much! We are concerned with the Board's failure to take action, and believe NOW is the time to make changes that are in the best interests of all stockholders.


We submit this request as a fellow stockholder. We have a long-standing policy of treating all stockholders equally. We have never accepted a benefit that was not equally available to all stockholders. Additionally, we have never sought to be paid any fees or put ourselves in a position of control in any situation in which we have been involved where we have fought for the betterment of stockholders. We are proud of our public record, and proud of the role we have played in creating value for stockholders. Every situation Western Investment has entered into has benefited all stockholders equally.

We believe stockholders are best served by a board that is committed to maximizing value for stockholders, not for management, which is why we encourage you to vote for our truly independent director nominees.


Our goal is to help determine the best course of action to maximize value for all stockholders. We believe Anworth has been severely mismanaged to date, and stockholders have seen over a decade of investment declines. If elected, subject to compliance with their fiduciary duties, our nominees will consider replacing Anworth's manager with a new manager who will help maximize long-term value for all stockholders. In addition, our nominees would consider exploring other strategic opportunities to maximize value in order to provide Anworth's stockholders an amount equal to or greater than Anworth's liquidation value, net of fees and expenses. Because Anworth has performed so poorly, even with any fees that would be payable in connection with the termination of Anworth's management agreement and related expenses, we believe that stockholders would still be in a better position if Anworth were liquidated, than if Anworth continues on its existing course. During any examination period, we would support the directors promptly authorizing an aggressive repurchase program to permit Anworth to repurchase up to the maximum amount of its outstanding shares allowed by law (up to approximately 3,000,000 shares per week based on recent trading volume), subject to market conditions.


The total return of a share of Anworth's common stock has consistently been the lowest or among the lowest of all comparable mortgage REITs[1] based on Bloomberg data for total returns, including dividends. Anworth had a total decline of over 11% for the one-year period ended on March 31, 2014 and an almost 6% negative return over the past 10 ½ years. Such abysmal performance should not be rewarded with the continued retention of the same failing manager. We believe the performance is so bad that it justifies stockholders electing our nominees. Management has been paid over $80 million to generate a decade of losses.


Anworth's shares have also traded at a persistent discount to book value over the past three years and, as mentioned, the discount was a shocking 29.6% on December 31, 2013, and as of March 31 the discount remained very wide at 18.7%. When a book value discount is excessive, a selling stockholder is forced to leave behind a substantial portion of the value underlying the shares at the time of sale. Any time a stockholder chooses to sell his or her ownership in a company at a steep discount to book value, that stockholder is harmed no matter what the company's discount was at the time the stockholder purchased their shares of that company. We believe the fair value of a share of common stock of a company should be at least its book value. The persistent excessive discount to book value is just another reason why the status quo with the existing board and management should not continue. In addition, the ratio of Anworth's stock price to its book value has consistently been the lowest or among the lowest of virtually all comparable mortgage REITs 1 based on Bloomberg data. A liquidation would immediately recapture for stockholders the lost value from the persistent discount to book value at which Anworth's shares trade.


Anworth's Board has failed to adequately address the high fees collected by Anworth's manager, despite Anworth's continued poor price performance and persistent discount to book value. We believe that Anworth's manager is being over-compensated for under-performance. Anworth's board, it appears, has concluded that the management fee paid to Anworth's manager is reasonable in relation to the services provided. In our opinion, to consistently pay the manager over $10 million per year for such consistently terrible results is outrageous. We believe the current board should be replaced and a new board should be elected who will take action and change the status quo.


We urge you to vote the GOLD proxy today by following the simple instructions for telephone or internet voting on the GOLD proxy card. Alternatively, you can sign, date and return your GOLD proxy in the postage paid envelope provided.

If you have any questions or require assistance in voting, please contact our proxy solicitor, InvestorCom, at (877)972-0090; proxy materials are also available at . Thank you for your support.


Arthur D. Lipson

Managing Member,

Western Investment LLC

[1] Comparable REITs are defined as all REITs that primarily invest in high quality residential mortgage assets and have been in existence for over 10 years.

Disclosure: I am long ANH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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