Ellington Financial Management LLC

Item 5. Fees and Compensation

Ellington is compensated for providing services to EFC pursuant to a management agreement
under which Ellington receives a base management fee quarterly in arrears in an amount equal to
1.50% per annum of the stockholders equity of EFC’s operating partnership (calculated in
accordance with GAAP) as of the end of each fiscal quarter (before deductions for base
management fees and incentive fees payable with respect to such fiscal quarter), provided that the
equity of the operating partnership will be adjusted to exclude one-time events pursuant to changes
in GAAP, as well as non-cash charges after discussion between Ellington and EFC’s independent
directors and approval by a majority of EFC’s independent directors in the case of non-cash
charges.

In addition to the base management fee, with respect to each fiscal quarter EFC pays Ellington an
incentive fee equal to the excess, if any, of (i) the product of (A) 25% and (B) the excess of (1)
adjusted net income for the incentive calculation period (which means such fiscal quarter and the
immediately preceding three fiscal quarters) over (2) the sum of a hurdle amount for the incentive
calculation period, over (ii) the sum of the incentive fees already paid or payable for each fiscal
quarter in the incentive calculation period preceding such fiscal quarter. For further information,
investors in EFC should consult the most recent periodic report prepared for the company on Form
10-K and available through the SEC’s website at http://www.sec.gov/edgar/searchedgar/
webusers.htm.

In addition, in some cases, the Ellington Group serves as the administrator or in a similar role with
respect to certain investments and transactions in which Clients have invested, and in that capacity
the Ellington Group in certain cases is paid a periodic fee for providing these administrative
services.

Please see “Performance-Based Fees and Side-by-Side Management” and “Administrative,
Servicing, and Other Fees” below for further discussion of such fees and the conflicts of interest
they can create. See “Brokerage Practices” below for additional information regarding brokerage
expenses or costs.

Valuation

The amount of management or incentive fees earned by Ellington depends in part upon the
valuations assigned to the portfolio investments of its Clients. These portfolio investments are
valued in accordance with Ellington’s valuation policy, unless provided otherwise in the relevant
management or governing document. Ellington’s Clients and investors should be aware that many
investments held in Client portfolios may be illiquid, infrequently traded, and difficult to value.
Ellington is deeply involved in the valuation procedures that are used to determine the value of
such investments, including by deciding whether to solicit third-party price indications and the
number of such indications to be solicited, the parties from whom to solicit such prices, and

                       ELLINGTON FINANCIAL MANAGEMENT
                                   Form ADV Part 2A Brochure

whether to reject specific price indications as erroneous or unreasonable or to override prices
calculated by averaging such indications. In some cases, investments may be valued by Ellington
in good faith without regard to third-party price indications. Ellington consequently has a conflict
of interest in determining the valuation of Clients’ assets and liabilities because higher valuations
will have the effect of increasing the amount of fees paid to Ellington.

Expenses and Allocation of Expenses

In addition to the management and incentive fees paid to Ellington, unless provided otherwise,
Clients also bear their operational expenses or reimburse Ellington for any such expenses paid by
Ellington. The expenses that Clients pay can vary, so Clients and investors in Ellington-managed
pooled vehicles should review the applicable management agreement, offering memorandum, or
periodic disclosure document to determine which expenses they may pay. You should review the
discussion of expenses contained in the periodic reports filed by EFC with the SEC, including
EFC’s most recent Form 10-K, for further discussion of expenses paid by EFC. Such periodic
reports are available through the SEC’s website at http://www.sec.gov/edgar/searchedgar/
webusers.htm.

Unless provided to the contrary in the management agreement or offering or similar document
governing a Client Account, the expenses that may be paid by Clients include the following:

       ▪   organizational and all initial and ongoing offering expenses (including expenses related
           to preparation of side letters and similar agreements with investors); the costs
           (including, without limitation, administration costs) of forming and operating any
           special-purpose vehicle (“SPV”) or any other entity through which the Client makes or
           holds an investment (including, without limitation, the Client’s pro rata share of any
           establishment or operational costs of any CLO, SPV, or related entity or vehicle in
           which the Client makes or holds an investment);

       ▪   investment expenses (such as brokerage commissions or mark-ups, custodial fees, bank
           service fees, short selling or borrowing fees, interest expenses, and expenses incurred
           in connection with conducting due diligence on potential investments and surveillance
           of investments (including, without limitation, travel, meal, and accommodation
           expenses (together “travel expenses”) of the Ellington Group));

       ▪   legal and compliance expenses, including costs of external legal and compliance
           consultants and advisers; litigation, settlement, and indemnification expenses; expenses
           associated with the Ellington Group’s internal legal counsel; expenses associated with
...

Item 7. Types of Clients

Ellington provides investment advice to EFC, a publicly traded specialty finance company. The
Ellington Group generally provides investment advice to pooled investment vehicles and to
institutional Clients for whom the Ellington Group manages a separate account or dedicated
investment vehicle.