During vacation this summer I got into a highly charged debate. No, it wasn't quite as political as weighing the merits of Bush versus Kerry, but to my proponent in this debate it was even more important. I was talking with my 7-year-old nephew and having just seen "Spider-Man 2" he desperately wanted to know who would win if Spider-Man and The Incredible Hulk (which we watched earlier in the year on DVD) had to fight. He went back and forth throwing out events from both movies and other stories he had read.

Also over the summer, many within the REIT industry were playing their own form of the "what if?" game. Rather than a comic book battle, the debate centered on what would happen to REIT stock performance if the Fed began raising interest rates. And unlike Spidey and the Hulk, when the Fed took action in June all of those theories and hypotheses were ready to be put to the test.

Those that argue that the correlation between rising interest rates and REIT share price performance is limited say that rising rates signify a healthier economy so REITs also benefit. The other camp believes REIT stock price performance will be, and historically has been, directly impacted by interest rate movement.

Both sides make compelling arguments in "REITs and Rates." And while the historical interpretation of the correlation between interest rates and REIT performance remains up for debate, all eyes will be carefully monitoring to see if share prices rise, fall or show little effect in the face of rising interest rates.

Also In This Issue

"Bonds; REIT Bonds" explores how REIT unsecured debt stacks up against other corporate fixed-income securities and highlights some factors that could alter that outlook.

"Hedging their Bets" looks at what REIT-focused hedge funds are all about, who is investing in them and what are the pros and cons associated with this type of fund.

"At Any Rate" profiles the Annaly Mortgage Manage-ment strategy for successfully navigating changing rate environments.

Matthew Bechard
Editor-in-Chief