pnmac-llc_ncsr.htm

PNMAC Mortgage Opportunity Fund, LLC

Annual Report

As of and for the year ended December 31, 2013

PNMAC Mortgage Opportunity Fund, LLC

Table of Contents

		Page

Letter to Shareholders		2-3

Financial Statements

Statement of Assets and Liabilities		4

Statement of Operations		5

Statements of Changes in Net Assets		6

Statement of Cash Flows		7

Financial Highlights		8

Notes to Financial Statements		9

Report of Independent Registered Public Accounting Firm		18

Additional Information		19

Directors and Officers		21

Contained herein:

Audited financial statements of PNMAC Mortgage Opportunity Fund, LP (“Master Fund”)

PNMAC Mortgage Opportunity Fund, LLC

Table of Contents

PNMAC Mortgage Opportunity Fund, LLC

Investment Update

Dear Shareholder:

We are pleased to present this annual report to shareholders of PNMAC Mortgage Opportunity Fund, LLC (the “Fund”) for the year ended December 31, 2013. The Fund ended the year with a net increase in net assets from operations of $31.7 million, and a total return of 11.49%.

Market Environment

The U.S. housing market showed many signs of strength in 2013. Home prices in December were 11 percent higher than in December 2012, marking the largest year-over-year change since 2005(1). Most of the increase occurred in the first half of the year, as a sharp rise in interest rates driven by the fears of “tapering” of the Federal Reserve’s bond purchase program, slowed the rate of home price appreciation in the second half of 2013. Future home price appreciation is expected to be supported by general improvement in the overall economy and hiring trends.

Rising home prices helped to spur an improvement in consumer demand for homes. Sales of new(2) and existing(3) homes were both up from the prior year and the inventory of unsold remained low, ending the year at 4.9 months of supply. Helping to drive the rise in sales were all-cash buyers which represented over 30% of total home purchases for 2013.

In May of 2013, the U.S. Treasury extended the Home Affordable Modification Program (HAMP) through the end of 2015, expanding the program’s eligibility criteria and encouraging increased use of principal forgiveness through greater financial incentives for investors and servicers. These changes to the program helped to increase the volume of the Fund’s modification activity in the second half of the year by 67% from the first half of the year.

For the twelve months ended December 31, 2013, the net assets of PNMAC Mortgage Opportunity Fund, LLC decreased as the fund continued to return capital to shareholders. The Fund benefited as home prices improved significantly throughout the year, outperforming our projections. Additionally, the Fund’s performing loan portfolio grew as a percentage of the total portfolio which contributed to financial performance. Negatively impacting performance was the extension of foreclosure timelines in states where judicial approval is required before the foreclosure process can be finalized.

The Fund’s liquidation activity declined from 2012 as the assets in the portfolio continued to pay down. REO sales continued to be the largest component of liquidation activity, accounting for over half of UPB liquidated in 2013. Payoff activity rose significantly as a percentage of total liquidations, driven by increased principal reduction incentives and effective utilization of the FHA’s negative equity refinance

(1) Corelogic

(2) Census Bureau

(3) National Association of Realtors

PNMAC Mortgage Opportunity Fund, LLC

Letter to Shareholders

program. Although short sales declined from 2012, they remained an effective tool to help to shorten realization timelines.

We thank you for your commitment to PennyMac and the Fund, and look forward to the Fund’s continued strong performance.

Sincerely,

Stanford L. Kurland

Chief Executive Officer, PNMAC Capital Management, LLC

The accompanying notes and the attached financial statements of the Master Fund are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LLC

Statement of Assets and Liabilities

December 31, 2013

Assets:
Investment in PNMAC Mortgage Opportunity Fund, LP, at fair value	$	304,323,367
Investment in Short-Term Investment, at fair value (cost $187,223)		187,223
Other assets		4,858
		304,515,448
Liabilities:
Payable to investment manager		378,023
Distributions payable to Series A preferred shares		5,700
Accrued expenses and other liabilities		263,981
		647,704
Net Assets	$	303,867,744

Net Assets Consist of:
Series A preferred shares	$	-
Common shares		536
Additional paid-in capital		261,973,724
Net unrealized appreciation on investments		41,893,484
	$	303,867,744

Net Asset Value per Share
Series A preferred shares
Net assets applicable to preferred shares at a liquidation preference of $500 per share	$	114,000
Shares outstanding ($0.001 par value, 5,000 shares authorized)		228
Net asset value, offering and redemption price per Series A preferred share	$	500.00

Common shares
Net assets applicable to common shares	$	303,753,744
Shares outstanding ($0.001 par value, unlimited shares authorized)		535,688
Net asset value per common share	$	567.03

The accompanying notes and the attached financial statements of the Master Fund are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LLC

Statement of Operations

Year Ended December 31, 2013

Investment income allocated from Master Fund:
Interest	$	209,182
Dividends		8,008,804
		8,217,986

Expenses allocated from Master Fund:
Investment advisory fees		4,391,672
Professional fees		191,108
Insurance		309,107
Directors’ fees		306,057
Administration and other fees		203,180
Portfolio accounting fees		31,100
Custody fees		2,800
		5,435,024
Net Investment income allocated from Master Fund		2,782,962

Investment income:
Dividends		123
		123
Expenses:
Shareholder services fee		1,463,891
Professional fees		486,744
Administration and other fees		120,732
Taxes		72,700
Custody fees		4,866
Insurance		4,862
		2,153,795
Net investment income		629,290

Distributions to Series A preferred shareholders		11,400

Net unrealized gain on investments and carried interest allocated from Master Fund:
Net change in unrealized gain on investments		38,971,781
Net change in carried interest allocated from Master Fund		(7,917,934	)
Net unrealized gain on investments and carried interest allocated from Master Fund		31,053,847
Net increase in net assets resulting from operations	$	31,671,737

The accompanying notes and the attached financial statements of the Master Fund are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LLC

Statements of Changes in Net Assets

For the Years Ended December 31, 2013 and 2012


	Year Ended			Year Ended
	December 31,			December 31,
	2013			2012
Increase in net assets resulting from operations:
Net investment income	$	629,290		$	22,927,337
Distributions to Series A preferred shareholders		11,400			(11,400	)
Net realized loss on investments		-			(3,162,046	)
Net change in unrealized gain on investments		38,971,781			6,806,604
Net change in carried interest allocated from Master Fund		(7,917,934	)		(5,312,099	)
Net increase in net asses resulting from operations		31,694,537			21,248,396

Decrease in net assets resulting from capital transactions
Distributions to common shareholders		(59,000,000	)		(63,500,000	)

Net decrease in net assets		(27,305,463	)		(42,251,604	)

Net Assets:
Beginning of year		331,196,007			373,447,611
End of year	$	303,890,544		$	331,196,007

The accompanying notes and the attached financial statements of the Master Fund are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LLC

Statement of Cash Flows

For the Year Ended December 31, 2013


Cash flows from operating activities:

Net increase in net assets resulting from operations	$	31,671,737

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:

Distributions from Master Fund		60,997,001
Net investment income allocated from Master Fund		(2,782,962	)
Net unrealized gain on investments allocated from Master Fund		(38,971,781	)
Allocation of carried interest to the General Partner from the Master Fund		7,917,934
Change in assets and liabilities:
Net Sales in short-term investments		255,436
Increase in other assets		(810	)
Decrease in payable to Investment Manager		(33,111	)
Decrease in accrued expenses and other liabilities		(53,444	)
Net cash provided by operating activities		59,000,000

Cash flows from financing activities:
Payments of dividends-common shares		(59,000,000	)
Increase in distributions payable-Series A preferred shares		-
Net cash used in financing activities		(59,000,000	)

Change in cash		-

Cash at beginning of year		-
Cash at end of year	$	-

The accompanying notes and the attached financial statements of the Master Fund are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LLC

Financial Highlights

As of and for the Years ended December 31, 2013, 2012, 2011, 2010, and 2009

	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December			December			December			December			December
	31, 2013			31, 2012			31, 2011			31, 2010			31, 2009
PER SHARE OPERATING PERFORMANCE:				(amounts applicable to common shares)

BEGINNING NET ASSET VALUE	$	618.05		$	696.92		$	716.12		$	710.36		$	861.24

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (1)(2)		1.17			42.80			38.67			38.48			83.38
Distributions to Series A preferred shares (1)		(0.02	)		(0.02	)		(0.02	)		(0.03	)		(0.04	)
Net realized and unrealized gain (loss) from investments		57.97			(3.11	)		(5.58	)		122.62			(48.86	)
Total income (loss) from investment operations		59.12			39.67			33.07			161.07			34.48

DISTRIBUTIONS
Investment income		(24.46	)		(9.84	)		(52.27	)		(83.83	)		(17.67	)
Capital gains		(32.49	)		(19.90	)		-			(71.48	)		(2.78	)
Return of capital		(53.19	)		(88.80	)		-			-			(164.91	)
Total distributions		(110.14	)		(118.54	)		(52.27	)		(155.31	)		(185.36	)

ENDING NET ASSET VALUE	$	567.03		$	618.05		$	696.92		$	716.12		$	710.36

Total Return (3)		11.49	%		6.16	%		4.72	%		22.98	%		5.19	%
Internal rate of return (4)		9.72	%		9.40	%		10.50	%		13.69	%		-0.24	%

SUPPLEMENTAL DATA AND RATIOS:
Series A preferred shares:
Net assets attributable to preferred shares, end of period	$	114,000		$	114,000		$	114,000		$	114,000		$	114,000
Total shares outstanding		228			228			228			228			228
Asset coverage ratio		266,451	%		290,423	%		327,486	%		334,628	%		202,413	%
Involuntary liquidation preference per share	$	500		$	500		$	500		$	500		$	500

Common Shares:
Ratio of net investment income to weighted average net assets (2)(5)		0.22	%		6.35	%		5.40	%		4.85	%		11.17	%
Ratio of expenses to weighted average net assets (2)(5)		-2.62	%		-3.06	%		-3.15	%		-3.14	%		-6.01	%
Net assets attributable to common shares at period end	$	303,753,744		$	331,082,007		$	373,333,611		$	383,615,133		$	230,636,310
Portfolio turnover rate (6)		0.00	%		0.00	%		0.00	%		19.00	%		0.00	%

(1) Calculated using the average shares outstanding during the period.

(2) Includes proportionate share of income and expenses of the Master Fund.

(3) Total return is calculated for the common share class taken as a whole. An investor’s return may vary from these returns based on the timing of capital transactions.

(4) Internal rate of return is calculated based on the actual dates of the cash inflows (capital contributions), outflows (distributions), with the exception of distributions declared but not paid, and shareholder accounts on a life-to date basis.

(5) Ratios exclude distributions to Series A preferred shareholders.

(6) Portfolio turnover rates do not include non-cash contributions or non-cash distributions from Mortgage Investments.

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

Note 1—Organization

PNMAC Mortgage Opportunity Fund, LLC (the “Fund”) is a limited liability company organized under the laws of the state of Delaware. The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, non-diversified management company. Shares of the Fund were issued solely in private placement transactions that did not involve any “public offering” within the meaning of Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). Investments in the Fund may be made only by “accredited investors” within the meaning of Regulation D under the 1933 Act. The investment objective of the Fund is to achieve attractive total returns by capitalizing on dislocations in the mortgage market through opportunistic investments primarily in U.S. residential mortgages and related assets, instruments and entities.

The Fund is managed by PNMAC Capital Management, LLC (the “Investment Manager”). The Investment Manager is a registered investment adviser with the Securities and Exchange Commission (“SEC”).

The Fund invests substantially all of its assets in a limited partnership interest of PNMAC Mortgage Opportunity Fund, LP (the “Master Fund”), a limited partnership formed under the laws of the state of Delaware. The general partner of the Master Fund is PNMAC Opportunity Fund Associates, LLC (the “General Partner”), a Delaware limited liability company, which along with the Investment Manager, is a wholly owned subsidiary of Private National Mortgage Acceptance Company, LLC (“PNMAC”), all of which are affiliates of the Fund.

The Master Fund operates as a master fund in a master-feeder fund structure. The Master Fund acts as a central investment mechanism for the Fund and the General Partner. The General Partner has the exclusive right to conduct the operations of the Master Fund. The Fund held an 89% interest in the Master Fund at December 31, 2013. The Fund is the sole limited partner in the Master Fund.

The Master Fund has the same investment objective as the Fund and conducts its operations through investments in mortgage-backed securities (“MBS”) as well as investments in PNMAC Mortgage Co. Funding, LLC, PNMAC Mortgage Co. Funding II, LLC, PNMAC Mortgage Co (FI), LLC and PNMAC Mortgage Co., LLC (the companies are referred to collectively as the “Mortgage Investments”).

●	PNMAC Mortgage Co. Funding, LLC is a wholly owned limited liability company. PNMAC Mortgage Co. Funding, LLC acquires, holds and works out distressed U.S. residential mortgage loans, and owns MBS resulting from securitization of such mortgage loans.

●	PNMAC Mortgage Co. Funding II, LLC is a wholly owned limited liability company. PNMAC Mortgage Co. Funding II, LLC acquires, holds and works out distressed U.S. residential mortgage loans, and owns MBS resulting from securitization of such mortgage loans.

●

PNMAC Mortgage Co (FI), LLC is an investment company that was formed to pool investor capital and take an interest in the proceeds of FNBN I, LLC (“FNBN”). FNBN is a limited liability company formed to own a pool of residential mortgage loans in a transaction with the Federal Deposit Insurance Corporation (the “FDIC”). The FDIC owns a substantial participation interest in the proceeds of the mortgage loans held by FNBN that depends on the amount of proceeds collected; the remaining share is owned by PNMAC Mortgage Co (FI), LLC. At December 31, 2013, the Master Fund owned 68% of PNMAC Mortgage Co (FI), LLC.

●	PNMAC Mortgage Co., LLC is a wholly owned limited liability company. PNMAC Mortgage Co., LLC acquires, holds and works out distressed U.S. residential mortgage loans.

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

As market conditions permit, PNMAC Mortgage Co., LLC may transfer the mortgage loans it owns to the Master Fund to be securitized for financing purposes or sale. The Master Fund may hold interests in pools of such securitized mortgages and invests directly in other mortgage-related investment securities.

The financial statements of the Master Fund are included elsewhere in this report and should be read with the Fund’s financial statements.

The Fund began operations on August 11, 2008 and will continue in existence through December 31, 2016, subject to three one-year extensions by the Investment Manager at its discretion, in accordance with the terms of the Limited Liability Company Agreement governing the Fund.

Note 2—Significant Accounting Policies

The Fund prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as codified in the Financial Accounting Standards Board’s Accounting Standards Codification (the “Codification”). Following are the significant accounting policies adopted by the Fund:

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results will likely differ from those estimates.

Fair Value

The Fund carries its investments at their estimated fair values with changes in fair value recognized in current period results of operations. The Fund groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. The three levels are described below:

Level 1 – Quoted prices in active market for identical assets or liabilities.

Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Master Fund. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and others.

Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an asset at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Investment Manager’s own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

While the Investment Manager believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial instruments would likely result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

available market for such assets or liabilities existed, or had such assets or liabilities been liquidated, and those differences could be material to the financial statements.

Investment in Master Fund

The Fund receives a proportionate limited partnership interest in the Master Fund equal to its relative contribution of capital to the Master Fund. The net increase or decrease in net assets resulting from operations includes the Fund’s proportionate share of the Master Fund’s income and losses (including net investment income and net realized and unrealized gains and losses on investments) arising from its investment in the Master Fund as reported by the General Partner of the Master Fund.

The Fund carries its investment in the Master Fund based on the Master Fund’s estimated fair value and recognizes its proportional share of changes in the Master Fund’s fair value in current period operations. The fair value estimates of investments held by the Master Fund are based on the expected proportionate share of the discounted cash flow projections of the assets and liabilities of the Master Fund’s investments, which in turn are substantially dependent on the Master Fund’s proportionate share of the discounted cash flow projections of its investments in the Mortgage Investments.

Because the value of the Mortgage Investments has been estimated by the Investment Manager in the absence of readily determinable fair values, the Master Fund categorizes these investments as “Level 3” fair value financial statement items.

PNMAC Mortgage Co (FI), LLC’s operating agreement with the FDIC governing its investment in FNBN limits PNMAC Mortgage Co (FI), LLC’s ability to transfer any of its rights or interests in FNBN. PNMAC Mortgage Co (FI), LLC may only transfer all or any part of its interest or rights if (i) the transferee is a qualified transferee and (ii) it first obtains prior written consent of the FDIC. The contract specifies that the consent shall not be unreasonably withheld, delayed or conditioned, if the transferee is a qualified transferee.

Short-term Investment

The short-term investment, the BlackRock Liquidity Funds: TempFund Instituted Shares is carried at fair value with changes in fair value recognized in current period income. Short-term investment, which represents an investment in an institutional liquidity (or money market) fund, is valued based on the value per share published by the manager of the money market fund on the valuation date. The Fund’s short-term investment is classified as a “Level 1” fair value financial statement item.

Dividend Income

The Fund records dividend income on the ex-dividend date or, using reasonable diligence, when known to the Fund.

Expenses

The Fund is charged for those expenses that are directly attributable to it, such as, but not limited to, administration and custody fees. Expenses that are not directly attributable to the Fund are generally allocated among the Fund and other entities managed by the Investment Manager in proportion to their assets. All general and administrative expenses are recognized on the accrual basis of accounting.

Income Taxes

The Fund is treated as a separate taxable entity for Federal income tax purposes. The Fund’s policy is to comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute to shareholders all of its distributable net investment income and net realized gain on investments. Accordingly, no provision for Federal income or excise tax is necessary.

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

Management’s assessment of the requirement to provide for income taxes also includes an assessment of the liability arising from uncertain income tax positions. Management has concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions that will be taken on the tax returns for the fiscal year ended December 31, 2012. Management is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. In developing its conclusion, management of the Fund has analyzed all tax years that are open for examination by the relevant income taxing authority. As of December 31, 2013, open Federal and state income tax years include the tax years ended December 31, 2010 through 2013 and December 31, 2009 through 2013, respectively. The Fund has no examinations in progress.

If applicable, the Fund will recognize interest accrued related to unrecognized tax benefits in “interest expense” and penalties in “other expenses” on the statement of operations.

Distributions to Shareholders

The Fund has outstanding Series A preferred shares. The preferred shares have an 8% cumulative dividend preference and a liquidation preference totaling $114,000. In the event of a liquidation of the Fund, the accumulated preferred dividends and the remaining face amount of the preferred shares will be distributed before any distributions are made to common shareholders.

Distributions to shareholders are recorded on the ex-dividend date. The character of distributions to shareholders made during the year may differ from their ultimate characterization for federal income tax purposes. The Fund will distribute substantially all of its net investment income and all of its capital gains to shareholders at least annually. The character of distributions made during the year from net investment income or capital gains might differ from the characterization for federal income tax purposes due to differences in the recognition of income and expense items for financial statement and tax purposes.

Indemnifications

Under the Fund’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts that provide general indemnification to other parties. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred, and may not occur. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

Note 3—Fair Value of Investments

Following is a summary of financial statement items that are measured at estimated fair value on a recurring basis as of December 31, 2013:

	Level 1		Level 2		Level 3		Total
Assets:
Short-term investment	$	187,223	$	-	$	-	$	187,223
Investment in Master Fund		-		-		304,323,367		304,323,367
	$	187,223	$	-	$	304,323,367	$	304,510,590

There were no transfers between fair value hierarchy levels during the year ended December 31, 2013.

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

Following is a roll forward of the Fund’s Investment in Master Fund for the year ended December 31, 2013:

Balance at January 1, 2013	$	331,483,559
Purchases		-
Distributions		(60,997,001	)
Net investment income and unrealized gain, net of carried interest allocated from the Master Fund to General Partner		33,836,809
Balance at December 31, 2013	$	304,323,367

Valuation Techniques and Assumptions

Most of the Fund’s assets are carried at fair value with changes in fair value recognized in current period income. A substantial portion of those assets are “Level 3” financial statement items which require the use of significant unobservable inputs in the estimation of the assets’ values. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.

The Investment Manager has assigned the responsibility for estimating the fair values of “Level 3” financial statement items to its Financial Analysis and Valuation group (the “FAV group”), which is responsible for valuing and monitoring the Fund’s investment portfolios and maintenance of its valuation policies and procedures.

The FAV group reports to the Investment Manager’s valuation committee, which oversees and approves the valuations. The valuation committee includes the Investment Manager’s chief executive, financial, operating, credit, and asset/liability management officers.

The FAV group monitors the models used for valuation of the Fund’s “Level 3” financial statement items, including the models’ performance compared to actual results and reports those results to the valuation committee. The results developed in the FAV group’s monitoring activities are used to calibrate subsequent projections used for valuation.

The FAV group is responsible for reporting to the Investment Manager’s valuation committee on a monthly basis on the changes in the valuation of the portfolio, including major factors affecting the valuation and any changes in model methods and assumptions. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of each of the changes to the significant inputs to the models.

Investment in Master Fund

The Fund’s investment in the Master Fund is a “Level 3” financial statement item and the Fund’s estimate of the fair value of its investment in the Master Fund is based on the Fund’s expected proportionate share of the fair value of the assets and liabilities of the Master Fund’s investments, which in turn are substantially dependent of the Master Fund’s expected proportionate share of the fair value of its Mortgage Investments. Most of the Mortgage Investments’ assets are mortgage loans and real estate acquired in settlement of loans which are carried at fair value. Following are the valuation methods and assumptions applied in the measurement of the Mortgage Investments’ primary assets.

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

Note 4—Investment Transactions

During the year ended December 31, 2013, the Fund did not purchase any limited partnership interests in the Master Fund. The Fund received distributions from the Master Fund in the amount of $60,997,001.

Note 5—Shareholder Services Fee, Administration Fees and Custodian Fees

The Fund has a shareholder services agreement with the Investment Manager. Under the terms of the agreement, the Fund paid the Investment Manager a fee equal to an annual rate of 0.5% on capital commitments until December 31, 2011 and thereafter a fee equal to an annual rate of 0.5% of the Fund’s net asset value so long as the fee does not exceed 0.5% of the aggregate capital contributions to the Fund. The shareholder services fee is paid quarterly. The shareholder services fee for the year ended December 31, 2013 was $1,463,891.

The Fund has engaged U.S. Bancorp Fund Services, LLC, an indirect wholly-owned subsidiary of U.S. Bancorp, to serve as the Fund’s administrator, fund accountant, transfer agent, and dividend paying agent. The Fund pays the administrator a monthly fee computed at an annual rate of 0.02% of the first $1,000,000,000 of the Fund’s total monthly net assets, 0.015% on the next $1,000,000,000 of the Fund’s total monthly net assets and 0.01% on the balance of the Fund’s total monthly net assets subject to an annual minimum fee of $120,000. The administration fees for the year ended December 31, 2013 were $132,963.

U.S. Bank, N.A. serves as the Fund’s custodian. The Fund pays the custodian a monthly fee computed at an annual rate of 0.01% on the Fund’s average daily market value subject to an annual minimum fee of $28,800 across all fund complexes. The custody fee expense for the year ended December 31, 2013 was $4,866.

Note 6—Directors and Officers

The Fund and Master Fund share the same board of directors. The Master Fund’s board of directors has overall responsibility for monitoring and overseeing the investment program of the Master Fund and its management and operations. All directors’ fees and expenses are paid by the Master Fund. Independent directors receive an annual retainer of $64,800 and a fee per meeting of the board of directors or committees of $2,000, subject to a cap of $15,000 per year for all non-regularly-scheduled meetings. The audit committee chair receives an annual retainer of $10,000 in addition to the amounts above. Directors are reimbursed by the Master Fund for their travel expenses related to board meetings. The total director fees and expenses incurred at the Master Fund for the year ended December 31, 2013 were $306,057, of which $56,455 was payable at year-end.

One of the directors is an officer of the advisor and the Master Fund and receives no compensation from the Master Fund for serving as a director.

Certain officers of the Master Fund are affiliated with the Investment Manager. Such officers receive no compensation from the Master Fund for serving in their respective roles.

Note 7—Common Shareholders

The Fund is authorized to issue an unlimited number of common shares. The common shares have no preferential, preemptive, conversion, appraisal, exchange or redemption rights and there are no sinking fund provisions applicable to the shares. The Fund issues common shares at the net asset value per share

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

as calculated within 48 hours before receipt of capital called. Shareholders are not able to withdraw from the Fund other than through distributions made upon a realization of the Fund’s investments.

Common shares of the Fund were offered in private placements pursuant to Section 4(2) of the U.S. Securities Act of 1933, as amended on August 11, 2008 (the “Initial Closing”). The Fund raised $393,283,020 in aggregate capital commitments. No additional closings were held after the Initial Closing to accept new or additional capital commitments.

Common shares are distributed among three separate series based on the timing of capital contributions, which has affected the underlying calculation of carried interest for each series.

The Fund made distributions of $59,000,000 during the year ended December 31, 2013, none of which remains as a payable at December 31, 2013. These distributions are not subject to recall.

Note 8—Preferred Shares

Series A preferred shares of the Fund were created by the board of directors on August 11, 2008. The Fund is authorized to issue up to 5,000 Series A preferred shares at $500 per share. As of December 31, 2013 the Fund has issued 228 Series A preferred shares. Series A preferred shares are entitled to receive cumulative dividends in an amount equal to 10% per year. During the year ended December 31, 2013, $11,400 in dividends to preferred shareholders have been paid; accrued but unpaid dividends of $5,700 remained at year-end.

Upon redemption by the Fund, Series A preferred shareholders are entitled to the liquidation preference which is $500 per Series A preferred share plus accumulated and unpaid dividends. Series A preferred shareholders are not entitled to vote on any matter except matters submitted to a vote of the common shares that also affect the Series A preferred shares. The Fund shall not issue or sell any preferred shares or pay any dividend or distribution to the common shares unless the preferred shares have an asset coverage of at least 200% immediately following the given action.

Note 9—Income Tax Information

When appropriate, income tax basis reclassifications between net asset accounts are made for such differences that are permanent in nature. The reclassifications have no effect on net assets or net asset value per share. Following are the reclassifications recorded by the Fund for the year indicated:


				Accumulated Undistributed		Accumulated
Year	Paid In Capital			Net Investment Income		Net Realized Loss

2013	$	(28,495,394	)	$	63,740,230	$	(35,244,836	)

The income tax basis reclassifications noted above primarily relate to Partnership adjustments and distribution reclassifications in 2013.

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

Following are the gross unrealized appreciation and depreciation of investments and distributable ordinary income and long-term capital gains for federal tax purposes for the year ended December 31, 2013:


Cost of investments	$	195,369,751

Unrealized appreciation	$	79,886,958
Unrealized depreciation		(94,568,510	)
Net unrealized depreciation	$	(14,681,552	)

Undistributed ordinary income	$	-
Undistributed long-term capital gains		-
Total distributable earnings	$	-

Other accumulated losses	$	(518,336	)

Total accumulated losses	$	(15,199,888	)

The tax character of distributions to shareholders during the year ended December 31, 2013, was as follows:


Distributions paid from:
Capital	$	28,495,394
Ordinary income		13,107,295
Long-term capital gains		17,408,711
Total distributions	$	59,011,400

At December 31, 2013 the Fund deferred, on a tax basis, post-October losses of:


Currency		Capital
$	-	$	-

Note 10—Transactions with Affiliates

PNMAC Mortgage Opportunity (Offshore) Fund, Ltd. owns 29% of the Fund’s common shares.

The Fund paid $535,310 to PNMAC for reimbursable expenses paid on the Fund’s behalf during the year ended December 31, 2013.

PennyMac Loan Services, LLC (“PLS”) acts as the primary mortgage servicer for all mortgages owned by the Mortgage Investments held by the Master Fund. PLS is a wholly owned subsidiary of PNMAC. The servicing agreement between PLS and the Mortgage Investments generally provides for servicing fees of 50 to 100 basis points of unpaid principal balance per year, depending on the type and quality of the loans being serviced, plus other specified fees and charges. The servicing arrangement also requires that PLS will rebate to the Mortgage Investments an amount equal to 13% of the servicing fees charged to the Mortgage Investments to approximate overall “at cost” pricing with respect to loan servicing activities for such assets. Total servicing fees charged by PLS to the Mortgage Investments before such

PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of and for the Year Ended December 31, 2013

waiver amounted to $4,311,923 for the year ended December 31, 2013. PLS provided servicing rebates to the Mortgage Investments relating to such charges totaling $713,951 for the year ended December 31, 2013.

The Fund’s short-term investment, the BlackRock Liquidity Funds: TempFund Institutional Shares, is managed by BlackRock Institutional Management Corporation which a wholly owned subsidiary of Blackrock, Inc. BlackRock Inc. is an affiliate of the Fund.

Note 11—Risk Factors

Because of the limitation on rights of redemption and the fact that the shares will not be traded on any securities exchange or other market and will be subject to substantial restrictions on transfer, and because of the fact that the Investment Manager invests the Fund’s assets in illiquid assets, an investment in the Fund is highly illiquid and involves a substantial degree of risk.

Due to the nature of the “master/feeder” structure, the Fund is materially affected by the actions of the Master Fund and other investors. Investment risks such as market and credit risks of the Master Fund’s investments are discussed in the notes to the Master Fund’s financial statements included herein.

Note 12—Subsequent Events

The Investment Manager has evaluated all events or transactions through the date of issuance of these financial statements. During this period the Fund received a distribution from the Master Fund in the amount of $378,664 for the payment of shareholder servicing fees.

****


	Deloitte & Touche LLP
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	USA
	Tel: +1 213 688 0800
	Fax: +1 213 688 0100
	www.deloitte.com

To the Board of Directors and Shareholders of
PNMAC Mortgage Opportunity Fund, LLC:

We have audited the accompanying statement of assets and liabilities of PNMAC Mortgage Opportunity Fund, LLC (the “Fund”) as of December 31, 2013, and the related statements of operations and cash flows for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of December 31, 2013, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of PNMAC Mortgage Opportunity Fund, LLC as of December 31, 2013, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the financial statements, the financial statements include an investment in PNMAC Mortgage Opportunity Fund, LP (the “Master Fund”), valued at $304,323,367 (99.9% of total assets) as of December 31, 2013, whose fair value has been estimated by management in the absence of readily determinable fair values. Management’s estimate is based on the Fund’s proportionate interest in the Master Fund’s partners’ capital, which is reported at fair value as of December 31, 2013. Management’s fair value estimate of the investments held by the Master Fund is based on management’s estimate of the expected proportionate share of the discounted cash flow projections of the assets and liabilities of the Master Fund.



February 28, 2014
		Member of Deloitte Touche Tohmatsu Limited

PNMAC Mortgage Opportunity Fund, LLC
Additional Information

Form N-Q

The Fund files its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the SEC on Form N-Q. The Fund’s Form N-Q is available without charge by visiting the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling (800) SEC-0330.

Proxy Voting

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities owned by the Fund and information regarding how the Fund voted proxies relating to the portfolio of securities are available to stockholders (i) without charge, upon request by calling the Fund collect at +1(818) 224-7442; and (ii) on the SEC’s website at www.sec.gov.

Board of Directors

The Fund’s Form N-2 includes additional information about the Fund’s directors and is available upon request without charge by calling the Fund collect at (818) 224-7442 or by visiting the SEC’s website at www.sec.gov.

Forward-Looking Statements

This report contains “forward-looking statements,’’ which are based on current management expectations. Actual future results, however, may prove to be different from expectations. You can identify forward-looking statements by words such as “may’’, “will’’, “believe’’, “attempt’’, “seem’’, “think’’, “ought’’, “try’’ and other similar terms. The Fund’s past investment performance and returns are not predictive of its future investment performance and returns. The Fund cannot promise future investment performance or returns. Management’s opinions are a reflection of its best judgment at the time this report is compiled, and it disclaims any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.

Approval of Investment Management Agreement

On May 22, 2013, the Board of Directors of the Master Fund and the Fund (collectively, the “Funds”), including the “non-interested” Directors (the “Independent Directors”), met in person and voted to approve the continuance of the Investment Management Agreements (including the portions of the Master Fund’s partnership agreement referred to therein) with the Investment Manager for an additional year.

In considering whether to recommend approval of the Investment Management Agreements, the Independent Directors reviewed materials provided by the Investment Manager and counsel to the Independent Directors. The Independent Directors also met with senior personnel of the Investment Manager and discussed a number of topics affecting their determination, including the following:

(i) The nature, extent, and quality of services expected to be provided by the Investment Manager. The Independent Directors reviewed the services that the Investment Manager provided to the Funds since inception in August 2008 and are expected to continue to provide to the Funds. In addition, the Independent Directors considered the size, education, background, and experience of the Investment Manager’s staff, including the mortgage finance and capital markets experience of the Investment Manager’s senior management team. Lastly, the Independent Directors reviewed the Investment Manager’s ability to attract and retain quality and experienced personnel. The Independent Directors concluded that the scope of services provided since inception and expected to be provided by the Investment Manager to the Funds, and the experience and expertise of the personnel performing such services, was consistent with the nature, extent, and quality expected of an investment adviser of investment vehicles such as the Funds.

(ii) The investment performance of the Funds and the Investment Manager. The Independent Directors received information about the performance of the Funds and the Investment Manager in managing the

PNMAC Mortgage Opportunity Fund, LLC
Additional Information

Fund. The Directors also received performance information regarding the Funds compared to certain indexes, benchmarks, and/or registered and non-registered funds managed by other investment advisers that had somewhat comparable investment programs.

(iii) Cost of the services to be provided and profits to be realized by the Investment Manager and its affiliates from the relationship with the Funds. The Independent Directors considered the estimated cost of the services provided by the Investment Manager. As part of their analysis, the Independent Directors gave substantial consideration to the compensation payable to the Investment Manager. The Independent Directors noted that the compensation terms would remain the same. In reviewing the management compensation, the Independent Directors considered the management fees and operating expense ratios of other registered and non-registered funds managed by other investment advisers that had somewhat comparable investment programs. The Independent Directors also reviewed and took into account other relationships between the Funds and the Investment Manager and its related persons, including the shareholder servicing agreement between the Investment Manager and the Fund, the mortgage servicing agreements between the Master Fund and an affiliate of the Investment Manager, and an agreement with BlackRock, which has an investment in the Investment Manager’s parent company, for a portfolio valuation analytic model. The Independent Directors also considered the compensation charged by the Investment Manager to its other clients. Finally, the Independent Directors took those other service agreements into account in the context of evaluating the profitability of the Investment Manager in respect of the overall relationship of the Investment Manager and its related persons to the Funds.

(iv) Economies of Scale. The Independent Directors also considered that possible economies of scale from future growth of the Funds were not relevant inasmuch as the Funds were closed to any new investment and had limited terms.

The Independent Directors had an opportunity to have Executive Session with counsel to the Independent Directors. During the course of their deliberations at the meeting on May 22, the Independent Directors thoroughly reviewed and evaluated the factors to be considered for approval of the Investment Management Agreements including, but not limited to: the expenses incurred in performance of services by the Investment Manager; the compensation to be received by the Investment Manager under the Investment Management Agreements; the fees charged by the Investment Manager’s peers; the past performance of the Investment Manager; and the range and quality of services provided by the Investment Manager.

The Independent Directors expressed satisfaction with the information provided at the meeting on May 22 and prior meetings, and acknowledged that they had received sufficient information to consider and approve the continuance of the Investment Management Agreements. No single factor was determinative to the decision of the Independent Directors. Rather, after weighing all of the reasons discussed above, the Independent Directors unanimously approved the continuance of the Investment Management Agreements.

The Independent Directors concluded that the compensation that the Investment Manager would receive under the Investment Management Agreements was reasonable.

PNMAC Mortgage Opportunity Fund, LLC
Directors and Officers


Name, Age, and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director and Officers	Other Directorships/ Trusteeships Held

Independent Directors
Nancy Corsiglia (57) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Director; Audit Committee Member; Governance and Nominating Committee Chairman	Indefinite Term. Served since August 25, 2010.	Managing Partner of Devonshire Advisory Group since 2010. Managing Director of Strategic Risk Associates, LLC since 2012. Previously, Executive Vice President–Finance and Chief Financial Officer of the Bank of Virginia from 2010 to 2011. Previously, Executive Vice President and Chief Financial Officer of Federal Agricultural Mortgage Corp.	2	Trustee of the Stoneleigh-Burnham School and Member of Board of Directors of Partners for Haitian Children. Previously served on the Board of Directors of the National Symphony Orchestra

Thomas P. Gybel (46) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Director; Audit Committee Chairman; Governance and Nominating Committee Member	Indefinite Term. Served since May 29, 2008.	Senior advisor to financial services companies, Managing Director of White Mountains Capital Inc. from 2008 to 2010, and Managing Director of Global Finance for	2	Member of Board of Directors and Chairman of the Special Committee of Ambac Assurance Corporation and Member of Board of Directors of Det Danske Suzuki Institut

Peter W. McClean (70) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Director; Audit Committee Member; Governance and Nominating Committee Member	Indefinite Term. Served since May 29, 2008.	Managing Director of Gulfstream Advisors LLC since 2004 and President and Chief Executive Officer of Measurisk LLC from 2001 through 2003.	2	Member of Board of Directors of Northeast Bank, AZL Variable Insurance Products Trust and AZL Fund of Funds Trust (Allianz Funds).

Interested Directors
David A. Spector (50) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Director, President, Chief Operating Officer, Authorized Person	Indefinite Term. Served since May 29, 2008.	Chief Investment Officer of the Investment Adviser; formerly, Co-Head of Global Residential Mortgages for Morgan Stanley and Senior Managing Director, Secondary Markets for Countrywide Financial Corporation.	2	Member of the Board of Directors of: PennyMac Financial Services, Inc.; PNMAC Mortgage Co., LLC; PennyMac Loan Services, LLC; PNMAC Opportunity Fund Associates, LLC; PennyMac Securities Holding, LLC; PennyMac GP OP, Inc.; PennyMac Corp; PennyMac Loan Services, Inc.; PNMAC Capital Management, LLC; and PMT Funding, LLC.Member of the Board of Trustees of PennyMac Mortgage Investment Trust.

PNMAC Mortgage Opportunity Fund, LLC
Directors and Officers


Name, Age, and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director and Officers	Other Directorships/ Trusteeships Held

Stanford L. Kurland (61) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Executive Officer, Authorized Person	Indefinite Term. Served since May 29, 2008.	Founder, Chairman and Chief Executive Officer of the Investment Adviser; formerly, Chief Financial Officer and Chief Operating Officer of Countrywide Financial Corporation.	2	Member of the Board of Directors of: PennyMac Financial Services, Inc.; PNMAC Mortgage Co., LLC; PennyMac Loan Services, LLC; PNMAC Opportunity Fund Associates, LLC; PennyMac Securities Holding, LLC; PennyMac GP OP, Inc.; PennyMac Corp; PennyMac Loan

David M. Walker (58) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Credit Officer (no title with the Master Fund, only with the Investment Adviser)	Indefinite Term. Served since May 29, 2008.	Chief Credit Officer of the Investment Adviser; formerly, Chief Lending Officer, Chief Credit Officer and Executive Vice President of Secondary	2	None

Anne D. McCallion (59) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Financial Officer	Indefinite Term. Served since April 27, 2009.	Chief Financial Officer of the Investment Advisor; formerly Senior Managing Director and Deputy Chief Financial Officer	2	None

Derek W. Stark (46) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Secretary, Authorized person	Indefinite Term. Served since August 14, 2012.	Executive Vice President, General Counsel, Corporate and Securities and Assistant Secretary of the	2	None

Gino Malaspina (45) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Compliance Officer	Indefinite Term.	Chief Compliance Officer of the Investment Advisor; Director, Cipperman Compliance Services, LLC; formerly, Associate Attorney	2	None

Vandad Fartaj (39) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Capital Markets Officer (no title with the Master Fund, only with the Investment Adviser)	Indefinite Term. Served since March 3, 2010	Chief Capital Markets Officer of the Investment Advisor; formerly, Managing Director, Capital Markets for PNMAC Capital Markets, LLC, and Vice President,	2	None

PNMAC Mortgage Opportunity Fund, LLC
Directors and Officers


Name, Age, and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director and Officers	Other Directorships/ Trusteeships Held

Andy S. Chang (36) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Development Officer (no title with the Master Fund, only with the Investment Adviser)	Indefinite Term. Served since May 29, 2008	Chief Business Development Officer of the Investment Advisor; formerly, Director at Blackrock and leader of its Advisory Services	2	None

PNMAC Mortgage Opportunity Fund, LP

Annual Report
As of and for the year ended December 31, 2013

PNMAC Mortgage Opportunity Fund, LP

Table of Contents

		Page

Financial Statements

Statement of Assets and Liabilities		2

Schedule of Investments		3

Statement of Operations		4

Statements of Changes in Partners’ Capital		5

Statement of Cash Flows		6

Financial Highlights		7

Notes to Financial Statements		10

Report of Independent Registered Public Accounting Firm		24

Additional Information		25

Directors and Officers		27

PNMAC Mortgage Opportunity Fund, LP

Statement of Assets and Liabilities

December 31, 2013

Assets:
Investments at fair value (cost $263,256,245)	$	342,852,659
Interest receivable		23,898
Other assets		584,932
Total assets		343,461,489

Liabilities:
Payable to investment manager		1,134,019
Accrued expenses		299,495
Total liabilities		1,433,514

Partners’ capital	$	342,027,975

Partners’ capital consists of:
General partner	$	37,704,608
Limited partner		304,323,367
Total partners’ capital	$	342,027,975

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Schedule of Investments

December 31, 2013

	Shares or
	Principal
Description	Amount		Fair Value
INVESTMENTS - 100%*
Mortgage Investments - 98%*
PNMAC Mortgage Co. Funding, LLC ^	$	124,413,641	$	171,163,356
PNMAC Mortgage Co. Funding II, LLC ^		98,405,825		118,084,598
PNMAC Mortgage Co (FI), LLC ^		30,375,109		30,084,566
PNMAC Mortgage Co., LLC ^		1,469,712		14,266,242
Total Mortgage Investments (Cost $254,664,287)		254,664,287		333,598,762

Mortgage-Backed Security - 2% *
SWDNSI Trust Series 2010-2 ^	$	8,867,664		5,887,357
Total Mortgage-Backed Security (Cost $5,225,418)		8,867,664		5,887,357

Short-Term Investment - <1% *
BlackRock Liquidity Funds: TempFund Institutional Shares		3,366,540		3,366,540
Total Short-Term Investment (Cost $3,366,540)		3,366,540		3,366,540

TOTAL INVESTMENTS (Cost $263,256,245)				342,852,659

Liabilities in excess of other assets - <(1%)*				(824,684	)
TOTAL PARTNERS’ CAPITAL - 100%*			$	342,027,975

*	Percentages are stated as a percent of partners’ capital
^	Investment represents securities held or issued by related parties
	All investments are in the United States of America.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Statement of Operations

For the Year Ended December 31, 2013

Investment income
Dividends	$	8,008,849
Interest		209,183
Total investment income		8,218,032

Expenses
Investment advisory fees		4,391,672
Insurance		309,108
Directors’ fees and expenses		306,059
Administration fees		199,236
Professional fees		191,110
Custody fees		2,800
Other		35,045
Total expenses		5,435,030

Net investment income		2,783,002

Net change in unrealized gain on investments
Net change in unrealized gain on investments		38,971,995
Net increase in partners’ capital resulting from operations	$	41,754,997

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Statements of Changes in Partners’ Capital

For the Years Ended December 31, 2013 and 2012

	General		Limited
	Partner		Partner			Total
Partners’ capital, December 31, 2011	$	24,474,178	$	378,888,045		$	403,362,223

Distributions		-		(70,904,708	)		(70,904,708	)
Increase in partners’ capital from operations:
Net investment income		137		25,167,763			25,167,900
Net change in unrealized gain on investments		6		3,644,558			3,644,564
Net change in Carried Interest		5,312,099		(5,312,099	)		-
Net increase in partners’ capital from operations		5,312,242		23,500,222			28,812,464


Partners’ capital, December 31, 2012		29,786,420		331,483,559			361,269,979

Distributions		-		(60,997,001	)		(60,997,001	)
Increase in partners’ capital from operations:
Net investment income		40		2,782,962			2,783,002
Net change in unrealized gain on investments		214		38,971,781			38,971,995
Net change in Carried Interest		7,917,934		(7,917,934	)		-
Net increase in partners’ capital from operations		7,918,188		33,836,809			41,754,997

Partners’ capital, December 31, 2013	$	37,704,608	$	304,323,367		$	342,027,975

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Statement of Cash Flows

For the Year ended December 31, 2013

Cash flows from operating activities:

Net increase in partners’ capital resulting from operations	$	41,754,997

Adjustments to reconcile net increase in partners’ capital resulting from operations to net cash provided by operating activities:

Purchases of Mortgage Investments		(173,333	)
Distributions from Mortgage Investments		5,000,000
Sales and repayment of mortgage-backed securities		635,690
Net sales of short-term investment		52,751,365
Net change in unrealized gain on investments		(38,971,995	)
Changes in other assets and liabilities:
Decrease in receivable from affiliates		168,576
Increase in interest receivable		(10,962	)
Decrease in other assets		9,414
Decrease in payable to investment manager		(99,383	)
Decrease in accrued expenses		(67,368	)
Net cash provided by operating activities		60,997,001

Cash flows from financing activities:
Capital distributions		(60,997,001	)
Net cash used in financing activities		(60,997,001	)

Net change in cash		-

Cash at beginning of year		-
Cash at end of year	$	-

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Financial Highlights

As of and for the Years ended December 31, 2013, 2012, 2011, 2010, 2009

For the year ended December 31, 2013
	General			Limited
	Partner (1)			Partner			Total
Total Return (2)
Before Carried Interest		14.95	%		13.86	%		13.86	%
Carried Interest (3)		11.63	%		-1.40	%		-
After Carried Interest		26.58	%		12.46	%		13.86	%

Internal rate of return (4)		605.95	%		10.79	%		12.72	%

Ratio of net investment income to weighted average partners capital		2.18	%		0.86	%		0.86	%
Ratio of expenses to weighted average partners’ capital (1)		-0.31	%		-1.68	%		-1.68	%
Carried Interest		430,447.69	%		-2.44	%		-
Ratio of expenses and carried interest to weighted average partners’ capital		430,447.38	%		-4.12	%		-1.68	%

Partners’ capital, end of year	$	37,704,608		$	304,323,367		$	342,027,975
Portfolio turnover rate (5)								0.00	%

For the year ended December 31, 2012
	General			Limited
	Partner (1)			Partner			Total
Total Return (2)
Before Carried Interest		9.13	%		7.70	%		7.70	%
Carried Interest (3)		12.58	%		-0.97	%		-
After Carried Interest		21.71	%		6.73	%		7.70	%

Internal rate of return (4)		944.06	%		10.54	%		12.55	%

Ratio of net investment income to weighted average partners capital		8.44	%		6.57	%		6.57	%
Ratio of expenses to weighted average partners’ capital (1)		-0.83	%		-2.30	%		-2.30	%
Carried Interest		327,857.36	%		-1.39	%		-
Ratio of expenses and carried interest to weighted average partners’ capital		327,856.53	%		-3.69	%		-2.30	%

Partners’ capital, end of year	$	29,786,420		$	331,483,559		$	361,269,979
Portfolio turnover rate (5)								15.00	%

(Continued)

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Financial Highlights

As of and for the Years ended December 31, 2013, 2012, 2011, 2010, 2009

For the year ended December 31, 2011
	General			Limited
	Partner (1)			Partner			Total
Total Return (2)
Before Carried Interest		8.48	%		6.98	%		6.98	%
Carried Interest (3)		29.87	%		-1.47	%		-
After Carried Interest		38.35	%		5.51	%		6.98	%

Internal rate of return (4)		1,872.29	%		11.80	%		14.16	%

Ratio of net investment income to weighted average partners capital		7.22	%		5.82	%		5.82	%
Ratio of expenses to weighted average partners’ capital (1)		-0.83	%		-2.30	%		-2.30	%
Carried Interest		451,547.69	%		-1.68	%		-
Ratio of expenses and carried interest to weighted average partners’ capital		451,546.86	%		-3.98	%		-2.30	%

Partners’ capital, end of year	$	24,474,178		$	378,888,045		$	403,362,223
Portfolio turnover rate (5)								7.00	%

For the year ended December 31, 2010
	General			Limited
	Partner (1)			Partner			Total
Total Return (2)
Before Carried Interest		30.97	%		29.05	%		29.05	%
Carried Interest (3)		1,613,442.17	%		-4.89	%		-
After Carried Interest		1,613,473.14	%		24.16	%		29.05	%

Internal rate of return (4)		5,897.95	%		15.29	%		18.15	%

Ratio of net investment income to weighted average partners capital		8.27	%		5.51	%		5.51	%
Ratio of expenses to weighted average partners’ capital (1)		-0.76	%		-2.36	%		-2.36	%
Carried Interest		1,386,765.96	%		-4.77	%		-
Ratio of expenses and carried interest to weighted average partners’ capital		1,386,765.20	%		-7.13	%		-2.36	%

Partners’ capital, end of year	$	17,689,725		$	402,536,555		$	420,226,280
Portfolio turnover rate (5)								61.00	%

(Continued)

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Financial Highlights

As of and for the Years ended December 31, 2013, 2012, 2011, 2010, 2009

For the year ended December 31, 2009
	General			Limited
	Partner (1)			Partner			Total
Total Return (2)
Before Carried Interest		11.25	%		7.35	%		7.35	%
Carried Interest (3)		-			-			-
After Carried Interest		11.25	%		7.35	%		7.35	%

Internal rate of return (4)		6.82	%		4.88	%		4.88	%

Ratio of net investment income to weighted average partners capital		16.51	%		12.63	%		12.63	%
Ratio of expenses to weighted average partners’ capital (1)		-1.03	%		-4.21	%		-4.21	%
Carried Interest		-			-			-
Ratio of expenses and carried interest to weighted average partners’ capital		-1.03	%		-4.21	%		-4.21	%

Partners’ capital, end of year	$	1,096		$	230,995,896		$	230,996,992
Portfolio turnover rate (5)								0.00	%

(1) In accordance with the Partnership Agreement, not all expenses are allocated to the General Partner (see Note 8).

(2) Total return is calculated for each partner class taken as a whole. An investor’s return may vary from these returns based on different fee arrangements (as applicable) and the timing of capital transactions.

(3) The carried interest is allocated (and subsequently distributed) by the Master Fund to the General Partner as allocable shares of the Master Fund’s gains.

(4) Internal rate of return is computed based on the actual dates of the cash inflows (capital contributions), outflows (distributions), with the exception of distributions declared but not paid, net of carried interest on a life-to date basis.

(5) Portfolio turnover rates do not include non-cash contributions or non-cash distributions from Mortgage Investments.

(Concluded)

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Notes to Financial Statements
As of and for the Year ended December 31, 2013

Note 1—Organization

PNMAC Mortgage Opportunity Fund, LP (the “Master Fund”) is a limited liability partnership organized under the laws of the state of Delaware. The Master Fund is registered under the Investment Company Act of 1940, as amended. Interests in the Master Fund were issued solely in private placement transactions that do not involve any “public offering” within the meaning of Section 4(2) of the Securities Act of 1933, as amended. The investment objective of the Master Fund is to achieve attractive total returns by capitalizing on dislocations in the mortgage market through opportunistic investments primarily in U.S. residential mortgages and related assets, instruments, and entities.

The Master Fund is managed by PNMAC Capital Management, LLC (the “Investment Manager”). The Investment Manager is a registered investment adviser with the Securities and Exchange Commission (“SEC”). The general partner of the Master Fund is PNMAC Opportunity Fund Associates, LLC (the “General Partner”), a Delaware limited liability company. Both the Investment Manager and General Partner are wholly-owned subsidiaries of Private National Mortgage Acceptance Company, LLC (“PNMAC”).

The Master Fund operates as a master fund in a master-feeder fund structure. The Master Fund acts as a central investment mechanism for (i) PNMAC Mortgage Opportunity Fund, LLC (the “Fund” or “Limited Partner”) and (ii) the General Partner. The Fund owned 89% of the Master Fund at December 31, 2013 and is the sole limited partner. The General Partner has the exclusive right to conduct the operations of the Master Fund.

The Master Fund conducts its operations through investments in PNMAC Mortgage Co., LLC, PNMAC Mortgage Co. Funding, LLC, PNMAC Mortgage Co. Funding II, LLC and PNMAC Mortgage Co (FI), LLC (these companies are referred to collectively as the “Mortgage Investments”), as well as investments in mortgage-backed securities (“MBS”).

●	PNMAC Mortgage Co. Funding, LLC is a wholly owned limited liability company. PNMAC Mortgage Co. Funding, LLC acquires, holds and works out distressed U.S. residential mortgage loans and MBS resulting from securitization of such mortgage loans.

●	PNMAC Mortgage Co. Funding II, LLC is a wholly owned limited liability company. PNMAC Mortgage Co. Funding II, LLC acquires, holds and works out distressed U.S. residential mortgage loans and owns MBS resulting from securitization of such mortgage loans.

●

●	PNMAC Mortgage Co., LLC is a wholly owned limited liability company. PNMAC Mortgage Co., LLC acquires, holds and works out distressed U.S. residential mortgage loans.

Through their mortgage servicing agreements with PennyMac Loan Services, LLC (“PLS”), the Mortgage Investments proactively work with borrowers to perform loan servicing and loss mitigation activities to maximize returns and minimize credit losses. PLS is a wholly owned subsidiary of PNMAC.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Notes to Financial Statements
As of and for the Year ended December 31, 2013

The Mortgage Investments seek to maximize the value of the mortgage loans that they acquire based on whether the acquired loans are performing or nonperforming:

●

The objective for performing loans is value enhancement through effective “high touch” servicing, which is based on significant levels of borrower outreach and contact, and the ability to implement long-term, sustainable loan modification and restructuring programs that address borrowers’ ability and willingness to pay their mortgage loans. Once a Mortgage Investment has improved the credit quality of a loan, the Master Fund may monetize the enhanced value through various disposition strategies.

●

When loan modifications and other efforts are unable to cure distressed loans, the Mortgage Investments’ objective is to effect timely acquisition and liquidation of the property securing the mortgage loan.

The Master Fund began operations on August 11, 2008 and will continue in existence through December 31, 2016, subject to three one-year extensions by the Investment Manager at its discretion, in accordance with the terms of the Limited Partnership Agreement governing the Master Fund.

Note 2—Significant Accounting Policies

The Master Fund prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as codified by the Financial Accounting Standards Board (“FASB”) in its Accounting Standards Codification (the “Codification”). The Master Fund reports its investments in the Mortgage Investments in accordance with the Special Rules of General Application to Registered Investment Companies topic of the Codification and the AICPA Audit and Accounting Guide: Investment Companies. These rules do not permit the Master Fund to consolidate its ownership interest in its investments.

Following are the significant accounting policies adopted by the Master Fund:

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Investment Manager to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results will likely differ from those estimates.

Fair Value

The Master Fund carries its investments at their estimated fair values with changes in fair value recognized in current period results of operations. The Master Fund groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. The three levels are described below:

Level 1 – Quoted prices in active market for identical assets or liabilities.

Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Notes to Financial Statements
As of and for the Year ended December 31, 2013

based on market data obtained from sources independent of the Master Fund. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and others.

Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Investment Manager’s own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

Short-term Investment

The short-term investment is carried at fair value with changes in fair value recognized in current period income. Short-term investment, which represents an investment in an institutional liquidity (or money market) fund, is valued based on the value per share published by the manager of the money market fund on the valuation date. The Master Fund’s short-term investment is classified as a “Level 1” fair value financial statement item.

Mortgage-Backed Securities

The Master Fund records purchases and sales of MBS on the trade date basis of accounting. The Master Fund’s investments in MBS are carried at their estimated fair values with changes in the estimated fair value of MBS recognized in current period results of operations. Changes in fair value arising from amortization of purchase premiums and accrual of unearned discounts are recognized as a component of interest income. Realized gains and losses from security transactions are determined using the specific identification method. The Master Fund categorizes its investment in non-Agency MBS as a “Level 3” fair value financial statement item due to the present lack of an active market for such securities.

Interest Income Recognition

Interest income on MBS is recognized over the life of the security using the effective interest method. The Investment Manager estimates, at the time of purchase, the future expected cash flows and determines the effective interest rate based on the estimated cash flows and the Master Fund’s purchase price. The Investment Manager updates its cash flow estimates monthly.

Estimating cash flows is subject to a number of assumptions that are subject to uncertainties, including the rate and timing of principal repayments, the pass-through or coupon interest rate, interest rate fluctuations, interest payment shortfalls due to delinquencies on the underlying mortgage loans, the likelihood of modification and the timing of the magnitude of credit losses on the mortgage loans underlying the securities. The Investment Manager applies its judgment in developing its assumptions. These uncertainties are difficult to predict and are subject to future events whose outcomes will affect the Master Fund’s fair value estimates and interest income.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Notes to Financial Statements
As of and for the Year ended December 31, 2013

Mortgage Investments

The Mortgage Investments are carried at fair value. Changes in the estimated fair value of the Mortgage Investments are recognized in current period results of operations. The Mortgage Investments are valued based on the Master Fund’s proportionate ownership share of the fair value of the underlying assets and liabilities of companies comprising the Mortgage Investments given that the loans or loan participation interest and real estate acquired in settlement of loans (“REO”) held by the Mortgage Investments, net of collateralized borrowings, represent substantially all of the net asset value held by these entities. Because the values of the Mortgage Investments have been estimated by the Investment Manager in the absence of readily determinable fair values, the Master Fund categorizes these investments as “Level 3” fair value financial statement items.

PNMAC Mortgage Co (FI), LLC’s operating agreement with the FDIC governing its investment in FNBN limits PNMAC Mortgage Co (FI), LLC’s ability to transfer any of its rights or interests in FNBN. PNMAC Mortgage Co (FI), LLC may only transfer all or any part of its interest or rights if (i) the transferee is a qualified transferee as defined in the operating agreement and (ii) it first obtains prior written consent of the FDIC. The contract specifies that the consent shall not be unreasonably withheld, delayed or conditioned, if the transferee is a qualified transferee.

Dividend Income

Dividend income is recorded on the ex-dividend date or, using reasonable diligence, when known to the Master Fund.

Expenses

The Master Fund is charged for those expenses that are directly attributable to it, such as, but not limited to advisory fees, custody fees, and interest expense. Expenses that are not directly attributable to the Master Fund are generally allocated among the entities in proportion to their assets. All general and administrative expenses are recognized on the accrual basis of accounting.

Income Taxes

The Master Fund has elected to be treated as a partnership for federal income tax purposes. Each partner is responsible for the tax liability or benefit relating to such partner’s distributive share of taxable income or loss. Accordingly, no provision for federal income taxes is reflected in the accompanying financial statements.

The Investment Manager’s assessment of the requirement to provide for income taxes also includes an assessment of the liability arising from uncertain income tax positions. The Investment Manager has concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions that will be taken on the tax return for the fiscal year ended December 31, 2012. The Investment Manager is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. In developing its conclusion, the Investment Manager of the Master Fund has analyzed all tax years that are open for examination by the relevant income taxing authority. As of December 31, 2013, open federal and state income tax years include the tax years ended December 31, 2010 through 2013 and December 31, 2009 through 2013, respectively. The Master Fund has no examination in progress.

If applicable, the Master Fund will recognize interest accrued related to unrecognized tax benefits in “interest expense” and penalties in “other expenses” on the statement of operations.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Notes to Financial Statements
As of and for the Year ended December 31, 2013

No distributions will be made by the Master Fund to cover any taxes due on Limited Partners’ investments in the Master Fund. Investors may not redeem capital from the Master Fund, and they must have other sources of cash available to them to pay such taxes.

Partners’ Capital

Net profits or net losses of the Master Fund for each month are allocated to the capital accounts of partners as of the last day of each month in accordance with the partners’ respective investment ownership percentages of the Master Fund. Net profits or net losses are measured as the net change in the value of the partners’ capital of the Master Fund during the fiscal period, before giving effect to any repurchases of interest in the Master Fund, and excluding the amount of any items to be allocated to the capital accounts of the partners of the Master Fund, other than in accordance with the partners’ respective investment ownership percentages.

Capital Distributions and Carried Interest

Distributions are made in accordance with the following distribution priorities:

First, 100% to the Limited Partner until the Limited Partner has received 100% of the Limited Partner’s capital contributions (irrespective of whether such capital contributions were used to make investment, pay management fees and expenses or any other purpose);

Second, 100% to the Limited Partner, until the Limited Partner has received a preferred return on the amounts described in (1) above calculated at a rate of 8%, compounded annually;

Third, 100% to the General Partner until the General Partner has received an amount equal to 20% of the sum of (a) the profits distributed to the Limited Partner pursuant to (2) above and (b) the amount paid to the General Partner pursuant to this item (3); and

Thereafter, (i) 80% to the Limited Partner and (ii) 20% to the General Partner (the “Carried Interest”).

The Carried Interest is allocated (and subsequently distributed) by the Master Fund to the General Partner as allocable shares of the Master Fund’s gains.

Indemnifications

Under the Master Fund’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Master Fund. In addition, in the normal course of business, the Master Fund may enter into contracts that provide general indemnification to other parties. The Master Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Master Fund that have not yet occurred, and may not occur. However, the Master Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Notes to Financial Statements
As of and for the Year ended December 31, 2013

Note 3—Fair Value

Following is a summary of financial statement items that are measured at estimated fair value on a recurring basis for the year ended December 31, 2013:

	Level 1		Level 2		Level 3		Total
Assets:
Short-term investment	$	3,366,540	$	-	$	-	$	3,366,540
PNMAC Mortgage Co. Funding, LLC		-		-		171,163,356		171,163,356
PNMAC Mortgage Co. Funding II, LLC		-		-		118,084,598		118,084,598
PNMAC Mortgage Co (FI), LLC		-		-		30,084,566		30,084,566
PNMAC Mortgage Co., LLC		-		-		14,266,242		14,266,242
Mortgage-backed security		-		-		5,887,357		5,887,357
	$	3,366,540	$	-	$	339,486,119	$	342,852,659

There were no transfers of items measured at fair value between fair value hierarchy levels during the year ended December 31, 2013.

The following table presents a roll forward of the assets for which Level 3 inputs were used to determine value for the year ended December 31, 2013.

				PNMAC
	PNMAC			Mortgage Co		PNMAC			PNMAC			Mortgage-
	Mortgage Co			Funding II,		Mortgage Co			Mortgage Co,			Backed
	Funding, LLC			LLC		(FI), LLC			LLC			Security			Total
Assets:
Balance at January 1, 2013	$	151,835,167		$	102,662,950	$	32,034,909		$	14,424,116		$	5,019,339		$	305,976,481
Purchases		-			-		173,333			-			-			173,333
Repayments		-			-		-			-			(635,690	)		(635,690	)
Distributions		(5,000,000	)		-		-			-			-			(5,000,000	)
Changes in fair value*		24,328,189			15,421,648		(2,123,676	)		(157,874	)		1,503,708			38,971,995
Balance at December 31, 2013	$	171,163,356		$	118,084,598	$	30,084,566		$	14,266,242		$	5,887,357		$	339,486,119

Changes in fair value recognized during the year relating to assets still held at December 31, 2013	$	24,328,189		$	15,421,648	$	(2,123,676	)	$	(157,874	)	$	1,503,708		$	38,971,995

*	Changes in fair value as a result of changes in instrument-specific credit risk relating to mortgage loans held by the Mortgage Investments totaled $7,008,600 for the year ended December 31, 2013.

Valuation Techniques and Assumptions

Most of the Master Fund’s assets are carried at fair value with changes in fair value recognized in current period income. A substantial portion of those assets are “Level 3” financial statement items which require the use of significant unobservable inputs in the estimation of the assets’ values. Unobservable inputs reflect the Master Fund’s own assumptions about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Notes to Financial Statements
As of and for the Year ended December 31, 2013

The FAV group monitors the models used for valuation of the Master Fund’s “Level 3” financial statement items, including the models’ performance versus actual results and reports those results to the valuation committee. The results developed in the FAV group’s monitoring activities are used to calibrate subsequent projections used for valuation.

The following describes the methods used to estimate the fair values of Level 3 financial statement items:

Mortgage Investments

The Master Fund’s primary investments are the Mortgage Investments. Summarized financial information for these investments are presented in Note 4—Mortgage Investments below. Most of the Mortgage Investments’ assets are mortgage loans and REO which are carried at fair value. Following are the valuation methods and assumptions applied in the measurement of these assets.

Mortgage Loans

The mortgage loans held by the Mortgage Investments are generally not saleable into active mortgage loan markets. Therefore the Master Fund classifies these assets as “Level 3” financial statement items, and their fair values are generally estimated using a discounted cash flow valuation model. Inputs to the model include current interest rates, loan amount, payment status and property type, and forecasts of future interest rates, home prices, prepayment speeds, default and loss severities.

The Investment Manager incorporates lack of liquidity into its fair value estimates based on the type of asset or liability measured and the valuation method used. For example, for mortgage loans where the significant inputs have become unobservable due to illiquidity in the markets for distressed mortgage loans or non-Agency, non-conforming mortgage loans, a discounted cash flow technique is used to estimate fair value. This technique incorporates forecasting of expected cash flows discounted at an appropriate market discount rate that is intended to reflect the lack of liquidity in the market.

The valuation process includes the computation by stratum of the loan population and a review for reasonableness of various measures such as weighted average life, projected prepayment and default speeds, and projected default and loss percentages. The Investment Manager’s FAV staff computes the effect on the valuation of changes in input variables such as interest rates, home prices, and delinquency status to assess the reasonableness of changes in the loan valuation. The results of the estimates of fair value of the Mortgage Investments’ loans are reported to the Investment Manager’s valuation committee as part of its review and approval of monthly valuation results.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

As of and for the Year ended December 31, 2013

Changes in fair value attributable to investment-specific credit risk are measured by the effect the loan’s fair value of changes in respective loan’s delinquency status at period-end from the later of the beginning of the period or acquisition date.

The significant unobservable inputs used in the fair value measurement of the Master Fund’s mortgage loans are discount rate, home price projections, voluntary prepayment speeds and default speeds. Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.

Following is a quantitative summary of key assumptions used in the valuation of mortgage loans at fair value:


		Range
Valuation Techniques	Key Inputs	(Weighted average)
Discounted cash flow	Discount rate	7.2% - 17.3%
		(11.3%)
	Twelve-month housing price index change	2.4% - 4.2%
		(3.7%)
	Voluntary Prepayment speed (Life voluntary CRR) (1)	0.0% - 3.8%
		(2.8%)
	Total Prepayment speed (Life total CPR) (2)	1.0% - 25.3%
		(18.5%)

(1)	Prepayment speed is measured using Constant Repayment Rate (“CRR”)
(2)	Prepayment speed is measured using Conditional Prepayment Rate (“CPR”)

Real Estate Acquired in Settlement of Loans

Fair value of REO is determined by using a current estimate of value from a broker’s price opinion, a full appraisal or the price given in a pending contract of sale. REO values are reviewed by the Investment Manager’s staff appraisers when the Master Fund obtains multiple indications of value and there are significant differences between the values received. The Investment Manager’s staff appraisers will attempt to resolve the differences between the indications of value. In circumstances where the appraisers are not able to generate adequate data to support a value conclusion, the staff appraisers will order an additional appraisal to resolve the property’s value.

REO may be subsequently revalued due to the Master Fund receiving greater access to the property, the property being held for an extended period or management receiving indications that the property’s value may not be supported by developing market conditions.

Mortgage-Backed Security

The Master Fund’s investment in MBS is a non-Agency MBS backed by distressed non-performing loans. Agency MBS refers to securities issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Government National Mortgage Association.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

As of and for the Year ended December 31, 2013

Fair value of non-Agency MBS is determined based on whether the MBS is backed by loans held by the Master Fund or the Mortgage Investments, or by non-affiliates. MBS backed by mortgage loans held by the Master Fund or the Mortgage Investments are valued using the approach described under Mortgage Loans above. The Master Fund and the Mortgage Investments do not hold any MBS backed by loans held by non-affiliates.


		Range
Valuation Techniques	Key Inputs	(Weighted average)
Discounted cash flow	Discount rate	7.2% - 15.0%
		(11.1%)
	Twelve-month housing price index change	3.0% - 6.1%
		(3.3%)
	Voluntary Prepayment speed (Life voluntary CRR) (1)	0.1% - 3.8%
		(2.7%)
	Total Prepayment speed (Life total CPR) (2)	1.0% - 25.3%
		(19.7%)

(1)	Prepayment speed is measured using Constant Repayment Rate (“CRR”)
(2)	Prepayment speed is measured using Conditional Prepayment Rate (“CPR”)

Note 4—Mortgage Investments

Following is a summary of the condensed balance sheet of the Master Fund’s investments in the Mortgage Investments as of December 31, 2013:


	PNMAC		PNMAC		PNMAC		PNMAC
	Mortgage Co.		Mortgage Co.		Mortgage Co		Mortgage Co.,
	Funding, LLC		Funding II, LLC		(FI), LLC		LLC
Assets:
Cash and short-term investments	$	5,349,169	$	1,207,597	$	-	$	8,824,259
Mortgage loans at fair value		158,263,440		121,421,477		38,446,629		10,386,319
Real estate acquired in settlement of loans at fair value		15,779,542		9,301,777		2,215,217		137,218
Other assets		15,205,945		13,042,875		3,852,857		2,017,324
		194,598,096		144,973,726		44,514,703		21,365,120
Liabilities:
Collateralized borrowings		22,936,600		26,813,113		-		5,911,254
Other liabilities		498,140		76,015		134,758		1,187,624
		23,434,740		26,889,128		134,758		7,098,878
Members’ equity	$	171,163,356	$	118,084,598	$	44,379,945	$	14,266,242

Master Fund’s investment in Mortgage Investments at December 31, 2013	$	171,163,356	$	118,084,598	$	30,084,566	$	14,266,242

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

As of and for the Year ended December 31, 2013

Concentrations of Credit Risk

The Mortgage Investments have assumed a concentration of credit risk in connection with their investments in mortgage loans and REO. The following is a summary of the distribution of loans included in the Mortgage Investments’ portfolios as measured by fair value at December 31, 2013 and represents the Master Fund’s proportionate interest in such assets:


						Weighted
	Fair		%			average
Loan Type	Value		Partners’ capital			note rate
ARM / Hybrid	$	141,658,351		41.42	%		5.15	%
Fixed		136,961,699		40.04	%		5.94	%
Step Rate		2,051,996		0.60	%		10.17	%
Balloon		35,598,331		10.41	%		2.38	%
Other		56,458		0.02	%		7.00	%
Total Portfolio	$	316,326,835		92.49	%		5.08	%

						Weighted
	Fair		%			average
Lien Position	Value		Partners’ capital			note rate
1st Lien	$	315,025,844		92.11	%		4.96	%
2nd Lien		1,300,991		0.38	%		7.61	%
Total Portfolio	$	316,326,835		92.49	%		5.08	%

						Weighted
	Fair		%			average
Loan Age (1)	Value		Partners’ capital			note rate
Less than 24 months	$	327,754		0.10	%		4.91	%
24-36 months		6,063		0.00	%		5.25	%
48-60 months		809,399		0.24	%		2.94	%
36-48 months		1,687,838		0.49	%		5.01	%
60 months or more		313,495,781		91.66	%		5.09	%
Total Portfolio	$	316,326,835		92.49	%		5.08	%

						Weighted
	Fair		%			average
Current Loan-to-Value(2)	Value		Partners’ capital			note rate
Less than 80%	$	51,215,081		14.97	%		5.05	%
80%-99.99%		69,682,145		20.37	%		4.71	%
100%-119.99%		80,031,393		23.40	%		4.99	%
120% or Greater		115,398,216		33.75	%		5.27	%
Total Portfolio	$	316,326,835		92.49	%		5.08	%

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

As of and for the Year ended December 31, 2013


						Weighted
			%			average
Geographic Distribution	Fair Value		Partners’ capital			note rate
California	$	64,934,163		18.99	%		3.77	%
Florida		46,719,541		13.66	%		6.08	%
New York		41,226,948		12.05	%		5.73	%
New Jersey		21,149,905		6.18	%		5.47	%
Illinois		13,379,460		3.91	%		5.16	%
Maryland		13,065,134		3.82	%		4.46	%
Other		115,851,684		33.88	%		5.02	%
Total Portfolio	$	316,326,835		92.49	%		5.08	%

1	Loan Age reflects the age of the loan as of December 31, 2013.

2	Current loan-to-value measures the ratio of the current balance of the loan and all superior liens (“Loan”) to the estimate of the value of the property securing the liens (“Value”) as of December 31, 2013.

Following is a summary of the distribution of REO:


			%
Geographic Distribution	Fair Value		Partners’ capital
Florida	$	5,311,873		1.55	%
New York		3,444,297		1.01	%
California		2,879,560		0.84	%
Illinois		1,859,247		0.54	%
New Jersey		1,335,693		0.39	%
Other		11,905,025		3.49	%
Total Portfolio	$	26,735,695		7.82	%

Note 5 – Mortgage-Backed Security

The MBS held by the Master Fund as of December 31, 2013 was issued by SWDNSI Trust Series 2010-2, a statutory trust created by PNMAC Mortgage Co, LLC. It is secured by non-agency distressed and non-performing mortgage loans held at PNMAC Mortgage Co, LLC which have a fair value of $5,887,357 and a market yield based on its fair value of 3.8% as of December 31, 2013.

Note 6—Investment Transactions

For the year ended December 31, 2013, the Master Fund purchased an additional interest in the PNMAC Mortgage Co (FI), LLC for $173,333.

For the year ended December 31, 2013, the Master Fund received a return of capital distribution from its investment in PNMAC Mortgage Co Funding, LLC for $5,000,000 and dividend distributions from its investment in PNMAC Mortgage Co (FI), LLC totaling $8,008,848.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

As of and for the Year ended December 31, 2013

Note 7—Investment Advisory, Administration and Custodian Fees

The Master Fund has an Investment Management Agreement with PNMAC Capital Management, LLC. Under the terms of the agreement, the Master Fund pays the Investment Manager a fee equal an annual rate of 1.5% of the Master Fund’s net asset value so long as the fee does not exceed 1.5% of the aggregate capital contributions to the Master Fund. The General Partner is not charged a management fee. The only expenses charged to the General Partner are those specifically relating to it.

Investment advisory fees for the year ended December 31, 2013 were $4,391,672, of which $1,134,019 was payable to the Investment Manager at year-end.

The Master Fund has engaged U.S. Bancorp Fund Services, LLC to serve as the Master Fund’s administrator, fund accountant, transfer agent, and dividend paying agent. The Master Fund pays the administrator a monthly fee computed at an annual rate of 0.04% of the first $1,000,000,000 of the Master Fund’s total monthly net assets, 0.03% on the next $1,000,000,000 of the Master Fund’s total monthly net assets, and 0.02% on the balance of the Master Fund’s total monthly net assets subject to an annual minimum fee of $180,000. The administration expense for the year ended December 31, 2013 was $199,236.

The Master Fund and an affiliated fund have engaged U.S. Bank, N.A. to provide mortgage loan accounting services for the mortgage loans held in the mortgage subsidiaries. The Master Fund and an affiliated fund pay U.S. Bank, N.A. a monthly fee computed at an annual rate of 0.9% of assets subject to an annual minimum fee of $20,000. The loan accounting fee charged to the Master Fund for the year ended December 31, 2013 was $49,217.

U.S. Bank, N.A. serves as the Master Fund’s custodian. The Master Fund pays the custodian a monthly fee computed at an annual rate of 0.01% on the Master Fund’s average daily market value subject to an annual minimum fee of $28,800 across all fund complexes. Custody fees charged to the Master Fund for the year ended December 31, 2013 were $2,800.

Note 8—Directors and Officers

The Fund and Master Fund share the same board of directors. The Master Fund’s board of directors has overall responsibility for monitoring and overseeing the investment program of the Master Fund and its management and operations. All directors’ fees and expenses are paid by the Master Fund. Independent directors receive an annual retainer of $64,800 and a fee per meeting of the board of directors or committees of $2,000, subject to a cap of $15,000 per year for all non-regularly-scheduled meetings. The audit committee chair receives an annual retainer of $10,000 in addition to the amounts above. Directors are reimbursed by the Master Fund for their travel expenses related to board meetings. The total director fees and expenses incurred for the year ended December 31, 2013 were $306,059, of which $56,455 was payable at year-end.

One of the directors is an officer of the advisor and the Master Fund and receives no compensation from the Master Fund for serving as a Director.

Certain officers of the Master Fund are affiliated with the Investment Manager. Such officers receive no compensation from the Master Fund for serving in their respective roles.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

As of and for the Year ended December 31, 2013

Note 9—Transactions with Affiliates

As of December 31, 2013, $37,702,654 in carried interest has been reallocated from the Limited Partners capital account to the General Partner’s capital account of which $7,917,934 was allocated in the year ended December 31, 2013 (as described in Note 2).

The Master Fund incurred investment advisory fees of $4,391,672 during the year ended December 31, 2013, of which $1,134,019 was payable to the Investment Manager at year end.

PLS acts as the primary mortgage servicer for all mortgages owned by the Mortgage Investments. The servicing agreement with the Mortgage Investments generally provides for servicing fees of 50 to 100 basis points of unpaid principal balance per year, depending on the type and quality of the loans being serviced, plus other specified fees and charges. The servicing arrangement also requires that PLS will rebate to the Mortgage Investments an amount equal to 13% of servicing-related fees charged to the Mortgage Investments to approximate overall “at cost” pricing with respect to loan servicing activities for such assets. Total servicing fees charged by PLS to the Mortgage Investments before such waiver amounted to $4,311,923 for the year ended December 31, 2013. PLS provided to the Mortgage Investments rebates relating to such charges totaling $713,951 for the year ended December 31, 2013.

The Master Fund’s short-term investment, the BlackRock Liquidity Funds: TempFund Institutional Shares, is managed by BlackRock Institutional Management Corporation which is a wholly owned subsidiary of BlackRock, Inc. BlackRock Inc. is an affiliate of the Master Fund. For the year ended December 31, 2013, the Master Fund received $2,600 of dividend income from this short-term investment.

Note 10—Risk Factors

The Master Fund’s investment activities expose it to various types and degrees of risk associated with the financial instruments and markets in which it invests.

Investments in MBS and mortgage loans have exposure to risk that includes interest rate risk, market risk, and default risk (the potential non-payment of principal and interest, including default or bankruptcy of the issuer or the intermediary in the case of a mortgage loan participation). Mortgage loans are also subject to prepayment risk, which will affect the maturity of, and yield on, such investments and any MBS into which such mortgage loans have been securitized.

Investments in REO are also subject to various risk factors. Generally, real estate investments could be adversely affected by a recession, natural disaster or general economic downturn in the area where the properties are located as well as the availability of similar properties in such area. Real estate investment performance is also subject to the effectiveness of a particular property manager in managing the property.

The Master Fund is indirectly subject to interest rate risk. Interest rate risk is the risk that investments in loans held by the Mortgage Investments will decline in value because of changes in market interest rates. Investments in mortgage loans with long-term maturities may experience significant decreases in value if long-term interest rates increase.

Market risk represents the potential loss in value of financial instruments caused by movements in market factors including, but not limited to, market liquidity, investor sentiment, interest rates and foreign

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

As of and for the Year ended December 31, 2013

exchange rates. The Master Fund’s portfolio includes certain investments that are generally illiquid and have a greater amount of market risk than more liquid investments. These investments may trade in limited markets or have restrictions on resale or transfer and may not be able to be liquidated on demand if needed. The value assigned to these investments may differ significantly from the values that could be realized upon liquidation or that would have been used had a ready market existed. Such differences could be material to the financial statements.

Adverse changes in economic conditions are more likely to lead to a weakened capacity of borrowers to make principal interest payments. An economic downturn could severely affect the ability of highly leveraged borrowers to service their debt obligations or to repay their obligations. Under adverse market or economic conditions, the secondary market could contract further as well, increasing the illiquid nature of the loans. As a result, the Mortgage Investments could find it more difficult to sell loans or may be able to sell only at prices lower than if such investments were widely traded.

An investment in the Master Fund is subject to investment risk, including the possible loss of the entire investment. An investment in the Master Fund represents an indirect investment in the loans held by the Mortgage Investments. The value, like other market investments, may move up or down, sometimes rapidly and unpredictably. An investment in the Master Fund at any point in time may be worth less than the original investment. Investment values can fluctuate for several reasons including the general condition of the mortgage market or when political or economic events affecting the issuers occur.

As part of its investment strategy, the Master Fund may utilize borrowings. Master Fund investments may also use borrowings in the ordinary course of their operations. The use of borrowings, and the Master Fund’s ability to service the debt and comply with all of the covenants relating to such borrowings, may materially affect the operations of the Master Fund or its investments, and thus its ultimate value. Financing may not always be available on acceptable terms, in the necessary amounts, or for the period needed. This could have a material negative impact on the performance of the Master Fund.

The Master Fund clears substantially all of its investment purchases and sales and maintains substantially all of its investments and cash positions at U.S. Bank, N.A. Credit risk is measured by the loss the Master Fund would record if U.S. Bank, N.A. failed to perform pursuant to the terms of its obligations.

Due to the nature of the master fund/feeder fund structure, the Master Fund could be materially affected by subscription or redemption activity.

Note 11—Subsequent Events

Management has evaluated all events or transactions through the date of issuance of these financial statements. During this period, the Master Fund received dividends from a related party in the amount of $777,545 and paid a distribution to the Fund in the amount of $378,664 for the payment of shareholder servicing fees.

****

The accompanying notes are an integral part of these financial statements.


	Deloitte & Touche LLP
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	Los Angeles, CA 90071-3462
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	Tel: +1 213 688 0800
	Fax: +1 213 688 0100
To the Board of Directors and Partners of PNMAC Mortgage Opportunity Fund, LP:	www.deloitte.com

We have audited the accompanying statement of assets and liabilities of PNMAC Mortgage Opportunity Fund, LP (the “Master Fund”), including the schedule of investments, as of December 31, 2013, and the related statements of operations and cash flows for the year then ended, the statement of changes in partners’ capital for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Master Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Master Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Master Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of December 31, 2013, by correspondence with the custodian and brokers; where replies were not received from the custodian, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of PNMAC Mortgage Opportunity Fund, LP as of December 31, 2013, the results of its operations and its cash flows for the year then ended, the changes in its partners’ capital for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the financial statements, the financial statements include investments in mortgage-backed securities, investment in PNMAC Mortgage Co, Funding LLC, investment in PNMAC Mortgage Co, Funding II, LLC, investment in PNMAC Mortgage Co (FI), LLC and investment in PNMAC Mortgage Co., LLC, valued at $339,486,119 (99.8% of total assets) as of December 31, 2013, whose fair values have been estimated by management in the absence of readily determinable fair values.



February 28, 2014
		Member of Deloitte Touche Tohmatsu Limited

PNMAC Mortgage Opportunity Fund,

LP Additional Information

Form N-Q

The Master Fund files its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the SEC on Form N-Q. The Master Fund’s Form N-Q is available without charge by visiting the SEC’s Website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling (800) SEC-0330.

Proxy Voting

A description of the policies and procedures that the Master Fund uses to determine how to vote proxies relating to portfolio securities owned by the Master Fund and information regarding how the Master Fund voted proxies relating to the portfolio of securities are available to stockholders (i) without charge, upon request by calling the Master Fund collect at (818) 224-7442; and (ii) on the SEC’s Website at www.sec.gov.

Board of Directors

The Master Fund’s Form N-2 includes additional information about the Master Fund’s directors and is available upon request without charge by calling the Master Fund collect at (818) 224-7442 or by visiting the SEC’s Website at www.sec.gov.

Forward-Looking Statements

This report contains “forward-looking statements,’’ which are based on current management expectations. Actual future results, however, may prove to be different from expectations. You can identify forward-looking statements by words such as “may,’’ “will,’’ “believe,’’ “attempt,’’ “seem,’’ “think,’’ “ought,’’ “try,’’ and other similar terms. The Master Fund’s past investment performance and returns are not predictive of its future investment performance and returns. The Master Fund cannot promise future investment performance or returns. Management’s opinions are a reflection of its best judgment at the time this report is compiled, and it disclaims any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.

Approval of Investment Management Agreement

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Additional Information

services, was consistent with the nature, extent, and quality expected of an investment adviser of investment vehicles such as the Funds.

(ii) The investment performance of the Funds and the Investment Manager. The Independent Directors received information about the performance of the Funds and the Investment Manager in managing the Fund. The Directors also received performance information regarding the Funds compared to certain indexes, benchmarks, and/or registered and non-registered funds managed by other investment advisers that had somewhat comparable investment programs.

The Independent Directors concluded that the compensation that the Investment Manager would receive under the Investment Management Agreements was reasonable.

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Directors and Officers


Name, Age, and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director and Officers	Other Directorships/ Trusteeships Held

Independent Directors
Nancy Corsiglia (57) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Director; Audit Committee Member; Governance and Nominating Committee Chairman	Indefinite Term. Served since August 25, 2010.	Managing Partner of Devonshire Advisory Group since 2010. Managing Director of Strategic Risk Associates, LLC since 2012. Previously, Executive Vice President–Finance and Chief Financial Officer of the Bank of Virginia from 2010 to 2011. Previously, Executive Vice President and Chief Financial Officer of Federal Agricultural Mortgage Corp.	2	Trustee of the Stoneleigh-Burnham School and Member of Board of Directors of Partners for Haitian Children. Previously served on the Board of Directors of the National Symphony Orchestra

Thomas P. Gybel (46) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Director; Audit Committee Chairman; Governance and Nominating Committee Member	Indefinite Term. Served since May 29, 2008.	Senior advisor to financial services companies, Managing Director of White Mountains Capital Inc. from 2008 to 2010, and Managing Director of Global Finance for	2	Member of Board of Directors and Chairman of the Special Committee of Ambac Assurance Corporation and Member of Board of Directors of Det Danske Suzuki Institut

Peter W. McClean (70) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Director; Audit Committee Member; Governance and Nominating Committee Member	Indefinite Term. Served since May 29, 2008.	Managing Director of Gulfstream Advisors LLC since 2004 and President and Chief Executive Officer of Measurisk LLC from 2001 through 2003.	2	Member of Board of Directors of Northeast Bank, AZL Variable Insurance Products Trust and AZL Fund of Funds Trust (Allianz Funds).

Interested Directors
David A. Spector (50) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Director, President, Chief Operating Officer, Authorized Person	Indefinite Term. Served since May 29, 2008.	Chief Investment Officer of the Investment Adviser; formerly, Co-Head of Global Residential Mortgages for Morgan Stanley and Senior Managing Director, Secondary Markets for Countrywide Financial Corporation.	2	Member of the Board of Directors of: PennyMac Financial Services, Inc.; PNMAC Mortgage Co., LLC; PennyMac Loan Services, LLC; PNMAC Opportunity Fund Associates, LLC; PennyMac Securities Holding, LLC; PennyMac GP OP, Inc.; PennyMac Corp; PennyMac Loan Services, Inc.; PNMAC Capital Management, LLC; and PMT Funding, LLC.Member of the Board of Trustees of PennyMac Mortgage Investment Trust.

PNMAC Mortgage Opportunity Fund, LP
Directors and Officers


Name, Age, and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director and Officers	Other Directorships/ Trusteeships Held

Stanford L. Kurland (61) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Executive Officer, Authorized Person	Indefinite Term. Served since May 29, 2008.	Founder, Chairman and Chief Executive Officer of the Investment Adviser; formerly, Chief Financial Officer and Chief Operating Officer of Countrywide Financial Corporation.	2	Member of the Board of Directors of: PennyMac Financial Services, Inc.; PNMAC Mortgage Co., LLC; PennyMac Loan Services, LLC; PNMAC Opportunity Fund Associates, LLC; PennyMac Securities Holding, LLC; PennyMac GP OP, Inc.; PennyMac Corp; PennyMac Loan

David M. Walker (58) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Credit Officer (no title with the Master Fund, only with the Investment Adviser)	Indefinite Term. Served since May 29, 2008.	Chief Credit Officer of the Investment Adviser; formerly, Chief Lending Officer, Chief Credit Officer and Executive Vice President of Secondary	2	None

Anne D. McCallion (59) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Financial Officer	Indefinite Term. Served since April 27, 2009.	Chief Financial Officer of the Investment Advisor; formerly Senior Managing Director and Deputy Chief Financial Officer	2	None

Derek W. Stark (46) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Secretary, Authorized person	Indefinite Term. Served since August 14, 2012.	Executive Vice President, General Counsel, Corporate and Securities and Assistant Secretary of the	2	None

Gino Malaspina (45) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Compliance Officer	Indefinite Term.	Chief Compliance Officer of the Investment Advisor; Director, Cipperman Compliance Services, LLC; formerly, Associate Attorney	2	None

Vandad Fartaj (39) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Capital Markets Officer (no title with the Master Fund, only with the Investment Adviser)	Indefinite Term. Served since March 3, 2010	Chief Capital Markets Officer of the Investment Advisor; formerly, Managing Director, Capital Markets for PNMAC Capital Markets, LLC, and Vice President,	2	None

The accompanying notes are an integral part of these financial statements.

PNMAC Mortgage Opportunity Fund, LP
Directors and Officers


Name, Age, and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director and Officers	Other Directorships/ Trusteeships Held

Andy S. Chang (36) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, CA 93021	Chief Development Officer (no title with the Master Fund, only with the Investment Adviser)	Indefinite Term. Served since May 29, 2008	Chief Business Development Officer of the Investment Advisor; formerly, Director at Blackrock and leader of its Advisory Services	2	None

The accompanying notes are an integral part of these financial statements.

	FYE 12/31/2013	FYE 12/31/2012
Audit Fees	$193,160	$150,530
Audit-Related Fees	$0	$ 0
Tax Fees	$23,539	$26,046
All Other Fees	$0	$0

Non-Audit Related Fees	FYE 12/31/2013	FYE 12/31/2012
Registrant	None	None
Registrant’s Investment Adviser	None	None

Name	Title	Length of Service	Business Experience During Past 5 Years	Role of Portfolio Manager
Stanford L. Kurland (61) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, California 93021	Founder, Chairman and Chief Executive Officer of the Investment Adviser	Served since May 29, 2008	Chairman and Chief Executive Officer of PennyMac Financial Services, Inc. (since 2012) and Private National Mortgage Acceptance Company, LLC (since 2008); Chairman and Chief Executive Officer of PennyMac Loan Services, LLC (since 2008); Chairman of the Board of Trustees and Chief Executive Officer of PennyMac Mortgage Investment Trust (since 2009).	Chairman and Chief Executive Officer of the Investment Adviser
David A. Spector (50) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, California 93021	Chief Investment Officer	Served since May 29, 2008	President and Chief Operating Officer of PennyMac Financial Services, Inc. (since 2012); President and Chief Investment Officer of Private National Mortgage Acceptance Company, LLC (since 2008); Member of the Board of Directors of PNMAC Mortgage Opportunity Fund, LLC (since 2008) and PNMAC Mortgage Opportunity Fund, LP (since 2008) and Member of the Board of Trustees of PennyMac Mortgage Investment Trust and President and Chief Operating Officer (since 2009).	As Chief Investment Officer, is responsible for oversight of all activities pertaining to investments, and directs the activities of portfolio management, capital markets, and credit as each relates to mortgage credit and company credit risk
David M. Walker (58) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, California 93021	Chief Credit Officer of the Investment Adviser	Served since May 29, 2008	Chief Credit and Enterprise Risk Officer of PennyMac Financial Services, Inc. (since 2012) and Private National Mortgage Acceptance Company, LLC (since 2008); Chief Operating Officer of Private National Mortgage Acceptance Company, LLC (since 2011).	As Chief Credit Officer, is responsible for developing and maintaining the loan grading system, default curves, the loan loss severity matrix, new loan underwriting and modification standards, overseeing representation and warranty claims.
Andy S. Chang (36) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, California 93021	Chief Business Development Officer of the Investment Adviser	Served since May 29, 2008	Chief Business Development Officer of PennyMac Financial Services, Inc. (since 2012) and Private National Mortgage Acceptance Company, LLC (since 2009). Formerly, Chief Fund Administration Officer of Private National Mortgage Acceptance Company, LLC (2008 to 2009) and Director at Blackrock and a senior member of its Advisory Services practice (2005 to 2008).	As Chief Business Development Officer, is responsible for establishing relationships with sellers, negotiating purchase/sales agreements, and coordinating transaction details.
Vandad Fartaj (39) c/o PNMAC Capital Management, LLC, 6101 Condor Drive, Moorpark, California 93021	Chief Capital Markets Officer of the Investment Adviser	Served since March 3, 2010	Chief Capital Markets Officer of PennyMac Financial Services, Inc. (since 2012) and Private National Mortgage Acceptance Company, LLC (since 2010); Formerly, Managing Director, Capital Markets, for Private National Mortgage Acceptance Company, LLC (2008 to 2010), and Vice President, Whole Loan Trading for Countrywide Securities Corporation (1999 to 2008).	As Chief Capital Markets Officer, is responsible for all capital markets activities including asset valuation, trading, hedging and research.

Name of Manager	Total Number of Accounts Managed	Total Assets in Accounts Managed	Number of Accounts for Which Advisory Fee is Based on Performance	Assets in Accounts for Which Advisory Fee is Based on Performance
Stanford L. Kurland
Registered investment companies	2	$645,895,719	2	$645,895,719
Other pooled investment vehicles	3	$1,771,477,427	2	$1,771,477,427
Other accounts				$0
David A. Spector
Registered investment companies	2	$645,895,719	2	$645,895,719
Other pooled investment vehicles	3	$1,771,477,427	2	$1,771,477,427
Other accounts				$0
Vandad Fartaj
Registered investment companies	2	$645,895,719	2	$645,895,719
Other pooled investment vehicles	3	$1,771,477,427	2	$1,771,477,427
Other accounts				$0
David M. Walker
Registered investment companies	2	$645,895,719	2	$645,895,719
Other pooled investment vehicles	3	$1,771,477,427	2	$1,771,477,427
Other accounts				$0
Andy S. Chang
Registered investment companies	2	$645,895,719	2	$645,895,719
Other pooled investment vehicles	3	$1,771,477,427	2	$1,771,477,427
Other accounts				$0

Name of Manager	Aggregate Dollar Range of Holdings in the Registrant
Stanford L. Kurland	None
David A. Spector	None
David M. Walker	None
Andy S. Chang	None
Vandad Fartaj	None

/s/ Stanford L. Kurland Stanford L. Kurland CEO, PNMAC Mortgage Opportunity Fund, LLC	/s/ Anne D. McCallion Anne D. McCallion CFO, PNMAC Mortgage Opportunity Fund, LLC
Dated: March 4, 2014