EXHIBIT D


[CALIFORNIA INVESTMENT FUND, INC. LETTERHEAD]




Dynex Capital, Inc.
Attn: Thomas H. Potts
10900 Nuckols Road, 3rd Floor
Glen Allen, Virginia 23060
804-217-5861

Dynex Capital, Inc.
C/O Investment Banking Division
Paine Webber Incorporated
Attn: Mr. Jonathan P. Dever
1285 Avenue of the Americas
New York, NY 10019
212-713-2000

VIA FACSIMILE

April 21, 2000

Dear Mr. Potts and Mr. Dever:

This letter of intent is intended to summarize the principal terms
relating to the proposed acquisition by California Investment Fund, L.L.C.
("Buyer") of Dynex Capital, Inc. and its subsidiaries ("Seller"). The
preliminary understandings expressed in this letter are intended to be the
subject of further negotiation and are not intended to be binding, except
as set forth herein. There is no obligation on the part of any party (other
than as set forth in the next sentence) until a definitive merger agreement
is entered into by the parties, which will contain additional terms and
conditions which have yet to be agreed upon. Notwithstanding the foregoing,
upon acceptance of this letter of intent by the Seller, the provisions of
Paragraphs 2, 6 and 7 will be binding upon Seller and Buyer.

1. Proposed value for Dynex Capital, Inc. common stock.

Buyer, or a subsidiary of Buyer ("Acquisition Sub"), intends to
acquire all 11,444,188 issued and outstanding shares of common stock of
Seller, for a price of $2.72 per share in cash. This would result in an
aggregate purchase price of $31,119,036 for the common stock of Seller. All
unvested and vested options (none of which are in-the-money) will be
cancelled.

2. Option to Purchase.

In consideration of Buyer's incurrence of expenses, including the
significant cost of conducting its due diligence investigation, and in lieu
of any other break-up fee, Seller agrees to grant Buyer the option to
purchase Seller loan No.s 800-631, 800-632 and 800-633 for a total
aggregate purchase price of $19,890,000 payable in cash. This option shall
terminate upon the expiration of the Due Diligence Period (as defined in
Paragraph 6). Buyer shall send written notice to Seller of its exercise of
this Option. The option transaction shall close within ten (10) business
days following such notice. This option shall not be affected by any
earlier termination of this letter of intent.

3. Proposed transaction structure (merger of equals, stock
acquisition, asset purchase or other).

Buyer anticipates that the transaction will be accomplished
through the merger of Acquisition Sub and Seller. Certain assets of Seller
that may not be transferred to Acquisition Sub (which is not a REIT or a
qualified REIT subsidiary) or that Buyer wishes to transfer to a REIT or a
qualified REIT subsidiary will be sold by Seller in transactions
pre-arranged by Buyer after deposit of the Purchase Price (as defined
below) in escrow and the satisfaction of all other conditions to the
proposed transaction, but prior to the completion of the proposed merger.

4. Anticipated financing source for completing the transaction
(available cash, new debt, existing unused debt lines or other).

Buyer anticipates that the aggregate amount necessary to purchase
the common stock of Seller and the preferred stock of Seller (the "Purchase
Price") will be comprised of working capital of Buyer and financing from
its lender.

5. Proposed treatment of outstanding preferred stock and senior
notes (retire for cash, leave outstanding or exchange for similar
securities).

Buyer intends to acquire all 5,061,495 issued and outstanding
shares of preferred stock of Seller. In accordance with the certificate of
designation for each series of preferred stock Buyer believes that the
preferred stock has been adjusted based on stock splits of the common stock
of Seller and is currently convertible into one-half share of common stock.
(In May 1997 the common stock split two-for-one and in August 1999 there
was a reverse stock split of one-for-four.) The certificate of designation
for each series of preferred stock explicitly states that a merger
transaction is not a liquidating event, that the preferred stock is
convertible in a merger into the consideration received with respect to the
number of shares of common stock into which it is convertible and that the
holders of the preferred stock do not have a class vote on the merger. As
such, Buyer intends to purchase the preferred stock for $1.36 per share in
cash, which is one-half that offered, with respect to each share of common
stock. This would result in an aggregate purchase price of $6,881,609 for
the preferred stock of Seller. However, if Seller believes that the
preferred stockholders are entitled to additional rights please convey
these concerns to Buyer.

Buyer will continue to evaluate the possibility of assuming the
senior notes of Seller. In the event that Buyer is unable to assume the
senior notes of Seller under the terms of their indentures, Buyer will seek
the approval of the holders of the senior notes of Seller to obtain
amendments to the indentures to permit the senior notes of Seller to remain
outstanding.

6. Due Diligence

Seller shall cooperate fully with Buyer in its due diligence
investigation and will make available to Buyer and its financial and legal
advisors all books, records and business and financial information
reasonably requested by Buyer with respect to the subject matter of this
letter of intent during the Due Diligence Period. The Due Diligence Period
will expire upon the earlier of (a) twenty-eight (28) calendar days from
the date of this letter of intent, (b) written notification by Buyer that
it is terminating the Due Diligence Period or (c) written notification by
Buyer that it is prepared to engage in exclusive negotiations in accordance
with Paragraph 7 and that it will waive its due diligence condition
("Notice). In addition, Seller agrees that Buyer is allowed to contact the
financial advisors, note holders and stockholders of Seller in order to
satisfy the conditions of Paragraph 8.

7. Definitive Merger Agreement; Exclusive Period.

Subject to the conditions of Paragraph 8, upon the receipt of
Notice, Buyer will be granted a fourteen (14) calendar day period in which
Seller will negotiate in good faith and exclusively with Buyer in an
attempt to execute a definitive merger agreement. During this period,
Seller will not discuss or negotiate with, or provide any information to,
any individual, group, joint venture, partnership, corporation,
association, trust, estate or other entity of any nature (other than Buyer
and its affiliates) relating to any transaction involving the sale of the
business or assets of Seller or of any capital stock of Seller, or any
merger, consolidation or similar transaction involving Seller. The parties
will cooperate with each other and use their reasonable best efforts to
negotiate, prepare and execute a definitive merger agreement during this
period.

8. Any conditions to completing the proposed transaction.

The closing of the proposed transaction is subject, among other
things, to, (i) completion of due diligence investigation satisfactory to
Buyer and its financing sources; (ii) execution of a definitive merger
agreement; (iii) the approval of the respective boards of directors of
Buyer and Seller; (iv) the approval of the stockholders of Seller, (v) the
approval of the holders of senior notes of Seller; (vi) the receipt of all
required governmental approvals; (vii) the receipt of all material consents
from third parties, including waivers and/or restructuring of Buyer credit
lines; (viii) Seller not increasing its debt level above the amount
reflected in its December 31, 1999 financials; (ix) the entry of a judgment
in the AutoBond litigation or a settlement of the litigation not in excess
of $27 million; and (x) Seller not changing its executive compensation by
an amount greater than 10% of 1999 levels.

9. Right of First Refusal.

In the event that Seller receives an offer which Seller believes
to be superior to Buyer's offer during the Due Diligence Period, it shall
provide written notice to Buyer of the details of the offer. Buyer shall
have a five (5) business day period to revise its offer or to terminate
this letter of intent.

10. Publicity.

Except as required by law, the parties agree that there will be
no public announcements or other publicity with respect to the proposed
transaction, this letter of intent, the definitive merger agreement or any
other matters related thereto without the express written consent of Buyer
and Seller.

11. Conduct of Business.

Pending the execution of a definitive merger agreement, Seller
will conduct its business in a manner consistent with past practices. Any
transaction involving the sale of assets or a group of assets entered into
after the date of this letter of intent that, in the aggregate, is on
Seller's books or has a loan balance in excess of $1O million shall require
the pre-approval of Buyer.

[Signature Page Follows]
This letter of intent wi11 remain outstanding until 5:00 p.m. eastern
time on April 24, 2000, at which time it will expire unless Seller has
executed this letter of intent. Once executed, this letter of intent shall
continue in effect until the earlier of (i) execution and delivery of a
definitive merger agreement; (ii) mutual agreement of Buyer and Seller; and
(iii) the sixtieth day after the execution hereof, provided, however, that
Paragraphs 2, 6 and 7 shall survive the termination of this agreement.


California Investment Fund, L.L.C.


By:
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Name: Michael R. Kelly
Title: Managing Member



Accepted and agreed to this
day of April, 2000
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