As filed with the Securities and Exchange Commission on May 21, 2008
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
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ANNALY CAPITAL MANAGEMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 22-3479661
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1211 Avenue of the Americas, Suite 2902
New York, New York 10036
(212) 696-0100
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
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Michael A.J. Farrell
Chairman of the Board, Chief Executive Officer, and President
Annaly Capital Management, Inc.
1211 Avenue of the Americas, Suite 2902
New York, New York 10036
(212) 696-0100
(Name, Address, Including Zip Code, and Telephone Number,
including Area Code, of Administrator for Service)
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Copies to:
R. Nicholas Singh, Esq. Phillip J. Kardis, II, Esq.
Annaly Capital Management, Inc. Kirkpatrick & Lockhart Preston
1211 Avenue of the Americas, Suite 2902 Gates Ellis LLP
New York, New York 10036 1601 K Street, N.W.
(212) 696-0100 Washington, DC 20006
(202) 778-9401
Approximate date of commencement of proposed sale to the public: From time
to time or at one time after the effective date of the Registration Statement as
the Registrant shall determine.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a registration statement pursuant to General Instruction
I.D. or a post-effective amendment thereto that shall become effective upon
filing with the Commission pursuant to Rule 462(e) under the Securities Act,
check the following box. |X|
If this Form is a post-effective amendment to a registration statement
filed pursuant to General Instruction I.D. filed to register additional
securities or additional classes of securities pursuant to Rule 413(b) under the
Securities Act, check the following box.|_|
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, non-accelerated filer, or a smaller reporting company. See
definition of "accelerated filer," "large accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |X| Non-accelerated filer |_| Accelerated filer |_| Smaller reporting company |_|
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount Aggregate Price Aggregate Amount of
To Be Registered To Be Registered Per Share Offering Price Registration Fee(1)
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Common Stock (2) 100,000,000 $16.48 $1,648,000,000 $64,766.40(3)
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(1) Calculated pursuant to Rule 457(c), based on the average high and low
prices reported on the New York Stock Exchange on May 14, 2008.
(2) Plus such additional shares as may be issued by reason of stock
splits, stock dividends or similar transactions.
(3) The unutilized filing fee of $1,076.96 previously paid in connection
with the Registration Statement No. 333-145860 filed on September 4,
2007 is being applied pursuant to Rule 457(p) to the filing fee
payable in connection with this Registration Statement.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus constituting
a part of this Registration Statement is a combined prospectus and relates to
the securities of Annaly Capital Management, Inc. registered pursuant to a
Registration Statement on Form S-3 (Registration No. 333-145860).
PROSPECTUS
ANNALY CAPITAL MANAGEMENT, INC.
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
The Dividend Reinvestment and Share Purchase Plan, or the Plan, is designed
to provide current holders of our common stock, par value $.01 per share, and
other interested investors with a convenient and economical method to invest
funds and reinvest dividends in shares of our common stock.
By participating in the Plan, you may purchase additional shares of our
common stock by reinvesting some or all of the cash dividends that you receive
on your shares of our common stock. If you elect to participate in the Plan, you
may also make optional cash purchases of shares of our common stock of between
$250 and $10,000 per month and, with our prior approval, in excess of $10,000
per month. Shares of our common stock purchased under the Plan in excess of
$10,000 per month may be acquired at discounts from the prevailing market price
as determined by us from time to time. The Plan highlights include:
o Any holder of shares of our common stock may elect to participate in
the Plan.
o Interested new investors who are not currently holders of our common
stock may make their initial purchase through the Plan.
o Up to a 3% discount on optional cash purchases of shares in excess of
$10,000 per month purchased under the Plan.
o Full or partial dividend reinvestment options.
o Optional cash purchases of between $250 and $10,000 per month and,
with our prior approval, optional cash purchases in excess of $10,000
per month.
o Available certificate safekeeping in book-entry form at no charge to
you.
o Detailed recordkeeping and reporting will be provided at no charge to
you.
o Optional automatic investment withdrawals from your bank account.
This prospectus relates to the offer and sale of up to 100,000,000
authorized but unissued shares of our common stock under the Plan. Participants
should retain this prospectus for future reference.
The New York Stock Exchange lists our common stock under the symbol "NLY."
Investing in our securities involves a high degree of risk. You should
consider carefully the risk factors in our most recent Annual Report on Form
10-K, and any subsequent Quarterly Reports on Form 10-Q, which are incorporated
by reference in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is May 21, 2008.
TABLE OF CONTENTS
Page
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS...................................ii
ABOUT ANNALY CAPITAL MANAGEMENT, INC..........................................1
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN.................................3
USE OF PROCEEDS...............................................................4
DESCRIPTION OF THE PLAN.......................................................4
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS...................................17
PLAN OF DISTRIBUTION.........................................................37
EXPERTS......................................................................37
LEGAL MATTERS................................................................37
WHERE YOU CAN FIND MORE INFORMATION..........................................37
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................38
You should rely only on the information contained in or incorporated by
reference into this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. The information in this prospectus is accurate only as of the date
such information is presented. Our business, financial condition, results of
operations and prospects may have changed since such dates.
i
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus and in the documents
incorporated by reference herein may not be based on historical facts and are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (or the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (or the Exchange Act).
Forward-looking statements, which are based on various assumptions (some of
which are beyond our control), may be identified by reference to a future period
or periods or by the use of forward-looking terminology, such as "may," "will,"
"believe," "expect," "anticipate," "continue," or similar terms or variations on
those terms or the negative of those terms. Actual results could differ
materially from those set forth in forward-looking statements due to a variety
of factors, including, but not limited to:
o changes in interest rates;
o changes in the yield curve;
o changes in prepayment rates;
o the availability of mortgage-backed securities for purchase;
o the availability and terms of financing;
o changes in the market value of our assets;
o changes in business conditions and the general economy;
o risks associated with the investment advisory business of our wholly
owned subsidiary, Fixed Income Discount Advisory Company (which we
refer to as FIDAC), including:
- the removal by FIDAC's clients of assets FIDAC manages;
- FIDAC's regulatory requirements; and
- competition in the investment advisory business;
o changes in government regulations affecting our business; and
o our ability to maintain our qualification as a REIT for federal income
tax purposes.
For a discussion of the risks and uncertainties which could cause actual
results to differ from those contained in the forward-looking statements, please
see the information under the caption "Risk Factors" in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2007 and all subsequent
Quarterly Reports on Form 10-Q, which are incorporated by reference in this
prospectus. We do not undertake, and specifically disclaim any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
ii
ABOUT ANNALY CAPITAL MANAGEMENT, INC.
General
We own, manage, and finance a portfolio of investment securities, including
mortgage pass-through certificates, collateralized mortgage obligations (or
CMOs), agency callable debentures, and other securities representing interests
in or obligations backed by pools of mortgage loans. Our principal business
objective is to generate net income for distribution to our stockholders from
the spread between the interest income on our investment securities and the cost
of borrowings to finance our acquisition of investment securities, and from
dividends we receive from FIDAC. We are a Maryland corporation that commenced
operations on February 18, 1997. We are self-advised and self-managed. FIDAC is
a registered investment advisor.
We have financed our purchases of investment securities with the net
proceeds of equity offerings and borrowings under repurchase agreements whose
interest rates adjust based on changes in short-term market interest rates. We
have elected and believe that we are organized and have operated in a manner
that enables us to be taxed as a real estate investment trust (or REIT) under
the Internal Revenue Code of 1986, as amended (or the Code). If we qualify for
taxation as a REIT, we generally will not be subject to federal income tax on
our taxable income that is distributed to our stockholders. Therefore,
substantially all of our assets, other than FIDAC, our taxable REIT subsidiary,
consist of qualified REIT real estate assets (of the type described in Section
856(c)(5)(B) of the Code).
To ensure we qualify as a real estate investment trust, no person may own
more than 9.8% of the outstanding shares of any class of our common stock or our
preferred stock, unless our Board of Directors waives this limitation.
Assets
Under our capital investment policy, at least 75% of our total assets must
be comprised of high-quality mortgage-backed securities and short-term
investments. High quality securities means securities that (1) are rated within
one of the two highest rating categories by at least one of the nationally
recognized rating agencies, (2) are unrated but are guaranteed by the United
States government or an agency of the United States government, or (3) are
unrated but we determine them to be of comparable quality to rated high-quality
mortgage-backed securities.
The remainder of our assets, comprising not more than 25% of our total
assets, may consist of other qualified REIT real estate assets that are unrated
or rated less than high quality, but which are at least "investment grade"
(rated "BBB" or better by Standard & Poor's Rating Services, a division of The
McGraw Hill Companies, Inc. (or S&P) or the equivalent by another nationally
recognized rating agency) or, if not rated, we determine them to be of
comparable credit quality to an investment which is rated "BBB" or better. In
addition, we may directly or indirectly invest part of this remaining 25% of our
assets in other types of securities, including without limitation, unrated debt,
equity or derivative securities, to the extent consistent with our REIT
qualification requirements.
1
We may acquire mortgage-backed securities backed by single-family
residential mortgage loans as well as securities backed by loans on
multi-family, commercial or other real estate-related properties. To date, all
of the mortgage-backed securities that we have acquired have been backed by
single-family residential mortgage loans.
To date, substantially all of the mortgage-backed securities that we have
acquired have been agency mortgage-backed securities that, although not rated,
carry an implied "AAA" rating. Agency mortgage-backed securities are
mortgage-backed securities for which a government agency or federally chartered
corporation, such as the Federal Home Loan Mortgage Corporation (Freddie Mac),
the Federal National Mortgage Association (Fannie Mae), or the Government
National Mortgage Association (Ginnie Mae), guarantees payments of principal or
interest on the securities. Agency mortgage-backed securities consist of agency
pass-through certificates and CMOs issued or guaranteed by an agency.
Pass-through certificates provide for a pass-through of the monthly interest and
principal payments made by the borrowers on the underlying mortgage loans. CMOs
divide a pool of mortgage loans into multiple tranches with different principal
and interest payment characteristics.
Borrowings
We borrow money primarily through repurchase agreements using our
investment securities as collateral. We generally expect to maintain a ratio of
debt-to-equity of between 8:1 to 12:1, although the ratio may vary from time to
time depending upon market conditions and other factors our management deems
relevant. At March 31, 2008, our debt-to-reported equity ratio was 8.1:1.
We attempt to structure our borrowings to have interest rate adjustment
indices and interest rate adjustment periods that, on an aggregate basis,
correspond generally to the interest rate adjustment indices and periods of our
adjustable-rate investment securities. Nevertheless, the interest rates on our
borrowings generally adjust more frequently than the interest rates on our
investment securities. In addition, our fixed-rate mortgage-backed securities do
not provide for any periodic rate adjustments. Accordingly, we could experience
net losses or a decrease in net profits in a period of rising interest rates.
Stock Listing
Our common stock is traded on the New York Stock Exchange under the symbol
"NLY."
Principal Executive Offices and Telephone Number
Our principal executive offices are located at 1211 Avenue of the Americas,
Suite 2902, New York, New York 10036. Our telephone number is (212) 696-0100.
Internet Address
Our internet address is www.annaly.com. Information contained on our
internet website is not, and should not be interpreted to be, a part of this
prospectus.
2
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
The Plan provides holders of record of our common stock an opportunity to
automatically reinvest all or a portion of their cash distributions received on
common stock in additional shares of our common stock as well as to make
optional cash payments to purchase shares of our common stock. Persons who are
not already stockholders may also purchase our common stock under the Plan
through optional cash payments. The Administrator will buy, at our option, newly
issued common stock directly from us or common stock in the open market or in
negotiated transactions with third parties. Our common stock purchased directly
from us under the Plan may be priced at a discount from market prices at the
time of the investment (determined in accordance with the Plan) ranging from 0%
to 3% in connection with optional cash purchases in excess of $10,000 per month.
We refer to the date on which the Administrator purchases whole and fractional
shares from your cash dividend, or initial and subsequent additional cash
purchases as being the Investment Date. Any discount established by us for any
Investment Date may be adjusted or suspended for any subsequent Investment Date.
Please see "Description of the Plan" beginning on page 4 of this prospectus.
The Plan will be administered by the Administrator, which will be Mellon
Bank, N.A., or any successor bank or trust company that we may from time to time
designate. Certain of the administrative support to the Administrator may be
performed by BNY Mellon Shareowner Services, a registered transfer agent.
3
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities offered
by this prospectus for the purchase of mortgage-backed securities or Federal
Home Loan Bank, Federal Home Loan Mortgage Corporation, or Federal National
Mortgage Association debentures, and other assets consistent with our investment
policy and for working capital purposes. If we use the net proceeds to acquire
additional mortgage-backed securities or debentures, we intend to increase our
investment assets by borrowing against the mortgage-backed securities or
debentures and using the proceeds to acquire additional mortgage-backed
securities or debentures.
DESCRIPTION OF THE PLAN
The Plan offers a variety of convenient, low-cost services to make it
easier for you to invest in our common stock. The Plan, which is described in
this section, has various features and you can choose the Plan features that
meet your investment needs. The Plan is designed for long-term investors who
wish to invest and build their share ownership over time. The Plan offers a
convenient and economical means to own shares. Unlike an individual stock
brokerage account, the timing of purchases and sales is subject to the
provisions of the Plan, as discussed below. In addition, the Plan will provide
us with a means of raising additional capital for general corporate purposes
through the sale of common stock under the Plan.
You can participate in the Plan if you are a registered holder of our
common stock. If you do not own our common stock, you can become a participant
by making your initial purchase directly through the Plan. The Plan offers you
the opportunity to reinvest dividends and provides an alternative to traditional
methods of buying, holding and selling our common stock. The Administrator
administers the Plan. BNY Mellon Shareowner Services, a registered transfer
agent, will provide certain administrative support to the Administrator.
Key features of the Plan
Anyone can participate
If you currently own our common stock registered in your name you may
participate in the Plan. If you do not own any of our common stock, you can
participate in the Plan by making your initial investment in common stock
through the Plan with an initial investment of at least $1,000 and, unless we
approve a Request for Waiver, not more than $10,000. Alternatively, you may
authorize the automatic monthly investment feature and initiate your investment
with only $250 and a commitment for at least four sequential purchases. We may
change these minimum and maximum amounts at any time in our sole discretion.
Automatic dividend reinvestment
You can reinvest your dividends in additional shares of our common stock.
Your dividends will be used to buy additional shares of our common stock at the
prevailing market price on the dividend reinvestment date (determined by taking
the unsolicited weighted average price, rounded to four decimal places, of our
common stock as reported on the New York Stock Exchange).
4
Optional cash purchases up to $10,000
You can buy shares of our common stock without paying service charges or
trading fees if you are a participant in the Plan. You can make monthly
investments of as little as $250 (or $1,000 in the case of your initial
investment), or as much as $10,000, and you can pay either by check or have your
payment automatically deducted from your bank account. We may change these
minimum and maximum amounts at any time in our sole discretion or we may suspend
the right to make optional cash purchases for any monthly period or periods.
Optional cash purchases in excess of $10,000
Optional cash purchases in excess of $10,000 per month may be made pursuant
to a written request and are not subject to a predetermined maximum limit on the
amount of the investment. The discount, if any, on optional cash purchases in
excess of $10,000 per month made pursuant to such requests will range from 0% to
3% and will be established at our discretion, along with, any other terms, after
a review of current market conditions, the level of participation and our
current and projected capital needs.
Convenient share sales
You can sell our common stock acquired through the Plan through the
Administrator and pay fees that may be lower than those typically charged by
stockbrokers for small transactions.
Full investment
Full investment of your funds is possible because you will be credited with
both whole shares and fractional shares. Dividends will be paid not only on
whole shares but also proportionately on fractional shares.
Share safekeeping
You can deposit your common stock certificates with the Administrator for
safekeeping, at no cost to you. You can request withdrawal of any or all of your
whole shares of our common stock. A certificate for those shares will be sent to
you, free of charge.
Gifts and other share transfers
You can make gifts to others of our common stock in your Plan account.
Transaction reporting
You will receive a notice after each transaction showing the details and
the share balance in your Plan account.
5
Questions and answers describing terms and conditions of the Plan
1. Can I participate in the Plan?
If you already own our common stock and the shares are registered in your
name, you may participate immediately. If your shares are held for you in a
brokerage account, you may make arrangements with your stockbroker to have some
or all of the shares of our common stock registered directly in your name. If
you do not currently own any of our common stock, you can participate by making
an initial investment in our common stock through the Plan. Please see Question
8 for details regarding an initial investment. If you live outside the U.S., you
should first determine if there are any laws or governmental regulations that
would prohibit your participation in the Plan. We reserve the right to terminate
participation of any stockholder if we deem it advisable under any foreign laws
or regulations.
2. How do I get started?
Enrollment is available on-line through Investor ServiceDirect(R) (see
Question number 26 for information on how to access Investor ServiceDirect(R)).
Alternatively, you can get started in the Plan by completing an enrollment form
along with the items required and mailing them to the Administrator. Your
participation will begin promptly after your authorization is received. Once you
have enrolled, your participation continues automatically, until you notify us
otherwise.
3. How do I reinvest dividends?
You can choose to reinvest all or a portion of the cash dividends paid on
shares of our common stock you own in additional shares of our common stock. To
be effective with respect to a particular dividend, notice of your election must
be received on or before the first business day prior to the record date for
that dividend. A record date for a dividend normally precedes the payment of the
dividend by approximately four weeks. You may change your election at any time
by notifying the Administrator. To be effective with respect to a particular
dividend, any such change must be received by the Administrator on or before the
business day preceding the record date for that dividend. If you elect to
reinvest your dividends, you must choose one of the following options:
- Full dividend reinvestment. You may purchase additional shares of
our common stock by reinvesting all of your cash dividends.
- Partial dividend reinvestment. You may purchase additional shares
of our common stock by reinvesting some of your dividends and
receive the balance of your dividends in cash. If you choose to
reinvest less than all of your dividends, you must specify the
percentage of shares on which dividends will be reinvested. You
may, of course, choose not to reinvest your dividends, in which
case the Administrator will remit any dividends to you by check.
6
4. When are dividends reinvested?
If you have chosen the dividend reinvestment feature and notice of such
change has been received by the Administrator on or before the first business
day preceding the record date for that dividend, the Administrator will invest
dividends in additional shares of our common stock purchased on the open market
or directly from us as promptly as practicable, on or after the dividend payment
date. In the unlikely event that, due to unusual market conditions, the
Administrator is unable to invest the funds within 30 days, the Administrator
will remit the funds to you by check. No interest will be paid on funds held by
the Administrator pending investment.
5. What is the source of shares to be purchased under the Plan?
All dividends reinvested through the Plan and all optional cash purchases
will be used to purchase, in our sole discretion, either newly-issued shares
directly from us or shares on the open market or a combination thereof. Shares
purchased directly from us will consist of authorized but unissued shares of
common stock.
6. At what price will shares be purchased?
The price of shares for dividend reinvestment and optional cash purchases
of less than $10,000 will be determined as follows:
o If the shares are purchased in the open market, the purchase price
will be the average price per share of shares purchased. We will pay
all trading fees in connection with open market purchases.
o If the shares are purchased from us, the purchase price will be the
volume weighted average price, rounded to four decimal places, of our
common stock as reported on the New York Stock Exchange on the date
the shares are purchased.
The purchase price for optional cash purchases in excess of $10,000 per
month is discussed in response to Question 10.
7. When will shares be purchased under the Plan?
The Investment Date is the date or dates on which the Administrator
purchases shares of our common stock for the Plan, as described below.
Dividend Reinvestments. If the Administrator acquires shares directly from
us, it will combine the dividend funds of all Plan participants whose dividends
are automatically reinvested and will generally invest such dividend funds on
the dividend payment date. If the dividend payment date falls on a day that is
not a NYSE trading day, then the Investment Date will be the next trading day.
If the Administrator acquires shares from parties other than us through open
market transactions, such purchases will occur during a period beginning on the
dividend payment date, and continue on and any succeeding trading days necessary
to complete the order. To be effective with respect to a particular dividend,
notice of your election must be received on or before the first business day
prior to the record date for that dividend. A record date for a dividend
normally precedes the payment of the dividend by approximately four weeks.
7
Initial and Optional Cash Purchases up to $10,000. If the Administrator
acquires shares directly from us, then the Investment Date for optional cash
purchases up to $10,000 will be on the twenty-fifth calendar day of each month,
or the next trading day if the twenty-fifth day is not a trading day. If the
Administrator acquires shares from third parties other than us through open
market transactions, it will attempt to buy our common stock in the open market
through a registered broker-dealer. Such purchases will begin on the
twenty-fifth calendar day of each month, or the next trading day if the
twenty-fifth day is not a trading day, and will be completed no later than
thirty-five days following such date, except where completion at a later date is
necessary or advisable under any applicable federal or state securities laws or
regulations.
In the unlikely event that, due to unusual market conditions, the
Administrator is unable to invest the funds within 30 days, the Administrator
will return the funds to you by check. No interest will be paid on funds held by
the Administrator pending investment.
To be effective with respect to a particular Investment Date, initial
investments and optional cash purchases must be received by the Administrator
prior to the applicable Investment Date.
Initial and Optional Cash Purchases in Excess of $10,000. The Investment
Dates for optional cash purchases in excess of $10,000 per month are discussed
in response to Question 10.
8. How do I make an initial investment?
If you do not own our common stock in a Plan account, you can make an
initial cash purchase for as little as $1,000, but your initial cash purchase
cannot exceed $10,000 unless we approve a Request for Waiver. Your initial cash
purchase can be made:
Via on-line enrollment by:
o Opening your account on-line and sending your initial investment of
$1,000 or more.
Using the Enrollment Form and:
o Making one payment (minimum of $1,000) by check or money order payable
to Annaly Capital/Mellon Bank or by authorizing a deduction of $1,000
or more from your bank account.
We may change these minimum and maximum amounts at any time in our sole
discretion or we may suspend the right to make optional cash payment or payments
for any monthly period. In addition, in certain instances, we may permit
optional cash purchases in excess of the maximum amount established by us.
8
All Plan accounts that we believe to be under common control or management
or to have common ultimate beneficial ownership may be aggregated for purposes
of determining compliance with the maximum purchase requirement limit. Unless we
have determined that reinvestment of dividends and optional cash purchases for
each such account would be consistent with the purposes of the Plan, we will
have the right to aggregate all such accounts and to return, without interest,
within thirty days of receipt, any amounts in excess of the investment
limitations applicable to a single account received in respect of all such
accounts.
9. How do I make optional cash purchases of less than $10,000?
If you already own our common stock and are enrolled in the Plan and want
to make additional purchases, you can authorize an individual automatic
deduction from your bank account through Investor ServiceDirect(R) or send a
check to the Administrator for each purchase. If you choose to submit a check,
please be sure to include the contribution form from your Plan statement and
mail it to the address specified on the statement. Or, if you wish to make
regular monthly purchases, you may authorize automatic monthly deductions from
your bank account. This feature enables you to make ongoing investments in an
amount that is comfortable for you, without having to write a check. Additional
cash purchases are subject to a minimum purchase requirement of $250 per
investment and a maximum of $10,000.
10. How do I make monthly optional cash purchases in excess of $10,000?
You may ascertain whether we are accepting requests to make optional cash
purchases in excess of $10,000 in any given month, and certain other important
information, by telephoning the Administrator at (201) 680-5300. You should
generally contact the Administrator on the first business day of the month to
determine whether we are accepting such requests.
Request for Waiver. If you wish to make an optional cash purchase in excess
of $10,000 (or other maximum amount established by us) for any month, you must
obtain our prior written approval and a copy of such written approval must
accompany any such optional cash purchase. We refer to such a request as being a
Request for Waiver. We have sole discretion to grant any approval for optional
cash purchases in excess of the allowable maximum amount. Unless you have
complied with these procedures, any amount you submit for investment over
$10,000 will be returned to you without interest.
You may make a Request for Waiver by contacting the Administrator at (201)
680-5300. Completed Request for Waiver forms should be submitted to the
Administrator via facsimile at (201) 680-4652/4653 no later than two business
days prior to the applicable Pricing Period.
The Administrator will notify you as to whether your Request for Waiver has
been granted or denied, either in whole or in part, within one business day of
the receipt of your request. If your Request for Waiver is granted in part, the
Administrator will advise you of the maximum amount that will be accepted from
you in connection with your purchase. If your request is approved, the
Administrator must receive the funds for your purchase prior to or on the
applicable date specified by the Administrator for the relevant Pricing Period
(which typically will be one business day prior to the applicable Pricing
Period). If you do not receive a response from the Administrator in connection
with your Request for Waiver, you should assume that we have denied your
request.
9
We may alter, amend, supplement or waive, in our sole discretion, the time
periods and/or other parameters relating to optional cash purchases in excess of
$10,000 made by one or more participants in the Plan or new investors, at any
time and from time to time, prior to the granting of any Request for Waiver. For
more information regarding a particular Pricing Period (including applicable
Pricing Period start dates), please contact the Administrator at (201) 680-5300.
Purchase Price of Shares for Optional Cash Purchases in Excess of $10,000.
Shares purchased pursuant to an approved Request for Waiver will be purchased
directly from us as described herein, including the establishment of a
"Threshold Price" as more fully described below. The Purchase Price may be
reduced by the Waiver Discounts that we have provided for optional cash
purchases in excess of $10,000 on each Investment Date. If we grant your request
to purchase shares pursuant to a Request for Waiver, there will be a Pricing
Period, which will generally consist of one to 12 separate days during which
trading of our common stock is reported on the New York Stock Exchange during
the applicable Pricing Period. Each of these separate days will be an Investment
Date, and an equal proportion of your optional cash purchase will be invested on
each trading day during such Pricing Period, subject to the qualifications
listed below. The purchase price for shares acquired on a particular Investment
Date will be equal to 100% (subject to change as provided below) of the
unsolicited volume weighted average price, rounded to four decimal places, of
our common stock as reported by the New York Stock Exchange only, obtained from
Bloomberg, LP for the trading hours from 9:30 a.m. to 4:00 p.m., Eastern time,
for that Investment Date (including the last trade on the New York Stock
Exchange even if reported after 4:00 p.m.).
The Administrator will apply all optional cash purchases made pursuant to a
Request for Waiver for which good funds are received on or before the first
business day before the Pricing Period to the purchase of shares of our common
stock on each Investment Date of the applicable Pricing Period.
Threshold Price. We may establish for a Pricing Period a minimum price (or
the Threshold Price) applicable to optional cash purchases made pursuant to a
Request for Waiver. At least three business days prior to the first day of the
applicable Pricing Period, we will determine whether to establish a Threshold
Price, and if the Threshold Price is established, its amount, and will so notify
the Administrator. This determination will be made by us in our discretion after
a review of current market conditions, the level of participation in the Plan,
and current and projected capital needs.
If established for any Pricing Period, the Threshold Price will be stated
as a dollar amount that the unsolicited volume weighted average price, rounded
to four decimal places, of our common stock as reported on the New York Stock
Exchange, obtained from Bloomberg, LP for the trading hours from 9:30 a.m. to
4:00 p.m., Eastern time, for each trading day of such Pricing Period (not
adjusted for discounts, if any) must equal or exceed. Except as provided below,
we will exclude from the Pricing Period any trading day that the unsolicited
volume weighted average price is less than the Threshold Price. We also will
exclude from the Pricing Period and from the determination of the purchase price
any day in which no trades of common stock are made on the New York Stock
Exchange. For example, if the Threshold Price is not met for two of the trading
days in a 10 day Pricing Period, then we will return 20% of the funds you
submitted in connection with your Request for Waiver unless we have activated
the pricing period extension feature for the Pricing Period which is described
below.
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Pricing Period Extension Feature. We may elect to activate for any
particular Pricing Period the pricing period extension feature which will
provide that the initial Pricing Period will be extended by the number of days
that the Threshold Price is not satisfied, or on which there are no trades of
our common stock reported by the New York Stock Exchange, subject to a maximum
of five trading days. If we elect to activate the pricing period extension
feature and the Threshold Price is satisfied for any additional day that has
been added to the initial Pricing Period, that day will be included as one of
the trading days for the Pricing Period in lieu of the day on which the
Threshold Price was not met or trades of our common stock were not reported. For
example, if the determined Pricing Period is 10 days, and the Threshold Price is
not satisfied for three out of those 10 days in the initial Pricing Period, and
we had previously announced at the time of the Request for Waiver acceptance
that the pricing period extension feature was activated, then the Pricing Period
will automatically be extended, and if the Threshold Price is satisfied on the
next three trading days (or a subset thereof), then those three days (or a
subset thereof) will become Investment Days in lieu of the three days on which
the Threshold Price was not met. As a result, because there were 10 trading days
during the initial and extended Pricing Period on which the Threshold Price was
satisfied, all of the optional cash purchase will be invested.
Return of Unsubscribed Funds. We will return a portion of each optional
cash purchase in excess of $10,000 for each trading day of a Pricing Period or
extended Pricing Period, if applicable, for which the Threshold Price is not met
or for each day in which no trades of common stock are reported on the New York
Stock Exchange ("unsubscribed funds"). Any unsubscribed funds will be returned
within five business days after the last day of the Pricing Period, or if
applicable, the extended Pricing Period, without interest. The amount returned
will be based on the number of days during which the Threshold Price was not met
with compared to the number of days in the Pricing Period or extended Pricing
Period. For example, the returned amount in a 10 day Pricing Period will equal
one-tenth (1/10) of the total amount of such optional cash purchase (not just
the amount exceeding $10,000) for each trading day that the Threshold Price is
not met or for each trading day in which sales are not reported.
The establishment of the Threshold Price and the possible return of a
portion of the investment applies only to optional cash purchases in excess of
$10,000. Setting a Threshold Price for a Pricing Period will not affect the
setting of a Threshold Price for any other Pricing Period. We may waive our
right to set a Threshold Price for any particular Pricing Period. Neither we nor
the Administrator is required to give you notice of the Threshold Price for any
Pricing Period.
Waiver Discount. Each month, at least three business days prior to the
first day of the applicable Pricing Period, the same time the Threshold Price is
determined, we may establish discounts from the market price applicable to
optional cash purchases made pursuant to a Request for Waiver. These discounts
(or the Waiver Discounts) may be between 0% and 3% of the purchase price, and
may vary each month and for each purchaser.
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The Waiver Discounts will be established at our sole discretion after a
review of current market conditions, the level of participation in the Plan, the
attractiveness of obtaining such additional funds through the sale of common
stock as compared to other sources of funds and current and projected capital
needs. You may obtain the Waiver Discounts applicable to the next month by
contacting the Administrator at (201) 680-5300. Setting Waiver Discounts for a
particular month shall not affect the setting of Waiver Discounts for any
subsequent month. The Waiver Discounts will apply only to optional cash
purchases of more than $10,000 (or other applicable maximum monthly amount). The
Waiver Discounts will apply to the entire optional cash purchase and not just
the portion of the optional cash purchase that exceeds $10,000.
11. Will I receive certificates for shares purchased?
No, because the Plan provides for share safekeeping. For your convenience,
the Administrator will maintain shares purchased under the Plan in your name in
non-certificated form. You may, however, request a stock certificate from the
Administrator at any time, free of charge.
12. What is safekeeping?
Shares of our common stock that you buy under the Plan will be maintained
in your Plan account in certificated form for safekeeping. Safekeeping protects
your shares against loss, theft or accidental destruction and also provides a
convenient way for you to keep track of your shares. Only shares held in
safekeeping may be sold through the Plan.
If you own our common stock in certificate form, you may deposit your
certificates for those shares with the Administrator, free of charge. The
Administrator will provide mail loss insurance coverage for certificates with a
value not exceeding $100,000 in any one shipping package that is mailed to its
address at 480 Washington Blvd., Jersey City, NJ 07310 by USPS registered mail
or by any overnight courier.
Note: Mail loss insurance covers only the replacement of shares of stock and in
no way protects against any loss resulting from fluctuations in the value of
such shares.
13. Can I get stock certificates if I want them?
Yes. If you should ever want a stock certificate for all or a portion of
the whole shares of our common stock in your Plan account, the Administrator
will send one to you, upon your written request, within two days of the receipt
of your instructions.
14. How can I transfer or give gifts of shares?
You may transfer or give gifts of our common stock to anyone you choose by
contacting the Administrator and requesting a Gift/Transfer Form. After the
transfer or purchase is completed, upon your request, the Administrator will
send you a non-negotiable gift announcement, which you can present to the
recipient. A notice indicating the deposit of our common stock will be forwarded
to the recipient.
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15. How do I sell shares?
You can sell your Plan shares at any time by contacting the Administrator.
Your sale request will be processed and your shares will, subject to market
conditions and other factors, generally be sold within 24 hours of receipt of
your request. Please note that the Administrator cannot and does not guarantee
the actual sale date or price, nor can it stop or cancel any outstanding sales
or issuance requests. All requests for final. The Administrator will mail a
check to you (less any applicable sales fees and any required tax withholdings)
on settlement date, which is three business days after your shares have been
sold.
Alternatively, you may choose to sell your shares through a stockbroker of
your choice, in which case you would have to request that the Administrator
deliver to your stockbroker by electronic book-entry means the number of shares
you propose to sell, or a stock certificate for delivery to your stockholder
prior to settlement of such sale.
16. What are the costs for participation in the Plan?
There is no fee for enrolling in the Plan. Participation is voluntary and
you may discontinue your participation at any time, however, there are fees
associated with some of the Plan's services. Please see "Plan Service Fees"
below.
17. How can I vote my shares?
You will receive proxy material for all whole shares in your Plan account.
Fractional shares may not be voted. The proxy will be voted in accordance with
your direction. The Administrator may vote your shares in certain cases if you
do not return a proxy to the Administrator.
18. If there is a rights offering related to the common stock, how will a
stockholder's entitlement be computed?
Your entitlement in a rights offering related to the common stock will be
based upon the number of whole shares credited to your Plan account. Rights
based on a fraction of a share credited to your Plan account will be sold for
that account and the net proceeds will be invested as an optional cash purchase
on the next Investment Date. In the event of a rights offering, transaction
processing may be curtailed or suspended by the Administrator for a short period
of time following the record date for such action to permit the Administrator to
calculate the rights allocable to each account.
19. What provisions are made for non-U.S. residents?
Cash purchases from non-U.S. residents must be in United States currency
and will be invested in the same manner as investments from other stockholders.
Each stockholder is responsible for reviewing the applicable laws of his or her
country of residence prior to investing in our common stock. All dividends will
be subject to withholding at the rate of 30%, subject to reduction under the
terms of any applicable tax treaty provisions.
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20. How will I keep track of my investments?
The Administrator will send you a transaction notice confirming the details
of each transaction you make. If you continue to participate in the Plan, but
have no transactions, the Administrator will send you an annual statement after
the end of the year detailing the status of your holdings of our common stock in
your Plan account.
21. What about taxes?
You are responsible for any taxes which may be payable on dividends
reinvested under the Plan. Additionally, under current tax rulings, your
pro-rata portion of the trading fees paid by us to purchase shares in the open
market and any purchase discounts will be considered taxable income to you. The
Administrator will send a Form 1099-DIV to you and the Internal Revenue Service
after each year-end, reporting all dividend income you received during the year
on your common stock, including any dividends reinvested, purchase discounts and
pro rata portion of trading fees paid by us to acquire shares in the open
market.
If you sell shares through the Plan, the Administrator will send a Form
1099-B to you and the Internal Revenue Service after each year-end, showing the
total proceeds of the transactions.
We recommend that you keep your transaction statements for record keeping
and tax purposes. IRS regulations are subject to change and you should consult
with your tax advisor with respect to the tax treatment of dividends reinvested
under the Plan. See the discussion below under "Federal Income Tax
Considerations" for more information regarding taxes.
22. How would I terminate my participation in the Plan?
You may discontinue the reinvestment of your dividends at any time by
giving notice to the Administrator. Notice may be made by telephone, in writing
or by changing your dividend election under the account management service when
you access your account on-line at www.bnymellon.com/shareowner. To be effective
for a given dividend payment, the Administrator must receive notice before the
record date of that dividend. The Administrator will continue to hold your
shares unless you request a certificate for any full shares and a check for any
fractional share. You may also request the sale of all or part of any such
shares or have the Administrator transfer your shares to your brokerage account.
See Question 15 for information on selling shares. If your Plan account balance
falls below one full share, the Administrator reserves the right to liquidate
the fraction and remit the proceeds, less any applicable fees, to you at your
address of record.
23. Are there any risks associated with the Plan?
Your investment in shares purchased under the Plan is no different from any
investment in shares you hold directly. Neither we nor the Administrator can
assure a profit or protect you against a loss on shares purchased. You bear the
risk of loss and enjoy the benefits of any gain from market price changes with
respect to shares purchased under the Plan. Please see the carefully consider
the risk factors in our most recent Annual Report on Form 10-K, and all
subsequent Quarterly Reports on Form 10-Q, which are incorporated by reference
in this prospectus.
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24. Can the Plan be amended, modified, suspended or terminated?
We reserve the right to amend, modify, suspend or terminate the Plan at any
time and in any manner. You will receive written notice of any such amendment,
modification, suspension or termination. We and the Administrator also reserve
the right to change any administrative procedures of the Plan.
25. What are Annaly's responsibilities and those of the Administrator?
Neither we nor the Administrator will be liable for any act we or they do
in good faith or for any good faith omission to act including, in the case of
the Administrator, liability arising out of (i) failure to terminate a
participant's account upon such participant's death or adjudicated incompetence,
prior to the receipt of notice in writing of such death or adjudicated
incompetence, (ii) the prices at which shares are purchased for the
participant's account, (iii) the times when purchases are made, or (iv)
fluctuations in the market value of our common stock. The payment of dividends
is at the discretion of our Board of Directors and will depend upon future
earnings, our financial condition and other factors. Our Board of Directors may
change the amount and timing of dividends at any time without notice.
26. What if I have questions about the Plan?
Enrollment, purchase or sale of share requests and other transactions or
services offered by the Plan should be directed to the Administrator through the
following:
Internet
You can enroll in the Plan, obtain information, and perform certain
transactions on your Annaly account on-line via Investor ServiceDirect(R). To
gain access, you will require a password which you may establish when you visit
the website. If you have forgotten your password, call 1-877-978-7778 to have it
reset.
To access Investor ServiceDirect(R) please visit the Mellon Investor
Services website at:
www.bnymellon.com/shareowner
Telephone
Telephone shareholder customer service, including sale of shares, toll-free
within the United States and Canada:
1-800-301-5234
International Telephone Inquiries:
1-201-680-6578
15
An automated voice response system is available 24 hours a day, 7 days a
week. Customer Service Representatives are available from 9:00 a.m. to 7:00
p.m., Eastern Standard Time, Monday through Friday (except holidays).
In Writing
You may also write to the Administrator at the following address:
BNY Mellon Shareowner Services
P.O. Box 358035
Pittsburgh, PA 15252-8035
Be sure to include your name, address, daytime phone number, social
security or tax I.D. number and a reference to Annaly Capital Management, Inc.
on all correspondence.
This Plan is designed for the long-term investor and does not afford the
same flexibility as a stockbroker's account.
Annaly has appointed Mellon Bank, N.A. as Administrator for the Plan.
Securities held by the Administrator in your Plan account are not subject to
protection under the Securities Investor Protection Act of 1970. Commissions may
be paid to a broker-dealer that is affiliated with the Administrator. Investors
must make independent investment decisions based upon their own judgment and
research. Annaly is listed on the New York Stock Exchange and trades under the
ticker symbol "NLY."
Plan Service Fees
Enrollment Fee for New Investors No Charge
Initial Purchase of Shares: No Charge
Sale of Shares (partial or full):
Transaction Fee: $15.00 per sale transaction
Trading fees (applicable when shares are acquired
or sold in the open market): $0.06 per share
Reinvestment of Dividends: No Charge
Optional cash purchases via check, automatic debit
or individual debit No Charge
Gift or Transfer of Shares No Charge
Safekeeping of Stock Certificates Certificate Issuance No Charge
Returned Checks for Insufficient Funds or Rejected
Automatic Withdrawals $35.00 per item
Duplicate Statements: No Charge
The Administrator will deduct the applicable fees from the proceeds from a
sale.
We reserve the right to amend or modify this Plan Service Fee schedule at
any time and from time to time.
16
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations (i) that apply to a participant in the Plan and (ii) that relate
to our treatment as a REIT. No assurance can be given that the conclusions set
out below would be sustained by a court if challenged by the Internal Revenue
Service, or IRS.
Based on various factual representations made by us regarding our
operations, in the opinion of McKee Nelson LLP, our counsel, commencing with our
taxable year ended December 31, 1997, we have been organized in conformity with
the requirements for qualification and taxation as a REIT under the Code, and
our method of operating has enabled us, and will enable us to meet the
requirements for qualification and taxation as a REIT. Our qualification as a
REIT depends upon our ability to meet the various requirements imposed under the
Code through actual operations. McKee Nelson LLP will not review our operations,
and no assurance can be given that actual operations will meet these
requirements. The opinion of McKee Nelson LLP is not binding on the IRS or any
court. The opinion of McKee Nelson LLP is based upon existing law, Treasury
regulations and currently published administrative positions of the IRS and
judicial decisions, all of which are subject to change either prospectively or
retroactively.
This summary deals only with stock that is held as a capital asset, which
generally means property that is held for investment. In addition, except to the
extent discussed below, this summary does not address tax considerations
applicable to you if you are subject to special tax rules, such as:
- a dealer or trader in securities;
- a financial institution;
- an insurance company;
- a stockholder that holds our stock as a hedge, part of a straddle,
conversion transaction or other arrangement involving more than one
position; or
- a stockholder whose functional currency is not the United States
dollar.
The discussion below is based upon the provisions of the Code and
regulations, rulings and judicial decisions interpreting the Code as of the date
of this prospectus. Any of these authorities may be repealed, revoked or
modified, perhaps with retroactive effect, so as to result in federal income tax
consequences different from those discussed below.
The discussion set out below is intended only as a summary of the material
federal income tax consequences relating to the Plan and the material federal
income tax consequences of our qualification as a REIT and of an investment in
our stock. Taxpayers and preparers of tax returns (including returns filed by
any partnership or other arrangement) should be aware that under Treasury
17
regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice is (i) given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly, we urge
you to consult your tax advisors regarding the tax consequences of an investment
in our stock, including the application to your particular situation of the tax
considerations discussed below, as well as the application of state, local or
foreign tax laws. The statements of federal tax law set out below are based on
the laws in force and their interpretation as of the date of this prospectus,
and are subject to changes occurring after that date.
Federal Income Tax Considerations Relating to the Plan
o Tax consequences of dividend reinvestment
A participant whose dividend distributions are reinvested in our common stock
will be treated for federal income tax purposes as having received a
distribution notwithstanding that the distribution is used to purchase
additional shares of common stock. Based on several private letter rulings
issued by the IRS concerning dividend reinvestment plans that are similar to
ours, we believe that the amount of the distribution will likely equal the fair
market value, as of the Investment Date, of the shares of our common stock
purchased with reinvested dividends. This conclusion, however, is not free from
doubt. Recently, the IRS has issued a private letter ruling concluding that the
amount of the distribution will equal the amount of the cash dividend that, but
for the reinvestment election made by the shareholder, would have been
distributed on the dividend payment date. In any event, with respect to our
common stock purchased by the Administrator in open market transactions or in
negotiated transactions with third parties, the IRS has indicated in private
letter rulings that the amount of distribution received by a participant would
include a pro rata share of any brokerage commissions or other related charges
paid by us in connection with the Administrator's purchase of our common stock
on behalf of the participant. In such private letter rulings, the IRS has also
held that the payment by a company of a dividend reinvestment plan's
administrative expenses does not constitute a distribution to stockholders. We
intend to take the position that administrative expenses of the Plan paid by us
do not constitute constructive distributions; however, private letter rulings
are not considered precedent and therefore no assurance can be given that the
IRS would agree with our position. The constructive distributions described
above otherwise will be treated in the same manner as non-reinvested cash
distributions.
A participant's tax basis in each share of our common stock acquired under
the Plan will generally equal the amount of the distribution a participant is
treated as receiving with respect to such share (as described above). A
participant's holding period in his common stock generally begins on the day
following the date on which the shares of our common stock are credited to the
participant's Plan account.
o Tax consequences of optional cash payments
The IRS has indicated in somewhat similar situations that a participant who both
makes an optional cash purchase of common stock and reinvests all or a part of
his dividends under a dividend reinvestment plan will be treated as having
received a distribution equal to the excess (if any) of the fair market value on
18
the Investment Date of our common stock purchased in an optional cash purchase
over the amount of the optional cash payment made by the participant. Recently,
however, the IRS has issued a private letter ruling concluding that no deemed
distribution will be deemed to result from such an optional cash purchase. Also,
if the shares of common stock are acquired by the Administrator in an open
market transaction or in a negotiated transaction with third parties, then the
IRS may assert that a participant will be treated as receiving a distribution
equal to a pro rata share of any brokerage commission or other related charges
paid by us on behalf of the participant. As with constructive distributions
under the dividend reinvestment aspect of the Plan, such distributions would
otherwise also be treated in the same manner as non-reinvested cash
distributions.
The IRS has held in a private letter ruling that a participant who only
makes optional cash purchases of common stock in a dividend reinvestment plan
(and does not participate in the dividend reinvestment aspect) will not be
treated as having received a distribution reflecting either the excess (if any)
of the fair market value on the Investment Date of our common stock over the
amount of the optional cash payment made by the participant or a pro rata share
of any brokerage commission or other related charges paid by us on behalf of the
participant. The IRS, however, did not explain in the private letter ruling its
rationale for making such a distinction, nor is one readily apparent
(particularly if the participant is already a stockholder). Furthermore, private
letter rulings are not considered precedent by the IRS and therefore no
assurance can be given that the IRS would take this position with respect to
other transactions, including those under the Plan.
A participant's tax basis in each share of our common stock acquired
through an optional cash purchase under the Plan will generally equal the amount
of distributions a participant is treated as receiving with respect to such
share (as described above), plus the amount of the optional cash payment. A
participant's holding period for common stock purchased under the Plan generally
will begin on the day following the date on which the shares of our common stock
are credited to the participant's Plan account. In addition, all cash
distributions paid with respect to all common stock credited to a participant's
Plan account will be reinvested automatically.
o Tax consequences to Annaly of the Plan
The IRS has ruled in connection with similar plans that a dividend reinvestment
and optional cash purchase plan will not compromise our qualification as a REIT.
In addition, we should be able to receive a dividends-paid deduction for
constructive distributions resulting from discounts under the Plan to the extent
such discounts are treated as deemed distributions. The dividends-paid deduction
is generally not available for the payment of preferential dividends; the IRS
has held in a published ruling, however, that constructive dividends arising
from a discount under a dividend reinvestment or optional purchase plan are not
preferential and will therefore qualify for a dividends-paid deduction as long
as the discount does not exceed 5% of the fair market value of the shares
acquired under such plan. The IRS has indicated in private letter rulings that
the amount of brokerage fees and other charges paid by a company as part of such
a plan are included in calculating the discount for the purposes of applying
this 5% limit. As a result, we should be able to deduct constructive
distributions, if any, resulting from discounts under the Plan with respect to
shares that have been purchased directly from us because the discount on such
shares will not exceed 5% and no brokerage fees will be incurred. With respect
to shares purchased on the open market, however, the discount offered to
participants and the brokerage fees allocated to such shares may exceed the 5%
limit. In such event, the amount of the entire distribution (including actual
and constructive distributions) may not be deductible by us, not merely the
excess and, as a result, we might not satisfy the annual distribution
requirements for continued qualification as a REIT. However, we will not direct
the Administrator to purchase shares on the open market to the extent any
brokerage fees and other related charges associated with such purchase would
result in adverse tax consequences to our continued qualification as a REIT.
19
o Backup withholding and administrative expenses
In general, any distribution reinvested under the Plan is not subject to
federal income tax withholding. We or the Administrator may be required,
however, to deduct a "backup withholding" tax (currently at twenty-eight percent
(28%)) on all distributions paid to any stockholder, regardless of whether those
distributions are reinvested pursuant to the Plan. Similarly, the Administrator
may be required to deduct backup withholding from all proceeds of sales of
shares of common stock held in a Plan account. Backup withholding amounts will
be withheld from distributions before those distributions are reinvested under
the Plan. Therefore, distributions to be reinvested under the Plan by
participants who are subject to backup withholding will be reduced by the backup
withholding amount. The withholding amounts constitute a credit on the
participant's income tax return.
o Tax consequences of dispositions
A participant may recognize a gain or loss upon receipt of a cash payment
for a fractional share of common stock credited to a Plan account or when the
common stock held in an account is sold at the request of the participant. A
gain or loss may also be recognized upon a participant's disposition of common
stock received from the Plan. The amount of any such gain or loss will be the
difference between the amount realized (generally the amount of cash received)
for the whole or fractional share of common stock and the tax basis of those
shares of common stock. Generally, gain or loss recognized on the disposition of
common stock acquired under the Plan will be treated for federal income tax
purposes as a capital gain or loss.
Federal Income Tax Considerations Relating to Our Treatment as a REIT
We elected to become subject to tax as a REIT for federal income tax
purposes effective for our taxable year ended on December 31, 1997, and we plan
to continue to meet the requirements for qualification and taxation as a REIT.
There can be no assurance, however, that we will qualify as a REIT in any
particular taxable year given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changes in our circumstances. If we fail to qualify as a REIT in any
particular taxable year, we will be subject to federal income tax as a regular
domestic corporation, and you will be subject to tax in the same manner as a
stockholder of a regular domestic corporation. In that event, we may be subject
to a substantial income tax liability in respect of each taxable year that we
fail to qualify as a REIT, and the amount of earnings and cash available for
distribution to you and other stockholders could be significantly reduced or
eliminated. See "--REIT Qualification -- Failure to Qualify" below.
20
So long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on our taxable income that we
distribute currently to our shareholders. This treatment would substantially
eliminate the "double taxation" (at the corporate and shareholder levels) that
generally results from investment in a regular corporation. We will be subject
to federal income tax, however, in the following instances:
1. We will be taxed at regular corporate rates on any undistributed "REIT
taxable income," including undistributed net capital gains (however,
properly designated undistributed capital gains will effectively avoid
taxation at the shareholder level). For any taxable year, our "REIT
taxable income" is our taxable income computed as though we were a "C"
corporation (generally, a corporation subject to full corporate-level
tax), adjusted, as provided in Section 857(b) of the Code, to account
for various items, including a deduction for dividends paid.
2. Under certain circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference.
3. If we have (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers
in the ordinary course of business or (b) other nonqualifying income
from foreclosure property, we will be subject to tax at the highest
corporate rate on such income. See "--REIT Qualification - Foreclosure
Property" below.
4. If we have net income from "prohibited transactions" (which are, in
general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business
other than foreclosure property), we will be subject to a 100% tax on
the amount of such net income. See "--REIT Qualification - Prohibited
Transactions" below.
5. If we should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but we nonetheless maintain
our qualification as a REIT because certain other requirements have
been met, we will be subject to a 100% tax on an amount equal to the
product of (i) a fraction intended to reflect our profitability,
multiplied by (ii) the greater of (a) the excess of (I) 75% of our
gross income (excluding gross income from prohibited transactions)
over (II) our gross income that qualifies under the 75% gross income
test, or (b) the excess of (I) 95% of our gross income (excluding
gross income from prohibited transactions) over (II) our gross income
that qualifies under the 95% gross income test.
6. If we should fail to distribute during each calendar year at least the
sum of (i) 85% of our ordinary income for such year, (ii) 95% of our
capital gain net income for such year and (iii) any undistributed
taxable income from prior periods, we would be subject to a 4%
nondeductible excise tax on the excess of such required distribution
over the sum of amounts actually distributed and amounts retained but
with respect to which federal income tax was paid.
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7. If we were to acquire assets from a "C" corporation in a transaction
in which our basis in those assets was determined by reference to the
"C" corporation's basis, then the excess, if any, of the fair market
value of the assets over the tax basis of the assets on the date of
acquisition would be "built-in gain" and the assets would be "built-in
gain assets." If we disposed of such built-in gain assets within the
ten-year period beginning on the date of their acquisition, then we
would be subject to tax at the highest regular corporate rate
applicable on the built-in gain in such assets.
8. If we recognize excess inclusion income and have shareholders who are
disqualified organizations within the meaning of Section 860E(e)(5) of
the Code (generally, an agency or instrumentality of the United
States, any state, or any foreign government, or any political
subdivision of any of the foregoing), we may have to pay tax at the
highest corporate rate on the portion of the excess inclusion income
allocable to the shareholders that are disqualified organizations. See
"--Taxable Mortgage Pools" below.
REIT Qualification
Summary of Requirements Generally. To qualify as a REIT, we must comply
with the following technical requirements imposed by the Code:
1. We must be managed by one or more directors or trustees;
2. Shares of our stock must be transferable;
3. We must be taxable as a domestic corporation but for the provisions of
the Code applicable to REITs;
4. We cannot be a financial institution or an insurance company subject
to certain provisions of the Code;
5. Shares of our stock must be beneficially owned by at least 100 persons
during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months;
6. No more than 50% in value of our outstanding stock may be owned,
directly or indirectly, by five or fewer individuals (defined for this
purpose to include private foundations, certain unemployment
compensation trusts, and portions of trusts that are permanently set
aside or used for charitable purposes) at any time during the last
half of our taxable year;
7. We must meet certain other tests, described below, regarding the
sources from which we derive gross income and the nature of our
assets; and
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8. We generally must distribute dividends to our shareholders in an
amount that at least equals 90% of our REIT taxable income, determined
without regard to the dividends paid deduction and by excluding net
capital gain.
We must satisfy requirements 1 through 4, inclusive, during the entire
taxable year. For purposes of applying requirement 6, stock attribution rules
set forth in Section 544 of the Code treat stock owned by corporations,
partnerships, or trusts as though the shareholders, partners, or beneficiaries
of those entities owned such stock proportionally. Moreover, under Section
857(h) of the Code, qualified employee pension or profit sharing trusts are not
treated as individuals for purposes of requirement 6, but instead, the stock
owned by such a trust is considered to be owned by the beneficiaries of the
trust based in proportion to their actuarial interests in the trust.
We believe that we will meet the above-enumerated requirements 1 through 6
at all relevant times.
In connection with requirement 6, we are required to send annual letters to
our shareholders requesting information regarding the actual ownership of our
shares. If we comply with this requirement, and we do not know, or exercising
reasonable diligence would not have known, whether we failed to meet requirement
6, then we will be treated as having met requirement 6. If we were to fail to
send such annual letters, we would be required to pay either a $25,000 penalty
or, if the failure is intentional, a $50,000 penalty. If we fail to send annual
letters, the IRS also might require that we take further action to ascertain
actual ownership of our shares, and failure to comply with such an additional
requirement would result in an additional $25,000 (or $50,000) penalty. No
penalty would be assessed in the first instance, however, if the failure to send
the letters were due to reasonable cause and not to willful neglect. We send
letters annually in a manner that conforms to the requirements of the Code and
relevant Treasury Regulations.
In addition, our charter provides restrictions regarding the transfer and
ownership of shares of our stock. These restrictions are intended to assist us
in continuing to satisfy the share ownership requirements described in
requirements 5 and 6 above. The ownership and transfer restrictions are
described in more detail in "Description of Common Stock and Preferred Stock -
Restrictions on Ownership and Transfer." These restrictions, together with our
compliance with the annual shareholder letter requirement described above,
however, may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements described above. If we fail to satisfy such share
ownership requirements, then, unless we qualify for relief, our qualification as
a REIT may terminate. See "--REIT Qualification -- Failure to Qualify."
Quarterly Asset Tests. Generally, we must meet the following asset tests at
the close of each quarter during each taxable year:
1. At least 75% of the value of our total assets must be "qualified REIT
real estate assets" (described below), government securities or cash
and cash items (including receivables);
2. No more than 25% of the value of our total assets may be securities
other than securities in the 75% asset class (for example, government
securities, such as agency debentures, and certain mortgage-backed
securities, such as agency certificates);
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3. No more than 20% of the value of our total assets may be securities of
one or more taxable REIT subsidiaries (described below); and
4. Except for securities qualifying under the 75% asset test, securities
in a taxable REIT subsidiary or "qualified REIT subsidiary," certain
partnership interests, and for purposes of clause (c) below, certain
"straight" debt obligations:
(a) we may not hold more than 5% of the value of our total assets in
the securities of any one issuer;
(b) we may not hold securities that possess more than 10% of the
total voting power of the outstanding securities of any one
issuer; and
(c) we may not hold securities that have a value of more than 10% of
the total value of the outstanding securities of any one issuer.
The term "qualified REIT real estate assets" means assets of the type
described in Section 856(c)(5)(B) of the Code, and generally include -
o Interests in real property, including fee ownership and co-ownership
of land and improvements thereon and leasehold interests and options
on land and improvements thereon;
o Interests in mortgages on real property;
o Regular and residual interests in real estate mortgage investment
conduits (or REMICs) (however if less than 95% of the assets of a
REMIC consists of qualified real estate assets, determined as if we
held such assets, we will be treated as holding directly our
proportionate share of the assets of that REMIC);
o Non-REMIC mortgage-backed securities that represent ownership
interests in pools of mortgage loans;
o Shares in other REITs; and
o Investments in stock or debt instruments during the one-year period
following our receipt of new capital that we raise through equity
offerings or public offerings of debt with at least a five-year term.
A REIT may hold up to 100% of the stock of a taxable REIT subsidiary. Both
the subsidiary and the REIT must jointly elect to treat the subsidiary as a
taxable REIT subsidiary by jointly filing a Form 8875 with the IRS. FIDAC has
filed such an election to be treated as our taxable REIT subsidiary.
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As a taxable REIT subsidiary, FIDAC will pay federal income tax at the
rates applicable to corporations on any income it earns. Moreover, the Code
contains rules to ensure contractual arrangements between a taxable REIT
subsidiary and the parent REIT are at arm's length. If interest accrues on an
indebtedness owed by a taxable REIT subsidiary to its parent REIT, the REIT is
subject to tax at a rate of 100% on the excess of (i) interest payments made by
a taxable REIT subsidiary to its parent REIT over (ii) the amount of interest
that would have been payable had interest accrued on the indebtedness at a
commercially reasonable rate. A tax at a rate of 100% is also imposed on any
transaction between a taxable REIT subsidiary and its parent REIT to the extent
the transaction gives rise to deductions to the taxable REIT subsidiary that are
in excess of the deductions that would have been allowable had the transaction
been entered into on arm's-length terms. We scrutinize all of our transactions
with FIDAC in an effort to ensure that we do not become subject to these taxes.
We cannot assure you, however, that we will be able to avoid application of
these taxes.
If we own 100% of the stock of a subsidiary corporation for which we do not
make a taxable REIT subsidiary election, the subsidiary will be a qualified REIT
subsidiary. As such, the qualified REIT subsidiary's separate existence will be
disregarded for federal income tax purposes, and its assets, liabilities, and
items of income, deduction and credit will be treated as our assets,
liabilities, and items of income, deduction, and credit. Although a qualified
REIT subsidiary will not be subject to federal corporate income taxation, it may
be subject to state and local taxation in certain jurisdictions.
We believe that, because we own a large portfolio of agency certificates
and agency debentures, we have satisfied and will be able to satisfy the asset
tests for each calendar quarter. We will manage our portfolio of assets to
comply with the asset tests.
If we satisfy the asset tests at the close of any calendar quarter, but
fail to meet any of the asset tests as of the close of a subsequent calendar
quarter and such failure is due to the acquisition of securities or other
assets, the Code allows us a 30-day period following the close of the calendar
quarter to come into compliance with the asset tests. If we do cure a failure
within the 30-day period, we will be treated as having satisfied the asset tests
at the close of the calendar quarter. We will not fail the quarterly asset tests
if a discrepancy exists between the value of our assets and the requirements of
the asset tests if such discrepancy is attributable solely to fluctuations in
the market values of our assets.
If we fail to satisfy the quarterly asset tests for any quarter, we will
not lose our REIT qualification as a result of such failure if (i) we meet
certain record keeping requirements concerning our assets and file a schedule
describing the assets that caused the failure, (ii) our failure to comply with
the quarterly asset tests at the close of any calendar quarter was due to
reasonable cause and not willful neglect, (iii) we dispose of the assets that
caused us to fail the quarterly asset test within six months of our discovery of
the failure or such other time period as prescribed by the Department of the
Treasury, or we otherwise come into compliance with the quarterly assets tests
within the specified time period, and (iv) we would, but for the failure,
otherwise satisfy the quarterly asset tests. Relief is also provided for certain
de minimis failures of the quarterly asset tests described under "Federal Income
Tax Considerations - REIT Qualification - Quarterly Asset Tests" at item 4,
provided we dispose of the assets causing us to fail the asset test within six
months of our discovery of the failure or such other time period as prescribed
by the Department of the Treasury, or we otherwise come into compliance with the
quarterly assets tests within the specified time period. In all cases, other
than the case of a de minimis failure described in the preceding sentence, we
will be subject to a tax equal to the lesser of (i) $50,000, or (ii) an amount
to be determined under future regulations that would be based on the income
generated by the assets that were not qualifying assets.
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Gross Income Tests. To qualify as a REIT, generally we must meet the
following gross income tests for each taxable year:
1. At least 75% of our gross income must be derived from the real estate
sources specified in Section 856(c)(3) of the Code, including -
(a) Rents from real property;
(b) Interest income on obligations secured by mortgages on real
property or on interests in real property;
(c) Income derived from REMIC regular or residual interests (provided
that if less than 95% of the REMIC's assets are qualifying REIT
real estate assets, determined as if we held them directly, then
only a proportionate amount of the income will be qualifying
income for purposes of this test);
(d) Gain from the disposition of qualified REIT real estate assets,
including mortgage loans and agency certificates (other than
dispositions treated as prohibited transactions, as described
below);
(e) Income or gain from foreclosure property (as described below);
(f) Dividends or other distributions on, and gain from the sale of,
stock in other REITs;
(g) Amounts, such as commitment fees, received in consideration for
entering into an agreement to make a loan secured by real
property (other than amounts that depend on the income or profits
of any person); and
(h) "Qualified temporary investment income" (generally, income we
earn from investing new capital raised through equity offerings
or public debt offerings with at least a five-year term, provided
we receive or accrue that income within one year of acquiring
such new capital).
2. At least 95% of our gross income for each taxable year must be derived
from sources of income specified in Section 856(c)(2) of the Code,
which include -
(a) The types of gross income described in paragraph 1 above;
(b) Dividends;
(c) Interest (such as interest on agency debentures);
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(d) Income derived from certain hedging transactions, or gain from
the disposition or termination of certain hedging transactions,
entered into to manage interest rate risk with respect to
indebtedness incurred or to be incurred to carry real estate
assets. For taxable years beginning after December 31, 2004,
income derived from hedging transactions, and gain from the
disposition of such transactions, shall be disregarded for
purposes of the 95% gross income test, provided that such
transactions were properly identified as hedging transactions
under regulations issued pursuant to section 1221 of the Code and
provided that such transactions were entered into to manage
interest rate risk with respect to indebtedness incurred, or to
be incurred, to acquire or carry real estate assets; and
(e) Gains from the sale of stock or securities (other than sales that
are prohibited transactions).
If we fail to satisfy one or both of the 75% and 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for that year if we are
entitled to relief under Section 856(c)(6) of the Code. Such relief will be
available if we could demonstrate that our failure to satisfy the tests was due
to reasonable cause and was not due to willful neglect and we file a schedule
describing each item of our gross income for the year in which the failure
occurred. We cannot know at this time whether we would, in all circumstances, be
able to avail ourselves of the relief provided under Section 856(c)(6) of the
Code. For example, if we failed the 75% gross income test because more than 25%
of our gross income represented dividends we received from FIDAC, the IRS could
determine that our failure of the test would not satisfy the reasonable cause
standard. If we failed one of the tests and we were ineligible for relief, we
would fail to qualify as a REIT. Moreover, even if we qualify for relief, we
will be subject to a 100% tax on an amount equal to the product of (i) a
fraction intended to reflect our profitability, multiplied by (ii) the greater
of (a) the excess of (I) 75% of our gross income (excluding gross income from
prohibited transactions) over (II) our gross income that qualifies under the 75%
gross income test, or (b) the excess of (I) 95% of our gross income (excluding
gross income from prohibited transactions) over (II) our gross income that
qualifies under the 95% gross income test.
For purposes of the gross income tests, our income includes 100% of the
income earned by a disregarded entity in which we hold the sole equity interest,
such as a qualified REIT subsidiary or a wholly-owned trust or limited liability
company. In addition, our gross income will include our allocable share of the
income of any entity that is treated as a partnership for federal income tax
purposes.
Gross income we derive from the sale of property (other than foreclosure
property, as described below) that we hold for sale to customers in the ordinary
course of business is excluded from both the numerator and the denominator of
both gross income tests.
We believe that we will be able to satisfy the 95% and 75% gross asset
tests because, as explained below, the income from our agency certificates will
be qualifying income for purposes of both tests and income from our agency
debentures will be qualifying income for purposes of the 95% test. We will
monitor the amount of our non-qualifying income throughout the year and we will
endeavor to manage our portfolio to comply with the gross income tests.
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The following paragraphs discuss some of the specific applications of the
gross income tests to us.
Dividends. The dividends we receive from FIDAC or any other corporation
(other than a qualified REIT subsidiary) in which we own an interest, will
qualify for purposes of the 95% gross income test but not for purposes of the
75% gross income test. We intend to limit the amount of dividends we receive
from taxable REIT subsidiaries so as to avoid failing the 75% gross income test.
Interest. For purposes of both of the gross income tests, the term interest
excludes any amount that is based on the income or profits of any person. Thus,
interest based on net rental income from mortgaged property would not be
qualifying income. We do not anticipate holding assets that would provide for
such payments.
Generally, interest on agency certificates and other mortgage-backed
certificates, including any original issue discount, market discount, prepayment
premiums, late payment fees, and assumptions fees, but not any amount that
represents compensation for services, will be qualifying income for purposes of
both gross income tests.
Fee Income. Any fees that we might receive as consideration for a
commitment to acquire mortgage-backed certificates would represent qualifying
income for purposes of both the 75% and 95% gross income tests (provided such
fees are not based on the income or profits of any person).
Hedging Transactions. Generally, for any hedging transaction that we
entered into prior to December 31, 2004, to manage interest rate risk associated
with having incurred indebtedness to acquire or carry real estate assets, any
income or gain derived from such hedging transactions is qualified income for
purposes of the 95% gross income test. For hedging transactions that we enter
into after December 31, 2004, we must comply with certain identification
procedures set out in Treasury regulations to ensure the status of our hedging
transactions as hedges for tax purposes and, as in the past, we must hedge only
risk associated with debt incurred to acquire or to carry real estate assets.
Any income derived from any such properly identified transaction will not be
treated as gross income for purposes of the 95% gross income test. The principal
difference is that, under prior law, hedging income was qualified income for
purposes of the 95% gross income test. It is now not counted as gross income for
purposes of applying that test.
Rents from Real Property. We do not intend to own any real property for the
production of rental income.
Prohibited Transactions. We will incur a 100% tax on the net income we
derive from a sale or other disposition of property, other than foreclosure
property, that we hold primarily for sale to customers in the ordinary course of
our trade or business. We refer to each such sale as a prohibited transaction.
Although we do not intend to engage in any prohibited transactions, whether we
are considered to hold an asset for sale to customers in the ordinary course of
our business is a question of fact. Section 857(b)(6)(C) of the Code sets forth
certain safe harbors under which certain sales of property will not be
considered to be prohibited transactions. We will endeavor to structure any
asset sales to qualify under the safe harbors. We cannot assure you, however,
that we will always be able to avoid holding assets for sale to customers in the
ordinary course of business or to avail ourselves of the safe harbors.
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Foreclosure Property. Foreclosure property is any real property, including
interests in real property, and any personal property incident to such real
property, that we acquire as a result of having bid in the property at
foreclosure, or we otherwise reduce to ownership or possession by agreement or
process of law, after there has been a default or default was imminent on a
lease of such property or on indebtedness secured by such property. We must,
however, elect to treat the property as foreclosure property on or before the
due date of our tax return for the year in which we acquire the property.
Moreover, property will not qualify as foreclosure property if we acquired the
related mortgage loan at a time when default was imminent or anticipated, or if
we obtained the mortgage loan as consideration for our disposition of property
in a prohibited transaction.
Because we do not anticipate holding any whole loans, we do not anticipate
acquiring any foreclosure property.
Distribution Requirements. We generally must distribute dividends (other
than capital gain dividends) to our shareholders in an amount at least equal to
(1) the sum of (a) 90% of our REIT taxable income (determined without regard to
the dividends paid deduction and by excluding net capital gain) and (b) 90% of
the net income (after tax, if any) from foreclosure property, minus (2) the sum
of certain items of non-cash income. In addition, if we were to recognize
"built-in-gain" (as defined below) on disposition of any assets acquired from a
"C" corporation in a transaction in which our basis in the assets was determined
by reference to the "C" corporation's basis (for instance, if the assets were
acquired in a tax-free reorganization), we would be required to distribute at
least 90% of the built-in-gain recognized net of the tax we would pay on such
gain. "Built-in-gain" is the excess of (a) the fair market value of an asset
(measured at the time of acquisition) over (b) the basis of the asset (measured
at the time of acquisition). We do not anticipate holding any assets having
built-in-gain.
We are not required to distribute our net capital gains. Rather than
distribute them, we may elect to retain and pay the federal income tax on them,
in which case our shareholders will (i) include their proportionate share of the
undistributed net capital gains in income, (ii) receive a credit for their share
of the federal income tax we pay and (iii) increase the basis in their stock by
the difference between their share of the capital gain and their share of the
credit.
Distribution of "Earnings and Profits" Attributable to a "C" Corporation.
To qualify as a REIT, we cannot have at the end of any taxable year any
undistributed earnings and profits attributable to a "C" corporation taxable
year. We do not have any such earnings and profits nor do we anticipate
acquiring any corporation in a transaction in which we would succeed to their
earnings and profits.
Taxation as a REIT. In any year in which we qualify as a REIT, we generally
will not be subject to federal income tax on that portion of our taxable income
or net capital gain that we distribute to our shareholders. We will pay federal
income tax on taxable income, including net capital gain, that we do not
distribute to shareholders. Furthermore, if we fail to distribute during a
calendar year, or by the end of January following the calendar year in the case
of distributions with declaration and record dates falling in the last three
months of the calendar year, at least the sum of:
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o 85% of our REIT ordinary income for such year;
o 95% of our REIT capital gain income for such year; and
o any undistributed taxable income for prior periods.
We will incur a 4% nondeductible excise tax on the excess of such required
distributions over the amounts we actually distribute.
Failure to Qualify. If we fail to qualify as a REIT in any taxable year and
the relief provisions provided in the Code do not apply, we will be subject to
federal income tax, including any applicable alternative minimum tax, on our
taxable income in that taxable year and all subsequent taxable years at the
regular corporate income tax rates. We will not be allowed to deduct
distributions to shareholders in these years, nor will the Code require us to
make distributions. In such event, we will not be allowed to designate any
distributions as capital gains dividends, and you will not receive any share of
our tax preference items. In addition, distributions to most domestic
noncorporate shareholders, to the extent of our current and accumulated earnings
and profits, would generally be taxable at capital gains tax rates under current
law. Subject to certain limitations of the federal income tax laws, domestic
corporate shareholders might be eligible for the dividends received deduction.
Further, unless entitled to the relief provisions of the Code, we also will be
barred from re-electing REIT qualification for the four taxable years following
the year in which we fail to qualify. We intend to monitor on an ongoing basis
our compliance with the REIT requirements described above. To maintain our REIT
qualification, we will be required to limit the types of assets that we might
otherwise acquire, or hold some assets at times when we might otherwise have
determined that the sale or other disposition of these assets would have been
more prudent.
The 2004 Act, in addition to amending the relief provisions applicable for
certain failures of the annual gross income tests and adding relief provisions
for failure of the quarterly asset tests, provides relief for failures of other
tests imposed as a condition of REIT qualification, as long as such failures are
attributable to reasonable cause and not willful neglect. A REIT would be
required to pay a penalty of $50,000, however, in the case of each such failure.
The above-described changes apply for taxable years of REITs beginning after the
date of enactment.
Taxation of U.S. Shareholders
For purposes of this discussion, a "U.S. shareholder" is a shareholder who
is a "U.S. person." A U.S. person is a person who is:
o A citizen or resident of the United States;
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o A corporation, partnership, or other entity created or organized in
the United States or under the laws of the United States or of any
political subdivision thereof;
o An estate whose income is includible in gross income for federal
income tax purposes regardless of its source; or
o A trust, if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more U.S. persons have authority to control all substantial decisions
of the trust, or (2) the trust was in existence on August 26, 1996,
was treated as a domestic trust before such date, and has made an
election to continue to be treated as a U.S. person.
Distributions. Unless you are a tax-exempt entity, distributions that we
make to you, including constructive distributions, generally will be subject to
tax as ordinary income to the extent of our current and accumulated earnings and
profits as determined for federal income tax purposes. If the amount we
distribute to you exceeds your allocable share of current and accumulated
earnings and profits, the excess will be treated as a return of capital to the
extent of your adjusted basis in your stock, which will reduce your basis in
your stock but will not be subject to tax. To the extent the amount we
distribute to you exceeds both your allocable share of current and accumulated
earnings and profits and your adjusted basis, this excess amount will be treated
as a gain from the sale or exchange of a capital asset.
Distributions to our corporate shareholders, whether characterized as
ordinary income or as capital gain, are not eligible for the corporate dividends
received deduction.
Generally, dividends that we pay are taxable to you at the rates applicable
to ordinary income. There are, however, three instances in which dividends we
pay to you will be taxable at the rates applicable to net capital gains. First,
distributions that we designate as capital gain dividends generally will be
taxable in your hands as long-term capital gains, but only to the extent such
distributions do not exceed our actual net capital gain for the taxable year. If
we realize a loss for the taxable year, you will not be permitted to deduct any
share of that loss. Second, to the extent we receive dividends from a "C"
corporation, such as a taxable REIT subsidiary, we will be able to designate the
dividends that we pay to you as eligible for taxation at the rate applicable to
net capital gains. Finally, to the extent we pay corporate level tax on income
or gain in one year, such as the tax on built-in-gains, we can designate
dividends as eligible for taxation at the rates applicable to net capital gains
to the extent of the amount of such income in excess of the tax paid thereon.
Dividends described in the preceding two sentences will generally qualify to be
taxed at the rates applicable to net capital gains if you hold our common stock
for more than 60 days during the 120-day period beginning on the date that is 60
days before the date on which our common stock becomes ex-dividend.
Rather than distribute our net capital gains, we may elect to retain and
pay the federal income tax on them, in which case you will (i) include your
proportionate share of the undistributed net capital gains in income, (ii)
receive a credit for your share of the federal income tax we pay and (iii)
increase the basis in your stock by the difference between your share of the
capital gain and your share of the credit.
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Post Year-end Dividends. Dividends that we declare during the last quarter
of a calendar year and actually pay to you during January of the following
taxable year generally are treated as if we had paid, and you had received, them
on December 31 of the calendar year and not on the date actually paid. In
addition, we may elect to treat other dividends distributed after the close of
the taxable year as having been paid during the taxable year, so long as they
meet the requirements described in the Code, but you will be treated as having
received these dividends in the taxable year in which the distribution is
actually made.
Gain on Disposition. If you sell or otherwise dispose of our stock, you
will generally recognize a capital gain or loss in an amount equal to the
difference between the amount realized and your adjusted basis in our stock,
which gain or loss will be long-term if the stock is held for more than one
year. Any loss recognized on the sale or exchange of stock held for six months
or less generally will be treated as a long-term capital loss to the extent of
(1) any long-term capital gain dividends you receive with respect to our stock
and (2) your proportionate share of any long-term capital gains that we retain.
Failure to Qualify. If we fail to qualify as a REIT in any year,
distributions we make to you will be taxable in the same manner discussed above,
except that:
o We will not be allowed to designate any distributions as capital gain
dividends;
o Distributions (to the extent they are made out of our current and
accumulated earnings and profits) will be eligible for the corporate
dividends received deduction and generally will be taxable to domestic
non-corporate shareholders at rates applicable to net capital gains,
so long as certain holding period requirements are satisfied;
o The excess inclusion income rules (which are described under "Taxable
Mortgage Pools" below) will not apply to the distributions we make;
o You will not receive any share of our tax preference items; and
o Dividends that we declare in the last quarter of the calendar year but
pay to you in January would not be treated as though we had paid them
to you on the immediately preceding December 31.
In this event, however, we could be subject to substantial federal income
tax liability as a "C" corporation, and the amount of earnings and cash
available for distribution to you and other shareholders could be significantly
reduced or eliminated.
Information Reporting and Backup Withholding--U.S. Shareholders. For each
calendar year, we will report to our U.S. shareholders and to the IRS the amount
of distributions that we pay, and the amount of tax (if any) that we withhold on
these distributions. Under the backup withholding rules, you may be subject to
backup withholding tax with respect to distributions paid unless you:
32
o Are a corporation or come within another exempt category and
demonstrate this fact when required; or
o Provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding tax and otherwise comply with the
applicable requirements of the backup withholding tax rules.
A U.S. shareholder may satisfy this requirement by providing us an
appropriately prepared Form W-9. If you do not provide us with your correct
taxpayer identification number, then you may also be subject to penalties
imposed by the IRS.
Backup withholding tax is not an additional tax. Any amounts withheld under
the backup withholding tax rules will be refunded or credited against your
federal income tax liability, provided you furnish the required information to
the IRS.
Taxation of Tax-Exempt Entities
The discussion under this heading only applies to you if you are a
tax-exempt entity. Subject to the discussion below regarding a pension-held
REIT, distributions received from us or gain realized on the sale of our stock
will not be taxable as unrelated business taxable income (or UBTI), provided
that:
o You have not incurred indebtedness to purchase or hold our stock;
o You do not otherwise use our stock in a trade or business unrelated to
your exempt purpose; and
o We do not distribute dividends to you that are treated as representing
excess inclusion income.
In addition, a substantial portion of the distributions you receive may
constitute UBTI if we are treated as a "pension-held REIT" and you are a
"qualified pension trust" that holds more than 10% by value of our stock at any
time during a taxable year. For these purposes, a "qualified pension trust" is
any pension or other retirement trust that satisfies the requirements imposed
under Section 401(a) of the Code. We will be treated as a "pension-held REIT" if
(1) we would not be a REIT if we had to treat stock held in a qualified pension
trust as owned by the trust (instead of as owned by the trust's multiple
beneficiaries) and (2) (a) at least one qualified pension trust holds more than
25% of our stock by value, or (b) one or more qualified pension trusts (each
owning more than 10% of our stock by value) holds in the aggregate more than 50%
of our stock by value. Assuming compliance with the ownership limit provisions
set forth in our charter, it is unlikely that pension plans will accumulate
sufficient stock to cause us to be treated as a pension-held REIT.
If you are a tax-exempt holder that is a social club, voluntary employee
benefit association, supplemental unemployment benefit trust, or qualified group
legal services plan exempt from federal taxation under Sections 501(c)(7),
(c)(9), (c)(17), or (c)(20) of the Code, respectively, then distributions
received by you may also constitute UBTI. We urge you to consult your tax
advisor concerning the applicable set aside and reserve requirements. See
"Taxation of U.S. Shareholders."
33
Federal Income Tax Considerations Applicable to Foreign Shareholders
The discussion under this heading only applies to you if you are not a U.S.
person (hereinafter, a "foreign shareholder").
This discussion is only a brief summary of the federal tax consequences
that apply to you, which are highly complex, and does not consider any specific
facts or circumstances that may apply to you and your particular situation. We
urge you to consult your tax advisor regarding the federal tax consequences of
acquiring, holding and disposing of our stock, as well as any tax consequences
that may arise under the laws of any foreign, state, local or other taxing
jurisdiction.
Distributions. Except for distributions designated as capital gains
dividends, distributions you receive from us generally will be subject to
federal withholding tax at the rate of 30%, to the extent of our current and
accumulated earnings and profits, unless reduced or eliminated by an applicable
tax treaty or unless the distributions are treated as effectively connected with
your U.S. trade or business. Dividend distributions that are attributable to
excess inclusion income will not be eligible for exemption from tax or any
reduction in the rate of tax. If you wish to claim the benefits of an applicable
tax treaty, you will need to satisfy certification and other requirements, such
as providing Form W-8BEN. If you wish to claim that our distributions are
effectively connected with your U.S. trade or business, you will need to satisfy
certification and other requirements such as providing Form W-8ECI. A
distribution to a foreign partnership is treated, with some exceptions, as a
distribution directly to the partners so that the partners are required to
provide the required certifications.
Distributions you receive that are in excess of our earnings and profits
will be treated as a tax-free return of capital to the extent of your adjusted
basis in your stock. If the amount of the distribution also exceeds your
adjusted basis, this excess amount will be treated as gain from the sale or
exchange of your stock as described below. If we cannot determine at the time we
make a distribution whether the distribution will exceed our current and
accumulated earnings and profits, the distribution will be subject to
withholding at the same rate as dividends. These withheld amounts, however, will
be refundable or creditable against your federal tax liability if we
subsequently determine that the distribution was, in fact, in excess of our
earnings and profits. If you receive a distribution that is treated as being
effectively connected with your conduct of a trade or business within the United
States, the distribution will be subject to the federal income tax on net income
that applies to U.S. persons generally, and may be subject to the branch profits
tax if you are a corporation.
Distributions that we make to you and designate as capital gains dividends,
other than those attributable to the disposition of a U.S. real property
interest, generally will not be subject to federal income taxation, unless:
o Your investment in our stock is effectively connected with your
conduct of a trade or business within the United States; or
34
o You are a nonresident alien individual who is present in the United
States for 183 days or more in the taxable year and other requirements
are met.
Distributions that are attributable to a disposition of U.S. real property
interests (which term excludes interests in mortgage loans) are subject to
income and withholding taxes pursuant to the Foreign Investment in Real Property
Act of 1980, or FIRPTA, and may also be subject to branch profits tax if you are
a corporation that is not entitled to treaty relief or exemption. We do not,
however, anticipate recognizing any gain attributable to the disposition of U.S.
real property interests, as defined by FIRPTA. Existing Treasury Regulations
interpreting the FIRPTA provisions of the Code could be read as imposing a
withholding tax at a rate of 35% on all of our capital gain dividends even if no
portion of the capital gains we recognize during the year are attributable to
our disposition of a U.S. real property interest. With our taxable year
beginning January 1, 2005, however, a foreign investor that does not own more
than 5% of our stock at any time during the taxable year will not be subject to
the FIRPTA rules with respect to any of our distributions.
Gain on Disposition. You generally will not be subject to federal income
tax on gain recognized on a sale or other disposition of our stock unless:
o The gain is effectively connected with your conduct of a trade or
business within the United States; or
o You are a nonresident alien individual who holds our stock as a
capital asset and are present in the United States for 183 or more
days in the taxable year and other requirements are met.
Gain that is effectively connected with your conduct of a trade or business
within the United States will be subject to the federal tax on net income that
applies to U.S. persons generally and may be subject to the branch profits tax
if you are a corporation. However, these effectively connected gains will
generally not be subject to withholding. We urge you to consult applicable
treaties, which may provide for different rules.
Under FIRPTA, you could be subject to tax on gain recognized from a sale or
other disposition of your stock if we were to both (1) hold U.S. real property
interests in excess of certain thresholds and (2) fail to qualify as a
domestically-controlled REIT. We do not expect to hold U.S. real property
interests in excess of the threshold.
Information Reporting and Backup Withholding Tax. The information reporting
and backup withholding tax requirements (discussed above) will generally not
apply to foreign holders in the case of distributions treated as (1) dividends
subject to the 30% (or lower treaty rate) withholding tax (discussed above), or
(2) capital gain dividends. Also, as a general matter, backup withholding and
information reporting will not apply to the payment of proceeds from shares sold
by or through a foreign office of a foreign broker. However, in some cases (for
example, a sale of shares through the foreign office of a U.S. broker),
information reporting is required unless the foreign holder certifies under
penalty of perjury that it is a foreign holder, or otherwise establishes an
exemption. A foreign shareholder may satisfy this requirement by using an
appropriately prepared Form W-8BEN.
35
Federal Estate Taxes. In general, if an individual who is not a citizen or
resident (as defined in the Code) of the United States owns (or is treated as
owning) our stock at the date of his or her death, such stock will be included
in the individual's gross estate for federal estate tax purposes, unless an
applicable treaty provides otherwise.
Taxable Mortgage Pools
A taxable mortgage pool is any entity (or in certain cases, a portion of an
entity) other than a REMIC or a financial asset securitization investment trust
that has the following characteristics:
1. Substantially all (generally, more than 80%) of the assets of such
entity consist of debt obligations and more than 50% of such debt
obligations are real estate mortgages;
2. Such entity issues two or more classes of debt obligations having
different maturities; and
3. The timing and amount of payments or projected payments on the debt
obligations issued by the entity are determined in large part by the
timing and amount of payments the entity receives on the debt
obligations it holds as assets.
If a REIT is a taxable mortgage pool, or if a REIT owns a qualified REIT
subsidiary that is a taxable mortgage pool, then a portion of the REIT's income
will be treated as excess inclusion income and a portion of the dividends the
REIT pays to its shareholders will be considered to be excess inclusion income.
You cannot offset excess inclusion income with net operating losses or otherwise
allowable deductions. Moreover, if you are a tax-exempt shareholder, such as a
domestic pension fund, you must treat excess inclusion income as unrelated
business taxable income. If you are not a U.S. shareholder, your dividend
distributions may be subject to withholding tax, without regard to any exemption
or reduction in rate that might otherwise apply, with respect to your share of
excess inclusion income. The manner in which excess inclusion income would be
allocated among shares of different classes of our stock or how such income is
to be reported to shareholders is not clear under current law.
Although we leverage our investments in agency certificates, we believe
that our financing transactions do not cause any portion of our assets to be
treated as a taxable mortgage pool and we do not expect that any portion of our
dividend distributions will be treated as excess inclusion income.
State and Local Taxes
You may be subject to state or local taxation in various jurisdictions,
including those in which you transact business or reside. The state and local
tax treatment that applies to you may not conform to the federal income tax
consequences discussed above. Consequently, we urge you to consult your tax
advisor regarding the effect of state and local tax laws.
36
PLAN OF DISTRIBUTION
In connection with the administration of the Plan, we may be requested to
approve investments made pursuant to requests for waiver by or on behalf of
participants or other investors who may be engaged in the securities business.
Persons who acquire shares of our common stock through the Plan and resell
them shortly after acquiring them, including coverage of short positions, under
certain circumstances, may be participating in a distribution of securities that
would require compliance with Regulation M under the Exchange Act and may be
considered to be underwriters within the meaning of the Securities Act. We will
not extend to any such person any rights or privileges other than those to which
they would be entitled as a participant, nor will we enter into any agreement
with any such person regarding the resale or distribution by any such person of
the shares of our common stock so purchased.
Our common stock may not be available under the Plan in all states or
jurisdictions. We are not making an offer to sell our common stock in any
jurisdiction where the offer or sale is not permitted.
EXPERTS
The financial statements incorporated in this Prospectus by reference from
our Annual Report on Form 10-K, and the effectiveness of our internal control
over financial reporting have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report, which
is incorporated herein by reference. Such financial statements have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
LEGAL MATTERS
The validity of the securities offered hereby is being passed upon for us
by Kirkpatrick & Lockhart Preston Gates Ellis LLP. The opinion of counsel
described under the heading "Federal Income Tax Considerations" is being
rendered by McKee Nelson LLP. This opinion is subject to various assumptions and
is based on current tax law.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. The public may read any materials we file with the SEC
at the SEC's Public Reference Room at 100 F Street, N.E, Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov. Our common stock is listed on the New York Stock
Exchange under the symbol "NLY" and all such reports, proxy statements and other
information filed by us with the New York Stock Exchange may be inspected at the
New York Stock Exchange's offices at 20 Broad Street, New York, New York 10005.
37
We have filed a registration statement, of which this prospectus is a part,
covering the securities offered hereby. As allowed by SEC rules, this prospectus
does not contain all of the information set forth in the registration statement
and the exhibits, financial statements and schedules thereto. We refer you to
the registration statement, the exhibits, financial statements and schedules
thereto for further information. This prospectus is qualified in its entirety by
such other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. We have filed the
documents listed below with the SEC (File No. 1-13447) under the Securities
Exchange Act of 1934 (or Exchange Act), and these documents are incorporated
herein by reference:
- Our Annual Report on Form 10-K for the year ended December 31, 2007 as
filed on February 26, 2008;
- Our Current Report on Form 8-K filed on April 30, 2008;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008
filed on May 7, 2008; and
All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus and prior to the termination of
the offering of the securities to which this prospectus relates (other than
information in such documents that is not deemed to be filed) shall be deemed to
be incorporated by reference into this prospectus and to be part hereof from the
date of filing of those documents. All documents we file pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the initial
registration statement that contains this prospectus and prior to the
effectiveness of the registration statement shall be deemed to be incorporated
by reference into this prospectus and to be part hereof from the date of filing
those documents.
Any statement contained in this prospectus or in a document incorporated by
reference shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained in this prospectus or in any other document
which is also incorporated by reference modifies or supersedes that statement.
We will provide to each person, including any beneficial owner, to whom a
copy of this prospectus is delivered, a copy of any or all of the information
that has been incorporated by reference in this prospectus but not delivered
with this prospectus (other than the exhibits to such documents which are not
specifically incorporated by reference herein); we will provide this information
at no cost to the requester upon written or oral request to Investor Relations,
Annaly Capital Management, Inc., 1211 Avenue of the Americas, Suite 2902, New
York, New York 10036, telephone number (212) 696-0100.
38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The fees and expenses to be paid in connection with the distribution of the
securities being registered hereby are estimated as follows:
Registration fee.............................................. $
Legal fees and expenses (including Blue Sky fees)............. $ 5,000
Accounting fees and expenses.................................. $ 10,000
Printing...................................................... $ 5,000
Miscellaneous.................................................
Total....................................................
Item 15. Indemnification of Directors and Officers.
Section 2-418 of the Corporations and Associations Article of the Annotated
Code of Maryland (or Maryland General Corporation Law) provides that a Maryland
corporation may indemnify any director or officer of a corporation who is made a
party to any proceeding by reason of service in that capacity unless it is
established that the act or omission of the director or officer was material to
the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty; or the person actually received
an improper personal benefit in money, property or services; or, in the case of
any criminal proceeding, the person had reasonable cause to believe that the act
or omission was unlawful. Indemnification may be against judgments, penalties,
fines, settlements, and reasonable expenses actually incurred by the director or
officer in connection with the proceeding, but if the proceeding was one by or
in the right of the corporation, indemnification may not be made in respect of
any proceeding in which the director or officer shall have been adjudged to be
liable to the corporation. Such indemnification may not be made unless
authorized for a specific proceeding after a determination has been made, in the
manner prescribed by the law, that indemnification is permissible in the
circumstances because the director or officer has met the applicable standard of
conduct. On the other hand, unless limited by the corporation's charter, the
director or officer must be indemnified for expenses if he has been successful
in the defense of the proceeding or as otherwise ordered by a court. The law
also prescribes the circumstances under which the corporation may advance
expenses to, or obtain insurance or similar protection for, directors and
officers.
Our articles of incorporation, as amended, provide that our directors and
officers will, and our employees and agents in the discretion of our Board of
Directors may, be indemnified to the fullest extent required or permitted from
time to time by the laws of Maryland.
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The Maryland General Corporation Law permits the charter of a Maryland
corporation to include a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages except to the
extent that (i) it is proved that the person actually received an improper
benefit or profit in money, property or services for the amount of the benefit
or profit in money, property or services actually received, or (ii) a judgment
or other final adjudication is entered in a proceeding based on a finding that
the person's action, or failure to act, was the result of active and deliberate
dishonesty or committed in bad faith and was material to the cause of action
adjudicated in the proceeding. Our articles of incorporation, as amended,
contain a provision providing for elimination of the liability of our directors
and officers to us or our stockholders for money damages to the maximum extent
permitted by Maryland law.
We maintain policies of insurance under which our directors and officers
are insured, within the limits and subject to the limitations of the policies,
against expenses in connection with the defense of actions, suits or proceedings
resulting from such director or officer being or having been a director or
officer, and certain liabilities which might be imposed as a result of these
actions, suits or proceedings.
Item 16. Exhibits.
Exhibit Exhibit Description
Number
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 to Amendment No. 1 to the Registrant's Registration Statement on
Form S-11 (Registration No. 333-32913) filed with the SEC on September
17, 1997).
5.1 Opinion of Kirkpatrick & Lockhart Preston Gates Ellis LLP (including
consent of such firm).
8.1 Tax Opinion of McKee Nelson LLP (including consent of such firm).
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP (included in
Exhibit 5.1).
23.3 Consent of McKee Nelson LLP (included in Exhibits 5.1 and 8.1).
24.1 Power of Attorney (included on the signature page to this Registration
Statement).
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-2
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this
section do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement, or is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining liability under the Securities Act
of 1933 to any purchaser:
(i) Each prospectus filed by the registrant pursuant to Rule
424(b)(3) shall be deemed to be part of the registration
statement as of the date the filed prospectus was deemed part of
and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance
on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the
information required by Section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the
first contract of sale of securities in the offering described in
the prospectus. As provided in Rule 430B, for liability purposes
of the issuer and any person that is at that date an underwriter,
II-3
such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the
registration statement to which that prospectus relates, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof. Provided, however, that
no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made
in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial
distribution of the securities, the undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if
the securities are offered or sold to such purchaser by means of any
of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned registrant or used or referred to
by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
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(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on May 19, 2008.
ANNALY CAPITAL MANAGEMENT, INC.
By: /s/ Michael A.J. Farrell
------------------------
Michael A.J. Farrell
Chairman of the Board of Directors,
Chief Executive Officer, and President
Each person whose signature appears below hereby authorizes Michael A.J.
Farrell and Wellington J. Denahan, and each of them, as attorney-in-fact, to
sign on his or her behalf, individually and in each capacity stated below, any
amendment, including post-effective amendments to this registration statement,
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the SEC.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title Date
---------- ----- ----
/s/ Michael A.J. Farrell Chairman of the Board of Directors, May 19, 2008
--------------------------------- Chief Executive Officer, President and
Michael A.J. Farrell Director (principal executive officer)
/s/ Kathryn F. Fagan Chief Financial Officer and May 19, 2008
-------------------------------- Treasurer (principal financial
Kathryn F. Fagan and accounting officer)
/s/ Wellington J. Denahan Vice Chairman of the Board of May 19, 2008
-------------------------- Directors and Director
Wellington J. Denahan
/s/ Kevin P. Brady Director May 19, 2008
------------------------------------
Kevin P. Brady
/s/ Jonathan D. Green Director May 19, 2008
--------------------------------
Jonathan D. Green
II-6
/s/ John A. Lambiase Director May 19, 2008
-------------------------------
John A. Lambiase
/s/ Donnell A. Segalas Director May 19, 2008
-------------------------------
Donnell A. Segalas
/s/ E. Wayne Nordberg Director May 19, 2008
------------------------------
E. Wayne Nordberg
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EXHIBIT INDEX
Exhibit Exhibit Description
Number
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 to Amendment No. 1 to the Registrant's Registration Statement on
Form S-11 (Registration No. 333-32913) filed with the SEC on September
17, 1997).
5.1 Opinion of Kirkpatrick & Lockhart Preston Gates Ellis LLP (including
consent of such firm).
8.1 Tax Opinion of McKee Nelson LLP (including consent of such firm).
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP (included in
Exhibit 5.1).
23.3 Consent of McKee Nelson LLP (included in Exhibits 5.1 and 8.1).
24.1 Power of Attorney (included on the signature page to this Registration
Statement).